USA Today released an article titled “Meet the New Mobile Home” which, although positive in nature, is certain to confuse most readers as to the true economics of the product. What’s missing from this article is the simple differentiation between mobile homes and land. In this Mobile Home Park Mastery podcast we’re going to discuss why it’s really all about the land, and that’s what makes mobile home park owners and mobile home manufacturers so completely different in their goals, profits, and future outlook.
Episode 230: Clarification Needed Transcript
Clarification needed. It's all about the land. This is Frank Rolfe, the Mobile Home Park Mastery podcast. There was a recent article in USA Today titled, Meet The New Mobile Home. Manufactured houses deliver the American dream amid tough housing market. It's nice to see articles in USA Today that talk somewhat positively about the mobile home industry, but unfortunately, this as many other articles before it, and many that will come after miss the main point of real estate, and that is the land. Let's go over what needed to be clarified in the story and why so many people reading the story may come away from it a little confused. Clarification number one, the mobile home park industry and the mobile home industry have nothing in common. Mobile home manufacturing to many people is all part of one giant over-encompassing blob known as mobile homes, and they think that park owners are all kinds of interested in how manufacturing and retail sales are doing, and vice verse. And the truth is, no, we don't care. The typical customer in a mobile home park who brings in a home or buys an existing home, the park owner has brought in, will remain in that home on average for 14 years, but that's the customer's length of tenancy.
The home doesn't leave, the customer then whenever they decide to move on, whether it's on to assisted living, on to another city, on to a different form of housing, they will then sell that home, but the home will remain in position. When you have a mobile home park that's full, you could care less about mobile homes being manufactured or even the cost of mobile homes because park owners don't focus on the homes, we only focus on the land, we rent land, we're like a parking lot. Imagine that a Park and fly parking lot out of your local airport, why would they care anything about car manufacturing? It means nothing to them, they don't care the make, model, or year of any of the cars that are parked in the Park and Fly parking lot. All they care about is that you pay the daily parking rate, and that is how mobile home parks as a business model are constructed. We don't have any interest really in manufacturing other than the fact if we have vacant lots, we will have to engage in buying homes to fill those vacant lots, to turn around and typically sell or even rent those homes to get lot rent. But beyond that, we don't care. Park owners are in the land business. Manufacturers, however, are not in the land business, all they have to make money is taking some lumber and some metal, and some products and putting them all together, and then selling them as a completed mobile home to the public.
So what does it all mean? If you read the article, it looks as though we're all one big industry. It talks and moves from one fact to the next, talking about the fact that there are around 44,000 mobile home parks in the US with roughly 4.4 million lots. I don't know if that's really true, that stat came from MHI, I don't think they've individually counted, there's 4.4 million lots, so that's kind of just a guess. And if you assume two-and-a-half people per household, that would mean roughly about 11 million, 12 million people in mobile home parks. But yet, the government states there's 24 million people living in mobile homes, so clearly you've got two separate industries. You've got mobile homes, they're out on land, which is about half of Americans live in mobile homes, and then mobile homes are located in mobile home parks. But again, they're very, very separate industry. Park owners are all focused on land, retailers are all focused on not land, but the homes themselves, and they're never going to be united on that, because the very things that home builders are after, which is a higher cost per home with more profit in it, is the very thing the park owners don't like, we prefer our customers to have no debt, nothing owed on the home. That gives them a greater ability to pay us timely and to not default, so we're really at odds with each other.
The second clarification is that mobile homes are not, have not, will never be looked upon as something that appreciates. It's not the homes that appreciate, it's the land. If you read the article, it gives the example of someone, a firefighter, I believe, who bought a mobile home in a mobile home park in California, I think it was for $80,000, and then he sold it for $180,000. But they weren't buying the home, if you go out to those parks in California and you look at some of them, and what appear to me as a Midwesterner, are crazy price points what they're selling is the complete package of the home and the location. And the location is 99% of it. There's old beat-up double wides in some of those parks in Malibu, they still sell for $400,000 or $500,000, not because that's what an old beat-up double wide goes for, but because the fact that it's in Malibu on the beach. So we need to clarify that mobile homes are not an appreciating investment, the land is what appreciates. So when you read the article, you're perpetually confused. So the guy who's talking about a mobile home in California, he sells it for $810,000 and then buys what he calls his forever mobile home in Malibu for $850,000.
And anyone reading that will be highly confused, how would a mobile home be worth $850,000. If you read the article, it looks like it appreciated over time from based from each time he jumped from one park to the next, that the home went from $80,000 to $800,000 a price. That's not true, the home itself depreciated that entire time. If you were to take his original mobile home and stick it out on a retail sales lot, and then his most recent and stick it on a retail sales lot, neither of those things ever went up in value. What went up in value was the land, the location. And again, that's the difference between mobile home parks and mobile home manufacturing. The parks have the land, the land holds the value. When you also look at the example, they've given there of a customer, I believe by the last name of Chesney, buying the mobile home of their dreams, 'cause they can't buy in the stick built. The problem in that is they're buying the home, but it doesn't include the land, there's never any discussion of what the price point is when you include the land, they talk about the price per square foot of the mobile home being roughly $57 per square foot versus stick build at $119 per square foot.
But where's the land component? Where does that go into the whole movie? It doesn't do you any good to buy a mobile home for $57 a square foot to stick it on a piece of land, that dwarfs that price and is still completely unaffordable. That part of the narrative is sadly left off. Now, there's no question, in America we have a true affordable housing crisis, but that crisis is partly responsible not by the cost of building a home, but by the lot itself. The average lot in the US right now, would cost $80,000, if you then use the numbers in the article, and if you build a thousand-square-foot house, it would cost you $119,000 for the house, $80,000 for the lot and you come in right in at around $200,000. Well-beyond the ability of most Americans to afford their housing. Also remember that when someone buys a mobile home from a retail dealership, these are not affordable housing people, you cannot buy a mobile home and have sufficient downpayment and sufficient credit to obtain the loan, unless in a mobile home park, you are backstopped by the park owner through a program like 21st mortgages cash program, it's the park owner that sticks their neck out and makes the mortgage possible by agreeing if the customer defaults to take over the mortgage, to abate the lot rent, and to make the necessary payers to go ahead and find a new person to buy the home.
In the absence of that protection, the mortgage company is going to look very, very strictly at the applicant's financials, and in most cases, the average person who really needs affordable housing could never qualify, only those who are taking those homes out on their own personal land, typically, can get the job done. So once again, it's all about the land. Clarification number three, let's give up, let's drop the semantical argument on what in the world our product is called, The Article refers to trailer, then mobile home, and then tries his claim that in 1976, magically everything called mobile home or trailer prior is now called manufactured home because that's when HUD stepped in, waved a wand and the new name began. Nobody is buying that. No one has ever bought that, let's just drop the name entirely, I felt sorry for the manufacturing industry when in the article, they're talking so glowingly about the fact that, Hey, when you build something in a factory, you can build it cheaper, and then they slap the old manufactured on it, over and over.
Nobody likes the word manufactured. In America, things that are built one-off, that are custom are always more valued than things built on an assembly line. Who in the world thought through this marketing plan? Let's just drop it, let's let the home, whatever you wanna call it, just be called a home. In so doing, what you're also going to do is you're going to further separate the two products, I know they had the product they tried so hard to push called CrossMod, it went nowhere because it doesn't really serve the niche that's needed. The need in America, the big need is affordable housing. It's not a lower price per square foot for wealthy people trying to buy a home to put on their own land. What really needs to be hammered home is the fact that the mobile home park is the only thing that provides the complete package, the home and the land, the home, and the spot to park it. A turnkey package in that affordable housing price point is in our estimate about $500-800 a month, based on the market of America that you live in, the bottom line to it all is that it's all and has always been about the land in the mobile home industry. Manufacturing, retailing and park ownership have absolutely nothing in common. One business model works fantastically well, one business model is anchored on real estate, and the other is just a business trying to build and sell at a profit, a product that most Americans have a negative stigma against.
Now, I would love to see the industry one day become a mainstream feature, not have any negative thought against it, but for that to occur, we've got to separate these things out in the minds of the consumer. Maybe we need a new name for the product when it's not a mobile home park, maybe the word mobile home and mobile home park and manufactured home and manufactured home community should be one subset, and then maybe they should call retail manufacturing something entirely different. CrossMod certainly didn't work, but maybe there's a new name. Tiny Home has been working great, but tiny home suggest the home to be small and that's not necessarily another consumer turn-on. But the long and the short of it is the industry has to separate out in the minds of the average American, the fact that the land and the home are very separate beings, it's a big industry. There's plenty of room for all, who wanna enter it, but at the same time, it has to be done in the absence of complete confusion. This is Frank Rolfe, the Mobile Home Park Mastery podcast. Hope you enjoyed this, talk to you again soon.