Mobile Home Park Mastery: Episode 324

The New Park Building Boom That Never Was

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Just a few years ago the hot topic at mobile home park conventions was the coming boom in new park development. After all, the Biden administration was constantly blasting propaganda that they were going to be the saviors of affordable housing and mobile home manufacturers were more than willing to use that party line to boost their stocks. Then, just as suddenly as it appeared, the dream of new development vanished. In this Mobile Home Park Mastery podcast we’re going to review the science of why mobile home parks will never, ever, be built again.

Episode 324: The New Park Building Boom That Never Was Transcript

A few years ago, I was at a mobile home park industry event, sitting at a table, minding my own business, where there were two guys talking loudly bragging they were going to build thousands and thousands of new mobile home park lots. They were going to go out and do what we call greenfield development. They were going to start with a flat plain of land. They were going to get all of their entitlements, subdivide, plat, they were going to build that thing and they were going to make a fortune. And they wouldn't shut up about it. Mobile home park people, mobile home park owners are typically fairly much reserved, fairly much good natured, but not these guys. Big loud-mouthed guys. Loudest people in the entire room, with this grand scheme of how they were going to go on to dominate the world. Fast forward a few years later, not a single project ever got built.

This is Frank Rolfe, the Mobile Home Park Mastery podcast. We're going to talk about why development has never worked and will never work. New development in this industry. So first off, the question would be, why did anyone think that it would? Why just a few years ago were people writing articles and talking loudly that the industry was going to change, people were going to start building new mobile home parks. Why did that happen? Well it happened because mobile home park lots became so expensive. As mobile home park lot rents have gone up so significantly over the years and cap rates have declined, suddenly just your average mobile home park was selling for $50,000 a space, $70,000 a space, even $100,000 a space in some markets. And people thought to themselves, "Wait, I could build a mobile home park space for $20,000 or $25,000 plus the land. So forget buying existing ones. I'll just go out and build a new one myself."

So it was basically greed that set it in motion. And then you had a lot of empowerment from people who manufacture mobile homes. These novices who'd never built anything like this would go around and ask mobile home dealers, "Hey, if I build a mobile home park way out here in the middle of nowhere, could you fill it up?" And they'd say, "Oh yes, could we ever? We would be able to fill a home in there probably one or two every week." But of course the answer is, they haven't sold one or two mobile homes a week since the late '90s and they never will again.

Average manufacturing of mobile homes in the US is down from about 400,000 units to right around or less than 100,000 units. So there's no way that that mobile home dealer was ever going to fill them up, but nevertheless either because they like to screw with their head, or they just like to talk big, not really sure, or they were hoping to ingratiate them enough that they would buy all their homes to fill the park from that dealer. The dealers jumped on the bandwagon and said, "Oh, yeah, yeah, we can do this." And then don't forget the Biden administration which has been giving this false narrative ever since Marcia Fudge got to be the head of HUD, talking about how she was going to open the floodgates for more affordable housing.

But like many things, none of that has actually transpired. So the question is, why can't you? Why can't you just say, "Oh, well, I'll build my own mobile home park. Forget all you mobile home park current owners that want such a big price. I'll just go out and do it myself." What stops people from doing that? Well, the first item is, what Warren Buffett often calls the moat. He calls businesses that are successful that they have a moat around them which stymies competition. And in this case you have the biggest moat in all of US, real estate.

You cannot get permits to build new mobile home parks, not in any major city, not even in small cities, not even in small towns like where I live in Ste. Genevieve, Missouri. Could you even have a prayer of building a new mobile home park? Now why don't they want them? Why are cities, towns, the entire American public so opposed to mobile home parks? Well from the city's perspective it's easy. If you have a city and you look at the cost of every kind of property in your city, and whether it makes the city money or not, let's just look at how those scales work.

If you've got a retail center, the city gets property tax, it gets sales tax, that's all good stuff. If you have a hotel, the city gets property tax, sales tax, lodging tax, maybe even liquor tax. Good, good, making more money for the city. But when you've got a mobile home park, you pay property tax, but the offset is tuition. Because many, many people in mobile home parks have kids, and those kids go to school, and those kids in school are costing that city $8,000 to $10,000 a kid in tuition. So they lose a fortune with mobile home parks. Always has been that way, always will be that way. So as a result if you're a city and you hear the mere mention of building a new mobile home park, you're stunned.

You recoil in horror. You would never, ever approve that. Asking a city to approve a new mobile home park is like asking the city to lose 100 grand, 200 grand, 500 grand a year in school tuition, because that's literally how the numbers work. And then for the people who live in the city, of course, it's a different issue. They do not want a mobile home park anywhere near their home. Why? Well, you could say it's the stigma against trailer parks because certainly that's part of it. But we can't get around the fact that until America loses that stigma, the fact that your home is near a mobile home park will drop your value by 25% or 50%. Just go to Zillow, identify any mobile home park on any market you like. Look at the price of a single-family home right up next to the mobile home park versus one that is far, far away. You'll see the price is about doubled when you're far, far away. That's a huge hit. If you bought your home and there was no mobile home park there and now someone proposes to put one there, you would fight that tooth and nail. You would never let that happen.

So the reality is if you want to build a new mobile home park, you have to go where there are no people. No residents to complain about you being built and no city fathers who to turn you down because they don't want to pay the bill. And that means you have to go out in really, really rural areas, way, way out in counties, far, far away from things like jobs, and shopping, and health care. And when you find that parcel all the way out there, what do you have? You've got no access to city water and sewer, no municipal utilities, so you're going to have to go ahead and build private. And building private is very, very costly. A packaging plant for sewage could easily run $1,000,000 or more.

Now what do you do if you build it though? Let's say you go out and you buy the land, and you get the permits, because nobody even really cares, and you put in your private utilities, and now you're open for business. No one is going to want to live that far out. Mobile home parks have been very, very successful even in exurban locations, which is the ring of cities and towns beyond the standard suburbs. But to get those kind of permits, you're gonna have to go even farther out than that. And the clock is ticking. When you build that new mobile home park your interest rate is already ticking.

By the time you fill it, assuming you could even find customers who would live there, let's say you fill one mobile home a month, then what are you looking at? Well if it's 100 space park it'll take you nine years to fill it. At 10% interest, things double every seven years. So where do you end up at? By the time all is said and done, when that park reaches enough occupancy to even pay its own bills, you have so much money of interest piled on top of it, you will never make any profit with it. I know someone who built a park from scratch. Smarter than your average person, they found a parcel that was already zoned, mobile home down in Southeast Dallas. But it had never been built on because the neighborhood was frankly terrible. But they thought, "Well, I'll give this a whirl, we'll see what happens." I checked back in with that person, four or five years later, they had finally gotten the thing full. And they told me it was a terrible, terrible mistake to have done. They had to buy and bring in every home that they sold, horrible interest carry, all kinds of nasty surprises while they were building it.

So dollar-for-dollar, they could have made just as much money buying an already built park with none of those cliffhanging endings that they had to worry about. So when you add it all together dollars and cents wise it just doesn't make any sense to build new mobile home parks. So then it goes to the government question. When the government's constantly suggesting that new mobile home parks could be built, what are they even talking about? Well, that's a good question. What they're talking about are areas where the government is very involved. Areas with lots and lots of federal subsidies. Areas in opportunity zones. But those are not in areas most people want to live. Most mobile home park residents like living in really nice suburban areas. They're always searching out the affordable housing where there's good schools, good shopping, and low crime. And the neighborhoods that the government would propose you build these new mobile home parks in are not going to deliver on those needs. So once again, it's not going to work. Now will the tide ever change? Will someday people be able to build new mobile home parks?

And the answer is clearly, no. The tuition issue will never ever change. Cities will always be hostile against the concept of building things that lose money for them. And I don't see the stigma in trailer parks going away anytime soon. I know we have little less trailer park humor today. Jeff Foxworthy hasn't been on TV in I don't know how many decades. But nevertheless, just look in the news, look in the media of all the articles on mobile home parks, look at shows like COPS, and you'll see there is a constant, never-ending subliminal narrative in America that mobile home parks are bad, the people who live in them are bad, and that flavors all Americans' perception of what they feel about mobile homes being built in their backyard, and it's very, very hostile.

I don't see it ever changing to be honest with you, certainly not in my lifetime. So as a result, you won't be seeing any new parks being built. Now that's great news if you own them because that means you're safe from having any further greater new competition. I know people in other sectors of real estate are frequently disheartened and disappointed. I've seen many cases for example where you have a self-storage facility that finally gets up to stabilized occupancy only to see a new one go in across the street and drives them down back to failure. And even if that one gets fixed then they build yet another one down the street. You see it with apartments, you've always seen it with retail, see it with office, but you won't ever see that kind of eventuality with mobile home parks which is why they are so safe and secure as an investment compared to all the other real estate sectors. This is Frank Rolfe, the Mobile Home Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.