Experienced, highly successful entrepreneurs in the mobile home industry repeatedly claim that the best time to invest they have seen in their entire career is the present. They may very well be correct. However, fundamental logical reasoning based on cause and effect seems to be wanting. Yes, we are ,momentarily, experiencing an artificially manipulated low cost of money, but realistically, with a consumer inflation rate close to double digits, real estate in a deflationary trend and financing limited to short terms only, where is the attraction? Generally, if one considers other socio-economic realities such as employment and its prognosis, tenants
I think that much of the lethargy among investors today stems from facing the realities of
IMO , the only way that MHP and apartment investors will “miss” with the defated prices and cheap financing is a depression. What is possible in what you describe (as far as ability to pay rent) is the middle class could slide down a notch. The people living in parks could be on the streets , while retirees and those in cheaper homes and expensive apartments might be “moved down.”
I wish I could remember the economist name that is def a gloom and doomer (deflationist also) that says the only good REIT is one that is made up of apartment houses. Not saying what Bernd is wrong , but the only strategy for that is cash and gold. I’m just too old to hide under a rock and spend my principle away. Also as far as financing , it is possible to get 10 years on a good deal. The lenders actually do need to put their money into something and it seems like lending for MHPs and apartments might actually be loosening up a bit.
Yes, America is getting poorer, and it’s only going to get worse. However, the real victim of this fundamental shift in our economy is the middle class. Very few people in our parks ever had any type of boom – they earn minimum wage and have never owned anything of value other than a cheap used car and a beat-up trailer.
Meanwhile, the middle class has $250,000 foreclosed houses, $60,000 repo’d Mercedes, and a lifestyle burn rate that is untenable. They are doomed – and it’s never coming back.
Mobile home parks are based 100% on cash flow. They do well in either deflation or inflation (cash flow value increases in deflation, and rents increase in inflation). Nobody can predict the future, but the only scenario I can see that damages park values would be government anarchy. In that case, it won’t matter anyway, as we’ll all be back to a hunter/gatherer society.
Shawn, Steve, and Frank, I thank you for your interesting responses. The essence of my query was whether or not this is the best time to invest in the mobile home business. I am still pondering the idea. The past is characterized by living substantially beyond our means with consumption surpassing production to levels that proved to be unsustainable. Debt has to be paid, or defaulted. The private sector is in the process of deleveraging while the government, the only engine of excessive consumption left, believes that more debt is the panacea (the Greek goddess of healing) for our economic woes. I believe that we are in a depression already (a time when most peoples
Banks and lenders effectively have no personal savings in their institutions to lend, so they borrow from the Feds at 0.00-0.25%. The Fed puts pressure on the banks to buy Treasury notes at 3% to keep the country’s debt floating like a balloon. So the money is going in circles. This is not adding to our GDP thus no job growth.
Steve
Steve , even that little game is now running amiss. The rates on T notes are pretty much 0 for the 2-3-4 year ones that the banks normally invest in. As you say they are not lending a whole lot so where is their income going to come from now ? Add to that no let up in paying for previous bad loans. I guess that’s why we are seeing BA charging a fee for debit cards now.
My point is that for good , sound MHP and Aprt deals , there are actually lenders that need to do business. I’m involved in financing one of each right now and the intial feedback is VERY good. 10 years , 20-30 year amm and rates from 5-6 %. Nothing yet finalized so maybe I’m speaking too soon , but to me it seems much better than a year ago.Dr B.(OH) wrote:
Banks and lenders effectively have no personal savings in their
institutions to lend, so they borrow from the Feds at
0.00-0.25%. The Fed puts pressure on the banks to buy Treasury
notes at 3% to keep the country’s debt floating like a balloon.
So the money is going in circles. This is not adding to our
GDP thus no job growth.
Steve
Bernd , you are right on with everything you said in this post. People can no longer live off credit cards and the housing bubble that Greenspan thought was so healthy. We had no savings and overspent like our big brothers in Washington. Now what we have is the deleveraging that had to follow, lower wages and higher unemployment. Add to that inflation in energy and food costs…not pretty. But the thing is it really makes for good deals in MHP’s and Apartments. They can be bought cheap , as many were bought at inflated prices. The two apartment deals I’m in both were bought around 2005 for around double what we picked them up for this year. Also , as we said the financing is great and the demand for cheap housing is trememdous and will get even better in the next few years. I actually have the exact porfolio you talk about. My SDIRA is all cash that is lent out long and short term between 12 and 14%. I have some gold and silver and have cashed out of all my equities to buy a MHP and two Apt buildings. I have great partners in my MHP and hope I made the right choice with the group I partnered with in the two apartment buildings. If there is not a major depression , it just seems like this asset is a stea right now. I think most probable worst case scenario will be 3-4 years where you don’t cash flow past your debt payment. Your park or complex will lose value , but you just hang on through a few bad years and you should bunce back . Think about what your money would look like in stocks and bonds if this took place… Maybe down 80% ?
Now if we have a mojor depression where most of your renters can’t pay you , then all bets are off and you better have some cash that your creditors can’t find or touch.
Right on Steve, Bof A has a revolving line of 7B, Borrow at 0 and buy Ts at 2.85 or 3 now and live on spread at zero risk…hmmm 3% on 7B. Yes I can live with that on an annual basis. The beauty is the Banks don’t have to mess with customers at all. they sometimes default. Uncle? Never! No jobs are created, no wealth accrues to the People and personal credit is hard to obtain. Banks really ARE too big to fail aren’t they? What is wrong here…
PS All of the major Banks here and in London are Still investing in deriviatives the very practise that cost taxpayers over 1T. I can’t fathom that amount of zeroes. Look at the euro and the eu. The UK is no longer in the eu because of this very same banking machination.
Peace
Greg