Despite the market changes, investors
still have great opportunities in real
estate, including manufactured home communities — one of the most affordable
forms of housing.
“Land lease manufactured home community investments are typically more passive
than some of the common real estate investments but provide great cash flow, and some
have a significant future upside,” says
Michael J. Nissley, senior vice president of
the manufactured housing group at CB
Richard Ellis, Atlanta. “Some investors view
them as ‘land bank’ investments.”
Smart Business learned from Nissley
about investing in manufactured housing
(MH) communities.
What differentiates MH properties?
Other rental investments are much more
active investments because owners have the
responsibility for maintenance and repairs of
the buildings as well as the property’s landscaping. In land lease MH communities, the
investor typically doesn’t have any responsibility to repair or maintain the interior or
exterior of the homes. Operating expenses
for apartments typically run closer to 50 percent of income, while MH communities on
average run closer to 40 percent.
Where are MH and RV communities located?
The U.S. has approximately 50,000 MH
communities and 15,000 RV communities
ranging from a single unit to 2,000 units. The
majority of the homes and communities are
located in the Sunbelt states. Florida is the
largest followed by Texas, North Carolina,
California and Georgia. Other states with a
large number of MH sites are South Carolina,
Alabama, Arizona, Michigan and Tennessee.
What types of MH communities exist?
There are two main categories of MH and
RV communities with three subtypes including: senior (55-plus) communities, family (all
age) communities and resident-owned or
condo communities. It is generally believed
that the 55-plus communities have fewer
turnovers, more pride of ownership and
more stable paying residents — many on fixed incomes. The all-age family communities are also good investments that can have
high demand but are believed to have slightly higher operating expenses due to the higher turnover related to younger families with
less stable incomes. Resident-owned communities are not typically available as investments, but the people living there always
have the option of selling the entire community by a unanimous resident vote.
What kinds of investors could easily transition into this type of real estate ownership?
Many apartment and self-storage owners
also buy land lease manufactured home community investments. They like the passive
nature of the investment and the ability to
combine similar management components
with their other property types.
What third-party management services are
available for these properties?
Currently, both the MH and RV community
segments have several quality, regionalized
third-party management companies throughout the U.S. with the largest ones based in
California, Oregon, Texas and Florida. At this time, both the MH and RV segments do not
have a single management company serving
all of North America. But as the field continues to consolidate, the need for a single
national source of third-party management
will likely emerge and would give completely
passive investors the ability to easily enter
this industry segment.
What exit strategy options exist with these
investments?
The majority of MH and RV community
investments are bought and sold for a price
based solely on cash flow. The best investment grade communities, in the high-demand Sunbelt states, such as Florida,
Arizona and California, trade for cap rates of
5 to 6 percent. But investors can find higher
returns in this industry. It’s common to see 7.5
to 9 percent cap rates depending on the location and condition of the community.
Alternative strategies: A popular option in
Florida is to sell the community to the current residents, which is known as a ‘condo or
resident-owned community.’
Lastly, owners can sell the community to a
buyer for a ‘change of use.’ This means that
eventually the community residents will be
relocated and the land will be developed into
something else. It’s highly recommended that
you consult a professional and understand
the risks and the varying state laws before
getting involved in an alternative method of
acquisition or disposition.
Are there companies that can provide information about investing in MH communities?
A good place to start is to call Michael
O’Brien at the Manufactured Housing
Institute (www.mfghome.org) or look up the
MH industry guru George Allen, who publishes the Allen Letter and wrote the book
‘How to Buy Manage MH Communities’
(www.manufactured-housing.net). Another
good place for resources and communities
for sale is the Mobile Home Park Store
(www.MHPS.com). Or visit CB Richard Ellis’
manufactured housing group site (www.
cbre/manufacturedhousinggroup.com).
MICHAEL J. NISSLEY is the senior vice president of the manufactured housing group with CB Richard Ellis in Atlanta. Reach him at
(404) 504-5970 or [email protected].