Investors looking to jump on the manufactured housing boom have a couple core ways of doing so. First, they can invest in individual syndications or Second, they can invest in a fund.
Both are solid ways of reaping the benefits of mobile home parks, but many investors probably don't know (or realize) the risks & benefits of one strategy over another. We'll breakdown each option & help provide you with more leverage as you look through various investment options.
Single park deals are built for speed. This isn't to say one-off deals can't be held indefinitely. It’s just easier to return capital fast via a refinance or sale of one property vs. a portfolio. Plus, typically the Sponsors promote will be heavily weighted to the last few deals. This is fine if they are an established firm, but can be frustrating for new players.
Here are some other items to keep in mind.
- Syndications carry higher risk. Concentrated capital cuts both ways: your returns will have higher ceilings and lower floors.
- Severe weather events can destroy a park's current & future profitability. It can be difficult to literally watch your capital float or fly away.
- Because of this, syndication deals require a higher quality bar: you can’t offset operational mistakes with other assets as you can with a fund.
- Some syndications can have higher yields as a home run value-add deal can amplify returns. These are less common but more likely with an experienced sponsor.
A fund is a diversified pool of capital deployed across multiple deals.
- Funds have tighter return dispersion, which is fancy way of saying you’re more likely to get a respectable return (lower return ceiling, higher return floor). A large, diversified pool of existing assets makes it harder to hit home run return targets. The more deals in a fund, the more likely one will be a dud. There is just more surface area to get unlucky. Real estate isn’t venture capital, there are no exponential outcomes over the short term. One deal rarely makes a fund, but one zero (complete loss) can drag down overall returns.
- There's usually a longer ramping-up period as capital's put to work. With investors awaiting distributions, inexperienced operators may be tempted to pull the trigger on subpar, mediocre deals & hope for superior asset management making up the difference.
- Funds CAN be a bit more liquid, especially with larger operators. Even though real estate's notoriously illiquid, a fund manager may keep a small portion of the fund liquid for future redemptions, something much less common with individual syndications.
Okay, but just tell me the answer, fund or syndication?
If you’re trying to fast-track wealth and optimize per unit of time / effort, stick with syndications but If you want the best odds of a solid return without losing money, go with the Fund.
Watch the Funds vs Syndications webinar with Brad & Ian below.