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  • Writer's pictureRealFacts Editorial Team

Trends in the Manufactured Housing: Unlocking Investor Opportunities

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In the midst of a cooling real estate market, one asset class continues to sizzle: manufactured housing communities (MHCs). As the demand for these communities surges, so do rents, presenting a promising landscape for investors.

The MHC market has seen a notable shift towards institutional investment, offering lucrative opportunities for savvy investors. With a scarcity of top-tier communities available for sale, many investors have broadened their criteria, venturing into previously untapped territories such as private utility deals. Financing plays a pivotal role in investment decisions, with institutional owners focusing on primary MHC markets for easier access to capital.

Moreover, seller financing has emerged as a key driver of transactions in the MHC sector. Sellers offering financing options can significantly boost property values, creating a win-win situation for both parties involved. Non-profit organizations, benefiting from cheaper capital, have also stepped in, filling gaps in the buyer pool and driving up property prices with aggressive bidding.

Institutional ownership has steadily eclipsed mom-and-pop ownership over the last decade and a half. Larger MHCs with 75 or more spaces have particularly been targeted by institutional investors, leading to a transformation in ownership dynamics.

Occupancy rates in MHCs have been on the rise, with the Midwest and Southwest regions experiencing notable gains. In the fourth quarter of 2023, occupancy rates reached 94.7%, marking a 30 basis point increase year-over-year. Similarly, rents have shown healthy growth, with a 7.3% year-over-year increase, reaching an average of $679 per month. Particularly, the South has seen significant rent hikes, averaging $655 per month.

Investors have reaped tax benefits from recent depreciation laws, allowing for generous deductions. However, changes in tax regulations have reduced these benefits, making MHCs less appealing to current investors. Furthermore, potential new rent control laws pose challenges for investors, with long-term owners anticipating rent caps shortly.

Government-sponsored enterprises and life insurance companies are the preferred lenders for most MHC investors, offering competitive pricing and maximum leverage. Banks and credit unions also play a role, particularly for smaller parks and lower-end properties.

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