Economy and Mobile Home Communities

Hello All - Long time reader first time poster. I have been in the mobile home business for over 25 years. I currently own one park. The park was built new in 2000 and we currently have 90 homes in the community and we own and lease out 60 of those homes. My question to the experts has to do with the economy. Everything I read shows the economy is going to take us to places we do not want to go. If the economy does collapse and is worse than the collapse of 2008 where does that leave us in the business? The demand for affordable housing will increase and I am sure our phones will ring off the hook with people wanting to rent. The problem will be people affording the rent and keeping their rent current. I am in a good position as far my debt but what about others who have mortgaged their parks and then the income stream slows down? Will numerous parks come on the market for sale? Will buying opportunities be great for investors? I am just curious what others think about the possible upcoming crisis.

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Crisis what crisis ? My personal opinion is another collapse will not happen.
If it were to happen I would not be concerned with a drop in income only a change in tenant base. There will always be someone able to afford affordable housing. The only owners that would run into problems would be those without the business scenes to evict.

Midwest Owner, very interesting question.

My comments are in a general nature not specific to any market

It could be argued that the depression / recession of 2008 has not ended and neither has the conditions that created it been ceased. When facts such as the job creation has fostered mostly minimum wage jobs, that a huge percentage of capable workers still can not find jobs and have left the workforce (many permanently), that Americas big cities have so many families living below the poverty level, that 1 in 6 Americans get SNAP benefits, that over 50% of immigrants and 30% of Americans use some form of public assistance, China (2nd largest economy) whom has been buying Americas debt funding the supposed recovery has far bigger financial problems and will most likely stop buying debt, that a huge percentage of new car sales are financed just like the pre 2008 housing, that the banks are again offering HELOC and other dangerous financing.

These are but a micro sample of what is currently going on, the bigger issue is that in December 2014 at the G20 meeting, the banks proposed and drafted a protection scheme for them in case another fiasco emerges. That scheme takes every bank depositor from the role of depositor to the role of investor, this allows the banks to use your money to satisfy their debts. You of course, in case of bank bankruptcy, would be just another creditor to be listed. IF they did not see a problem on the horizon, then why take this very extraordinary step?

A Current Lesson: In Greece the banks literally closed their doors, stole peoples deposits, and severely limited pension withdrawals. Also in Greece several generations are now living under one roof and rely on a family members pension to fund everything for all.

The banks can now legally take your money and use it, you won’t have it, but you will still have to pay your bills in cash. Where will the money you require come from?

To address your particular question, yes there will be great deals available, but you should be ultra selective. Importantly as Greg points out, implement higher standards and lower tolerances as to tenants would be advisable.

No I am not looking for the bad things, I just like to know where things are headed. There is more anecdotal information available, but I won’t post it in a public forum. You can do your own research to uncover it.


Four observations:

  1. What saves mobile home park owners in the scenario of a financial apocalypse is the backstop of minimum wage, which is currently around $7.25/hour. While an executive earning $100,000 can free fall down to $14,500 per year (minimum wage), when you are already earning $7.25, you can’t get any worse. That’s why mobile home parks have been so stable during the current “Great Recession” – our tenants don’t have to face salary cuts. If it was not for the minimum wage, I’d be pretty scared, as wages could drop to $2 an hour (which is about what you pay for some on-line help from overseas). Also acting as a backstop are social programs, which are currently used by 55% of the U.S. population.

  2. I read an over 1,000 page book on the Great Depression recently, called “Freedom From Fear: The American People in Depression”, and one of the major lessons learned is similar to what Greg said: you cannot cut anyone any slack on collections or they’ll sink you. Picture a lifeboat from the Titanic, which is built to hold 50 people, and you are floating around with 1,000 people trying to climb into your boat. You want to be nice, but you know that if you let a few more in, the boat will sink and everyone will drown. In case after case during the Great Depression, businesses that tried to be “nice” ended up going bankrupt because, although they were well positioned, they let their bankrupt customers drag them under.

  3. The biggest risk you face in a financial apocalypse is having to refinance during that period of time. Interest rates cycle, as does the economy, so you need to freedom to refinance your loan during that part of the cycle where interest rates are low and banking is healthy. To protect yourself, try to get as long a note term as you can. Our favorite is conduit 10-year terms. Even if you park is full and 100% on budget, it may be hard or impossible to refinance when the banks are all out of business.

  4. The U.S. economy is not permanently derailed (which is a big statement from a guy who is an eternal pessimist). The problem is the Baby Boom (of which I’m a member) and its effects on the economy as it progresses from birth to death. Baby Boomers are defined as those born between 1946 and 1964. That’s roughly a third of the entire U.S. population – the biggest segment in U.S. history. The Boomers are creating huge drains in social security and medicare, and it’s only going to get worse. At the low moment, there will only be three workers for every one in retirement. But then, magically, the Boomers start dying off in bulk, and the drain is not only reduced, but their estates donate a large portion to the IRS in estate tax (lowering the Federal Deficit) and to their heirs (lowering their personal deficits). If you were born in 1946 and have a life expectancy of 80, then expect the Baby Boomer crisis to start easing around 2026 – about a decade from now. I might add that I had a class at Stanford on this very topic taught by Fuchs (the guy that writes most college economics textbooks) and he has been correct on every prediction he made in that class.

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I purchased my first park in March of 2007. That was right at the height of ‘easy money’ just prior to the housing bust beginning later that year and deepening throughout 2008. This park was not in one of the concentrated ‘housing bubble economies’ of Eastern Los Angeles, Las Vegas, Phoenix or Miami. (It is in the Oklahoma City metro.) I kept expecting my manager to call me one day and say “Jefferson - 1/3rd of the tenants did not pay this month. Do you really want me to enforce no-pay no-stay and evict that many…?” But it never happened. We had normal turnover - perhaps slightly higher - but there was always someone to take the place of any tenant that left. I remained 95% - 100% full every month, and bumped rents up to market (about +50% over those first two years of ownership right through the housing crisis.)

Based on what other park owners told me, they got through the housing crisis similarly well (unless they were in one of those few ‘housing bubble economies’). I do know one owner in Florida (not Miami) and his turnover doubled. That meant he had to work harder at keeping his park full, and renovating houses, but he kept his occupancy nearly at pre-recession levels with hard work, and I don’t believe his rents came down at all. So he worked harder, his income flat-lined for a few years, and then he got back on a growth track - and that was in a state that was fairly hard-hit by the housing crisis.

So who knows exactly when the next crisis will hit, or how bad it’ll be, but my gut tells me that buying MHPs in ‘real America’ where there aren’t housing/tech or other bubbles, will be a good investment. It’ll at least be an investment that will fare much better than most anything else in which one could invest (perhaps other than outright shorting the markets at the exact right time - but if you have that skill, you have no business being on this forum :wink: ).

Your mileage may vary,


Presently our government wants at least a 2% inflation rate and we are now experiencing deflation–to much money for to few things to buy. Over half of renters are spending over 30% of their income on housing and the net income of workers has not risen in over35 years. The tread mill economy for the average worker is very dim with over 85 million able body workers without full time jobs. Automation such as Testa electric car works presently has each robot doing at least five separate operations per robot that normally is dome by a human is part of the tremendous change happening that will continue if minimum wages increase and the computerization of burgers joints using computers to make the food. Big banks are back where they were in 2007 with less than !% in reserves for FDIC to cover money in deposits and Freddie and Fannie are again bankrupt. The world wide economy is sick with every country trying to lower their value of their money so they can sell product and in turn sell bonds that pay no interest. As to the park business the normal crowd that parks appeal to (with no net income increase in wages) signals a time of making the tenants pull their belts tighter and hope we do not strangle them UNLESS we can appeal to a little higher income group by having very nice classy properties with newer homes and safe environments Time will tell if parks continue as is or move up to a higher plateau that show we can change with the times and show excellence in all areas of operations.

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Literally just read an article from the Daily Signal with links to several studies that could provide some input into your thinking. Here is the article:

And the different studies linked from the article:

And the original article from the San Francisco Bee that the Daily Signal used as its base:

Florida has the same problem as Texas except we get the refugees from New England. I say problem is because these people vote for the same idiotic socialistic policies that destroyed their state once they arrive here. It’s pretty hard to understand why they’re so clueless but it’s often the case.

As a former government school teacher the level of achievement of a present 12th grader is equals to an eighth grade student Or Less of the 1970’s. The parents in most cases BOTH are required to work to pay the bills and children at the age of 3 are being dumbed down as parents without needing babysitters use the government school to that end. From conversation with teacher from schools that are all white the comments is that the students are dazed, no motivation, and will not complete simple assignments. From experience schools with blacks in Fl. 40 years ago was general a lost cause and than I quickly changes professions but did donate time to help in Christian Schools while in the park business. We are experiencing nationwide a graduation rate of less than 80% and at my time of graduation, 100% graduated and half finished college. Parents are being bullied by OUR government, parents cannot really use physical disciple and children are told to call social workers when needed. The schools cannot give out aspirins but birth control items are ok. With the influx of non-speaking English pupils the schools are boring the high IQ and average students with trying to pander to the illegals and again the scholastic level goes way down and the common theme is drugs and presently it is not meth, it is cocaine and heroin. We deal with niche a markets and in the last two months have received 10 new residents and half with new homes–retires downsizing. According to Harry Dent our demographics (aging population percentage is increasing ) will not spend as much in their 60’s as when in their 30-40’s and thus our economy will be hindered and continue to downsize. We need to provide excellence to our residence as to housing and safety and the reward will be an upgrade to the income level that live in our parks and thus not strangle our tenants that do not have the money…

Thought you might find this article very interesting from the perspectives of Section 8 housing and rent pricing.