Mobile Home Park Investment Highlights
Major News Articles Written About Mobile Home Park Investing / Well Known Investors Entering The Mobile Home Park Industry (Warren Buffet, Sam Zell, etc)
Low Supply Of Mobile Home Parks
There are only 42,000 +/- mobile home parks in the United States. Land use restrictions (most likely caused by the stigma of mobile home parks) have translated into almost no new mobile home parks being built. In addition, approximately 1% of mobile home parks are being redeveloped into higher and “better” uses each year. These factors keep supply low and eliminate new competition from entering the market
High Demand For Affordable Housing
Affordable housing is in demand now more than ever as the American economy continues to decline. Mobile home parks offer the most affordable housing there is.
- 20% of American households earn $20,000 per year or less.
- 26% of American households earn $25,000 per year or less
- 10,000 baby boomers retire every day earning an average of $14,400 per year on Social Security
- Every County In America Faces Affordable Housing Crisis June 2015
- Nearly 7 in 10 Americans have less than $1000 in savings October 2016 USA Today
Households earning less than $25,000 per year can afford to allocate roughly $600 towards housing costs.
Mobile Homes vs Apartments
Apartments are a mobile home’s closest competition. The difference in price between the two is staggering. Lot rent plus payments on a used mobile home can easily be kept under $600 per month. Similar sized apartments rent for $1200+ per month. Lot rents typically range from $200 to $400 per month in most areas of the United States. A quality used mobile home can be bought for $20,000.
The chart below shows the average price for studio, one, two, and three bedroom apartments in the United States.
High Rates Of Return / Cap Rates
Mobile home parks can be bought at a much higher cap rate than other multifamily assets. Typically a mobile home park can be bought around a 10% cap rate while a comparable apartment complex can be bought around a 5 – 8% cap rate. A cap rate is the net income divided by the purchase price. This means higher cash flow when compared to other multifamily investments.
Property Management Made Easy. Stability And Predictability.
- Mobile home park tenants typically own their own home which eliminates home repairs
- 98% of mobile homes never leave the location they were delivered which translates into consistent occupancy
- The average cost to move a mobile home is $5,000+ (unhook, transport, re-connect). Mobile homes are rarely moved after being setup the first time.
- When a tenant moves they almost always sell their home. The new buyer must be approved by the park owner. This eliminates vacancy advertising, fielding prospect calls, showings, and the need to flip the unit.
- Park owners are only responsible for the property infrastructure (water/sewer lines, electric/gas lines, roads, and park owned buildings).
Underperforming Mom And Pop Park’s
Most parks in the United States are owned by the original mom and pops (or their children) who built the parks. For whatever reasons these owners do not always raise rents, sometimes for 10+ years. In addition to under market rents, mom and pop’s do not always run the park in the most efficient manner, leaving room to reduce expenses. Raising under market rents coupled with the unpractical cost to move a home out of a park leaves stable occupancy and a high cash flow investment. The next 10+ years will likely be the best opportunity to acquire the mom and pop owned parks, as mobile home park investments are becoming more and more main stream for institutional buyers.
Large Tax Benefits Through Accelerated Depreciation
The majority of a mobile home park’s value is in its infrastructure: roads, water / sewer lines, gas / electric lines. These land improvements can be depreciated over 15 years on average (compared to 27.5 years for apartments and 39 years for other commercial properties). The accelerated depreciation available to mobile home parks often translates into tax free cash flow for several years.