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By Paul Moore, Guest Writer

How’s your fantasy life?

Do you ever fantasize about investing in Apple in 1990? Or in Amazon in 2001? Or in Berkshire Hathaway in the ‘70s?

I know a CPA who invested with Warren Buffett in the 1970s. He was strapped for cash once and sold his shares on a whim. He said those shares would be worth millions today. Or did you hear about the guy who sold about 100 Bitcoin to pay off his $600 debt to a friend? He bought some tools from the guy, and his friend begrudgingly accepted this questionable payment. That was worth about $4.2 million a decade later (and, even after Bitcoin has dropped in 2022, it's still worth about $2 million).

It pays to be in front of the curve.

But let’s be honest. Most of these speculative investments come to nothing and leave their investors disappointed. That’s what happened to me on numerous occasions in earlier decades. It’s hard to predict what will pay off.

Years ago, I had a chance to invest in mobile home parks. But, like most real estate investors at the time, I turned my nose up at the prospect.

That was a major miscalculation.

Sam Zell saw this opportunity before almost anyone else. And his investment in mobile home parks has been part of his formula to become America’s most successful real estate billionaire.

What did Sam see that most of us missed?

I turned my nose up at mobile home park investing for years, and in fact, I barely considered the prospect. Maybe you’ve felt the same way. This stigma is one of the reasons I now love investing in mobile home parks. There is less competition. However, this is changing quickly as many investors at all levels have caught on.

Investors in manufactured housing live where we want to—and invest where it makes sense. And this investment class makes a whole lot of sense to me.

Manufactured housing is the only asset type I’m aware of that has an increasing demand and a decreasing supply every year. The number of mobile home parks in America is dwindling. Developers are gobbling up the land for other uses, or the pressure from city planners results in their demise. Some parks are so old and rundown that they just close up shop. I visited two parks like this in Fairbanks, Alaska, last year.

At the same time, there is an affordable housing crisis in America. It is real, and it’s not going away. The number of low-paying jobs is increasing, especially when indexing for the current inflation we’re experiencing. Healthcare laws have motivated employers to hire more part-time workers, and many young employees don’t have the skills or desire to fill current employment needs.

[Author’s Note: Not long before this post went to press, the White House announced major incentives to promote manufactured housing production and to remove barriers to mobile home ownership for millions of Americans. This could be a gamechanger to accelerate the benefits of an already wonderful investment opportunity. Our firm is currently increasing our efforts to seek out mobile home park opportunities on behalf of our investors.]

Have you heard that about 10,000 Americans turn 65 daily? Yet 6 in 10 have less than $10,000 saved for retirement. This potentially exacerbates the affordability crisis as older Americans are having a tough time affording pricier housing.

Fortunately, many of these retirees have home equity, and many of them are willing to trade their home equity for a mobile home on a rented lot at a reasonable cost. This gives them their own space, drive-up parking, a yard, and a sense of community.

But it’s not just low-income people who are converting to a mobile home park lifestyle. Keith, the father of a dear friend, was a respected doctor in southern California. He chaired national councils and golfed with President Ford. When he retired, he could have stayed on a southern California beach. But he chose to sell his home and buy a mobile home on a rented park lot near Palm Springs. This freed up cash and resulted in fewer responsibilities and more flexibility as he entered his retirement years.

The affordable housing crisis, the supply and demand imbalance, and sticky tenants make mobile home park investing a recession-resistant asset type that shouldn’t be overlooked as you build your investment portfolio. Speaking of sticky tenants . . .

Mobile homes aren’t really mobile. Tenants tend to stay in mobile home parks for a long time.

Apartment tenants might move to avoid a 7% rent hike. Someone paying $1,000 per month is looking at a $70 monthly increase, $840 annually, by signing that lease. Hiring a moving truck and some willing friends is all it takes to walk away, leaving a vacancy. But imagine getting a 7% rate hike in a mobile home park. A new operator comes in and cleans up the park, likely adding amenities and increasing safety. You’re paying $350 per month, and your increase is $24.50 monthly.

Is it likely you will spend about $5,000 to pack up and move that mobile home across town just to save about $25 per month, risking damage to the home and all the disruption to your family? Not really.

There is reportedly a 90%+ chance that mobile homes will remain at their original location for the life of that home. Some stats say the average mobile home park dweller remains on their rented lot for about 13 years—many times longer than apartment tenants.

Well-run manufactured housing communities have the lowest maintenance costs and capital expenses among any asset types we’ve invested in or reviewed. This is because these parks are typically leasing dirt and infrastructure to tenants. Tenants own (or are buying) the mobile homes. This means tenants do maintenance and repairs.

An oral surgeon I spoke to told me of his woes in building a 20-home portfolio to replace his income in retirement. He sounded excited at first. Then he began describing calls to painters between procedures and evening meetings with other contractors and tenants. His excitement gave way to a deep sigh, and he said, “I really don’t know if I can pull this off. I’m only on my third house, and this is driving me crazy.”

I’m in my third decade as a real estate investor. I love the prospect of not dealing with unreliable maintenance and construction crews as well as the toilets and trash that typify many rental properties. Speaking of tenants who own their own mobile homes . . .

My friend Tony is a medical professional. He owns and leases out 43 apartments on the side. He told me a tenant moved into one of his units on a recent Monday. Then, the tenant waited two whole days before setting the unit on fire.

Tony will have to deal with months of hassle, insurance, bids, negotiations, demo and construction, increased insurance premiums, and potential criminal and legal action as a result. This is a risk with any single-family or multifamily rental property.

This is one reason I love mobile home park investing. At least those that are done right, where the park owners own the land and infrastructure and then lease the dirt to tenants. Tony’s scenario would not happen at a well-run mobile home park asset.

Tax efficiency is one of the most surprising aspects of mobile home park investing. Accelerated depreciation, derived from cost segregation studies, allows operators to take significant early paper losses from depreciation in the early years of commercial real estate ownership. The 2017 tax law changes allow most of that depreciation to be realized in year 1 of an investment.

Since these assets generally lease dirt to tenants, I expected accelerated depreciation to be minimal (since land isn’t depreciable). I was quite mistaken. A typical mobile home park’s value is about 20%-30% land, with the balance booked as infrastructure. This means that about 70% or more of the value can be depreciated, and the vast majority of that depreciation can be accelerated into year 1 under the current tax law.

Due to the tax classification of most of the infrastructure and the benefits of the new tax code, mobile home park operators and their investors usually get a sizable paper loss in year 1 of their ownership. This loss can be about 60%-70% of the acquisition price. When factoring in 50%-70% leverage, the investors often receive paper losses well above 100% of their equity investment. These losses can sometimes be used against prior profits or be carried forward for years, meaning investors’ cash flow will often not be taxed for a long time.

Medical professionals and other high net worth investors should keep in mind that it’s not how much we make but how much we keep—and for how long—that really matters. Taxes take a massive bite out of our income. But many physicians can hang onto a hundred thousand or more otherwise squandered dollars annually by convincing their spouse to attain real estate professional status (REPS). It won’t work for most, but those who pull this off can acquire considerable tax savings.

This is my favorite thing about investing in mobile home parks. Though I wrote a 2016 book on apartment investing (The Perfect Investment), our firm has found that multifamily is not always “perfect” after all. It’s largely overheated. Many (especially rookie) syndicators have become speculators, and we decided not to play that game.

There are more than 40,000 mobile home parks in the United States. Though it is hard to track data since the asset type is so fragmented (which we love), it is estimated about 85%-90% of these are owned by mom-and-pops. Single-asset owners running their properties with few systems, financial controls, marketing, revenue management, or a sense of professionalism. Even some large parks are still run this way, as you’ll see in a moment.

They don’t need to—it wouldn’t be worth the hassle. They have already experienced massive gains in paper value, and all they need to do to unlock those gains is to sell the property. That is where a professional operator steps in.

A professional operator can spot intrinsic value in an unprofessionally managed mobile home park. Like Warren Buffett uncovering hidden value in undervalued companies, these operators can spot upside that’s invisible to the masses.

They are skilled at uncovering operational inefficiencies, bloated operating costs, value-add prospects, and expansion opportunities. Increasing the net operating income and adding safe leverage provides increased cash flow and accelerated asset appreciation. Plus, these operators know how to use the tax code to help their investors delay or avoid taxes on cash flow and, sometimes, on capital gains.

I have been investing with operators like this for years, and I’ve experienced healthy cash flow and outsized appreciation with the benefit of meaningful tax efficiency. We’ll close with an overview of one of these investments.

Our operating partner acquired Southland Mobile Home Community in Louisville in February 2020 for $7.1 million cash. He purchased this 311-lot property at a 6.5% cap rate on existing net operating income at 81% occupancy. Within a month of acquisition, the operator placed conservative (51% LTV) Fannie Mae debt on the project.

The operator purchased this property off-market from a mom-and-pop owner. The park’s original owner had passed away years before, and his wife had not visited the park since then. She was several states away and had a manager in charge. Five days after closing on the property, the operator received an unsolicited offer for $9.5 million. He turned it down with no counteroffer.

We were a bit surprised he would decline an opportunity for a 33% return on the asset and, more importantly, a 68% return on the equity within a week. However, the operator believed the property would be worth over $13 million after his team executed their value-add strategy within about three years.

The operator saw four ways to create significant value with this project. First, operating costs were bloated by more than $60,000. As a professional operator with an experienced team, our operator brought this into line. This simple change resulted in over $1 million dollars in increased asset value.

Second, the operator knew the lot rents were drastically below market (up to 35% low). He planned to raise rents over time. Because of the CRE value formula (Value = Net Operating Income ÷ Cap Rate), a small increase in monthly revenue (with no increased cost) and safe leverage can lead to a large change in value.

Third, the previous owner paid for water and sewer for all the tenants. This was common in yesteryear but not in large modern parks (and it is problematic for usage levels). The major local competitors all charged water and sewer to tenants. The operator’s team metered each mobile home and passed these costs back to tenants. The Net Operating Income (NOI) increase was $144,094. This simple change resulted in a value increase of over $2.2 million at a 6.5% cap rate.

Lastly, there were 50 or so vacant lots. This is a stumbling block for mom-and-pop owners. The most common solution is for the park owner to acquire and set up homes on-site and then try to sell them to new tenants. This requires a lot of capital, effort, and risk. But there can be a significant payoff by increasing occupancy (especially with new homes).

The operator got through the first three of his four initiatives. He hadn’t undertaken the last one when he received another unsolicited offer he couldn’t refuse. The operator accepted an offer from a large mobile home community operator and closed for $15 million in December 2020. Including cash flow along the way, this project generated a 347% IRR (and a 3.4x multiple on invested capital) at the project level over a 10-month hold period.

Here are some additional details for your review.

While the results of this investment were quite dramatic, the process to get there was characteristic for this operating partner. He executes similar strategies on a regular basis and, in fact, has documented average IRRs of over 60% over multiple years.

I’m glad I took off my blinders to consider this overlooked asset class. I wish I would have done it a decade or more ago, but it has still proved to be a great investment for me. Does it make sense for you to take a look as well?

Have you ever thought about investing in mobile homes? Why or why not? Is this something you could see yourself doing in the future? Comment below!

[Editor's Note: Paul Moore is Managing Partner of Wellings Capital . Wellings Capital is a paid advertiser and a WCI Recommended Real Estate Investing Company Partner. However, this is not a sponsored post. This article was submitted and approved according to our Guest Post Policy.]

Great story. Unless you’re any of the 252 tenants at the mobile home park.

Yes, they had a sweet below market rent situation for a long time. But no landlord should feel obliged to offer rent at below market unless their tenants are their favorite charity.

So they made money by raising the rent charging tenants for water and sewer when they hadn’t previously. Sounds like a slumlord. No thanks.

If there is a better deal elsewhere, tenants will take it. You seem to buy into the common, but mistaken, idea that landlords are somehow obligated to offer their product/service for less than it is worth. If they can fill the park with people willing to pay for water and sewer, that’s market rent.

If mobile home properties or section 8 properties or whatever aren’t profitable, there won’t be any mobile home parks and the folks currently living there will be out on the street. Any business dealing has to be win-win or the transaction doesn’t take place.

Lead-up of “affordable housing” yada yada, then raises rents and passes off expenses. Without being naive to how the world works, we could acknowledge that America is essentially an extreme capitalism experiment that plausibly might not end as well as intended. In this scenario and others, the wealthy get super-wealthy with insane ROI while the poor get poorer. Should doctors invest along with VC in nursing homes too? https://www.vox.com/policy-and-politics/22295461/nursing-home-deaths-private-equity-firms

Will we be left, long-term, with communities owned by equity and investor groups that have zero interest in the communities other than profits. When the low-income housing, multi-family housing, nursing homes, hospitals, large doctor groups, and most local stores are more focused on the quarterly reports to shareholders than giving back to our small towns, children’s local activities, and the SPIRIT and CULTURE of what made America or any community meaningful to people, we may just be on a path that makes us all broke despite some being in the green.

If nobody invests the “thing”, whatever that thing is, doesn’t happen. The thing might be mobile home parks, nursing homes, Section 8 housing, “workforce housing” apartment complexes, single family homes or whatever.

I’m very curious what you see as the solution to this problem other than letting the market work. Are you proposing rent control, higher taxes on investments or what?

I’m sure there is a lot of money to be made but it’s similar to investing in a tobacco company — many will stay away but those who don’t care can make a bunch of money.

Seems like the next stop for those who get priced out of the mobile home park could be the street so I personally wouldn’t feel good investing that way. It’s unfortunate that many in this country can’t come up with a couple thousand dollars for an emergency so I agree that the tenants are sticky and you can likely raise rent 5-15% a year and they will stay.

The biggest risk is political — see the New York Times 3/27/22 article critical of mobile home park operators doing as you describe purchasing a property and then doing more professional management as well as aggressive rent increases. But politics is slow so you likely have another 5-10 years before politics starts limiting this process, maybe longer if you stick to states like Kentucky.

Also the story about the retired doctor living in a mobile home park is a good warning — a high income and social status (golfing with the president) while working doesn’t guarantee a good financial situation later in life.

Oh come on. A tobacco company? Last I checked living in a mobile home park doesn’t give you heart disease or cancer.

What law do you expect to be passed that keeps landlords from raising rent to market rent? The only one I know of is rent control, which hasn’t exactly helped provide affordable housing. Who wants to do a ground up project in a city with a history of rent control, especially if rents are currently at a level that is too low to make the project profitable? So no new housing gets built and the cost of housing spirals upward.

Mobile home park residents are thankfully organizing and finding personal and government resources to buy their own parks and manage each park themselves. While investors can only see profits when there are already too many “luxury” apartments that few can afford, the mobile home residents can target improvements they agree on and limit rental increases to avoid forcing out residents with fixed incomes.

This writer is like Dolly Parton marketing wigs for pets when average people are surrendering their dogs at shelters by the thousands because inflation has made essential products and services unaffordable.

Read the room. If investors can’t control their desire for profits over community needs, the people at the bottom who have nothing to lose will be fighting back in a revolution — and they are much more resourceful than pampered investors because they had to be in order to survive.

It’s always an option for the residents to band together and buy the park themselves. I suspect many of those who do find out that it isn’t as easy as it looks to manage a park well and keep it in the black.

You seem to be arguing that a landlord has some obligation to offer below market rent despite the fact that they aren’t offered below market mortgage, below market property taxes, below market utilities, below market repair costs etc. Would you be a landlord if you weren’t allowed to charge market rent? It’s a fair deal–clean, functional safe housing in exchange for market rent.

Long time reader of WCI and this is the post that spurred me to comment. This is beyond the pale.

Your proposition to physicians is that they can make money from a marginalized and struggling segment of society by charging more rent because they are “stuck” in their current situation. Maybe you make more money by charging for water and sewage.

If this is how we’re supposed to make money I think I’d rather just take more call.

Would you feel better investing in a fund that only does fancy, luxury homes in a ski town that rent to wealthy families having family reunions but yet push out the workers in that town because there is no affordable housing or would you rather invest in a mobile home park and workforce housing projects to help keep the price of housing down?

I’m amazed how many readers are having this knee-jerk reaction without understanding the economics behind housing. If workforce housing isn’t profitable, nobody will build any. It’s hard to be profitable when not charging market rent. If you can find a property where market rent is not being charged and buy it, the first thing you should do is raise rents to market rents. There’s nothing immoral about charging market rent.

By the way, if you prefer not to invest in Exxon or Apple or Walmart or short term rentals or mobile home parks and just work until you keel over, that is an option. Just be sure you get a disability insurance policy that will stay in force beyond age 65 because there is a good chance you’ll need it. Or you can just buy treasuries, unless it bothers you to support a government that also does lots of bad stuff. Seriously though, you have to invest in something. There are lots of ESG funds out there; maybe there’s one that aligns with your values that you can feel good investing with.

If you become a landlord, you have to be ready to throw people out on the street the moment they fail to pay rent. That’s something I just don’t have the heart to do. It’s one of the reasons my portfolio isn’t too heavy in real estate beyond a small percent in REITs.

The alternative is to have you tenants become your favorite charity. That’s what charging below market rent is. Personally, there are other charities that I feel more strongly about than my tenants. That doesn’t mean I’d toss someone out who just got diagnosed with cancer or something, but eventually you’ll have to decide how much you want to give them in the form of free or reduced rent. You didn’t give them cancer; you just agreed to provide them safe, clean housing so long as they pay for it.

Are you sure you’re replying to the right thread? All I said was I don’t have the heart to throw people out, so I’m not a landlord. I didn’t say anything about charity or below market rent.

If you rent rather than own, or own and fail to pay your property taxes, you need to be prepared to be turfed out on your backside if you fail to pay your rent and/or property taxes.

Does this really surprise anyone?

Glad to see we are not all money hungry psychos looking to make a buck any possible way we can. Next up will be an article of starting one of those plasma donation businesses to extract human proteins from the poorest of our society for profit…

I donated plasma for a while in college. I used it for grocery money. If there had been no one willing to start the plasma center that would not have been an option for me. Not to mention the fact that plasma and the products made from it are pretty useful stuff.

Lots of commenter gaslighting here. Probably from the same kind of people who wouldn’t shake hands with their mechanic for the dirt under their nails. Who in the world are America’s doctors to throw shade at an investor in mobile home parks? Do you all bill 99202s for new patients because they haven’t met their deductible? Or do you not all lobby like hell for pay raises because you think you deserve it? If you’re willing to die on a cross of pewter, that’s your decision, but don’t act like you’re better than someone whose business is professionally managing real estate unless you’re willing to spend most of your time giving free healthcare.

This is very different than simply investing in an RV park or being some mom and pop show. Many of us are frontline workers who interact with the extreme poor everyday and find it repulsive to squeeze them even more because of their “stickiness”. Sure, someone else will do it, but not me and not many others. And yes I shake hands with the mechanic and hold the grimy hand of my dying homeless patient in the ICU. Which is exactly why I can’t do this [profanity deleted].

Most doctors give away free healthcare all the time. I work at a tertiary hospital that services a diverse population, and indigent care makes up a large portion of that. Though the government has legally required physicians to see anyone who comes in through the ER regardless of ability to pay, we aren’t getting reimbursed for that work. Not to mention Medicare reimbursement is 20% lower now than it was two decades ago when accounting for inflation. So yes, our profession is quite a bit different than just about any I can think of off the top of my head. Do you know any big law, real estate or accounting firms that are making 20% less than they did two decades ago?

You’re conflating an involuntary cut in your pay (Medicare and EMTALA) with the idea that an investor should *voluntarily* agree to a cut in pay. I asked if any of you voluntarily under-bill or down code or choose to eschew a pay raise (or, more accurate a comparison, leave some salary on the table) to benefit your poorer patients. So, it looks like that’s a no.

You can’t moralize about what you’re required to do, so let’s all get off the high horse.

Also, why are you bringing up other professions’ pay? It has nothing to do with you arguing for mobile home operators to voluntarily charge below market rent.

Well I voluntarily work in a profession that does give away a significant portion of our time for free. You seemed to have glossed over my first point.

What you seem to have missed with everyone’s criticism is that we are a bit put off by a society that seeks to exploit and monetize every facet of our existence, usually at the expense of the most vulnerable amongst us. It feels gross. You seem to have no problem with it. That’s fine. But don’t lecture those of that do have a problem with it.

JJ—the only comments that approach an accurate use of the recently popular “gaslighting” term are yours and Drake’s. “Gaslighting” refers to a 1940’s movie called Gaslight, in which the husband feeds his wife false information with confidence, making her question her reality, and feel that she is the crazy one. Lying to your face, essentially.

More accurately, you have set up straw-man arguments, in which you set up false equivalencies and attack with them, but never address the real issue. The real issue is that most doctors reading this, and motivated to comment at least, find it ethically/morally repugnant to make a $7 million dollar profit by raising rents and passing on utility costs to hundreds of people that are of lower socioeconomic status. And the proof that assuming low socioeconomic status is correct is that the author states that the residents of the mobile home parks rarely leave with more considerable rent hikes because they cannot afford $5,000 to move. So yes, most doctors (who by and large do care about the poor, and frequently decrease charges to those they know can’t pay) see this article for what it is—a celebration and advocation of getting rich off the backs of the poor. This is the real issue that the majority of us here are addressing, and you are not, by way of setting up straw-man arguments.

So let’s address your straw-man arguments.

“ Probably from the same kind of people who wouldn’t shake hands with their mechanic for the dirt under their nails.” I’ve shaken many a dirty mechanic’s hand. What proof do you have that any of us commenting here do any differently? This is simply a baseless ad hominem attack on your fellow readers.

“Who in the world are America’s doctors to throw shade at an investor in mobile home parks?” America’s doctors are free to disagree with anything we wish, but we tend to get particularly fired up with things that smack of abuse or injustice. Furthermore, the author of the article advocates that physicians consider personally investing in this manner, and if we find something ethically/morally repugnant about it, we have every right to say so. Taking it a step further, we all take a Hippocratic oath that specifically prohibits doing harm or injustice to patients. You will immediately say the mobile home residents are not patients, and you are right. However, the oath goes further to say “I will keep holy both my life and my art.” So physicians are held to higher standards in general, and if they see something objectionable, they do moral harm to themselves if they don’t speak up.

“Do you all bill 99202s for new patients because they haven’t met their deductible?” A very classic straw-man argument. Let me first say that when you resort to the straw-man, you prove the weakness of your own position, because it shows you cannot adequately defend it. But let’s address it. It’s a false equivalency. The investor that bought the property was under no obligation to raise rents or pass utilities onto the residents, but did so to increase return, and cites the residents poor means to respond as the reason it could be done successfully. Citing “fair market value rent” is basically saying hey, others are doing this so we can too. We (the majority commenting on here) think this is a repugnant way to make money. You imply by your question that only those who routinely underbill and don’t advocate for increases from CMS have any grounds to object. Says who? These are two different things. CMS will essentially take more and more from us if we don’t constantly fight. Private insurers do the same. We are the little guy, and they (CMS, insurers) have the majority of the power. When the small increases are obtained, it comes from the pockets of the middle class and upper class (taxes) or profits of private insurers (unless insurers then raise deductible amounts for patients, which they do, and is a whole larger issue beyond this discussion). With rising costs of practice, especially staffing, we have to fight for increases and charge the majority of patients their deductibles, or we won’t survive. You might say that’s all the mobile home investor is doing, but it’s not. Investors get to choose what they invest in. And if we, as investors, have a problem with the way an investment makes money, we have a right to say so, and a duty to pass on it.

A final note if you made it this far—this article strikes a nerve because this whole business of hedge funds/private equity buying businesses, medical practices, and housing, then doing everything to squeeze every drop of profit out of these “investments” is ruining all of these industries. Yes, if you run a medical practice on compassion alone, you will quickly go broke. Business is very important, but it is definitely not the most important. Having a good medical practice means you make less than you could otherwise because you see less patients and spend more time with each, and do less procedures because some people really don’t need them. However, if reimbursements get low enough, the “good” medical practice has to see more patients every day to survive. When it’s all business, the doctor becomes a cog in assembly line of a profit machine, and the patient become a nothing but a number on a spreadsheet. We are all going to get sick, and we are all going to die one day—what type of medical practice model do you want your doctors to be in when that time comes?

Business must be tempered with compassion if there is to be any hope for the future for all of us, and the choices we each make with our investments of time and money will largely determine what that future becomes.

FP, I appreciate the certitude with which you believe in your position; nonetheless, I disagree. I’ll not bother to give credence to the gaslighting mansplaining (womansplaining?) but instead look at your assertions.

1. “The real issue is that most doctors reading this, and motivated to comment at least, find it ethically/morally repugnant to make a $7 million dollar profit by raising rents and passing on utility costs to hundreds of people that are of lower socioeconomic status.” a. This sums up your position, but not mine. My position is that the supposed distinction between charging “market rate” rents and demanding “market rate” pay as a physician is ignorantly fallacious at best and intentional moral signaling at worst. Correct me if I’m wrong, but I assume every doctor reading this blog wants to be paid what they believe they are worth. In the same sense, if I own an asset, regardless of what it is, I want to be paid what I believe that asset is worth. There is absolutely no false equivalency here. My time and training are my assets, as are they yours, and I expect to be paid commensurate with those. If you think this is false equivalency, I don’t know how else to explain my position. b. Why is raising rents to the market average a moral failing? Do you believe that the stocks you hold in your SP500 index fund are run by executives who voluntarily leave money on the table? If you only invest in ESG funds whose C-suite you *know* provides goods or services below market rate, then at least you would be consistent in how you apply your beliefs. I have the same question regarding utilities. I’ve lived in some real holes and actually lived in a trailer myself for a period of time. In no way did I ever believe someone else was obligated to pay for *my* utilities that *I* used. If, for some reason, you believe that any tenant is owed utilities outside of that which is specified in a lease or rental agreement, please let me know by what moral standing you predicate that claim. c. You seem to be using a suggested form of hyperbole to infuse your argument. In no way did the author insinuate that they squeeze the tenants for every dollar they could muster but instead charged an industry standard for *their* property. Interestingly, every state in the union has a section of the law devoted to damages from the unlawful use of someone else’s property. Most statutes state something to the effect that a property owner is able to attest to the value of his or her property. If that is the case, then by what means do you suggest someone price their own property? Below market? If so, to what degree? Equally or predicated on individual need or lack of resources? Surely if you’re arguing that poorer families should pay less for the same goods and services, then it would only be fair to allocate an even cheaper rate to those truly destitute versus those who might merely be slightly below average income? See the problem with shoehorning a moralistic argument onto a financial matter is that eventually you reach a point where one of two things happens: one, you go broke trying to provide the goods or services; two, you get called a capitalist, extremist, slum lord, robber baron for gaining even a modicum of profit by someone who’s even more…well-intentioned than you are about the matter. So where do you stand? 2. “America’s doctors are free to disagree with anything we wish, but we tend to get particularly fired up with things that smack of abuse or injustice.” a. And if you get “fired up” enough to comment on a public forum like this, know that you’re going to get push back by someone who disagrees. But let’s not think physicians are a monolith of social liberalism. This is indeed a website quite literally dedicated to helping doctors earn and keep more money. If there’s a place to air this kind of grievance, feel free to take it to JAMA or KevinMD or your own personal blog. But I, and I assume many other readers, are here to learn how to make money. If you truly think the article was in bad taste, perhaps the best way to let the person directly responsible know would be to email him directly. This kind of street-corner polemic better befits a fire and brimstone preacher or political subreddit. 3. “…the oath goes further to say “I will keep holy both my life and my art.” So physicians are held to higher standards in general, and if they see something objectionable, they do moral harm to themselves if they don’t speak up.” a. You’re free to publicly comment all you want on things you find objectionable. That’s your prerogative, but it is disingenuous unless you are at least consistent about it. What do you own in your retirement accounts? VTSAX? Apple, derives iPhone parts from companies who literally made global headlines for their employees jumping from windows (Foxconn). Google just settled a $100M lawsuit for illegally using facial recognition of photos to violate users’ privacy. Amazon has fired workers for criticizing warehouse conditions, used unsafe third party delivery drivers, shortchanged new mothers’ paychecks and stopped disability payments. Where are your public outcries for these? There is no straw man argument here by the way, because my argument is that you are almost certainly *inconsistent* in your criticism. If you truly spoke up regarding objectionable investments and refused to put your hard-earned dollars in, I suspect you’d have no investments at all. b. If you believe that investing in mobile home parks, which are managed like the author wrote, is immoral, then by all means don’t invest. However, using the comments section as a bully pulpit to try and convince other WCIers not to invest is essentially proselytizing your brand of financial morality. Surely, investing has enough hazard to it without layering that on as well. 4. “The investor that bought the property was under no obligation to raise rents or pass utilities onto the residents, but did so to increase return…” a. A high return is the point of an investment. My medical education, my financial education, my deferral of salary into a retirement account all (hopefully) accrue to me a high return. I am under no moral obligation to seek a lower return than I am able to obtain for my services or assets. This is an old debate, the earliest that I know of is between Diogenes and Antipater, two stoics who held opposite views on the idea that a seller of goods should or should not seek to maximize her profit. You’re making the argument of Antipater, that a seller of goods owes a public duty to the potential buyer. I argue with Diogenes that the profit motive is a good unto itself insofar as the market is free from coercion. That is, we are motivated to bring a superlative good into the market for a superlative price but would not be motivated to bring a superlative good into the market for an average price, and, thus, would either seek out the superlative price or produce an average good. Applied to our circumstances today, nobody is obligated (coerced) to stay in the mobile home park once purchased and rents raised. “But,” you might say “there is a financial imposition levied onto the residents should they move.” To that I respond that you have not been given the authority to decide for someone else what their finances should accommodate. You do not know how others prioritize their finances and place value: possessions, geography, leisure, relationships, food, etc. That is theirs to choose for themselves, and if they decide that their dollar is best served by staying in a place where the rent has increased somewhat, then they will spend that dollar on rent. If they decide their dollar is better spent elsewhere, they will change and spend accordingly. 5. “Citing ‘fair market value rent’ is basically saying hey, others are doing this so we can too. We (the majority commenting on here) think this is a repugnant way to make money.” a. Surely the majority of readers (clearly not bombastic commenters) think “fair market” value is just that…fair. If not, then I would refer back to my responses to your first assertion that I listed above. The only true alternatives to below-market rent are by government subsidy (Section 8 housing, in which the owners still receive a market rate and which is paid for by tax payers) or by the owner agreeing to take more financial risk on the investment (by lowering risk-adjusted return) than the situation merits. I don’t see in any WCI post or comment where anyone has ever wanted to take more financial risk than they have to in order to gratify some ill-conceived notion of generosity towards the consumer of the product. Is there something that’s the opposite of the Sharpe Ratio? b. Seriously, do you plan to price your house below market next time you sell just to benefit someone else? 6. “CMS will essentially take more and more from us if we don’t constantly fight. Private insurers do the same.” a. Isn’t this what you’re basically browbeating the author and other readers into doing with this potential investment, give more product for less money? If I’m somehow going awry with this very similar comparison, please let me know how. 7. “With rising costs of practice, especially staffing, we have to fight for increases and charge the majority of patients their deductibles, or we won’t survive.” a. So, when you say “we won’t survive,” are you talking about you not being able to survive a pay cut from, say, $300K to $200K? Because I’m pretty darn certain, 3.5x the median household income should be able to “survive” just fine. Or are you talking “we” the medical community? If that’s the case, then you’re exactly right…eventually. If, eventually, the reimbursements come down and down and down and costs continue to rise, then yes indeed medicine as a business will go bankrupt. And…that’s exactly the lens by which you should be evaluating this mobile home park investment. If all investors demanded that profit margins should dwindle by rents rising excessively slowly, all while costs for repairs, property tax, maintenance of infrastructure, and personnel increase, then you’ll end up in the same situation…eventually. 8. “A final note if you made it this far” a. This is an interesting appeal. You’re basically saying that you can be financially “compassionate” but not *too* compassionate in running a medical practice and, by logical extension, any business. Which is interesting because you essentially paint yourself into a moral corner. You’ve decided (arbitrarily, mind you) that the mobile home operator here made *too much* profit. But you, a doctor and thus a good person, make the *right amount* of profit. This is interesting because you’re of course making this assertion precisely because you believe that you’re a good person and that because you’re a good person, whatever amount of money you’re making is the *right amount* of money to make. The guy who mows your lawn, plumbs your toilet, fixes your roof, wires your house, changes your oil, or bags your groceries probably thinks you’re a rich schmuck who could easily afford a $100K haircut and still make triple what they make in a year. My point is that the distinction is arbitrary, and your opinion of yourself as a financially generous (i.e. non-extractive) physician is likely not shared by those who make less money than you make. Are these people, who think you’re a rich schmuck, less entitled to their opinion of your salary than you are of this operator’s profits? This will be my final post on this topic. Hope this helps clear up my position

If one doesn’t feel comfortable “making money from those of low socioeconomic status” they will have a pretty limited set of investment choices. Apple sells iPhones to poor people. Exxon sells them gas. A mobile home park sells them housing. Wal-mart sells them groceries. I assume you don’t invest in any of those things?

You can be compassionate and still set your price appropriately. In fact, it’s not like a landlord can really gouge somebody. Go ahead. Try it. Raise all of your rents to way above market. What happens? Exactly. Everyone moves out just as fast as they can. Above market rents/costs are their own punishment.

Many of the problems in health care come from the fact that it is not a functioning market place. In our efforts to be compassionate, we have forced many patients into bankruptcy. At least a mobile home park tenant knows the price of what they’re buying before they engage in the transaction.

Inherent in the act of investing (presumably a key reason we come to WCI) is engagement with the capitalist system. However, a distinction can be drawn between ethical and unethical conduct in the deployment of capital. As a landlord myself, I have needed to face moral questions raised by investing directly in real estate. The “stickiness” of mobile home residents brought out in this article makes them vulnerable to exploitation. This article would have benefited from (and still can with edits) a discussion of ethical principles when investing in mobile home parks and how to invest in this sector with integrity.

Ethan, you are gullible. Mobile home cost of living is cheaper then condos, SFH, and most apartments. I hope you know that it is not the mobile home operators that have caused price of food, gas, rents and healthcare go through the roof.

All residents are sticky to a certain degree.

Feel free to submit a guest post on the ethics of investing in mobile home parks, Section 8 housing, workforce apartment buildings, or whatever. We’ll likely run it:

https://www.whitecoatinvestor.com/contact/guest-post-policy/

It is syndicators like this that give a bad name to the industry. There are plenty of operators who care about quality, affordable housing in this sector and are not just looking for a quick buck. These are people, not numbers on a spreadsheet.

I am so relieved to see the comments here. I thought it would be all “maximize profits and then donate some to charity” i.e. squeeze profit out of people one step above homelessness and then give some money to the homeless shelter where they end up.

Same here! This writer is a ghoul for being proud of this “accomplishment.” He mentions the affordable housing crisis and then brags about raising rents/costs on the poorest in our communities. It’s morally astonishing.

Let’s walk through this one more time. If you don’t raise rents to market rents, eventually you don’t have the funds you need to maintain the housing and it falls into further and further disrepair, hurting those you were purportedly trying to help. Rent doesn’t JUST go toward profit.

Ignoring the part in the article where he explicitly says there’s very little maintenance necessary with these places, the fact that he’s gloating about 60% returns and 347% returns and making $8 million in 10 months shows that he’s not in the “well, I guess I have no choice but to raise the rents of the impoverished people up to 35% and make them pay water/sewer in order to keep my lights on!” kind of business. Please spare me the struggling-small-business-owner act.

Between the conspiracy anti-vax guy who full-throated his support for your IRA article, and the couple dozen people here expressing their disbelief at this, I sincerely hope you have some self-reflection of your morals/ideologies. The fact that you can straight-faced say “Yes, they had a sweet below market rent situation for a long time” about mostly impoverished people to another commenter is absolutely astounding and shameful. Not very Christ-like!

How much profit would be Christ-like? Would 100% be okay? 50%? 150%? Where do you draw the line?

It appears that you hold providers of housing to a higher standard than providers of food, healthcare, electricity, heat etc. Try going to the grocery store with a sob story and get the grocer to work for free (or worse, to actually subsidize your cost). Or getting your local utility to provide you natural gas or electricity if you haven’t paid your bill in months. Even doctors and hospitals can only do so much charity care. No margin, no mission.

The author is a syndicator that lost money for investors in some apartment deal due to gross mismanagement and now raises money for other people’s deals. Disappointed that WCI dont vet their real estate sponsors with the same level of scrutiny as insurance providers.

As for mobile home parks, this is a asset class that is pretty much well known and has already been dominated by private equity. You are not going to achieve these kind of investment returns (>3x EM) unless you do some pretty questionable stuff to the mobile home tenants.

That’s a serious accusation. Can you provide a link or more details?

[Comment deleted at commenter’s request]

[Response to deleted comment also deleted]

I deleted my comment and later confirmed it was deleted. But now it’s back. Why?

Oh, that’s probably my fault. I found it in the comment trash bin and thought the software had sent it there automatically.

Thanks for deleting. I completely botched any kind of due diligence while multitasking at work and it was a dumb comment.

As with most syndication deals that go sideways, they wont show up on google searches unless there is gross misconduct with SEC charges.

The deal in question was a MF apartment in lexington KY where investors lost 20% of capital that was mismanaged from the start talking to some other investors. He (Moore) gave up syndicating/operating deals himself and just markets/capital raises for other people’s deals.

As for what MH operators he raises capital for, it’s Elevation capital and Crystal view. The former has been underperforming and mired in litigation and the latter can be accessed pretty easily with other groups with reduction in fees.

I personally don’t like middlemen like these that misrepresent who they are (not operators) and their track records where they have lost money for LP investors. I think they especially prey on physicians due to the lack of information with these kind of investments.

Thanks for the additional info. We’ll look into it.

Hi John: As the author of this post, I want to directly address your comments here. You are correct about the loss of investor capital in the Lexington, KY multifamily asset, and I would like to briefly add a bit more context. I have been a full-time real estate investor since 2000. I have been working with passive investors since 2004, and I have never lost a dime of investor capital before or after this incident. In this case, we only returned 82% of investor capital. Here is what happened… We purchased a 125-unit multifamily property in Lexington in 2017. It was built in 1962. About 8 months later, there was a serious leak in one of the buildings. We learned that one of the underground wrought iron pipes had rotted out. We addressed this $107k problem using reserves. In evaluating the situation, and consulting with professionals, we realized that any or all of the other 18 buildings could have the same issue in the near future. One building had some leaks, and we were obviously deeply concerned. At the same time, we, and other apartment owners in the area were dealing with a general slowdown in rents and occupancy, which was a double-edged sword. We kept our investors constantly apprised of the situation. After receiving an offer on the property from a local buyer (who we informed of all the issues), we went to the investors and asked if they would rather sell for a loss, or hold on for the prospect of a profit, knowing the risks involved. Investors overwhelmingly voted to sell the property. As part of the sale, I did multiple webinars and calls with investors with the goal of brainstorming on how to make them whole. I offered all investors the opportunity to reinvest their proceeds into one of our funds. In exchange, I contractually bound myself to assure they were not only made whole but that they would end up with at least the original projected annual profit on their original investment over the next decade. If this didn’t happen for any reason, I would write them a check out of my pocket to get them to that level. Some investors took us up on that offer. You can imagine how hard it was for me to look into the eyes of investors and say, “trust me again.” I imagine some will scoff at this gesture, wondering if my motivation was to simply make more money from them. If so, I understand your cynicism. Please note that I have always taken 100% of the blame for this situation. And I maintain that posture now. This incident has increased my resolve to do very careful due diligence and provide a diversified array of investments for passive investors.

PS: Our funds have invested with 14 different operators, including some that are inaccessible or unknown to most investors. The few you mentioned have been part of prior funds, and one of them will likely be part of future funds as well.

As a physician, I can say without hesitation that many doctors are full of it. Health care is expensive because doctors drive up cost, so poor folks have to either forgo care or rely on Medicaid. Basically government hand out so Docs can drink Latte. I want to thank the investors and operators of mobile home communities, who provide safe, and clean neighborhood, that even after markups, are much, much, much, much more affordable then ALL other single family dwellings.

I truly cannot tell if you are joking or extremely out of touch

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Author Bio on LinkedIn – Founder of Wellings Capital:

“Wellings Capital is a real estate private equity firm that manages a number of investment funds. We work with accredited investors and provide diversification across self-storage and mobile home park assets.”

This post was approved as a guest post by the content side of the business based on the quality of the content. We thought there was worthwhile information in it. Like all guest posts (by bloggers or financial adivsors or whatever), they get a link out of it, that’s why they do it. However, Wellings Capital is also a sponsor of the site. So I guess in that respect it’s a sponsored post. But this post wasn’t sold to them as part of their advertising package nor did we get any more money by publishing it than we were otherwise getting. They earned it by submitting a quality post, just like you can. Learn more here:

https://www.whitecoatinvestor.com/contact/guest-post-policy/

Amazing how many of the commenters here completely miss the point, or don’t comprehend how the free market system works. My hospital system here in metro Atlanta just had to close down a hospital in one of the poorer parts of the city. After pumping over $350 million into the hospital, they were losing tens of millions of dollars per month and had to shut it down. The exact same thing can happen to these mobile parks, or any housing entity if it doesn’t make sense for the owners. NOBODY is forcing anyone to live in these parks, but the upgrades are a win-win for the tenants and the owner-investors.

I think both supporters and detractors of this post are talking past each other. The free market, being what it is, supports Paul’s actions – just like any other industry. At the same time, there should be legitimate debate as to whether the free market, at least in unfettered capitalistic form, should apply equally to every part of the economy. If the system in its current state leads to economic ruin, homelessness, or worse for a large segment of the population, while providing huge profits to a small segment, perhaps its time to rethink the amount of interventionism necessary for the housing industry.

Sure. But that’s a little beyond what an individual landlord should do don’t you think? Why is the landlord’s job to solve society’s problem. If society/government wants to subsidize housing, it should put in programs like Section 8 where it pays for the housing. It shouldn’t expect the landlord to do any more than pay all the taxes he or she owes just like it doesn’t expect the grocer or doctor (well, unless EMTALA applies) to do any more.

Yes, I completely agree. I was referring to legislative change, not relying on individual landlords to do anything.

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