Manufactured housing projects draw investors

The housing boom in Northern Nevada has seen sale prices reach unheard of levels and, although market experts say the bloom may be off the rose for a while, the days of finding affordable housing under $200,000 is a thing of the past.

Well, almost.

Thousands of residents in the area have found a haven in the many mobile home parks that dot the landscape some would say "blot" as residential real estate prices have made home ownership just a distant dream.

Today's manufactured homes, while becoming less mobile than yesterday's Airstream trailers, are providing a more efficient, practical and affordable alternative.

A relatively new double-wide manufactured home today can be purchased for as little as $50,000 while some new models including triple wides can be purchased for $100,000.

If manufactured homes are providing cost-effective opportunities for those who inhabit them, they are providing a gold mine in returns for those who own the land on which they rest.

"It's all about the cash flow that these mobile home parks generate for the investors," says Aiman Noursoultanova, a vice president with the CB Richard Ellis investment properties group in Reno.

In the Reno-Sparks area alone, there are approximately 85 mobile home parks, some with as few as five spaces, and others with nearly 250 units.Virtually all of the parks and their 4,500 spaces are filled to capacity While some investors may choose to purchase not only the park but the units themselves, Noursoultanova said most of the investor groups she hears from today want only to own the underlying land.

That means the residents of that park either own outright or are financing the purchase of their single or double-wide home.

This cuts down on maintenance costs for the park owner while the rents charged to the residents kick off favorable cash flow, year after year after year.

"Mobile home parks are a very attractive investment," says Noursoultanova."When you buy an apartment complex, you will also get some cash flow, and you get depreciation, but you also run the risk of higher turnover.You have greater maintenance expenses.

The internal rate of return is typically much higher for mobile home parks than for apartment complexes."

Because today's mobile homes are not very mobile, the turnover in a park setting is very low.

That's but one element that makes investors salivate.

Because more investors choose to buy only the land and not the units themselves, it means they can produce rent increases faster than their expenses rise.

While market rent growth for both apartments and mobile home parks is roughly the same about 2 percent a year buying just the land can kick off annual yields in the 10 to 15 percent range compared to 10 percent or less for apartment complexes.

Noursoultanova says there are about a dozen sales each year of mobile home parks in the greater Reno-Carson City area.

Buyers may be a couple, a handful of investors who pool their money in a limited liability corporation, or, in the case of Sun Communities, a publicly-traded real estate investment trust.

Sun owns the 200-space Sun Villa mobile home community just north of North McCarran Boulevard.

"Sun is one of the larger institutional investors in the country,"Noursoultanova says.

The Southfield,Michigan company owns 136 manufactured housing communities in 18 states.

Some mobile home parks can only be classified as dumpy while others, with nice clubhouses, swimming pools and other amenities, look very attractive to not only investors, but residents.

"We rank them into classes," Noursoultanova says."Your Class A parks are considered to be communities where you have the meeting centers, swimming pools, health clubs and the like.

These are almost always inhabited by people who own doublewide manufactured homes.

In the greater Reno area, there are probably only a handful that would be classified as communities.

"Your Class B parks may have more open spaces, picnic areas, and will also probably consist of mostly double-wide dwellings," she says."The Class C parks may have a little of everything.

But they all make money for their investors."

Prospective investors may go directly to current owners of such properties, or turn to a commercial real estate company like CB Richard Ellis."I am aware of several owner/investors who tell me they have investment groups lining up on a waiting list to buy,"Noursoultanova says.

She cautions that the wait may be lengthy.

Prices of mobile home parks vary, but most lenders require such investors to put 35 percent down compared to 20 or 25 percent for apartment complexes.

Sale prices of the parks depend upon the quality of the park itself and the number of spaces available.

For a Class B mobile home park, the going rate may be around $45,000 per space.

For a 100- space park, the sales price would be $4.5 million.

While some investors may hold the property for only five years, her experience is that many will hold them for 15 or 20 years.

"These parks provide a very limited downside for the investor, and they provide wonderful cash flow," she says.

It is unlikely the area will see new manufactured home communities being developed in the near future because of the cost of raw land and the fact that developers can realize a higher return off of residential,office or industrial buildings.

Other barriers to entry of new manufactured home parks include lengthy zoning proceedings and the fact that it takes time to fill such new communities.

This, says Noursoultanova, helps insulate investors from competition.When coupled with the fact that vacancies in existing mobile home parks are almost nil, it is easy to understand why investor interest is so high.