Manufactured Home Parks (MHPs) 101

Brief History:

In today’s society, there is often a stigma surrounding mobile home communities, but believe it or not, the history of mobile homes actually began as an upscale concept in the 1910’s and 1920’s. Cities started building them as free spaces for the wealthy to park their trailers, hence the name, trailer parks. These trailer parks were associated with the wealthy, affluent and famous celebrities who could afford automobiles and to go on road trips but were faced with the problem of finding comfortable places to sleep. Rather than uncomfortable tents or sleeping in their cars, the wealthy paid craftsmen to build trailers, which were made traditionally with mahogany interiors, crystal chandeliers and decorated with logos and names, just like the wealthy do with yachts today.

If we were to time travel back to the 1950’s, you’d find that mobile home park tenants typically had a higher income and educational status than those who did not! I find this history fascinating; you can learn more here: https://www.mobilehomeuniversity.com/mhp-mastery/2017/episode-2-the-history-of-mobile-home-parks.php

Fast forward: A Century Later

Many of us now would not envision mobile home communities as the one illustrated above.

While these communities were historically a lifestyle choice, we often hear about them in the context of the affordable housing crisis today.

The current demand for affordable housing in the U.S. is growing exponentially due to combined factors of rising home prices and rents while income for the lowest 40% of earners has remained essentially flat.  

Here are some statistics:

  • More than 50% of all jobs created since 2007 pay $10/hr. or less, creating an impossible gap in earnings vs. housing costs

    • Median single family home costs approximately $200,000

    • Average apartment rent is roughly $1,200 per month

    • Only manufactured homes provide housing at the affordable level of $500-800 per month

  • Record numbers of Americans are retiring (roughly 10,000 Baby Boomers per day); 45% of retirees have less than $10,000 in retirement savings

  • More than half of manufactured home park residents have an annual income of less than $30,000, placing them in the bottom quartile of U.S. earners

  • Income growth for the bottom quartile has essentially been flat (up only 5%) since 1980; meanwhile rents have risen over 30% during the same period

Why have MHPs garnered the attention of investors?

The affordable housing shortage in the U.S., combined with the highly fragmented state of the manufactured housing community industry presents a unique opportunity to both provide affordable, quality housing in great communities and deliver strong, consistent cash flow to investors. The opportunity is a result of three core conditions, all of which are predicted to persist into the foreseeable future:

  • Demographic trends: Average home prices and rents have consistently risen at dramatic pace since 1980, while income for the lowest 40% of earners in the U.S. has remained essentially flat, creating the current affordable housing shortage. Additionally, an estimated 3.6M baby boomers are retiring annually with roughly half of them with less than $10,000 in savings.

  • MHP Economics: Since most manufactured homes are owned by tenants while the land is rented, MHCs tend to be a low-cost businesses. Revenue is steady and can be escalated consistently due to the fact that moving a manufactured home to a different park is cost prohibitive for the vast majority of tenants.

  • Industry Fragmentation: With the 100 largest MHC owners controlling only 44% of the market, most of the players in the industry are mom-and-pop operators that tend to either run inefficient parks or neglect them entirely.

Here are 6 reasons you should consider MHPs in your portfolio:

 Since 1998, MHPs have had ZERO quarters of negative NOI growth.

  1. Supply < demand

  2. Demand for affordable housing is growing exponentially in the U.S.

  3. Stability of occupancy

  4. Increased value

  5. Simplicity of MHP model

  6. High rates of return

Capital Preservation : MHP’s and Self Storage are two of the most recession resistant sectors of commercial real estate. They have consistently outperformed other asset classes in same store NOI (net operating income) growth since 2000.  Most importantly, they have significantly outperformed during periods of recession.

Capital Preservation: MHP’s and Self Storage are two of the most recession resistant sectors of commercial real estate. They have consistently outperformed other asset classes in same store NOI (net operating income) growth since 2000. Most importantly, they have significantly outperformed during periods of recession.

How to Invest in MHPs through syndications:

At The Real Estate Physician, we focus on investing through syndications as we believe it is an attractive way for busy professionals to invest passively in a tax-efficient manner while providing stable and predictable passive income. 

As we mentioned above, the majority of MHPs today are still run by "mom and pop" owners or small private regional operators. As investors, you can take advantage of the recession resilient nature of this asset class by participating in private syndications when sponsors identify value-add opportunities through management inefficiencies. Just like apartment syndications, we aim to find experienced and trusted sponsors in this asset class who have proven track records of success.

Interested in learning more?

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