There are 50 states in the U.S. One has no mobile home parks (Hawaii) and the other 49 all have different traits – both positive and negative – regarding historic mobile home park performance and opportunity. In this edition of the Mobile Home Park Mastery Podcast Series, we’re going to explore five of the top markets and what makes them stand out above the pack. Just as no two parks are the same, no two states are the same regarding making money with mobile home parks. Find out why.
In 1851, a popular expression was, "Go west, young man." It was to imply that if you wanted to succeed, that's where the opportunity was. Well today, the quote could be, "Go north, go south, go east, or go west." Because in the mobile home park industry, there's opportunities seemingly everywhere.
This issue of the Mobile Home Park Mastery Podcast series, we're going to go over five great states to buy a mobile home park in. And what's interesting is that only maybe one or possibly two of these states are ones that we think of based on all those MSN articles on the great states to buy apartments in and other types of real estate. So let's start off with one that people talk about all the time, although the reason we like it's probably a little different than apartments and that's, of course, the Lone Star state, the state of Texas.
Now, why is Texas so special for purchasing a mobile home park? Well, the first unique feature of Texas is it has the highest number of mobile home parks in the United States. Texas comes in first and there's a very close tie for second between California and Florida. But Texas is where the industry has its largest number of opportunities. The largest number of mobile home parks are in fact located in Texas. And what's also unique about Texas is it has perpetually strong economic growth. I can't really give you a downtime in Texas history except perhaps this Texas savings and loan crisis of the late 80s. Other than that one little niche, it seems that Texas has always got something going on positive in the world of job formation, whether it's oil and gas or banking or manufacturing, it doesn't matter. Texas always seems to be very, very good at creating jobs. They've always got new things coming online, new employers coming online. And that's great when you're a mobile home park owner because that means there's always plenty of jobs for your residents.
Another attribute of Texas is, and I don't know why this is, you'll see more breakdown between mom and pop rents and market rents in Texas than almost any other state. Let me give you an example. In Austin, it's not uncommon to find a mom and pop park with lot rents that are sometimes 250 to $300 a month in markets where the market rent is anywhere from 550 to $650 per month. Similarly, half off in many markets of Texas, and I think why that is is because mom and pops, as we've discussed many times, engage in what's called mom and pop quantitative easing. They keep their rents ridiculously low, never tracking them to inflation or what they could actually charge.
What exacerbates that even higher in Texas is you have so much plentiful economic growth that the rents have been on one trajectory and it makes mom and pops quantitative easing even more zany and crazy. So, they've been holding back rents when they'd been taking off like a rocket ship. Whereas in other states, they're still going up faster than mom and pop ever would rate raise them but still not stunning high.
Another state that's great for mobile home parks which rarely gets discussed is the state of Michigan. Now, Michigan has lots of parks with very much mom and pop issues. Mom and pops in Michigan are by far the norm. And that's simply because Michigan was off everyone's radar screen for so many years. Ever since Detroit and the auto industry collapsed, most people had written off the entire state of Michigan and as a result, there was not a lot of buying.
So you still have a lot of the original moms and pops shown in the mobile home parks. And as a result, you have two issues there. Number one, rents that are far below market but additionally, a whole lot of vacant lots. Because as the state of Michigan had its financial problems there in the '70s and the '80s and a lot of residents left, mom and pop never did a very good job of replacing those homes, of bringing in new homes or repopulate those lots.
So a lot of times, we're looking at parks in Michigan, they come with very large vacancy rates. But typically, only because mom and pop gave no interest in refilling. Even in markets that are very, very strong, you won't find much. What is an example is Traverse City, Michigan. We have a mobile home park in Traverse City, Michigan. It's been many years lead our fastest filling mobile home parks. But you wouldn't think of that. And the only reason it's that way is because the owners of the property just never had any desire to refill the lots. They just didn't know the pieces of how to even do it or they had no interest in doing it.
Michigan also, for many, many years, we completely erroneously stereotyped as being a part of Detroit. Now, Detroit is the largest city of Michigan but it does not really reflect the economic nature of the state. Throughout the auto recession and the bust in auto manufacturing, the middle of western sides were still very strong indeed. So most people just simply do not really understand the economy of Michigan. And another interesting feature is it has very, very upscale residents in mobile home parks there. I don't know why that is, nor does anyone. But typically in Michigan, you will have the highest levels of collections. You'll have the lowest levels of what we call churn, residents moving out of the homes where you then have to refill those homes. And when they leave, they typically leave their homes in really good condition. Property condition is equally strong in Michigan because the residents have such high pride of ownership as well as very high sense of community.
I myself would think one reason Michigan is so unique is simply because so many residents of mobile home parks in Michigan seemingly have downsized from regular stick-built dwellings. They've sold their home, they bought a mobile home, and they've reinvested the leftover money in things that are income-producing. So perhaps Michigan, and I don't know this in any way statistically, but perhaps it has one of the highest percentage of residents who are moving to mobile home parks from other forms of housing.
Third state that's interesting to discuss is South Carolina. Now, South Carolina typically makes people's radar screen as far as some of the stronger cities like Charleston. But really, the entire state has quite a few mobile home park opportunities in it. One thing about South Carolina is there's a lot of really, really messed up mom and pop parks. It's crazy. Even in Charleston, a market you would imagine is picked to death for apartments and retail and lodging. Still, you can find mobile home parks that are just disasters. They're half occupied with rents that are half of market rents. I don't really know why that is, to be honest. It's just the way things have grown over time. The economy of South Carolina as we know is actually very strong. Charleston, of course, is the anchor, but there's a lot of other parts of South Carolina that have done very well in manufacturing and assembly and things like that, so the economy is much stronger than most people think.
It's also kind of a sleepy state. People just have not given it a lot of focus other than Charleston. Most people don't really think about South Carolina as a place to invest, so there has not been a lot of demand, a lot of activity there. It's also got a lot of strong upside. Charleston has rents that are very far below market and it's very easy to fill lots there. If you're anywhere near Charleston, all you have to do is pretty much notify the mobile home dealers, you have a vacant lot and they will fill you up. And don't forget that roughly 16% of everyone in South Carolina lives in a mobile home. So there's lots of demand and there's a lot of acceptance of the product.
Another state that's great for mobile home parks is Iowa. Iowa's very much of a flyover state to some people. They only think of Iowa as a place they simply literally fly over on their way between California or the western states and New York. But Iowa's unique and has extremely strong economy. Even the more rural areas of Iowa are very strong. I recall that during the Great Recession when unemployment rates broke 10% nationwide, Iowa's still down in the low threes and fours. Why is that? Well, I think agriculture backstops the region very strongly. There's always a lot of decent-paying jobs in Iowa that go to agriculture and most people don't even realize agriculture is there. You'll also see a lot of strong upside in rents in Iowa. Iowa has rents many mom and pops have kept very, very low for no possible reason. If you go to the market such as Des Moines, you'll see that the regular housing prices in both stick-build and apartments are extremely high compared to what mobile home parks are charging. So there's a lot of opportunity in that state to raise rents.
Finally, the fifth state, it is a state that gets a little media attention but it's very, very strong in mobile home parks and that's Utah. I guess everything in the west is not created equal as far as how fast things get on the radar screen and how high they were bid up. But you'll do far better in Utah than most of your other western states as far as buying mobile home parks. You can still find parks in Utah. They have good prices. Although just a couple states over California, you can't. So Utah has at least enough east to it that you can still get good deals. Also, you'll find, of course, the economics are very, very strong in Utah. There's always a lot of demand and that's simply because stick-built prices and apartments are so very high there.
So you can find mobile home parks in Utah where you still have room to raise the rent significantly and you still are nowhere near exceeding the values and the price of affordable housing there. So Utah, again, very, very good market. It also has a lot of low cap rates. You have the ability to exit and refi, also at low cap rates. Utah is just enough west that there is kind of a cap rate compression that occurs as you reach towards California. And even though the cap rate on the front end may seem kind of low to you, you have to remember that when you go to sell it or refinance it, all markets, all lenders, all buyers will support that. So even though you may buy that mobile home park in Utah at a seven cap, which is a point or two lower than what you'd normally want to buy, you may find when you go to sell it, you can also sell it at a point or two lower. And you'll find the appraisals will typically support your purchase price in Utah.
Again, because there is some credit given to the simple fact that it's in the west. So again, when you're looking at mobile home parks, don't feel like you have to follow that same roadmap that they do in apartments. Don't feel like you have to follow the same path of stick-built builders. It's simply not the case. Never forget that mobile home parks are unique. They haven't allowed them to be built in about 50 years. So we don't have to go into markets with such insanely strong population growth and job formation that there's enough there to not only cover new construction but to keep the old filled. We have no new construction. All we have to worry about is keeping those old mobile home parks filled with plenty of residents wanting to come online and bringing in their homes and buying homes there. And that's typically not a problem in these five states or many other states.
Again, this is Frank Rolfe with the Mobile Home Park Mastery Podcast series, wanted to go over five great states to buy a mobile home park in. Of course, there's much more than five. I thought these would be interesting to discuss because they're seldom on those maps and those stories that you find on MSN and other sites. This is Frank Rolfe, we'll talk to you again soon.