We all know the weak spot of apartments from a customer perspective. We are constantly reminding potential homebuyers that mobile homes 1) don't have neighbors knocking on your walls and ceilings 2) comes with a yard 3) allow you to park by your front door 4) cost about 75% less per month to live in 5) makes you an owner and not a renter and 6) offers a sense of community with more permanent residents. And that message resonates really well and results in massive amount of mobile home sales nationwide, as well as long-standing retention of existing customers (with an average length of tenancy of 14 years).
But there's a much bigger weak spot that is becoming clearly visible from an investment standpoint and it all boils down to on item: oversupply. 2024 had the highest delivery of new apartment units since 1974. A total mess. This has created downward pressure on rents and occupancy, resulting in a 2024 rent growth for apartments of only 0.8%. And the numbers are much worse in coastal markets as well as the sunbelt. So how did things get so screwed up and how do mobile home parks avoid this cyclical problem?
Mobile home parks can't get permits to build, while apartments have no such problem.
Beginning in the 1970s, virtually every city and town in America stopped issuing permits for new construction. Mobile home zoning vanished from city maps, and mobile home parks became forbidden for new construction by zoning departments. It is estimated that there are more mobile home parks torn down in the U.S. each year than are built. But this is definitely not true of apartments, which city hall loves and embraces as a good use of land virtually everywhere. And the proof is in the pudding, as more cities approved new apartment construction in the past year than they have in the past 50 years.
Apartment development is a business unto itself and has access to plentiful construction financing.
Mobile home parks do not have a "developer" class. You have owners, but not builders. In fact, there has not been a dedicated group that specializes in new mobile home park construction in a half-century. However, apartments have so much new construction that there is an entire industry devoted just to building them. One big component of this is the easy availability of financing to build apartments. Banks, in fact, fall all over themselves to provide interim financing to start breaking ground.
Unlike mobile home parks, when you own apartments, you're in a race against the construction cycle.
This is a really big deal when you're trying to find safe investments. Warren Buffett has described this attribute as a "moat" that all smart investors demand to safeguard their capital and keep it safe from harm. Mobile home parks have the biggest moat in commercial real estate, as you don't have to worry about new units going in down the street, or across the way. Unfortunately for apartment owners, this is not the case at all. New competition goes up constantly and when you buy apartments you are not only in competition with the apartments you can see, but also the thousands of units that are not in existence yet.
Overbuilding is part of all commercial real estate – except mobile home parks.
Apartments are not alone in their exposure to new construction. In fact, cyclical overbuilding has long been a staple of office buildings, retail centers, self-storage, and industrial sectors, as well. That's why those niches of real estate have periodic "boom and bust" cycles. Just look at the impact that manic building has had on the Austin office market, which has seen vacancy soar in unison with the advent of construction cranes. Only mobile home parks escape this periodic crisis and have only the "boom" attribute but never the "bust".
So here's where mobile home park and apartment results differ the most.
Here are the stats regarding mobile home parks, which have now eclipsed apartments in several categories:
- Mobile home parks have the lowest loan default rate of all U.S. real estate sectors.
- Mobile home parks have the highest rates of return among all real estate niches.
- Mobile home park lot rents have matched or exceeded inflation in 2024 while apartments have not, due to a glut of new units.
It's worthy of note that the late Sam Zell – the largest owner of both apartments and mobile home parks in the U.S. – sold a large amount of his apartment portfolio over the years but never sold any of his mobile home park holdings. Did he know something that others didn't?
Conclusion
Overbuilding has clearly hit apartments hard. It may take them years to work out of their glut. Mobile home parks never have to worry about those type of "boom and bust" cycles and offer a much safer method of investing in affordable housing.
To learn more about mobile home park investing consider attending our next Mobile Home Park Investor's Boot Camp, a three-day immersion workshop on how to properly identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn-around and operate mobile home parks. And it's virtual so there's no travel time or cost, yet there is live Q&A throughout.