Many landlords are scared to push their rents right now. In the self-storage industry, for example, landlords are considering rent reductions more than increases, and many real estate owners feel lucky if they can leave their rents unchanged this year. Articles are abundant, talking about the inability of office and commercial landlords to maintain current rent levels if they want to attract or retain tenants.
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Rents Falling Everywhere – Are Mobile Home Parks Immune?
Well, it’s a different story in mobile home park land. And it highlights some of the key reasons that mobile home parks are the best niche in real estate investing.
So how can you raise mobile home park rents when every other landlord is stopped dead in their tracks? Several reasons:
- It costs a tenant $3,000 to move their mobile home out of your park and into another. So, basically, you can continue to raise rents because the cost for the tenant to move is far higher than the resulting rent increase.
- The rents are low to begin with, so when you raise a $200 per month rent by 10%, it’s still just a $20 per month increase. The normal lot rent in the U.S. is about that much.
- Mobile home park rents are still far, far below apartment rents. Thanks to the rampant rent increases by apartment owners over the last decade, a two bedroom apartment in the worst part of town in most cities is still $600+ per month. Mobile home park lot rents have a long, long way to go before they bump up against their apartment competition.
- The laws of supply and demand. There is still a lot of demand out there for mobile homes. Why? I hate to pin it to anybody, but the feedback we get is that people crave owning their own yard and getting away from having neighbors beating on their floors, ceilings and walls in apartments, as well as escaping the over-zealous management style of most apartment complex managers.
So how much farther can mobile home lot rents go?
As you can see from these examples, really far. There are not too many parks out there that are bumping up against the ceiling of rational rent levels. That is not to say that it’s impossible. In Denver, Colorado, for example, there are four-star parks that have lot rents approaching $700 per month. That’s probably too high. But for your average park owner out there, you’d have to increase your rent for 20 straight years at 10% per year to hit that level — and by then, inflation has taken the average rent rates higher still.
So, if you want to find a class of investments that allows you to increase the rents a significant amount each year, whether it’s feast or famine in the general economy, then mobile home parks are worthy of further examination.
Until then, the rents are going to just keep going up.
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