Magazine article Journal of Property Management

It's Not Sexy, But

Magazine article Journal of Property Management

It's Not Sexy, But

Article excerpt

Manufactured housing is big business. Maybe not glamorous, but big.

The mere mention of manufactured housing still conjures up negative images of rusting metal boxes stuck in an unimproved field in the worst part of town. But that image is and has been a thing of the past. Consider the following fact: One of every three single-family homes sold in the United States is a manufactured home. Today, manufactured homes are a $9.5 billion business and the fastest-growing segment of the American housing industry (Kristina Kessler, "Going Mainstream," January 1996, Urban Land). The box has changed.

There are many reasons for the manufactured housing industry's positive outlook:

* Continued affordability relative to site-built housing,

* Increasing scarcity of affordable apartments,

* Favorable product changes,

* Greater availability of consumer financing,

* The growing income gap,

* Long-term savings rates drop,

* Immigrants and minorities achieving home ownership,

* Migration South and West,

* Favorable metropolitan growth patterns; and

* Promising regulatory and zoning reforms.

Many of the owners of the 50,000 U.S. manufactured home communities are small "room and pop" operators. Small but wealthy. And now institutional investors and REITs are finding that manufactured home communities are stable and rewarding investments.

Stable Investment

Manufactured home communities are known for their ability to perform well in both boom and bust markets because:

* Rent is easy to collect,

* Resident turnover is extremely low, and

* Restrictive zoning ensures demand.

Rent is easy to collect in manufactured home communities. Since residents have an equity interest in their homes that they are reluctant to jeopardize, the rent usually gets paid on time. Residents occasionally abandon their homes, however. This is usually not a problem. Since most homes are financed and lenders typically want to avoid incurring moving costs, the lender is often willing to make rent payments until a buyer comes along.

Turnover is normally very low in manufactured home communities. In reality, the term "mobile home" is a misnomer. On average, 90 percent of manufactured homes are never moved once they are delivered to a site, according to George Allen in "Developing and Financing in Land-Lease Communities," January 1996, Urban Land. Residents move but typically leave their homes behind. In fact, studies have been performed which indicate that manufactured home residents are no more likely to move than residents in a single family neighborhood.

Restrictive zoning is another reason for stable manufactured housing investment returns. For the developer trying to get approval for a new project, restrictive zoning is anathema. But the same regulations inadvertently protect existing operators and investors, ensuring stable returns. In fact, many industry observers point out that as a result of restrictive zoning, overbuilding with manufactured homes is virtually impossible.

High Yields

Manufactured home community investments also offer extremely high yield potential, relative to apartments. Manufactured housing exhibits superior characteristics in:

* Capitalization rate outlook,

* Rent increase potential,

* Anticipated expense trending, and

* Expected investment returns.

The outlook for manufactured housing capitalization rates for the next 10 years is very good. …

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