The Importance of Population Size in Market Selection

One of the most important elements of any manufactured home community is location. On the micro level that includes the surrounding neighborhood and such items as the proximity to schools and shopping. But on a macro scale, one of the most important components is the physical size of the metro market. Selecting the right metro market is an essential step in ensuring that your manufactured home community acquisition is a success.

Understanding how a “metropolitan statistical area” is derived
Webster’s defines a metropolitan area as “a region consisting of a densely populated urban core and its less-populated surrounding territories, sharing industry, infrastructure, and housing”. However, these areas are not subject to speculation.
MSAs are defined by the Office of Management and Budget (OMB) of the U.S. Government and used by the Census Bureau and other federal government agencies for statistical purposes. Since you have no input in what the metro area of a property is, you must make sure that you get the correct information. One of the best sources of the metro area for any zip code is www.bestplaces.net.

Making sense of how a large metro differs from a smaller metro
In my 20+ years of experience in this industry – buying and selling over 300 properties – I have learned that there is relatively little performance difference in a metro area of
100,000 and a metro of 1,000,000+. If you look at the map of any large metro, you will see that it is basically formed from abutting smaller metros. Dallas, for example, hits a metro population of over 7,000,000 by adding in many cities of 100,000 or so, such as Grand Prairie, Arlington, Plano, Allen,etc. Basically, once you exceed 100,000 in metro population, it’s overkill. In a metro of 100,000 or so, you will have a very strong Chamber of Commerce, a very capable City Hall, solid infrastructure with reliable water and sewer, a dependable school district, every big box retailer and franchise, and adiverse blend of employers – everything you need for a successful acquisition.

Housing dynamics and employment sectors are more important than sheer size

I would much prefer a smaller metro with a median home price of $160,000 and an average three-bedroom apartment rent of $1,200 per month to a much larger metro with half those housing stats. Since we are all in the affordable housing business, you have to have high prices to even need affordable housing. High housing prices makes your phone ring off the hook and customer retention rates extremely favorable. Another key driver is the construction of the economy. We  have found that the most important employment sectors in any metro area are 1) education 2) healthcare and 3)
government. Markets that have high levels of these types of employment are what we call “recession-resistant” since you can’t really make staff reductions in these sectors regardless of the direction of the national economy. For example, we have a high level of holdings in Champaign-Urbana, Illinois. Even when the U.S. hit the Great Recession in 2007, this market had low unemployment thanks to the fact that it’s the home of the giant University of Illinois, as well as related healthcare centers. While Champaign-Urbana is not a giant metro – 238,984 in total metro population – I would stack it up against any metro ten times larger in terms of a successful market for manufactured housing.

An example of a small metro being more desirable than a large one

Let’s look at two different metro areas: Durango, Colorado and Jackson, Mississippi. Durango has a metro population of 54,688, and Jackson has a metro of 578,777 – over ten times larger. Durango has a median home price of $341,200, a three-bedroom apartment rent of $1,453 per month, and an unemployment rate of 3.6%. Meanwhile, Jackson has a median home price of $131,700, a three-bedroom apartment rent of $1,029, and an unemployment rate of 5.8%. Despite the fact that Jackson is the State Capital of Mississippi, I would still choose Durango any day over Jackson. The moral is that size isn’t everything when it comes to successful metro areas to buy manufactured home communities in. It’s one piece of the puzzle – an important one for sure – but by no means the sole ingredient to success.

Conclusion

Understanding metro areas is an important part of any manufactured home community buyer’s arsenal of analytics.  It’s very hard to do well unless you can select good metro
areas that can deliver the type of environments in which manufactured home communities flourish.

 

Dave Reynolds has been a manufactured home community owner for almost two decades, and currently ranks as part of the 5th largest community owner in the United States, with more than 23,000 lots in 28 states in the Great Plains and Midwest. His books and courses on community acquisitions and management are the top-selling ones in the industry. He is also the founder of the largest listing site for manufactured home communities, MobileHomeParkStore.com. To learn more about Dave’s views on the manufactured home community industry visit www.MobileHomeUniversity.com. This article originally appeared in the Manufactured Housing Review, subscribe for free here.

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