The hunt for yield has pushed private equity firms and professional investors into new segments of the real estate market.
In recent years, sophisticated investors have snapped up multi-family units and single-family homes. Now, corporate landlords are targeting the most cost-effective 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 non-subsidized housing option in America. That’s because the owners own only the prefabricated unit and not the land under the home. The land is usually leased from the landlord 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 mobile park rental also often includes utilities and insurance.
Rents typically rise 4% to 6% annually and renters have the flexibility to move their housing unit to another park. These factors make the manufactured home highly attractive to low-income households.
As of 2020, nearly 22 million Americans lived in mobile homes. That’s 6.7% of the total population or about one in 15 people across the country. However, the economic inefficiencies that make these manufactured homes affordable also make them attractive to professional investors.
Investing in mobile home parks
Factors such as below-market rents and disrepair make mobile home parks attractive for investors seeking to add value. The typical mobile home park lot costs $10,000, which means 80 lots would be worth $800,000 on average.
Put simply, the entry price for these parks is much lower than multi-family apartments and condo buildings across the country.
Professional investors can also raise rents significantly to improve the valuation of the property. Attracting tenants with higher incomes or improving the park’s amenities and infrastructure are other value-add strategies that make this asset class appealing.
The fact that moving a typical mobile home costs between $3,000 to $10,000 also means that most tenants are unable to afford the move. This gives landlords immense pricing power.
Meanwhile, the yield is much higher. The capitalization 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 U.S.
The largest mobile park landlord 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 element of his $5.4 billion fortune.
In recent years, larger investors such as Singapore’s sovereign wealth fund GIC and private equity firms such as The Carlyle Group, Brookfield, Blackstone, and Apollo have also added exposure to this asset class.
Even Warren Buffett is involved. His firm’s subsidiary, Clayton Homes, is the largest manufacturer of mobile homes in the U.S., and also operates two of the biggest mobile home lenders, 21st Mortgage Corp. and Vanderbilt Mortgage.
You can invest too
Retail investors looking for exposure to mobile home parks have plenty of options. Acquiring a park is, perhaps, the most straightforward way to access this asset class. However, publicly-listed stocks and real estate investment trusts offer exposure too.
Sam Zell’s Equity LifeStyle Properties is listed on the New York Stock Exchange under the ticker ELS. Sun Communities Inc. (SUI) owns 146,000 units across the U.S. and some in Canada, while Legacy Housing Corp. (LEGH) builds, sells, and finances manufactured homes.
Retail and institutional investors could see more upside from this segment as the 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.
Source: https://finance.yahoo.com/news/corporate-landlords-blackstone-gobbling-mobile-174500027.html