Multi-Housing News (MHN) ran a story in early December, 2021 discussing why “manufactured housing is growing on the 55+ age group.” The piece implies that seniors suddenly have a renewed interest in manufactured housing due to the current state of the housing market. That may be true, but both investors and seniors have been attracted to manufactured housing for decades.
Take a drive through Florida, Georgia, Arizona, or Nevada and you will see plenty of manufactured housing. Seniors have been buying manufactured homes in 55+ communities since the mid-to-late 80s. Manufactured housing may have fallen off a bit in the early 2000’s, but it is roaring back now. The question is, why?
Housing for Senior Buyers
The most attractive thing about manufactured housing to seniors is affordability. The MHN piece makes that much clear. For seniors looking to downsize, it is often a choice between finding something they can afford and continuing to live in a house that is too big for them. Many are discovering that they cannot afford a traditional home or a 55+ apartment in the current market.
Spending upwards of $200,000 on a smaller site-built home just isn’t doable for many. Neither is paying $2,000 per month for an apartment in a retirement community Manufactured housing offers a much more affordable option.
Seniors can buy brand-new manufactured homes in the $150,000 range. But existing homes in good condition can cost as little as $30,000. A senior looking to downsize can sell the family home, use part of the proceeds to purchase an existing manufactured home, and put the rest of the money into a retirement account. It is hard to beat that.
Even with HOA fees or a land lease, seniors can still get away paying less for a manufactured home than renting an apartment or purchasing a site-built home. It is really just that simple.
Manufactured Housing for Investors
As far as investors are concerned, they are not interested in buying individual manufactured homes and reselling them. At least most aren’t. Rather, they are interested in purchasing land lease communities or investing in property funds that own such communities. Simply put, land lease communities are extremely profitable for investors.
A land lease community is one in which homeowners legally own the manufactured homes in which they live. However, they rent the land on which those homes sit. Property owners use some of the monthly rent payments to maintain the land and provide amenities. The rest is profit.
Purchasing a Community
An investor looking to purchase a land lease community would almost certainly turn to hard money for the initial acquisition. According to Salt Lake City’s Actium Partners, a hard money loan would obtain the property and set the stage for more traditional financing.
Getting initial financing from a bank might not be possible prior to acquisition. Hence the need for the hard money loan. But once the property has been secured and rent payments start coming in, banks are more likely to step in with a financing package. They see the value of the land plus the passive income it generates, giving them the security they need to move forward with the loan.
In the end, everyone wins. The investor obtains a piece of property that will generate passive income for as long as he holds it. Meanwhile, homeowners have houses and rent payments they can afford. It is an attractive situation with mutual benefits for everyone involved.
Investors and seniors have been interested in manufactured housing for some time. The interest is only higher now because of the unusually hot real estate market.