Manufactured Housing Land Lease Community1 . . .
Investment, Financing, Development, Marketing, Operations, Real Estate Brokerage & Consulting Services
Market Conditions
Manufactured Housing Land Lease Communities
As an investment vehicle, manufactured housing land lease communities aka mobile home parks or trailer parks have held a special interest for investors due to the nature of the income stream from homesite leases to residents who for the most part, own and maintain their own homes.1 Under today's (Nov 2010) conditions they are widely sought by investors with an estimated buyer to property ratio of 100 to one. Those less than investment grade or those with substantial numbers of rental or LTO3 homes which are being operated as de facto single family detached apartments are widely available at higher "cap rates", but appeal to a much smaller range of investors.
New manufactured home sales have declined steadily from a high of over 372,843 a year in 1998 to only 49,789 a year in 2009. Where there were over 400 factories building homes in previously years, this number has declined to less than 100 recently, and the decline is continuing. Many factories now concentrate on home products which may be installed in older communities with "obsolete" homesites, and are being wholesaled to community owners to support their site filling marketing and sales programs.
There are currently an estimated 25,000 investment grade2 m/h land lease communities in the USA, and the number of communities is continuing to decline in number. The primary reasons are threefold.
- Older communities are now often in the path of growth areas, and are being purchased for a higher value land use.
- Many cities and towns have made it very difficult to obtain zoning and land use approvals for new community development, and in many areas, the cost of access to municipal water and sewer services are prohibitedly high.
- The serious lack of viable chattel home financing for residents has put a serious damper on residents ability to finance their purchase within a land lease community at affordable terms and interest rates, resulting in virtually no new community development for the past 10 years.
Most community investors are interested in the stable, predictable income stream from land lease communities, and are not interested in either a) selling homes to fill vacant homesites, or b) developing new communities or expanding existing ones. Land Lease communities in the US are divided into two basic groups:
- age55+ age restricted seniors communities, and
- family or non age restricted communities.
January 2010
Most of the 55+ communities are doing well, and are selling at relatively low cap rates (high prices) depending on their location, amenities, occupancy, and overall market. These communities are generally located in retirement areas or in and around major metropolitan areas.
Family or non age restricted communities have a completely different picture. Cap rates are relatively high (lowe prices) primarily due to the high rate of foreclosures on homes and evictions of residents from homes which were purchased by unqualified buyers or high area unemployment conditions, some areas of the country has experienced a relatively high rate of vacancies. Filling these vacant homesites is problematic for several reasons:
- Many existing community owners are not in the business of selling or financing the sale of new or used/repo homes, unless they are currently sited within the community.
- In all but a few parts of the country, boulevard m/h retailers sell manufactured homes in rural homesites and rarely sell homes into land lease communities.
- The serious lack of viable home financing for residents, has made it difficult for new residents to purchase new or existing used/repo homes within communities.
- Some community owners have resorted to financing their sales transactions by sourcing their own deals. Or, they have made an alliance with a third party lender or service company who will assist them with their sales.
July 2010
HUD finally releases their revisions to the little used FHA Title I chattel home financing program for HUD code homes installed in land lease communities, which were originally approved by the HERA and signed into law by President Bush in July 2008. The significance of this action is the potential relief for residents who want to purchase their homes using terms which are an improvement over commercial lender's rates and terms of the past few years. The newly revised program provides for:
- 5% down payments for those borrowers with credit scores over 500 (the lender may have higher underwriting scores for the actual loans), those with scores under 500 must have a minimum 10% downpayment.
- Loan maximums of up to $78,365 for homes only and $20,000 for land if land-home, with yearly indexing for inflation
- Up to 20 year term for home only, or 25 years if sold as land-home combination.
- New homes sold by pre-approved retailers in qualified communities with approved leases.
- Used homes to be sold by individual homeowners or pre-approved qualified retailers at prices established by an appraisal done to the NADA standards or the approved equivalent.
Although the newly revised program is technically in effect, the purchase of the notes GNMA still has a moratorium on signing up any new lenders.
The significance of the FHA Title I revisions is that its availability in the market may help stimulate new home sales, and as a result justify new community development. It also provides an alternative for resident homeowners in communities to sell their homes with viable financing for subsequent purchasers, who may also have a source for financing when they hope to sell their home someday.
August 2010
GNMA releases their moratorium on approving new lenders with a set of underwriting standards which establishes a minimum net worth, and capital reserves. Lenders have been slow to seek approval under these new standards, and there are a minimum of two lenders who are now approved to sell their loans on the GNMA secondary market. Other lenders are reviewing the standards, and several more are expected to join the list of those approved by late 2010 or early 2011.
Many community owners who operate in-community home sales centers are continuing to provide home financing for their new residents using lines of credit and outside third party investor financing.
Investors are now taking a serious look at some of the many communities in areas which are hard hit economically (IL, IN, MI, etc) as potential investments due to the new FHA Title I program.
November 2010
Several community owners have started the process of qualifying their communities for re-financing under the provisions of the private lender loan guarantees offered by the FHA 207m loan guarantee program. Initial responses by the HUD staff have been less than expected, partly due to their inexperience with the program, and areas where the high unemployment and high community vacancies make approvals problematic.
The industry is working with staff in several markets to upgrade and improve their knowledge of the industry and individual markets.
For the first time in several years, the industry has revived the popular manufactured housing show in Louisville, KY in January 2011. This is significant because of the renewed interest in new home products and financing options for community owners and retailers.
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1 "Homes" refers to factory built housing to the Federal HUD codes which when installed into land lease communities are treated as chattels or personal property.
2 "Investment grade community" refers to those communities which are large enough to support the expense of an on-site professional property manager. In almost all cases communities with a substantial of rental or LTO homes will also require a full time on-site manager.
3 "LTO" or Lease to Own homes are those used and repo (rarely new) homes which are installed in a land lease community and are financed by the landlord with a low down payment and monthly payments which when combined with the monthly homesite lease payment are usually less than or equal to area apartment rents. Many times these units provide 3/2 units with 900-1,000 sq.ft. or more as competition for 2/2 smaller apartments. Residents usually also maintain their own homes as compared to rental units in which the home maintenance is frequently provided by the landlord.
Edward Hicks
Lic. RE Broker
Lic. Mortgage Broker
easteddie@aol.com
www.mobilehomepark.com/
www.fha207m.com
www.interlokhome.com/
