We won’t go over your head. We want to give it to you in plain English with real figures and real insights. So, without further ado, let’s get to it.
Why the mobile home investing market is so hot right now
The U.S. is facing a serious housing crisis
It’s not quite a full-blown housing crisis like the one we saw in 2008. Rather, we are in the midst of an affordable housing crisis where more and more people simply can’t afford decent housing in decent areas.
The crisis started as a simple shortage of supply in urban areas in a time when only demand is growing. You can only build so many condos and apartment blocks until you officially run out of space. Unfortunately, when demand exceeds supply, that also leads to a rise in costs. Housing in the U.S. wasn’t cheap to begin with. But it’s now becoming increasingly unaffordable to many households.
The U.S. government recommends paying no more than 30% of your income towards housing. However, according to a Harvard study, more than 11 million renters pay more than half their income for housing while almost 40 million, just over 10% of U.S. population, exceed the 30% threshold.
For example, in New York, the average gross annual household income is $68,740. The average monthly mortgage payment is $2,380. That means most people have to pay 40% of their income on housing. Those stats are replicated across large swathes of the U.S.
So … what does this lead to?
Single-family homes and neighborhoods, which make up to 90% of housing neighborhoods in some states, like California, are particularly under threat. This is one area where manufactured homes excel. Arguably the best feature of manufactured homes is that they provide a family living space for a fraction of the price.
This means that a lot of that pressure on the real estate market has led to more and more people turning to manufactured housing. The same can be said for rental units. In general, you can rent a mobile home with a lot for almost half of what you would pay for an urban apartment. All this means that, as a form of affordable housing, things are looking up for the manufactured home market.
More and more retirees are turning to mobile homes
We pay special attention to the older generation because they have become one of the manufactured home industries top audiences. It seems like 55+ or 60+ manufactured home parks are springing up all over the place.
One of the reasons behind the current affordable housing crisis is that the baby boomers are now hitting retirement. Unfortunately for them, studies have shown that few are adequately prepared for retirement. A 2018 study by the Transamerica Center for Retirement Studies shows that the average ‘baby boomer’ only has around $168,000 in savings. Additionally, they will be relying primarily on their social security, which is a measly $1,100-$2,000 per month.
Is there hope for the future?
Things look even worse for ‘Generation X’ who have only saved up $72,000 for retirement with about 10 to 15 years left to go. You don’t have to be a mathematician to work out that buying a new retirement home is off the cards for most people. So, where are they to turn for their slice of heaven to enjoy their golden years in the country?
Manufactured housing, of course!
Manufactured homes give you the opportunity to live outside of busy city limits, have a small yard of your own, in a home that requires little intensive maintenance at a very affordable price. 55+/60+ communities will also usually cater to older generations by restricting access to the park, providing services that become hard to do by yourself, and offering activities.
Almost no new parks are being built
Now, we get to one of the most contradictory and interesting quirks of the manufactured home industry. You might already be scratching your head. “If the market is so good, why aren’t people jumping at the chance to build new parks?”
For the record, since 2009, the total number of mobile homes shipped each year has steadily increased to around 92,900 in 2017. So, as we can clearly see, demand for manufactured housing is strong and growing.
The problem is that because of stereotypes, manufactured home communities are still looked down on by many. In many instances, city authorities have brought in legislation making it difficult, if not impossible, to build these parks within city limits. This has somewhat strangled the growth of new parks. Some estimates say only 10 new parks are being built each year.
If we account for the fact that manufactured home park land is often targeted for multi-million dollar developments, the actual number of parks might be shrinking. At the moment, there are close to 40,000 land lease communities that house, by far, the largest portion of the 10 million manufactured home residents in the U.S.
That means that if you manage to snap up a mobile home park now, you have acquired a rare asset that is only going to get rarer for the immediate future. And, unless trends change, the demand for this kind of asset should also increase. Essentially, this provides you with a golden window of opportunity to act now.
Manufactured homes are getting better and better
No matter what the figures say, if the homes themselves weren’t decent, it wouldn’t be much of an investment. After all, would you plunge hundreds of thousands, or millions, of dollars into an industry where your assets only have 20 to 30 years shelf lives?
One of the biggest boons of the manufactured home industry is how much the quality and standards of these homes have improved in recent times. Since the introduction of the HUD Code in 1976 (that standardized manufacturing processes, materials, and laid out concrete safety measures), these homes have improved in almost every way. Today’s manufactured homes:
- Last longer: Because they are so relatively new, no one can say for sure how long modern manufactured homes will last. Generally, homes are guaranteed a lifespan of 25 years. Some may go up to 50! However, considering the fact that much older and well-cared for homes are still standing, today’s much-improved models should last much longer.
- Look better: Design was a big issue with older mobile homes. However, today, you can get fantastic, modern looking homes at great prices. Some manufacturers, like Silvercrest, even specialize in creating homes that are beautiful enough to be considered ‘designer’ homes.
- Maintain better standards: Standardization and federal oversight have led to the vastly improved use of materials, manufacturing standards, and accountability within the industry. Innovation also means that manufactured homes keep inching closer to the living standards of stick-built homes. In some cases, mobile homes exceed these stick-built homes.
- Are safer: Before 1976, mobile homes were not the safest places to live. Fatalities due to fires were all too common. The HUD Code paid particular attention to this aspect. Safety levels are now comparable to that of real estate.
No matter in what capacity you invest, this means that the underlying quality of your assets is vastly improved.
Lower entry costs
The affordable nature of manufactured homes is not only a boon to potential owners but to investors as well. If we look at these quick facts from the Manufactured Housing Institute, we’ll see that:
- The average new manufactured home costs $70,200.
- At an average cost of $49 per square foot.
That stands in stark contrast to real estate where:
- The average home sold costs $188,900.
- At an average cost of $107 per square foot.
That alone means that purchasing a single manufactured home is a much cheaper option. Now, imagine that you want to buy a whole park with 50-60 units. Then, the difference in price can quickly go into the millions.
The fact that most units in a park are secondhand and slightly older means that smaller mobile home parks start at a few hundred thousand dollars. Higher-end or larger parks typically cost a few million.
That means that there is a much lower barrier to entry whether you want to buy and rent single units or an entire park.
Rapid ROIs is a star feature of mobile home investments
Being able to buy a mobile home or mobile home park on the cheap wouldn’t mean much if you didn’t see a return on your investment. Luckily, this is another area where mobile home investing shines, particularly when it comes to manufactured home parks.
Typically, investors in manufactured home parks see a higher and more immediate rate of return than those who invest in real estate. There are a few reasons for this:
- Maintenance costs are much less than for real estate properties.
- Tenancy rates are usually high with <10% vacancies.
- Tenants stay and pay as they don’t have other options since other housing options are too costly.
- Older mom-and-pop owned parks can usually quickly be made much more profitable by upgrading the park, bringing rent up to date, and raising the rent to modern standards.
On a smaller scale, the same goes for buying and renting out single units. Most mobile home park investments see the first-year ROI of 10% or more. This means you could pay off your entire investment in less than 10 years.
There are multiple ways to get involved
It might also surprise you to know that the industry has developed sufficiently to allow you to get involved in a number of ways. This means that:
- You can invest some way or another depending on your appetite for risk
- How much upfront cash you have.
- How much hands-on involvement you want.
Some options are:
- Owning and renting units: You buy manufactured homes either from manufacturers/wholesalers/agents or from the parks themselves to rent out to tenants. You collect the rent and pay lot rent to the park.
- Buying timeshare in mobile home parks: Some parks allow investors to buy shares in their park. This is particularly popular in the vacation mobile home park market.
- Investing in funds: There are already numerous funds where the core assets consist of manufactured home shares.
- Buying a mobile home park(s): Almost for the same price as a fancy piece of real estate, you could buy an entire park. You can then either manage the park yourself or hire a management team.
Sounds great! What’s the catch?
In the business world, there is no such thing as a silver bullet. Investing in mobile homes does in no way guarantee you of making a sound investment or becoming rich. Like any industry, it has its own share of problems. In this article, we focused on why it’s such an exciting opportunity for investors right now.
For a more balanced approach that also includes the risks involved, you should read our previous article The Risks of Mobile Home Park Investing and How to Be a Smart Investor.
Some of the risks/downsides to this type of investment include:
- Mobile homes are still more shortlived than real estate.
- A natural disaster can completely wipe out an entire park.
- While much safer, they are still not as safe as stick-built homes, especially regarding fires or human error.
- Older mobile homes that are not as safe/reliable are still widely found.
- The long-term future is more unsure than that of the real estate industry, especially in terms of legislation.
It’s a big deal indeed!
If you were to put us on the spot, we’d still insist that right now mobile home investing represents one of the most exciting, possibly rewarding, and unique investment opportunities out there. On our blog, you can find plenty of other articles looking at different aspects of running a mobile home park business or investment.