Issue link: https://read.dmtmag.com/i/146145
DEVELOPMENT MARKETING Ask Eddie BY ED HICKS I am building a new m/h community. What do you advise for it's structure: sub-division, land lease community, condominium, or cooperative? Gary W., Lancaster, PA Which ever type you decide to build, it is important to first survey the market for demographics, land use regulations, available financing, a housing analysis of market rents, home prices, occupancy levels, etc. And, you should have an engineers estimate of the cost of construction for the various types of developments being considered, and some idea of operating expense budgets. Some of the basic differences between each of the four basic types of commonly developed m/h (HUD Code Home) communities are: Sub-Division: a community in which platted homesites are sold to homeowners who have their homes installed on the homesite. The developer may offer homes for sale on an exclusive or nonexclusive basis. Sometimes structured with a homeowners association (HOA) is formed to enforce covenants, conditions, and restrictions (CC & Rs). Enforcement is though judicial procedures which may be lengthy and expensive. No screening of first or subsequent residents. When sold as land and home on "permanent foundations" as real property, they may be eligible for 30 year, FHA Title II or conventional financing, although often at a higher interest rate. Typical density: 3 to 4 per acre or may be as high as 6 to 7 depending on local zoning restrictions. The resident is responsible for payment of real property taxes when conveyed as land-home. Not eligible for FHA acquisition and development loan guarantee programs such as the FHA 207m program. Condominium: a community where a manufactured home is installed on a homesite and is sold by the developer to residents as a package. Densities are usually in the range of 5 to 7 per acre. Specific zoning and land use regulations may apply. A HOA is formed for common area maintenance and enforcement of CC & Rs. EnAUGUST 2013 28 THE JOURNAL forcement is also through judicial procedures. No screening of the first or subsequent residents. More popular with seniors. If sold as real property and conveyed with an interest in the land, they may be eligible for 30 year FHA or conventional financing although at higher rates than for site built homes. Residents are responsible for paying real property taxes on their unit and land. Not eligible for acquisition and development loan guarantee programs such as the FHA 207m. Land Lease Community: a community in which homesites are developed without parceling into homesites where the zoning and land use regulations for setbacks and overall density regulations determine the lot sizes. HUD Code homes are sold as chattels to residents, by the developer or may be sold by local retailers. Residents pay a monthly rent for use of the homesite and amenities, under a yearly lease or simply month to month. The landlord enforces the rules and regulations for the residents and maintains the common areas and amenities as a part of the lease or rental agreement. Screening of residents is allowed. More commonly popular with seniors when resort style amenities are included. Homes must be financed separately with chattel mortgages which have shorter terms (15 to 20 years), and interest rates which may be 3% to 6% or more higher than the rates for site built homes. Residents pay real estate taxes in some jurisdictions, or ad-valorem taxes and license fees on their individual home. The landlord pays property taxes which are levied on the community, and may pass on the real property taxes on a prorata basis, annually, to the residents. Eligible for 40 year, low interest, non-recourse, acquisition and rehab or new development loan guarantee programs such as the FHA207m program. Cooperative: essentially the same as a m/h land lease community in terms of construction and operations by a third party management firm, except that a resident may elect to purchase a share of stock giving the residents controls over community management. Screening of residents is allowed, and control of compliance to CC & Rs and rules and regulations by a simple, inexpensive, non-judicial procedure. Eligible for 40 year, low interest financing using the FHA207m program. In summary: sub-divisions may allow for lower interest land-home financing, however, in practice many fail to adequately enforce any CC & Rs which the original developer put in place. Condominiums are higher density and may allow for low interest land-home financing, and any CC & Rs are usually enforced by the management firm. Land lease communities also at higher densities as sub-divisions don't have the same lower interest rate, longer term financing as sub-divisions and condominiums, but have easier enforcement of rules and regulations using a low cost, simple, non-judicial procedure. They may screen residents for financial and criminal backgrounds, and can reject applicants as long as they are not doing so in violation of equal housing laws. Cooperatives are often formed by seniors after a community has filled by raising equity from residents, and securing a bank or institutional loan. Firms such as ROC America has been successful with non-age restricted communities in many states. They are now offered to residents in resort style seniors communities where the sale of their previous residence may be necessary. It gives the community resident controls and provides for sharing in increases in the value of the community. T J Mr. Hicks has a 45 year history with the m/h industry as a Southern California mobile/modular retailer, and later as manufacturer and developer. He is a licensed RE Broker, and Mortgage broker, and actively works with investors and developers. He is at (813) 300-6150. easteddie@aol.com, www.factorybuilthome.com, www.fha207m.com, and www.mobilehomepark.com