Breaking the Stigma: The Reality of MHC
The stigma surrounding “trailer parks” and “mobile home parks” is steadily disappearing as operators across the nation are transforming these projects into “manufactured housing communities” that offer their tenants an affordable yet attractive living environment with embedded amenities. New owners of these manufactured housing communities are making visible upgrades and providing consistent property management while simultaneously prioritizing the creation of a communal feeling among their residents, which is evident in the low turnover these communities experience. The satisfaction residents feel living in these communities is conveyed through their desire to maintain a safe and clean space for themselves and each community member.
The stigma I previously mentioned surrounding trailer parks stems from an absence of management enforcing rules and maintaining common areas. Consequently, this gave way to the tolerance of disruptive tenants who took no pride in their homes or community. This stigma is of the past, and the new reality of manufactured housing offers residents a much brighter future. The homes are HUD-approved in the current wave of manufactured housing communities. Well-preserved common areas are a high priority of institutional management, which translates to prideful residents who want to maintain order in their community.
The urgent need for affordable housing is an issue experienced by various ages that continues to magnify. The large population of millennials are beginning to start families, need a larger living space than their apartments offer, and are moving toward manufactured home communities. MHC has remained one of the few affordable non-government subsidized housing options during both economic downturns and upturns, which is significant due to the increasing cost of housing in many regions. The affordability and stability MHC offers are emphasized by the extended tenure of residents, with an average retention of 13 years, compared to multi-family apartment complexes, with an average of 2.3 years. Additionally, the annual retention rate for MHC is about 93% compared to the 53% experienced in multi-family housing, revealing the security residents feel in their mobile home communities.
Projections indicate that MHC will continue to offer the safety associated with “core” real estate with probable “opportunistic” returns. MHC is usually eligible for advantageous Fannie, Freddie, and FHA rates and terms due to being considered “mission-critical.” On average, apartment rent is $2,000 monthly, while MHC lot rent is typically $500 monthly. This disparity results in MHC residents renting for more extended periods and allows owners to gradually increase rent over time. Efficient MHCs operate at a 70% NOI margin, while multi-family delivers a 57% margin, which highlights the profitability of the MHC asset class. Compared to other commercial real estate asset classes, manufactured housing requires less capital to operate, and the ratio of MHC CapEx to NOI is less than two-thirds of the ratio of multi-family CapEx to NOI.
The benefits manufactured housing communities offer their residents do not outweigh the advantages for investors in this growing asset class. Throughout real estate cycles, MHC’s surpassing returns and performance results from supply steadily decreasing while demand is at a peak, which is incomparable to any other investable asset classes. Historical data shows that NOI growth has remained stable during any economic cycle, impressively withstanding the financial crisis of 2008/2009. Over the last two decades, this particular asset class has not endured a decline in NOI or rent growth but rather has produced the most stable cash flows of all substantial property types. This can be attributed to affordable housing being attractive during recessionary and inflationary periods. Through both prosperous and challenging times, MHC has remained a reliable venture for investors.
