Rising multifamily rents have fueled an affordability crisis in Southern California and many are calling for more affordable housing options. Where there is demand, there is almost certainly investment opportunity, according to Hunter Thompson, a principal at Cash Flow Connections. Investors are increasing exposure to more affordable niches—like workforce and low-income housing—and competition is heating up in the mobile home park market as well. Once considered a high-risk investment, investors are seeing more and more stability and NOI growth in mobile homes.

“We are seeing new competitors enter the space very frequently. This is particularly true of the mobile home park business,” Thompson tells GlobeSt.com. “Previously, most high net worth investors considered the mobile home park business a high risk investment mostly due to the unique risks associated with the tenant base; however, we are seeing a paradigm shift as more investors are becoming familiar with how favorable the business is an investment vehicle.” Cash Flow Connections is currently raising funds for a mobile home and self-storage fund, which has seen robust investor interest.

While Thompson says that demand for mobile home parks is directly correlated with the economy and grows as demand for affordable housing grows, limited development of new parks has also greatly helped to fuel the stability of these assets. “Municipalities and government agencies all over the US have banned the development of MHPs, creating a significant supply/demand disequilibrium which investors can take advantage of,” he says.

Mobile home parks function differently than multifamily assets. The investor owns the land lot and tenants own their home. “This has many benefits including the stability of the tenant base and pride of ownership in the assets. Furthermore, the homes are very costly to move, usually $5,000, and are typically only worth $5,000-$20,000. The mathematics results in the tenants staying for much longer than other asset classes,” says Thompson.

The rise in investor activity will ultimately drive up pricing, and Thompson says there is a shelf life to this opportunity. “There has been a market disequilibrium in the mobile home park business due to the favorable risk-adjusted return possible in the asset classes, but the market is in the process of correcting it, which will eventually result in the opportunity drying up,” he says . “However, we think there is still several years before that truly happens.”

While there are still opportunities, more investors are continuing to enter the market. Thompson adds, “Especially, given where prices are in multifamily, we continue to expect more competitors in the asset class, but our operating partners’ and onsite managers ability to out execute the competition has been tested through decades and we do not see that changing anytime soon.”