Corporate landlords like Blackstone are devouring mobile home parks and rapidly increasing rents – which is why the space is so attractive to them

Corporate landlords like Blackstone are devouring mobile home parks and rapidly increasing rents – which is why the space is so attractive to them

The search for yield has pushed private equity firms and professional investors into new segments of the real estate market.

In recent years, seasoned investors have acquired multi-family units and single-family homes. Now, business owners are targeting the most cost-effective segment of the real estate market: mobile home parks.

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Cheapest housing available

Manufactured homes or mobile homes are the most affordable unsubsidized housing option in America. That’s because the owners only own the finished unit and not the land under the house. The land is usually rented from the owner of the trailer park.

The median monthly rent for a motorhome in 2021 was $593. That’s well below the median one-bedroom apartment rental price of $1,450. Mobile park rentals often include utilities and insurance.

Rents typically go up from 4% to 6% annually and tenants have the flexibility to move their condominium to another park. These factors make the manufactured home very attractive to low-income families.

As of 2020, approximately 22 million Americans were living in mobile homes. This represents 6.7% of the total population or about one in 15 people across the country. However, the economic shortcomings that make these manufactured homes affordable also make them attractive to professional investors.

Investing in mobile home gardens

Factors such as below-market rents and disruptions make mobile home parks attractive to investors seeking to add value. A typical mobile home garden costs $10,000, which means 80 lots are worth an average of $800,000.

Simply put, the price to enter these parks is much lower than multi-family apartments and apartment buildings across the country.

Professional investors can also raise rents significantly to improve property valuation. Attracting high-income tenants or improving park amenities and infrastructure are other value-added strategies that make this asset class attractive.

The fact that moving a typical mobile home costs anywhere from $3,000 to $10,000 also means that most renters are unable to afford the cost of moving. This gives landlords tremendous pricing power.

Meanwhile, the yield is much higher. The capitalization rate (the ratio of net operating income to market price) can 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 United States.

The largest mobile park owner is real estate veteran Sam Zell. Zell’s Equity LifeStyle Properties (ELS) has 165,000 units nationwide, and the asset is a key component 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 added exposure to this asset class.

Even Warren Buffett is involved. His company’s Clayton Homes subsidiary 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 invest too

Retail investors looking for exposure to mobile home parks have plenty of options. Having a garden is perhaps the most direct way to access this asset class. However, publicly traded stocks and REITs provide exposure as well.

Sam Zell’s Equity LifeStyle Properties is listed on the New York Stock Exchange under the ELS ticker. Sun Communities Inc. owns. (SUI) 146,000 units across the United States and some in Canada, while Legacy Housing Corp. (LEGH) builds, sells and finances manufactured homes.

Individual and institutional investors can see more upside from this sector as the economic shortcomings 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.

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