Archive for December 16th, 2012

Dawning of a New Era, & Three Rules of Thumb

Sunday, December 16th, 2012

Blog # 224 Copyright 2012 16 December 2012

Perspective. ‘Land lease lifestyle communities, a.k.a. manufactured home communities, & earlier, ‘mobile home parks’, are the real estate component of manufactured housing.’

I.

January 2013 = Dawning of a New Era for Land Lease Lifestyle
Communities Nationwide, maybe including Canada!

II.

Schwep, Schrader, & Smith Rules of Thumb;
and, How to ‘Sell More Homes & Lease More Sites’

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I.

January 2013 = Dawning of a New Era for Land Lease Lifestyle
Communities Nationwide, maybe including Canada!

“Go MHCA!” was the typical response to last week’s blog posting, in which emergence of the Manufactured Home Communities of North America®, or MHCA®, was announced. Given the heavy volume and supportive nature of telephone and email responses, one has good reason to believe this new, national, not for profit body (Actually a conversion of ‘for profit’ GFA Management, Inc., dba PMN Publishing into a ‘not for profit’ entity) has tapped strong pent up demand for ongoing statistical Research & ‘comprehensive Resource servicing’, like that of other realty – based national trade bodies, like the National Apartment Association and Communities Association Institute.

Fourfold significance of January 2013. In brief; publication of the 24th annual ALLEN REPORT, as a lagniappe in the January issue of the Allen Letter professional journal; a ‘by invitation only’ POWER Luncheon for LLLCommunity owners/operators, during the Louisville MHShow on 23 January; first formal meeting of MHCA organizers; and, laying of preliminary plans for a MHInitiative® (formerly, National State of the Asset Class caucus or NSAC) event, likely to be held in early or mid – February 2013.

Here’s more information about each of these exciting Dawning of a New Era events:

• 24th annual ALLEN REPORT. All previous ALLEN REPORTs will pale in comparison with this one, relative to meaty content and cultivating new territory! For starters; the number of listed property portfolio owners/operators is down from 127 to 110. Why? In addition to losing a few non – reporting firms, we’ve removed ‘deadwood’ responders this year, yet added several new ‘players’ – one in particular: ‘Inspire Communities’. Furthermore; weekly blog floggers (readers) already know this year’s ALLEN REPORT features, for the first time ever, ‘25 of the Most Influential People in the Manufactured Housing Industry’ – all recommended by their peers! And there’s much more… If you’re an Allen Letter professional journal subscriber (only $134.95/year…for the time being), you’ll receive the ALLEN REPORT for Free; otherwise, it’s available at $500.00/copy. FYI. In months to come, this newsletter and report will become key MHCA member benefits!

• POWER Luncheon at 11:30AM, on 23 January, at the Crowne Plaza Hotel ‘across the street’ from the Kentucky State Fairgrounds. While invitations haven’t been mailed to Midwest LLLCommunity owners/operators yet, ‘reservations’ already approach our initial capacity of 50+/-; likely to be increased now, to 75. What’s to happen? Likely a brief ‘after luncheon’ presentation, followed by three simultaneous Discussion Groups dealing with Regulatory Compliance Issues; the Lease Option alternative; & ‘How to Collect 100% of Your Site Rent!’ And maybe: ‘Calculating New & Resale Home ‘affordable’ & ‘risky’ Price Points, using Annual Gross Income & Area Median Income…’ This event will conclude around 2:30PM.

• Meeting of MHCA organizers. There’s been an ad hoc working group, of a couple dozen LLLCommunity owners/operators, in place during 2012 – helping GFA Management, Inc., dba PMN Publishing find a buyer or successor. Results? No buyer, but a successor, the MHCA! Volunteers from this group are becoming leaders of the MHCA, giving the new, national, not for profit trade entity direction. As you’ll recall from previous blog postings and elsewhere, the MHCA was formed to Complement the National Advocacy focus of an existing not for profit body. Again, the dual foci of MHCA, for the time being, is ongoing statistical Research & ‘comprehensive Resource servicing’ in behalf of LLLCommunity owners/operators nationwide, likely including Canada. For the time being? That’s acknowledgement of the Center for Manufactured Housing Studies or CMHS, formed during 2012, which will likely assume the ‘statistical Research’ focus of MHCA, plus manufactured housing and affordable housing Research, at some point in the near or distant future.

• MHInitiative®. It’s this industry observer’s long held opinion cum conviction, the HUD – Code manufactured housing is long overdue – when it comes to engaging in open and strategic parsing, free – ranging discussion, and resolution of self – defeating business practices, inherent but unresolved intra and inter segment differences, and ongoing peccadilloes affecting homebuying and site leasing customers! Such a major, national effort takes time to plan and effect. So, in the near term, a call will go out to businessmen and women in all segments of the manufactured housing industry, to gauge their interest, and solicit their support, to meet during the Summer of 2013 to ‘do just that’: identify and address errant, self defeating business practices; ascertain how to better serve MH-related businesses at the ends of the size spectrum; and most important, rediscover our core customer base; and take steps, once again, to design, build, deliver, install, service, and warranty quality housing product! Frankly, such a national, mega – effort should originate with an existing Advocacy body – or two, already part and parcel to the business model! But will one or the other, or both, respond to an MHInitiative® opportunity to collectively regroup, refocus, and recover? Continue to read this weekly blog posting to see what, if anything, transpires to that end – in the way of response. At the very least, learn when and where the mid – February MHInitiative® planning session will occur – with or without the support of aforementioned national Advocacy entities.

OK. If you’d like to respond to the announcements and commentary contained in the previous four bulleted paragraphs; subscribe to the Allen Letter professional journal; order a copy of the 24th annual ALLEN REPORT (Appears in a couple weeks); participate in the 1/23/2013 POWER Luncheon in KY; become a charter member of the Manufactured Home Communities Association of North America (‘MHCA’); and or volunteer to participate, at your own expense, in the forthcoming MHInitiative® planning session, phone the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764, or email: gfa7156@aol.com and make your wishes known!

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II.

Schwep, Schrader, & Smith Rules of Thumb;
And, How to ‘Sell More Homes & Lease More Sites’

Earlier this year, the Book of Formulae, Rules of Thumb, & Helpful Measures ‘Mostly for Land Lease Lifestyle Communities & HUD – Code Manufactured Housing, as well as Commercial Real Estate Investment, Affordable Housing, and Realty – Secured Mortgage Originations’ debuted at the 21st annual International Networking Roundtable in San Diego, CA. Did you get your copy there or afterwards? It’s still available!

Since then, a fair number of readers of the Allen Letter professional journal, and this weekly blog posting, have requested more information about the content of the book, and ‘how to order it’. Well, the answer to the second question is this: Phone the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764 and order the Book of Formulae…for $19.95 postpaid. Credit card orders are welcome.

Content? Thought we’d share some of it here, and possibly in future blog postings. This time around, we’ll quote three separate (edited) Rules of Thumb, from pages # 11 & 12 of the subject book.

• Schwep Rule of Thumb. To sell successfully, a manufactured home’s loan PITI (principal, interest, taxes & insurance premium) payment, and site rent total together, must be 15- 20 percent less than monthly rental amount for a conventional apartment in the same local housing market. Percentage may vary per specific market. This rule of thumb first articulated by veteran freelance manufactured housing consultant, and RV/MH Hall of Fame inductee, Grayson Schwepfinger. For example. If conventional 3BR2B apartment rent, in a given local housing market is $900.00/month, maximum PITI and site rent combined payment has to be between $720 & $765/month. How so? Multiply $900, first by .85, then by .80 (i.e. 15% & 20% target margins cited earlier), to arrive at those two amounts. Then subtract site rent (e.g. $300/month from the $720 figure to leave $520/month remaining for new home mortgage PITI. Same thing with the $765 amount, (-) $300 = $465 for mortgage PITI. Be careful to ensure any household utility payments, e.g. water/sewer charges, are handled similarly in the apartment and home/rental site environments. *1

• Schrader/Smith Rule of Thumb. To sell successfully, a manufactured home’s loan PITI (principal, interest, taxes & insurance premium) payment, and site rent total together, must be at least $50.00 less, per month, than conventional apartment unit rent in the same local housing market. Dollar amount may vary per specific market. This rule of thumb first articulated, similarly but at different times and places (i.e. KY & MN) by land lease lifestyle community portfolio owners/operators Al Schrader and Nathan Smith, PHC®. For example: If conventional 3BR2B apartment rent, in a local housing market, is $900/month, maximum PITI and site rent combined payment must be at least $50.00 less, per month, than aforesaid apartment rental rate. How so? Subtracting $50.00 from $900.00 leaves $850.00. In turn, subtract #$300/month site rent from the $850.00, to arrive at $550/month for new home mortgage PITI. Be careful to ensure any household utility payments, e.g. water/sewer charges, are handled similarly in the apartment and home/rental site environments. *1

• ‘Sell More Homes & Lease More Sites’ Rule of Thumb. To sell successfully, a manufacture home’s loan PITI (principal, interest, taxes & insurance premium) and site rent total together, must be at least $25.00 per month less (some say 25%) than a real estate – secured home mortgage’s PITI – assuming household utility expenses are treated in similar fashion in both instances. Several reasons: First and foremost, site – built home PITI includes underlying realty, while a manufactured home in a land lease lifestyle community doesn’t. Furthermore, said discount plays to the affordable nature of manufactured housing and the land lease community lifestyle. *1

End Note.
1. The third Rule of Thumb makes passing mention of ‘household utility expenses (being) treated in similar fashion in both instances’, i.e. per conventional apartment & or LLLCommunity. The first two Rules of Thumb make no mention whatsoever of this important consideration. How so? When estimated annual household utility expenses (e.g. water, sewer, electricity, heating fuel @ gas or oil) are included in the 30% Household Expense Factor or HEF, along with PITI & site rent – or even apartment rent, homebuyers/apartment renters are positioned to be in ‘affordable’ living situations, i.e. ‘Not buying more house, or renting more apartment, than they can truly afford!’ On the other hand, when said household utility expenses (not including telecom services) are NOT included within the aforesaid 30% HEF, homebuyers and apartment renters are saddled with ‘risky’, at best, home and apartment ‘deals’. Consequences? Instead of paying 30% of their annual gross income (AGI) towards household mortgage and or rent expense, they in truth wind up paying in the neighborhood of 40 – 50% HEF; hence a precursor to financial woe, of one manifestation or another.

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George Allen, CPM®Emeritus, MHM®Master
Consultant to the Factory – built Housing Industry,
The Land Lease Lifestyle Community Asset Class &
Affordable Housing Purists & Enthusiasts Nationwide
Box # 47024, Indpls, IN. 46247 (317) 346-7156