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Used to be an amazing investment, but the secret has been out for a decade now and cap rates are similar to apartments. Could be more management intensive than apartments but hard to screw up if your park has public utilities and tenant-owned homes. It's really more of a collections business than a real estate business...
https://www.bloomberg.com/news/articles/2014-04-10/trailer-parks-lure-i…
I agree mostly with this, but I still think the value-add opportunities are significantly better in MHC. There are a lot of smaller communities (less than 75 units) that are mom and pop with below market rates that can produce fantastic returns if operated correctly. Also, the big players aren't spending time on those due to price and size.
How are they more management intensive? We looked to deploy capital behind some sponsors in the space and there are barely any line items.
Indeed R&M will likely be lower at a mobile home park vs an apartment, as long as you don't own the homes. I was more referencing the fact that there will be more tenant issues and delinquent rents to chase compared to a Class A apartment building. And if you lose any tenants, finding a new one could likely require dropping $50k - $100k on a new home vs an apartment just requiring some paint.
You are comparing class A apartments to “trailer parks” which is pretty rough and even Fannie/Freddie will not lend on those parks. If you are comparing class A apartments, look at the best in class parks, those don’t tend to have occupancy issues and it will primarily have tenant owned homes. As an investment one should not be buying parks with more than 30-40% park owned homes anyway. The Agencies prefer parks with mostly tenant owned homes and will only underwrite lot rents as homes are not part of the collateral.
Fannie and Freddie will also underwrite a sub 5% vacancy for MHP’s that show a strong occupancy history. Thats something they will not do for apartments, even if it’s class A. There is a reason they do that as occupancy issues is not something they see typically in this sector. Yes tenants can leave anytime but they are pretty sticky typically. It costs money for them to leave too. If it’s a tenant owned home, it’s a lot more work for them to move the home as opposed to an apartment tenant just leaving one day. Mortgage delinquency is extremely low and that also proves how strong the asset class is.
Depends on the trailer park, there are some really nice ones in California and Florida. Opposite end of the spectrum are some really run down trailer parks with decaying homes, crime and bad tenants.
As I understand it, one of the opportunities in this space is for property owners to provide chattel loans on the mobile homes themselves. And since chattel rates can be pretty high, this helps the returns.
I've always felt a little icky about MHPs as an asset class. I'm sure there are many owners who are providing a nice living experience for their residents and are a net positive, but the few times I've been pitched on an MHP deal, I couldn't help but feel awful about the investment strategy which was usually something to the effect of "mom and pop ownership kept rates low + nowhere for these people to go + increase rates over time + minimal capex spend + chattel loans". Decided I didn't want to be a part of that, but again, I'm sure that's a just a portion of MHP investors and there are many groups out there doing God's work.
True on a lot of points. I think that's the nature of any kind of RE investing, or even some private equity investing; when you operate a business solely from the perspective of making a profit, that's when you have gto figure out which lines you are willing to cross. Additionally, that's some parts of the business that people enjoy go away.
As an example, it's like a local deli vs Subway, local deli's may not operate on a business model where they are counting the slices of cheese on a sandwich, but that's what make Subway successful. Or, in RE, you have local operates of MHP who may just be looking to provide an affordable environment locally, then you have investors coming who offer the owners a buyout, then the investors begin moves that price out the people already there.
All fair points. I think the reason I struggle with MHPs especially though is that those residents truly have few options, and so if the profit motivation of owners impacts a person's ability to live in those communities, I struggle with that ethically. And not to just harp on that in MHPs, I have the same feeling (sometimes) towards Class C value-add. The latter is a little different, however, because the built environment of an apartment building necessitates pretty significant capital investment every decade or so. I have seen apartment communities where ownership hasn't done a thing in 30 years and, yes, the rents were cheap, but that was not a living environment that I would wish on anyone. Now, if someone is coming into a MHP and investing a lot back into the community, I understand that necessitates the need to raise additional revenues (and in theory, a resident would be willing to pay more for a cleaner/safer/nicer living environment). But the last pitchdeck I received on an MHP was so squarely in the "raise rents because we can" camp that I would never do business with that person in any capacity.
GMF Group
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