Mobile Home Park Investment Overview
Unique Ownership Structure - Land Ownership: The Fund owns the underlying land and infrastructure and rent lots to tenants and, in some cases, we infill with new or used mobile homes for placement on vacant lots for rental purposes. This leads to:
• Drastically reduced maintenance expenses - Low expense ratio (~30%-40% vs. 50%-60% for apartment and commercial buildings)
• Pride of ownership - little to no turnover of tenants; most tenants stay for many years
• Predictable cash flow from renting the land with a low turnover of tenants
High Resident Switching Costs: It costs ~$5,000-$7,000 for a homeowner to move and reinstall their home into another mobile home park (“MHP”) community. This provides the Fund with pricing power to competitively raise rents on a regular basis.
Limited (and Diminishing) Supply of Mobile Home Parks: Extremely high barriers to entry (or, as Warren Buffet Calls them, “moats”) for new MHP developments as most cities do not allow new MHPs to be zoned and permitted. Current supply of MHPs is in decline due to developer conversion to alternative uses. It is estimated that the inventory of mobile home parks declines by 1% each year.
Strong, Consistent, and Growing Demand for Affordable Housing: In the decades to come, there will be millions of Baby Boomers retiring on a fixed income. 10,000 people are expected to retire each day through 2030(1) with an average social security benefit of just $1,404 per month(2) and almost no savings (seventy-five percent of Americans nearing retirement age have less than $30,000 in their retirement accounts).(3) One in three Americans currently have ZERO saved for retirement and 23% have less than $10,000 saved(4). The age group nearing retirement currently has a median retirement savings of only $16,000.(5)
23.5% of American households earn $25,000 per year or less,(6) which means their monthly housing budget is approximately $625 a month (based on 30% of income). This steady demand for affordable housing coupled with limits on new construction has resulted in a large gap in affordable housing. This affordability gap hasn’t been this severe in decades and it’s still widening.(7) Haven Affordable Housing Fund is helping to solve this housing problem by acquiring parks that can be rapidly in-filled to increase the supply of affordable housing.
Higher Cap Rates = Higher Returns: Mobile home parks can be purchased at 8%-12% cap rates with opportunity to improve returns by filling vacant pads with new and rehabbed mobile homes, raising rents, and reducing operating expenses, including passing on utility expenses.
Compelling Tax Benefits: Park improvements are typically allocated 65-80% of the total purchase price for tax purposes with depreciation schedules that typically average 15 years compared to apartments at 27.5 years and commercial properties at 39 years. This accelerated depreciation can be a significant tax benefit for investors.
Inefficient & Highly Fragmented Market – But for How Long? – Mobile home parks remain a real estate niche with limited institutional ownership and unreliable 3rd party market information and research sources. As such, many transactions are done off-market (or through “pocket listings”) among private owners. As the aging mom & pop park owners retire and sell their properties to investment firms, there will be fewer such buying opportunities in the years to come.
Huge Barriers to Entry: With slightly over 45,000 mobile home parks nationwide containing more than 4,200,000 pad sites, there are ample opportunities for investment, however many municipalities and communities don’t want, or allow, new parks to be built (less than 10 new parks are built annually), so the current supply is limited. The limited supply and growing shortage of affordable housing make existing parks more valuable going forward.
Highly Favor able Financing Available For Mobile Home Parks: Historically low interest rates provide significant positive leverage at current interest rates (3-6% range versus cap rates of 8-12%). The current debt markets offers a rare opportunity to lock-in cheap debt.
Inflation Protection: The national debt is now approaching $24 trillion and climbing. Inflation remains a real threat to fixed-income investments. Real estate is an inflation hedge; rents increase along with inflation, even above inflation in mobile home parks. It’s good to be a net borrower at long term fixed interest rates when, not if, inflation rears its ugly head.
Added Portfolio Diversification: Unlike other real estate asset classes, which are more correlated with overall economic activity, mobile home parks tend to remain stable during recessionary periods. During economic downturns, individuals and families may be forced to “downsize” their home or can no longer afford their large apartment rent. Mobile home parks generate superior returns that are uncorrelated with the broader economy and the stock market.
A Substantial Potential to Increase Lot Rents: A Duke University Economics Professor has studied the industry as stated rents may be nearly half of what they should be. If you compare park rents from the sixties to what they are today, with inflation taken into account, lot rents should be above $500 per month. The average lot rent today is $300 per month. The mom & pop owners have been doing their own version of Quantitative Easing by not keeping rents at least in line with inflation. Smart investors today are beginning to move rates up to bring park rents back in line with the market.
(1) CDC Health Report for 2017, statistics
(2) Social Security Administration, 2017
(3) Northwest Mutual 2018
(5) Federal Reserve 2016 Survey of Consumer Finance
(6) U.S. Census Bureau, Distribution of Household Income 2014
(7) Harvard University’s Joint Center for Housing Studies – Affordable Housing Study, 2013 3