Are Mobile Home Parks a Good Investment?
Why do people invest in Mobile Home Parks?
“For the good ‘ol American life. For the money, for the glory, and for the fun- mostly for the money”.
Burt Reynolds, Smokey and the Bandit, 1977
Pretty sure The Bandit was talking about Mobile Home Park investors when he said that. Why?
Demand Factors behind Mobile Home Parks
Mobile Home Parks provide affordable housing. No matter the economic conditions, there will always be a demand for low-cost housing. The US Census Bureau estimates the population of Florida in July, 2017 at 20,984,400 persons (or 7,868,926 households), and the median household income at $48,900. In Florida, recent statistics show that 1,401 households or just less than 20% of the population have incomes less than $20,000 annually. They also report 1,538,949 households have incomes less than $20,000 annually.
If we look at the ratio of housing costs to total income of say 28% — these families can afford less than $467 per month. The median price of homes in Sarasota, FL at the time of this blog post was $273,200 according to Zillow. Certainly beyond the means of folks requiring affordable housing whose housing budget is around $467 per month.
In Sarasota County as of January 2018, My Florida Regional MLS shows that annual rents ranged from $675 to $8,000 per month, with the median of $1,550 per month. Less than 2% were under $900 per month. It’s really tough to find a place to live if you are in the bottom 20% of the income scale.
Mobile Home Parks: The Best of Both Worlds
Local Sarasota affordable-housing guru, Harvey Vengroff, tried for 10 years to get approvals for an affordable housing project of 368 units. He eventually went on TV on January 12, 2018 to say “I quit”. For all of the talk the government agencies have for the topic, the reality is no one wants affordable housing in their neighborhood. Sarasota County loves to discuss the situation, but seldom does it result in a benefit to the folks that need the housing.
Mobile homes offer the comforts of home – privacy, a small yard, an ability to have a pet, and a neighborhood environment. A mobile home park is more desirable than its multifamily alternative, which is unattainable in the Tampa Bay market area. That’s why statistics show 8% of all Americans already live in a mobile home in the US and 10.4% in Florida.
They’re a Reliable Return on Investment
Mobile home park rents remain affordable, while providing investors a reliable return on their investment. The typical expense ratio for mobile home parks is 30% to 40% of the gross revenue. Since mobile home park owners are typically renting land, they do not have to budget for repairs, maintenance. There’s also less worry about capital improvements that are required for other property types such as apartments, etc.
Mobile home parks typically sell for capitalization rates of 6% to 12%, depending on the quality of the park. “Cap rate” is short for “capitalization rate.” It’s a percentage that you arrive at by dividing the current property value by the annual rental income, less any expenses.
In some parks where the investor owns both the land and the mobile homes, the expenses for repair and maintenance on the units typically reduce the cap rate – which increases the value relative to the rent. The upside is investors are collecting additional money rent on each home, plus space rental. The downside is that conventional financing is difficult when park owned units exceed 20%.
There’s Limited Competition
Roughly ten new mobile home park developments are built each year in the entire US. That’s it, ten.
The limited increase in supply is the result in the difficulty of most regions in overcoming the legal restrictions and obtaining the necessary permits, as well as zoning required to develop new parks. Park owners and investors shouldn’t be concerned about competition and over building from newer parks.
In addition, since mobile home parks are largely a land investment and often located on major highways, some parks are sold for commercial development. One of our clients has a 100-space mobile home park located on a US highway and has sold 30 spaces to a developer for retail uses for $2.2 m and will be selling the remaining 74 spaces for $1.85 m. Not bad for a $1.1 m investment in 2013! Furthermore, new mobile homes continue to be built – statistics show that just over 81,000 mobile homes were built in 2016.
Investing in Mobile Home Parks: The Takeaway
While maybe not the most glamorous property type, the Mobile Home Park Investment offer advantages that other investment vehicles may not offer. They include:
- Limited Ability for New Competition-few new mobile home parks are likely
- Reliable Return on Investment
- Hedge against U.S. economic decline-continued demand for affordable housing
- Mobile Homes provide a neighborhood and single-family experience for the tenant
- Barriers to moving out-it is expensive to move a mobile home
- Demand is for affordable housing is increasing
NEXT: THE ADVANTAGES OF MOBILE HOME PARKS AS AN INVESTMENT
Jim Boyd, MAI is a Senior Advisor with SVN Commercial Advisory Group in Sarasota, FL and specializes in mobile home park sales and appraisals. Jim has over 40 years of appraisal, development and brokerage experience. You can reach Jim at 941.320.6260, Jim.Boyd@SVN.com or Linkedin.