WHY I WOULD BET ON SMALL TOWNS AND ABANDON OPPORTUNITY ZONES By Frank Rolfe

WHY I WOULD BET ON SMALL TOWNS AND ABANDON OPPORTUNITY ZONES

America is a rapidly changing market when it comes to housing. And it’s essential that you stay on the right side of the “megatrends” since these are what propel your investment forward. With the landmark events since March 2020 – and particularly the change in administration from Trump to Biden – some of the key drivers to success have materially changed and these should be noted and considered. And the net effect would appear to greatly favor investing in small town mobile home parks and avoiding opportunity zone options. Here’s four big reasons why.

People are fleeing urban centers, and that’s where most opportunity zones are located

At the risk of being redundant with every story you are reading on MSN and elsewhere, Americans are packing up and leaving the big city. You can’t blame them. Between the pandemic and urban rioting, they have finally realized that there is a much higher quality of life in the suburbs and exurbs. Those who thought that the big city was “fun” now just find it dangerous and annoying. I do not see this trend changing in my lifetime. The focus on the “big city” was a 100-year phenomenon, beginning in the 1920s when most Americans lived in rural areas and dreamed of the excitement of a large population. I see the return to privacy, natural beauty, safety and a sense of community lasting just as long. In four words: “the cities blew it”. And, like most lost opportunities, they don’t come back in a lifetime. This does not bode well for opportunity zone investing, as virtually all of it is in urban centers – the very thing that Americans are fleeing from.

And the net winners of this migration are small towns

And all those moving trucks are heading into smaller markets. Suburbs and exurbs are absolutely booming right now, at a level unprecedented in American history. In my small town in Missouri a house that sold for $50,000 a few years ago is now selling for $250,000. With the massive run-up in values comes a gigantic need for affordable housing. Remember that most small towns have virtually zero multi-family, and if builders start new projects the monthly rents will far exceed $1,000 per month. In this way, mobile home park owners in small towns are protected from competition on any front and will ride the fastest rising tide they’ve ever seen. We are already feeling this impact in many smaller markets where we are 100% occupied now and have a waiting list for homes.

Biden has proven with the CDC order that landlords can’t trust the U.S. government

There has never been a greater relationship killer than Biden’s reversal on the CDC order regarding evictions. No landlord will ever trust the U.S. government again, and for good reason. It will take years or decades to undo the damage Biden did by literally lying to the Supreme Court and enacting a rule that he admits is unconstitutional but “buys time”. That’s no different than the armed robber of the 7-11 that rationalizes “robbing this store is illegal, but I need the money to buy some food” and then hoping to be best friends later with the 7-11 owner. The law is not intended to be bypassed regardless of the circumstances. In this same vein you have the precarious position of the Opportunity Zone regulations, which have a short time window before expiration and has many investors betting on renewals that may or may not happen. Betting on the goodwill or just actions of the U.S. government at this point looks like a bad gamble. I certainly wouldn’t do it.

Marcia Fudge is taking HUD in a new direction – and it’s not where you want to go

Have you read any interviews with HUDs new leader Marcia Fudge? If not, you need to. They speak volumes for the new direction where HUD wants to go. All future initiatives appear to be about building affordable housing (which will go predominantly into Opportunity Zones, no doubt). In Opportunity Zone investing, it’s assumed you will have to tread water with your property until the overall living condition of the neighborhood improves through massive investment and re-purposing of abandoned structures. Most of these investors assumed a healthy future mix of uses and price-points – not just a mountain of affordable housing units which will certainly drive off much of the other property development. The magic of a good mobile home park location is to provide affordable housing in a good school district with strong home prices and demand. Opportunity zones often provide strictly the reverse and whatever scarcity there might have been will rapidly be destroyed when HUD comes to town with a single-focus agenda, an endless budget, and no concern with over-building. I again urge you to read those interviews and make your own investment decisions accordingly.

Conclusion

Opportunity Zone investing seemed like a good idea – while Trump was President. Between the new administration and the mass exodus from big cities it looks more like financial suicide. Small towns, on the other hand, offer fantastic fundamentals and a rosy future. It’s an easy choice.

By Frank Rolfe

Frank Rolfe has been a commercial real estate investor for almost three decades, and currently holds nearly $1 billion of properties in 25 states. His books and courses on commercial property acquisitions and management are among the top-selling in the industry.