Here’s how you make money in mobile home parks:
- Buy an underperforming park;
- Get rid of bad neighbors;
- Fix infrastructure;
- Encourage good habits;
- Bring in new homes;
- Raise lot rents;
- Monetize.
Here is how residents of underperforming parks can have access to clean, safe and affordable housing:
- A professional park operator buys their park;
- The new owner kicks out the bad neighbors;
- New owner paves the roads, replaces leaking septic mains and fixes water lines;
- New owner hires a guy who mows the common area lawns in the summer and plows the park roads in the winter;
- New owner buys new homes, which he (or she) places on HUD-or-DAPIA-approved foundations and sells to people who mow their lawns; and,
- New owner brings lot rents in line with market rates.[1]
A pattern emerges from the murk of the data.
The market for mobile home parks fluctuates. Ten years ago, you could borrow at four and a half percent, buy a park with a ten cap and lever it up to a twenty-percent cash-on-cash return – before capital gain. Those days are gone. Cap rates are around six and a half to eight percent and mortgages are at six to seven. The ‘ick’ factor has disappeared and PE funds have moved into the space. There are a few mom-and-pops still in the business – or so says Frank Rolfe– but they have been bombarded with letters and cold calls from people like me. They are smart businesspeople and they know the value of their assets. The low-hanging fruit has been harvested.
Jackie Mason had a bit where he said that every Jew has a building he wishes he bought twenty years ago. Manufactured housing was too niche for him to fit it into his act, and the asset class didn’t really take off until he was dead – but think of the fun he could have had with us, if he had lived.
When I first started looking for parks, Indiana was the land of opportunity. In 2014, forty parks in Indiana were listed for sale on mobilehomeparkstore.com. And those were good parks – over fifty lots, near major metro areas, public utilities. New York, by contrast, was a much tighter market. Maybe ten or twelve parks were listed in New York. Most of those were smaller, in rural areas, in the far western part of the state, with wells and septics.
What a difference a decade makes.
As of today, thirty-eight mobile home parks in New York are listed on mobilehomeparkstore.com, and thirteen in Indiana are listed. The parks in Indiana look pretty good. They are too small for Sam Zell but big enough for a guy like me. From the information posted on the web, they appear to be in fairly good condition. The New York parks, by contrast, are dreck. Most of them are small, rural, serviced by private utilities, and very rough. I drove through two of them recently. One was in the North Country, and the other was in the no-man’s land between Utica and Oneonta. Both had unpaved roads, unmowed lawns, garbage, gapped and bowed skirting, old electrical panels, wells and septic tanks. Both have below-market rents.
Five years ago, I could have bought either or both of those parks and turned them around. To do that, I would have followed the process described above. First, I would have eighty-sixed the two or three or four hard-core trouble-makers. Then, I would have paved the roads. Then, I would have fixed everyone’s skirting and mowed their lawn – once – and instructed them to keep it that way. Then, I would have replaced the Orangeburg septics and fixed the leaky water lines. Finally, I would have bought some TRU homes, put them on new pads, screened the hell out of potential purchasers, and sold the homes to young families or retired people. To pay for this, I would have raised lot rents from their current level of about $280 per month to market rates of about $400 per month. Residents would not like the increase in lot rent – nobody likes it when the rent goes up – but it would be less than half what they would pay for a comparable apartment, and it would still be low enough for a single minimum wage earner to afford comfortably. And they would get good value for the bump in lot rent, because they would be living in a cleaner, safer environment.
It is easy enough to find stories of the Nakba, or the trauma inflicted upon Palestinians during Israel’s war of independence,online. Google ‘Nakba stories’, and you will get a million hits from Al Jazeera. Here is a clip from the story of a man named Muhammed Ali (the refugee, not the boxer), who was rausted from his village during Israel’s war of independence in 1948:
“I am sure one day I will return to Saffuriya,” he says of a Palestinian village only two kilometres outside Nazareth that Israel destroyed during the Nakba in 1948. He pauses, then chuckles as he injects a note of realism: “If not me, then my son – and if not my son, then my grandson.”… Shortly after they arrived in a refugee camp there, his sister died from heat exhaustion. “My mother would sit by her grave every day, lost in grief.”….
Finally, his father decided they must make the dangerous journey back. “It was very frightening – we never knew if we were about to stumble into the Israeli army.” At the journey’s end, they found the village gone. The area had been fenced off and declared a closed military zone – and anyone entering risked being shot.
“We had nothing. Everything had been taken from us,” he says, his large hands that have animated his memories finally falling silently by his sides. The family hid in a friend’s house in Nazareth, and slowly the three brothers started to rebuild their lives, selling cakes from a street trolley.
The second Nakba – the legislation that the New York State legislature passed in June of 2019 regulating the operation of manufactured housing communities in New York State – also deprived people of property rights and made people homeless. The most onerous provisions of Nakba 2.0 are those limiting the ability of property owners to evict bad neighbors and increase lot rents. These rules provide a satisfying zap of dopamine to the reptile brain of a certain type of demagogue, but they produce terrible results for residents, because they make it impossible for owners to turn distressed properties around.
Evictions are horrific for the evicted. They are no fun for owners, either. They are expensive and emotionally draining, and even we understand that they are an extreme remedy. However, we need to use them in order to provide a clean, safe and affordable place for people who obey the social contract to live. It is simply not fair to the old lady, or to the young couple, or to the new immigrant family, to ask that they live next to a home where meth is cooked or pitbulls are bred. The idea of rent control has an atavistic appeal – I’m the Man and even I like to stick it to the Man – but it produces unintended consequences. Even in running a stabilized park, in an inflationary environment an owner cannot keep pace with expenses if she is constrained by a three-to-six percent rent cap. And if you want to raise revenue to pay for major infrastructure projects, fuhgeddaboudit.
Before 2019, I could have turned those parks around. If I bought them now, I would be lucky to escape with my shirt. Without the ability to get rid of bad neighbors and fund infrastructure projects, they are a money pit and a liability magnet. I will not buy them, and I do not think that anyone else will buy them. Most likely, they will continue to fester.
My inability to turn around these parks will not cause me to suffer. I will continue to clip coupons from my stabilized properties and, if I decide to buy another park, I will look for deals in Indiana or Ohio. The people who live in those parks, by contrast, will suffer, because they will have to keep living in a shit-hole. The unintended consequence of Nakba 2.0 is that the most vulnerable people will get hurt.
There are ways to regulate the industry so as to protect residents without destroying positive externalities. Allow owners to get rid of bad neighbors. Benchmark lot rents to market rates and index annual rent caps to inflation. Institute a rental insurance scheme that works. Provide grants for infrastructure development that do not come with red tape that scares park owners away. But those require a deep dive into the minutia of the manufactured housing industry, and they require legislation crafted with input from the industry. That does not provide the dopamine zap that the people who wrote Nakba 2.0 were seeking.
I do not keep abreast of developments in Israel, but it looks like Palestinians fear a second Nakba. Netanyahu’s far-right government is trying to reduce the separation of powers by making the Supreme Court subject to the political branches. The Supreme Court has upset members of the current government by insisting that property rights and the rule of law should be respected when the Court reviews actions of settlers seeking to raust Arab inhabitants who live in territory that Jewish settlers seek to occupy. When Netanyahu and his cronies draft the law stripping the Supreme Court of the right of judicial review, they should send people to Albany. The New York legislature was already there in 2019.
[1] For these purposes, ‘market rates’ are half the price of the average rent for a two-bedroom apartment in the local area. The owner of an apartment provides her customers with the use of the structure in which they live and the land the structure sits on. Since a park owner only provides use of the land and access to utilities, the park owner should be paid half what the apartment owner is paid.