I shot this photo yesterday at our local Walmart down in Perryville, Missouri. I assume it’s the same nationwide. You have three vending machines that dispense three different product lines. And the middle machine – selling Pepsi products in plastic bottles – offers soft drinks for $2 while the other machines selling cans of Coke and generic brands are only $1. Clearly, there must be demand for the $2 Pepsi or Walmart would remove the machine. So how can Pepsi get $2 when Coke is only getting $1?
The answer, of course, is that some people just prefer Pepsi and are willing to pay up for that drink. And the same is true about mobile home park residents. They are willing to pay higher rents if they feel that they are getting value for their dollar. The key is that one word: value. The dollar amount is only one part of the value calculation. The other part – equally important – is alternative options. In this case, since there is no other vending machine with Pepsi for less than $2 then the customer buys from that machine.
The average mobile home park lot rent in the U.S. is around $300 per month. The average apartment in the U.S. is now over $2,000 per month. So if you need a place to live – and the mobile home park lot rent was $400 instead of $300 – you’d still pay rent there because it’s 75% less than an apartment. So the big question for the future is: at what percent of apartment rent is a mobile home park still a good value for the customer? Mobile home parks are actually a preferable lifestyle to apartments for several reasons:
- Nobody knocking on your walls or ceilings (detached housing vs. attached).
- Have your own yard.
- Park by your front door instead of that communal apartment parking lot.
- Curbside trash service as opposed to hauling your trash to the apartment dumpster.
- A more residential feel – just like a subdivision.
So I’m not really convinced that mobile home park lot rents have to be inferior to apartment rents. Some people contend that this is unrealistic because mobile home park lot rents do not include the dwelling that is parked on the lot. The truth, of course, is that over 80% of mobile homes are owned free and clear but that doesn’t mean that they don’t still have the cost of property taxes, insurance and repair and maintenance (probably $300 per month combined). But clearly it’s insanity for mobile home park lot rents to average less than 20% of prevailing apartment rents.
You are seeing this progression in many American markets such as Denver, where lot rents are now nearing $1,000 per month yet the parks are completely full. Dallas, Houston, Austin, and a large number of higher-population American markets are on this same trajectory. But even in exurban and rural markets, you will see significant climbs in the years ahead. Not because of “evil” owner practices. Not because mobile home park residents are bad shoppers. But simply because – even at significantly higher lot rents – mobile home parks are the best value in town. And the park residents know that.
You see this situation frequently in news articles about mobile home parks shutting down for redevelopment and the residents saying “I can’t find anyplace else to live” which translates to “I can’t find any other housing option for $350 per month”. If there was a game show in which the winner found an alternative equivalent to mobile home parks at a lower price, then nobody would win. Other than living in your parent’s basement, you can’t touch mobile home park rents, and if they tripled it would not change the situation. And, of course, as rents go up, so does the net income and value of mobile home parks. It’s basic economics.
So why are we even talking about the fact that mobile home park lot rents are ridiculously low since everyone knows it (residents, owners, and the media alike)? Simply because America is on some type of crazy tangent right now where everyone wants everything for free. It started with Covid handouts and has now progressed to working from home (or more likely not working from home but nobody is there to monitor it) and student debt forgiveness. The media has convinced most Americans that all business is a non-profit and that we have suddenly become a socialist society that only exists to put you on the dole so you can stay home and pay video games.
But, of course, all things run in cycles, and just as businesses are requiring in-office attendance there will one day be a return to normalcy and seriousness about finances. J. Paul Getty – the richest guy in the U.S. in the 1950s – used to say that a good recession “clears the barnacles off the boat”. The tough job of providing food on the table makes Americans more demanding on their investment performance and more willing to forget following the herd and try new things. And mobile home parks will definitely be on that list.
If you want a jump on the inevitable competition, you should consider attending our next Mobile Home Park Investor’s Boot Camp. You will learn the science about how the industry works and the correct way to identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn-around and operate mobile home parks.