Increasing Occupancy and Profitability by Offering Chattel Financing

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Rickert Properties chattel financing
Photo courtesy of Rickert Properties.

Affordable Housing Crisis Impact on the Housing Market

The demand for affordable living options is rapidly increasing, providing new opportunities to fill this gap in the market. Mobile or manufactured home communities are a solid affordable housing option for populations priced out of traditional affordable options.

At the same time, many mobile home communities have undergone a significant transformation over the past two decades. Communities still in need of improvements have new financing opportunities for owners trying to turn a profit.

Aesthetics, Affordability Can Co-exist

Mobile home community owners have made great strides toward shifting the perception and the reality of manufactured home living. Many new communities include amenities like clubhouses, swimming pools, and tennis and basketball courts. The majority of the homes are move-in-ready, three-bedroom houses with full kitchens, baths, and laundry. The subdivision setup of communities allows for private parking, individual gardens, lawns, and patios on small, easy-to-maintain lots.

Affordability comes into play here. Consider that the quality of manufactured homes is equal to site-built homes, but the cost comes in at a fraction. This allows residents to save hundreds of dollars per month. Savings come from not only monthly lot rent or mortgage payments, but utilities when compared with living in an apartment or site-built home.

aerial of MHC chattel financing
A manufactured home community in Davie, Fla.

The New Normal of Mobile Home Mortgages

Just over a decade ago, residents would walk up to any mobile home dealer and purchase their own home to move into a park of choice. In that case, they could apply for a chattel mortgage. This allows the customer to pay off the home while not owning the land. These days, the path to manufactured homeownership looks a little different.

Most of these dealerships closed down in the wake of the Great Recession, especially in the Midwest. And in the mobile home parks themselves, vacancies increased — resulting in foreclosures on the homes owned by residents. In these vacant properties, mobile home community owners have found new opportunities.

One method to increase occupancy and profitability is for the community to own the new inventory of homes and finance them with chattel financing, or to rent to residents. By providing financing to residents, manufactured home community owners can increase the occupancies at the properties and for their entire portfolio. And, when refinancing, community owners can receive cash-out components to use toward property improvements.

By owning the homes and renting them out to residents, Mobile home community owners can increase cash flow and enhance the communal aspects of the parks, adding further value to the community and its homes.

A Pair of Examples

Here is an example: one manufactured home community management firm in 2006 needs funds to bring new and used mobile homes to some recently acquired properties in Missouri. They want to fund the acquisition of these homes and increase occupancy. The firm establishes a relationship with a bank to finance its chattel portfolio and uses other financing options for new home acquisitions. 

The increase in occupancy and value creation allowed the property to be refinanced in 2018 with a substantial cash-out component. They were able to set aside funds for additional site work and down payments for more houses. And the loan has an earn-out component in addition to being non-recourse.

In 2019, 13 years after starting the chattel finance business, the firm refinanced 800 homes with a new chattel financing agreement for $11 million to fund the acquisition of new homes, as well as the consolidation and reduction of interest rates for the entire portfolio.

Theory in Action

In our experience, these loans have been funded by a range of lenders, including agencies, CMBS, banks, and debt funds. Many of them had earn-out provisions. So, as the property cash flow increased over the loan term, some lenders would fund out cash equity to borrowers. This allows for liquidity without going through the entire refinancing of the property.

The dynamics of manufactured home community ownership are changing. This means great potential exists for savvy owners who are ready to refresh tired, less desirable properties. At the same time, these owners can provide much-needed affordable options to a housing market that’s desperate for them.

A commercial mortgage banking firm can help prepare the park and owner who don’t have a financial officer who understands these more complex financing options. A commercial mortgage firm can visit the property to ensure that it is up to the expectations of the lender, appraiser, and engineers. With full cooperation and commitment, mortgage and chattel loans can close in 45 to 75 days.