SCARCITY = VALUE. AND THERE’S NOTHING MORE SCARCE THAN MOBILE HOME PARKS By Frank Rolfe

Gold is at around $2,500 per ounce right now while silver is around $28 per ounce. Why is gold more valuable than silver – about 100 times more? Because gold is much more rarer. In this same manner, mobile home parks are the rarest of all commercial real estate, and this one fact has created extreme wealth for owners simply by having the title to a mobile home park in their name. Why are parks so scarce and how does this manifest into financial gain?

The history of mobile home parks from a zoning perspective

There was a time in the 1950s and 1960s that you could build mobile home parks virtually anywhere you wanted. Cities loved the customer base of mostly returning GIs and park builders included such celebrities as Bing Crosbie and Bob Hope. It was an upscale, eccentric way to live and even Elvis was in on the craze, appearing in two movies as living in a mobile home park and even owning one himself. The one element missing from the business back then was scarcity, as you could literally build a mobile home park anywhere. Without a barrier to supply there was no real value in the permit. Then came the 1970s, in which the mobile home park shed all of its earlier positive P.R. and now, suddenly, cities wanted nothing to do with this housing type. Cities across America removed mobile home park zoning from their land use books, and the odds of getting a special use permit were about nil. That's been the case now for over a half-century and it all boils down to two things:

• Americans don't want to live next door to "trailer parks". The stigma against people who live in mobile home parks is so vast that a simple look at Zillow will reveal that the price of a single-family home next to a mobile home park is about 25% less than an identical home a block away. As a result, when the topic of building a new mobile home park comes up, there's no way that the neighbors will not march on city hall and threaten to unseat every council member if they even remotely think about approving it.
• Mobile home parks cost cities a ton of money. There's more than just stigma that is working against the city's opinion towards this type of land use. There's an economic reason to not allow any more to be built and it revolves around cash in and cash out. Let's take, for example, a mobile home park that has 50 lots with all of them occupied. The real property tax is valued at $50,000 per lot and the mobile homes are valued at $25,000 each. In a 1% property tax rate state like Missouri that results in tax income of $750 per year per lot. But then let's assume that the family in that lot has two kids which cost $10,000 each per year in tuition. Then add in uninsured trips to the local hospital and that little 50 space park can easily cost the city $500,000 or more per year just because it exists. The city would clearly like to get it demolished but they can't due to property law. But there's no chance on earth they'll allow a new one to be built.

Why this will never change

People who don't know the industry always think that somehow the American public will change their attitude on mobile home parks. But, based on just the two points shown above, this is not a matter of aesthetic taste but dollars and cents and that precludes new parks from being built in perpetuity. It's a false narrative when the Biden administration talks about demanding that cities build more affordable housing in general and trailer parks in particular. The truth is that the federal government has absolutely no power over city zoning and never will. The only exception might be in "opportunity zones" which are blighted areas that are trying to get a cash infusion from Uncle Sam, but those are not areas that anyone would want to build a new park in nor could you find any customers f you did.

Understanding how mobile home parks fit into the housing food chain

At the top end of the housing pyramid are $1+ million mansions and at the bottom are mobile home parks. They are literally the dollar store of housing. This creates an environment of endless demand. When you combine the fact that America is getting poorer every day (prices are up 20% over just the past three years) with the fact that single-family homes cost an average of $400,000 and the average apartment rent is $2,000 per month, you can see why the phone rings at any mobile home park office endlessly. With massive – and growing – demand even the slightest restriction of supply causes price escalations, and in the case of mobile home parks that restriction is scorched earth. In the entire United States, it is estimated that only around 10 new mobile home parks are built per year while around 20 are torn down, resulting in trailer parks literally being an endangered species.

So is the true value of a mobile home park just the value of that rare permit to operate?

Yes, that's effectively correct. Of course, the land has value and the income stream is what defines the value based on a cap rate, but the rarity of the permit is what creates that situation, just as the scarcity of gold is what makes it worth $2,500 per ounce. Is there any other sector of real estate that shares this rarity aspect? There are two additional zonings that are greatly restricted: 1) cemeteries and 2) landfills. But those are not niches that the novice can get involved in as they are the bastion of large corporate owners and even then have profitability only as a byproduct of other business interests (the funeral home makes the money in the cemetery trade and the trash hauler makes the money on the landfill).

But there are things that even scarcity cannot fix

But before you think that just any old mobile home park will make you rich simply by getting the title into your name, remember that there are some things that make mobile home parks undesirable regardless of their rarity. These issues include lack of a legal right to exist (no permit), failed water or sewer system with no ability to repair, or a location that is in a rural area where there is zero demand. While 14K gold is a commodity, every mobile home park is a custom creation. I drive by mobile home parks all the time that might have been valuable in 1950 but, now that the main employer in the small town has shut down and everyone has moved away, the scarcity has no inherent value. Just because a park is rare does not make it of value unless it has certain traits and creates a positive net income.

Conclusion

Mobile home parks are the scarcest commodity in commercial real estate. That one quality creates not only massive value but also serves to protect your investment from declines – serving as the ultimate "moat" as Warren Buffett would say.

By Frank Rolfe

Frank Rolfe has been an investor in mobile home parks for almost 30 years, and has owned and operated hundreds of mobile home parks during that time. He is currently ranked, with his partner Dave Reynolds, as the 5th largest mobile home park owner in the U.S., with around 20,000 lots spread out over 25 states. Along the way, Frank began writing about the industry, and his books, coupled with those of his partner Dave Reynolds, evolved into a course and boot camp on mobile home park investing that has become the leader in this niche of commercial real estate.