Is it a good time to invest in Mobile Home parks?

Question

Hello All,

Would really appreciate your comments. I am a new investor with no experience. I have some money saved and was thinking about investing in MHP. I am guessing due this pandemic people will need to more affordable housing like MHP.
Is it a good time to make this kind of investment?

Thank you!

Daniel Ryu · Answer

@Gitit Hefetz

• As a general rule of thumb, MHPs are good investments because they offer solid risk adjusted returns.
• Part of the thesis that has attracted many investors to the MHP asset class is the growing need for affordable housing and limited supply. There are about 45,000 parks in the US & that number is decreasing every year. For every 1 park developed, 10 are destroyed to use for other purposes.
• Why don't we develop more? Several reasons but the most economical are typically: 1) Cost to develop vs higher and best use of the land vs buying an existing park 2) Local resistance b/c MHP residents cost more in taxes than the property returns to the city in terms of property taxes (Charles Decker, Duke PhD MHP Researcher)
• Average market lot rents should be closer to $500 / mo based on the rate of inflation since the 50s. Instead, average lot rents are closer to $300 / mo
• Accelerated depreciation

Those are some 'big picture' metrics that are working in favor of MHP owners. You also have strong cap rate compression that has occurred over the last decade. Whereas at one point, buyers were looking to buy at 10% cap rates, now expected cap rates generally fall between 5-9%

With regards to COVID 19 / Recessions:

• In general, the rent collections for MHP seem to be strong compared to other asset classes
• Studies of Sun / ELS REITs (largest publicly traded REITs focused on MHPs) show lower volatility during 2009 Crisis as compared to other asset classes (retail, commercial, SFR, apartments, etc). I believe only Storage was lower.
• Sun / ELS REITs returns have been very strong since 2009 - see my linked in profile for the exact numbers. 
• In 2009, 50% of all new MH tenants were former SFR tenants

But we are only in month 2 of the current situation.

While generally rent collections have been positive, there can be wide variance in markets (ie. @Kristina Sparrow above has seen a 20-30% in bad debt collections). I've heard of one Vegas owner who has experienced 10% Collections for his MHP.

If you believe in the big picture demographics that support MHP investing, then I think it's definitely worth your time and effort to learn and look for deals.

As far as is 'now' a good time to plunge in - the data that I'm seeing is not seeing any type of discounting for MHP yet. One owner I just talked to told me he thinks his properties are worth more now b/c of he's been weathering the storm (compared to retail, etc).

Marcus and Millichap and Northmarq both reported 5x drop in transactions - brokers are holding back deals as they wait for things to settle. The CMBS market for loans has completely dried up.

So in other words - there's no rush at this particular moment. Much of the MHP investor world (and real estate in general) has been put on hold.

(I also produce a weekly show on the MHP industry - you can see my bio for my youtube link)

Kristina Sparrow · Answer

MH is less volatile than other asset classes during a downturn, but that doesn't mean they are pandemic resistant. Even though the selling point of MH is as the most affordable form of housing, that doesn't stop tenants from not paying rent if they lose their jobs. We've seen a 20-30% increase in bad debt across our MH portfolio. This may create buying opportunities down the road as owners get frustrated if the downturn persists. It may be a good time to invest in a few months. No one knows.

Perri Weber · Answer

Hi There! Congrats on saving a little nest egg! I am a Commercial Broker in the MHP world and from where I stand, it is an asset class that is near recession proof. We still have such a high demand from our buyers and are constantly searching for park sellers. When we have a seller it typically doesn’t hit market before it is sold. I personally feel that if you can find one that is with the right cap rate, not over priced (nothing on loopnet) and a decent cash on cash return, than you should snatch it up!

Perri Weber

Paul Moore · Answer

@Gitit Hefetz.  Hey, I just thought I would check in and see if you made any progress on your assessment of MHPs in the past 7 months? This sector has proven very resilient in this pandemic, and I believe it will continue.  Of course, it has helped that the government printing presses have kept the rents rolling in.

Jack Martin · Answer

While you will find me to be extremely bullish on mobile home parks as an asset class, I think it's important to be candid that nothing is completely recession proof.  Because of their intrinsic qualities, MHPs tend to be recession resistant, and certainly more resistant than most other real estate.  In my own experience, the statement that is much more accurate is that MHPs acquired at the right price, in good locations, and being properly managed, are about as recession resistant as you can get.

During this pandemic, it will become more apparent that the affordable housing supply has been shrinking and the demand is growing.  That shortage of supply will result in high demand for affordable housing solutions, where MHPs tend to stand out.  Those who own or invest in MHP will be happy that they did.

Rachel H. · Answer

@Gitit Hefetz I'd be cautious. It's not worth the risk to get sick. You may want to wait until things cool off with the pandemic and reassess later down the road. Best of luck with your decision!

Hai Loc · Answer

What are the stabilized caps in your area?

Gitit Hefetz · Answer

Thank you all for your great advices!

Hai Loc · Answer

MHP is a great space.. I have no issues collecting rent in April..  When your tenants lot rent is between $350-400.. doesnt take much to reach that every month..

Alina Trigub · Answer

@Gitit Hefetz

Any type of investment can be good if you know what you're doing. If you're new to real estate, I suggest you in invest the time (not the money yet) to learn about various real estate investing techniques, pick the one that suits you best and then dive deeper to fully understand how it works before you start investing.

Here're a few articles to help you further:

https://www.biggerpockets.com/member-blogs/10850/88862-pros-and-cons-of-investing-in-mobile-home-parks

https://www.biggerpockets.com/member-blogs/10850/86621-six-steps-approach-to-getting-started-in-real-estate

Is it a good time to invest in Mobile Home parks?

Most Popular Reply