The commercial real estate market is made up of many different categories of assets. Industrial, retail, land, multi-family, office, and flex are the common commercial real estate sectors that come to mind for most investors. A commonly overlooked sector is the mobile home park. Mobile home parks offer many benefits to an experienced income investor. Take a look at a few of those reasons below.
1. Limited Competition
As an owner of multifamily rental complex, if someone builds a new multifamily property near you, you are faced with the reality of new competition. Competitive rents, better amenities, a newer building…all these create competition and the potential to lose renters and income. The same could be said of other types of investment properties, such as storage units.
Unlike other asset classes in commercial real estate, existing mobile home parks face nearly no competition from newly built parks. This is simply because very few new mobile home parks are being built. Most cities and municipalities frown on the creation of a mobile home park given the stigma of having a mobile home park as a neighbor. A park could be built in a rural location, but the demand for affordable housing in rural settings is weaker, and the construction costs are much higher given the need for septic systems for each lot.
2. Multiple income streams.
Mobile home parks offer the potential for multiple income streams given the nature of the ownership of the rented asset. Owners can collect rental fees by renting homes, collecting lot fees, or even providing other on-site services such as laundry, vending, etc. Many parks have a mixture of homes either owned by the resident, on which the park collects a lot fee, or homes owned by the park owner, on which the owner collects rent.
3. Demand for affordable Housing.
The demand for affordable housing across nearly all of America is extremely high. According to 2014 census data, 23% of U.S. households have an income level below $30,000. Based on a suggested ratio of housing costs to income of 33%, this portion of the population can afford a rental of $400-$600/month. The average rental rate for a 2BR apartment in NC (in 2018) is $938.
So what options are out there for someone to live for $500/month? Generally, either low-rent apartments, low-rent single family housing, or mobile home parks. Low rent apartments and houses often have negative characteristics such as lack of a yard, high noise levels, and lack of a sense of community. Parks offer privacy, a small yard, and a sense of community similar to a small subdivision.
4. High Cost to move a mobile home.
This benefit takes a little more explanation. If the owner of a mobile home wants to move their home to a new location, the cost can be extremely high. Depending upon the distance of the move, the cost of moving a mobile home often begins around $1,000 and can rapidly increase based on the rate charged per mile. These costs are often prohibitive given the average income level of a mobile home owner. As a result, the cost to move a home to a new location is prohibitively high. This causes the home-owning tenant, who is paying a lot fee to the park owner, to act more similarly to a partner with the park owner rather than as a customer who can walk away (i.e. move) whenever they choose. Having aligned partners in an investment reduces the income volatility associated with the lot rental from a tenant owned home.
5. Opportunity to acquire inexpensive homes.
This scenario can occur when a homeowner runs into financial difficulty and can no longer pay their lot fee. As mentioned above, it is therefore unlikely that this homeowner would be able to pay to move their mobile home. They are therefore faced with the option of selling their home on site, or abandoning the home altogether. In either scenario, the park owner is in a strong position to either acquire a home at a discounted price in the case of a sale, or to acquire a home for nearly nothing by following abandoned property laws.
Owning a mobile home park provides many benefits to an income investor. Limited competition, multiple income streams, demand for affordable housing, high switching costs, and cheap home acquisitions are just a few of these. If you are wondering whether a mobile home investment is right for you, give us a call!