America is in an unusual place right now with jobs – and entire industries – disappearing overnight. Against this backdrop of instability comes the necessity of having a hedge, something you can depend on if the unthinkable happens and you lose your primary income source. And when it comes to a second stream of income, nothing fills this role better than a mobile home park.
A superior business model
When it comes to building a hardened steel, impervious to almost everything, cash-flow machine, nothing even approximates the lowly “trailer park”. Here’s why:
- No risk of new competition as virtually every city and town in America banned new mobile home park construction in the 1970s. Unlike apartments or self-storage, you don’t have to worry about a competitor popping up next door or across the street. In the words of Warren Buffett, the ultimate “moat”
- You just rent land. The word “park” in “trailer park” stands for “parking lot”. Since you don’t own the mobile homes you have no toilets to fix or roofs to seal. And that means little in cap-x and stress.
- Mobile home parks do better when the economy does worse – literally a contrarian business model built on the assumption that the U.S. gets weaker economically every day. Recession? Depression? That’s good news for park owners.
- The lowest cost form of housing in America. With affordable housing standing as the #1 problem in the U.S. your phone rings off the hook with demand.
No risk from new technology
The internet is like a submarine that is constantly firing torpedoes and sinking businesses. But mobile home parks have no risk from technological changes. Until they can find a way to house people by floating them in the air, there’s no risk of becoming the next Blockbuster Video. And most of the new advancements, like AI, only help the management side of mobile home parks, but have zero impact on park revenue.
Low management time required
The average mobile home park owner spends around 4 hours a week managing their property. That’s a fraction of every other type of business, franchise, or real estate sector. Why so little time needed? It’s again the “parking lot” business model in which you are only responsible for access to water, sewer and electrical service and decent road condition. The big stuff – the everyday life of your tenants and their mobile homes – is not your responsibility.
Lots of options to meet every budget and goal
There are around 44,000 mobile home parks in the U.S. and these range in size from two lots to a thousand. “Trailer parks” come in everything from $50,000 price-points to $50 million. And they’re in every state except Hawaii. So you can find a property that meets your budget and goals. In addition, you can expand your income stream empire and add on more parks over time. With only around 10% of parks institutionally owned, mobile home parks are the least consolidated of all real estate sectors.
Traditionally the highest rates of return
The standard goal of most mobile home park owners is a 20% cash-on-cash return. This is accomplished by having a three-point spread between the interest rate on the loan and the cap rate on the purchase. With bank loans currently running from 5.5% to 6.5%, that means you have to buy parks at cap rates of 8.5% to 9.5%, which is attainable. And, on top of that, there is typically the ability to raise lot rents to market levels, fill vacant lots, and cut costs where possible, so the upside is relatively infinite.
Conclusion
Mobile home parks offer the absolutely best form of additional income stream at a time when that hedge has never been needed more.
