Changing over from RTO to straight rentals - any land mines to be aware of?

I am noticing that rental ads generate far more responses than RTO or for sale ads. Since more people are interested, I can always find someone with good credit history. Because of this, I have been doing straight rentals on homes we’ve brought in. Too new to detect whether this is a good plan.

I am hoping to get some feedback regarding the following:

1.) Other than putting in a “tenant pays for all under $100 repairs” clause, what other clauses should we have in order to stay out of the constant repairs & maintenance business?

2.) How to comfort the neighbors that the community quality will not be degraded by an influx of renters?

3.) Where to advertise to attract 55+ renters?

Thank you!

You will need to check first with the state landlord tenant regulations to see if you can legally include a clause making tenants responsible for repairs.
As far as comforting neighbours is concerned there is little you can do other that strictly police your rental tenants to insure they are maintaining the standard of the community. Act immediately upon any resident complaints. Insist on applicants having high credit scores at least above 700.
The fact that you are only allowing 55 and over to rent should go a long way to maintain the quality of the community and reassure other residents you have their best interest in mind.
Most renters are of very low grade but by requiring a high credit score and targeting 55 and over you are attracting a entirely different demographic.
Rentals are generally a bad idea but if you must rent be extremely selective otherwise the community will go to h*ll very quickly.

Unless your Mr. Handy Man who wants to fix mobile homes for a living, I do not see why you would want to switch to rentals.

So what if you get more calls for rentals. Many of the calls are deadbeats anyways. The RTO calls are usually going to be of higher quality. People who think of themselves as owners will take care of the home and lot much better. They also rarely call with many issues after they move in.

Either way, like Greg said, be selective while choosing tenants!!

There are many “land mines” in straight rentals of manufactured homes in land lease communities, but the “land mines” of a RTO program are far greater. RTO is a disguised credit transaction subject to all of the rules and compliance issues that purchase money lending are subject to, including the need for a state issued licensed entity the MLO works for. In some states, this is impossible to do because the state has not established a license to handle RTO for residences. Anyone so engaged has created a ticking time bomb for themselves.

That said, there are methods to handle this that are both legal and workable to handle the extension of credit for operators of all sizes.

That however does not address the question you actually asked. Straight rentals cause a huge number of potential problems:

  1. If the community is financed with a MH industry conventional loan, and the percentage of rental units exceeds whatever permissible limit the lender has established, the borrower may be in violation of their agreement with the lender.
  2. Most MH community lenders will not refinance a community with more than 15% rental units. The few that will usually have an upper limit of 20% and they will charge premium interest to make the loan.
  3. Existing tenants who are homeowners will be very unhappy and more likely to leave the community. If you had most of your net worth tied up in your home and renters started inhabiting your neighborhood, you would be unhappy and looking to move yourself.
  4. The value of all the homes in the community will devalue because of the rentals.
  5. The previous two posters are correct. Most of the people seeking rentals are going to be less desirable tenants even if they do have good credit scores that people who want to buy.
  6. Renters are more costly than homeowners. You can figure cutting your profits in half at best, and perhaps even greater if everything doesn’t go the way it should.
  7. Part of those increased costs are for increased labor in making all the repairs that renters create and do not fix for themselves. You will also need to discuss increased liability insurance with your insurance agent which will cost more money.

I hope that answer is helpful.