Bad times can be good times for real estate investors …

Lost in all the hype over Bitcoin and a red-hot stock market are the millions of people whose real incomes and purchasing power are slipping backwards.

These are the folks falling into the wealth inequality chasm … which has largely been created by the financialization of the economy.

“Financialization” is wonk talk for “making money” by not doing anything more than trading paper …

… as opposed to actually producing goods and services that benefit people.

You can’t eat, enjoy, be healed or entertained by paper trading profits.

All you can do is spend those profits to buy real goods and services … assuming someone else gets up and creates them.

But to high-level lever pullers, goosing financialization is a way to move numbers … like the Dow Jones … without a corresponding level of ACTUAL productivity.

We understand the THEORY is all these paper profits will make their way into spending … thereby creating demand for products and services and stimulating productivity.

But just like high-priced real estate doesn’t mean higher rents (it’s the other way around), a booming stock market doesn’t necessarily mean more jobs and productivity.

Of course, no one in charge is asking our opinion.  The lever-pullers act according to what they believe.

We don’t need to agree.  But we do need to understand.

Low interest rates are the fuel of financialization … and loose money from low interest rates can cause asset prices to bubble up … sometimes to all-time highs.

Don’t get us wrong.  Bubbles are great … IF you own bubbling assets like stocks, real estate, and now Bitcoin.

But if you’re Joe Sixpack, or an underemployed Millennial with college debt, living paycheck to paycheck … and you don’t own any of these assets … you don’t get to sip the bubbly at the asset party.

Meanwhile rising costs of essentials like rent and healthcare are taking bigger bites out of the household budget.    Not surprisingly, people are going further into debt.

Some pundits say consumers are taking on more debt because they’re feeling better about the economy.  Maybe.

But with credit card interest rates rising and defaults increasing, it seems to us the consumer is having a hard time.

Meanwhile, home ownership remains at historically low levels.  That’s millions of people heading into retirement without the benefit of home equity.

So it seems many Main Street Americans have a prosperity problem.

When we interviewed then-presidential candidate Donald Trump and asked him about his plan for homeownership, he gave us a one word answer … “jobs.”

In the meantime, while now-President Trump works on jobs … we think the forces pushing against Main Street prosperity remain fairly formidable.

While we’re waiting for Washington and Fed prosperity policies to trickle down to Main Street … local municipalities are making some interesting moves …

… which have the potential to affect a popular real estate investing niche.

Check out this headline from an article recently published on the PEW 
Charitable Trusts website …

Why Some Cities Are Buying Trailer Parks

This article is worth reading … whether you’re personally interested in mobile home parks or not.  For now, here are a couple of select excerpts …

“… rising prices are prompting park owners to sell their land to developers …”

“… localities, desperate to hang on to homes middle- and working-class people can afford, have stepped in to buy parks, fix them up, and transfer ownership to residents or to a nonprofit on conditions that rents be kept low.

If you’re not familiar with mobile homes (sometimes called “trailer” homes), it’s a very interesting and potentially profitable niche.

Typically, the land is referred to as the “park” … like a big parking lot … where the individual mobile homes are parked.

The residents usually own the structure (the home) and pay rent to the land owner for the parking space the structure sits on.

It can be a great niche because the structure is owned by the tenant …  and so do the costs for maintenance and repairs.  Great!

Also, because the structure is more permanent than mobile, the tenancies tend to be long term.  This means less vacancy and turnover expenses.  Great again.

The park owner (the landlord) collects rent and is primarily responsible for infrastructure and common area maintenance.

We really like the mobile home niche because we expect affordable areas and product types will increase in demand based on economic conditions and demographics.

So what are the take-aways from this week’s musings?

First, Main Street USA is still struggling in terms of real income and standard of living.  This will have a direct impact on their housing choices.

We also think this affirms our contention that demand for affordable product types and markets will grow.

We think both mobile home parks and apartments … and their owners … will likely be among the beneficiaries.

Of course, this is a drum we’ve been pounding for quite a while.

What’s new is that cities and counties … “localities” … are stepping in and competing with investors to acquire mobile home parks.

These are potentially deep-pocketed players not concerned with profitability, so they’re both capable and potentially willing to bid up prices to unrealistic levels.

Think about it.

If the reason the government is stepping in to buy the park is because “rising prices are prompting park owners to sell their land to developers” …

… they’ll need to bid MORE than the developers to get the park.

And if the plan is to keep rents DOWN, the deal can’t possibly make financial sense without subsidies from somewhere … presumably the local taxpayers.

Hopefully the local voters are okay with this.  But we suppose that’s the politicians’ problem.

Meanwhile, we’re guessing our friends who’ve been pouring money into mobile home parks are probably smiling.

After all, while mobile home parks crank our great cash flows, they’re also a long-term land banking play.

Eventually, the path of progress or demand drives up the value of the land.  It’s always fun to get in position ahead of the crowd … and even better when being early still cash flows.

This also bolsters our argument that the right real estate is a winner in both good times and bad.

In this case, increased demand for affordable housing due to soft real economic growth at the working-class level …  is potentially increasing mobile home rents and asset values.

Of course, in good times, everything goes up, including the demand for developable land … whether it’s land under your C-class apartments or your mobile home park.

The moral of the story is even bad times can be good times for strategic real estate investors because people will ALWAYS need affordable housing in ANY economy.

Until next time … good investing!


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