Rent Credit and Home Improvements

Hi, I’m buying a park and switching tenants from notes to Rent Credit. Some have asked about improvements and how to get reimbursed for those improvements if the house burns down.  Any advise on how to make the tenant happy to switch over?  Perhaps just give them a extra Rent Credits for improvements that increase the value of the home?Mark

OK, first of all, you can’t alter someone’s existing note – those are binding on you until they expire. Rent/credit is just a straight rental where they can build credits (just like the Southwest Airlines Frequent Flyer program) as an incentive to stay and pay their rent timely. They can use these credits or not, it’s 100% their choice. Any improvements to the home should have no bearing except on the cash price if they want to buy it outright. Normally, we price any cash sale very reasonably, so there would be no push back from the tenant on nickle and dime items. Since they are straight rentals, you, as the park owner, carry the insurance on them. But the key things are that you cannot alter or disregard their existing notes, and the rent/credit concept is just a straight rental in which they are always free to buy the home for cash, but you cannot carry the financing in any way. As far as the SAFE Act and Dodd-Frank implications of those existing notes (assuming they were put in service before 2008; that’s when the SAFE Act came into being), you will have to make a judgement call on that. The general impression of most operators is that those notes are grandfathered, and you just service them until the borrower defaults or pays the home off. It’s not a huge issue for most park owners, as the rate of default is such that few, if any, of the notes from pre-2008 are still active, and the short ammortizations that most park owners used on such notes has probably already paid them off. There is an abundant amount of information on the SAFE Act and Dodd-Frank available on-line, as well as books on the subject. But, at the end of the day, you have to make your own decision because it’s still very new and there’s not a lot of case law yet – kind of like a “no speeding” law without saying what the speed limit is.

Thanks Frank, the notes are newer than 2008. I’m planning on giving them such a great deal on the new Rent Credit program that they will be happy to give me back the home for the new rent credit program.  If anyone protests, they can keep the note, but I’m not sure how to protect myself in this case.  CAN I protect myself in this case???No one is protesting at this point so I don’t see this as an issue…except for one tenant who was asking about the improvements he put into his home and hence why I posted this question. I want to make everyone happier with the new RC program with lower payments and quicker ownership.Mark