My business partner and I are the 5th largest owners of mobile home parks in the U.S. But even today, with hundreds of properties bought and sold, our attraction to real estate remains unabated. Here are the reasons we got into real estate in the first place:
- Security. When you buy real estate, you have something tangible for your money. When you buy a stock or bond, you have nothing but paper. But I like the ability to physically see my property and sleep well knowing I have something in my name that is of value.
- Safety from all inflation scenarios. You can’t at least occasionally worry about hyperinflation. In this scenario, inflation goes up to insanely high levels, and a gallon of milk skyrockets to $20 per gallon. In this eventuality, rents also go up exponentially and real estate holds its value. In fact, real estate has a track-record of thriving in standard U.S. inflation, ranking top of the list of investments for holding value, along with gold.
- The ability to obtain sensible leverage. You can’t get a bank loan on most assets. They just won’t take it as collateral or offer attractive terms. But real estate is the main building block of bank lending, and it is relatively easy to get 70% to 80% leverage on decent properties, with 30 year amortization and low interest rates. This means that you can buy a property that costs five times more than your cash will allow. And it also leads to higher returns.
- High rates of return. Good real estate sectors can hit return levels that are several times higher than ordinary investments. Mobile home parks, for example, can hit 20% cash-on-cash returns on a regular basis. These high rates of return are extremely compelling and offer attractive risk-adjusted returns that are unparalleled.
- On the positive side of most megatrends – if you pick the correct sector. What are the biggest megatrends in the U.S. today? The aging of the Baby Boomers, the advent of the internet, the lack of Millennial desire for large houses, to name a few. If you select the right niche, you can harness this power and it can drive your investment to amazing levels. For example, if you bought RV parks over the past few years, you have benefitted from the highest RV sales in history thanks to 10,000 Baby Boomers retiring per day and buying RVs.
- A huge number of options. Most people don’t realize that the “real estate industry” is really just a generic name for the many sectors that are out there. There’s single-family, apartments, mobile home parks, RV parks, self-storage, marinas, office, retail, assisted living – about 40 different niches in all. You can choose from these options the perfect niche for your interests and goals, as well as beliefs in the future of America.
By Frank Rolfe