If your definition of a good buy is to buy low, and buy when “there is blood in the streets”, then this is the time to buy mobile home parks. Prices have never been lower, and sellers more desperate, since the mid-1990s. And there does not appear to be any improvement on the horizon. This buyers market will last at least through next year. But, as soon as the credit market recovers, then that's the end of the window of opportunity. How did the market change so fast?
Mobile home parks have remained one of the most stable and predictable of real estate asset classes. The loan failure rate is nearly zero. In fact, I have only ever seen firsthand one park in foreclosure. Why? Because mobile home park tenants are trapped with about a $3,000 cost to move their homes. Consequently, they can't afford to move out of your mobile home park, even if they wanted to.
Also, affordable housing is as much in demand today (or maybe more) than it was twenty years ago. And there is virtually no new mobile home parks built in the U.S. each year, so the supply side never increases. In fact, in some areas, such as Florida, the number of parks sold and converted to a higher use is alarmingly high. So, in effect, the number of parks in the U.S. is shrinking, not growing.
So, why the desperate sellers? In any asset type, there are always folks who want to sell due to retirement, health, marriage or estate problems. There are about seventy-five new parks that go on the market publicly (more privately) each month – but less than 1/3 of those are being sold to eat up that supply. And why is that? Because the lending market for mobile home park mortgages has virtually vanished overnight. Even though the default rate on such mortgages is virtually non-existent, the whole industry has been lumped in with the rest of the commercial real estate mortgage market.
There is no market to securitize commercial loans on Wall Street. And the prime lenders on mobile home parks have ceased to make new loans. As a result, although the number of buyers has not gone away for parks, the ability of these buyers to get loans has shrunk enormously. After a seller has had their property tied up two or three times by buyers only to see the deal collapse, they get very concerned and lose their patience and confidence. And the result is price collapse.
How bad is it? We're seeing four-star, REIT quality parks being offered at 10% to 12% caps. This is not junk, this is prime real estate. The lesser parks are being offered at caps up to 15%. Of course, you have to sort through all the bad deals to find these, but the tools are out there to help you make this sort. If you go to a site such as www.mobilehomeparkstore.com, you will find around 1,000 parks for sale, and about 10% of these have become very attractive recently. Some scary attractive.
How to Get a Loan When Others Can't?
These Borrowers Lack These Three Things:
1) Sufficient capital to put 20% to 30% down and still have capital in the bank.
2) A track-record of real estate or other management skill.
3) Good credit.
If you have these three items, you are ahead of many buyers. There are still loans being done, but not nearly as easily as they were before. There has been a “flight to quality” by lenders to favor those borrowers who appear better risks. If this is you, then you are in the power position.
OK, you're interested. But, how can you find deals? Again, go to www.mobilehomeparkstore.com or loopnet and start sorting through the listings. Sort by what is most important to you – normally geography or deal size. Get on the phone and start calling the brokers and sellers. You will immediately sense the quiet desperation and the opportunity. If you need information on the pitfalls of park selection and ownership, look at the books and other educational materials available on the subject on the internet. It's a very simple business to grasp, but you have to know the true basics.
Is this all too good to be true? If you do not handle it right, this opportunity is just another disaster in the making. You still have to understand what you're doing, and put in the effort to find and negotiate good deals. But considering that mobile home park cap rates were about 6% to 8% a year ago, things are 100% more attractive today than just 12 months ago. And that is a unique opportunity that won't last forever.
What's the Future of the Industry?
Pretty Robust, Thanks To Two Megatrends:
1) A continuing, growing demand for affordable housing, in part due to under funded retirees struggling to get by on $1,000 per month.
2) A growing Hispanic population that has a big appetite for mobile home park living. In addition, even if demand was flat, the simple fact that more parks are re-developed every year, and no new ones are built, would make prices go up due to simple supply and demand.
A lot of real estate asset classes are caught in a storm of lack of demand and changes in consumer taste. Not mobile home parks. Their recession is credit-centered and will come to an end once the lending mess is resolved. So, you better hurry. But not too fast. Learn what you're doing and get the best deals. This opportunity can wait for you a little while.