Of the approximately 38,000 land lease communities (LLC) in the United States, the majority were built to offer affordable housing options for families. Some communities were developed to provide a leisure lifestyle for residents over 55 and seasonal communities offer resort-style amenities near vacation destinations.
Well-run communities have proven to be reliable generators of attractive, often recession-proof, cash flows for investors. We believe well located, well managed land lease communities will continue to yield strong returns for the foreseeable future. This is particularly true in high growth areas like the Southeast, where many communities are unable to meet the ever-increasing need for affordable housing.
Success depends upon combining community management experience with a solid program to solve the industry’s most significant problem – financing new homes to fill existing vacant lots. Iron Horse Interests is uniquely positioned to revitalize previously under-performing communities. We have the development experience; the ability to find and hire dynamic, experienced property managers and an established home financing program.
Opportunities for new investment are growing, in large part, due to the challenges many of the smaller, privately-owned communities are facing. Many of the communities being targeted by Iron Horse have owners who have been unable to overcome two challenges in particular.
Land lease community owners, at one time, could rely upon outside lenders and manufactured home dealers to populate their communities but this is no longer the case. Whether due to a lack of interest or a lack of capitalization, many of the communities have more vacant lots than active residents.
Many communities were developed without individual utility meters. Community owners provide water, sewer and garbage to their residents. Residents have little incentive to limit their consumption. Many community owners are unable or unwilling to invest in sub-metering the community despite the clear value their installation would provide.
Several factors have created an environment where those with development experience, like Iron Horse, can provide above-average returns for their investors.
Iron Horse Interests targets land lease communities that have high vacancy rates with distressed and motivated sellers. Generally, the sellers fall into one of the following three categories:
Original owners, who are simply looking to retire. Their communities often need capital improvements and have a significant percentage of vacant lots. Many of the communities are revenue-neutral and are unencumbered.
Communities that were purchased or refinanced in the past 10-15 years. Some have began or even completed the infrastructure repairs. However, without a working strategy to bring new homes into the community, they are looking to escape a failing project and salvage some of their investment.
Financial institutions, who find themselves owning a piece of real estate they do not have the time, desire or expertise to manage.
Manufactured homes are built to the same exacting standards as site-built homes. If anything, manufactured homes endure a more stringent inspection process. Homes built in a factory are far more economical as well. Prices for factory built homes are as much as 45% less, per square foot, than similarly sized site-built homes.
Floor plans, finishes and building materials of manufactured homes often exceed those of site-built homes of a similar size. Spacious kitchens and master suites truly rival those found in far more expensive homes. The manufacturing process limits waste too. For example; vinyl flooring can be simply unrolled and laid across the entire floor of the home before the cabinetry, appliances, or even walls have been built or installed.
Modern manufactured homes are being designed to mimic the appearance of site-built homes and can offer home features such as attached front porches and window extensions.
Iron Horse has found that, on average, many communities have vacancies ranging from 20-60%. In 2017, over 40% of new home orders were from park owners hoping to fill those vacant lots. By 2020, that number is expected to rise to 50%.
Every day, 10,000 Baby Boomers retire. Many of them are focusing on down-sizing and others are finding themselves ill-prepared for retirement. Boomers are finding life in land lease communities offers a more affordable lifestyle and more opportunities for travel and leisure activities.
Creating a path to home ownership is the key to successfully operating a land lease community. Previous generations of community owners relied upon 3rd party retail home sales to populate their communities. The sub-prime lending frenzy put many of those 3rd party sellers out of business; leaving community owners without a source of homes to keep their communities fully occupied.
Iron Horse Interests established Southern Alliance Homes to solve the problem of how to fill vacant home sites with new homes. We are re-introducing common sense underwriting to the process. Our lease to purchase option agreements make home ownership affordable while providing us with a second revenue stream that can, in turn, be made available for outside investment.
We have developed a stringent screening process that has a proven track record. We have found many exceptionally qualified families, who were often turned down by traditional lenders, are quite capable of making their monthly lease payments. A number of our lessees now own their homes. Delinquencies have been few and those homes are simply resold.
Success depends upon combining community management experience with a solid program to solve the industry’s most significant problem – financing new homes to fill existing vacant lots.