There are two types of inhabitants of mobile homes: owners and renters. One has a capital investment in the home and the other does not. We feel strongly that every resident in the mobile home park should have the opportunity to be an owner if they so choose. Why is that?
The unusual trait of mobile home parks
Mobile home parks are a “shared” form of housing responsibility, in which the community owns the land and the customer owns the home. The park owner’s duties are to keep the common areas in good repair, the utilities all functioning, and provide management that is fair to all parties and keeps the quality of life at the highest level possible. Meanwhile, the resident is responsible for their home’s outward appearance, the condition and cleanliness of their yard, and strict adherence to the community rules.
Why you want every resident to be a stakeholder
The above business model goes in a completely different direction when the resident rents the home, and not perhaps for the good of either party. When a customer buys their home, they see a huge monthly cost reduction when the mortgage (if there is one) is extinguished – typically around 50% lower total monthly cost. Meanwhile, the mobile home park works best with customers who are homeowners rather than home renters since makes them effectively “stakeholders” in the business model. You can tell an immediate difference when you drive into a property with homeowners rather than home renters – the “pride of ownership” is immediately apparent.
What the paths to ownership are
There are basically five paths to homeownership in any mobile home park. Here’s the list as well as the challenges:
- The customer buys the home from a retail dealer and moves it into the park. The challenge here is that few customers can meet the credit and down-payment requirements.
- The customer buys an existing home in the park for cash. Obviously, the challenge is that few customers have sufficient cash to buy the home outright, except for very inexpensive older homes or customers who are selling their stick-built home and downsizing.
- The customer buys an existing home in the park using a financing program from a lender such as 21st This solution is thanks to the community owner being willing to shoulder the risk of default by taking over payments in-between customers and making any needed home repairs. It also relies on the park manager showing the home, and the park marketing it.
- The customer rents a home in the park and receives monthly “credits” that allow them to buy any home that is available and owned by the park at their discretion, once they have saved up enough “credits”. This is called “Rent Credit” and became popular after the SAFE Act was passed around 2008 as it gives a renter an opportunity to garner points for being a good customer and paying on time and to use these – at their discretion – to buy a home if they so choose.
- The customer buys the home from a park owner who is SAFE Act licensed and compliant, and the park owner then creates their own mortgage for that sale. In this scenario the community owner has taken the extra mile and navigated the SAFE Act process to be licensed and able to create mortgages themselves.
Why you do not want residents to be “trapped” in the rental model
It doesn’t matter which of the above options you adopt – the important thing is to always try to offer the customer a pathway to ownership and don’t trap them into a perpetual rental situation. While some park owners may say that this is sacrificing maximum profitability to be had from renting, we believe the opposite to be true: renting homes in perpetuity does not serve the needs of either the park owner or the resident. Those park owners who are strong proponents of the rental model often fail to accurately look at the costs associated, as well as the opportunity cost of simply selling the home and keeping the lot rent portion. Since all lending in the industry is based on real property income and not personal property (lot rent vs. home rent), and the simple fact that a mobile home park with zero rentals has greater pride of ownership and ease of operation, it is impossible to make the case that rentals are the way to go – and that’s not even including the benefits to the customer of being a homeowner and having a total housing cost roughly half that of the renter once the mortgage (if there is one) has been paid in full. The one exception to this are parks in the south where the spread between lot rent and home rent can exceed $500 per month – in parts of America where lot rent is around $100 per month there is little point to focusing on a land-only income model as there is barely enough net income to make sense of the capital investment. However, with the U.S. lot rent average at around $300 per month, this is more of an exception than the norm.
Having the customer own their own home is a win/win for all parties involved. Smart park owners should work to ensure that residents have a path to ownership should they want to take it. Don’t lock your residents into perpetual renting if you can help it. Make ownership possible.