Mobile Home Parks And Inflation: A Love Story

“Inflation” is defined on Wikipedia as “a general increase in prices and fall in the purchasing value of money”. In mobile home parks it has a different definition: “the ability to raise rents and produce higher values while being fully protected from economic danger”. In a nutshell, inflation is a friend to mobile home parks. Why?

Inflation is what created the opportunity to increase rents

There is a false narrative produced by the media regarding mobile home park owners and rents. The public is told that mobile home park owners gouge their residents with ever-higher rents when the truth is that we’re still trying to catch up to 1960 rent levels. You see, mobile home parks were at around $50 per month in 1960 when most were built. In today’s dollars, that’s around $500 per month. However, the average U.S. mobile home park lot rent currently stands at around half that amount ($280 per month). The mom and pop owners of mobile home parks failed to raise rents in-line with inflation for decades, and now all that deferred inflation has to be adjusted at one time. Why not just leave those rents at $280 per month? Without higher rents there will be no way to make the costly infrastructure upgrades that old parks need, as well as no compelling case for the land to remain in a mobile home park usage to begin with. With apartment rents around $1,000 per month higher than mobile home park lot rents, why should mobile home park lot rents not adjust upwards?

Inflation is what allows all real estate investors to have higher values

Inflation has long been a friend to all real estate sectors – it’s shown as the best inflation hedge in most economic textbooks. Land and improvements are “hard assets” (just like gold) and their value is inherent regardless of nominal currency fluctuations. For example, if you own a mobile home park that is valued at $1 million and inflation goes up 3%, then the value of that property should rise to $1.030,000. However, a dollar will fall to 97 cents of purchasing power. Since debt does not go up with inflation – it’s amount being capped at what the mortgage says – as inflation rises, it erodes the debt. So the property worth $1,000,000 with a $800,000 mortgage will now be worth $1,030,000 with a $800,000 mortgage – for a gain of $30,000. This is true for all forms of real estate.

Mobile home parks are particularly well positioned for inflation

While inflation is all real estate sectors, mobile home parks are better positioned than most to fare well. That’s because mobile home park lot rents are typically shorter term in nature (from month-to-month to one year typically). While an office building or retail center has lengthy leases that cannot be altered (some for decades), mobile home parks can raise rents in-line with inflation nearly immediately. This flexibility is a huge asset when inflation goes wild – which it has in certain instances in the past.

All income properties are the perfect hedge to future inflation

If America re-enters a new phase of higher inflation – which current mass printing of U.S. currency to pay the trillions of dollars in debt the government has created would ultimately guarantee – mobile home parks offer a great hedge to the potential damage because they are 1) a hard asset and 2) one that can adjust the rents upwards quickly to hold their value. Although it gets little attention at the moment, inflation has been a strong U.S. economic cycle for over a half-century and the odds that it has disappeared are zero.

Conclusion

While inflation is relatively low today, it still has a huge impact on investments. Even at 3% per year, that’s a 10% loss over three years on your investment. If inflation was to escalate to higher levels, the carnage on all investment sectors would be vast and only those designed to handle such forces would succeed. Mobile home parks are one of those investments.

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.