As the housing market continues to evolve, manufactured housing communities (MHCs) are emerging as a compelling investment opportunity. These communities, where residents lease land to place their manufactured homes, offer unique benefits that may appeal to both investors and residents alike. Here are five key reasons why investing in MHCs could be a smart move for your portfolio.
1. Addressing the Shortfall of Affordable HousingThe demand for affordable housing is at an all-time high, driven by rising interest rates and low housing inventory. Manufactured homes can provide a cost-effective alternative to traditional homes, costing on average $85 per square foot compared to $168 per square foot for site-built homes.1 This significant price difference can make manufactured homes an attractive option for those who cannot afford the higher mortgage of a traditional home.
Yet despite the increasing use of alternative property sectors, many advisors remain unfamiliar with these investment strategies, which may limit portfolio exposure to these viable real estate investment strategies and impede broader adoption.
2. Limited Supply Can Create Investment Opportunities
Despite their growing popularity, manufactured homes have comprised only 9% of new single-family home starts over the past decade. With less than 44,000 manufactured housing communities across the United States and new constructions lagging behind demolitions, there is a consistent shortage of available units.2 Local zoning restrictions and the "Not In My Back Yard" (NIMBY) sentiment further limit the development of new communities, maintaining low vacancy rates and high demand.
3. Strong Resident Loyalty
Relocating a manufactured home is an expensive and complex process, costing as much as $14,000 depending on various factors.3 This high cost encourages residents to stay long-term, with many living in the same community for over 14 years on average.4 The stability and sense of ownership that come with living in a manufactured home foster strong resident loyalty, which can create steady occupancy rates for investors.
4. Resilience During Economic Downturns
Manufactured housing communities tend to be less sensitive to fluctuations in the gross domestic product, supporting the sector’s resilience during economic downturns.5 Strong demand for affordable housing helps maintain high occupancy rates, which can make MHCs a stable investment even when other sectors face challenges.
5. A Niche Real Estate Sector With Growth Potential
The manufactured housing sector is highly fragmented, with the ten largest institutional managers owning less than 5% of all MHCs as of early 2022.6 This fragmentation presents opportunities for investors to acquire undervalued properties, implement efficient management practices, and realize returns through improved operations and net operating income growth.
Investing in manufactured housing communities offers a compelling opportunity for stable income and growth potential. As the need for affordable housing continues to rise and the credibility of MHCs improves, we believe investors can benefit from this market with promising dynamics. Consider adding MHCs to your investment portfolio to diversify and potentially enhance your financial stability.
Play the video below to hear more about this exciting asset class from Rod Curtis, President of Inland Venture Partners.
For more information on manufactured housing communities, click here.
1Manufactured Housing Institute. About Manufactured Housing. www.manufacturedhousing.org/about-manufactured-homes.
2Fannie Mae. Lack of Communities Leaves Fundamentals at MHCs Tight. September 18, 2023. https://multifamily.fanniemae.com/news-insights/multifamily-market-commentary/lack-communities-leaves-fundamentals-mhcs-tight.
3Moving.com. The Cost of Moving a Mobile Home in 2023 – What You Can Expect to Pay. https://www.moving.com/tips/moving-mobile-home-expect-pay/.
4Seeking Alpha. Ground Zero of the Affordable Housing Shortage. October 2019.
5Green Street. Navigating the “Upside Down” in Commercial Real Estate. September 15, 2022. Per Green Street, the historical sensitivity displayed reflects a 20year period ending on or about 2020. Past performance is not a guarantee of future results. There is no guarantee that we will perform similarly to the MHC Sector as a whole.
6Wells Fargo. 2022 Manufactured Home Community Market Update and Financing Handbook.