For the last decade, those of us in the real estate business have had to hear that the stock market was the world’s safest way to make 10% per year compounding. That there was no point in taking any risk by buying commercial real estate, since the stock market was a guaranteed 10% return or more. The very possibility that the market would collapse was considered impossible, and values of individual stocks, while seemingly overvalued at 50 times earnings, were considered safe under new wave valuation philosophies.
What a difference a couple of months make.
While trying not to gloat, my friends who raved about their stock investments don’t take my calls anymore, and I’m not hearing too many positive chats about stocks at parties anymore. Clearly, historically, the mobile home park investments have clobbered the stock market. If you think this is just luck, or a once in a lifetime alignment of the starts, think again. Mobile home park investments will always beat the stock market, if you buy the right mobile home park. The reasons include:
· Mobile home parks tend to hold their value even in recessions. Why? Because their product is shelter, and that’s not a commodity that you can avoid buying, even in a bad economy. Without a decline in sales, maybe increasing costs are the Achilles heel? Wrong again. The total costs of the average mobile home park are only 30% to 40% of revenue, and of those costs, most are fixed and don’t go up much over time, such as property tax and insurance. In an environment where cash flow does not decline, real estate values stay in place, even in a recession. The only differential is a radical change in valuation structure, and that has historically not been the case. Mobile home parks valued at a 10% cap rate have been the standard for decades.
· Mobile home lot rents, unlike the stock market, historically go up 10% per year without retreating later and losing all the increases. They can do this because they are so low to begin with – even when you increase them it is still the most affordable housing alternative and nobody complains. In a world of an average of $200 per month lot rent, a $20 per month increase annually is not considered a big deal to the customer – just look at the increases in gas and food prices they have endured in the same time period. And I have never heard of a decline in lot rent. Ever.
· Mobile home parks have one huge advantage over every other type of business in the U.S. Their customers have to pay $3,000 to leave. That’s what it costs on average to move a mobile home from one park to another. And that’s payable in cash, no credit given. If you are poor enough to live in a mobile home park, how are you going to come up with $3,000 cash? And how big would a lot increase have to be to make it worth spending $3,000 to save $20 per month? Unlike a restaurant, where customers can come and go and, in recessions, mostly go, mobile home park customers are trapped.
· There are very few new mobile home parks being built, or that can be built, due to highly restrictive ordinances. As a result, unlike the stock market, there are few new entrants into the industry that can overnight ruin everything. There is no chance that Blockbuster or Starbucks can announce that they are going to build a new mobile home park on every major corner in America by the end of the year. This creates greater stability in the asset class.
· Unlike most of the companies on the stock exchange, there is no new technology out there that can wipe out your investment with short notice. There is no “internet” to sneak up behind you and destroy your investment – to render your business model archaic and old-fashioned. There is not a lot you can do different with a mobile home and a tiny piece of dirt; and if there is, it’s already been tried 10 times. Just ask anyone who invested in newspapers, television or radio the benefits to being in a slow, old-fashioned industry (that most notable stock investor, Warren Buffet, has indirectly supported this premise by purchasing Clayton Homes, a mobile home manufacturer, as part of his stable of “low-tech” businesses.
If you owned stock over the last several months you probably lost 40% of your investment. If you had owned a mobile home park, you would have lost nothing. And it will take the stock market years to make back what it lost (if ever), while the park is already in the black.
One final reason that mobile home parks destroy stock investments – dividends. Most stocks pay no dividend. Those that do pay a paltry 2% to 3%. Mobile home park investments, if bought right, yield about a 10% dividend or more on your money. So you don’t have to sell them to have a good investment. In fact, you may elect to never sell them and just keep the cash flow. Try to say that about a stock.
In summary, mobile home parks nearly always beat owning stocks. There are just too many advantages to mobile home park ownership that stocks can’t match. Of course, just like stocks, it’s important to buy the right park. For help on that go to the nation’s largest mobile home park investing website www.mobilehomeparkstore.com.
So fire your stockbroker (if he hasn’t jumped out the window yet) and put your money in something that actually holds its value and pays a dividend – mobile home parks. You, and your children, will be glad you did.