Mobile Home Park Owners Are Winning Again On Two Fronts

There are two simple facts in the American economy right now. They are somewhat tied together, but not entirely. But they are both great news for mobile home park owners. These are hidden in some of the official reports and media coverage of these trends, but you can find them easily in such articles as this one https://www.msn.com/en-us/money/markets/the-era-of-uncomfortable-inflation-is-here-and-its-already-changing-the-economy/ar-AAPzEPP?li=BBnb7Kz . So what are these trends and why are they so supportive of the mobile home park business model?

Fact #1: Worker Pay is Rising

The bulk of U.S. labor wage increases are in the lower levels of income, with the very industries that most mobile home parks house showing the greatest gains. For example, the average wage for fast food is approaching $15 per hour which equates to around $30,000 per year. Just a few years ago, the average was around $10 per hour, or $20,000 per year. This is a huge bonanza for workers in the food, retail, transport and similar industries. Of course, as our residents have greater income, it allows them to make necessary property improvements and add nicer items to their yards and decks, which makes the mobile home park more attractive with greater pride-of-ownership. It also gives them greater savings and the ability to withstand the problems that can pop up in life – such as an emergency medical issue or car break-down – without being dislocated.

Mobile home park owners will share in the success of our residents’ large increases in income with more stable tenant-bases, better property appearances, and the ability to pay higher lots rents, which are a necessity in an industry where lot rents are around $1,000 per month lower than apartments in most markets. As mobile home parks are brought back to life by new owners, higher lot rents will be the norm. But even when rents get elevated to market, there’s still a bigger problem looming that is discussed below, and this will make the higher incomes of our residents critical.

Fact #2: Inflation is skyrocketing

U.S. inflation is now at a pace not seen in nearly 30 years – going back to 1990. You see it in virtually every product category, but most significantly at the gas pump, where the average American is seeing a 40% increase since the Biden era began. And the rate of inflation only seems to be growing in speed, with the massive federal debt, cash printing, supply chain disruption and elimination of oil independence all contributing to what looks like an impossible situation.

When inflation rises, there are only two asset categories that do well: 1) precious metals and 2) real estate. That’s because they are the only two products on earth that are truly limited in supply, and their value increases in tandem with inflation. That’s why America was on the “gold standard” back in the good old days, and why the 1970’s were considered the “golden age” of real estate (prices skyrocketed in-line with Jimmy Carter’s historic inflation numbers which exceeded 11% annually three times).

And of real estate sectors, mobile home parks are the best positioned to raise rents in-line with high inflation rates. There are several reasons for this:

  • Mobile home park lot leases are traditionally short-term, ranging from month-to-month to one year, as compared to a retail or office in which leases can be decades long.
  • Mobile home park rents are extremely low – averaging around $280 per month in lot rents – which gives a huge ability to increase these at rates as much as 10% per annum to match inflation and still be tiny increments (as compared to U.S. apartment rents that went up around $180 per month on average in 2020 alone).
  • Mobile home park lot rents are extremely low based on all other housing prices, so even with large increases, mobile home parks remain extremely affordable. In most markets, mobile home park lot rents are roughly $1,000 per month less than the alternatives.

Between the two, I would want a mobile home park over a gold bar

Mobile home parks are income producing, while gold is not. Sure, you can go and try to sell off some of your gold each month, but that means you eventually have no gold left. Mobile home parks pay out income monthly, in-line with monthly rent collection. This money can pay for your lifestyle and not tap into your income generator. On top of that, it’s very hard to get a loan to buy gold, but mobile home parks typically come with a loan-to-value (LTV) of around 70% to 80%. In times of inflation, one of the strong benefits of real estate is that the mortgage gets reduced in dollar value at the rate of inflation. Gold does not have this advantage.

Conclusion

America is entering a phase right now that has not been seen in decades. Inflation guts the value of financial instruments. Mobile home parks were built for this moment in U.S. history. Mobile home park owners win again.

Frank Rolfe has been an investor in mobile home parks for almost 30 years, and has owned and operated hundreds of mobile home parks during that time. He is currently ranked, with his partner Dave Reynolds, as the 5th largest mobile home park owner in the U.S., with around 20,000 lots spread out over 25 states. Along the way, Frank began writing about the industry, and his books, coupled with those of his partner Dave Reynolds, evolved into a course and boot camp on mobile home park investing that has become the leader in this niche of commercial real estate.