At a time in which office, hotel and retail properties are mostly upside down with values lower than their debts, it often amazes people that mobile home parks have been free from such problems. What they don’t realize is that mobile home parks have a unique business model that limits downside and is uniquely aligned with all U.S. megatrends. And don’t just take our word for it. Billionaire Peter Thiel and Federal Reserve Chairman Jerome Powell have also spotted this.
Billionaire Peter Thiel’s observations
Peter Thiel believes that what gives residential real estate – particularly mobile home parks – an overwhelming advantage as an investment is simply the law of supply and demand. Thiel recently said "If you just add more people to the mix, and you're not allowed to build new houses because of zoning laws, where it's too expensive, where it's too regulated and restricted, then the prices go up a lot."
Of all the forms of residential real estate, no sector has a greater restriction on new construction than mobile home parks. Virtually no worthwhile city or town in America allows for new parks to be built and affirms this with zero "trailer park" zoning. In fact, there are more mobile home parks torn down in the U.S. annually than are newly built – parks are effectively an endangered species.
And here’s what Federal Reserve Chairman Jerome Powell has to say
Jerome Powell has also spotted the same supply and demand issue. Powell recently said "the real issue with housing is that we have had, and are on track to continue to have, not enough housing … It’s hard to find — to zone lots that are in places where people want to live … Where are we going to get the supply?" Powell has noted that the U.S. had a housing shortage of 4.7 million properties in 2023, despite having added 1.4 million new homes. That dynamic results in perpetually higher prices and rents, regardless of what the macro economy does.
Of course, Powell is also an indirect contributor to this problem, as his 11-straight interest rate hikes made housing prices far higher than needed and further shut down any possible new development options.
That’s only part of the story
Sure, the supply and demand dynamic is reason enough that mobile home parks always go up in value, but there are some additional aspects that need to be mentioned:
- No exposure to technological obsolescence. Let’s face it: the internet was a big contributor to the downfall of office, hotel and retail properties. Office and hotel properties suffered from the advent of Zoom and remote work, and their occupancy will never return to prior levels. Retail was killed by the advent of on-line shopping sites, such as Amazon, where you can buy and have items shipped directly to your house without going out in the rain or cold or spending money on gas. Mobile home parks have no such risk from new technology.
- No exposure to physical obsolescence. Mobile home parks are effectively parking lots for mobile homes. The actual housing structures are owned by the residents themselves, and the park simply provides land and improvements. As consumer tastes change – which they certainly can over time – that’s not of concern to the park owner who is not in the loop of whether or not the customer wants a newer model, which is completely at their personal cost. Most U.S. mobile home parks were built in the 1950s through 1970s and there has ben a myriad of different designed homes on some lots over the years but without the involvement or cost on the part of park owners who are only responsible for the land the homes sit on.
- Tenants are stakeholders and move infrequently. Since the mobile home park residents own their homes – and the park owns the land – the tenants have very long tenancies. How long? It is estimated that the average length of stay is around 14 years. That’s got to be the longest of all real estate sectors, except for retail mall anchors that can run 30 years or more (unless they go bankrupt).
- "Affordable" is the hottest sector of housing. When Thiel and Powell talk about the raw shortage of dwelling units, it’s not evenly spread as far as demand is concerned. Most of the need for places to live is in the "lower cost" category, which is exactly the niche that mobile home parks serve. Mobile home parks are the "Dollar Store" of housing at the exact time that the New York Times once said "the need for low-cost places to live has never been higher".
Conclusion
Mobile home parks have the absolute best investment construction in all of American real estate, which, in turn, is the best investment sector. There’s absolutely no question about it.
For more information on the science of mobile home park investing, please consider attending our next Mobile Home Park Investor’s Boot Camp. It’s a three-day immersion event on how to identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn-around, and operate mobile home parks.