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The Future of Mobile Home Parks: Trends to Watch

The mobile home park industry is in a state of fluctuation. Interest rates have increased from sub-3% to above 7%, and the loan-to-value (LTV) ratios have decreased from 80% to 50-60%, making it harder for buyers to secure financing. Despite this, occupancy rates have increased and available lots are at an all-time low and lot rents are at an all-time high and are still growing. Which could lead to most of the remaining vacancies being absorbed in the next 10 years. The industry has transitioned from mom and pop-run operations to more corporate/professional investor ownership. 

With that being said, let’s explore the key trends shaping the mobile home park industry. As a mobile home park buyer or seller, it’s important to stay informed about the latest trends to make informed decisions and stay ahead of the curve.

The mobile home park industry is facing challenges in meeting increasing demand for affordable housing. Cities resist having mobile home parks in their jurisdictions, leading to a net loss in space annually as parks are redeveloped into other uses or shut down due to violations. The production of manufactured homes has been stalled for a decade or longer and currently only produces just a little above ~100,000 units a year (compared to peak production of ~300,000 units a year in the 70’s and 80’s). This lack of supply plus higher borrowing costs for the home owner along with increasing manufacturing costs have contributed to making these mobile homes less affordable for the end user. Despite these challenges, there is a growing demand for affordable housing, and we are seeing an increase in production of mobile homes but still not enough to balance the supply demand curve. 

Another key trend is the rise of resident-owned communities (ROC). This is where tenants buy their parks to save on potentially large future rent increases and ownership changes. Thus allowing them to have more control over their park and safeguard their investment. Finally, increased forms of financing are becoming more accessible, making it easier to secure financing, including agency debt, CMBS debt, local bank debt and bridge lending. This could be great for the future of mobile home parks.

While challenges persist, the rise of ROCs and more forms of financing offer potential solutions for investors and tenants to meet increasing demand for affordable housing in the mobile home park industry.

Potential Impacts

The mobile home park industry faces a major imbalance in the supply-demand curve. On the investment side there are substantially more buyers than sellers. On the development side, more parks are redeveloped or repurposed to an alternative use and adding insult to injury there is virtually no new park construction happening in most of the country. While there is little risk of overstock, filling vacant lots is limited due to slow home production rates, making infill harder but more valuable for park owners. And lastly, from the tenant side, more people than ever are moving into mobile home parks as rents continue to soar in nearly all US markets. On average, a typical lot rent in most parks is about ½ of a 2 bedroom rent or ⅓ of a 3 bedroom rent, making parks an extremely attractive option for residents.

Cap rates have fluctuated dramatically recently, currently ranging from 7-8% compared to 4-5% in 2021, resulting in a loss of value for sellers primarily due to higher interest rates on new loans, up from 2.5-3.5% and today around 7%. Despite these challenges, mobile home parks generally perform well during recessions and much better than most other forms of housing.

Investors and buyers should stay informed about industry trends. Such as the supply-demand imbalance and fluctuating cap rates, to make informed decisions and take advantage of opportunities for growth. 

What to Expect

The mobile home park industry is expected to see rising demand, especially in states with aggressive rent increases. Rent control has become more prevalent specifically in the Northeast.  We predict that the Northwest and Northeast regions will be the most affected by rent control policies along with parts of the Midwest. We are hoping that regulations may be put in place to promote more development and ensure a reasonable supply-demand balance which could negate the need for rent controls. 

Advancements in technology are continuously changing the industry. With Fintech companies providing new ways for investors to analyze revenue and expense streams, and platforms like Rentbutter simplifying tenant screening. We have seen through the years that consumer behavior is becoming more mobile-home friendly as homes become more modern and high-tech while still being much more affordable than traditional stick-built homes in that same market.

To prepare for the future, mobile home park buyers, sellers, and operators should take note of their city’s plans, establish relations with the municipality, and understand rent control, tenant rights, and evictions. Buyers should also understand the supply-demand curve, and operators should optimize efficiency by scaling or buying other parks nearby. Staying informed and adapting to new technology, regulations, and consumer behaviors can provide growth opportunities in the mobile home park industry.

The MHP Expert

The MHP industry has seen significant changes in recent years, from a fluctuating market to the rise of new technologies and changing consumer behaviors. While the industry is facing challenges and new trends, such as rent control policies and the need for more development, opportunities for growth remain. 

Mobile home park buyers, sellers, and operators can prepare for the future by staying informed, establishing relations with their municipality, and optimizing efficiency. To learn more about the mobile home park industry and how to navigate its challenges, visit The MHP Expert’s website today.

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