Ask most investors where the best investment returns are and they’d have no idea. Real estate investors believe they know they answer: residential real estate. Not only are the returns superior to Wall Street investments, they’re cash flowing returns instead of appreciation returns and that’s a huge difference.
Among real estate investors, this is a given fact. But which real estate investment asset is the best choice for the highest cash flow opportunities? You might be surprised to discover that it’s a Mobile Home Park.
Among real estate investors, Mobile Home Parks (MHPs) are an overlooked asset class that few think about… and even among those who know about it, there are very few who understand the opportunity and why it offers the highest returns in real estate.
There are three characteristics that make this real estate asset class so compelling and lead to higher cash flows:
- The deal structure
- The laws of supply and demand
- The urgency of sellers
Mobile Home Park Deal Structure
What makes Mobile Home Parks so attractive to investors is how the deal is structured compared to any other residential real estate.
With an apartment or multifamily building, the investor owns the property and rents it to tenants. Those tenants pay rent and may (or may not) stick around. The investor is also responsible for the maintenance and upkeep of the building itself (which can be very expensive).
But Mobile Home Park investments are structured differently: The investor owns the land only. The tenants own their own mobile homes and they rent the land those mobile homes sit on.
The result? Investors don’t have to pay for the maintenance and upkeep of mobile homes.
There’s an added bonus that few investors realize as well: homeowners are far more stable as tenants compared to renters. Homeowners are less likely to move (since they’d have to sell their mobile home or pay up to $7,000 to move it).
Mobile Home Park Laws Of Supply And Demand
There is a significant supply and demand imbalance in the Mobile Home Park asset class right now.
On the demand side, more than 20 million Americans (8% of the population) live in mobile homes. This number is huge and it’s expected to grow because:
- The American Dream of owning your own home is still alive and well, but people are redefining what that means (and even lowering their expectations) because…
- There is a steady trend of declining wages in America. More and more companies are employing their staff at minimum wage rates as low cost companies like Walmart take over.
As a result, millions of Americans need a place to live and want to own their own home instead of renting an apartment.
On the supply side, there are only 50,000 Mobile Home Park in the US and this number is declining everyday. Existing Mobile Home Parks were built quite a distance from cities on undesirable land but those cities have expanded and swallowed up parks and many developers are buying up parks to convert the land to a higher-value use. At the same time, there’s a “moat” around Mobile Home Park development and it’s actually very difficult to build a new Mobile Home Park.
As a result, we’re seeing fewer and fewer Mobile Home Parks throughout the US.
This supply/demand imbalance is favorable to investors because it means more tenants are vying for fewer Mobile Home Park spaces to live… and this imbalance tends to mean: consistent cash flow, higher occupancy, and an ability to raise rates steadily.
The Urgency Of Sellers
The last piece of the puzzle is the urgency of sellers: Most Mobile Home Parks were built between the 1960’s and the 1980’s and they are still owned by the original “mom and pop” owners. Those owners are ready to sell their Mobile Home Park so they can extract the value their park has built and retire on that money.
What makes this process difficult for them is:
- These original owners are mom and pop owners, not professionals, so they haven’t always maintained the park or its occupancy rates
- There are no simple channels through which to sell a Mobile Home Park
- Retirement looms closer and closer and they’re simply not sure how to sell their park in the best way possible
As a result, sellers want to sell – and they want to sell soon! – but they don’t know how to go about it, and their park is undervalued because there is plenty of ignored “upside” that they haven’t leveraged.
The Most Compelling Asset
For these reasons, we believe that Mobile Home Parks are the most compelling real estate investing asset class right now and provide the highest cash flow returns in real estate.
First, the deal structure creates significant positive cash flow from lot rentals without the expensive of maintaining the structures that sit on that land. (Plus, there are several ways to increase cash flow simply by increasing occupancy but also through other strategies as well).
Second, cash flow is further influenced by the growing demand and shrinking supply of Mobile Home Parks. Simply put, there are more tenants but fewer places for them to live… and this trend is expected to continue for some time.
Third, cash flow is still further influenced by the ability to find these mom and pop Mobile Home Parks and create win/win deals (many come with seller financing) at an attractive price that you can grow.
Mobile Home Parks are overlooked, ignored, or misunderstood but they provide the highest cash flow opportunities in real estate investing today, and the underlying trends that create this opportunity will remain favorable through the foreseeable future.