The Hows and Whys of Investing in Manufactured Housing

by | 16 August 2017

Would-be investors facing steep competition within the industrial, hospitality, office and apartment sectors are increasingly turning to an alternative that can offer less competition and lower risk: manufactured housing. In recent years, there has been a confluence of socioeconomic factors that make this previously underappreciated sector an increasingly popular investment.

“The manufactured housing industry specifically serves two demographic groups: retirees who are on fixed incomes and people that are looking for affordable housing,” said Michael Nissley, national director of Colliers International’s Manufactured Housing Group.

Today, the following factors are driving demand for manufactured housing:

  • An aging population of baby boomers who will soon be downsizing from traditional housing
  • A young working-class population that’s been priced out of the traditional housing market
  • Increased demand for affordable housing
  • An abundance of available loans, which has not historically been the case for manufactured housing
  • Manufactured housing typically outperforms the rest of the real estate industry during economic downturns

Smaller and medium-sized investors who don’t have the capital to compete for the traditionally more popular hospitality, office, industrial and apartment investments can benefit from the fact that manufactured housing is a fragmented industry dominated by mom-and-pop businesses, much like the self-storage industry before the recent boom. However, savvy entrepreneurs including real estate mogul Sam Zell and Warren Buffett have invested heavily in manufactured housing for several decades.

“Manufactured housing has very little published data,” Nissley said. “So there’s still a lot of opportunity.”

That doesn’t necessarily suggest that entrepreneurs should purchase the first manufactured housing community that they encounter. As with any investment, research, data and insight are vital. Nissley recommends paying particular attention to these three factors:

  • Location characteristics, including demographics, weather and employment statistics. Manufactured housing communities are most popular in regions with mild weather. Retirees — who represent a significant demographic for the manufactured housing industry — are more likely to settle in regions with warm or temperate weather.
  • Occupancy rates of the existing community. A low occupancy rate is not necessarily a negative factor as it might drive down the price of the investment. Likewise, a savvy investor might be able to increase occupancy. However, that does not change the fact that occupancy rates are an important reflection of the health of the investment.
  • Quality of the infrastructure in the existing community. A moderately priced community with an aging infrastructure will likely require substantial financial investment that might not ultimately be worthwhile. However, some land-lease communities with low or moderate revenue might benefit from a shift in ownership or management resulting in more profitable practices.

Historically, obtaining a loan to invest in manufactured housing was difficult if not outright prohibitive. But the lending industry seems to have experienced a change of heart. In fact, Nissley said there are loans in abundance. Motivated by the overall health of the manufactured housing industry and the low default rate among existing industry loans, lenders are now helping to drive manufactured housing as a viable investment opportunity.

When, or whether, manufactured housing achieves the same level of interest other commercial property sectors enjoy remains to be seen. But there’s plenty of opportunity, for now.

“Manufactured housing is becoming more competitive but relatively speaking it’s still virgin territory,” Nissley said. “There are opportunities that don’t exist in most other segments.”