The Economics of Everyday Things - 18. Mobile Home Parks

Episode Date: September 18, 2023

They’ve long been associated with crime and blight. Now, the investors are moving in. Zachary Crockett follows the trail.

In 2012, a small audience of real estate investors gathered in a conference room in Colorado to learn about a lucrative opportunity. We'll be together the next three days. It's just a wooden goal and that's to make everybody here an confident, mobile, unparked investor. So we're going to show you how to find properties, negotiate them, renegotiate them, finance them. That's Frank Rolf, co-owner of Mobile Home University. You do deliver them, how to properly buy them, close them, turn them around and operate them

and even sell them. This kind of college styled about 30 hours in length, where we teach them everything from finding mobile home parks to evaluating them and running them. 11 years ago, capitalists weren't clamoring to own mobile home parks. That has changed. Today, investors are caching in on one of America's biggest and most vulnerable affordable housing markets. When I bought Glendhaven, my very first eviction was a veteran who had severe mental problems, very nice individual, but didn't have their act together in a big way. And hadn't paid rent in months.

And I then had to evict her for non-payment. I had to do something. For the Freakonomics Radio Network, this is the economics of everyday things. I'm Zachary Crockett. Today, mobile home parks. At the dawn of the automobile industry in the 1920s, trailers were toys for the rich, a way to travel the country in luxury.

That changed during World War II, when the federal government bought tens of thousands of trailers, and used them to create permanent housing communities for factory workers. After the war, dedicated mobile home communities were built to house returning veterans. Over the years, many of these early residents migrated to the growing suburbs. And mobile home parks, or trailer parks, as they became known, gained a reputation as an inexpensive, last resort housing option for low-income Americans. Today, there are around 43,000 mobile home parks in the US, home to 22 million residents. That's a little more than 6% of the nation's entire housing stock.

The majority of these parks have historically been owned by mom and pop operators, who typically keep rents low and don't do much maintenance. But that began to shift when people like Frank Roth came around. When I got into it, you were really embarrassed to say you actually owned a mobile home park. Roth didn't start his business career with mobile home parks. In 1996, he was running a billboard company in Dallas. When you're in the billboard business, you're constantly looking at zoning maps

because you can only build billboards in certain zones. And I noticed over the years that the most infrequent zoning I ever saw was MH or mobile home. So I do as an economics major, the whole concept of supply and demand. I knew if the zoning was extremely restricted, there must be something valuable to it. He bought his first park in Texas for $400,000

with a $10,000 down payment. Everyone, friends, family, they all criticized the basic concept. Many were concerned it would lead B2B, you know, physically attacked or robbed or all kinds of wild ideas. Mainly based on the stigma they had from watching, perhaps too much television or movies with mobile home parks depicted in them. Rolf is one of the five largest mobile home owners in the US. His firm owns more than 250 parks across 25 states, enough lots for 31,000 mobile homes.

He parlaed his success into mobile home university, which teaches other people how to invest in the industry. If you look at the top 100 owners of mobile home parks in the US, about a third of those all started with our class. Roth says that broader interest in mobile home park investing really took off in the years following the 2008 housing crisis. You had the great recession and you also had interest rates drop basically to zero. So you had a lot of people looking for alternative investing that did well at recessions. And there were very few things that did, but one that appeared up to people's radar was

mobile home parks. Paul Bradley has noticed the shift too. When I first started tending national trade shows, older, white guys buy in large. Today, it's a lot of young men and women brightly dressed and very expensive shoes that predominate the trade show. rest and very expensive shoes that predominate the trade show. Growing up in New Hampshire, Bradley had family members who lived in mobile homes. Today, he's the president of Rock, USA, which stands for Resident-owned communities. It's a nonprofit that represents Mobile Home Park residents.

He says there's a reason Mobile Home Parks are appealing to investors. When you acquire one, you're buying land and the residents might own their homes, but they don't own the land the homes are sitting on. Turns out most Mobile homes aren't very mobile at all. They can cost thousands of dollars to move and 90% of them are installed once and never relocated. That gives park owners a lot of power to raise rents at will. If I lived in an apartment across the street from an apartment that's $200 less of the same quality, I can easily, at the end of my lease, move across the street. In a manufactured home, you cannot easily move across the street, even though the affordability

may be that much better. In the words of the industry, these are cash cows. This is what Frank Rolf of Mobile Home University refers to as, like owning a waffle house with your customer chain to the booth. Since Frank Rolf and his students began investing in mobile home parks, park residents have been feeling the squeeze. According to data from the real estate firm Northmark, between 2010 and 2021, the average monthly rent on a lot in a mobile home park went up from $382 to $593, a 55% increase. That's significantly more than the increase in rent on apartments.

In some cases, new owners have doubled or tripled rents after purchasing parts. There's no limit to how much they can raise the lot rent. There's nothing. Nothing in Michigan whatsoever. Cheryl Strayberger is a retired nurse. She lives in a mobile home park in Grand Blank, Michigan with her mom. Her parents bought their home for $25,000 in 2007. For years, the lot rent won up $10 per year. But when new owners took over the property, it jumped up $39 per month. Today, the lot rent has gone up to $645 a month. And that's not including the fees, the water, the sewer, the trash.

We just got the August bill and it's $735. It's a lot for her because all she has, she has a very small pension from my dad and she has just her social security. That's it. She has a lot of medications that she has to purchase. And that $39 could go towards a medication or you know something for her, not LATRAT.

For residents like Strayburger and her mom, every dollar counts. According to Bradley, the median household income for homeowners in a Bobo home park is $35,000, about half that of the median American household. But Frank Rolf says rent hikes are justified when you look at the bigger picture. There are people out there right now who have not raised their rents in 20 years. I mean, we've bought parks like that. Well, you know, going in, people are going to be mighty and happy because the red is been frozen in time by far the majority are perfectly happy paying the higher red as you're making the improvements because they never dreamed of

living in the world's cheapest property. They just wanted to live in a nice place. wanted to live in a nice place. When he buys a park, Rolf says he invests a lot of capital in improving the properties, which are often in a state of disrepair. The first thing that must mobile home parks lack is a terrible street appeal. A typical entry is going to run you at least 10 to 30,000 for the entry. Roads can easily run you anywhere from 100 to 300,000 just on a 100 space property. If you have to replace water or sewer lines, you're probably talking somewhere in the

three or 400,000 range on the way up to a million. It's not uncommon on a park with lots of trees to spend 50 to over $ 400,000 range all the way up to a million. It's not uncommon on a park with lots of trees to spend 50 to over $100,000 in removing dead limbs and trees. They're also trying to reignite their pride of ownership. So once you, for example, put a nice entry in and a nice office and fix the streets, at some point people start getting their self-respect back

because in many of these properties by living there, they feel inferior because it's in such poor condition. Cheryl Strayberger confirms that as well as raising the rent, the new owners at her mobile home park have taken pretty good care of the place. When you first drive in to the right of coming into the park, they have the clubhouse, which is nicely decorated outside. The aesthetics look great.

We have a pool. There's a little playground for the kids, but that's not always the case. We have a lot of disabled elderly people here. We got families just starting off. And then we got people you know that probably lost a lot during COVID and just needed something to start over with. And this is all they had to go to. And that would be me. Lost everything during that time and honestly had no choice. That's coming up. and honestly had no choice.

That's coming up. For Blair Roberts, living in an emboble home park was a last resort. After more than a decade working as a chef, he ran into health issues and had to dial back his expenses. He bought his home at a park in Warren, Michigan, just outside of Detroit for $3,000 in 2020 so he could live closer to family. And he claims that his problems there began almost immediately. I bought my home and received no title, probably like half of the people in here. They can't find our titles, so they say...

After he moved in, the park was bought by an investment firm. The rent he paid for his lot went up. But the increase didn't come with many meaningful improvements. A month after my neighbor came over and said, Hey, man, you got a whole bunch of sewage outside your house. Raw sewage that I found out was the main sewage over here. It's everyone from a few lots down the mine. raw sewage that I found out was the main sewage over here. It's everyone from a few lots down a mine.

So every time they flush their toilet, it comes up. I don't pick up hyperdermic needles. We have bad streets, no sidewalk. It is bad here, man. Both Roberts and the City of Warren have initiated litigation against the owner of the park where he lives. The case is ongoing and the city declined to comment on it. Roberts says the legal action has led to some improvements, but he still doesn't feel

it's a safe environment for his kids to visit. My oldest, her mother won't even let her come here. She doesn't want my daughter in these living conditions. Would you say that for you as a resident, this has been a good investment? This has literally been the worst place I've been. I should have never came here. The stress, the mental wear and tear it has on you, them not caring. In a promotional video from Bobo Home University, Frank Rolf boasts about the returns he gets on his parks. You only rent the land when you own a mobile home park, so there's no toilets to fix

or issues like that, and the customers are relatively easy to please. They're just happy to have a roof over their head. So basically, mobile homes and mobile home parks equal money. And the returns are very high, normally 15 to 40% cash on cash. But for the people who buy mobile homes to live in, people like Blair Roberts and Cheryl Strayberger, the returns aren't so hot. If you own a traditional home, you own the land it's on. That land is a scarce resource, which is why traditional homes appreciate at 3-5% a year on average. But if you own a mobile home, all you own is the physical structure, which depreciates in value over time. It's more like owning a car than a house. The typical price for a single-wide,

a home that is between 513 square feet, is around $73,000 new. Used, that same unit will go for $10,000 to $25,000. And when residents move out and try to sell their home to the park, they're sometimes offered a fraction of that. Some of the other folks in other parks have told me that they try to sell theirs and the park offered them like $2,500 and I'm like, oh my gosh, that's like, you know, that's nothing.

Park owners like Roth want nothing to do with the mobile homes themselves. They know that the true value of their investment is the land. Park owners like Roth want nothing to do with the mobile homes themselves. They know that the true value of their investment is the land. We're in the parking lot business, so we try not to own any of the homes. All we own are the roads, the utility lines, and the common area structures and the common area land. in the Common Area land. One solution to these problems is for Mobile Home Park residents to band together and buy the land under their homes. Paul Bradley's nonprofit, RokuSA, helps residents do just that.

A resident-owned community is a cooperative, so homeowners get together on a one member, one share, one vote rule. They can set up their own corporation and buy the land from that corporate investor. They still retain ownership of their home, just like they did before. But now they have one share in the corporation that owns the land beneath their homes. share in the corporation that owns the land beneath their homes. These efforts are financed in partnership with philanthropies, like the Rockefeller Foundation and the Ford Foundation. Today, around 1000 of the nation's 43,000 mobile home parks are resident-owned. The economic benefits are substantial and grow over time. So first, co-ops have been enjoying lot rents on average of

$50 below market after five years of ownership and $100 per year below market after 10 years of ownership. Bradfrey also says that homes in resident-owned communities sell for an average of 16% more than homes in investor-owned parks. So that's equity. That's real money in the pockets of low-income families. For us, our North Star starts with land ownership because it's hard to build anything on top of land that's owned by a profit-motivated land lord. There's a broader issue at play in the world of mobile home parks. They are a shrinking market.

Most municipalities have stopped building them altogether because they don't raise as much property tax revenue as other forms of housing. And homeowners don't want parks near their houses. I would say you've got at least a couple hundred a year that are torn down for redevelopment and virtually none built. Even so, park owners like Rolf still have faith

in the business model. If all the industries out there in America, it's probably the only one I have confidence in because it combines housing with being contrarian and I'm a pessimist by nature. So I like things that do better when things are bad. Paul Bradley has heard that sentiment before. Most recently at an airport after a trade show,

he started talking to a park owner about recent closures and the industry's growing affordability crisis. The owner gave him a knowing look. The Lenny gets a grin on his face and says, but the profits are just too good. For the economics of everyday things, I'm Zachary Trakett. This episode was produced by Sarah Lilly and mixed by Jeremy Johnston and Greg Ripon. We had additional help from Lyric Boudich and Daniel Moritz-Rapson. Stitcher.