One of these days, we will wake up to the news that we are entering another recession. Why do mobile home parks outshine other investments in that environment? And how will other types of real estate compare?
Affordability of MHP
During a recession, tenants will naturally seek the most affordable living solution. Since mobile home parks are the most affordable option, this causes higher demand from prospective tenants. That logic makes sense to most people and is one of the reasons why mobile home parks are a great investment. But there is another “little known” reason why mobile home parks continue to perform, even when everything else in in chaos.
Tenants with Home Ownership
The most unique characteristic of mobile home parks is the fact that the tenants own their mobile homes. They pay monthly rent for the “lot” or the “space” under their mobile home, but they own their home. Home ownership causes them to have a vested interest in staying, regardless of what circumstances come their way. That creates what is commonly referred to as “sticky tenants” or tenants who rarely move. This is the unique strength of owning or investing in a mobile home park. It is not uncommon for tenants to stay in the same park for 20 years or more. Affordability is what attracts tenants to a mobile home park, but the real reason they stay is because of home ownership. This creates the best of both worlds for mobile home park investors: attract the most tenants, and keep them long term.
Do MHP tenants ever move?
Sure, they do. It’s just not as common as it is in other types of real estate. But here is the great part of mobile home parks: because they are a homeowner, if they decide to move, they will either choose to sell their home, move their home (which is difficult and expensive), or abandon a home worth $10,000-$50,000. Neither of the latter options are attractive, so if they move they typically sell their mobile home to another person seeking affordable living. That buyer becomes the new tenant in the park, who pays the lot rent every month. In other words, even if they move, they usually replace themselves. That results in low tenant turnover and very stable cash flow for owners and investors of mobile home parks.
How Does Other Real Estate Compare?
In most other real estate rental investments, there is no real reason for tenants 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 they move out, the owner is left with a vacancy, plus the costs of repairs, cleaning, and marketing for a new tenant. So not only is that owner not making money, they are forced to spend money before the vacancy can be filled. During recessionary times vacancy tends to go up, resulting in high tenant turnover, which is both costly and time consuming. That ultimately leads to less cash flow for owners and investors of most other real estate.
Affordability is what attracts people to a mobile home park, but the reason tenants rarely move is because they own their mobile home. That unique characteristic creates low turnover and less vacancy than other real estate, and results in the most reliable cash flow with the least amount of volatility. Mobile home parks are great investments when the economy is good, and when everything else is in chaos, that’s when they really shine. The real winners will be those who have the foresight to own mobile home parks or invest in them, before a recession occurs.