Where can one invest in rental income property where the renters fund the housing investment and pay all of the recurring operating and maintenance expenses for the housing?
Mobile home park owners/investors do not provide housing. They are basically land owners that rent small parcels of land to residents that have pride of home ownership and pay all of the maintenance, repairs, upkeep, taxes, insurance and any financing for the housing.
Compare this arrangement with residential income investors, such as apartment owners, that pay all of the housing investment cost and the operating expenses.
It took some time for sophisticated Wall Street investors to cope with the “trailer park” image, but the phenomenal profit rewards from a low-risk, high profit venture far outstrip the stigma. A quick Google search for “mobile home investors” will show that the likes of Warren Buffet and other Wall Street moguls have jumped in. Mega corporations are now acquiring mobile home parks in California and across the country.
The remarkable return-on-investment (ROI) benefits are there even where local rent control sets the amount of yearly rent increases. Nearly all rent control ordinances base yearly rent increases on cost-of-living expenses for consumers as published in the Consumer Price Index (CPI). The basket of family expense items used to calculate the yearly CPI cost-of-living percentage increase are not indicative of costs involved in land ownership. Even with an adjustment, the variance is a bonus that keeps on growing at an ever-increasing rate over time for park owners/investors.
Out of the 480 plus California cities, just over 100 have rent control for mobile/manufactured home parks. Where rent control is not in effect, rents can be increased whenever and to whatever amount the park investors decide. The return on investment can skyrocket.
When aggressive investors and predators get in the picture, they can increase rents to a point where homeowners can’t pay and can eventually lose the investment in their homes – also reducing the inventory of non-subsidized housing. Most mobile/manufactured homes are not able to be moved for a number of reasons and even if they could be moved the cost is prohibitive and there are few places to move them anyway. Few if any new parks have been developed for many years. The few spaces that may be available are in parks that have restrictive age requirements. As a result, the homes aren’t mobile and the residents are captive homeowners in a confined monopolistic market.
In most of California, where land values have greatly appreciated, the land from a vacated park can be sold for other uses at very profitable returns.
In addition to the devastating impact on seniors, veterans and low-income families, the lack of protection from exorbitant rents is a serious threat to non-subsidized, medium density, affordable housing.
With many challenges, the courts have upheld rent control for mobile/manufactured home parks as good public policy. However, the park owners/investors are well organized and well funded to represent their interests. Homeowners are vulnerable and local communities are ill equipped with restrictive budgets to do battle on issues of little interest to their constituents and the public in general.
But affordable housing is a major problem today with few viable solutions.
With over 4,500 mobile/manufactured parks scattered across California, there are about 750,000 non-subsidized affordable housing units that cost the taxpayers nothing. If one does the math, even if only a modest number is lost, the cost to taxpayers of replacing them with government subsidized housing would be well in the billions. The outlook is grim. The cost could be even less than the amount the investors will haul in.
Most people and legislators in particular have never visited a mobile home park, or entered a mobile home. They are not aware of the functionality and benefits of the lifestyle and the threats to it. They have misconceptions and probably are not aware of the above facts.
A diminishing mobile home lifestyle is a loss for all of California, but a great gain for Wall Street.
Date: Friday, September 2, 2016
To: Editor, Los Angeles Times
From: Bob Slagle, Resident
Palm Springs View Estates Mobile Home Park
Subject: Wall Street Threat to Non-Subsidized Affordable Housing in California
The news about multimillion dollar mobile homes at the beach and “trailer trash” elsewhere certainly stimulates public interest. Not as striking, but a couple of interesting facts about mobile homes may be of interest to your readership. The following item highlights a threat to affordable housing in California that needs to be aired. Feel free to make changes. It can be published with or without credit and I am prepared to furnish additional backup material if desired. Note that there are references following the article.
Introduction to Mobile Home Investing
Real estate investing as a broad term encompasses everything from single or multi-family residential all the way through commercial high-rise office space. Included somewhere in the middle is a lesser-known niche focus of mobile home investing. Often overlooked by many real estate investors, mobile home park ownership is simply another investment vehicle provided by real estate ownership.
America’s Trailer Parks: The Residents may be Poor but the Owners are Getting Rich
It’s an unusual but potentially lucrative investment: billionaire Warren Buffett is heavily invested, and his and others’ success is prompting ordinary people to attend Mobile Home University, a ‘boot camp’ in trailer park ownership is a market that has not been lost on some of the country’s richest and most high-profile investors. Sam Zell’s Equity LifeStyle Properties (ELS) is the largest mobile home park owner in America, with controlling interests in nearly 140,000 parks. In 2014, ELS made $777MM in revenue, helping boost Zell’s near $5B fortune.
Warren Buffett, the nation’s second richest man with a $72B fortune, owns the biggest mobile home manufacturer in the U.S., Clayton Homes, and the two biggest mobile home lenders, 21st Mortgage Corporation and Vanderbilt Mortgage and Finance Company. Buffett’s trailer park investments will feature heavily at his annual meeting this weekend, which will be attended by more than 40,000 shareholders in Omaha. Such success is prompting ordinary people with little or no experience to try to follow in their footsteps.
Goldman Alum Gives Up Funds to Become Trailer-Park Mogul
Weissman, a University of Michigan economics graduate, attributes his newfound calm to the supply-demand equation in the trailer park industry. With more of the U.S. middle class sliding into poverty and many towns banning new trailer parks, enterprising owners are getting rich renting the concrete pads and surrounding dirt on which residents park their homes.
The Reality of Investing in Mobile Home Parks
If you don’t know any better, a mobile home park can be overwhelming when you first drive in. But that’s only because it’s something you’re unfamiliar with. Most investors have never lived in a mobile home park, or seen one up close until they drive in. As a result, they don’t know where to begin. We have simplified the key drivers to profitability to just a handful of items: 1) property condition 2) rules violations 3) collections.
A fourth area (if the park has any) is the renovation and sale of any park-owned mobile homes. It’s vital that you remember that you are simply renting land – not homes. Since all other forms of multi-family revolve around owning and renting the dwelling units themselves, you have to keep reminding yourself that your product is only land, and that you don’t have to worry about the homes or the condition that they’re in, unless they present a hazard to public safety.
You Won't Believe this Hot New Investment ‘Vehicle’
Some of Wall Street and Silicon Valley’s best minds are packing it all in for greener pastures. And they’ve found those pastures in… trailer parks.
‘Trailer parks have unusual economics’, says Anthony Effinger, the author of an article on the topic for Bloomberg Markets. ‘It’s a supply and demand curve that’s super attractive to investors.’
Push Rents Relentlessly
There is no better way to make money in the mobile home park business than to increase rents. Every dollar of that increase goes directly to the bottom line and is worth 10 times more in determining the value of the park. Increasing rents by $1,000 per month yields $120,000 in sales value enhancements, at a 10% cap rate.
Groom the Park Into a 20% Cap Rate
If you push the rents by about 10% each year, it will take you only about seven years to double the rent. Can you push rents this aggressively? You bet. At $3,000 or so to move a mobile home, there is a huge barrier to moving out, so tenants will accept pretty much whatever you raise the rents to.
Dave Reynolds, Mobile Home University (MHU)
Unfair Advantage #3: If you don't pay your rent, the park owner takes your house.
Of course, that's not what the law says – but that's how it works in real life in 99% of the cases. Let's assume the tenant can't pay their lot rent, but own their own home. They obviously can't afford to pay a mobile home mover $4,000 when they don't even have the $300 or so for lot rent. So instead they run off and abandon it. Then the park owner takes the home through abandoned property laws. Sure, it sounds unfair. But there's nothing illegal about it. It's no different than the self-storage center owner selling the tenant's contents for unpaid rent – except for the fact that the home is worth about 100 times more than the usual self-storage contents.
Frank Rolfe, Mobile Home University (MHU)
Approximately 100 California jurisdictions have passed Mobilehome Rark Rent Control/Stabilization Ordinances to help preserve the affordable housing which parks provide. A majority of these were initiated between the early 1980s and late 1990s. Only a few have been enacted since. RCOs/RSOs limit rent increases to once per year with the increase frequently linked to the Consumer Price Index (CPI).
San Luis Obispo Mobilehome Residents Assistance Panel (SLOMAP)