THE UNICORN: THE RECESSION RESISTANT INVESTMENT.

ManufacturedHousing

The Great Recession officially lasted from December 2007 to June 2009 and had immediate and lasting negative financial impact on households and the broader markets.  The economy bottomed out, crushing the real estate and stock markets, destroying $18.9 trillion of household wealth and wiping out more than eight million jobs.  Investors heavily invested in the stock market through investment and retirement accounts saw their portfolios wiped out almost overnight.

In a recession, consumer and business confidence plummets leading to weakening employment, falling real incomes, and weakening sales and production. On a personal level, people lose jobs and homes.  A plummeting economy leads to plummeting stock and real estate prices and as a result plummeting net worth.  Those invested in certain real estate sectors such as flipping and commercial real estate see their income drop as demand and prices for homes and commercial space drop.

For the first time, the S&P 500 ended every single month of a calendar year with a gain. So how long will this last?

The drop in stock and real estate prices from the Great Recession is widely known.  What is not as widely known is the effect on the affordable housing market.  Affordable housing becomes even more in demand during times of economic hardship.  As more people lose jobs and homes, the demand for affordable rental homes goes up.  The renter share of all US households jumped from 31 percent in 2004 to 35 percent in 2012 with that share projected to grow even more over the next ten years.  Since the Great Recession, supply has outstripped demand for affordable housing and that gap is currently growing and is projected to grow in the foreseeable future. America’s Rental Housing – Evolving Markets and Needs (2013), Joint Center for Housing Studies of Harvard University.

Even in the midst of the current recovery, demand for affordable housing continues to outstrip supply.  Another recession will only make this gap wider as the number of low income renters will increase.  And in no other affordable housing sector will this gap between supply and demand be wider than in the mobile home sector.  New mobile home parks just aren’t being developed.  “There are 8.6 million mobile homes in the United States, according to a 2013 U.S. Census Bureau report. That number is not likely to grow…given restrictive zoning laws and the prohibitive cost of building a new park.., meaning supply is static even as demand for cheap places to live is high.”   Gary Rivlin (Mar. 13, 2014), The Cold, Hard Lessons of Mobile Home U., www.nytimes.com.

With stagnant supply, a recession will only increase demand in mobile home parks, which makes an investment in a mobile home park appealing. In addition to being recession resistant, mobile home parks are also highly profitable with same site net operating income growth exceeding all other forms of commercial property since 2000 as demonstrated by the graph below.

As an affordable housing option, mobile home parks are not only recession resistant but the high-yields make it a very attractive investment for savvy investors. That is why we invest in mobile home parks.

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