The landscape of mobile home park (MHP) investing has evolved significantly over the past decade. Gone are the days when only a select few saw the potential in this unique real estate niche. Today, MHPs have drawn the attention of private equity groups, bringing both opportunities and challenges for investors. The current state of MHP investing requires a nuanced approach to succeed.
Introduction to MHP Investing
Mobile home parks have been around for over 50 years, but their popularity has surged more recently, especially within the last decade. This increased interest has pushed cap rates down in many markets, making MHPs a more institutional quality asset class. However, this shift also presents new challenges for both seasoned and new investors.
What Doesn't Work
To navigate the complexities of MHP investing, it's crucial to understand what strategies DO NOT yield the desired results:
- Aggressive Lot Rent Increases: Giant lot rents post-acquisition attracts negative attention from politicians, city officials, tarnish the industry's reputation and are ethically questionable. Instead, it's essential to implement gradual rent increases to maintain sustainability and positive community relations. The real strength of the asset class is predictable lot rent increases over a long-time, not crazy high, one-time increases.
- Thesis over Operations: While the fundamental advantages of MHPs—such as low capital expenses and long-term tenant stability—remain true, these factors alone do not guarantee success. Operations and hands-on management are critical.
- Cash Grab Mentality: Prioritizing immediate high cash returns at the expense of infrastructure and property maintenance is short-sighted. Sustainable growth comes from reinvesting into the properties.
- Inadequate Preparation: The basics learned from weekend boot camps or beginner courses are not enough to navigate this complex asset class. Thorough, professional management is essential for long-term success.
Effective Strategies
On the flip side, several strategies have proven effective in the current MHP market:
- Tactical Precision: Successful operators function like SEAL Team Six, with thorough planning, systems in place, and a big team. They approach operations with military precision, consistently optimizing their processes.
- Well-Capitalized Operations: Investing in MHPs requires not just the capital for the initial purchase but also substantial reserves. This ensures that operators can handle unforeseen expenses and continuously improve the property.
- Alpha Generation: Driving alpha, or above-market returns, requires creativity and expertise. Examples include buying park-owned homes strategically or cornering a market to control rent dynamics.
- Creative Transactions: Leveraging seller financing, joint ventures, and other innovative deal structures can create value. These strategies often provide more flexibility and better terms than traditional financing.
- Building Strong Relationships: A reputable track record and strong broker relationships can lead to more favorable deals. Consistent closers often get first dibs on attractive properties.
Advanced Considerations
For those looking to delve deeper into MHP investing, consider the following advanced strategies:
- Complete Redevelopment: While challenging, buying and redeveloping underperforming parks can yield significant returns. This involves meticulous planning, substantial capital, and a professional team.
- Utility Complications Management: Handling parks with private utilities requires careful consideration and substantial resources. However, successfully managing these parks can lead to high returns due to the initial acquisition discount.
- Market Conviction: Investing based on market growth potential rather than just current metrics can be riskier but potentially more rewarding. Understanding and predicting market dynamics is key.
- Unique Deal Flow: Establishing a unique platform or leveraging systematic outreach methods like mass mailers can secure unmarketed deals, providing early and often more profitable opportunities.
- Small Ball Strategy: Starting small with high-return potential properties can be a stepping stone to larger deals. This approach allows for full control and significant learning opportunities.
Conclusion
MHP investing is no longer a game for amateurs or the faint-hearted; it requires strategic planning, capital, and professional management. At Evergreen, we are committed to allocating capital into alternative niche assets like MHPs, leveraging our expertise to navigate this evolving market successfully. We're excited about the current trends and anticipate increased deal flow and opportunities for savvy investors.
Feel free to reach out if you have any questions.
info@evergreencap.com
