Should I Invest In Mobile Home Parks?

We also love investing in manufactured housing communities, also known as mobile home parks. This is a Wyoming asset that we invested in in an earlier fund. Now, mobile home parks are the only asset type we know of. With increasing demand and decreasing or sometimes steady supply every year now, there really is an affordable housing crisis. 10,000Americans turn 65 today, but statistics say that 6 in 10 don't have $10,000 saved for retirement. Now, many of them do have a pension or 401k proceeds or home equity they're willing to trade in to buy a manufactured home that gives them a yard, a porch, parking, a community, and no shared walls with a neighbor. A friend of mine was actually a prominent doctor in Southern California, and when he retired, he moved to Palm Springs and he bought a very nice mobile home and he traveled a lot. And so this is a choice many people make, in some cases workforce, housing wise. It's a choice that people just, you know, it's the best option for them to raise a family. So many of these manufactured housing communities are mom and pops, and like I said, they don't have the desire or the knowledge or the resources to beautify the park and increase income. I also mentioned that there's very limited supply while the demand for these go up every year. You can see here that Green street says that the manufactured housing supply through next year is practically non existent while storage, student housing, senior housing, etc. Is being built at normal levels. So this is a mobile home park we invested in in earlier funds. Ben, my partner, and I were on the ground at this park in Louisville right before COVID It was acquired from a lady three states away. And as far as we know, she had never been to the property. She hadn't been there in at least five years. Our operating partner's goal was to improve the community and to get from a $7.1 million acquisition price to a $13 million value in three years. Well, he was able to make a lot of the changes he wanted to make even during COVID and he surprisingly got an offer from a large operator of $15 million and he sold it only 10 months later. This is a manufactured housing community in our current fund. Now this one's in Bay City, Michigan for you Michiganers, it's up here in the thumb. Our operating partner had acquired a mobile home park from a northern Detroit operator and made a lot of improvements to the park, upgraded the value a lot. And you can kind of guess that a lot of these operators, you know, wouldn't stay in touch with the seller for lots of reason, but that's not the case here. He stayed in touch with the seller. He sent them gift baskets during holidays. He stopped in to see them for coffee or a meal when they, when he went to Detroit. And in 2024, just actually in December 2023, when they decided to sell their second asset, they didn't call a broker, they didn't put it out on the market. He didn't have to bid against a bunch of people. They just sold it to our operating partner. Now this is pretty significant because this was a year where statistics say that transaction volume in mobile home parks, manufactured housing communities was way down over previous years. This asset, I mean, was a classic mom and pop manufactured housing community, had 137 lots. It was acquired for only 36,500 a lot, which is way below replacement cost if you could get a permit to do it in the first place. Let's look at bullet point 2, 3 and 4 here. Rents were way below market. So they were raised partially toward market rents. It was based, the price was based on 127 rented lots. Four were filled before closing and four more are in process. And then he also recaptured utility expenses. All three of these combines add almost $4 million to the value of this park within the first year at a 6% cap rate. Now I want to point out that we invest with operating partners who want to provide a nicer community for their tenants. These are not our operating partners. And us as investors, we don't view these as metal boxes that spit out cash, as some people say. This is someone's childhood home and we want to make it a great experience and a great memory for them. But we also want to maximize value for investors. Now I've mentioned mom and pop operators several times and I want to show you visually why it's so important to acquire from them when possible. So in multifamily, you can see that 93% of assets according to the study are owned by multi apartment owners. These are corporations who have typically already bled out the value. But look over here on the left, self storage. 76% of the owners are independent operators. And about half of all the operators own only one asset. They obviously don't have the resources to upgrade these assets and they typically don't care. They're typically making a great profit. Mobile home parks is even more extreme. 80 to 90% of mobile home parks and there's about 40 to 45,000 out there are owned by mom and pops. And so acquiring these, making improvements, making a better experience for the tenants and maximizing value for investors is a real possibility with mobile home parks and with self storage and with RV parks.

The hosts of the White Coat Investor are not licensed accountants, attorneys or financial advisors. This podcast is for your entertainment and information only. It should not be considered professional or personalized financial advice. You should consult the appropriate professional for specific advice relating to your situation.