“Mobile Home Parks are the best thing since slice bread” -Sam Zell
What is the best kept secret in real estate investing? I was wondering the same thing the first time I stumbled upon this lucrative asset class. Are you ready….it’s Mobile Home Parks!
Let us see why this niche is the best kept secret in real estate:
The cap rates in mobile home parks are typically between 9-12%, with cash on cash returns generating 20%.
As the old saying goes, the higher the risk, higher the return. This is not necessarily true with parks. They are generally lower risk due to the fact that most tenants can’t afford to move the homes(typical cost is $5,000), or if the mobile home owner/tenant does move, they will leave it to the park owner or sell it to a new tenant. So you rarely lose your cash flow from that unit.
If the economy tanks again, mobile home parks do well regardless of economic times because people are always looking for affordable places to live.
A well run park can generate operating margins that are one of the lowest in real estate investing. The typical park, with a low amount of rentals(or Park Owned Homes), typically generate expenses in the 30-40% range, dependent upon utilities.
Besides the pure economics of Mobile Home Parks, here are some other areas of why parks are the best investment you’ve never considered.
Supply and Demand Of Affordable Housing
Economics 101 on supply and demand of the affordable housing sector brings mobile home parks to front of the class. There is such a high demand to find clean, safe, affordable housing for people in America and the low supply of availability of such places, mobile home parks are the perfect place.
Simply put, there are more park’s being destroyed each year than there are being built. Just the pure opportunity cost to build a park, doesn’t make financial sense and will actually lose money over years of development. The biggest problem with trying to build a park is finding a location that will allow it to happen and there is enough demand to fill the lots with homes.
Mobile home parks have an accelerated depreciation of 15 years vs 27.5 years on apartment building, duplexes and other like multi family real estate.
Mom and Pop Owners
A major portion of existing parks out there are either owned by the original owners, their heirs, or another person who has owned it more than 10 years. There is roughly 45,000-50,000 parks in the United States, of which about 10,000 are owned by professional operators. So there is a great opportunity for anyone to get into this asset class, regardless of experience or money.
Regardless of what you once thought about mobile homes parks, the stigma that has been associated with them is not real life representation of what they really are, which is a safe, clean, affordable places for people to live. Mobile home parks are one of the best asset classes in real estate and provides some of the best returns in the industry. Now that you know what the best kept secret is in real estate investing, it’s your decision whether you want to let everyone know.