Mobile Home Parks - The Bubble Proof Real Estate Investment

This country has experienced unprecedented gains in housing prices over the past five years. With some regional markets expanding at a phenomenal 25% annual average, the investors who got in early have created tremendous wealth. However, in my opinion, this wild roller coaster ride is about to stop on the way up and the people still in the car are going to come crashing down off the tracks.

I recently saw an alarming statistic. The hype and pandemonium of the real estate boom has created a stampede into the industry. More people than ever before are buying real estate strictly for investment purposes. Unfortunately, the majority are doing so with limited or no knowledge whatsoever concerning the pros and cons of owning rental property. Twenty-three percent, almost one-quarter, of all homes purchased in this country in 2004 were investment properties! Not owner-occupied, but pure rental homes.

Since the average buyer doesn’t understand the inherent risks and potential cash-flow problems with this property class, many are feeding cash into their investment every month. For those of us who make a living in the real estate business, negative cash-flow is the cancer of our industry and can lead to a slow financial death. However, the new and uneducated investor doesn’t see this as a problem since he is used to contributing monthly to his investment portfolio via his weekly paycheck. His only rescue from this negative cash-flow dilemma is an increase in value of the underlying property. In the simplest term, he is a speculator.

Professional speculators have made a ton of money in real estate and other industries for centuries. These superstars aren’t your ordinary people. They understand supply and demand relationships, market timing, growth patterns, and economic cycles. I dare say the overwhelming majority of people buying real estate today as an investment doesn’t fit into the professional category. As a matter of fact, the uneducated investor is often the customer who ends up lining the pocket of the professional speculator.

If you have been fortunate enough to experience the thrilling ride of the housing roller coaster, I encourage you to contemplate getting off and moving on to a more predictable, long-term investment. Find a real estate vehicle that will provide income as well as capital appreciation. Manufactured housing communities are in an asset class that can deliver both of these benefits.

Mobile home parks have slowly become the “step-children” of the real estate investing community. Due to the collapse of the mobile home financing industry over the past five years, many of the parks in this country have become neglected, highly vacated, and undesirable wastelands. Politicians are fighting to get rid of them due to the element of society they often accommodate and the eye sore the property becomes in the path of growth and development. Eliminating a mobile home park frees up valuable land needed for the current surge in the construction of stick-built housing.

So, you have an investment class that local governments are trying to force into extinction. On top of that, demand is currently low because so much money has recently been made in the single-family housing sector. Why would anyone want to move their investment funds into a mobile home park?

Affordable housing will always be required in this country. The average American must have shelter, it’s a basic need. When the housing crisis hits and interest rates rise, foreclosures will be at an all-time high and many people are going to be forced out of their current home. A destroyed credit rating will drive these people into the rental market or into some type of “owner financed” property. Not ready to give up on the American dream of home ownership, they will begin to look strongly at the manufactured housing alternative. Large living space and low pricing will be very attractive. I believe the demand will be tremendous and large lending institutions will begin to get back into the manufactured housing “game”. The interest rates for these loans will be higher than traditional mortgage rates and one or more large lenders will figure out how to turn a profit.

The mobile home buyer certainly needs a piece of land to place the home on. Parks provide the infrastructure and amenities to accommodate this need at a very reasonable cost. As home sales begin to increase, the demand for suitable mobile home park lots will heat up. The investors who own these parks will be in an ideal position as they can increase rents and still fill their empty lots. Unlike traditional housing projects, development barriers will be high and I feel this will create a huge shortage in available lots to place mobile homes.

You couldn’t ask for a better situation as a park owner. High demand, coupled with low supply creates a financial windfall for the astute investor. Cash flows will be tremendous and values will sky rocket, much like the feeding frenzy going on right now in the single-family home market. Cap rates will drop on this asset class and the large REITs will probably start paying unbelievable prices for the large, well-kept parks.

I’ve been in the business several years now and it’s a great time to buy. While the masses of park owners are crying, “sell, sell, sell”, some of us are quietly acquiring turn around parks. Most of the parks are initially at a break even or small positive cash flow position, but by implementing our system we are able to steadily increase cash flow and quickly increase value. But, even better than that, we are positioning ourselves to benefit from the potential flood of customers into our market.

I urge you to take a long look at the mobile home park investment. But, don’t wait too long. The secret is starting to get out of the bag as West Coast investors are becoming educated about this investment and its benefits. Investors from California and Arizona have purchased several parks in the Southeast in the past 12 months. Who knows, there may come a time when a good, solid mobile home park will be purchased for more than the asking price…a bidding war. Hey, it’s happening in several single-family home markets throughout the country right now. Wouldn’t you like to be the seller taking that check to the bank?

Steve Case