Mobile Home Park Mastery: Episode 313

Is Gold a Better Investment?

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You see endless commercials on cable promoting gold as the ultimate hedge to the looming recession. But is it? And how does it compare to mobile home parks? In this Mobile Home Park Mastery podcast we’re going to evaluate the factual data concerning gold and mobile home park performance in past recessions and learn why mobile home parks are far superior to gold in every category.

Episode 313: Is Gold a Better Investment? Transcript

In 1997, Robert Kiyosaki brought out a book called Rich Dad Poor Dad. It wasn't really intended initially to be a book about how to get ahead in America, but instead was the inclusion of a board game that Kiyosaki was going to bring out to try and make some money. Now, it's been almost 20 years since that big hit, and now suddenly we see Kiyosaki and others on television trying to tell you how great gold is. This is Frank Rolfe, The Mobile Home Park Mastery Podcast. I thought it would be interesting for us to compare and contrast the difference between gold and mobile home parks, and to point out that actually mobile home parks are worth far more than gold. Now, for those who don't know, I do hold an Economics degree from Stanford, not that it means anything, but you remember a few things from college, particularly if you're an Economics major, things like supply and demand and the Laffer curve, and you also remember the fact that gold really is not that great an item as an investment. All you have to do is just pull out your chart on gold pricing. So just go to your computer, go to Google and just put in historical chart, gold price per ounce.

And here's what you will rapidly discover when you just look at the chart, the first thing is that the all-time low prices for gold occurred in 1920, around 1970 and around 2000. And yes, those were all at the all-time lows during those respective recessions. So right off the bat, you see that gold is not really contrarian because it doesn't do well during recessions, it didn't do well during those three recessions, and there's nothing to suggest it would do well in recessions going forward. You'll also notice if you look at the chart, that in 1980, gold hit its all time high, $2,675 an ounce, and that was in 1980 dollars. And to make things even worse, 40 years later, it still has never broken that number. It's like someone who did really well during high school and it was all downhill after that, that's kind of been the way that gold prices have gone. Now, it did get back up to $2,192 an ounce in 2001. And if you look at that chart and you have a little interactive line that goes with it, you'll see if you bought an ounce of gold in 1981 and you held it for the next 42 years, you had it in your safety deposit box or in your safe and you saved it there as a sacred asset for 42 years, it would have been worth what you paid for it. That's right, a 42-year run of no value enhancement at all.

So what you see is that gold on that chart only really did anything impressive in two rounds of appreciation, one the decade of 1970 to 1980 and the other 2000 to 2010, but those periods were mostly build up, build ups to the bust. Right? That's what that's all about, because those basically, they're heyday of gold, the best it's ever, ever, ever done were during heyday periods in American history where the economy was running on all eight cylinders and things were doing good. It was a boom time improvement, not a bust. Now, why is that? Why is gold not contrarian? What's the problem with gold?

Well, the first thing is that gold obviously pays no dividends, that's one of the problems, so if you bought that ounce of gold back in 1981 and held it for 42 years, your total dividends were zero, so in that way, it's kind of a tough investment to do well with unless you can buy low and sell high, 'cause it doesn't pay any dividends as you go. Also it trades within a very narrow range, that range is about $400 an ounce to about $2000 an ounce, so it seems to have a ceiling, it just never beats that in all of recorded history, as long as they've measured the value of gold, it has never been above that range. And that's kind of alarming, look at the stock market, do you see that on the stock market chart? No. The stock market has peaks and valleys, but it's always sequentially rising higher, gold has never, ever done that.

And you'll also notice looking at that chart that the timing right now is terrible for gold, because gold does terrible during recessions, and clearly if there's one direction American economy is going, it's gonna be going down. Anyone who's lived through the '70s and seen the hallmark of Jimmy Carter and the entire area of stagflation knows, we are in the perfect setting for that. We have even many of the same players, that Carter had. Price of oil is now nearing, $100 a barrel you remember the old oil embargo from the Carter era that set in motion, the horrific economic disaster that was there. Carter was really big on trying to promote green energy, well, that you see that overlay on that. But we're worse off than Carter was because now we've got $33 trillion of debt to contend with and he had hardly none.

So, basically that's why almost every economist predicts recession coming up and coming up fairly soon. So if you assume recession is on the horizon, the last thing you would ever want to invest in based on its historic track record is in fact gold. Now, I would suggest one reason gold does so lousy it only does well during boom times, if it does well at all, is that gold is simply a commodity, and the things that gold goes into that gives gold value, they only do well during boom times, people aren't buying a lot of gold jewelry, manufacturers are not manufacturing products with gold in it, when times are tough.

Now, let's compare that to mobile home parks for a moment. Mobile home parks are an entirely different story. Now, mobile home parks have been through two recessions or depressions since I've been in the industry, one in the year 2000 with the dot-com bust and the other during the Great Recession in 2007, 2008. And in both cases, what we saw was an industry that things only went up in. Rents went up. Demand went up exponentially. So mobile home parks are definitely a contrarian investment because they do well when times are bad. Now, why is that? Why do mobile home parks do good when gold does not?

Well, the first thing is that mobile home parks are in fact the lowest cost form of housing in the US, and clearly when times get tough, when things get bad, people need cheaper ways to live. It's the exact same phenomenon you see at Dollar Tree which packs them out the door when times are bad. So just on that one simple item that everyone must have, housing, and mobile home parks are the cheapest form of housing, we have a very, very steady customer base, it only increases when times get bad. Also, the mobile home park industry benefits from the largest moat in all of US business that I'm aware of.

Warren Buffet always talks lovingly about a moat, and a moat is the concept of barriers to competition that keep your business safe from having an over-supply. And in the mobile home park business, cities have not allowed new parks to be built in around 50 years. Ever since the 1970s, most cities shut the door on mobile home park construction, and so doing they provided all park owners, every park in America with an usual asset, which is freedom from competition. And what that means is, as people over develop in such industries as self-storage and destroy the thing, if you look at self-storage right now, nationally, rents are down roughly 10%, occupancy is down 10%, why is that? Because they built way too much, they built billions of square feet of storage just over the last few years.

Mobile home parks, you can't follow that same example because you can't build any more of them. Also, mobile home park lot rents are crazy, stupid low, US average of about $280 a month. You could double or triple those rents and still be insanely cheap. And as rents go up we're still compared against our peers apartments and single family. And the contrast is unbelievable. The average apartment rent in America right now is $2000 a month. That's about eight times more than the average lot rent in the United States, and the average single family home is $400,000. And the average used mobile home in a mobile home park, you can buy for probably about $5000.

That price advantage is staggering, and that is why when times get tough, parks do better, because as people cannot afford apartments, they can not afford single family, whether they're in them currently and have to move down a step, or they're just a new household trying to figure out where to live, that's always gonna keep the demand for mobile home parks rising. Finally, mobile home parks do one thing that gold could never imagine doing, and that's pay a monthly dividend. Every month you take in your revenue, you pay out your expenses and the net of those two is what you get to take home. And that's a very, very meaningful dividend.

The bottom line to it all is that gold is not contrarian, gold gets a lot of time on television these days, I see a lot of advertising spots trying to convince you that gold is the way to go. Gold will offer you safety in bad times, and it's not true, but don't take my word for it, just look up the chart, it's right there on the internet, you know the internet has brought us a lot of facts and figures and stats to what used to be a lot of myths and legend. And one of the biggest is just the price of gold. The bottom line is mobile home parks are and will always be a far, far better investment than gold. This is Frank Rolfe, The Mobile Home Park Mastery Podcast, hope you enjoyed this. Talk to you again soon.