Key takeaways
- In a land-lease community you own the land and infrastructure; residents own their homes.
- Tenant-owned homes produce lower turnover and lower operating cost than park-owned homes.
- Infrastructure — water, sewer, electrical, roads — is the largest diligence risk.
- Financing is specialized and utility metering structure materially affects value.
The land-lease model
Residents own their homes and rent the pad beneath them. Moving a manufactured home costs thousands of dollars and often is not physically feasible for older units, which produces unusually low turnover and steady occupancy relative to other residential asset classes.
Because the owner is not maintaining home interiors, expense ratios are lower than apartments. The tradeoff is that the owner is responsible for infrastructure that is expensive, buried, and easy to misjudge during diligence.
Park-owned versus tenant-owned homes
Parks with a high share of park-owned homes generate more gross revenue per pad but carry maintenance, turnover, and in some jurisdictions habitability obligations that resemble conventional landlording. Lenders and buyers often value park-owned home income at a discount, or exclude it from NOI entirely.
A common value-add strategy is converting park-owned homes to tenant ownership through sale or rent-to-own, which reduces operating burden and increases the income stream that lenders will capitalize.
Infrastructure diligence
Private water and sewer systems are the largest risk. A failing septic system or a private wastewater treatment plant nearing regulatory non-compliance can represent a six- or seven-figure capital obligation. Order a full infrastructure inspection including camera work on sewer lines.
Also verify utility metering. Master-metered parks where the owner absorbs utility cost value lower than sub-metered parks that bill residents directly. Converting to sub-metering is a frequent value-add, subject to state law on utility billing.
Frequently asked questions
How is financing different?
Agency programs through Fannie Mae and Freddie Mac finance qualifying communities, often requiring tenant protections. Smaller parks frequently rely on local banks or seller financing.
What about rent control and tenant protection laws?
Several states have enacted manufactured housing community protections including notice requirements, right-of-first-refusal on sale, and rent increase limits. Check state law before underwriting rent growth.
Are small parks worth buying?
Parks under about 50 pads often cannot support professional management economically, which limits the buyer pool at exit. Many investors set a minimum pad count for that reason.
Sources & further reading
- Manufactured Housing Institute industry data
- Fannie Mae Manufactured Housing Community loan requirements
- State manufactured housing community statutes
Figures and rules change. Verify current requirements with the issuing agency or a licensed professional before acting.