It would seem the once-seedy trailer parks have gone green over the last few years. Not the clean air, recycle your plastics kind of green, rather the U.S. currency kind of green. Even former Wall Street profiteers have been dipping their pens in trailer park ink; in a bizarre twist of tales, some of the richest entrepreneurs and investors in the U.S. are looking to the nation’s trailer parks for their latest riches-to-more-riches investing strategy.
According to a 2013 Census Bureau report, there are rouhgly 8.6 million mobile homes in the U.S., with approximately 12 million Americans living in them. Reportedly new trailer park supply is are not likely to grow much (if at all) in the coming years, due to increased restrictions on zoning laws in most states, and due to the exorbitant costs of building new ones. So supply remains a constant while demand for inexpensive and independent housing continues to rise, as rural Americans continue to seek cheap and affordable housing.
The trailer park industry’s so-called ‘sweet spot’ is a lot rental of approximately $495 according to former Ivy Leaguer Frank Rolfe, of one of the largest trailer park investors in the U.S. Certainly doesn’t sound like much when investors can demand at least $650 in rent every month in even the cheapest cities, for a traditional residential single family home or apartment.
So just how lucrative is the trailer park business? The answer is lucrative enough for two of the richest and savviest investors in the country to be two of the largest owners of trailer parks in the country. Warren Buffett purchased Clayton Homes, one of the largest manufacturers of mobile homes, for $1.7 billion more than a decade ago just before its appeal broadened. Buffett’s focus, however, was on senior parks for the 55 and over population. Since that time, private investment firms and other wealthy moguls like Sam Zell, who’s known for owning more office spaces and apartment buildings than any other entrepreneur in the country, have tried their hand at mobile home park investing and have made big profits.
Aforementioned Frank Rolfe and his partner Dave Reynolds have taken investing in trailer parks and mobile homes a step further by starting their very own boot camp of sorts for newbie trailer park investors. The idea was born after they both attended a similar course conducted by someone who they apparently felt did a less-than-adequate job. They’ve named the course Mobile Home University, and have a typical enrollment of 30-40 students or more; larger crowds tend to fill classes in the California area. The classes are not cheap though, costing a steep $2,000 per student (for a fascinating glimpse into the innards of their underbelly-real-estate-investing strategy, see The New York Times Magazine's piece on Rolfe and Reynolds' Mobile Home University).
Rolfe is a former billboard’s company owner, and sold his billboard company for $5.8 million before deciding to enter the trailer park business, when he was introduced to it accidentally by a client who needed a favor. He purchased his first mobile home park for $400,000 and later sold it for over a $1 million.
Rolfe and Reynolds pride themselves in being ‘decent’ landlords rather than slumlords. They reportedly spend hundreds of thousands of dollars on fixing up the parks to make them more livable. But they have three golden rules every trailer park investor should live by: raise the rent often, no coin laundry, and don’t be a slumlord. The pair now own 100 parks in 16 different states.
One of the greatest appeals of these trailer parks for investors is the low turnover rate. Typically, once a trailer owner hooks up to electricity and sewage, he’s there for a while and has no desire to move mostly due to the cost of doing so which can be upwards of $5,000.
Trailer park investors should, of course, diligently examine the math on returns, as with any other investment. For example, a park with 200 mobile homes which rent for $650/lot will gross the investor $130,000 per month when full. That’s an annual net of $1,560,000. Even after allowing for expenses (reportedly water is the biggest expense, and can be passed on to the renters), trailer park investors just may be on to something, especially considering the low vacancy rates associated with them. Of course, when actually considering purchasing mobile home parks for investments, due diligence is required and the numbers must be considered carefully. Rolfe and Reynolds say they have achieved average returns of roughly 25% annually using the strategy they teach.
Tell us what you think about trailer park investing. Is it for you? Do you have a different take on it now knowing Warren Buffett partly blazed the trail?