Investors See 'Huge Opportunity' To Cash In On Stigma-Prone Manufactured Housing Sector

One of the most stigmatized segments of commercial real estate is attracting a new caliber of investors as America’s affordability crisis deepens.

Manufactured housing, more commonly known as mobile homes, has quietly become a darling for investors over the last decade. The sector is known for being extremely lucrative, but a complicated history of negative perception is keeping new development at bay.

“Some of the most profitable investments are in industries where demand is outpacing supply,” said Kristin Millington, director of manufactured housing and self-storage at Dallas-based Crow Holdings Capital, which has homed in on the sector in a major way. “That’s the exact dynamic we see present in the manufactured housing space, and we don’t really see that changing.”  

The number of mobile home shipments surged in the aftermath of the pandemic as more people sought out cheaper ownership options. It is estimated that 22 million Americans live in 43,000 manufactured housing communities across the U.S., according to data from Matthews.

U.S. Census Bureau data shows that shipments of manufactured homes grew from 94,400 units in 2020 to 105,800 in 2021 and nearly 113,000 in 2022.

Shipments have since normalized to pre-pandemic levels, but a supply-demand imbalance remains that offers a clear advantage for investors. Only about 50 new projects are currently under construction or in the entitlement phase, data from Yale Realty & Capital Advisors shows.

The dearth of construction is in large part due to the deeply-held belief that mobile homes are poorly built and that parks are centers for crime. Those biases permeate into zoning, making entitlements difficult to obtain.

"Developers have a very hard time getting these approvals," Millington said. "There's an element of NIMBYism."

Neighbors in Huntsville, Alabama's Blossomwood filed a complaint with the city's board of zoning adjustments this past summer to stop any further construction of manufactured housing in the neighborhood, calling the homes a “nuisance” that was dragging down home values. More recently, neighbors of Grand Oak Resorts in Weirsdale, Florida, descended on a public meeting in Lady Lake to protest a proposed 800-unit mobile home community on the site of a former equestrian center.

Huntsville, Texas, has banned the product entirely, while jurisdictions in South Carolina and Kentucky have limited the size of lots where manufactured homes can be built.

NIMBYism and exclusionary zoning create a supply-demand imbalance that is working against residents, but it is offering a clear advantage for investors. The vast majority of park ownership is still concentrated among mom and pops, but the potential for strong returns is prompting real estate investment trusts, private equity firms and institutional groups to acquire parks in droves.

“Every day, with the affordable housing crisis, demand increases for these types of homes,” said William Boles, an investment sales associate in Matthews’ manufactured housing division. “That drives rents, and ultimately, drives prices.” 

The Lincoln Institute estimates that one-fifth of manufactured housing communities, or about 800,000 homes, were purchased by investors between 2015 and 2023. That number is poised to grow as companies respond to demand for affordability, said James Cook, national director of brokerage at Miami-based Yale Realty & Capital Advisors.

“When I started in this business in 2007, you could count on one hand the number of institutional players,” he said. “Today, it’s well north of 100.”

Manufactured housing developments are cheaper to purchase and operate than traditional apartments but can be just as profitable. Investors own the land but receive monthly rental income on the pad sites, and while mobile homes can technically be moved, the process is expensive and laborious, so most residents stay for the long haul. 

“It’s a very sticky tenant base,” Millington said, noting that resident turnover is around 5% annually. “You very rarely see anyone pick up and move their home. If anything, they sell their home and move to another park.”

A large portion of society will always need an affordable option, but that segment of the population grows during periods of economic turmoil. Manufactured homes are priced up to 50% lower per square foot than traditional site-built homes, per Matthews, offering a path to homeownership for cash-strapped Americans who would otherwise remain renters.

“We’re like the lowest branch in the tree,” said Cook. “Everybody passes it on the way up, and everybody has to hit it on the way down.”

Some of the nation’s most prominent investors have long been bullish on mobile homes.

Clayton Homes, the nation’s largest manufactured home builder, was purchased by Warren Buffett’s Berkshire Hathaway in 2003. The late billionaire Sam Zell, founder of Equity Residential, was the largest mobile home landlord in the U.S. In 2020, Blackstone announced a $550M investment in the space.

Because many mom-and-pop parks have fallen into disrepair, most investors acquire properties with a value-add approach in mind. Crow Holdings Capital buys the land, makes improvements and then raises rents on the pad sites. The homes tend to be owner-occupied, so investors are only responsible for park and pad maintenance.

“There is a huge opportunity for institutions to come in and acquire these communities from oftentimes undercapitalized, unsophisticated owners,” Millington said. “They've owned it for years … but most importantly, they haven’t reinvested capital into these parks in years.”

A number of corporate landlords have caused displacement by imposing sharp rent increases. Residents of a park in Upstate New York launched a rent strike after the new owner pushed through three rate hikes. The landlord promptly sent out 30 eviction notices.

At K-Mar Mobile Home Park in Fort Worth, Texas, residents said the new owner raised rents by more than 50%. Many neighbors were on fixed incomes and were forced to move out.

Most investors are leery of the reputation earned by displacing homeowners, but a number of syndicators eager to turn huge profits have recently entered the space, Cook said. 

“There are some private groups out there that are abusing rent increases,” he said. “They’re trying to return their investor money fast and with a high yield, and they don't have a long-term, patient perspective.”

For the most part, corporate ownership gets a bad rap, Boles said. Many investors view mobile home parks as long-term holds, and rent hikes tend to be incremental. 

Institutional investors have the money to improve parks, which in the long run should boost values. Less risk will drive down cap rates, Boles added, and ultimately widen the pool of institutional buyers. 

“Prices are going to go up, and even more owners will sell,” he said. 

Crow Holdings Capital has invested in 114 communities comprising more than 19,000 pad sites over the past six years. The company has also developed three ground-up projects in Texas, bringing more than 1,000 new homes to the market.

When calculating rent increases, Crow Holdings Capital adheres to the Department of Housing and Urban Development’s 30-percent rule, or the idea that a household should spend no more than 30% of its income on housing costs. 

“Obviously for a profitable investment, rent growth is part of the story,” Millington said. “But we never want to be a market leader in rent growth.”

While many housing advocates agree the segment could be one solution to the nation’s worsening affordability crisis, new development remains extremely rare. Mobile homes are widely perceived as inferior or substandard, which makes entitlements and financing hard to come by.

“There’s a canard that manufactured homes depreciate like cars — not true,” Three Pillar Communities co-founder Daniel Weisfield said in an email. “In high-demand housing markets, manufactured homes appreciate like real estate. We own communities where new manufactured homes sold for $100K 30 years ago, and those 30-year homes are selling for $300K today.” 

The segment offers solid returns for investors, but it’s not quite as big of an income generator for cities. Property taxes generated by mobile home parks tend to be significantly lower than what a city would garner through a subdivision of traditional homes, which poses yet another obstacle to approval, Millington said. 

Fannie Mae and Freddie Mac have committed to expanding financing solutions for manufactured housing, which should help incentivize the development of new parks. But the supply issue is likely to continue until the stigma perpetuated through exclusionary zoning is removed, Cook said.

“The best solution for all housing is more housing,” Cook said. “You need a thriving private market to regulate the industry, and competition is what regulates prices.”