In a perfect world, a mobile home park is a parking lot. The park owns the land; the tenants own their homes. The park maintains the roads and common spaces, and provides access to utilities like water, electricity, waste water removal, and, in certain cases, natural gas. In exchange, the tenants pay what is called “lot rent” for the right to place their homes on the park’s land. That’s a dirt lease.
In certain cases, the park owns some or all of the homes. If this is the case, tenants lease the homes as well as the lots. In many of these cases, the park owner will sell homes to the tenants on an installment basis.
There are park owners who prefer to own the homes in their parks. In these cases, a mobile home park is more like a horizontal apartment building than it is like a parking lot. However, most park owners prefer tenant-owned homes. A park full of tenant-owned homes is less of a headache to manage, and tenants who own their homes tend to display a pride of ownership that is absent from pure renters. I prefer a parking lot to an apartment building.
“Mobile home” is a misnomer. Mobile homes are not very mobile. They are manufactured off-site and delivered whole, but building codes require that they be placed on a pad, blocked, levelled, tied down, and hooked up to utilities. A home that has been installed once can be moved and installed elsewhere – but only by a licensed mover and installer using a full-sized tractor and specialized equipment. The price charged by these professionals is more than most mobile home park tenants can afford. This means that, once most mobile homes are set, they stay where they are. To be truly accurate, a mobile home should be called a “manufactured home”. That’s the technical term. By the same token, a mobile home park should be called a “manufactured housing community”. But that term is rarely used in everyday speech.
The one thing you should never call a mobile home is a “trailer”. A mobile home is much less mobile than a trailer. A trailer might be a travel trailer or an RV that you, I or any other civilian can hook up to an SUV or pickup truck and take with you when you go on vacation. But you could never do that with a mobile home. A mobile home has a chassis made of I-beams; it has no permanently-fixed axles; and it does not have self-contained water, electricity or septic. It can only be pulled by a tractor equipped to haul a shipping container, and it needs to be accompanied by cars displaying “Caution – Oversize Load” signs. You cannot haul around a mobile home the way that you can haul around a trailer or an RV.
To confuse things – mobile homes are real property for some purposes of the law, but they are personal property for others. To the extent a mobile home is mobile, one would think that it would be personal property. To the extent that it is immobile, it should be real property. An open-bed 8×4 trailer that you haul junk in, or an RV, is clearly personal property. A stick-built home is clearly real estate. A manufactured home that is affixed to the ground and cannot be moved absent the incurrence of prohibitive transaction costs is….what? For most general obligation law purposes, mobile homes are treated as personal property. By contrast, for certain federal income tax law purposes, mobile homes are real property, if they are affixed to the ground. This means that mobile homes that are affixed to the ground should be depreciated for tax purposes using real property conventions rather than as personal property – but tenants who own their own homes need to borrow against them as personal chattel, rather than as real property.
“Trailer” also connotes “trailer park” and “trailer trash”. That is just wrong. Most people who live in mobile home parks are working people who need affordable housing. They are not trash. It is not fair to these people to refer to their homes as “trailers” or to their communities as “trailer parks”.
Mobile homes are often referred to as “trailers” because they have their roots in travel trailers. People first began to haul what we would recognize as travel trailers when automobiles became widely used, during the 1920s. Construction was not standardized or regulated during the early years; many of these were built by small, independently-owned companies or by their owners. Early trailers were used by vacationers and parked on vacant land. A few entrepreneurs began to open “travel courts”, in which vacationers could park their trailers overnight. Some of these establishments offered travelers access to certain utilities and amenities, like bathrooms, showers, and shuffleboard decks. Travel trailers were used to house workers for certain WPA projects during the 1930s; they were used for defense worker housing during the Second World War, and they were used as housing for students and returning GIs during the late 1940s. During this time, the design of trailers used as permanent or semi-permanent housing began to diverge from that of pure travel trailers. By the early 1960s, the two had had fully bifurcated. The break was formalized in 1963, with the establishment of the two independent industry groups of the Recreational Vehicle Association and the Mobile Home Manufacturers Association. Standardized rules for the manufacture of mobile homes designed to be used as permanent residences were passed when the Federal Manufactured Housing Construction and Safety Standards Act of 1974 (the “HUD Code”) was passed in 1974.
Mobile home parks are the descendants of the travel courts that cropped up during the 1920s. Since the 1950s, they have been a source of affordable housing for a large segment of the population. Well-run mobile home parks can be good places to live. We are not talking about “lifestyle” communities, with $150,000 homes on the beach in California or Florida. Rather, these are ordinary, clean, quiet mobile home parks, with clean lots, well-paved roads, reasonably quiet residents, and no extra amenities. Tenants who own their own homes can have pride of ownership and can save money (or make money) by owning an asset that they can fix up and maintain. Unlike in an apartment, tenants have a yard, a washer-dryer hook up in their home, a driveway outside their front door, and some outdoor space. They do not have neighbors banging on their walls, their floors, or their ceilings. Of course, nothing is perfect. Badly run mobile home parks are terrible places to live, let alone raise a child (although the same can also be said of badly-run apartment complexes). But a well-run mobile home park is not a bad place to live, and it is certainly better than any of the housing alternatives available to most of its residents.
During the last two decades, mobile home parks have become a hot asset class. Real estate gained popularity during the nineties. As interest rates fell, investors chased yield; the spread between mortgage payments and rents presented investors with an opportunity. Cash flows on mobile home parks tend to be higher than those on traditional rental real estate, such as apartment complexes. Furthermore, the typical mobile home park involves fewer headaches than an apartment building because tenants usually own their homes. This means that, if a tenant’s toilet clogs up or if their floorboards rot, repairs are the tenant’s, rather than the landlord’s, responsibility. The owner of a mobile home park is better diversified than the owner of an apartment building. If you own a fifty-lot mobile home park, in which each tenant pays $300 a month lot rent, the loss of a single tenant is no big deal. However – if you own a building with five apartments, each of which rents for $3,000 a month, the loss of a single tenant hurts. The mobile home park business is not recession-proof, but it is recession resistant; when times get tough, people need affordable housing. Conversely, as real estate prices rise due to inflation, the demand for affordable housing will increase, or at least hold firm. Since local governments are often loathe to issue permits for new parks, supply is limited and dwindling. For a long time, the “ick” factor had kept most investors away. This kept prices low, which, in turn, kept yields high.
Mobile home parks’ current popularity as an asset class is largely due to what I call the “Frank and Dave Factor”.
During the 2000s, two big mobile home park investors, Frank Rolfe and Dave Reynolds, founded Mobile Home University (“MHU”) (www.mobilehomeuniversity.com). MHU sells courses and training materials that are intended to teach newbie investors how to find, turn around, manage, and sell mobile home parks. Their marquee product is a three-day “mobile home park boot camp”. Full disclosure – I attended a boot camp after I had bought my first park and found it both fun and useful, although I do not have any other connection to Frank, Dave, or any of their businesses. Boot camps are held at different locations in the country four times a year. These events are a combination lecture, seminar, industry conference, camp revival, and field trip. They are usually held in a hotel conference center located in a secondary or tertiary city near a big mobile home park market – think Nashville, Dallas, Atlanta, or Indianapolis. Much of the format consists of lectures given by Frank. As at any industry conference, there are networking breaks, and there is also a field trip to a local mobile home park (owned, often, by a boot camp alumnus). Sixty people might attend any given boot camp. People who attend are a mix. At the boot camp that I attended, in Nashville, there were a few middle aged husband and wife teams looking to transition out of the corporate world; a wealth manager from North Dakota, who wanted to learn about mobile home parks to help his real estate clients; a few Asian and South Asian immigrant couples looking to cash in on the American dream; and a father and young son with significant existing real estate holdings looking to diversify. I believe that Frank has said that, of the people who attend his seminars, one third is already in the business when they sign up; one third buy at least one park after attending, and the rest fall by the way-side. However the exact numbers work out, the market for mobile home parks has been flooded by Frank and Dave buyers in recent years.
The Frank and Dave seminars have spawned look-alikes and epiphenomena. The most visible look-alike is Mobile Home Park Academy (“MHA”) (mobilehomeparkacademy.com). MHA was started by two young Florida-based mobile home park investors, Kevin Bupp and Charles DeHart, who had attended a Frank and Dave boot camp (although I understand that Charles is no longer affiliated with MHA). MHA offers an on-line course for investors looking to source and close on mobile home park deals. I bought the MHA course and found that it was very useful, that it included materials that complemented those of MHU. Several podcasts (two of which are produced by the owners of MHU and MHA) about mobile home park investing have sprung up. Mobile home parks have also become the subject of several podcasts, YouTube videos and books devoted to traditional real estate investing.
Because of the wealth of educational materials, a new type of mobile home park owner has sprouted. These are people who ordinarily would not even know what a mobile home park is. They don’t know what a shark bite fitting is; they can’t weld or fix electrical wiring, and they would never sleep in a park. That said, they understand money, and they are chasing yield. Many of my Wall Street friends are interested in the business. One of my fellow investors is a young Ivy League graduate who works in a British bank. Another is a young immigrant woman who works in an architecture firm. Yet another has an MBA from Harvard business school and a degree from Sciences Po – but his father was in the business all his life, and he grew up around it. That is another story.
Welcome.