I am firmly convinced that the manufactured home community industry has fallen into one of the most envious positions of any real estate sector in U.S. history. We are literally on top of the world based on every mega-trend. But part of our success has to be credited to the poor performance of the single-family and multi-family industries and their key strategic mistakes. So how did the SF and MF industries blow it?
Failure to position themselves for the sweet spot on housing demand
While affordable housing is one of the hottest sectors of real estate, not everyone got in position for it. A recent speech at the Texas Manufactured Housing Association’s
annual meeting pointed out the fact that it’s fundamentally impossible to build a $100,000 stick-built home today, since the average lot alone in most major markets is
over $50,000. As a result, there’s no way you can build an affordable housing product in the single-family home sector. Meanwhile, with the average apartment rent in the U.S. is well over $1,000 per month, there’s no way that apartments can tap the affordable housing market unless they are subsidized by the U.S. government through Section
8 – and that program’s broke. Apparently, these groups were not paying attention to the entire affordable housing segment. Could it have gone better? Single-family builders
could have put a greater focus on building a smaller home product with more efficient methods and apartments could have followed suit. But they missed out on it completely.
And now it appears to be too late.
Poor property condition in Class B and Class C apartment holdings
While Class A apartments are well-maintained, Class B and C apartments cannot say the same. Many of the largest apartment portfolio owners sell off their oldest and weakest properties to moms & pops who do not have the capital to make needed
repairs. A whole bunch of the apartment stock in the U.S. is literally falling apart. These poor conditions push residents into looking for alternative housing that offers a better value: and one of the best alternatives are manufactured homes. We give the resident amenities that no apartment can, namely 1) no neighbors knocking on walls or ceilings 2) the ability to park by the front door 3) a yard 4) a sense of community and
(perhaps most importantly) 5) the ability to be a homeowner and not a renter.
Not finding a way to limit supply or build a “moat”
Probably the feature that manufactured home community possess and other housing sectors most envy is our barrier to entry, which Warren Buffett would describe as a “moat”. We have it because city governments have decided that they collectively don’t want any new community construction. But those same city father’s love more single-family homes and apartments, and that affection is a curse from a supplyside perspective. We’ve always been told that home and apartment builders keep developing new properties until the banks stop them – typically when the cycle is far too late – and that seems to always be the trend. While you rarely see manufactured home communities end up in foreclosure, look what happens to SF and MF all the time. Remember what happened during the Great Recession? And it’s too late to convince city government to offer more restrictive zoning on SF and MF and keep competition at a more reasonable level. Why should they?
We honestly feel sorry for SF and MF owners. They have business models that are lacking the right raw material for the years ahead. They have peaked and have nowhere to go but down. And their lack of planning and execution has offered a terrific boost to manufactured home communities. Part of our success is how good we are, and part is simply how bad they are. Since neither is likely to change, we’re in a great position
Frank Rolfe 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. To learn more about Frank’s views on the manufactured home community
industry visit www.MobileHomeUniversity.com.