Manufactured Housing REITS' Steady Rock Star Double-Digit Returns

forbes.com/bisnow.com
Aug 4, 2017
3 min read

When we here at The McAnuff Group get asked if investing in mobile home parks is really as promising as it sounds from a ROI standpoint (and any standpoint, really) sometimes words and case studies simply are not enough to convince an able but skeptical investor whose experience in investing may be rooted in the stock market. So, to the stock market we turn, and specifically to the small but mightily growing Manufactured Housing REITS.

While the mobile home parks inside a REIT portfolio are typically Class-A communities, the overall performance is still a good indicator regarding the demand and ROI that many well-maintained mobile home parks of most classes (or star-rating as it's called in the biz) pull in. For the traditional, for the skeptical, and for those who simply get excited about our industry in general from amateur student to full-time MHP owner, check out this report on the consistent rock-star double-digit returns that Manufactured Housing REITS enjoy.

Photo: A manufactured home in Equity Lifestyle Properties' Hillcrest Village in Colorado

From Forbes.com

Manufactured home communities have turned a corner for the better. Commonly referred to as “trailer parks,” these communities have evolved beyond the negative stigma that plagued them in the past. Many of these housing communities resemble high-end gated neighborhoods of affluence — and investors have taken note.

Once an overlooked sector in the housing market, manufactured home REITs have become one of Wall Street’s quietest moneymakers. National Association of Real Estate Investment Trusts data reveals these communities are rolling in returns that so far year-to-date are outpacing the S&P 500.

From January to the end of July, the sector brought in 18.3% in returns, a rarity in the market. On an annual three-year basis, this small segment in the REIT market has averaged returns of 26.7%, according to NAREIT. Strong returns have been fueled by low building costs, strong supply and demand dynamics and a solid net operating income. These REITs typically lease the land beneath their mobile home communities, but own the amenities and actual manufactured homes.

“It is rare to find a segment that has double-digit returns, and so consistently,” NAREIT Senior Economist Calvin Schnure said.

More than 20 million Americans live in manufactured homes, also known as mobile homes, and as the country continues to experience a housing crunch, demand in these communities is growing

America is undergoing an extreme housing shortage. Though there is a great deal of supply underway this year — the largest number of new units under construction this cycle — those new deliveries are overwhelmingly concentrated in densely populated urban markets and they are extremely expensive.

The multifamily sector is expected to have 320,000 new deliveries this year. Most of this supply will fall within a handful of the sector’s largest metros and all of these new apartments are on the high-end of the spectrum, according to Yardi research.

Demand for low- to mid-scale housing, driven by blue-collar working Americans, is in full swing, but affordable supply is all but unavailable.

Manufactured homes are aiding in residents’ search for affordable housing. Last year the average price for a manufactured home was roughly 10% to 30% less per square foot than traditional site-built homes, ranging between $50K to $90K for single- and double-wide units.

“Certainly the manufactured housing sector is facing strong demand just given the challenges with the lack of availability of affordable housing, of any type of housing, in other places across the country,” Schnure said.

Still, affordability is not the only thing about these communities that is fueling demand.

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