As a goofy professor who gets giddy over corporate finance, I am going to come clean: I love mobile home parks (“MHPs”). As an asset class, it just doesn’t’ get much better.
Here are five (of the many) reasons I love MHPs:
1. Inelastic demand. If you change the price, the tenant who owns the home has to pay the higher price or move out, and moving costs run from $3,000 to $6,000 on average. This stickiness of demand makes my economist colleagues salivate.
2. The value is in the land. Yep, most of the asset value of the typical MHP is in the land or site improvements. The site improvements depreciate over a relatively long time period, and the MHP owner doesn’t have brick and mortar to maintain. Not a bad asset profile for a real estate intensive business.
3. Human resource requirements are very, very low. You don’t have to hire a lot of workers. This is a real estate intensive business, not a people intensive business.
4. Zoning and social attitudes restrict supply. And by restricting supply, this affordable housing segment is given special consideration for economic moat. Zoning officials do not like MHPs, and if they don’t like them, their neighbors really don’t like them in their backyards. Thus, the number of MHPs is stagnant to declining. As supply decreases, ceteris paribus, price or rental fees go up.
5. Basic management makes a difference. A fundamentally solid property management model can increase exponentially the financial returns to owners. This is not rocket science. MHP management acumen consists of attention to filling vacant sites, keeping current tenants, collections, basic maintenance, and keeping the peace.
If you want to learn more about my love affair with MHPs, I have written a book with Michelle Gigowski. It will be released at the beginning of July. It is titled, “What’s it Worth? Making, Measuring and Managing Value: Mobile Home Parks.” We will update you as its release date approaches.
Posted on Sat, June 2, 2012
by Tim Moffit filed under