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SEPTEMBER 2016 20 THE JOURNAL Trump vs. Clinton. Chevy vs. Ford. The U.S. is filled with rivalries, none greater than the escalating war of apartment complexes vs. manufactured housing communities. It's a battle that's been decades in the making, and I am confident that manufactured housing will prevail – and forever change the playing field in our sec- tor of real estate investment. Manufactured homes vs. apartments as the preferable place to live We own over 20,000 lots spread out over roughly 200 communities. We get a constant stream of data from these properties, and we talk to thousands of current and future customers each month. And the bottom line is that the av- erage consumer prefers manufactured home com- munity living to apartment complex. Why? Five simple reasons. First, no neighbors knocking on your walls or ceiling. Second, the ability to have a yard and all that goes with that. Third, the ability to own your own home. Fourth, the abil- ity to park by your front door. And fifth, the sense of community that a stable resident base brings to the equation. Apartments cannot com- pete in these five vital areas, and they are ab- solutely huge. Everyone in this industry knows that, head-to-head, the manufactured home community wins every time. Pricing and value And let's not forget about price point. In our communities, the combination of home and lot rent is typically several hundred dollars less than competing apartment stock of the same number of bedrooms. That's an enormous advantage in an America that is focused on living on less money. And that does not even include the fact that, once the home note is paid in full, the av- erage customer is paying up to a thousand dollars per month less. Case in point, our communities in Austin, where the average apartment rent is roughly $1,000 per month more than our lot rent. Communities vs. complexes as an investment type The economic return on manufactured home communities is already known to be far greater than on apartment complexes. That's been true for decades although, sadly, this fact was missed by apartment owners until recent times. In many instances, our cap rates are double those of apart- ments, and so are the returns. And that's not to mention some other unique attributes that apart- ments don't share. First, the fact that our resi- dents are stakeholders in the business model, since they own their home and we own the land. This makes them demonstrate a far greater pride of ownership than a mere renter can ever muster. Second, our rents are ridiculously low and have massive room for increase, while apartment rents have topped out. Third, many of our mom and pop sellers offer owner financing, while that's virtually unheard of with apartment complexes. Finally, new programs, such as 21 st Mort- gage/Clayton's CASH program, allow commu- nity owners to tap into the potential of their vacant lots with little out-of-pocket expense, and the national percentage of vacant lots is around 20%. While most apartment complexes sell at 95%+ occupancy, most manufactured home communities have around 80% of their lots occupied and huge upside in filling those lots. Communities vs. complexes as a successful loan product It's a known fact that manufactured home communities have the second lowest loan default rate behind self-storage. Apartments are not even in our ballpark of loan solidity. That's why so many lenders have moved into our sector and offer loan products that are identical to apartment complexes. But the secret weapon as to why we are far superior for lenders is simple: we own land and not structures, which means that 1) our business model does not require huge capital ex- penditures and 2) does not become obsolete over time. Look at the Class A apartment of today, and map out its future decline to Class B and then Class C. At each rung of the ladder the value de- clines, and so does the loan quality. Manufac- tured home communities never decline, and that means the bank has far less risk. The new battle for Section 8 customers Even the battle for Section 8 customers is tilt- ing in favor of manufactured home communities. Long a staple of the apartment industry, recent legislation means that vouchers can finally go to- wards manufactured home ownership going for- ward (once the President signs it into law). That means that manufactured home communities will, for the first time, be on an equal footing with apartment complexes on this issue. But, as I've already explained, our product is so far su- perior that we will trounce apartments in this arena. The only thing that will save apartments from losing all their Section 8 business is simply the fact that we don't have that much vacancy nationwide; there are more people living in Sec- tion 8 apartments in the U.S. than in every manufactured home in our nation. Conclusion The battle between manufactured home com- munities and apartment complexes is not even a close race. It's like a bad Super Bowl where the outcome is too apparent. Apartments may have had a large head start, but we've caught up now and the tide has turned. While our industry will never be as large as the apartment industry – which is roughly ten times larger in number of units – we still have the competitive advantage in the markets we serve. The industry's success should become apparent to everyone in the years ahead. Frank Rolfe has been a manufactured home commu- nity owner for almost two decades, and currently ranks as part of the 5th largest community owner in the United States, with more than 21,000 lots in 25 states in the Great Plains and Midwest. His books and courses on community acquisitions and manage- ment are the top-selling ones in the industry. To learn more about Frank's views on the manufactured home community industry visit www.MobileHomeUniver- sity.com. The Rivalry Of Manufactured Home Communities And Apartment Complexes BY FRANK ROLFE COMMUNITY CONSULTANT T J