As one of the most often misunderstood investments, mobile home parks receive a negative stereotype which leads most investors to miss their true power. However, the truth is emerging as mobile home parks have become the darling investment of some of the most well-known and largest private equity firms in the United States. For both large and small investors, there are many intrinsic characteristics to love about mobile home parks, and some of them provide the perfect answer to investing in today’s market conditions.
The Stock Market Will Not Go Up Forever
The last ten years have been the longest sustained bull market in history and although there is still a chance that another rally could occur, history would suggest the odds are against it. The volatility in today’s market is a warning sign to consider moving investment dollars to assets that can perform through a downturn.
Vanishing Investment Dollars
When the market crashed in 2008, billions of dollars vanished from retirement accounts and investment funds in a single day. What transpired over the following months erased over 50% of the average investor’s portfolio value. To avoid enduring that experience again, investors are seeking alternative investments capable of insulating them from volatility and market risk.
The Economy Will Not Grow Forever
The economic recovery that began ten years ago is slowing and there are signs of a recession on the horizon. Inevitably, a market correction will arrive and a recession will occur. Part of sound portfolio management is to position investment dollars for a correction, recession, or worst case, a crash. The secret is to move investments to something that is not correlated with the markets. Something that has the ability to perform through a recession.
Where can Investors turn?
The traditional advice is to diversify, but diversification is not always the answer. Every asset class experiences cycles. Many are already showing signs of top of the cycle, so if investors diversify, they could end up with a basket of poorly performing investments. Alternative assets are becoming the place to look, for both institutional and private investors. Availability and access to alternatives has made it easier to add these kinds of investment to a portfolio.
Alternative assets are things like commodities, private equity and real estate. But it’s not as simple as moving money out of the stock market and into an alternative, considering where we are at in the cycle for all the asset classes. The secret is to find an alternative investment that will allow you to avoid volatility.
Real estate has a relatively low correlation with the behavior of the stock market and is often viewed as a hedge against inflation. Real estate is also a tangible asset and has proven to be one of the best to hold, but even the real estate market doesn’t go up forever. However, within real estate, there is one little known secret that can solve this riddle.
Mobile Home Parks
The unique characteristics of MHPs cause them to be uncorrelated with the markets, the economy, and the performance of other real estate, allowing them the powerful ability to weather a recession. Because of these qualities, they can still provide a dividend to investors durning the most difficult times and shield investment dollars from losses. Some of the intrinsic characteristics of mobile home parks are:
- High Demand – Demand for affordable housing is extremely high and a recession will only create more demand.
- Low Supply – Surprisingly, there is a declining supply of parks and very few new parks are being built.
- Higher Cash Flow – Mobile home parks tend to produce more cash flow than other real estate.
- Less Volatility – Mobile home parks tend to be more stable, with more predictable cash flow.
- Recession Resistant – Due to their stable cash flow and ability to weather a recession, they are on the lower end of the risk spectrum.
- Uncorrelated Performance – MHPs unique strengths allow them to perform when everything else is in chaos.
Mobile home parks are easy to love for all their intrinsic qualities, but the primary reason why investors add this investment to their portfolio is because of their ability to perform through a recession. An investment in a mobile home park is one of the best recession resistant strategies and the winners are those who have the foresight to invest in them.
Jack Martin is a principal at 52TEN, an Arizona company focused on Mobile Home and RV parks.