The hunt for yield has pushed private equity firms and professional investors into new segments of the real estate market.
In recent years, savvy investors have snapped up multi-family units and single-family homes. Today, business owners are targeting the most profitable segment of the real estate market: mobile home parks.
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The most affordable housing available
Manufactured homes or mobile homes are considered the most affordable unsubsidized housing option in America. This is because the owners only own the prefab unit and not the land under the house. The land is usually leased to the owner of a trailer park.
The average monthly rent for a mobile home in 2021 was $593. That’s significantly lower than the average one-bedroom condo rental rate of $1,450. The rental of the mobile park also often includes charges and insurance.
Rents generally increase by 4% to 6% per year and tenants have the option of moving their accommodation to another park. These factors make the prefabricated house very attractive to low-income households.
In 2020, nearly 22 million Americans lived in mobile homes. This represents 6.7% of the total population or approximately one in 15 people across the country. However, the economic inefficiencies that make these prefab homes affordable also make them attractive to professional investors.
Invest in mobile home parks
Factors such as below-market rents and dilapidation make mobile home parks attractive to investors looking to add value. The typical lot for a mobile home park costs $10,000, which means that 80 lots are worth an average of $800,000.
Simply put, the price of admission to these parks is much lower than that of multi-family apartments and condominiums across the country.
Professional investors can also significantly increase rents to improve the valuation of the property. Attracting higher-income tenants or improving park amenities and infrastructure are other value-added strategies that make this asset class attractive.
The fact that a typical mobile home move costs between $3,000 and $10,000 also means that most renters cannot afford the move. This gives owners immense pricing power.
Meanwhile, the yield is much higher. The cap rate (the ratio of net operating income to market price) could be as high as 9%, according to real estate partners Dave Reynolds and Frank Rolfe, who together are the fifth-largest owner of mobile home parks in the states. -United.
The largest mobile park owner is real estate veteran Sam Zell. Zell’s Equity LifeStyle Properties (ELS) owns 165,000 units across the country and the asset is a key part of its $5.4 billion fortune.
In recent years, major investors such as Singapore’s sovereign wealth fund GIC and private equity firms such as The Carlyle Group, Brookfield, Blackstone and Apollo have also increased their exposure to this asset class.
Even Warren Buffett is involved. His company’s subsidiary, Clayton Homes, is the largest manufacturer of mobile homes in the United States and also operates two of the largest mobile home lenders, 21st Mortgage Corp. and Vanderbilt Mortgage.
You can also invest
Retail investors seeking exposure to mobile home parks have lots of options. Acquiring a park is perhaps the easiest way to access this asset class. However, publicly traded stocks and real estate investment trusts also provide exposure.
Sam Zell’s Equity LifeStyle Properties is listed on the New York Stock Exchange under the symbol ELS. Sun Communities Inc. (SUI) owns 146,000 homes in the United States and some in Canada, while Legacy Housing Corp. (LEGH) builds, sells and finances prefabricated houses.
Retail and institutional investors could see more upside in this segment as economic inefficiencies are ironed out.
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This article provides information only and should not be construed as advice. It is provided without warranty of any kind.