• Howard Kline

MOBILE HOME INVESTING IN OPPORTUNITY ZONES


WHY MOBILE HOMES

Investing in a mobile home park aka community is not an investment that I ever took seriously. I never took it seriously until I got a call from Sam Hales, CEO of The Equity Group. Not only has he opened my eyes to mobile home community investing, but he has added the strategy of investing in these communities that are located in Opportunity Zones. He makes a really strong case for this type of investment, particularly if you think that we are approaching an economic downturn.


About five or six years ago, I had the pleasure of interviewing Sam at a private equity forum in Laguna Beach, California. At the time of that interview, Sam was not considering mobile home parks as a viable investment.


After receiving his MBA from the Wharton School of Business, Sam has tried his hands at quite a few different real estate investments. Then in 2017, while considering an eventual economic downturn, he looked into mobile home communities. His research revealed that mobile home parks not only performed really well in a down-cycle, but performed just as well in an up-cycle. He points out that the two largest publicly traded companies that invests in mobile home parks, have never had negative same store growth in twenty years.


As compared to the focus of many real estate investors, investing in mobile homes is, to a considerable extent, focusing on income generation or cash flow rather than just, appreciation if value.


INVESTING IN MOBILE HOME PARKS LOCATED IN OPPORTUNITY ZONES IS A SOCIALLY RESPONSIBLE INVESTMENT

The “stated” legislative intent is to encourage investments in low income communities that typically had difficulty attracting capital investment. The theory is that if you offer significant tax incentives, investors will be attracted to these, traditionally poor communities and invest. There is some concern about gentrification and developing high end property such as 3 and 4 star hotels and luxury apartments, but, according to Sam, mobile home parks in Opportunity Zones tend to continue to serve the existing residents, just in better quality living.


DISTINGUISHING MULTI-ASSET VERSUS SINGLE ASSET OPPORTUNITY FUNDS

When I first became aware of Opportunity Funds, I heard the phrase, Qualified Opportunity Fund or “QOF”. The April 2019 IRS Regulations helped clarify what these funds are and how they are meant to be used. My initial perception was that a Qualified Opportunity Fund is a large fund, similar in design to a Mutual Fund used to buy, sell and manage stocks. As a stock investor, I might invest in a Mutual Fund to help broaden my portfolio and allow the Mutual Fund managers, manage the funds assets, often when I have neither the time nor the experience to manage the assets. What I have discovered is that a Qualified Opportunity Fund is merely a designation that a partnership, corporation or REIT will self-designate which is required to allow these entities to participate and allow its investors to take advantage of the tax benefits afforded by the Opportunity Zone program.


BONUS DEPRECIATION

Sam and I also discuss a little know provision of the Tax Cuts and Jobs Act of 2017 which allows for bonus depreciation of improvements made to Mobile Home Parks.


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