If you study the data on www.Bestplaces.net, you will see one unusual anomaly that has a direct bearing on understanding the attractiveness of a market for mobile home park ownership: the astounding difference in single-family home and apartment pricing. Perhaps the best example of this is to be found on the stats for Cairo, Illinois. This city of around 2,100 inhabitants has a median home price of $31,500 yet a three-bedroom apartment rent average of $1,000 per month. How is that even possible? Here are some thoughts:

  • Many homes in Cairo are extremely old and undesirable. There are a huge number of old, poor condition frame homes around 1,000 square feet in size – not in any way what modern buyers would be looking for. And these homes have massive deferred maintenance in a market that few investors would see as a fixer-upper play, with a weak economy that has only a $17,000 median household income.
  • There are real issues when a market has a large supply of nearly worthless homes. There are entire sections of Cairo where the homes are mostly abandoned and sell for less than $10,000. While there are $150,000 houses in Cairo, when you average all the inexpensive ones, it makes the median home price plunge.
  • The apartments in Cairo are newer and more in-line with what people want. With extremely undesirable housing stock, the apartments offer a more “modern” option for more affluent residents that want something more in-line with current tastes. Since these apartments base their rents on the necessity of meeting mortgage payments and staying in-line with their peers, the average three-bedroom rent is $1,000 per month.

It’s a remarkable large spread – one that most people are unaccustomed to seeing.

It’s not just in Cairo

We are seeing this trend in many markets in the U.S. Maybe not to the extreme of Cairo, Illinois, but certainly in many older American cities in which the single-family housing stock is no longer what modern consumers desire and have huge deferred maintenance burdens. In the city of St. Louis, for example, over 50% of all single-family homes date from before the Civil War. In these type of markets, you can’t really use the single-family home stats as a true reflection of the strength of the housing market.

The effect on mobile home park due diligence

Smart mobile home park buyers realize that you must have expensive housing to create the need for affordable housing. As a result, they want to see single-family homes at an average price point of around $100,000 or more. When a market has incredibly low home prices, they tend to stay far away from it. In the case of Cairo, any park buyer would flag this as a market that has seemingly little value. But even in larger cities with robust economies, you can sometimes get misled by low single-family home prices that do not accurately reflect what’s really going on.

The importance of a test ad to confirm the truth

Better than just reading stats on www.Bestplaces.net is to get a real-life affirmation of housing demand and pricing levels. And that is achieved with a “test ad”. These ads, typically appearing in the largest metro newspaper classified section and on Craigslist, give the basic information on a home in your target mobile home park and then the results come in the form of calls to the number in the ads. A strong test ad will draw 30 to 40 customers in a 10-day trial run. This is the only true measure of housing demand, based on the real-life desires of the locals regarding your prospective mobile home park.

Our competition, after all, are the apartments in most cases

Even in a market like Cairo, it’s possible that a test ad would do well because of the apartment prices and lack of virtually any decent housing options. Remember that a typical mobile home park customer is not weighing it vs. the single-family alternative, but rather against an apartment. Many of our customers lack the financial resources to buy a stick-built dwelling, so their whole frame of reference is on the apartment offerings. Even if single-family homes are cheap, it’s the apartment pricing that is key. We own parks in many parts of Illinois in which we are the nicest detached housing option in the entire city – much better than the old frame homes.

Conclusion

Bestplaces.net is a wonderful resource and we spend a lot of time on the site doing market research. However, you cannot take all the stats at face value and there is a backstory often to many of the largest anomalies. In the end, the only real test of your theories is to run a test ad and let the locals vote.

By Frank Rolfe

Frank Rolfe has been an investor in mobile home parks for almost 30 years, and has owned and operated hundreds of mobile home parks during that time. He is currently ranked, with his partner Dave Reynolds, as the 5th largest mobile home park owner in the U.S., with around 20,000 lots spread out over 25 states. Along the way, Frank began writing about the industry, and his books, coupled with those of his partner Dave Reynolds, evolved into a course and boot camp on mobile home park investing that has become the leader in this niche of commercial real estate.