of economic recovery and expansion is that the gap between demand and supply for affordable housing is widening. This gap can be attributed to a confluence of factors unique to this point in time in U.S. history, fueled by two disparate gen- erations: Baby Boomers and Millennials. Affordable housing is attracting Millen- nial-age households and young families looking to minimize their carbon and environmental footprint by minimizing their living space. Retiring Baby Boom- ers are looking to extract equity from their family home and downsize to pock- et the extra cash to fund a comfortable retirement lifestyle. AN OFTEN-OVERLOOKED HOUSING OPTIONMAYBE THE SOLUTION Because of existing unprecedented demand for affordable housing, another recession will only make the gap between what owners and renters can afford and what is available to them wider, causing the number of low income renters to increase. I would say in no other afford- able housing sector will this gap between supply and demand be wider than in the mobile home sector, a sector often over- looked and underdeveloped in real estate investors’ portfolios. To make this sector even more intrigu- ing, new mobile home communities just are not being developed. There are 8.6 million mobile homes in the United States, according to a 2013 U.S. Census Bureau report. “That number is not likely to grow... given restrictive zoning laws and the prohibitive cost of building a new [mobile home] park, meaning supply is static even as demand for cheap places to live is high,” Andrew Lanoie is the CEO of Four Peaks Capital Partners, a private investment firmbased in Phoenix, Arizona, focused on alternative assets. Learnmore at https:/ or email him directly at > Continued on :: PG 112

DOING DUE DILIGENCE ON A MOBILE HOME COMMUNITY B ecause MHCs are inherently affordable and offer many benefits important to two of the biggest homebuying and renting populations in the market today, these developments are both recession-resistant and recession-friendly. Of course, investors must do careful due diligence when investing in such a property, since MHCs are unique in the housing sector. Here are a few things to consider: 1  What is the actual Net Operating Income (NOI)? Since 2000, MHCs have offered some of the best NOI rates in the commercial real estate sector (see graph below). However, since many of these developments need some “TLC,” you must be very careful when evaluating a potential deal. Find out how the owner derived the current NOI and what they are using to base projections for the future.

An Effective, Often- Overlooked Strategy for “Recession-Proof” Investing EVEN WHEN MARKETS ARE UP, PROTECT YOUR PORTFOLIO WITH RESILIENT INVESTMENTS.

by Andrew Lanoie

he Great Recession officially lasted from December 2007 to June 2009 and had immediate and lasting negative financial impact on households and the broader markets. The economy bottomed out, crushing the real estate and stock mar- kets, destroying $18.9 trillion of household wealth, and wiping out more than eight million jobs. Investors heavily invested in the stock market through investment and retirement accounts saw their portfolios wiped out almost overnight. T

MOREAFFORDABLE HOUSING The demand for affordable housing rises during times of economic hardship, such as during a recession. As more people lose jobs and homes, the demand for affordable rental homes goes up. According to Har- vard University’s Joint Center for Hous- ing Studies, the renter share of all U.S. households jumped from 31 percent in 2004 to 35 percent in 2012, with that share projected to grow even more over the next ten years. Since the Great Recession, sup- ply has outstripped demand for affordable housing, and that gap is currently growing with projections pointing to growth in the foreseeable future. So, we know demand for afford-

2  What is the demand for affordable housing in the area? Mobile homes are a great option for Baby Boomers and Millennials, but make sure that these populations are looking for housing solutions in an area before investing in an MHC. If they’re not hunting housing, you might be making a purchase that you cannot fully leverage. Carefully consider your market and the demand trends in the area. 3  How will you force appreciation, if necessary? In many instances, we find that simply “upping the ante” in our community management has a nearly instantaneous effect when it comes to creating demand for residence in our MHCs. However, you must carefully evaluate the cost of making community-oriented improvements and the cost of vital improvements, such as rehabbing existing structures or replacing them, against local residents’ ability to pay higher prices for such upgrades.

AFFORDABLE HOUSING: Affordable housing options are those considered affordable to a household with a median income for a local area. In the U.S., most agencies consider housing to be affordable if it costs about a third or less of a median-earning household’s annual income.

able housing increases in a recession, but what is surprising about housing affordability trends in our current period


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