Why Mobile Home Parks are Recession-Resistant Investments
Why Mobile Home Parks are Recession-Resistant Investments
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Throughout history, the cyclical nature of the economy has been demonstrated by bull and bear markets. When a bull market shifts to a bear market, it tends to occur through a dramatic event that devastates most investments.
Recently, this shift to a bear market has been coupled with an economic recession as we experienced in the spring of 2020, in the Great Recession of 2008, and before that in the Dot Com bust in 2000.
Through all of these events, there has been one type of investment that tends to outshine others through every economic cycle: mobile home park investments. Why is this, and how do other real estate classes compare?
Reason #1: Mobile home parks are the most affordable housing.
During a recession, people will naturally seek the most affordable living solution. Mobile home parks (often called MHPs) experience higher demand during tough economic times because they’re the most inexpensive housing option.
In Arizona (where 52TEN is based) the average lot rent for affordable MHPs range from $300-450 per month, compared to $800-1,100+ per month for apartment rent of similar quality. That dramatic difference in affordability results in high demand for MHPs and is one of the reasons why they are a great investment: They increase in popularity during a recession and provide people from all walks of life with the most affordable housing solution.
Reason #2: Residents own their homes and rarely move.
Affordability attracts residents, but their ownership of the mobile home causes them to stay long-term. This resident ownership is the most unique quality of MHPs and is a little-known reason why they remain stable through all market cycles.
Residents pay monthly rent for the lot their home sits on, but since they own their homes, they also take care of all the ongoing repairs and maintenance to their home.
As homeowners, residents have pride of ownership and a vested interest in staying at the MHP, which results in the fact that they rarely move. It is not uncommon for residents to stay in the same park for 15 years on average, while some residents live in the same park their entire life.
Often called “sticky residents”, this concept represents a unique strength of MHPs and describes why they provide the best of both worlds for everyone. Residents secure affordable homeownership, while MHP investors experience low turnover and stable cash flow.
Reason #3: Residents attract new residents
When you provide your MHP residents with a great experience, they tend to attract others who are seeking the same great experience. In addition, even though it is uncommon for residents to move, if they choose to do so, there is high motivation for them to sell their home to a new resident. Here’s why:
Let’s say a resident wants or needs to move. They have three options:
Sell their mobile home
Move their home
Abandon their home
#1 is good for everyone. The seller has cash in hand, and the buyer becomes the new owner and long-term resident, who takes over the lot rent payment. In this case, no vacancy occurs, and there is no loss of income for the MHP.
#2 and #3 aren’t attractive options for residents. Moving is difficult and expensive, and while park owners can certainly resell abandoned houses, option #1 is so much more attractive. It is in the resident’s best interest to make that choice.
This unique attribute of MHPs makes them extremely stable investments, which results in consistent cash flow for those who own or invest in them.
How do other forms of real estate compare?
No other type of real estate has the unique advantages of a mobile home park.
Let’s look at a common comparison: apartments. Turnover rates can be up to 10 times higher than those of mobile home parks. This is simply because there is no compelling reason for residents to stay. They don’t own anything, so there is nothing to keep them there, except maybe a deposit. They can gather up their belongings and leave anytime they want.
When someone moves out, the owner is left with a vacancy plus the costs of repairs, cleaning, and marketing to attract a new resident. So not only is the owner not making money, but they are also forced to spend money before the vacancy can be filled.
Plus, during a recession, vacancies tend to go up. The higher the turnover, the more time and money it takes to fill units again. This ultimately leads to less cash flow, which is the key metric owners and investors are looking for.
Affordability is what attracts residents to a mobile home park. Resident ownership is what causes them to stay. That unique combination creates low turnover and less vacancy than other real estate and results in the most reliable cash flow with the least amount of volatility.
As demonstrated in the chart below, MHPs have consistently created the most stable cash flow of any type of real estate, even through the Great Recession of 2008. Through good times and bad, they continue to be a safe haven for residents and a smart choice for investors.
Same-Property NOI Growth
Mobile home park investments are great when the economy is good, and when everything else is in chaos, they can really shine. While the biggest win comes from having the foresight to invest in mobile home parks before a recession starts, volatility tends to be a good reminder to consider adding MHPs to your portfolio, which could turn into the best investment you’ve ever had.
This content is the perspective of the author and is not intended to be relied upon as a forecast, recommendation or investment advice, and is not an offer or solicitation to buy any securities or to adopt any investment strategy. The information and opinions contained in this content are derived from experience, historic data, and other sources deemed to be reliable, are as of the date of this content, and may change as subsequent conditions vary.