As alternative investments go, manufactured housing is certainly as outside the norm as things get. The vast majority of investors looking to get into real estate investing (a wise decision) would place mobile home parks at the bottom of the 'most desirable real estate' list.

With the negative stigma, it makes sense. Many mobile home parks have been the blight of communities for decades now, housing some of their community's 'more difficult' residents - or at least that's what we thought.

In reality, manufactured housing checks off all the essential items we look for in real estate investments:

• Pricing Power
• Sticky Tenants
• Contracting Supply
• High Demand
• Great performance throughout all economic conditions.

The negative stigma kept large amounts of capital away from the space for decades, with only a handful of players, including the contrarian investor, Sam Zell discovering this true hidden gem.

Eventually though, both institutional & retail capital caught on & mobile home parks have maintained high demand for investors looking for elite real estate investments.

History

After WWII returning American GIs weren't necessarily looking forward to going back to live with Mom & Dad. All at once, America needed housing & FAST.

Home builders put these veterans to work building homes across the country but they needed new ways of creating housing. Enter the mobile home, a 'manufactured' home that could be factory built & installed on a lot providing quick & cheap housing for returning GIs.

Overtime, mobile home parks grew & multiplied as an area's affordable housing. With land cheap & plentiful, density wasn't a consideration allowing these parks to pop up from California to New York.

Overtime as these properties maintained their 'affordability' status acting as workforce housing & in some areas turning into resort style luxury living.

America generally started building up as densification required housing to be built upward & in the process manufactured housing fell by the wayside.

Pricing Power

Believe it or not, most real estate rents are fairly static. Market efficiency means that rents for commercial real estate isn't as flexible as you might think (price gouging is more of a boogeyman than a reality). There's usually rent growth built into leases, but large pricing movements usually only occur during market imbalances & disruptions.

This is generally true of mobile home park investing, vacancies (the killer of all real estate values) require real estate value being pegged accurately to quickly fill vacancies & keep tenants from leaving.

Consequently, being able to move rents can be tricky. Mobile home parks aren't immune but are significantly more resilient to rent growth due to their price relative to comparable housing options.

Remember, expenses grow regardless if rents grow, so to maintain healthy cash flow you need to be able to consistently price your rent above your expenses.

Sticky Tenants

I mentioned vacancy is the killer of real estate value. Landlords do everything in their power to limit tenant churn. Statistics show apartments turnover about half their tenants every year putting a big strain on expenses & vacancies.

Manufactured housing, has much lower tenant churn, meaning tenants typically settle in & put down roots in a community. Lower turnover means generally lower vacancies.

Contracting Supply

Most municipalities are slowly redeveloping manufactured housing into higher density uses - we figure about 1% of all parks get razed over per year.

For a real estate operator, watching your competition get bulldozed across town elevates the demand for your product.

Multifamily zoning means that an apartment owner most likely will contend with new product in a growing market - & that growth will continue until rent demand slows usually cause rent growth to also slow.

Cities aren't zoning vacant land for manufactured housing, so new residential product generally won't compete with existing mobile home parks.

High Demand

We all know the basic principle of Supply & Demand. The higher the demand, the more supply will be produced to meet the demand. Affordable housing has been underbuilt nationwide exacerbating the affordability of starter homes or workforce housing.

As mentioned previously, manufactured housing is experiencing a general decline in supply, meaning not only does demand for local affordable housing exceed what's being produced the amount of manufactured housing is plummeting.

For residents who want to purchase a manufactured home, available parks will be limited. We don't anticipate the affordable housing shortage being met anytime soon, providing long runways for mobile home park investing.

High Performance in All Economic Conditions

Mobile home parks are pretty recession resistant. The high demand for affordable housing, sticky tenants, contracting supply, all mentioned above mean even when the market's down they still perform well.

Manufactured housing can act as a 'catch all' for tenants priced out of housing due to decreased wages. There's always more demand for lower priced housing than luxury living.

Investors looking to store their capital in real estate that provides stable performance love manufactured housing. Apartments might experience increased tenant churn if a market experienced a downturn, many of those tenants will gravitate to manufactured housing.

Fundamentals

Part of the stigma stems from unfamiliarity. A mobile home park rents a space to a tenant who can either purchase or rent a home. The homes are unique in that they CAN be moved, but moving a home is costly & difficult. Most tenants prefer to sell their homes instead of move them to different parks.

Home sizes also vary, a single wide home can accommodate up to 4 bedrooms, with double wide homes providing large living spaces comparable to traditional 'stick built' homes.

These larger home sizes attract families who plan on setting down roots in a community. For those tenants who own their homes outright, lot rent allows for very affordable living

Leases lengths are annual or month-to-month, with water / sewer & trash all able to be passed through to tenants.

How to Invest

Investing in mobile home parks can be done through purchase of shares of a REIT or through investment in private funds & syndications.

An experienced mobile home park operator has a long track record of meeting preferred return hurdles & returning equity back to investors. For more information, please input your information below.

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