Mobile Home Prices – You May Pay Twice
From purchase to sale, changing mobile home values.
When you want a home in a for-profit mobile home park you usually buy the house from the previous owner, but you cannot buy the land because it belongs to the landlord. You typically get a loan to buy the house and pay monthly mortgage dues to the bank. Additionally, you will need to pay a monthly rent to the landlord for the land the house sits upon. The land rent pays for the lot, hookups, and park services.
These two costs, both land rent and mortgage, are the major expenses of home ownership in a mobile home park. Lot rent expenses and park stability can affect the prices of the mobile homes in the park.
The price of a mobile home can be acceptable when you first buy it, but you may question whether it will remain a good deal in the future. Landlord decisions may affect the future value of your home -which you often cannot change. You want a good deal, but can it change into a bad deal long after you sign the papers?
Understanding this “house price dynamic” can help you answer questions such as: “Why is it that in some parks, the rent is expensive but the homes are cheap?”
“Why, in some parks, are people paying more for the home but in a nearby, similar-looking park, the homes are much cheaper?”
“Which is best? Higher rent but a lower-cost house versus lower rent with a more expensive house?
Evaluating Mobile Home Prices – 8 Things to Think About
- How is my mobile home’s value affected by the decisions and behaviors of others?
- Do current and future rent costs and their predictability affect home prices?
- What is a mobile home worth? Who decides?
- What do I need to know to find a bargain-priced mobile home?
- Will I regret buying a mobile home in the future?
- What is the highest rent I can afford and still have enough money to pay the mortgage?
- How are land rent costs and mortgage costs related?
- How do I find stable mobile home prices?
What Affects the Price of a Manufactured Home?
In a for-profit park, a manufactured home’s value is often influenced by the landlord. Home prices here depend on more than design, age, and condition. Local market conditions and lot rent also play significant roles. The quality of maintenance and services can affect neighborhood values too. When the landlord raises rent, living costs increase for everyone. This can price out potential buyers. Homeowners may feel forced to lower their asking price to sell.
A landlord known for frequent rent hikes can deter home buyers. Smart shoppers often check the landlord’s reputation first. Yet, even a good reputation can change. If a park is sold, a new landlord might raise costs or cut maintenance. This can make the park feel less secure for homeowners. They need reliable ways to forecast the park’s future, but such information is rare. Until then, they must trust that their living conditions will remain stable. This is why you may see lower-priced homes in parks with high rent. A park across the street may look identical but have higher-priced homes. With investigation, the higher-priced homes may be in parks where rent levels are predictably lower. Home buyers may be willing to pay more for the house for the security of low and predictable rents.
Typical factors for mobile home values include age, style, and condition. However, the landlords’ rent increases and maintenance quality are also crucial. Too often, buyers focus only on the usual factors. They may not realize the landlord controls other important aspects. Sometimes, high-priced homes are for sale in parks with predatory landlords. This happens when buyers are unaware of the park’s hidden conditions and assume that living in the park is affordable and predictable. Read more about the hidden conditions here.
How Rent Raises Affect the Price of a Mobile Home in a Park
Often you can find rent raises spelled out in your long-term lease. Beware of annual “percentage” rent raises that may look low. These rent raises compound each year. That is, the rent raise grows larger each year. The raises come from multiplying last year’s rent by the percentage increase This is because the last year’s rent is multiplied by the percentage increase to arrive at the new year’s rent raise amount. But each year, the “previous” year’s rent is higher (due to rent raises) and that means the actual, nominal, rent raise will be higher each year. The rent raise amount grows larger each year.
Too many homeowners misunderstand the long-term financial burden caused by compounded rent raises. For example, a 5% annual rent increase will cause rent to have doubled in less than 16 years. It will be 1/3 higher in 7 years. Even a 1/3 increase in rent may be too much. Park turnover may increase as renters are forced to sell their homes to escape the ever-increasing rent. You can use a Rent Raise Calculator to forecast when annual percentage increases will cause hardship.
Read Your Lease for Rent Increase Clauses
If rent raises aren’t spelled out in writing, then you cannot be too sure about your financial stability when living in the park. The landlord may be a good citizen who doesn’t take advantage of his customers with large rent increases, but that may change. If the park is sold to another owner, the new landlord may raise rents. Carefully check your rental contract about rent raises. Some mom-and-pop family park owners may be good-citizen landlords and raise rent fairly. They may balance their rent increases with community needs and to protect their reputation. Some park owners may make special allowances when a resident requests help. But be careful signing an agreement that removes your rights – get legal help.
Rent Stabilization Laws and Resident-Owned Parks Can Keep Home Prices High and Stable
In rent-stabilized parks, the city or county will work with the landlord to prevent rent gouging, but rent stabilization ordinances (RSOs) are relatively rare. With effort, park residents may get an RSO implemented by their city. However, some states have banned rent stabilization or rent control. Another way to control rent raises is when renters buy the business from the landlord and take over ownership. Homeowners turn the park into a cooperative where residents decide how the park is managed and vote on rent raises. These are known as Resident-Owned Communities (ROCs), or Resident-Owned Parks (ROPs). You may find stable housing prices in rent controlled parks and ROCs / ROPs. Even though the houses may sell for higher prices, the prices may be more stable.
What If There is No Rent Raise Agreement?
When rent raises are not controlled by a lease or by law, then you are dependent on the goodwill of the landlord to be a fair person. You cannot, practically, move a manufactured house, so when the rent gets too high you will have to sell the home to exit the park. As mentioned, when rent is high, you may have to keep lowering your asking price to encourage buyers. Sometimes a homeowner will have to sell the home for less than he originally paid.
For these reasons, mobile home prices can vary greatly, depending on the park. Just because a home price looks low that doesn’t mean it is a bargain. The future rent raises may exceed your budget, forcing you to sell. And you may get a lower offer than your original purchase price. A low home price may mean the homeowner is desperate to leave the park to escape continual rent raises.
Does a Mobile Home Lease Protect You From Rent Raises?
If the long-term lease sets the rent raises, then buyers have more certainty of their future costs. However, there may be clauses in the lease that enable the landlord to reevaluate rent levels and reset them higher. See the glossary item: Adjusting Rent to Market Rate or “Periodic Re-evaluation” of Rent.
Mobile home prices in a for-profit park can be affected by the rent level. A high rent may lower the desirability of living in the park. Rent price is usually not negotiable, so the only flexibility for sellers is to lower their asking price for the home. Home sellers may lower their asking price to make the overall costs to buyers (rent plus mortgage) more acceptable.
To predict your future security, you must carefully read the lease for rent raises. Look for stipulations about rent levels, rent raises, and how often the rent may be raised. Look for the clauses about readjustments of rent levels. If there is no lease, then you have no legal way of being sure about your future costs. You may be under month-to-month rental conditions with rent raises possible several times a year. If you are paying much for the home, you want to know the long-term future, but even a lease with stated limits can have clauses that change those limits. Before buying a manufactured home in a for-profit park, get a copy of the lease. Then have an expert review it or seek legal advice.
Major Factors Affecting the Price of a Mobile Home in a Park
- The rent levels for the lot where the home is permanently placed
- The annual rent raise amount for the house lot – whether it grows larger each year
- Whether the lease sets the rent raises clearly and predictably
- The urgency of the seller to leave the park
- The condition of the park – whether well-maintained or deteriorating
- The reputation of the landlord, if well-known
- The age of the mobile home
- The make and model of the mobile home
- The condition of the mobile home and rental lot
Paying Twice – Buying a House and Selling It at a Loss
You may pay twice, in effect, for manufactured house in a park. You pay once for the house itself, and, again, you “pay” buy selling it for less than you bought it for – often because of rent raises. And the rent raises themselves are also and added cost. Compared to apartments and regular houses, there are more things to consider when pricing a manufactured home on rented land. You may wish to get advice about buying a mobile home before jumping in. A manufactured house can cost many thousands of dollars. You may not want your savings tied up in an immovable home on rented land until you can predict the future costs.