Low-Cost Housing: Manufactured Gains

01/30/2019 5:00 am EST

Focus: REAL ESTATE

Jim Powell

Principal Analyst, Global Changes & Opportunities

I don’t think the mainstream housing sector will recover until another recession clears the way for a newgrowth cycle. That’s unlikely for several years, cautions Jim Powell, editor of Global Changes & Opportunities Report.

However (imagine a trumpet fanfare), there is an important exception to the downtrend in mainstream housing that has the potential to make knowledgeable investors very attractive profits. With millions of eager home buyers priced out of the market — lower-cost manufactured homes, and the parks that cater to them, are prospering.

I think the ultra-affordable housing industry will continue to expand for several years. This should be an excellent time to buy the leading suppliers because their stocks were knocked down during the market correction. Two companies look especially good to me.

Cavco Industries (CVCO)

Most homebuilders offer low-cost models for first-time buyers. One company that has specifically targeted entry-level customers is Cavco Industries, a leading producer of manufactured homes.

In addition to its own brand, the company offers models by Fleetwood Homes, Palm Harbor Homes, Fairmont Homes, Chariot Eagle, and Lexington Homes. The latter companies were acquired by Cavco over a period of several years.

Cavco also produces park model RVs, vacation cabins, commercial structures, workforce housing, schools, and military housing. Many of the company’s homes are quite stylish and do not look at all like the boxlike manufactured homes that were common a few years ago.

Cape Cod, Ranch, and Craftsman styles are popular, as are two and three story homes, and multi-family units. To facilitate sales, Cavco offers financing and casualty insurance for its homes — and at very competitive rates. The company has 39 retail centers of its own and also distributes its homes through a network of independent dealers in 47 states.

Sun Communities (SUI)

I also recommend Sun Communities, a company that I first featured in the March 2014. Sun develops and operates 185 manufactured housing communities in the Midwest, South, and Southeastern US. Some communities are designed for all age groups, others are for “55 and over.” Several parks are designed for full-time RV owners.

All the company’s communities cater to people who are financially comfortable, but who are unable (or unwilling) to buy higher end homes. The company’s communities are especially popular with retiring Baby Boomers. Together, there are a total of 47,600 sites in Sun’s operations.

Sun is in the catbird’s seat for growth because the company’s communities generate ongoing income. Investors will further benefit from Sun because it’s a REIT that must distribute at least 90% of its taxable income to shareholders. As the Baby Boomers retire in ever-increasing numbers, I think Sun Communities will continue to prosper.

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