Some years ago, my partner Howard and I decided to get into real estate. We started with one of those free investment seminars. Then we took more seminars. Eventually, we spent more than $40,000 on learning about real estate that year – we wanted to really know what we are doing.  We learned about various real estate investments – wholesale, foreclosure, rehab, short sale, residential, commercial, tax-liens, etc. Out of all the options, one thing that grabbed our attention was mobile home park investment.

I had never thought about investing in mobile home park before. I am born in Korea and I had actually never been in one. But the more we looked into it, the more we realized that it was a great investment option.

Mobile Home Parks are Recession Resistant

Firstly, mobile home park is one of the most recession-resistant real estate type. Unlike other types of investment like single family house, our mobile home parks continue to perform nicely in the recent recession. The stability comes from the affordability of the two main parts of the business – homes and land.

Mobile homes are quite affordable to begin with. Mobile homes (aka manufactured homes) are made in factories using modern manufacturing process.  Because they are made so efficiently, it costs 50% to 70% less than a building a regular house. Used mobile home costs even less – often selling for fraction of their original cost. Therefore, working families can afford to buy a mobile home when their income isn’t very high. Other times, mobile home park owner can provide affordable financing or rent-to-own program to help them buy a home.

Owners of these homes, then rent the land (lot) from the mobile home park. Because only land is leased to the tenants, the park owner doesn’t have much to maintain. Of course, MHP owners do have have to maintain road, street light, common area, underlying utilities in the park, etc. But they do not have to maintain the buildings (the homes). This keeps the lot rent low for residents.

In our parks, we are able to keep the home and lot payments below $500 (or $600 in stronger markets). It is very affordable for our residents. Because they are well-managed and so affordable, demand is high. Especially nowadays, people are looking for a place to live at a reasonable cost. Furthermore, residents can afford these rent even when they go through financial changes. These factors have made mobile home parks extremely resilient to the current economic conditions.

Investment with a Stable and Strong Cash Flow

Again, mobile home parks have low expense ratio. This advantage comes from the fact that the community owners maintain just the land, not the homes. Unlike any other commercial real estate investments, when you invest in mobile home park, you just maintain the land. Our parks run at about 30-50% expense ratio. By comparison, apartment building have about 40-60% expense ratio.

Another factor is long-term tenancy. When we  provide affordable home ownership through attractive financing or rent-to-own program, most people want to take advantage of that. They want to stay to own the home. After the home becomes theirs, only thing they have to pay is the lot rent, so it is even more affordable for them. So they stay. In our parks, most of our residents are long term residents – we have residents who have been living there for more than 10 years.

To Be Continued

In this part, I talked about the stability and cash flow of mobile home parks. In the next part, I will talk about other aspects of the business that drew us in, such as improving quality of living and providing home ownership.