We all know the media’s idea of what the “hot” markets are in America – but what about for mobile home park owners? Our list is very different and for good reasons. In this Mobile Home Park Mastery podcast, we’re going to discuss the very real issue of what makes a market “hot” for mobile home parks as opposed to everything from travel to business start-ups. Maybe the problem is that only 44,000 of the 300 million+ people in the U.S. care what “hot” mobile home park market construction truly looks like.
Episode 185: Why Hot Mobile Home Park Markets May Appear Cold To Outsiders Transcript
According to experts, the hottest markets to start a business in today are Orlando Florida, Miami Florida, Austin Texas, Tampa Florida, Charlotte North Carolina, Atlanta Georgia, Denver Colorado, the list goes on. Meanwhile, the top markets to buy or build a self storage facility are Portland, New York, Nashville, Seattle Sacramento, Boston, Phoenix, Orlando, but yet none of those markets are traditionally that fantastic when it comes to owning a mobile home park.
Sure, you can do well there if you own a mobile home park, but that does not in any way encompass our top markets. This is Frank Rolfe with the Mobile Home Park Mastery podcast. We're going to be talking about what makes for a great mobile home park market and why that rarely aligns with the top markets of other industries. I'm going to use as an example a market that we think it's a great market but you never hear much about, and that's Minneapolis St. Paul, metropolitan area there in Minnesota.
Now, if you've never been to the twin cities, you'll find upon arrival that it looks way nicer than you imagined, because it simply doesn't get much publicity. It's a relatively large city. The population is over three million, but that's not what makes it a great mobile home park market, not just the raw population, because it was population in a big way that fueled both of those lists I just gave you, but yet mobile home parks can work in much smaller populations. 100,000 and up typically as a Metro population works just fine for mobile home parks, but there's another reason that Minneapolis works so good.
It's not the size of the market. It's the size of the home price. The median home price in Minneapolis is $247,946, and in one of the suburbs that we own a mobile home park in, the single family home price is a staggering $330,900. Meanwhile, the average apartment rent in the market that we own there in the Minneapolis Metro is nearly 1,500 a month on the three bedroom apartment rent.
Now, why is that so important? Why is that single family home price being high and the apartment rent being so high so critical to our success? And that's simple. Because that's our competition. We're in the housing business, we provide affordable housing, and to have a need for affordable housing, you've got to have what we call contrast, which means the rest of the housing has to be expensive. Just makes good, common sense.
Now, not all markets have expensive home prices. There are markets and other states, even in that list I just read off to you, which the home prices really aren't that impressive. So, what's the first thing we want to see in a successful mobile home park market? It's a high home price. The second thing is we want to see low market vacancy on housing, because, again, we're the housing industry. In the case of Minneapolis St. Paul, we're talking a 5% vacancy rate. In the U.S., the vacancy rate average is 12.2%.
In the markets I just read off to you, many of those markets don't even hit 12.2%, so why is housing vacancy so important to us? Well, think of it this way. In many industries, it's all about raw population. For example, if you wanted to start a restaurant, you'd want to go where there's a lot of people to dine at your restaurant. You're looking for sheer numbers, but in our industry, it doesn't mean anything to us as far as how many people live in each household, and each household has its own housing unit. As long as our housing vacancy is low, that means that the housing market is very healthy.
Many parts of America, when you look at them on the best places, they'll show declining population. They're declining because we don't have as many children being born in the U.S. these days, as we used to, at least in lot of geographic areas. It doesn't matter to us, though, in the mobile home park business, because we don't care in a housing unit whether there's this four people or three people or two people or one person. It still is one filled unit.
So in this manner, we don't really care about population. Population could actually be going down. It doesn't concern us. It only concerns us regarding the amount of vacant housing. As long as the vacant housing remains high, then we're in good shape. Then, let's move onto the market itself. What do we know about Minneapolis St. Paul?
Well, we know some things. We know that Minneapolis St. Paul is a very diverse economy, which includes a lot of recession-resistant businesses. There's 16 Fortune 500 headquarters in Minneapolis St. Paul: Target, Best Buy, 3M, General Mills, Land O'Lakes, Xcel Energy, Ameriprise Financial, just to name a few. There's also many foreign companies with the U.S. headquarters also in the twin cities. It's got the second largest economy in the entire Midwest behind only Chicago, but one big part of it is, it has very, very heavy concentration in three areas that we like.
Healthcare, in fact, is the second largest medical device manufacturing center in North America. Education, large number of colleges, universities, and regular old high schools, middle schools and elementary schools, they're in the St. Paul Metro, and additionally, you've got a whole lot of jobs in the government sector. Because of its size, there's many government offices located, including the regular county and state governments. So the twin cities' market is not really that exciting. It's not a heavy growth market, but it's very stable.
It's very good about providing regular employment. In our industry, that's key because we're just trying to house people, and to get that done, we want them to have regular recurring paychecks. We don't need any kind of big growth industries. I don't need an Amazon headquarters to make sure that my people all have jobs. I need things that are steady. What I don't want is an economy that has a boom and bust cycle.
Look at Las Vegas, for example. Here you have an economy that's basically based on a luxury, the whole idea of gambling, gaming. Look what's happened during this past pandemic. What happened to their revenues? A colossal disaster. Perhaps no city was harder hit during the self-quarantine than Las Vegas. That is not a good market for what we do. If I have a mobile home park in Las Vegas, there's every reason to believe that my residents will periodically lose employment and if they have no employment, they can't pay the rent, but there's an even bigger issue that makes markets like Minneapolis St. Paul, Kansas City, and all these other what are called flyover markets and nobody seems to care much about or even pay attention to, what makes them thrive as mobile home park markets. It's simple, complete lack of new supply.
Let's imagine for a moment that we weren't in the mobile home park business. Instead we were in the self storage industry or the restaurant business, or the apartment business. All the time we're having to compete with this one tough adversary, that's new construction. I might have my apartment complex and everyday I wake up I'm terrified to hear if they're going to build a new apartment complex, a new squeaky clean class A structure right across the street, because it's going to kill me.
Now, my residents may move. They may move across the street to that new facility, and now they may have doubled the supply on my street of available apartment units, but in the mobile home park industry, we don't face any such competition. You can't build a mobile home park across the street, down the street, or really in just about any market we're in. The supply is completely capped.
Now, some people over the years have said, "Well, that can't go on forever. You're never going to be able to cap supply of an industry like this." I have news for them. It's been capped for about a half a century. This isn't some overnight occurrence. This isn't like grounding the 737 fleet where, well, one day we'll fix the planes and they'll go back into service. No. What's happened is that cities across America, just about every single one of them, have decided they don't want mobile home parks, or at least any new ones in the city boundaries, and it will never change, and it will never change for a very simple reason.
Mobile home parks lose tons of money for cities. They get very little tax from them, but they have huge amounts of services required. If you look at a typical mobile home park and you look at how many children, for example, live in an average mobile home park, and you multiply that times the tuition rate in the city, typically seven to $8,000 per year per child, and then you look at the property tax that they get, those old mobile homes may only be on the tax rolls at $5,000.
It's possible if you're in a state like Missouri, you have a 1% tax rate. You only get $50 a year for that home in tax, and a mobile home park, lot rent, lot may only be valued at $50,000 a lot. In a 1% state, that's $500, so the city's clocking in $550 per year in income, but they're paying out who knows how much, 8,000, $16,000 per household in skill tuition and other services. That's a money losing proposition. If you take that times 100 lots, that city could well be losing $1,000,000 a year.
Now, look at all the other options the city could have for a piece of land. You could put up a self storage facility. What's that bring in? Nothing but tax income. No cost. Or let's build an office building, let's do that. All tax income, no cost. How about a retail center? Even better. Now we get property tax and sales tax at no cost, and that's the reason you won't see new mobile home parks being built, and when you have an industry where the supply is capped, it changes the entire dynamics of the markets.
I no longer have to be in a hot market with lots of population influx because I don't need it. I'm not competing with anybody. Think of it like a cup with a hole punched in the bottom. It's really hard to fill that cup. That's how it is for people in other industries. All the time they need people pouring in, because they're trying to make up for the rate of speed of the water pouring out the bottom, to tread water and keep their property full.
In our case, there is no hole punched in the bottom of the cup, and therefore we can succeed fabulously in markets where other industries cannot. This is Frank Rolfe with the Mobile Home Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.