One in every of my favourite issues about investing in actual property is the structure. I like aesthetically pleasing properties. I am not alone in inserting a worth on how a property seems to be. Most Class An actual property — the very best high quality properties in the most effective areas — tends to commerce at a premium worth in comparison with much less fascinating properties.
That concentrate on aesthetics may cause traders to miss properties which have traditionally been higher investments. One property class the place seems to be might be deceiving is manufactured house communities. The sector has quietly been one of many best-performing property lessons for traders over the previous twenty years.
Manufactured housing communities lease heaps to house owners of manufactured houses. Some additionally lease out manufactured houses they personal. These communities are likely to generate very regular rental earnings because it’s costly to relocate a manufactured house to a brand new neighborhood. That top switching price additionally allows the neighborhood proprietor to push via annual rental will increase, even throughout a recession. Due to the resilient demand, manufactured house communities have delivered above-average web working earnings (NOI) development over the previous twenty years:
As that chart exhibits, the common manufactured housing neighborhood has grown its NOI at a 4.8% compound annual fee since 2000. That is second solely to the self-storage business throughout that timeframe. It is greater than double the speed of extra conventional actual property investments like industrial, multifamily, retail, and workplace.
Regardless of its resilience and outperformance, not many large-scale traders give attention to the sector. There are presently solely three publicly traded actual property funding trusts (REITs) targeting manufactured communities. The chief is Solar Communities (SUI -2.26%). It owns pursuits in 602 manufactured house communities, RV parks, and marina properties throughout 39 states.
Solar Communities’ give attention to manufactured housing communities has paid massive dividends through the years. The residential REIT has grown its identical neighborhood NOI at a 5% compound annual fee since 2000, outperforming the sector and all different actual property property lessons. The corporate has supplemented its natural development with a consolidation technique. It has steadily acquired manufactured housing communities and different off-the-beaten-path property sorts like RV parks and marinas. These catalysts have enabled the corporate to ship superior whole returns in comparison with different REITs and the broader market over the previous decade:
Solar Communities presently clocks in as one of many 5 best-performing REITs during the last decade. To place its outperformance into perspective, Solar Communities has grown a $10,000 funding made 10 years in the past into almost $65,000. That very same $10,000 funding within the S&P 500 could be price lower than $40,000 right this moment.
The REIT has loads of future development drivers. Manufactured housing communities, RV parks, and marinas are nonetheless very fragmented industries. That gives the corporate with a big development runway because it continues its consolidation technique. It just lately entered the marina phase and has shortly develop into a frontrunner and consolidator. In the meantime, it is getting into the UK vacation house parks sector. Will probably be the second-largest operator in a phase the place the highest 10 platforms solely management 7% of the market.
An underappreciated actual property funding
Manufactured house communities have delivered above-average earnings development because of their excessive switching prices and recession resiliency. That has benefited sector chief Solar Communities, which has generated great whole returns by specializing in consolidating this fragmented sector. It nonetheless has loads of room to develop, particularly given its growth into different property sorts, making it a REIT that traders will not need to proceed overlooking.