People have to live somewhere.
Housing is not a luxury (although it would seem that way in some countries). People have to have shelter – they can’t just cut that out of their budget. As a result, manufactured home communities do not have to fight a battle to keep consumers buying their product despite their attempts to trim costs to deal with inflation. This is one moment in history when being at the top of the demand food-chain is a good thing.
And, equally important, manufactured home living is among the least expensive options out there. At a time when people will be seeking a way to reduce their budget, life can’t get any cheaper than the manufactured home community. While others may be losing tenants, we may actually see increasing demand.
Our customers are in the best position not to lose their jobs.
In times of inflation – when companies are struggling to trim costs such as payroll – there are some jobs you can cut, and some you can’t. The ones you can cut are administration. Executives, supervisors – jobs that you can’t directly link to sales – are the ones that go first. Our customers are the folks you can’t let go of. Let’s look at a hotel as an example. You can’t fire the people who clean the rooms, cook the meals in the restaurant, or valet the cars. But you can fire the management staff, and the management company that supervises them. Our customers are the former, not the latter. The manufactured home communities will not feel the pain. The McMansions will.
Those jobs paying minimum wage to $15 per hour will be the survivors of the cost-cutting mania that is about to be unleashed.
We have the ability to still raise rents.
As inflation increases, we will be able to raise rents to stay in step with increased costs. And we can do that because our rents are still very low. When you have a lot rent of $200 to $300 per month, you are delivering a low price that still has plenty of room for a boost – yet still remain uniquely affordable.
In many communities, the residents already own their homes outright. With no mortgage to pay, they are effectively living in a two or three bedroom home for a few hundred dollars a month. Let’s compare that to the average apartment in the U.S., which exceeded $1,000 per month in 2010. Which do you think has more room for price growth?
Manufactured home communities do not use a lot of inflating resources.
The single largest line item for the average manufactured home community is water & sewer. While these will probably always be going up over time, they are not energy related and are not expected to inflate wildly. In fact, there are few – if any – line items that are going to go anywhere fast. The most dangerous cost from an inflationary perspective is going to be the electricity, but that is paid directly by the tenant. So there is really little inflationary damage from the community owner’s perspective.
While many industries – from airlines to trucking – will be struggling to survive the increasing costs of inflation, community owners will pretty much be on the sidelines.
Inflation is good for real estate.
When the stick-built housing bubble burst a few years ago, some economists said that the only salvation would be a good round of aggressive inflation to boost values. Well, it looks like they’re going to get their wish. But inflation is not just good for houses, it’s good for all forms of real estate. Why? Because inflation gives you a sales point to make all hard, tangible investments more valuable, while investments tied to currency falter. Just look at what happened to the stock market the day I wrote this article – it fell 180 points due to concerns on inflation.
As real estate values increase, so will the value of your manufactured home community. Just like those lucky Californians who bought real estate before the great inflationary run up of the past few decades, a basic manufactured home community – any community – will increase in value without any help on your part. As a result, you will see the benefits when you go to sell or refinance.
Yes, inflation is coming back. The signs are everywhere. Remember gold at $300 an ounce? Try $1,400. Remember $20 per barrel oil? Try $100. Remember what that shopping cart at Walmart cost you last week? Well, it’s going to be a whole lot higher soon. And the effects of inflation are going to be huge, as we have avoided it for so many years that we don’t factor that into our decision making any more.
But one of the few happy participants in the inflation game are going to be the community owners. They will see continually higher cash flow and values. And that’s a happy security blanket when the rest of the economy is crashing and burning.
Frank Rolfe is regarded as one of the leading Manufactured Housing
Industry experts. He has purchased over 100 mobile home communities,
100’s of mobile homes, and through his Mobile Home Parks and Mobile Homes
websites, he has helped thousands of individuals buy and sell mobile
home parks and mobile homes.