We first learned about manufactured home community investments several years ago from one of our clients who had built a substantial investment portfolio focused exclusively on this assert class. In reviewing his portfolio, I was intrigued by the high occupancy rates and stable income even during recessionary periods and began to explore sources of possible investment opportunities. In this blog post I would like to share what we have learned about investments in this sector.
What is a Manufactured Home Community (MHC)?
The most common type of manufactured housing communities consist of land and infrastructure which is leased to residents who own their home. The homes are generally constructed in factories off-site and transported to the community and installed on a permanent foundation. In contrast to mobile or trailer home parks, these homes are not generally moved during their useful life and can be very luxurious and range in size to over 2,000 square feet.
The economics of living in a manufactured home community can be compelling since the cost of the home is substantially less than a traditional home and rent for the homesite is also less than a comparable apartment or traditional home.
Rent for the homesite is often secured by the home owned by the resident thereby resulting in very stable income since a failure to pay rent can lead to the home being repossessed by the owner of the community.
Age restricted communities in favorable climates that cater to 55+ seniors are especially popular with retirees who are seeking reasonably priced housing with attractive features for their golden years.
Where to Find Attractive Investments
In seeking attractive MHC investment opportunities, we quickly discovered that they are hard to find. Investors who own them rarely sell and, due to zoning and other restrictions, very few new communities are being developed and demand is far outpacing supply. Fortunately we learned that Capital Square, a leading sponsor of tax deferred real estate investments had been investigating this sector and had decided to acquire manufactured home communities in Florida and make them available to investors as Delaware Statutory Trust DST offerings.
Summary of Capital Square MHC Investments
Capital Square invests in institutional-quality, four- and five-star manufactured housing communities restricted to residents aged 55 years and older. The firm targets amenities-rich senior communities in Florida because of the state’s desirability to retirees who seek reasonably priced housing with exceptional features for their golden years.
Sought out by millions of retirees, Florida provides:
• No state income tax
• Favorable climate
• Infrastructure that caters to the needs of seniors
Affordable Housing Alternative – Without Sacrificing Luxury
The average site rent for four- and five-star 55+ manufactured housing communities in Florida is $711, less than half of the average apartment rent for Class A and B multifamily communities.
Limited Supply of High-End MHC Assets in Florida
The opportunity to acquire four- and five-star manufactured home communities is extremely rare. There has been an average of eight communities sold annually for the last four years in the state of Florida. In comparison, there has been an average of approximately 210 annual sales of multifamily communities in Florida over the same span.
Increasing Occupancy & Rents in Florida’s 55+ Communities
The scarcity of Florida manufactured housing communities creates uniquely favorable conditions for owners, as evidenced by the occupancy rate of 97.4% for four- and five-star, 55+ communities. Historical occupancy has increased approximately 50 basis points annually since 2014, when the same average was reported at 94.8%.
Similarly, homesite rents increased 5.2% from May 2019 to May 2020 and 4.9% annually since 2014.1 This strong rate of expansion, coupled with the consistently increasing occupancy rates, is further evidence of the strength and stability of Florida’s four- and five-star 55+ manufactured housing community market.5
For more information on investing in manufactured housing communities or other real estate investments, please visit our website at www.FGG1031.com or contact us via phone 408 392-8822 or by email at info@FirstGuardianGroup.com to book an appointment.
We look forward to assisting you to make wise and informed investment decisions.
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4 Sources: 1. As of May 2020. Datacomp.
5 Sources: Colliers