Coming Home A Rural Seminar 2012 Preserving Manufactured Home Communities: Financial Feasibility Rural Community Assistance Corporation

Manufactured Home Communities (MHCs)  MHCs are Often very affordable Part of the spectrum of housing choices Disappearing in many places Opportunity to convert to resident ownership or nonprofit ownership Hybrid of homeownership units and rental spaces 2

MHC Financial Feasibility Challenges To Using Subsidy  Even if subsidy is only in the MHC (land and infrastructure), can the funder get comfortable with: Restricting space rents and NOT home resale prices? Inspecting the MHC and NOT the homes? Mixed income based on whoever is there Possibly no decrease to rent, just stabilization 3

MHC Financial Feasibility Challenges To Using Subsidy  Even if subsidy is only in the MHC, can the homeowners get comfortable with: Annual income verifications Restrictions on who they sell to, to meet income targeting The indirect restriction on price, based on income of the buyer 4

MHC Financial Feasibility Challenges To Rent Targeting  Hard to make normal rules apply homeowners have both house payment and space rent House payments vary widely within a community.  Better to compare rents to market instead of percentage of income  Argue for the rent limit that best fits 5

MHC Financial Feasibility Operating Expenses  Similar to rental housing, except Maintenance on infrastructure & common areas only Reserves for infrastructure & common areas only Septic systems are common Wells are possible State MHC fees or inspections possible 6

MHC Financial Feasibility Three Ways To Look At Purchase Price  Price per space  Rent multiplier  Capitalization, or cap rates 7

MHC Financial Feasibility Price Per Space  Big, urban, amenitized MHC’s are priced as high as $100,000 per space in CA  Small, rural, basic MHC’s are often priced at $35,000 to $50,000 per space in the west 8

MHC Financial Feasibility Rent Multiplier Rule of Thumb  Ideally, price per space should be a multiplier of the space rent  100 in some parts of the US  is common pricing in the rural west Example: $400 rent x 110 = $44,000/space  The closer to 100, the less subsidy or equity needed 9

MHC Financial Feasibility Cap Rates  Used to estimate market value  Investors use to measure payback on investment  Also is an indicator of cash available relative to price  Cash can be used to support debt  Higher cap rate = more debt support, less subsidy or equity needed 10

MHC Financial Feasibility Cap Rates  Capitalization Rate is annual Net Operating Income (NOI) divided by price If NOI is $100,000 then At a price of $1M the cap rate is 10% At a price of $1.4M the cap rate is 7.14% Or if the price is $1.4M If the cap is 10%, then the NOI is $140,000 11

MHC Financial Feasibility Cap Rates  Big, urban, amenitized MHC’s are priced at caps as low as 5%- 6% in CA  Small, rural, basic MHC’s are priced at caps from 7% to 9% in the west.  High caps may have deferred maintenance or infrastructure issues 12

Eileen Piekarz 775/ Thank you! HOME Program Requirements 13