The economy is cyclical, as evidenced by the occurrence of bull and bear markets throughout time. Typically, a spectacular occurrence that destroys most investments ushers in a transition from a bull market to a bear market.
This transition to a bear market has recently been accompanied by an economic recession, as seen in the spring of 2020, the Great Recession of 2008, and the Dot Com crash of 2000.
Home prices are forecast to be generally stable throughout the coming months despite the ongoing economic crisis. As a result, consumers will keep looking for manufactured homes and other low-cost housing options that demand less money up front and smaller monthly payments. Due to the low initial investment needed, buying a manufactured home is a good option amid the current economic crisis.
Despite the fact that the current economic crisis has affected and will likely continue to destroy numerous industries, organizations and the finances of thousands of people, many experts think that purchasing a home at this time could be one of the finest decisions you can make. There is now a recession in the housing market. To be clear, a downturn has hit the market for detached, single-family homes. Certain market subsets, including those dealing with multiple
dwellings, appear to be in entirely different positions. Modular or manufactured homes, which are on the cheaper end of the market, may experience the same thing.
But not every property investment is the same. Mobile home parks have a track record of providing exceptional profits, even during recessions. Here are five examples of why mobile home park investments are resilient to economic downturns and price increases.
1. Economic Performance Of Mobile Home Parks Is Often Stable Regardless Of The Overall Economic Climate
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The annual rent report by Apartment Guide shows that the average cost of a one-bedroom apartment is now over $1,600. Especially when compared to the average monthly cost of over $300 for a lot in a mobile home park, it quickly becomes clear that mobile Since 2004, mobile home parks’ operating income has increased by 87%, says Green Street Advisors, a worldwide real estate research organization. Even throughout the depths of the 2008 financial crisis, this revenue remained stable.
See link/source: https://www.washingtonpost.com/business/economy/a-billion-dollar-empire-made-of-mobile-homes/2019/02/14/ac687342-2b0b-11e9-b2fc-721718903bfc_story.html
Home living is a cost-effective alternative to traditional housing.
As we have seen over the previous two years, rising housing costs in a healthy economy make it more difficult for people earning minimum wage or less to buy a home. Having access to low-cost housing becomes increasingly important in a bad economy as job loss and salary declines increase the number of persons in need of such accommodations. As a result, mobile home parks are successful no matter the economic climate.
2. There Has Never Been Such A Huge Demand For Affordable Housing
Consider the buzzwords that have appeared in the real estate news over the past several years and how mobile home parks might mitigate their influence.
In recent years, the availability of reasonably priced housing has risen to the forefront of policy discussions at the local, state, and federal levels. Less than half the cost of site-built housing can be spent on constructing a mobile house.
In challenging economic times, everyone looks for ways to save costs. Due to being the most cost-effective housing choice, mobile home parks (MHPs) see an increase in demand during recessions.
Affordability
Affordable housing is a major selling point for anyone considering a move to a mobile home park. What keeps people there is a sense of ownership they can take pride in. This unmatched combination generates less vacancy and higher occupancy rates than any comparable property type, hence generating stable cash flow with minimal swings in value.
The supply of mobile homes always appears to be just right to satisfy the demand, likely because they can be manufactured in a short period of time to construct a single-family house or an apartment complex. Mobile house production techniques are quicker and more efficient, allowing them to avoid these.
3. Residents Of Mobile Home Parks Are More Likely To Remain In One Place For A Longer Period Of Time
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Residents own their homes and they rarely relocate. As homeowners, MHP residents take great pride in their homes and have a strong financial incentive to remain in the community. On average, people stay in their park for 15 years, and some people even spend their entire lives there.
This idea, commonly known as “sticky residents,” exemplifies a unique strength of MHPs and explains why these properties provide the best of both worlds. MHP investors enjoy lower churn and more steady income, while residents benefit from more affordable housing options.
Owning a home encourages individuals to remain in a mobile home park for a longer period of time. Most mobile homes within mobile home parks are never relocated after they are set up. The high price of relocating a household is a major factor in this decision.
In addition, around a third of those living in mobile home parks are retirees who are less likely to relocate than younger people. Mobile home park investments benefit from the steady flow of income from retirees on fixed incomes (such as Social Security, pensions, or SSI), as these inhabitants are less likely to be displaced by sudden changes in their financial circumstances.
4. Increased Profits For Mobile Home Parks’ Operations Are A Desirable Outcome
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High operating margins (expense ratios around 30%-40%) provide mobile home parks more room to recover in the face of a recession.
The principal debt on loans remains the same or decreases as rents rise to keep up with inflation. As a result, the value of the debt decreases while the value of the mobile home park asset rises due to the declining value of the dollar.
5. Mobile Home Parks Can Be Purchased For Larger Returns On Investment
The stigma attached to mobile home parks and the fact that they are a widely fragmented asset class means that they can be purchased for greater capitalization rates (net income/purchase price) than other types of real estate. Investors should expect higher returns if the cap rate is high.
Conclusion
Here are five reasons why we think buying into a mobile home park is a good investment during times of economic uncertainty. When one considers that modern mobile home parks are practically impossible to construct due to stringent zoning rules, it becomes clear that this asset class has advantages over others. Mobile home parks can provide superior downside protection, greater long-term profit potential, and more consistent gains. Mobile home parks are a great investment option since they are stable, profitable, and resistant to inflation and economic downturns.
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