Debunking the Value-Add Approach to Manufactured Housing
Everyone is out there chasing a deal, trying to find value to capitalize on in a new acquisition. With the recent explosion of community purchases across the country, slam dunk deals are hard to come by. The big players have purchased the majority of large communities and portfolios, so the rest of us are out here looking for value to be capitalized on. The two main approaches are finding communities that are under market on their rents and adding value through occupancy.
Today, I see community after community being marketed for its ability to add value through increasing occupancy. I have been involved with the lease and/or sale of thousands of manufactured homes over the past five years and the message that I have to potential owners is: It is not as easy or as profitable as it sounds.
You have two options when increasing occupancy, sell or lease- each has its pros and cons. Most people want to chose option a: sell the homes. This has been the traditional MH model for years and on paper- carries little to no risk to the community owner. However, selling homes now is no easy feat. First, we live in a rent first society- where getting someone on board with wanting to buy a home is more difficult than it was 10 years ago. Second, how is that resident going to obtain financing? In most markets across the country, if a community is planning on selling homes at any sort of scale, they are going to need to get owner guaranteed financing and sign recourse on most of the homes that they sell.
The next option is to rent the homes- this model is much easier and faster when trying to fill your community- but you are now responsible for the upkeep of these homes. I have seen the profit margin on homes get eaten up by renovation costs many times. Rental homes in MH need to be done carefully and the increased labor it takes to properly operate them can not be overlooked.
The thought that I would like people to leave with is to be knowledgeable about the infill approach you are planning on taking when purchasing a community and do not fall into the Midas touch complex. If it were as simple as adding some capital for new homes to add a large amount of value- chances are the current owner would have done it already. Increasing occupancy in this business is complex and the people who do it right (and there are some who do a phenomenal job of it)- know what they are doing. The majority of our clients are doing some sort of infill and we pride ourselves in helping each community reach its full potential.