Tell me about the MH rental operations

I have read a few responses from Frank regarding renting homes now being his method of filling lots; this in response to SAFE/Dodd-Frank . In one I believe a policy of $100 repair expenses to be borne by tenant, in another triple net was mentioned.

My question is what seems to be hitting the mark and what has been a flop?

Is resident retention worse than when resident owners was the norm?

Actually, it’s going really well. We’re finding that we’re hitting higher retention because the customers get the big things fixed fast (AC, leaks, etc.) without letting the problems fester, and we get better condition homes by not letting them fester. Unbelievably, the $100 hurdle is working fine,as they understand that we only fix big things and they have to do the minor. I’m not sure they really comprehend the $100 number and bid everything to see if it fits, but they understand the general concept and have not hit us up for minor items so far.

If H.R. 1779 passes and you can go back to selling and carrying paper, I’m not sure we’ll go back to the old ways. The foreclosure system is so screwed up as a result of the “robo-signing” mess that renting and evicting seems a whole lot easier and just as profitable.

Then aren’t you in the apartment business as opposed to the land lease business? It seems like your expense ratios will be higher due to the major item repairs that were traditionally borne by the owner of the home. Are you still able to keep your overall expenses within the 30 - 40% range?

What about tenant turnover? Are you finding that you have more of a revolving door of tenants with the rentals?

We don’t do the triple-net lease thing but it’s an interesting idea and we may start thinking about it.

But I wanted to address the 30-40% expense ratio. We try to operate our parks at a 30% expense ratio (we’re on city utilities) but in the “homes” business we just try to break even. Our income and expenses are broken out by “park-related” and “home-related” and we evaluate parks to buy based on the assumption that the homes part of the operation will not make money.

As far as tenant turnover, we definitely have higher turnover with rental tenants. The pain of a repo is partially eased by the down-payment that we’ve collected up front, even if the home is left in poor condition. (So far we have always gotten the defaulting homeowner to sign a “voluntary rescission” contract which avoids the cost, delay, and uncertainty of foreclosure.)

Rental tenants sometimes leave the home pristine, but sometimes there is a significant amount of damage, which is frustrating. We feel we are always playing catch-up with the repairs. And we definitely see rental tenants move out far more frequently at the end of their initial lease than homeowners default on their mortgage. Every turnover is bad for us, but we have so far not found a great way to screen for “stickiness” on our rental tenants.

Because of that, we’re trying to move to all sales and zero rentals, but it will take a while. (Yes, we have all our proper licenses). We encourage our current tenants to purchase the homes they’re in, and when others move out, we try to sell the homes rather than rent them (but we do still rent if we can’t make the sale happen).

In the end, we don’t want to be in the “apartment business” but we find that we have to be for now, at least until we reduce our inventory.

And I’m going to post about this in another thread – unlike some of the posters here, we have a full-time staff of rehab / maintenance people and while it’s not ideal (expensive and a lot of management overhead), we find it works infinitely better than the alternative (contract rehab) which we have not ever had work out.


Brandon, Thank you for your detailed responses on this topic and “Day in the Life”. Very good information. Much appreciated!