Manufactured Home Community Management: Cost and Contract Guide

By Gary E. Wilson, President & Designated Broker, Wilson Management, Inc.

Owners weighing third-party management of a manufactured home community usually open with the fee percentage. It is the wrong first question here more than in most asset classes, because these communities vary enormously in what managing them actually involves.

A community where every home is separately metered by the utility, on public roads, with a stable long-tenured resident base, is a fundamentally different operating job from one where the operator owns ageing water mains, private roads, a lift station and thirty vacant sites.

Same fee percentage, completely different scope of work.

Fee models

Percentage of collected revenue is the most common. The manager earns a percentage of what is actually collected rather than billed, which aligns them with collections rather than merely occupancy.

Percentage with a monthly minimum is common at smaller communities, where a pure percentage would not support managing the site properly.

Per-site monthly fee appears in this asset class more than others, and it has some logic: the administrative work correlates more closely with site count than with revenue, since a lot paying below-market rent takes the same effort as one paying market.

The revenue base needs defining either way. Establish whether it includes lot rent, utility recovery, park-owned home rent, application and transfer fees, late fees, and any income from vacant site fill or home sales.

Utility recovery is the item to isolate. Where a community bills residents for water and sewer, that recovery can be a substantial gross figure passing through at no margin. Including it in a percentage-of-revenue base without adjustment produces a fee disproportionate to the work involved.

What is normally included

• Lot rent billing, collection and arrears follow-up
• Rules administration and enforcement
• Resident relations and communication
• Tenancy administration, notices and renewals under the MHLTA
• Screening applicants on home sales in place, and site transfer coordination
• Routine site inspection
• Vendor sourcing and supervision for maintenance
• Utility billing administration and recovery
• Vacant site marketing
• Monthly financial reporting

What is normally excluded and billed separately

• Maintenance and repair costs themselves, as distinct from coordinating them
• Capital projects — road resurfacing, water and sewer replacement, drainage works
• Utility costs paid to the supplying utility
• Legal costs, including tenancy matters and any statutory process
• On-site staffing, where the community has any
• Insurance premiums, taxes and licences
• Engineering and consultant fees
• Park-owned home repairs, which are a separate business

Capital is the significant one. Manufactured home community capital is buried and lumpy — a water main replacement under a road is a different order of magnitude from most operating expenses — and how those projects are scoped, procured and supervised should be addressed explicitly rather than assumed to sit inside the fee.

Park-owned homes need their own treatment

Where a community owns some of the homes as well as the lots, that is a second business with different economics: a depreciating structure with its own maintenance obligations, its own tenancy type, and its own turnover costs.

Establish whether managing park-owned homes is in scope, how their rent enters the fee base, who handles their maintenance and turns, and how their performance is reported separately from lot rent.

A management agreement drafted for a lot-rent community and then applied to one with thirty park-owned homes will not fit.

Term, termination and transition

Initial term is commonly one to three years.

Termination. What notice, whether either party may terminate without cause, any early termination fee, and what happens on a sale of the community. The sale question carries extra weight here given Washington's park-sale notice requirements — see How Washington's park-sale notice rules affect owners.

Transition deserves specific attention in this asset class, because two records are genuinely difficult to reconstruct:

The rental agreements and rule sets. Since agreements renew automatically carrying their original rules, the signed agreements are the only reliable evidence of what binds which resident. An owner who cannot obtain them from a departing manager has lost the basis for enforcing anything.

The infrastructure condition history. Failure history, repair records and any condition assessment for buried utilities. That record is what makes capital planning possible and it cannot be recreated.

Settle at signing who holds these and how they are handed over.

Reporting to expect

Monthly, at minimum:

• Occupancy and vacant sites as a count, not just a percentage
• Lot rent, utility recovery and other income shown separately
• Arrears, aged
• Income and expense against budget
• Maintenance completed and capital items tracked
• Utility recovery against actual utility cost

Two of those matter more than they look. Separating lot rent from utility recovery means an owner can tell whether revenue moved because rent changed or because a wet quarter drove consumption — different situations calling for different responses. And vacant sites as a count is what the fill strategy has to address; a percentage flatters a problem that is easier to grasp as "eleven empty lots".

Questions to ask before signing

Fee

• What is in the revenue base, and is utility recovery treated differently?
• Percentage, per-site, or both, and is there a minimum?
• Any other fees — setup, technology, transaction?

Scope

• Are park-owned homes included, and on what basis?
• Who manages capital projects, and is that inside the fee?
• Who administers utility billing, and who bears the compliance risk on it?

Operations

• How is lot rent reviewed against market?
• How is arrears worked, and on what calendar?
• Who handles home sales in place and applicant screening?
• What is the plan for vacant sites?

Records

• Who holds the rental agreements and rule sets?
• Is there an infrastructure condition record, and who maintains it?
• How is everything handed over at the end?

Comparing proposals

Because scope varies so much between communities, comparing on percentage alone tells you very little. Build a projected annual total for each proposal: the fee on its defined base, plus everything that agreement excludes and bills separately.

Then test the revenue assumptions underneath. A manager forecasting improvement should be able to name the mechanism — closing a gap between lot rent and market, filling identified vacant sites, recovering utility costs currently absorbed, or reducing arrears that are presently ageing out. A projection arriving as a percentage with nothing behind it is a sales figure.

It is also worth asking what the manager expects to find. An experienced operator looking at a community they have not managed will have a view on where the problems usually are — the rule set, the utility gap, the infrastructure condition — and being told that up front is a better sign than being told everything looks fine.

Self-managing a community

Plenty of owners manage their own communities, and the comparison is not fee versus no fee.

The costs that do not appear on an invoice are real: the time, the availability, and the specific capabilities that are hard to sustain alone. In this asset class those are statutory compliance under a chapter with its own notice periods and grounds that differ from ordinary residential tenancy; infrastructure planning that requires a condition record maintained over years; even-handed rules enforcement in a community where the operator lives among the residents or knows them personally; and vendor leverage for work that a single community buys rarely.

The consistency point deserves emphasis. An owner-operator who knows every resident personally faces the hardest version of the enforcement problem, because every decision is about somebody they know. Professional management puts those decisions with someone who is not a neighbour, which is worth more in this asset class than in almost any other.

For a small community with an engaged owner nearby, self-management can work well. For a larger one, an absentee owner, or a community with ageing infrastructure and an unclear rule set, the arithmetic usually favours professional management — though it should be run rather than assumed.

What a manager should be adding

The fee is worth paying where the manager produces more than it costs, and in this asset class that comes mostly from four places:

Establishing what the enforceable rules actually are, which at a community that has changed hands is frequently unknown and is the basis for everything else.

Utility recovery that works, since the gap between what a community is billed and what it recovers is one of the larger swings in net operating income.

Infrastructure planned rather than reacted to, because buried utilities are where the unbudgeted capital events come from.

Vacant site fill, usually the largest available upside in an under-managed community and the work most often left undone.

An agreement producing none of those is expensive at any rate.

Where to go next

Our Mobile Home Park Management page sets out what we cover, and Community Operations and Utility Infrastructure go into the areas that most affect returns.

To discuss your community, contact us or request a free analysis.