Did you know that 22 million people in the U.S. live in manufactured homes? Manufactured housing ranks among the country’s largest sources of unsubsidized affordable housing. Boasting lower costs per unit, less tenant turnover and decreased competition among investors, manufactured housing can offer investors viable investment opportunities. As investors seek avenues for diversifying their portfolios, manufactured housing (otherwise referred to as mobile home parks) is one often overlooked opportunity for achieving this objective.
When evaluating manufactured housing as an investment opportunity, investors often express concern over risk, including asset depreciation and occupancy rates. However, depreciation is actually an upside for investors – despite being a downside for single family homeowners. Depreciation allows the investor of a real estate asset to deduct a portion of the building’s value each year against operating profits. In terms of occupancy rates, manufactured housing consistently maintains higher tenant retention rates than multifamily assets. It is important to remember that when you purchase a manufactured housing park you are often acquiring a high number of units, which allows you to spread risk across the entire portfolio. Simply put, dealing with one problem tenant and a potential short-term vacancy is easier when it’s offset by a high number of occupied units.
Additional Upside for Investors
Lower per unit pricing, fewer maintenance costs and high cap rates all make investing in manufactured housing attractive for investors. In fact, manufactured housing has the lowest cost per unit of any real estate asset class while also boasting high cap rates (on average 7-12 percent).
The lower per unit price of manufactured housing also offers a unique financing option, as sellers may be in a position to directly provide financing to buyers. Sellers may benefit from receiving a higher interest rate than they would if the money were in a low-risk investment such as a money market. This also gives the seller opportunity to generate consistent cash flow from their investment. Lastly, since many manufactured home complexes (trailer parks) lay in the outskirts or urban communities, as cities grow investors often have the opportunity to sell the assets for redevelopment and reap further returns on their investment.
The 2018 Annual Report released by the Joint Center for Housing Studies at Harvard University found the number of renters who spend more than 30-percent of their income on housing – defining them as cost-burdened – is climbing. As the demand for affordable housing units in close proximity to major metro markets continues to rise, manufactured housing, which encompasses mobile homes built after 1976 (when HUD established a nationwide building code for manufactured housing), becomes an increasingly desirable housing option among potential tenants.