Why The Retail Home Sales Debacle Has Been Great For ... - REIClub

At the end of the 1990?s, with new manufactured home sales roaring past 400,000 units per year, community owners felt like part of a giant machine, in which their role was to provide continually available lots to retail dealers. I remember a time in which I had a community that received, like clockwork, seven homes per month from a single Palm Harbor dealer. Little did we community owners realize that we were really an accessory in a giant game of loan fraud, in which homes were being sold to customers who could never afford them ? and which came crashing down in the early years of the new millennium.

Fast forward to today, and annual home sales struggle to break 50,000 units ? and you?re lucky to get a single phone call a year for an available lot. While this collapse has been heartbreaking to retail dealers and salespeople, as well as manufacturers who are still struggling to survive after most have fallen into bankruptcy, the impact on the manufactured home community business has been much different. In many ways, the retail home sales collapse has been a blessing.

It?s easier to plan in a world free of repossessions.

My most discouraging years as a park owner were those immediately following the great retail collapse of 2000. While no normal tenant in a manufactured home community can afford the $3,000+ to move a home, a bank sure can, and Greentree, CIT and others were ripping homes out of communities at the same speed they had put them in only a couple years earlier. As a result, it was nearly impossible to budget or plan. I had one community that lost 50% of its population over about a two year period. That?s not what the community business is all about. It?s supposed to be stable. But not when you?ve got something like 150 abandoned units going to repo status (which I had at one time in our communities as a collective whole).

I would much rather bring in just a few units ? and lose no units ? than have a continual revolving door that leads to the impossible challenge of predicting revenue.

Higher lot rents

Most Americans living in a manufactured home community have two components to their monthly expense in living there. One is the lot rent. The other is the mortgage on the home. And since it is a zero sum game, the lower the mortgage, the higher the lot rent can be. Contrary to what most outsiders think, the older, paid-for homes can afford a much higher lot rent ? and often a collection of 1970s
and 1980s homes will be paying more for a lot than the folks with 2000 models.

With retail effectively dead, I have continually fewer residents with giant mortgages, so I can increase lot rent more aggressively.

More rewards for playing it safe and not stupid

Back when retail home sales were at a blistering pace, any idiot could buy a manufactured home community, fill it up, and keep it filled, even if it was in the worst location known to man and terribly managed. Today, proper acquisition diligence and management is paramount to making a decent return. And many of the prime acquisition candidates are properties that were bought during the home sales boom and now lay in ruins.

The death of retail sales has brought more value to the legitimate operator, and allowed for better buying opportunities.

Better opportunity in selling your own homes inside communities

The easy credit options given the consumer during the retail home sales bonanza allowed them to often buy a brand new home for less than a 20 year old home sold on legitimate underwriting. As many community owners end up with their own stable of homes over the years that they sell and carry paper on, it made selling these older homes more difficult and time consuming. Today, that 1988 home has a monopoly ? none of the potential buyers has a brand new home from a retailer as an option. As a result, you can command more for the older homes, and better terms. In addition, you have better retention of those buyers, as they have no temptation to buy a new home.

Community owners are the retail home sales centers of today and, in my opinion, sell many more units today than the real retail home sales centers do, even though nobody tracks that data.

Conclusion

When I tell people how bad retail manufactured home sales have become, they are completely shocked that the industry can function at all with sales down 80%. Most people do not realize that retail sales, while essential to manufacturers and retailers, are not really that important to community owners today.

And that?s a good thing, for after ten years of lousy sales, most of us have given up all faith in manufacturing and retail sales and have excluded retail sales from our business models entirely.

That?s not to say that America?s community owners would not welcome a return to healthy retail sales but, at this point, we?d have to see it to believe it. Currently, every article suggesting a turn around in retail real estate sales seems like a sighting of the Loch Ness Monster or Bigfoot. And, like a burned-out starlet in Hollywood waiting for her big break, we?re not longer hanging by the phone.

Source: http://www.reiclub.com/realestateblog/why-the-retail-home-sales-debacle-has-been-great-for-community-owners/

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