Most investments have a shelf life. A CD typically expires in one to five years, and a T-Bill normally lasts up to ten. Half of all small businesses fail within five years, and those that don't rarely make it to ten. A residential mortgage – the longest form of investment with a standard dividend – burns out after thirty years. And the average life of a public company on the S&P 500 is only eighteen years – 1/3 of what it was in the 1960s. But there is one investment that lasts forever, paying monthly dividends that grow over time: the mobile home park. There are several reasons for this amazing longevity:
- The biggest "moat" in America: the sheer hatred of zoning officials and the public. When it come to U.S. real estate, overbuilding is the general theme and has been for decades. The normal life cycle of real estate assets is boom then bust based on oversupply. Take self-storage for an example. That industry built around 300 million new sq. ft. of inventory over the past five years – about 299 million more than they should have. As a result, rents and occupancy have plummeted nationwide. But the main culprit are zoning officials and the public that let you build virtually anything anywhere you want, as long as there's a piece of vacant land. And then there were mobile home parks. Virtually every city and town in the United States has banned new mobile home park construction via zoning regulations that forbid them to be built. Cities do this because they view "trailer parks" as bad for their town and a lousy use of land from a property tax perspective vs. consumption of city services. And when developers try to get a zoning variance to build a new mobile home park, the surrounding neighbors shoot it down due to the American stigma against the industry. That's bad news if you want to build a new mobile home park, but fantastic news if you own an existing one. By eliminating new supply the industry does not have to suffer through the same peaks and valleys as all other real estate niches.
- No competition from technology. First came the internet, then came AI. Industries are literally destroyed overnight – and they're pretty big ones, such as retailers and office buildings. Americans like to shop, meet, and entertain themselves on-line. And this technology risk has become a big part of assessing the survivability of any industry today. The good news for mobile home parks is that there is no way to float people's homes in the clouds, and you can't live inside of a computer no matter how many gigs it has.
- The endless demand for affordable housing. With the average single-family home now at $400,000 and the average apartment rent over $2,000 per month, there is very little in the housing market that the average American can afford. This is probably the strongest sector of demand in the U.S. and only mobile home parks can meet this need. That's probably why the average mobile home park receives around ten calls a week looking for something – anything – that can be moved into. As the economy slips into recession, this demand only goes up exponentially. And with the average single-family lot in America costing $80,000 and the average cost of new construction over $200 per square foot, there is nothing affordable that can ever be built going forward. As a result, the demand for mobile home parks is never going away.
- Incredibly simplistic management that anyone can succeed at. The name "mobile home park" translates to "a parking lot for mobile homes". And there is no more simplistic business model than a parking lot. People park their mobile homes on your land and pay you monthly rent. Your job is simply to make sure the utilities are flowing, the road is open, and to enforce the park rules. What you don't have to get involved in – which is what makes apartments so undesirable to operate – is the repair and maintenance of the units themselves. You don't have to fix toilets or worry about roof leaks, foundation shifts, or even patching that hole in the wall. And that means that you can operate mobile home parks in your spare time and, equally as important, your heirs can run the thing after your death. It's not rocket science and takes no prior experience.
- The strong respect of the lending industry due to spectacular performance. Most commercial real estate mortgages come in ten-year increments. And without being able to renew the loan you'll have to sell and the longevity of your investment is ruined. But the good news is that mobile home parks have earned the respect of the lending community due to exemplary performance as the lowest rate of loan default in commercial real estate. On top of that, there are so many lending products available including bank, CMBS "conduit" and Fannie Mae/Freddie Mac. On the horizon – and adding to this lending network – are insurance companies that are impressed with the superiority of the "trailer park" business model.
If you want to make investments that hold their value and flourish until the end of time – despite the U.S. economic cycles – then look no further than mobile home parks. They are clearly the superior option for long-term cash flow.
