According to some estimates, American investors have billions of dollars sitting “on the sidelines”: it’s ready to invest but investors haven’t yet found the right opportunity for their capital. Perhaps some have been wounded in the stock market crash of 2007/2008; perhaps others have bought residential real estate only to lose all return after a bad tenant left an ugly mess; perhaps others have tried alternative investments that simply don’t deliver as hoped. As a result, these investors are sitting on cash, wanting to invest but waiting for a better opportunity.
One investment worth a closer look is Mobile Home Park (MHP) investments. This investment is frequently overlooked and even disregarded as an opportunity, which is too bad because it’s often ignored based on misunderstandings rather than facts.
In this report, you’ll discover why Mobile Home Parks are among the best investments for the average investor with underperforming capital or cash on the sidelines. You’ll discover why MHP-savvy investors are outpacing the returns they got in more conventionally understood investments, and you’ll find out why the return and value of this investment is continuing on an upward trend.
Rate of Return
Rate of return (ROR) is the number one reason to invest in mobile home parks. All other forms of real estate – from single and multifamily dwellings to commercial to billboards and storage facilities — have a cap rate that is virtually immovable. Self-storage is the most comparable cap rate to mobile home parks at 7 to 10 percent initially, but that’s where the rate will stay. It’s nearly impossible to move up the cap rate in any other real estate model, even just a point or two.
Mobile home parks, on the other hand, have many factors which make bumping the cap rate up several points dead easy. Rents in other real estate models barely keep pace with the inflation rate, let alone increase, so the cap rate stays consistent. Rents can be increased without fallout because of improvements to the park. And, mobile home parks increase in land value as time passes, just like any other real estate.
Mobile homes are only named such because they were delivered on a truck. 95 percent of the modular buildings will never move from the pad where it was delivered, much less get moved out of the park. It costs from $5,000 to $10,000 for a mobile homeowner to move their residence and re-connect their services, which is money most of them will never have liquid at any time. It’s one very solid reason tenants are extremely loyal in a mobile home park.
No Customer Retention Cost
With occupancy rates at 99 percent, there is no need to advertise! Many owners of mobile homes are among the more than 20 percent of the American population that earns an income of $20,000 per annum or less. This tight income leaves little more than $500 per month for housing costs, and only mobile homes offer ownership at that price point. Mobile home parks are aggressively sought after by an increasing number of clients looking for affordable housing as the American economy continues to decline. Owners of aged mobile homes are likely to purchase a newer model and have it switched onto their rented lot instead of moving elsewhere!
Extremely Low Maintenance Cost
Mobile home parks are unique in that the infrastructure is owned by the park owner. Common areas like playgrounds and community centers, and streets and utility connections are extremely affordable to maintain compared to other multifamily residential models. Capital expenditures are 3.8 percent of revenue for mobile home parks as compared to 8.8 percent for multifamily housing, keeping a significant five percent in the park owners’ pockets. This equates to $125 per site annually, so keeping a high quality, aesthetically pleasing neighborhood becomes quite cost effective.
Mobile Home Parks attract a number of demographics with the same need: First time home buyers, the aging population, and the low income sector all have the same problem. Affordable single family dwellings are increasing in price and becoming unattainable. Home prices continue to climb, and with these populations unable to afford that market the only place to turn is mobile home parks. The Baby Boomers are retiring at a dramatic rate, many of whom are ill-prepared for a life on a small fixed income. With nowhere else to go while maintaining the dignity of unassisted living, mobile home parks become extremely desirable.
In the 1960’s when the vast majority of mobile homes were being established, the land used was usually rural or on the fringes of cities. Sprawling metropolitan areas are swallowing up the mobile home communities. Many municipalities have stringent restrictions inhibiting the development of new mobile home communities, locking mobile home owners in place. Many of the original mobile home park investors from the sixties are of retirement age and are selling to developers who convert the land into other more urban uses. Mobile home owners find themselves being evicted with their homes and no place to re-establish. Prospective tenants are constantly trolling mobile home parks for openings, resulting in extremely low vacancy rates.
Rental Rate Control
With new mobile home park construction restricted in almost all cities, and the supply and demand equation solidly in the favor of the mobile park owner, rent prices can be raised with virtually no risk of vacancy. Mobile home owners are much more willing to pay a rent increase than pull up and move their mobile home to another park, and cannot afford to purchase a single family dwelling. Rental rates can be pushed higher, faster by the park owner with little feedback from clients.
Mobile park owners have the confidence that tenants will pay their rent as they have first claim on the homes if tenants are delinquent on their lot rental fees. A mobile home park tenant, whose most valuable asset is their home, will be much more inclined to ensure their rent payments are up to date, and unwilling to risk losing their home for a few hundred dollars. This contributes to a very loyal customer base that takes pride in their home’s condition and appearance.
Community-Minded Focus Keeps Tenants Longer
There is an appeal in being an integral part of a community. Mobile home parks offer the same communal feel as a suburban neighborhood without the substantial overhead cost of a single family dwelling. It sets mobile home parks apart from apartment buildings for the same reason; families can have their children playing outside in their own yard or a community greenspace, can own bicycles and barbecues, and can park their cars in a driveway they call their own. This keeps happy residents in your park longer and helps to keep repair and tenant-turnover costs down.
Accelerated Tax Benefits
Mobile home parks are largely comprised of infrastructure, which can be advantageously used to the owner’s benefit for tax breaks. Owners can claim land improvements on an accelerated schedule compared to other multifamily models, usually at a rate of 15 years compared with up to 39 years. This leads to a virtually tax-free operating cash flow for the owner in the long term.
If you’re an investor who is ready to move your money back into an appreciating, cash-flowing asset, and if you want an investment that delivers significant returns today plus plenty of upside potential in the future, Mobile Home Parks make the perfect addition to your investment portfolio. You’ve read just ten of the many reasons that investing in mobile home parks is an incredibly compelling asset class. But you should know that mobile home parks are disappearing fast as municipalities buy out parks and convert them to suburban development.