Mobile Home Park Mastery: Episode 138

Trailer Vs. Tech For Highest Yield

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The Wall Street Journal recently declared that the 4,100% rise of one Mobile Home Park REIT stock (and 2,000%+ of another) was a better return than virtually every other sector in the market. They compare the rise of trailer parks to that of high-tech. But is that a fair assessment? In this week’s Mobile Home Park Mastery podcast we’re going to discuss why mobile home parks are doing so well, and why it has nothing to do with stock market speculation.

Episode 138: Trailer Vs. Tech For Highest Yield Transcript

Tech or trailers, which is the hottest sector of American investment? This is Frank Rolfe, the Mobile Home Park Mastery podcast series. The Wall Street Journal had an article a few days ago entitled, owners of mobile home parks have trounced the broader market thanks to soaring house prices, nimbyism and tenants who can't move out. And they further go on to say that the stock of the mobile home park rates have hit as much as 4100% increases since the housing crunch back in 2008. So what does this all mean? Does this mean that mobile home parks are now the newest thing? Are we the high tech thing? Are we hot? Are we just, have our few minutes of fame and then go off into oblivion like the dot com phase? Well, I think not. Let's break down first what The Journal was saying about the industry and why suddenly it's hot.

Number one, soaring housing prices. We all know the stats. The median home price in America is $200,000. The average house that's actually selling with the mortgage is more like 300,000 plus. The average apartment rent in the US is over 1200 a month. There simply is nothing in America today that's affordable for people to live in and we all know that to be a fact. There's no exception to that anywhere you go in America. Even in small town America where I live, housing prices are still extremely high. So where do you go if you're a new household formation, if you're down on your luck, if your career has never really blossomed, if you just like living small? Where do you go? Where can you go that's affordable? The answer is the only option which is not subsidized by the government, are mobile home parks. We offer you the ability to have no neighbor knocking on your walls or ceiling, to have your own yard, to have the ability to park by your front door and to have that all important sense of community.

And on top of that, to be a homeowner. Apartments can never offer this, not in a million years, and apartments can't even offer a lesser product than what we offer at an affordable price. For them to get the prices down to where people can afford to pay it, they have to rely on a thing called Section 8 and every other governmental subsidies. We don't require any of that. So to The Journal's first point about the fact that soaring housing prices is making affordable housing a hot topic, of course you have to agree. There's no question that affordable housing is a big deal in America right now where prices have gotten so completely out of hand.

The next item nimbyism. Is that true? Is that short term? No. Nimbyism stands for not in my backyard. What it means is that you can't build mobile home parks anywhere in America for the most part for the last half century. People don't want them in their neighborhood. People don't want them next door to their home. They don't even want them in the general community at large. Why is that? Well, most Americans have a terrible stereotype of people who live in mobile home parks. They assume that those who live in mobile home parks are undesirable on a variety of fronts, but one of the most politically correct ones they can come up with is simply the fact that mobile home park people are not high wage earners and therefore are going to drag down the general feel of the community because they don't make lots of money, they don't drive fancy cars, they don't spend lots of money in fancy shops or restaurants.

And of course most of that is true, but there's other things at play. It is very true, if you look on a site such as Zillow and you look at single family home prices next to mobile home parks, you'll see those homes nearest the park declined in value to as much as 50% less than those that are just a couple blocks away. So that stereotype is more than just a mental feeling. It's a financial impact that the trailer parks have had on housing. And since most people are aware that their home value will go down with a mobile home park nearby, they of course very aggressively stop any such rezoning from ever happening.

On top of that, people don't want to have mobile home parks in their general area from a City Hall perspective because they lose lots of money for them. If you think of a typical mobile home park, and let's say that mobile home park has a large number of families with children and you look at the cost of educating those kids in public school, here's how the numbers break down. It's about $8,000 a year minimum to educate somebody. And if you've got two kids in that house at $16,000 a year of education cost, but the property tax on a mobile home, which may be valued as low as $5000 or $10,000, it might be only $50 to $100 per year in property tax. And the greater real estate, the lot that it sits on, let's say that's valued at 50,000. Well that's only $500. So basically the park owner and the tenant are paying in about $600 a month in tax, but yet they're dragging out $16,000 in cost. And that doesn't even include any other program. That doesn't include uninsured medical care or any other social service.

So as you can see ... and nimby extends not only to people in the city who don't want mobile home parks there, but also goes on to include City Hall, which additionally doesn't want any mobile home parks there. So The Wall Street Journal is correct. Nimbyism has created this unusual sector of real estate, which has no competition. So you can buy a mobile home park safely in any community and you'll never find a new one going in to compete with you. And that's fantastic if you own mobile home parks. So they're correct on that one too.

Finally they declared that it's a great source of investment because tenants can't move out. Well, gosh, I've heard that before. Let me think. Was that my Waffle House quote from Bloomberg, oh, not quite a decade ago? Gosh, I think it said the same thing. For those who don't know my Waffle House quote, that's where I explained to the reporter from Bloomberg why mobile home parks have a lower default rate on their loans than restaurants do. In a restaurant, you open the doors, you never know who will come in, but in a mobile home park, you know every day who will be there. So I said it was like a restaurant. In fact, I said it was like a Waffle House where the customers are chained to the booths. Well, perhaps I should have used a more upscale restaurant establishment in that description. Maybe. I don't know why it caught on with such fervor. I guess because people thought it was me saying badly of residents of Waffle Houses.

I'm not really sure, but the bottom line is The Wall Street Journal agreed with the exact same item. They just didn't put a Waffle House in it and simply said tenants can't move out. It's simply a fact. Mobile homes are not mobile. They have not been mobile really in a wide-scale since the early '70s, but definitively in '76 when HUD took over and changed the name from mobile home to manufactured home because they were no longer mobile. They were too big. 98% of all mobile homes never make it to the second destination. They only go to the first one from the factory and they stop. Yes, they're delivered on wheels, but no, they're not meant to be pulled down the highway behind your car. They're not recreational vehicles.

So yes, tenants who can't move out is very, very important to the mobile home park owner. Now, not because it gives him therefore a right to do whatever he wants. Customers can always leave. They just can't move their home. They can sell their home, they can rent their home, they can theoretically pull their home out if it is able to be moved. But no, mobile homes are not mobile, and the name never implied that they were since 1976. Reality check, that's a long time ago. That's about 44 years ago. So for 44 years, the word mobile home was eradicated from the product. It didn't stop Americans from using the name because mobile home is a lot easier to say than manufactured home. So the name stuck, but the reality changed. And although the homes in the olden days back in the '50s and the '60s, back in the days of Lucy and Ricky and the long, long trailer on that feature length film, the homes simply can't move anymore.

And so yes, the homes can't move. Since the homes can't move, due to the demand we just discussed for affordable housing, you're always going to find a resident for that home, which means you'll always have income coming in on that lot. So those were the three reasons The Wall Street Journal liked the industry, high home prices, the fact you can't build parks anymore, and the fact that the residents can't really move their trailer out. Not that they can't move out. Sure they can leave anytime they want like anyone else, but as long as the mobile home is there, as long as the demand is there, you'll have a new tenant come right back in and start up that lot rent again.

So therefore are mobile home parks, are we just like tech stocks? Well I say not for a couple of key reasons. Number one, we are an income stock. Most of those tech stocks that have run up huge amounts, they are not doing that based on earnings. They're doing it based on speculation. Way, way too many of the mobile home parks in the United States, as we all know, are making money, while many of these tech stocks have never made money. Think of some of the largest names in technology. Have they ever made money? Tesla, Uber, any of these? The answer is no. They haven't made any money. People are speculating on the future. They're betting that someday they'll make money, but REITs are different. REITs are based on income. Don't make any money, won't be any value in that REIT. Very little speculation is put into the numbers of the REITs. So as a result, you can't really compare mobile home park REITs to tech stocks because we're based on income and that's a very, very important thing.

That's what caused the dot com bust, as everyone will recall. People were betting huge amounts of money on entities that didn't make any money. In fact, lost money, lost money with aggressiveness. Very, very big difference.

Number two, we've always been under appreciated as an industry. The reason that those REITs were able to soar 4100% was simply because they weren't appreciated before. If they had been fully appreciated back in the day, then their stock would have already been fairly healthily high and you wouldn't have had that big a jump. But because everyone has been beating on the whole idea of trailer parks for literally half a century now, they've beaten down not only the residents and the owners of these things, but also the REITs. People never took those REITs seriously. Apartment REITs, office REITs, even self-storage REITs of all things, those had investor confidence. People liked them, they liked the sector, felt good about them.

Trailer park REITs, mobile home park REIT, whatever you want to call them, nobody cared. There couldn't have been less love at a Rodney Dangerfield stand-up comedian section. So basically what's happened is you had this horrible underappreciated sector of mobile home park REITs that finally has earned, and rightfully so, the appreciation and the attention of Wall Street. So what you're seeing here is really just a perception change, not an economic change. Merely the way people look at these REITs. And thankfully finally people are giving them the respect they deserve and understanding that based on a lot of reasons, they are in fact the hottest sector in American real estate and will remain that way, but not for speculation purposes, not because of their five minutes of fame, not because of a fad. Simply because they've been doing a very important service to America, providing non-subsidized affordable housing.

They're doing a good job of it. And finally, people are waking up and respecting the fact that they do a good job, that they make money and they are worthy of investment. This is Frank Rolfe, the Mobile Home Park Mastery podcast series. Talk to you again soon.