By Mike Callaghan, Managing Partner Four Leaf Properties (708) 781-1031
If our industry wants to lose the “trailer park” moniker, here’s an idea – get rid of the trailers!
Despite an unprecedented run in occupancy gains and MH property values, our industry is still struggling with legacy perception issues. Despite all of the recent successes, the landscape is still dotted with rusted metal boxes that taint and discount the value of new inventory. Industry-wide, we’re still managing $100B of obsolete, pre-1980s inventory. The answer to our problem, simply put, is that we need to wipe the slate clean and make trailers and trailer park owners go away.
If you’re one of the thousands of operators still sitting on the fence, let’s talk about the ‘why’ and ‘why now’ for new homes.
First, you’re absolutely throwing away your money and your residents’ money on vintage 1970-80 homes. Old homes demand lots of repair. And, if you’re in a climate-sensitive location (warm or hot) your customer is likely losing $100-$150/month in energy costs. Why don’t people like to buy 1970s cards? The technology is old. The ride is poor. Maintenance costs are way too high. Does this sound familiar? A low cost, singlewide home can be financed over 15-20 years for $200/month. Isn’t that a better option for you and your customer?
Second, operators in MH who are bringing in new homes in waves are capturing market share at a dramatic rate. There are two very strong forces at play in the housing marketing today – the growing number of seniors and millennial buyers. The country is getting appreciably older, forming a fast-growing, new breed of would-be 55+ buyers who are attracted by the low cost of MH living. Downsizers are attracted to developments with homes priced under $100K with carefree home maintenance and lifestyle amenities. Many lifetime renters, who are seniors on the lower income spectrum, are also turning to new MH homes where they can live more comfortably on a fixed income.
Millennial buyers, on the other hand, are value-centric, covet flexibility in lifestyle, and aren’t willing to sacrifice life experiences for a 30-year mortgage on a home. Using the internet and social media to validate their decisions, millennials are becoming strong advocates for buying new homes and are measuring the value against apartment living. What you won’t find on the internet is people talking about the great deal they got on a used trailer. Don’t look now, but those young buyers are hitting their ownership peak in the next few years – so if you’re not poised, you’re likely to miss the greatest influx of home ownership since the baby boomers.
The final argument for new homes is the value to the owner. If you’re a value purist who just chases yield on your investment, rethink the penny-pinching approach and chase the real money. Cap rate compression hasn’t happened simply because markets have improved. If that were true, we would have seen this type of compression at many points over the last 30 years, and we haven’t. What’s different is the inherent quality of the product. New manufactured homes are not just comparable to apartments – they’re better. Communities that are commanding increasingly higher prices are doing so because the NEW product is perceived, even by the financial community, to be superior. If you want top dollar, the writing is on the wall. Replace the old with the new and you’ll reap the benefits exponentially.
Why now? Market momentum is building. Quality NEW homes and financing options are available. As an industry, we’ve matured and are ready to collectively trash the trailers.