MHC Investing 101: 5 Costly Mistakes to Avoid
By: John Ace Underwood and Tammy Fonk, Co-founders of FillrateMHC.com
Manufactured housing communities (MHCs) are crucial in providing affordable housing for diverse residents, including low- to moderate-income families, retirees, and first-time homeowners. With the increasing demand for affordable housing, MHCs continue to attract investors, and those already in the field are expanding their portfolios.
Investors often seek communities with promising potential, which might include under-market rental fees, available spaces, expansion opportunities, or capital improvements. Whether this is your first community acquisition or your 51st, here are five common mistakes to avoid:
1. Failing to Focus on Selling Homes
A documented, measured, and managed sales process is critical unless your community is at 100% occupancy with no rentals or park-owned homes. Empty homes and vacant spaces negatively impact your monthly income. Most communities face initial challenges, whether due to appearance, location, or a lack of leads. Your sales team must be well-equipped to overcome these obstacles.
2. Ignoring the Local Rental Market
Many Offering Memoranda claim that current rents are “below market value,” making this seem like an easy opportunity. However, due diligence is essential. Research the local rental market thoroughly, including apartments and entry-level single-family homes. Understand what they charge and what they offer.
3. Raising Rent Without Raising Perceived Value
Operators often raise rents to “market value” without considering current residents’ perceptions. While rent increases can meet resistance, this can be mitigated by investing in the community to justify the increase. Focus on aesthetics, amenities, and visible improvements to retain residents and avoid negative feedback, which affects your fill rate.
4. Ignoring Inventory Levels
At FillrateMHC.com, we observe three common inventory mistakes: too little, too much, and the wrong type. During due diligence, determine your market needs regarding size, price, and floor plan. Relying solely on manufacturers for insight can be misleading, as popular floorplans may not suit your specific market. Additionally, more inventory is not always better. With 4-5 well-selected, well-merchandized model homes, you can meet most buyers’ needs.
5. Renting Homes Instead of Selling Homes
Renting out homes instead of selling them can be tempting due to the immediate cash flow benefits. However, this short-term gain often leads to long-term issues. Measure success by the number of spaces filled with resident-owned homes and direct your efforts accordingly. This approach fosters community stability and long-term growth.
Investing in or operating Manufactured Housing Communities can be a rewarding endeavor while meeting many Americans’ needs. Early-stage decisions significantly impact long-term success. As the adage goes, proper preparation prevents poor performance.
FillrateMHC.com is dedicated to helping manufactured housing communities implement innovative sales strategies that unlock potential. Learn more at www.fillratemhc.com.