ADISA Video: Investing in Manufactured Housing
More than 22 million Americans live in a manufactured home.
“All of us need a place to live,” said Bill Boscow, head of capital markets for Manufactured Housing Properties, in an interview with The DI Wire’s publisher Damon Elder. “And when you take a look, and it’s a well-known fact that there’s an acute housing shortage in the country nowadays, manufactured housing is in very, very high demand because in part that housing shortage is extremely present for those that are on a limited income.”
The MHP executive informs investors of how the housing industry, specifically the manufactured housing industry, has evolved for the better. Due to housing shortages, this market may offer compelling investment opportunities.
Video Transcript
Damon Elder 00:10
Thank you for joining another edition of Focus on Alternatives, hosted by ADISA, the Alternative and Direct Investment of Securities Association. I’m Damon Elder, publisher of The DI Wire, and today I’m joined by Bill Boscow, head of Capital Markets for Manufactured Housing Properties. So, Bill, obviously we’re going to talk about manufactured housing. So why don’t we start with the basics. You know, what exactly is manufactured housing? You know, so many of us think of, you know, trailer parks or whatever, but I think it’s a little bit more complex than the stereotype. So why don’t you kind of fill us in a little bit?
Bill Boscow 00:37
Sure. Well, manufactured housing as a term that’s used for houses that are built in a factory setting, Damon. And in a factory setting, you have the advantages of production line assembly in terms of speed, quality, and also cost efficiency. So once the homes are assembled in that factory setting, they’re transported to a predetermined site. It could be an individual home site, or it could be a site that’s, located within a manufactured housing community.
Damon Elder 01:03
So, Bill, we’re talking about manufactured housing. What exactly is the scope and the scale? You know, is this a super large industry in this country? I mean, how people, how many people actually live in these homes? You know, fill us in?
Bill Boscow 01:14
Sure. a lot of people are surprised. Damon, at the size of, of the manufactured housing segment of the housing industry. Here are some statistics, 22 million Americans live in a manufactured home. In some states between 15 all the way up to 20% of all residents will live in a manufactured home. There are approximately eight and a half million manufactured houses in the country. And then finally, in terms of single family, home starts on an annual basis. They account for 9% of all housing, single family home starts. Last year as an example, over 105,000, manufactured homes were built.
Damon Elder 01:56
What attracts folks to live in these homes rather than traditional single-family housing or, you know, even apartment living? Why, why manufactured housing?
Bill Boscow 02:04
Sure. Well, there are really three reasons. Number one is affordability. When I say affordability for, for families that are living on a limited budget, manufactured homes, are very, very reasonable relative to multi-family. Houses are, are apartments of similar quality. So that’s number one. Number two is at obtainability in that manufactured housing represents really the first point of entry for families that are interested in buying a home. And then third is desirability. And it’s been shown in terms of, studies that over 90% of all people that live in a manufactured home are very satisfied with the living environment. And here’s why. Number one, they don’t have to share walls with other families. It is its own standalone house. Uh, because of that, they’re able to park their car right outside the door. The kids are able to play right outside the door as well, and they have a little bit of land that they can work with.
Damon Elder 02:59
Okay. So, Bill, so what’s the overall market really look like, manufactured housing wise? I mean, are there massive companies that own these? Are they own owned all by small individual entrepreneurs? What are we looking at from a market perspective?
Bill Boscow 03:12
Well really, it’s a little bit of both Damon, in that the manufactured housing market is very fragmented. So, you’ll have examples such as Berkshire Hathaway, Sam Zell, that’ll be very involved in the industry. But just the same, you’ll have multiple of single, small entities, mom and pop operations that are also involved in the industry, either in terms of community ownership or for that matter, very small manufacturers of manufactured homes.
Damon Elder 03:39
So, Bill, why should investors be interested in manufactured housing? Obviously, there’s a lot of stereotypes out there that we all think of. I think you’ve dispelled some of those a bit today. But from an investor’s perspective, why should I be investing in manufactured housing?
Bill Boscow 03:54
Sure. Only again, there, I’ll give you three good reasons. Damon. Number one is housing overall is a non-discretionary asset. All of us need a place to live. And when you take a look, and it’s of well-known fact that there’s a, acute housing shortage in the country nowadays, manufactured housing is in very, very high demand because in part that housing shortage is extremely present for those that are on a limited income.
Second is in terms of the financial me metrics that are, really fundamental in terms of manufactured housing. Number one is in terms of general occupancy, average occupancy, and this is across the country, occupancy can trend up toward 90% and that generates stable cash flows, uh, through all environments. When you take a look at how manufactured housing fared through difficult market environments, such as past recessions or for that matter, even recently with the pandemic occupancy stayed steady at about 90%. Also, in terms of expense margins, in as far as operation of manufactured housing communities, they can trend to be, above 30%. So that’s also very, very attractive.
The third factor is when you take a look at the manufactured housing segment of the housing industry, is that rents really have not kept up with the rest of the housing industry. And when I say rents, rents within manufactured housing, so there’s an opportunity as housing communities are acquired as they’re improved, to make those rents become, more on parallel with the other housing segments.
Damon Elder 05:33
Why haven’t rents maintained, you know, market levels?
Bill Boscow 05:36
Well, I think it’s really a, a testament to the fact that, as I mentioned earlier, the industry is very fragmented. And with that you have inefficiencies inherent in the industry. And you’ll have situations where if you have mom and pop operators that have owned a housing community, they just almost have been lazy over their term of ownership and they haven’t kept pace in terms of improving the community, but also revaluing and increasing rents, for those improvements.
Damon Elder 06:02
So how would an investor, what’s an individual investor of course, how would they allocate into manufactured housing? I mean, what’s the marketplace look like for an investor? Sure.
Bill Boscow 06:11
Well, a lot of, investors are taking a look at the alternative investment space for doing just that. There are a lot of opportunities that either generate income, growth and income, or just pure growth, with alternative investment sponsors that allow investors to participate in the industry.
Damon Elder 06:28
So, Bill, if you’re an individual investor and you’re interested in allocating some of your investment dollars into manufactured housing, you know, what are the options? What, what’s the marketplace look like for an individual?
Bill Boscow 06:38
Well, there are a few options, Damon, and there, and the options are actually starting to, to increase, which is great. Number one, there are various REITs that are available to invest in for investors. Number two, there are Reg A offerings and Reg D offerings that are also, third, 1031 or DST exchange offerings that are available. So, the ability to invest and participate in this segment of the housing market really covers a wide range.
Damon Elder 07:05
So, Bill, tell me a little bit about the industry from a growth perspective and a demand perspective. I mean, how has the industry changing? Has it changed recently? You know, what, what’s it really looked like from a big picture perspective?
Bill Boscow 07:16
Sure. Well, first of all, I think it’s safe to say that the housing industry, specifically the manufactured housing industry, has really evolved and evolved for the better over the last couple of decades. With that, there’s also the increase in demand, and for that matter, a really constant supply of manufactured housing. As we discussed earlier, Damon, there’s an extreme housing shortage in the country. So manufactured housing can play an integral role in terms of housing for people that are on a limited budget. Uh, that’s one thing. The second thing is when you take a look at the demand, for manufactured housing, we think it’s only going to increase. As people, take a look at, at really the, the value that manufactured housing presents the at obtainability. One statistic that I didn’t mention earlier is the square, the price per square foot of building a single family house is about, on average $144. With manufactured housing, it’s $73 per square foot. So almost just 50%. And that allows, again, families that are interested in, in having a first-time purchase of a house to participate.
Damon Elder 08:25
So, Bill, it sounds like manufactured housing can really play a key role in addressing, you know, this terrible nationwide housing shortage that we’re seeing.
Bill Boscow 08:33
You’re right, Damon, I, it’s first of all, manufactured housing has evolved to better serve the needs of, of families that, are looking for an alternative, an attainable alternative for their housing needs, number one. Number two, the demand, because of the housing shortage is so acute, with the, the low-income families. Uh, the manufactured housing industry really re represents a great solution to, a huge problem within the country. And also, I think it’s important to note from an investor standpoint, the ability and opportunity to increase cash flows with that high occupancy that I referenced earlier, and also with the opportunity to increase rents as properties are acquired and approved really, makes the industry very, very attractive.
Damon Elder 09:21
Well, bill, thank you for sharing your insights on manufactured housing today. Greatly appreciate it. And thank you for joining us. For more information about manufactured housing and a whole host of other alternative asset classes, please visit www.adisa.org, or of course, you can always visit theDIWire.com. Thanks so much.
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