In 2014 I helped a Bloomberg reporter write a story on the mobile home park industry by answering their questions. One was: “why do mobile home parks have such a low loan default rate?” I explained it in a parable about a Waffle House where nobody knows if a single customer will come in each day vs. a Waffle House where the customers are chained to the booths (the latter representing the mobile home park stability of income). While the author understood the comparison, the media has had a field day with that quote for nearly a decade now, absurdly claiming that I was a proponent of imprisoning customers against their will and all other forms of abuse. Even John Oliver claimed my quote made me the “biggest a-hole in America”.
Well, I guess nobody noticed that I have been proven right over and over since that quote came out, and never more than beginning in March of 2020. While many Waffle Houses and all other restaurant investments have crashed a thousand-fold, mobile home parks have done just fine despite the pandemic and the resulting megatrends of the Great Migration, the Great Resignation, and every other seismic shift. So why are mobile home parks doing so well when most every other real estate sector and business venture are getting killed?
Mobile home parks are contrarian
The first reason that mobile home parks are fared much better than a Waffle House is that they actually grow stronger as the economy grows weaker. Not true for Waffle House as eating out is a function of having greater discretionary spending as anyone can eat at home for less money. But there’s nothing less expensive than mobile home park lot rents, so as Americans have less income they have greater demand for affordable housing and mobile home park demand increases. This point was well-proven by the Great Recession in 2008, which ushered in the strongest mobile home park demand in history.
Mobile home parks are a necessity
This quality is shared with Waffle House: you have to have a place to sleep just as you need something to eat. Neither are a luxury. But not all real estate sectors can say this. Lodging, office and retail properties are plunging in value due to a lack of necessary demand, as are many businesses that are reliant on discretionary spending on items that are not a basic part of life. Demand is so low at upscale stores, for example, that malls are virtual ghost towns, and Chicago upper-end retail space in Trump Tower is now 96% vacant. No business can survive without customers.
No reliance on employees or active management
Here’s where mobile home parks have a huge advantage over a Waffle House. Mobile home parks are a very passive business model, with the typical property requiring only one employee: the community manager. A Waffle House, on the other hand, has a huge number of employees required including cooks, waiters and waitresses, cashiers, maintenance staff – a virtual army of mouths to feed and to supervise. When you add in the demands of buying the raw materials, complying with health department codes, and the complexity of cooking and serving hundreds of meals per day, the Waffle House business model is a extremely difficult compared to the mobile home park which simply rents land.
High profit margins
Restaurants have notoriously low margins of around 3% to 5% (which is still better than grocery stores at 1%). But most mobile home parks have profit margins of 60% to 70% -- which is astounding. This allows mobile home parks to have much stronger financial performance and the ability to withstand economic recessions and depressions and still pay all the bills. The Waffle House, on the other hand, has very little ability to survive with even a moderate decline in sales and revenue. Additionally, with margins that low, the Waffle House has to have extremely strong and active management to even have a chance of making any money at all.
Mobile home parks have the biggest “moat” in the history of American business
Here is where mobile home parks destroy Waffle Houses and every other real estate sector and business model in the U.S. without exception. In every other real estate niche and business category you are always at risk of new competition. Every day in the U.S. there are new businesses opening and new properties being built, all of which threaten the economic livelihood of those already in existence. However, mobile home parks stand alone as fully protected from competition thanks to the hostility of city zoning laws that preclude new mobile home park construction. This freedom from competition is what Warren Buffett describes as a “moat” when he says “we're trying to find a business with a wide and long-lasting moat around it, protecting a terrific economic castle".
Conclusion
My infamous Waffle House quote was completely accurate – mobile home parks have some basic qualities that make them a stronger business model than most others. I think that everyone quietly knows that I was correct in my theory, even if they won’t admit it. I may have been optically misquoted, with my soundbyte taken completely out of context, but it’s simply a fact that mobile home parks are a far better investment option than any other U.S. alternative. And that will never change.