Are mobile home parks just about “ripping off the poor”, or is there more to the story than that? In this second of a four-part series on “Breaking the Barriers” we’re going to take an honest look at the mobile home park business model and examine what the real impact is to the resident and community. It may just be that there’s more to the mobile home park industry than most people think.
Trailer park owners treat their customers like dirt. That's what some people will tell you, this is Frank Rolfe and our second of our four port series on Breaking the Barriers, studying the misinformation, myths on the industry. And we're going to be talking about our business model. The very business model of the mobile home park. Is it just a big rip off or is it something more?
Many people will tell you that mobile home parks are just like pay day lenders, all we do is take advantage of the poor. Now, in last week's podcast, we talked about the fact that people who lived in mobile home parks are by definition not poor. So, right off the bat, there's one horrible piece of misinformation that's been floating around America for far too long now. But secondly, we don't rip people off. Pay day lending, which I have no involvement in, but I know how the industry works, it does to a certain degree take advantage of people. They take out a loan and they find they later can hardly ever pay it back, unless they're able to get a second job or have some kind of windfall.
So, they pay almost a virtual tax every month, as far as keeping that pay day loan. Now, many of them need that loan, and I will not past judgment on whether or not pay day lending is in fact evil or not, because when people need money, it's maybe more evil not to get them money. But the simple fact is that's not our business model. We don't rip anybody off. We provide a service that no one else in America can figure out how to do, which is called affordable housing, and we do it in a manner that gives people a much higher quality of life than our apartment contemporaries. When you live in a mobile home park, you have no one knocking on your wall or ceilings. You can park by your front door, you have your own yard, you have a sense of community, and you have the American dream of home ownership.
Apartments provide none of those items. So, don't be saying that mobile home park owners rip off people, because if we do, then what do you say about the apartments? That's where the real rip off is coming in. Now, what about our residents being trapped? I was misquoted years ago and I can never live it down. I was called by a major publication and I was trying to describe to the writer the business model of mobile home parks. Of course being a writer in today's America, they're always looking for the bad on business, but I thought I gave them a very, very good direction on why mobile home parks are such a good investment. I told them they were very stable and I explained to them that restaurants are the most unstable form of investment. They have the highest failure rate, and that's because every day when you open the door to the restaurant, you have no idea if anyone's gonna walk in the door.
However, a mobile home park, it's like a restaurant where everyone is chained to the booths. You know precisely how many customers you'll have each day, because mobile homes never move. They twisted the quote slightly and it's always been known as my Waffle House quote. That I'm saying that people who live in mobile home parks are chained to the booths. No, that's not even what the quote was about, but let's go over and examine that. Are our customers trapped? And the answer is no. How are they trapped? They can always move, they can sell the mobile home. If they're unhappy where they are, most of the mobile home park owners will pay the move to move the customer from one park to the other. So, they're far from trapped. Now, some will say, "Well, it's unfair that they own the home and you own the land." Well, is it more unfair if they own nothing? That's what they have in the apartment world.
It's far more expensive. Often two times or three times more than what we offer, and you own nothing. Is that better? Is that a better way to live? Are you then not trapped? I think you're trapped in a perpetual cycle of poverty in that event, in my opinion. The next thing people will say is that are just the worst thing in the city. We hear that all the time. "Oh, yeah. Mobile home park owners, mobile home parks, that's what really blights our city." I think not. As we discussed last week, we are not the low income housing in any American city. That would mostly be apartments. There is very little subsidized housing in mobile home parks. Mainly because you can't live in a mobile home on Section 8, except very rarely. Most owners do not rent mobile homes, they sell them and the Section 8 program doesn't allow you to own anything.
So, I think predominantly, clearly, that is just a myth. We're not the worst thing in the city. I'll take you to another level. The US Government themselves sanctioned a study, it's been about 10 to 15 years ago, about crime in mobile home parks, because they clearly heard the same stereotype. What were the findings? They found that mobile home parks have no greater degree of crime than surrounding subdivisions. Where is the crime in America? Well, you guessed it. It's in apartments. Now, what about the myth that our rents are too high? That our business model relies on taking advantage of people by charging insanely high rents? That is probably one of the great jokes in the world of real estate. Let's examine our rents for a minute. Most mobile home parks are renting for about $250 a month. That's probably about the US average.
And for that, what do you get? You get your own lot, with your own parking pad and driveway, water connection, sewer connection, power connection, typically a full time manager to make sure your neighbors are all following the rules. My, that sounds like not very much money for all that. And now let's look at what people are paying for that. In most markets, the three bedroom apartment rent is $800 to $900 variety. The average mobile home in America is three bedroom. So, what a minute. How can this be fair? How can this be a rip off? The apartments are $900 a month, but the mobile home park lot rent for that three bedroom home is only $250. Now, you'll say, "Yeah, but you didn't include the home." No, in most cases I am including the home. Because most mobile homes in America are paid in full. You didn't get a mortgage longer than 15 years until the late '90s.
So, all of those mobile homes you drive through in most mobile home parks are already owned. 100% by the person living in them. But even if they go to move and go to sell it, they'll sell that home typically for $1,000 to $5,000, maybe $10,000 at the most. If you apply what that would cost you on mortgage, okay, you could throw in another $150, I don't mind. Now, instead of $250, plus the home payment of $150, they're $400. That's still less than half the price of the apartment and the apartment doesn't give them such things as privacy or a yard. So, our rents are simply not too high. Now, someone who stepped in the fray over the last couple years, a guy named Charles Becker at Duke University. He's an economist and he was going to do the first studies of the mobile home park industry. And the second study he did was on mobile home park rents.
He did a regression analysis and all this fancy research on thousands and thousands of mobile home park lots in the United States. And here's what he found, he found that our lot rents are roughly 20% to 50% too low, and he admits that, that number is wrong, because he based that on the Reeds and the largest owners, whose rents are very, very high. So, if you look at the mom and pop rents, it's very possible that we are 50% or even up to 100% too low. So, don't be saying those mobile home park lot rents, "Oh, they're too high. They're ripping people off." No. It's the other way around. The park owners are basically being ripped off themselves and that's because most mobile home park lot rents are low, mostly thanks to what we call mom and pop quantitative easing. What happened is the mom and pop simply did not keep the rents in line with inflation. Becker told me in his research he found a mobile home park and he was able to find the very first rented charged.
In 1960, it charged $50 a month. If you inflation adjust that $50 to current amounts, it would be $405 a month. But he found that park was only charging about $240. Almost 40% off where it would be just in line with inflation. Which then begs the question why? Why did mom and pops never raise their rents in line with inflation for all those decades? I would suggest one reason is that in the apartment industry, you always have a constant reminder of where rent should be. Because you can still build new apartments today, and as a result, all those class A new apartments are at one rent, a rent high enough to cover the mortgage, and then all the class B, class C, and class D apartment owners line up behind that. So, if they say that class A apartment in Austin is $1,500 a month, then the class B guy says, "Well, I'm valued at $1,300 a month." And the class C guy, "Well, I'm better. I'm $1,100." And the class D guy says, "Well, I'm even cheaper. I'm at $900."
But they can always adjust their rents and they can see, because they always have that point person who's building those new properties. But you haven't been able to build any type of mobile home park in any size since about the '70s. So, mom and pops lost track of what rent should be and what inflation should be, because they have no constant reminder of what they could be. But where they should be is significantly higher than where they are. With the average rent at $250, probably the rent should be roughly 100% higher in many cases to keep up with inflation. Now, that adjustment that many park owners are making, bringing the rents back up to where they should be. Someone can misconstrue that as being unfair, predatory, but it's not true.
What's happening is they're having to take advantage of all the inflation adjustments that never happened, all at one time or over a shorter period of time. And don't think for a minute think that they don't have to do that, because what happens is if you don't keep your mobile home park lot rents to a reasonable level, ultimately the park gets torn down. Every year in America, there's probably 100 mobile home parks that hit the wrecking ball. They become all kinds of usage, but most commonly apartments. But I see a lot of big box retail, I've seen shopping centers, office buildings, all kinds of things that goes up when the mobile home park goes down. But that's what happens in economics. That's what happens in real estate. If you don't maximize your return, you'll find another way of doing it.
Finally, one thing that people never seem understand or appreciate about what we do is we're the only non-subsidized form of affordable housing in the United States. Now, you might say, "Well, apartments, they provide all that really cheap rent to all these people in Section 8." Yes, they do courtesy of the US Government, which means you and I, the taxpayers, are actually who are paying for all of those millions and millions of housing units that are in subsidized housing. But we don't have any of that. There's no subsidizes in mobile home park world. We don't have any hands out to the government in any regard. So, here we are providing housing at a fraction of the price of apartments and it's all us, we're not subsidized.
If you watch the congressional hearings on CSPAN a couple years ago on the topic of affordable housing. You saw the shock and horror of all of the Senators, all the Congressman who for the first time in many cases realized that our entire affordable housing industry, besides mobile home parks, is a sham. Basically, there's no affordable housing. It's just a matter of passing the buck, of allocating who pays what portion of the excessively high housing cost. Is the taxpayer through Section 8? Is it some other form of subsidy? We, in fact, are the only solution, the only true solution to affordable housing. So, basically, our business model is horrendously misunderstood by almost everybody. Certainly the media. Certainly the government. And certainly the average American.
But the truth is we're a very fine business model, we do not take advantage of people, we don't rip anybody off, our customers are not trapped, we're never the worst thing in the city as far as crime, and our rents are certainly not too high. We are in fact the only solution to affordable housing when our nation's need for that has never been higher. This is Frank Rolfe for the Mobile Home Park Mastery Podcast. Hope you enjoyed this second in our four part series on Breaking the Barriers. And we'll talk to you next week.