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Not Your Grandfather’s Mobile Home Park

The investment opportunities in the mobile home sector have grown enormously in recent years.

What other multifamily rental property type enables investors/owners to collect monthly rental homesite lease payments; PITI home loan payments; and when present, apartment rent on homes sited throughout this unique, income-producing community?

Answer: None!

That’s the reality of today’s ‘land lease community’–a contemporary trade term used to account for more than six types of shelter commonplace in this property type nationwide. No longer just ‘mobile homes’ & ‘manufactured homes’ on-site, but also modular homes, park model RVs, RVs for a season, stick-built homes erected in-community to imitate manufactured homes; and of late, the occasional Tiny Home or other Accessory Dwelling Unit (‘ADU’).

There’s yet another related emerging trend contributing to the feverish popularity of land lease communities, making them flexible, desirable investment vehicles. That being their broadening identity as mixed use properties, featuring an increasing number of recreational vehicle (‘RV’) rental sites. The most striking example of this contemporary reality is REIT, Equity Lifestyle Properties (i.e. ELS, Inc.), where the firm’s roughly 150,000+/- rental homesites are near evenly divided between MH & RV-specific sites!

What you’ve just read are three 21st century reasons for the increased popularity of land lease communities as commercial real estate investments: again, on-site home sales & seller financing = PITI payments & site rent; reemergence of rental units (common during late 1970s); and, variety of shelter types, especially RVs, filling vacant rental sites. But along with this new (in the words of RE consultant Allen Cymrot) ‘alternative income to rent’ home sales opportunity, comes the risks of on-site staff being capable and motivated to sell new and resale manufactured homes; then, if need be, seller-financing or lease-optioning them, in the face of stringent financial regulatory measures. There’s also the risk of not monitoring rental unit tenancy close enough, via monthly in-house inspections, to head off damage to the homes.

There’s a well-known list of ’10 Good Reasons to Own a Land Lease Community’.*1 Measures just described cover two of ten reasons, i.e. ‘More opportunities to add value’ (Think home sales & financing); and, ‘More versatility’ (Presence of RVs & ADUs). The other eight good reasons? Succinctly, ‘relative scarcity’ (few being developed, thanks to NIMBYism*2), ‘low annual turnover’ (five percent for homes & 10 percent for homeowners/site lessees), ‘stable & competitive site rent rates’ (though changing in some markets*3), ’lower operating expense ratio’ (industry standard = 40 percent OER, but as low as 20 percent for larger institutional investment grade properties), ‘affordable home ownership & equity’ (when homes are well-kept in well-maintained communities), ‘recession proof’ (least expensive housing available), and ‘opportunity to serve society’ (As an answer to our nation’s affordable housing crisis; and frankly, consider how many more ‘homeless’ would there might be without land lease communities).

Now you know the outside and inside reasons why income capitalization rates are at historic lows, coast to coast, as investors – mainly from outside the manufactured housing industry, vie for the relatively few institutional investment grade communities not consolidated into one of more than 500+/- known portfolios comprised of this unique, income-producing property type.

George Allen, CPM Emeritus, emeritus member of Manufactured Housing Institute, certifier of 1,500 Manufactured Housing Managers (‘MHM’) in the U.S. & Canada, and 35 year owner/operator of land lease communities in the Midwest. Visit Www.EducateMHC.com

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