Let The Market Be Your Guide
"Don’t buy a park, buy a market”
Man, I wish someone told us that 10 years ago.
Mobile home park investors are spoiled because even remote markets tend to work out fairly well if you buy them right.
But if you’re sloppy on demographics and buy enough parks, eventually you’ll have to deal with a loser.
It’s not a fun feeling watching occupancy drop, collections spike and vacant homes sit vacant month after month. You start to feel like a deer in the headlights.
We’ve mentioned before in Case Study - Infill City MHP - stellar markets make everything easier.
Rents are paid on the 1st and cash flow grows like clockwork. You don’t even hear about vacant homes, they just sell between friends or family members desperate to get into the park.
Obviously cities where people are leaving and businesses are shutting down are not the best place to park capital.
But what about those gray area markets?
What’s a deal breaker & what’s just not ideal?
Population Growth
We’ll RARELY invest in a market with stagnate job or population growth. But declining population is a deal breaker.
Yeah, there is probably still demand for affordable housing in those markets, but can tenants afford your rent?
Demand and capacity to pay are not the same things.
There’s too much working against you in declining markets. Despite the demand for affordable housing, we still want a little bit of demographic wind at our back.
Can some people make it work? Absolutely, local operators will have an edge knowing which neighborhoods are more desirable & maybe the town has a stellar elementary school where parents are clamoring to get their kids in.
Generally though, we stick to markets experiencing population growth.
Great Schools
Speaking of A+ schools - we always look at the schools servicing the park. Is it a crummy school district? Not a deal breaker but can be a great selling point for potential new residents. Some of our best investments were parks located within a few blocks of a good school.
College towns are also appealing. Colleges can artificially inflate the local economy. Even in down times America’s youth are still taking out exorbitant loans & and heading to school. Just make sure it’s a viable college (check for growing student enrollment) as we believe more and more small + no name colleges will be closing this decade.
Diverse Employment Offerings
Sometimes we’ll see killer deals in ‘company store’ markets - or areas where employment is dominated by one major industry.
We usually see this in oil & mining but it could be a large manufacturing plant, corporate headquarters or perhaps a military base.
It’s not a 100% deal killer - but be careful. It’s obviously better to have a market with a diverse range of employment options so one industry can tank the city (**cough Detroit**).
Landlord Friendly
The Pandemic illustrated the drastic difference government policy can have on park operations.
Different states had varying approaches to lockdowns, evictions, & even rent increases. Long story short, the coasts were tough to operate in during COVID. Some states or counties had nearly 3 years of eviction moratoriums (or de facto moratoriums, as courts wouldn’t open) against non-paying tenants….long after the world had reopened and people were back to work.
Whatever your politics, that wasn’t super cool for landlords.
Those same markets might also tell you when & how you can raise rent or pass through expenses.
This is not to say most coastal markets should be avoided - far from it. It just means don’t go in blind. Know that the eviction process might take longer and you might need more admin support for increased paperwork in higher regulation markets.
For example - in Florida, larger parks have to maintain and file a “prospectus” to run their park. Just a fun little hoop park owners need to jump through. Not a big deal, but its a sign that there will likely be more regulatory oversight of a Florida park vs. a South Carolina park.
Competition
Keep an eye out for the occupancy of other parks in the market. Having competition isn’t necessarily a bad thing, but why go to war if you don’t have to?
For example:
Wichita and Phoenix have a TON of MHPs.
Have an unhappy tenant? Guess what - they can move their home literally across the street & get their moving/setup costs covered. That type of park requires higher touch property management.
Poaching in crowded markets (another owner “steals” one of your homes, yanking it out of your park) can be a real problem.
This is actually pretty rare, but it’s a bummer. With apartments, you lose plenty of tenants every year, but they tend to not take the 3 bedroom unit with them.
Broader Strike Zones
Thankfully, MHPs aren’t as sensitive to market changes as apartments are. We can absorb more volatility acting as a catch-all for anyone that needs to downgrade their housing budget.
So keep an eye out for parks on the fringes of great markets. What may seem rural today could be the hot new place a few years from now.
EX: You could have purchased every park that felt ‘in the sticks’ outside of Boise, Austin, or Nashville after the Recession in ‘08 and done unbelievably well.
Getting in at a lower basis & riding the suburban sprawl can be a solid strategy, assuming you’re holding for the long term.
Lesser Known Hot Spots
It’s hard to date the prom queen. Maybe ask out the sister???
Boise, ID has been red hot for awhile now, but its lesser known brother Idaho Falls to the east grew just as fast for a fraction of the price.
Bozeman, MT population exploded almost 20% in 2 years but most investors overlooked Missoula, which saw a respectable 8% jump.
Dallas, TX is still on fire but Waco’s pretty spicy too.
Conclusion
Obligatory Warren Buffett quote unskillfully shoehorned into MHP investing framework:
“The trick in investing is just to sit there and watch pitch after pitch go by and wait for the one right in your sweet spot. And if people are yelling, ‘Swing, you bum!,’ ignore them.”
We pass on deals all the time because we know better than to swing at pitches in markets we ‘think’ we can hit.
We only want to swing in our wheelhouse to make sure we get on base.
Happy Trails,
MHP Weekly