MHP Historic cap rates -- And a few other questions

This question might be geared toward the seasoned buyer but how do cap rates today compare to cap rates 10, 15 years ago? I would assume there trading lower today due to the low rate of new parks being established. Is this true?

While I have your attention I have a couple more questions that puts me on the fence about MHP. I’ve spent that last year reading books and trying to educate myself on this niche field while saving for my first MHP purchase. I have a small portfolio (11) of rental homes in Atlanta that serve the $800-$1000 month tenant. I can see the many perks but the few question listed below are what concern me:

  1. Tornado/Hurricanes - I’ve seen the posts on this question before. Seems like the response is that the government/Red Cross does a good job stepping in. - Those aren’t the people I want to rely on when investing.

  2. Appreciation - I’m in this for the long run. I’m 31 and plan on being around a few more years so I see a MHP as a good cash-flow operation but not appreciating asset. I want to capture assets that appreciate and cash-flow. I know with less parks being built that it makes existing parks more valuable due to supply and demand… But the way I see section 8 handing out vouchers for $1000 a month and min wage rising to $15/hr to flip a burger these people in 10 years are going to be able to afford (or given by the government) something nicer than a mobile home. - Do you hope for the person who wants to rent a $500 home while carrying a $1000 car payment?

Over all I do think they are a good source of income. My concerns are natural disasters, where you’re only renting the land, and the 20-30 year outlook. I’m also very interested in knowing caps rates of parks over the last 20 years or so.


  1. Tornados, Hurricanes, forest fires, lightning strikes. You already have 11 properties in peril due to these oddities of nature. How do you feel about your risk tolerance on those.
    As a community owner they rarely destroy the land.
  2. You already own 11 income investment properties and should know that appreciation is driven by NOI. MHCs are no different.
    Cost of housing in relation to income will always remain the same or swing even more to being out of reach of many income earners. Stay with land rent and let the home owners be responsible for reselling their homes. You do not want to be renting POHs.
    As far as section 8 is concerned you are better off targeting hard working Americans in your business rather than free loaders.
    I always say I do not operate an affordable housing community. My residents must be hard working (or retired) and must earn the right to qualify to enter my community.
    I want residents that want to live in my community not those that have to live there.

Those are all great questions.

On the tornado risk, we have had a community completely wiped out in a tornado, and all was fixed by the Red Cross and FEMA (in fact, the economics were much better after the tornado than before). The Red Cross and FEMA have been doing a great job on this front for about a century, so I would not really be concerned about having them for a partner in those instances, because they are well funded and well run. Hurricanes, because of their gigantic price tag, are outside the control of the Red Cross and FEMA, and that’s why they are a nightmare (just look at Katrina remediation for example). As with most risks, you can insure your way to victory with tornadoes if you use the correct insurance agent (we use Kurt Kelley at Mobile Insurance, as most people do). He handled the insurance on the park that was destroyed in the tornado, and we ended up, after the insurance payout, with owning the park virtually free and clear. Call him for details on how to do that.

On the future of affordable housing, I am pretty confident that bottom third of Americans demographically is not going anywhere. There are 10,000 Baby Boomers retiring per day, with a social security check that averages $1,200 per month and an average of nearly zero in savings in that bottom third – that’s one of the fastest growing segments of the MH business. In addition, even if minimum wage were to rise (and I think $15 is way too aggressive – that’s nearly double the current rate, and I think $10/hour is more realistic) it will not help anyone afford housing much better. If you were to earn $10 per hour, that’s an annual income of around $20,000 per year which, given a third for housing, is only around $600 per month. That won’t begin to get you a traditional SF (they would not have the down or credit for that anyway) and apartments average $1,150 per month (nearly double the budget). Even at $15 per hour, I think that mobile home parks would be fine. If you’re talking raising it to $40 per hour, then I’m going to start to get worried, but at that point the U.S. will collapse and we’ll be a hunter/gatherer society and renting lots will be the least of y worries.

Finally, I would give mobile homes more respect on their level of play vs. apartments. In an mobile home in a park you get 1) no neighbors knocking on your walls, ceiling or floor 2) a yard 3) the ability to park by your door 4) more of a “community” feel. Apartments deliver none of these items, regardless of price. Most of our tenants come to us because they hate apartment living. In addition, with a mobile home you have the ability to own it, which apartments never offer. So even though you don’t own the land, you are half the way there.

I know that the government has become so pathetic that they think you can mandate prosperity, but you really can’t. If minimum wage rose significantly, employers would simply layoff enough workers to offset that cost. It’s a zero sum game. America will always have a bottom third of earners, and mobile home parks will always be their best housing option.

Before those who don’t engage in the affordable segment of the industry protest, let me remind everyone that there is definitely a more upscale business model to the industry, with ELS as the flag bearer. But the majority of the 50,000 parks in the U.S. are based on the affordable housing model, so that’s why I use that sector in my writings. Yes. we also own doublewide communities with detached garages that look like subdivisions, but I’m trying to talk about the basic park out there.

In regards to the baby boomer side we have found these to be a big part of our target market. They will continue to play a major role probably for the next 30 years. Many have somewhat different requirements than your present tenant base. Most often they already own a home and have equity but still have a mortgage. At retirement they need to shed the mortgage to maintain their standard of living on a pension.
Typically this demographic has money to purchase a new mobile, they have reasonably high social standards and wish to be in a community that shares their standards. As a example every retiree that has moved into my community in the past 5 years has stated they would not chose to live in any other mobile home community in my area because they are “trailer parks”. Pride of ownership is important to them and they expect all residents of their community to share that standard.
Retirees for the most part have worked hard all their lives to get to retirement and they do not chose to live in a community that is run down, does not enforce strict community standards and that has section 8 tenants. They can be quite demanding in regards to their expectations of community standards.

Interesting thing about CAP rates and appreciation is that they are both tied to interest rates and economic vibrancy. For instance, if interest rates go up, housing prices go down and prevailing CAP rates go up. Or, if you are in a largely desirable area (Southern California for example) housing prices go up much faster and CAP rates are more aggressive.

The huge difference is that with a commercial asset evaluated on an income approach (Like a MHP) your appreciation is tied to how well you run it. If you double the NOI, then you’ve doubled the value. In a single family home, the appreciation of the home isn’t tied to your NOI at all. So, if you double the NOI, this will have no effect on your home’s resale value.

So, I would say that parks appreciate better than houses for the value add investor. I think almost anyone who has made the switch from SFHs to commercial would agree. Personally, I also owned SFHs in Atlanta and did reasonably well with them. However, after getting into parks, I can honestly say that I would only re-enter the SFHs if another blood-bath happened (like the 3-4 years following '08) Otherwise, SFHs don’t interest me in the slightest anymore.

I’ll give you an example of cash flow and appreciation just to hammer it home. We purchased one of our parks for $200k and put another $150k in it. The CoC currently sits at almost 60% and the refi appraisal came in at $1.3million. Another park we have was $650,000 and it currently has a CoC of 38%. Based on it’s current performance, it would resell for $1.1million at a 10CAP. Back when I did SFHs, I felt like a big winner if I could cash flow 15%+ or if I could get a $20k check when I resold it.a

As per cap rates going back to 1996 according to George Allen major survey the average was 10.19% with a range of 8.33%-11.61% using numbers from a 1996 survey of 207 communities with 25,893 rental homesites. The average rent was $232/month and average occupancy was 93% and average expense ratio was 34%. The numbers are still similar today except the vacancy factor today is much higher when looking at most parks for sale have 10-25% rent to own homes or had to bring in homes to fill in some of the empty spaces which leads to the question WHY??? In front of me are homes from the 70"s 14x70 with a total price of $6500 vr. today try starting at $35,000. We are being flooded with ads buying new cars with zero or no low interest for 5 years and from the new mobile home homes being brought into our parks by residents today the rate is from 5.5% to 9.5% with century 21. WHY cannot Mr. Buffett with all his money making deals not realize by him underwriting interest rates like car companies Clayton Homes would sell more homes than they could initially make??? Again he buys companies and lays off people to enlarge his account–I am not asking him to gave away money or be a welfare queen–just help out the industry he dominates to help people and our economy to correct itself in a sea of very high waves. As park owners why are not mobile homes loans interest rates similar to car loans–in most places they are considered personal property??? Presently we have made offers on parks but finding the parks that fit our business model is very difficult and with low interest rates yes lower cap rates will exist BUT as interest rates increase cap rates will increase–so if you have a nice park for sale let me know–now is the time to sell.

A survey based on 207 parks out of 50,000 is hardly much of a survey. A survey based on 207 parks with 25,893 lots means he only talked to a couple REITs, as that’s an average of 125 lots per park – hardly mom and pop territory. The industry has long been plagued by these goofy surveys that people do just to promote their special interest, which is why we are glad that Duke University is finally getting involved in doing actual studies of merit. Of course, Duke’s first study was damaging to the larger players (mathematically proving that amenities are meaningless and other controversial truths that all small operators know as fact) so they will no doubt continue to launch tiny surveys and claim they mean something. I was there in 1996, and there’s no way that the occupancy today is lower, as 1996 was before the chattel boom and I have personally walked many, many parks back then that had high vacancy that today are full.

Clayton’s CASH program, provided by 21st Mortgage, is the best thing going in this industry, and nobody has done more to promote the industry than Warren Buffet. He saved the day in the darkest hours of manufacturing after the chattel collapse, and now he’s built the most attractive program for park owners in history to fill vacant lots. His interest rates are more than attractive, based on the level of risk of the customer base. Those auto loans at 0% are possible because of the ease of picking them up with a wrecker when they default, and as a loss leader for a weak auto industry that is trying to pawn off cars that they can’t sell in any other fashion. People are buying mobile homes like crazy in our parks due to the shortage of affordable housing and could care less about the interest rate.

We have bought around 60 parks this year, and find this to be the best time in history to buy parks based on spread. We are scoring spreads of 3 to 8 points, which people will look back on 10 years from now and think it was impossible.

The thing I like the most about studies and particularly statistics is the fact that they can be completely dismissed or twisted and manipulated to support any possible opinion that anyone may hold. Fascinating tool.

Just the facts sir, as per George Allen’s stats from his news letter. If you have better stats from that time please “show them”. I was ONLY trying to answer Waty19 question–so sorry I tried!!! Mr. Buffett is not the hero that you made him out to be (controls over 75% of the market) the Clayton brothers were doing fine and Mr. Wonderful recognized another market for intense profit and now the burden is again on actually park owner how to fill their parks by spending more capital they could use to buy more parks. Mr. Buffet could be floor planning his homes with little or NO money down and take some risk but no park owner must show credit worthiness etc to have his homes. I agree it is a great time to buy parks but some of us do not have investors putting up their money for the purchase of such and thus that volume of 60 parks is out of the question for most people plus can they take their money back out any time if they need it??? You business plan is great no problem just is not mine. Thanks for the privilege of voicing mine.

Carl just a question out of curiosity more that anything.
With the North American economy based firmly on Capitalism why would you be in support of any business, yours or someone else’s adopting a semi charity based business plan when that business does not need to offer incentives to generate profits.
Doesn’t that go against the entire North American investor based capitalist economic system we are all participating in.

Greg, is what the auto industry doing anti-capitalisms with zero to no money down and less than 1% interest rates and they are personal property like mobile homes is that charity??? Mr. Buffett holds the keys to opening a much better world for park owners and home owners in general with century 21 having normal rates for home buyers (controls 75% manufacturing and how much of the credit market for mh’s) Floor-planning is an old business concept that is very viable to regaining the once great numbers of homes sales that occurred 20 years ago. I believe vehicle sales are at the highest ever in history–why??? Park owners with vacancies want viable solution not hand out but when people tall about buying 60 parks in a year less than 5% of readership fall in that category. . We are very diverse in our ownership of different kinds properties but IF we can help other park owners I will try my best to be of help and tell it like it is from our corner of the world without any personal gain to occur. I do not call it charity giving new residents money if needed to buy new homes to bring in our parks–for us it is smart business. Spending time looking for homes, having them moved, skirted, etc we found to be counter productive and lots with no return until rented. Greg after the new year I will try to address Warren on that score for some changes–at least will try!!!

[quote=“carl, post:11, topic:12038”]
Greg, is what the auto industry doing anti-capitalisms with zero to no money down and less than 1% interest rates and they are personal property like mobile homes is that charity??? [/quote]

No it is not charity because the auto industry is doing it to increase profits. It is entirely motivated by capitalism. It is not provided for the purpose of helping car buyers. That is the difference from what you are suggesting. Chattel loans for high risk clients need to be kept in the 9% + range to protect the institutions. I charge the same rates and I also mark up the price of homes I bring in to benefit my business.

Well Greg we could debate this till hell freeze overs–we have stirred some discussion but the issue is and was cap rates on this topic. I will digress for a moment to say that people presently buying cars 85% are receiving loans with less than a 550 credit score and in some cases with zero to no interest How are car loans really any different than mobile homes (both personal property). Maybe you do not remember when mobile home dealers were independent they would pay us to park them in our parks but NOW most of the dealers are again owned and controlled by Mr. Wonderful.WHY??? So with Mr. Wonderful CONTROLLING 75% of the mobile home market it might be considered not fair and needs to looked into since it appears to be a monopoly but the ugly news he is in bed with our perfect president plus the oil pipe was not built since he also controls the railroads plus over half of the fast food market. Mr. Wonderful was also the main person saying wealthy people need to pay more taxes when doing his thing with the president and was a main contributor like our famous Mr. Soros who also hates American values and our founding fathers. Can capitalism exist when competition of competitors are wiped out and one party with fingers connected in our government controls the products??? Maybe you have high risk clients but our model does not work with that group. OUR only goal was to help the person asking the question and again 99% of the people on this sites are not buying over 60 parks a year–we are trying to show kindness and honesty with our 40 years of experience having managers; owning multiply parks as well as being owner-operators. It is time Mr. Wonderful offers rates similar to car loans if not who side are you on to penalize hard working families that really care about what they live in and in some cases need better or I forgot about section 8 homes and who really pays for them. We need to have beautiful parks that are safe and the general public says wow a great place to live and our parks would again be overflowing and reaping that benefit. Mr. Wonderful is never about charity but really if some ones needs charity not just because its Christmas time I will try to help–I once was in need of help!!

I was just curious about your motivation. Politics is not my thing, I direct my energy into make money.