Parkbridge Capital Group, Inc.
The mobile home park/manufactured home community has become a prized and highly desirable real estate investment over the past several years. The lower risk (in comparison to other real estate investments), while providing an element of much-needed affordable housing to the American public, has attracted many investors.. While the older version of this property type has been referred to as a "trailer park", the modern terminology is "manufactured home community," with related property type being the destination RV (recreational vehicle) resort. The RV resort is similar in nature, providing an affordable experience for those enjoying a recreational getaway or lifestyle.
In almost every instance, this investment involves a property where the investor owns the land and improvements (streets, often all or part of the utility systems, clubhouse, swimming pool, etc.) and the tenants own their home. The tenants pay rent for the right to occupy the site where their home is located and for the use of the facilities.
These land-lease communities have become the focus of many real estate investors for numerous reasons, including:
- In many areas of the country, the demand for lots in parks exceeds the supply, so vacancies are few or non-existent.
- The tenant, who is renting the land, actually is a homeowner and has a vested interest in maintaining the value of their investment.
- Although a manufactured home or mobile home can be moved to another lot, costs of moving the home and re-setting the home in a new location can be in the thousands of dollars, so homes are generally sold in place, furthering high levels of occupancy and stability of income.
- Land use restrictions and local economic environments have made it difficult to acquire appropriate zoning for additional parks, thereby eliminating competition for tenants and tightening the existing supply.
- A very affordable form of housing.
The Manufactured Home, or Mobile Home
The early beginnings of the modern manufactured home originated with travel trailers in the late 1920's, then evolved into defense-worker housing in the 1940's, to post-war era trailers, then mobile homes, and today, the manufactured home. Homes are constructed in accordance with the HUD Code, as set forth by the US Government. Manufacturers throughout the US build these homes in the controlled environment of a factory, many with the very latest computer-aided techniques, to strict standards with excellent exterior and interior design. The modern methods allow for homes to custom designed to specifications of the homebuyer.
The Evolution of the Land-lease Community
As Americans discovered their ability to travel by car over the highways to desirable, warmer winter climates, communities of trailer parks appeared in California, Arizona, Florida and other vacation areas. These parks became an affordable vacation get away. Over the years, communities were developed in other areas of the country, very often as starter housing. The affordability of the homes provided housing to a broad segment of the populace.
The strong attraction to the home-buyer was the purchase of a very affordable home, while renting the land, thereby holding down the cash investment they would have to make. Over the years, real estate developers established numerous communities throughout the country, where not only starter homes were sold, but many retirees who wanted to remain in their own hometown could have an affordable alternative form of housing.
Categories of Communities
There are two major types of parks; the retirement community and the local hometown community. These are further categorized into age restricted parks for persons over 55 years, and "all-age" parks, which allow residents of any age group. Each offers benefits and services to the resident as needed. It is not unusual for a retired couple to live in a manufactured home community in Seattle, Washington, for part of the year and have another home, for example, in a park in Phoenix, Arizona for the winter months.
The location, age, quality and amenities (clubhouse, pool, golf course, tennis, activity director, etc.) influence the amount of rent to be paid for a space (lot) in a park. The same features also influence the price of a manufactured home community as an investment. Other economic factors also affect its value.
Real Estate Investment Considerations
Major factors of a real estate investment include the quantity, quality, and viability of income from the asset. This can be generally applied to mobile home park investments based on the following:
||Due to residents owning their home and expensive costs to relocate and demand for spaces, turnover is far less than apartments and many other property types.
|Lower Operating Costs
||Since very little of the park is improved with buildings, maintenance is limited to common areas and utility services. Since tenants own their homes, on-site staff are limited in number. Turnover is not a significant consideration (for example, apartment turnover may be 50% to over 100% per year; mobile home parks typically average 5% to 15% per year).
||In an economic downturn, affordable housing becomes more important. Since tenants own their homes, they have a strong motivation to pay the rent on their space. Non-payment will usually result in a lien on the home, allowing the park owner significant rights not seen in other property types.
||High occupancy with low operating costs provides attractive and predictable cash flows. Also, due to supply and demand concerns with low vacancy considerations, consistent rent increases can provide for increasing cash flows on a year-to-year basis.
||The limited supply of parks will become more significant as the "baby boomer" generation ages and looks to retirement climates and as municipalities constrain development. Effective management and key upgrades by experienced and knowledgeable operators with capital to invest appropriately, add value and greater appreciation to the property.
Acquisition and Sale Considerations
The focus in the purchase of a mobile home park considers its current income, occupancy levels, income growth potential, property location, property condition, available financing, and demographic considerations.
It should also be noted that many parks become "land banks"; that is, the value of the land in certain instances escalates over the years to much higher levels. This occurs where a change in use for the land to a higher and better use (such as shopping center, hotel site, etc.), creates a situation where the land is worth more for redevelopment purposes than to continue its use as a park. While a community is not necessarily purchased with this benefit in mind, it is a situation to be attentive toward through the acquisition and ownership period.
The thorough analysis and understanding of these factors leads to an acquisition of a property that will generate multiple benefits to the ownership of the park.
A wisely positioned purchase gives greater opportunity for the benefit of significant profit on sale of the property. Correct selection of the appropriate buyer, timing of the sale, and maximizing the exit price are key elements in realized profits at the time of disposition.
The mobile home park/manufactured home community offers the investor the opportunity to own income-producing real estate that focuses on the important concept of a secure and low-risk investment. Further, the investor is often assisting the social and economic need for more affordable housing, at a time when it is broadly needed.
In addition, on-going cash flow and potential significant profit from a well-oriented acquisition strategy, management and selling program benefiting from the economic concept of supply and demand, continues to favor the investor/owner in this property type well into future.