Mobile Home Park Investing: A Strategic Alternative to Multifamily Apartments?

In the world of real estate investing, multifamily apartments have long been considered a cornerstone asset class. However, at PrimeX Capital, we believe in continuously evaluating alternative investment strategies that might complement or even outperform traditional multifamily in certain market conditions. Mobile home parks (MHPs) represent one such alternative that has gained significant attention from institutional investors in recent years. This analysis examines whether mobile home park investments should be considered as part of your real estate portfolio strategy.

The Mobile Home Park Investment Thesis

Fundamental Supply-Demand Dynamics

The investment case for mobile home parks begins with compelling supply-demand fundamentals:

Limited New Supply: Unlike multifamily apartments, new mobile home park development has been virtually non-existent for decades. Restrictive zoning, community opposition, and higher returns from alternative land uses have resulted in a net decrease in the number of parks nationwide. According to industry data, approximately 1% of existing parks are lost annually to redevelopment, while new park development is negligible.

Consistent Demand: Mobile homes represent the largest source of unsubsidized affordable housing in the United States. With ongoing affordability challenges in conventional housing, demand for this housing option remains strong and is likely to increase as affordability pressures persist.

Demographic Tailwinds: Several demographic trends support MHP demand, including:

•Aging baby boomers seeking affordable retirement options

•Working-class households priced out of conventional housing markets

•Growing acceptance of alternative housing solutions among younger generations

This fundamental imbalance between dwindling supply and steady or increasing demand creates a strong foundation for the MHP investment thesis.

The MHP Business Model

Mobile home parks operate under a unique business model that differs significantly from multifamily apartments:

Land Lease vs. Building Ownership: Most MHP operators own only the land and infrastructure, while residents own their homes. This creates several advantages:

•Lower maintenance and capital expenditure requirements

•Reduced turnover as moving a home is expensive ($5,000-$10,000)

•Limited exposure to building depreciation and renovation costs

Operational Efficiency: MHPs typically have significantly lower operating expense ratios than multifamily properties:

•30-40% expense ratios for MHPs vs. 45-55% for multifamily

•Minimal common area maintenance requirements

•Limited amenity costs in most parks

•Residents often responsible for home repairs and maintenance

Utility Income Potential: Many parks have master-metered utilities, creating additional revenue streams through utility billing programs.

Fragmented Ownership: The MHP sector remains highly fragmented, with approximately 75% of parks owned by “mom and pop” operators. This creates opportunities for professional operators to acquire properties with operational inefficiencies and implement institutional management practices.

Mobile Home Parks vs. Multifamily: Key Comparisons

Return Metrics

When comparing return metrics between MHPs and multifamily investments, several differences emerge:

Cap Rates: MHPs typically trade at cap rates 100-200 basis points higher than comparable multifamily properties in the same market. While Class A multifamily might trade at 4.5-5.5% cap rates in primary markets, comparable MHPs might trade at 6-7.5%.

Cash-on-Cash Returns: Due to higher cap rates and lower operating expenses, MHPs often generate superior cash-on-cash returns:

•MHPs: Typically 8-12% cash-on-cash for stabilized properties

•Multifamily: Typically 5-8% cash-on-cash for stabilized properties

Value-Add Potential: Both asset classes offer value-add opportunities, but through different mechanisms:

•Multifamily: Primarily through physical improvements and amenity upgrades

•MHPs: Primarily through operational improvements, infill, and utility income optimization

Total Returns: Historical data suggests MHPs have delivered competitive or superior total returns compared to multifamily, with less volatility during economic downturns.

Risk Factors

While MHPs offer compelling returns, they also present unique risk factors compared to multifamily:

Regulatory Risk: MHPs face increasing regulatory scrutiny in many jurisdictions, including:

•Rent control measures specifically targeting MHPs

•Resident “right of first refusal” laws for park sales

•Increasing tenant protections and eviction restrictions

Operational Complexity: Despite lower physical maintenance requirements, MHPs present unique operational challenges:

•Managing home sales/transfers within the community

•Navigating resident-owned vs. park-owned home dynamics

•Addressing aging home inventory and replacement needs

•Compliance with HUD and state-specific manufactured housing regulations

Financing Challenges: While financing options have improved, MHPs still face some disadvantages:

•More limited lender universe than multifamily

•Typically higher interest rate spreads

•Less favorable loan terms (LTV, amortization, etc.)

•Limited agency financing compared to multifamily

Exit Liquidity: The buyer pool for MHPs remains smaller than for multifamily, potentially impacting exit liquidity and timing.

Scalability Considerations

Scalability differs significantly between the asset classes:

Portfolio Construction: Building a substantial MHP portfolio requires more transactions due to smaller average property size:

•Average MHP: 50-150 pads

•Average multifamily: 150-300+ units

Management Efficiency: While MHPs have lower day-to-day management requirements, they benefit less from management economies of scale across a portfolio.

Geographic Concentration: Achieving geographic concentration is often more challenging with MHPs due to their scattered locations, often outside major metropolitan areas.

Value-Add Strategies in Mobile Home Parks

For investors accustomed to multifamily value-add strategies, MHPs offer a different but potentially lucrative set of opportunities:

Melhorias operacionais

Rent Normalization: Many mom-and-pop operators maintain below-market rents, creating opportunities to gradually increase to market rates.

Expense Management: Implementing professional management practices often yields significant expense reductions:

•Centralizing maintenance and operations

•Implementing more efficient billing systems

•Negotiating better service contracts

•Reducing insurance costs through portfolio policies

Collections Improvement: Professionalizing rent collection processes can significantly reduce delinquency and bad debt.

Physical Improvements

Infrastructure Upgrades: Many older parks have deferred infrastructure maintenance, creating opportunities to improve:

•Water and sewer systems

•Electrical distribution

•Road conditions

•Drainage systems

Amenity Enhancements: Strategic amenity improvements can support rent increases and improve resident satisfaction:

•Community centers

•Playgrounds

•Dog parks

•Walking trails

Revenue Enhancement

Utility Billing Programs: Implementing RUBS (Ratio Utility Billing System) or submetering can create significant additional income.

Home Rental/Sales Programs: Adding park-owned rental homes or implementing home sales programs can generate additional revenue streams.

Infill Development: Many parks have vacant pads that can be filled with new or used homes, increasing density without significant capital investment.

The Institutional Evolution of Mobile Home Parks

The MHP sector has undergone significant institutional evolution over the past decade:

Institutional Capital Entry: Major players including Blackstone, Brookfield, and Apollo have made substantial investments in the sector, validating its institutional appeal.

Consolidation Trend: Large operators like ELS, Sun Communities, and YES Communities have been aggressively consolidating the fragmented market.

Financing Evolution: Financing options have expanded significantly:

•Fannie Mae and Freddie Mac have increased their MHP lending

•CMBS markets have become more comfortable with the asset class

•Regional and national banks have developed specialized MHP lending programs

Professional Management: The development of professional third-party management companies has made the asset class more accessible to investors without direct operational expertise.

This institutional evolution has brought greater transparency, operational sophistication, and capital market access to the sector.

PrimeX Capital’s Perspective on Mobile Home Parks

Na PrimeX Capital, we see mobile home parks as a compelling complementary strategy to our core multifamily focus. Our analysis suggests several strategic approaches to incorporating MHPs into an investment strategy:

Portfolio Diversification Approach

For investors primarily focused on multifamily, a strategic allocation to MHPs (15-25% of portfolio) can provide:

•Higher current yield to balance lower-yielding Class A multifamily investments

•Recession resilience to complement more economically sensitive assets

•Exposure to the affordable housing segment without regulatory complications of subsidized housing

Specialized Focus Approach

For investors willing to develop specialized operational expertise, a dedicated MHP strategy can offer:

•Higher cash-on-cash returns than comparable multifamily investments

•Significant value-add opportunities in a less competitive space

•Potential for portfolio premium upon exit to institutional buyers

Strategic Market Selection

We believe MHP investments are particularly compelling in:

•High-barrier-to-entry markets with limited affordable housing alternatives

•Areas with strong job growth in sectors employing middle-income workers

•Regions with favorable regulatory environments and limited rent control risk

•Markets with positive population growth and housing affordability challenges

Risk Mitigation Strategies

To address the unique risks of MHP investing, we recommend:

•Thorough regulatory due diligence before acquisition

•Professional third-party management if internal expertise is limited

•Conservative underwriting of infill and home sales/rental programs

•Careful infrastructure assessment during due diligence

•Relationship development with multiple financing sources

Case Study: MHP vs. Multifamily Investment

To illustrate the comparative performance potential, consider this hypothetical case study of two similar-sized investments:

Investment A: 100-unit Class B Multifamily Property

•Purchase Price: $15,000,000 ($150,000/unit)

•Acquisition Cap Rate: 5.5%

•Year 1 NOI: $825,000

•Operating Expense Ratio: 48%

•Value-Add Strategy: $10,000/unit renovation program

•Projected 5-Year IRR: 14.5%

•Projected Cash-on-Cash (Year 3): 7.2%

•Exit Cap Rate Assumption: 5.75%

Investment B: 100-pad Mobile Home Park

•Purchase Price: $10,000,000 ($100,000/pad)

•Acquisition Cap Rate: 7.0%

•Year 1 NOI: $700,000

•Operating Expense Ratio: 35%

•Value-Add Strategy: Rent normalization, utility billing program, 10 infill pads

•Projected 5-Year IRR: 18.5%

•Projected Cash-on-Cash (Year 3): 10.5%

•Exit Cap Rate Assumption: 6.75%

While this simplified example cannot capture all variables, it illustrates the potential for MHPs to deliver superior returns with comparable or lower capital investment.

Implementation Considerations

For investors considering adding mobile home parks to their portfolio, several implementation considerations are important:

Operational Expertise

MHP operations require specialized knowledge different from multifamily:

•Understanding manufactured housing regulations and standards

•Managing resident-owned home sales and transfers

•Navigating utility system operations and compliance

•Addressing unique resident demographic needs

Options include:

•Developing internal expertise through hiring experienced MHP managers

•Partnering with established MHP operators through joint ventures

•Engaging specialized third-party management companies

Acquisition Strategy

Effective MHP acquisition strategies differ from multifamily:

•Direct outreach to mom-and-pop owners (often not listed with brokers)

•Relationship development with specialized MHP brokers

•Creating a reputation as a credible buyer who can close

•Focusing on off-market opportunities through targeted marketing

Financing Strategy

Optimal financing strategies include:

•Developing relationships with lenders experienced in MHP financing

•Understanding agency (Fannie Mae/Freddie Mac) MHP programs

•Considering portfolio loans for smaller acquisitions

•Exploring CMBS options for larger, stabilized properties

Estratégia de saída

Thoughtful exit planning should consider:

•Growing institutional appetite for stabilized, professionally managed portfolios

•Potential for 1031 exchanges into other real estate asset classes

•Refinancing options to extract equity while maintaining ownership

•Potential for resident cooperative conversion in appropriate circumstances

Conclusion: Should You Consider Mobile Home Parks?

Based on our analysis, we believe mobile home parks represent a compelling investment opportunity that deserves consideration alongside traditional multifamily strategies. The combination of strong supply-demand fundamentals, operational efficiency, and value-add potential creates an attractive risk-return profile.

However, MHP investing is not simply “multifamily lite” – it requires specialized knowledge, different operational approaches, and careful navigation of unique regulatory considerations. Investors should approach the sector with appropriate due diligence and operational planning.

At PrimeX Capital, we see three primary approaches for investors considering MHPs:

1.Portfolio Complement: Adding select MHP investments to a primarily multifamily portfolio for yield enhancement and diversification

2.Dedicated Strategy: Developing a specialized MHP investment platform with dedicated operational expertise

3.Joint Venture Approach: Partnering with established MHP operators to gain exposure to the sector while leveraging external operational expertise

For investors seeking strong current yield, value-add potential, and exposure to the affordable housing sector without the regulatory complexity of subsidized housing, mobile home parks offer a compelling alternative or complement to traditional multifamily investments.

Ready to discuss how mobile home parks might fit into your real estate investment strategy? Contact our team at [contact information] or visit https://1primexcapital.com/ to learn more about our approach to alternative real estate investments.

This article is for informational purposes only and does not constitute an offer to sell or a solicitation of an offer to buy any securities. Investment in real estate involves risk, and past performance is not indicative of future results. Potential investors should conduct their own due diligence before making any investment decisions. PrimeX Capital recommends consulting with a financial advisor regarding your specific situation before making investment decisions.