Introduction to Investing in Mobile Home Parks and Affordable Housing

With a severe shortage of affordable housing in the United States, Manufactured Housing is one of the least expensive options. When properly managed, manufactured housing offers a solution to the affordable housing crisis, while potentially providing its investors with stable and predictable cash flows.  We believe Manufactured Housing and mobile home parks are the most attractive asset class for the following reasons:

Historically Higher Cap Rates:

The capitalization rates (Net Operating Income / Purchase Price) for Manufactured Housing Communities are roughly three percentage points higher than any comparable multi-family investment.  In today’s favorable financing environment, this potentially allows for significantly higher cash-on-cash returns compared to any other real estate investments.  

Ownership Structure Likely Reduces the Risk:

Most residents own the homes in which they live, and rent the land, pad, and utility infrastructure from the community owner.  This often results in lower operating expenses compared to apartments.  The average operating expense ratio (operating expenses / revenue) for a Manufactured housing community is 30-40% versus 50-60% for apartments.  

Demand for Affordable Housing Has Been Strong:

More than 50% of US wage earners make less than $30,000 a year, or $14.42 an hour.  The average fair market two-bedroom rent is $1,149 per month.  According to the US Department of Housing and Urban Development housing is considered “affordable” when no more than 30% of a household’s gross income is spent on rent and utilities.  For the average two-bedroom, that’s $22.10 an hour assuming a 40 hour work week and 52 weeks.  The average renter’s hourly wage in the United States is currently $16.88/ hour.  At the federal minimum wage level of $7.25/ hour, that’s 122 hours per week for all 52 weeks to afford a two-bedroom apartment.  The rent affordable to a full-time minimum wage worker is $377/ month.  The average lot rent in the United States is approaching $300/ month, which not only offers affordable housing, but it provides an opportunity for home ownership.  

Supply is Generally Shrinking:

There are roughly 40,000 manufactured housing communities in the United States, and the number is shrinking.  Mismanaged communities are being shuttered or redeveloped. The negative stigma of “trailer parks” and initiatives like NIMBY (Not in My Backyard), have made zoning more restrictive.   Green Street Advisors estimates that only 10 communities have been developed in the past two decades, while at least 10 communities per year have been redeveloped into other land uses.  

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Highly Fragmented & Ripe for Potential Consolidation:

Of the roughly 40,000 communities in the United States, only 10-15% are controlled by professional operators.  The rest are mostly controlled by less sophisticated “mom & pop” operators who often have below market rents and inefficient cost structures.  Most of the larger operators are looking for larger turnkey communities, which reduces most of the competition for small-to-medium sized mobile home parks.  

One of the Lowest Default Rates in Commercial Real Estate:

According to Daniel Din, former Multi-Family Credit Director at Freddie Mac, Manufactured Housing Communities have a 50% lower default rate compared to multifamily apartment complexes.  

Possibly Favorable Tax Treatment:

The majority of a Manufactured Housing Communities value is in the improvements to the land (utility lines and roads), which can often be depreciated over 15 years compared to apartments at 27.5 years, and other commercial real estate at 39 years.  

High Switching Costs:

It costs $5,000-$7,000 on average to move a manufactured house from one site to another.  Considering more than 50% of Americans have less than $1,000 in their savings account, moving a mobile home is extremely rare.  The average annual tenant turnover in a community is roughly 5-6% vs 30-40% for apartment complexes.  

Potentially Uncorrelated Returns:  

Manufactured Housing Communities usually perform well in strong economic environments, but considering they are one of the most affordable sources of housing, they typically offer recession resistant characteristics not found in multifamily investments.  Given that the demand for affordable housing is increasing with diminishing supply, this asset class is usually not dependent on the stock market or a strong economy to produce double-digit risk-adjusted returns.   With average lot rents near $300/ month versus an apartment at $1,149/ month, top line revenue (rent) has room to potentially grow in excess of inflation annually while typically not being dependent on growth in GDP.  

Conclusion to the Top Reasons for Investing in Mobile Home Parks

Investing in Mobile Home Parks likely presents a compelling opportunity for those looking to diversify their portfolio with a historically stable, demand-driven asset class. The combination of higher cap rates, lower operating costs, and the critical role these communities play in addressing the affordable housing shortage underscores the potential for strong, stable returns. With the landscape characterized by high demand, limited supply, and a fragmented ownership structure ripe for consolidation, Mobile Home Park investing not only offers potential financial rewards but also the chance to make a positive impact on a pressing social issue. As the market for affordable housing continues to tighten, Mobile Home Parks stand out as a resilient investment choice with the possibility of growth and stability in various economic conditions.

Welcome to Keel Team Mobile Home Park Investments, where our mission is two-fold: to elevate communities and to potentially maximize investor returns. Our focus is on enhancing the quality of life for residents while potentially securing strong profits for our partners. We invite you to connect with us through the contact information provided below to delve into our investment approach and strategy in greater detail. Let’s work together to build thriving communities and successful investments.

Disclaimer:

The information provided is for informational purposes only and should not be considered investment advice, nor a guarantee of any kind. There are no guarantees of profitability, and all investment decisions should be made based on individual research and consultation with registered financial and legal professionals. We are not registered financial or legal professionals and do not provide personalized investment recommendations.