In the vast real estate landscape, it can become difficult to sort through all the investment assets available. It may seem as if there are too many options for you to look into yourself, and in many cases, this can become true. One such real estate investment that may have been overlooked is Manufactured Housing Communities, (MHCs).
Manufactured Housing Communities are a superb subclass of real estate to be invested in, as you may have read in my blog, “Understanding The Pros And Cons of Investing in Manufactured Housing”. In that blog, I discussed the pros of Manufacture Housing such as:
- High cash-on-cash returns
- Rehab is less complex compared to single-family housing
- Great deals to be made
- Can be hands-off with a property manager
Mobile homes/manufactured houses are being established as one of the most viable places to live as uncertainty arises with other housing options. From rental increases to unaffordable home prices, more and more people are having difficulty finding a place to call home. With an estimated 17.7 million people living in mobile homes, that’s 5.6% of the US population, the need for mobile homes is on the rise. This increase in demand for mobile homes is where an investor can come in to provide a solution… a Manufactured Housing Community (MHC).
MHCs have a low barrier to entry and come with many unique benefits that set them apart from other real estate subclasses. From implementing low maintenance management structures, high-profit potential, and overall affordability, there’s little reason not to invest in manufactured housing communities.
Let’s dive into the nuances of MHC investing so we can grasp how to actually begin the journey of investing in this unique subclass of real estate.
Manufactured Housing Communities Overview
To explain it in layman’s terms Manufactured Housing Communities are where an owner rents out pieces of land (usually called “pads”) to others so a mobile/manufactured home can reside on it. Investors would buy the entire mobile home park and then lease the pads to possible tenants, who either rent or own their mobile/manufactured home. The owner of the MHC can have a plan to have POHs (park-owned homes), TOHs (tenant-owned homes), or a mix of both.
The most “hands off” scenario would be you simply owning the land and not the actual homes that occupy the pads. It is up to the tenants to take care of their specific manufactured homes. Utilities would be billed directly to the tenant as well. As an investor, this is a sweet spot because you’ll have little to do with the maintenance of the actual homes which saves on capital and deferred maintenance costs in the long run.
The more units, or pads, that can be rented out allows for a lower-risk decision. When you have a larger collection of units, normal occurrences such as vacancies and evictions are able to be spread out across your portfolio so you take less of a loss.
Now you’ve got a better understanding of Manufactured Housing Communities, so “what next?” Let’s talk about how to find the right MHC to match your real estate investing goals.
Finding The Right Manufactured Housing Community
MHCs are a real estate investment that requires you to do some upfront work in order to find the right locations and fit for your portfolio. An investor has to have local knowledge of the area, such as proximity to metropolitan areas, demographics, and employment options. If an investor doesn’t do their due diligence with these aspects then issues quite possibly could arise that could spell trouble for the investment. There is a myriad of aspects to consider but let’s focus on three key aspects today that need to be investigated when considering investing in a Manufactured Housing Community.
Proximity to Metropolitan Area
Demographics (Using Walmart)
It is essential to find good data on MHCs and understand different indicators that can lead to a successful purchase, growth, and exit in the long term.
Proximity to A Large Metro Area
A metropolitan area with a population over 100,000 is desirable for many reasons. Having a metro this large will ensure the basic infrastructure is present, there is easy access to essential services, and an abundance of employers that would make an MHC a desirable place to live. The larger the population density, the more likely you will have a large selection of applicants to be potential tenants in your community. A large metropolitan area tends to be an attraction once there is a critical population mass. A population this large will ensure there are ample essential services, utilities, proper governmental services, and a variety in the amount of work offered as will be discussed below. Smaller communities with lesser populations tend to be greatly affected by shocks to the economy, employment, and even environmental issues. This can cause vacancies and a severe decrease in an owner’s revenue. Areas with a metro larger than 100,000 generally will have favorable characteristics that support MHCs very well.
Once you’ve confirmed the population density, check out metrics such as median household income, housing vacancy, and the average price of 3BR apartments on websites like bestplaces.net.
“Why look at this,” you say?
Because these metrics inform about the competition, affordability, and demand for workforce housing in the area. If there is a high housing vacancy and very low prices for 3 BR apartments in the immediate area, this means there are many other housing options available to the population you are seeking to be tenants in your community. Not good.
Areas near a larger metropolitan area may also be a little more lenient when it comes to zoning regulations for MHCs as they are feeling the crunch for workforce housing. Over 20% of the population makes less than $20,000 annually and this makes up a large proportion of the “workforce” housing mentioned several times throughout this blog. This population often is the lifeblood of small businesses as they make up a large portion of low-wage earners these entities employ.
MHCs seem like a great solution to a housing issue, but there are some drawbacks to having MHCs in smaller communities. They usually do not generate a lot of revenue for the city in the form of property taxes as a single-family home community would. Additionally, MHCs usually have a disproportionate number of kids living in them which utilize a lot of city resources…school systems in particular, without generating a lot of tax revenue to pay for those services. It may cost 8-10k annually per child for the school system to educate one child and MHC tax revenue does not come close to covering that cost. Larger communities are better equipped to absorb these deficits and are seeing MHCs as more of a long-term solution to the affordable housing crises than in previous years.
Any evaluation of MHCs would not be complete without lending serious time and energy to evaluating the metro area.
Numerous Employment Options for Target Workforce
According to research, residents of large metro cities routinely take more than 60 minutes to commute to their respective workplaces. Studies indicate that these work commuters have a much lower sense of purpose than those who reach their workplace in less than 30 minutes. They are less happy, have greater anxiety levels, and have higher self-reports of being “tired.”
It begs the question then, “How important is it for employment options to be near your MHC?”
One of the top priorities of candidates looking for employment is “jobs near me.” You would think a job in their specific field of interest would be the top search criteria. While that’s important, proximity to where they live seems to usurp other criteria when seeking employment. The benefits of finding jobs near and close to home can be essential to our prospective residents. Most of the tenants in MHCs are low to middle-wage earners so the distance to drive/commute to work plays an even larger role in where they choose to live. It’s super important to understand the employment landscape and ensure there are plenty of opportunities for work in the local community when considering investing in an area. Characteristics such as good walk scores and high availability of public transportation are just a few things to consider.
It’s vital that jobs are not only close but numerous and varied. The greater variety of employers, the less likely an economic downturn will affect your MHC. If there is one major manufacturer that employs your entire community and it stops making its widgets and shuts down…so do you. Employment depth and breadth is best when evaluating where to invest in your community.
An investor looking into a possible MHC wants to see workforce housing-type jobs that are close to the community, evergreen in the sense they are immune to economic shocks, and several employers ready to employ your tenants.
Proximity to Walmart
In the retail space understanding, customer behavior is vital to the success of a company. The starting point to understanding the customer is understanding their demographics. Demographics is the statistical data that describes a population or a specific group within an area. This leads to the customer market being shaped by demographic trends. Demographic trends tend to be in a straight line and able to be anticipated which leads companies to predict future customer behavior through adjusting of strategies.
One retailer that has been using demographics with a laser focus is Walmart. Walmart understands the demographics of its target market which enables it to find locations that are profitable. Real estate investors can use the cues implemented by this multi-billion dollar company and tailor it to their needs.
One of the first things I check when evaluating an MHC is Google Maps. I put it on “satellite view” and then look for the closest Walmart. If there is a Walmart within a 10-minute drive, I keep moving forward in the due diligence process. Now…I’m being a bit cheeky here, but do not sleep on the fact Walmart has done the heavy lifting and has ensured the population density, job market, median income, affordability index, etc are excellent before building their stores. The only time you see an abandoned Walmart is when it built a bigger Walmart just down the street…they know what they’re doing!
While it isn’t the only demographic metric I use, it’s super valuable as I know if they are there, it’s an area worth investigating further. Once you’ve confirmed the demographics work in your favor, then…and ONLY then…do you look at the park itself. So many people get this wrong. I can’t tell you how many times someone will send me a park and ask, “what do you think?” I answer the same way every time. “What does the market look like?” You cannot change your location, folks.
We can discuss the specifics of evaluating an MHC in a later blog, but you MUST get the location right before ever considering the park itself.
Let the Journey Begin
Manufactured Housing Communities can be great opportunities to invest in a subclass that is recession-proof, low maintenance, and where you have the ability to drive appreciation over time. With any investment, there is a level of risk you need to be comfortable with. There is risk in most things worth doing. However, excellent ways to mitigate risk are understanding the investment class, performing thorough due diligence, and then partnering with proven operators to exact the plan for the asset. If you do this, you can rest assured you are “investing” instead of “speculating.”
From Multi-family properties to Manufactured Housing Communities, I’ve built strong partnerships while acting as the principal on over 125 million in real estate and business deals. If you are ready to take the next step toward financial freedom, I want you to be a part of our community. Reach out to me today to learn more about how I can help you find the right investment opportunities for you. Click Here
Here’s to winning your time back!