"Are you going to retire after you sell your company?" I once
asked the chief financial officer of a company about to be sold
for a huge sum.
#-ad_banner-#"Are you kidding me?" he replied. "Why would I
retire? I'm just getting started."
This surprised me at the time -- but over the next few years,
I realized that many people who have the drive and acumen to
build vast fortunes aren't even motivated by wealth. Yet it seems
that monetary rewards are a result of their actions
This realization made it clear to me that the key to investing
success was to learn from and try to follow the examples of the
wealthiest businesspeople and investors. Most of the self-made
millionaires I know made their fortunes through real estate
investments, and many of my small-business friends use real
estate to supplement their income.
This piqued my interest in real estate investment and led me
to start a successful part-time marketing business. Through my
hands-on experience, I've noticed a distinct shift in residential
real estate trends.
From around 1980 to 2007, homes kept getting larger and
larger, culminating in so-called McMansions -- huge new homes on
tiny lots squeezed up right next to their neighbors. After the
real estate crash, financial crisis and ensuing economic plunge
last decade, consumers began to seek smaller homes that were
easier and cheaper to maintain.
And just like the growth trend that brought us McMansions, the
downsizing trend is leading in the opposite direction, to the
smallest and cheapest homes available -- mobile homes. As of
2012, about 6% of Americans lived in mobile homes, according to
the Census Bureau.
While not classified as real estate per se, mobile homes serve
the same function as traditional residential real estate. As you
jumped on this trend early with his purchase of Clayton Homes,
the largest manufacturer of mobile homes, in 2003.
Hedge and private equity funds are starting to ride this
demographic trend by investing in trailer parks.
A recent Bloomberg article
named Sam Zell's investment trusts and the Carlyle Group as two
of the high-profile investment groups stepping into this
As I see it, there are four main reasons that trailer parks
make investment sense:
|1. Demographic Shift
Everything is getting smaller. My local Ikea is showing off
a 100-square-foot house concept. This would have been
laughed at before the financial crisis, but today, it's an
accepted trend -- and many consumers think it's a great
change. Trailer homes are the ultimate in downsizing.
|2. Post-Recession Economic
Many families have yet to recover from the Great Recession.
These consumers might not qualify for mortgages or be able
to afford a single-family home. Trailer homes provide
needed shelter for a fraction of the cost of other choices.
The average mobile home rents for under $400 a month, and
they give residents the feel of a single-unit home for less
than what they'd spend on many apartments.
|3. Rising Interest Rates
Interest rates have finally started climbing, which will
likely put home ownership out of reach for even more
consumers. While rates have been rising, mortgage
applications have plunged. People have to live somewhere,
so more people are turning to trailer homes -- the most
logical choice, in many areas of the country -- out of
|4. Following The Billionaires
As I mentioned, some big players are investing in mobile
home parks -- and following the moves of top-tier investors
is a time-honored strategy.
I think this trend is in its infancy, and just like with
actual real estate, there are multiple ways to invest. For
investors who aren't interested in buying and managing
their own properties, there are REITs (real estate
investment trusts) that specialize in this niche.
My favorite is the largest REIT in the space,
Zell's Equity LifeStyle Properties (NYSE:
. With a market cap of $3.4 billion, ELS is the largest mobile
home park owner in the country. The REIT owns or is a partner in
close to 400 mobile home parks and more than 140,000 sites across
ELS recently posted strong first-quarter results and has
$714.6 million in revenue over the past 12 months. The company
also continued its streak of occupancy growth, now up to 18
quarters, and its RV portfolio grew 6.6% in the quarter. With a
payout ratio of 78%, the trust throws off a forward dividend
yield of 3.2%.
A look at the technical picture shows ELS has been trending
upward since late December. Shares are trading solidly above the
200- and 50-day simple moving averages, but the
Relative Strength Index
isn't pushing into the overbought zone.
Risks to Consider:
A jury recently awarded a $100 million victory to plaintiffs
in a lawsuit against the trust's California Hawaiian Mobile
Estates. The suit alleges the company failed to maintain the
property, but ESL is appealing. Always use stop-loss orders and
diversify when investing.
Action to Take -->
It would have been a stroke of good fortune for investors if the
California Hawaiian suit had knocked ELS' price down -- but the
stock market doesn't think much of the verdict, as price barely
budged when it was handed down. As it is, my strategy is to buy
on a breakout above $41.50 with stops at $39.50 and a 12-month
price target of $46.