Differences Between Mobile Home Parks and Apartments

Mobile home parks have risen in popularity since the last recession. Frankly, I am apart of the crowd. A friend mentioned that I should look into them. I did. Today, I own two communities. 

At first thought, mobile home parks seem very similar to apartment complexes. Tenants pay rent. Landowner manages and maintains the property. However, mobile home parks have a few different characteristics than apartments, which can be confusing. 

First, there are two different types of tenants. One category is called a lot renter. This tenant owns their mobile home and pays lot rent to the property owner. Some call this a land or ground lease.The benefit of this situation is the property owner isn't responsible for the home's repairs and maintenance, since the tenant owns the home. The second type is a park-owned home tenant or similar to an apartment renter. If something breaks in the mobile home, it is the landowner's responsibility. 

Furthermore, mobile home parks have a supply constraint. In other words, zoning and permitting departments in populated metro areas demand arduous requirements, essentially making it financially infeasible to build new parks. Several counties I've spoke to have bluntly stated that new mobile home parks aren't allowed. This is a benefit to park owners in the area as a developer can't build a competing product right next door. This can't be said for multi-family properties.

As mentioned previously, mobile home parks have a class of renters called lot renters. In general, this type of tenant rarely leaves the park. High turnover can kill any real estate investment. The cost to move and setup a mobile home costs over $3,000, irrespective of location. This is especially difficult for the typical mobile home park renter. On average, mobile home parks have lower vacancy than apartments if the majority of their tenants are lot renters. Several park owners have told me that they have tenants who have lived in their park for over 40 years.

On the contrary, mobile home parks have a negative stigma. Most people wince as they drive by. Drugs. Violence. Disorder. While this isn't an accurate depiction of the asset class, many bankers feel the same way. For smaller deals (under $1M in loan size), it can take a serious effort to find an accommodating community bank. They do exist, however. For larger deals, regional banks, CMBS, Fannie are open to mobile home park lending. 

The advantages of lot renters, supply constraint, and low vacancy create an attractive investment that fetches returns that exceed any other form of real estate including apartments. Mobile home parks is the real affordable housing option that most people overlook.