With Tim Sheahan, President of the National Manufactured Home Owners Association
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There are some 20 million Americans living in mobile home parks, the majority located in rural states. While there sometimes seems to be a stigma attached to mobile homes, investors are finding a decent risk/reward metric when it comes to rate of return, sometimes seeing returns 3% better than investments in apartment complexes.
Steve spoke with Tim Sheahan, a mobile home owner’s advocate and the recent president of the National Manufactured Home Owners Association (NMHOA), to discuss the disconnect between residents who are often in a tight financial spot and investors who want to make a healthy return when they invest in mobile home parks.
The History Of The Mobile Home Park
The mobile home park first sprang up after WWII, with a transition of trailer campgrounds beginning to accept single-wide mobile homes, and later, double-wides. The boom truly took off, however, in the ‘60s and ‘70s, when manufactured home communities were being constructed right and left. This was an excellent way for both senior citizens and new families to make use of more rural areas where land prices were cheap. It also made for more room in the cities for workers and their families who chose to live there.
Throughout the ‘80s and early ‘90s, something like 300,000 to 400,000 mobile homes and mobile home parks were established. However, the stigma of low income and also the boom in the housing market caused the number of mobile homes being built to begin dropping significantly. Today, however, investors have gotten wind of the potential for profit with mobile home parks and mobile homes are on the rise once more.
The Dangerous Investor
There are a lot of investors scooping up or opening new mobile home parks and charging reasonable rates. However, problems have arisen with big corporate conglomerates flooding into the industry, taking over mobile home parks and boosting rents and other fees in order to maximize their profit. They may also be tempted to skimp on maintenance.
In California, for example, mobile home park owners are using apartment prices to establish what the cost of rent should be in the parks. However, most of the parks don’t have the same amenities that an apartment complex would likely have, things such as an on-site washer/dryer, a pool, and other common areas that justify an apartment’s higher expense.
The Issue With Conglomerate Park Owners
With just about any type of mobile home park where the homes are actually mobile, the owners can basically raise their prices whenever and however they’d like. However, if you’ve purchased your mobile home and settled it in their park, you can essentially pull your home off the lot and take it elsewhere anytime you like.
Today, a lot of conglomerate mobile home park owners are establishing parks with homes that aren’t mobile. The parks are being designed to effectively keep residents “landlocked” once they move in. If you move into a mobile home park and have purchased the home, that is what you own. You are charged rent by the owner for the land that the home sits on.
National Manufactured Home Owners Association
The National Manufactured Home Owners Association (NMHOA) is an advocacy group that works to serve the interests of people living in places such as mobile home parks. They work with partners on a national level to help establish and strengthen the policies and rules that govern how manufactured home communities are managed, run, and owned. This is important work because many states have no unified authority agency or person designed to help individuals living in mobile home parks protect themselves from unfair pricing or sudden price spikes.
Response To Advocacy Groups
The response by major conglomerate owners to advocacy groups like the NMHOA hasn’t been particularly favorable. There seems to be a sense of entitlement—perhaps even arrogance—on the part of buyers, coming in and setting up overpriced mobile home parks, with seemingly little concern for the financial realities of the residents. These corporations seem to operate on the notion that they have every right to maximize profits for shareholders at the expense of the people actually living in the parks.
In some cases, when a major firm plans to take over a mobile home park, residents are informed that their rents are going to go up. Groups like the NMHOA can help with negotiations and, if necessary, litigation to help residents fight to keep their rent prices manageable.
To learn more about how the NMHOA works to help those living in manufactured housing developments and parks, check out www.nmhoa.com.
Disclosure: The opinions expressed are those of the interviewee and not necessarily United Capital. Interviewee is not a representative of United Capital. Investing involves risk and investors should carefully consider their own investment objectives and never rely on any single chart, graph or marketing piece to make decisions. Content provided is intended for informational purposes only, is not a recommendation to buy or sell any securities, and should not be considered tax, legal, investment advice. Please contact your tax, legal, financial professional with questions about your specific needs and circumstances. The information contained herein was obtained from sources believed to be reliable, however their accuracy and completeness cannot be guaranteed. All data are driven from publicly available information and has not been independently verified by United Capital.
Steve Pomeranz: Today an estimated 20 million Americans live in mobile home parks, and the vast majority are located in rural states. Whereas one in six West Virginians lives in a mobile home. New Englanders may never encounter a mobile home park, so states the website Buildium.com in its Investing in Mobile Home Parks Blog. While there’s still a stigma for many who live in these parks, and many parks are rundown and not well kept, many of the parks are quite a nice place to live. They all serve an important niche for individuals in need of affordable housing.
On the investor side of the ledger, mobile home parks have a good risk/reward metric. For example, rates of return on invested capital can be 1% or 3% more than apartment investing, and also mobile home parks have operating expenses well below comparable apartment complexes and the like.
So, you have a conundrum. Mobile home owners who are already in a tight-money low-income world have to contend with investors that want a healthy return on their money. This is a lot to consider and reflect on. To discuss this, I’ve invited Tim Sheahan. He’s a mobile home owner’s advocate and immediate past president of the National Manufactured Home Owners Association. I’ve asked him to discuss this with us. Welcome to the show, Tim.
Tim Sheahan: Thank you very much, Steve.
Steve Pomeranz: This all started for me when I received a letter from a listener describing some of the serious issues that are confronting mobile home owners. Give us a brief history of the development of the mobile home park. I guess it was kind of a World War II thing which expanded after the war, and where we stand right now.
Tim Sheahan: Okay. Generally, like you mentioned, there was a transition from the trailer campgrounds, gradually accepting single-wide and then later double-wide mobile homes after World War II. Technically speaking, homes built prior to 1976, when the HUD code went into effect, were technically the mobile homes and any homes built after 1976 are considered manufactured homes. As an advocate, we like to call them all manufactured because they’re manufactured in a factory, and they’re not so mobile. I’ll probably get into that later to express how, in our communities, the homeowners are really trapped.
But the big boom in development really occurred in the late ’60s and into the ‘70s when thousands of manufactured home communities were constructed, especially in the Sunbelt states. It was a particularly great way for seniors to downsize to retirement communities and semi-rural areas where the land was cheap. And by doing so, that opened up their site-built homes in the cities for the workforce. So, it was really a win/win with the tight affordable housing in the cities.
This created more opportunities for families to buy affordable homes in the cities and not have to commute like they are today. In my area of southern California, some people commute two hours each way to work and that’s real unfortunate.
And today, despite that it’s really been a success story, particularly in California and other areas where there’s some security of tenure, particularly by rent ordinances to limit unfair rent increases, despite that they’ve built virtually no new manufactured home communities to speak of in California since the probably mid-80s. So, it’s a real unfortunate trend that there have not been new communities constructed, and the manufacturers have suffered tremendously.
In the late 90s they were making maybe 3 or 400 thousand homes per year nationwide, and it dropped down to less than 50 thousand per year for several years ago. It’s coming back up a bit, but that’s mainly replacing some of the older homes.
Steve Pomeranz: When I was researching for this interview, one of the sites suggesting, and actually it was talking to possible investors, said that you look at the rental costs for apartments in the area, and then you cut that in half, and that’s what you charge a mobile home if you own a mobile home or a mobile home park community. Does that seem pretty accurate to you?
Tim Sheahan: Well, really it depends. There’s a lot of good park owners out there that are reasonable with their rents, but we’re concerned with this trend of the big corporate conglomerates taking over the industry. Their goal is to maximize profits, and they do that by raising rents and reducing expenses, which means skimping on their maintenance. And so, both things impact the homeowners, so it really varies as far as that comparison to apartments.
In some areas of California, park owners are declaring that the apartment rentals in the area establish what a market rent is that should be applied for manufactured homeowners, even though the manufactured homeowners are renting a patch of dirt and responsible for maintaining their home and their landscaping around their home.
Steve Pomeranz: Yeah.
Tim Sheahan: And we know that in some of our communities that were purchased by the residents after being land-lease communities, once they became resident owned, the cost to operate and maintain gorgeous communities with many amenities, pools, clubhouses, everything, can be 200 dollars a month or less to operate and maintain. And so, anything above that is typically pure profit for an investor.
Steve Pomeranz: Let’s talk about some of the issues here. When you look at investing in apartment complexes, for example, or just really any rentals, the owner of those rentals can raise rates exactly as much as they want to. Theoretically, if they raise the rates too much, then people have the right to move and go to other rental communities or find another rental somewhere. So, they can vote with their feet. They can say, “This is way too high. You’re out of line,” and they can move elsewhere.
The big companies that you alluded to have come in, and they’ve built these big rental properties and bought others, and they’re able to do that as well. They’re still under the same competitive restraints that the market imposes, as I just mentioned. When it comes to mobile home parks though, if they try to do the same thing, the same type of dynamics that exists in apartment complexes don’t really exist in mobile home parks because, really, Tim, are these mobile homes mobile?
Tim Sheahan: No, absolutely not. Once they’re set in place, they’re not intended to be moved again. In my area of north San Diego County, many of these homes were placed in the late ‘60s and early ‘70s and are still on those home sites. Who knows when they would need to be replaced or moved. If things get too unbearable in a given community, a homeowner cannot just hook their home up to a truck and move it out during a day. They’re not trailers.
In fact, we call that the T-word because that feeds that negative stigma and stereotype-
Steve Pomeranz: Trailer park.
Tim Sheahan: … right. And though there are trailer parks, but trailers have hitches and wheels, and our homes had the hitches cut off when they were placed and have no wheels, no axles, no engine. It can cost 20 thousand dollars or more to relocate them, and there’s virtually no option to moving to another community because most of the lots are full already because they haven’t been building new communities, and most manufactured home communities don’t accept older homes. And so, it is a real captive situation for homeowners.
The ongoing fear is that no matter how good things are today in a given community, it can all change overnight if your community owner changes.
Steve Pomeranz: Let’s just talk about the way the ownership works here. The person who bought the mobile home actually owns the home, the manufactured home, but they don’t own the land that it’s on. So, the mobile park owner owns the land, and they’re charging rent for the land. How is that different than, let’s say, a condominium?
Tim Sheahan: Well, we do have condominium communities. In my city of San Marcos, north San Diego County, out of 18 manufactured home communities, seven have converted form investor-owned, land-lease communities to resident-owned condominium subdivided communities.
We have four others that were bought by nonprofit operators. They continue to be rental communities, but regulatory agreements with the city provided a security of tenure that would limit the rent increases. Plus we also have a rent stabilization ordinance that protects the other investor-owned communities.
I give that ordinance a lot of credit for motivating so many of the park owners to sell to the residents or to the nonprofits.
Steve Pomeranz: Yeah. That sounds like a pretty good solution to this. Are you seeing that start to expand around the country?
Tim Sheahan: Yes. There’s other states like Oregon who are adopting protections, in some cases, not just for manufactured home communities, but for apartments also. This trend to the conglomerates purchasing our communities also applies to apartments.
Many of these conglomerates have foreign investors even, and we tried to make the argument that for every dollar an ordinance can save a homeowner or a renter in rent, is a dollar that can stay locally to be spent locally for goods and services, to circulate time and time again to fuel that local economy, rather than going to out of area, out of state or out of the country to some of these investors. And so, it counts up into millions and even billions of dollars over time that is lost from the local or state economies.
Steve Pomeranz: My guest is Tim Sheahan. He’s a mobile homeowner’s advocate, immediate past president of the National Manufactured Homeowners Association. Tim, what is the National Manufacturers Homeowners Association?
Tim Sheahan: It is a national advocacy group that serves the interests of manufactured homeowners who live in these communities. We work with partners at the national level trying to get policy changed and protections at the national level. But in many cases, most of the action is at the state and local level, as it is in California. So, we work with a lot of statewide groups, similarly comparable advocacy groups. But in many of the states, they have no state association, and one of the reasons is that they have no state civil code protecting advocates.
In California, in our state mobile home residency law that’s codified in the civil code, we have protections like just cause eviction protection that there’s got to be a good reason for a community owner to evict one of our constituents, one of our homeowners. But in many states, they have no state civil code and no protections for homeowners. And a manufactured homeowner could be given 30-days notice to move their home and all their belongings out of their community.
So, instead of just cause eviction like we have in California, it’s just ‘cuz eviction, “Just ‘cuz I want you out.”
Steve Pomeranz: Ah, “just ‘cuz”.
Tim Sheahan: You can imagine the message that sends to anyone who’s trying to organize the residents to stand up for fairness.
Steve Pomeranz: Right.
Tim Sheahan: They just are scared into submission and take it. And consequently, some of these states, we have no advocacy groups.
Steve Pomeranz: What has been the industry’s response to the issues that you’ve described here? I’m talking about these, as you call them, conglomerates that come in and buy up all these properties and try to get as much profit for their shareholders as possible. What has been their response to you and your colleagues?
Tim Sheahan: There’s an arrogance and even an intoxication that goes along with this wealth and power and prestige that I think they don’t hear their own conscience anymore. You hear about these corporations not having a conscience, and I firmly believe that is that case. They rationalize that they owe it to their shareholders to maximize profits. But I actually bought shares in one of these corporate owner’s equity-lifestyle properties after one of their communities in Santa Cruz, California, a gorgeous community right out on the ocean.
In the mid to late ’90s, homeowners there got a notice, or some of the homeowners in the community got a notice, that their rents were going to go from the six to seven hundred dollar range to 5000 dollars a month for space lot rent in that community. The city had an ordinance at the time to block that increase, but this corporation kept suing the city, and they sued them into submission. It cost them to the point that the city gave up the ordinance.
They brokered a long-term lease for the existing residence, but when they go to sell or even if an area inherits a home, I’m told that on some of those view lots the rent could go to $5000 a month. No one’s ever paid it, so consequently, the community owner gets it. That’s a big distinction from an apartment landlord because by raising rents alone in our communities, these unscrupulous segments of the industry are able to capture or seize or steal these homes for little to nothing because if the rents are high enough, the homeowner can’t pay to stay in the park.
They lose, in some cases, their life savings because they can’t continue to live there. They’re on fixed income seniors. The younger people would default on their loan, so that hurts not just the homeowner, it hurts the lender, and the park owner gets these and makes it by reselling it or renting out the homes.
Steve Pomeranz: Yeah, the whole formula seems to be out of whack. By the way, that company you mentioned, I think that’s run by Sam Zell who is a Chicago based billionaire.
Tim Sheahan: Right.
Steve Pomeranz: Made his money in real estate. You have people who are on fixed incomes. It’s generally a low economic segment of society, really can’t afford these big raises. On the other hand, you mentioned this property, which is sitting on prime real estate on the ocean, so there’s economic forces in this particular instance, and I guess all over, to capitalize on the value of the underlying land. But where are these people going to go because they’re already in a place where they can live and afford to live? And by changing these economic dynamics, it can change their lives dramatically.
Tim Sheahan, consumer advocate for mobile homeowners, past president of the National Manufactured Homeowners Association, thank you for your answers and for describing this problem for us. It’s not something we can solve here, but at least we can understand it a little bit more. Thanks so much.
Tim Sheahan: Oh, thank you. We appreciate the opportunity any time to help tell our story because it’s a real unique situation. If we don’t preserve it as the largest form of unsubsidized affordable housing, with so many baby boomers entering their retirement years, more and more people are going to have to seek government-subsidized apartments or living. We want to avoid that. In California, we have many examples of manufactured housing done right, and we hope that can translate into other areas of the country.
Steve Pomeranz: This segment came from a listener’s question, and so we really invite listeners to ask their questions. To this and any interview again, or if you yourself have a question about investments or anything in your own life that you want us to try to address if we can, visit our website StevePomeranz.com and join the conversation, and sign up for our weekly update for upcoming live events and important topics that we’ve covered week that go straight into your inbox. That’s StevePomeranz.com.