Just about every mobile home park owner I know has considered the co-op option once or twice. A co-op is nothing more than selling off a property in pieces, so a group of individuals owns it together. That was huge in the 70s, when people wanted to own spaces while limiting their debt. These days, they’re a bit more complicated. That’s especially true in the mobile home park business.
In Oregon, you must give your tenants an opportunity to purchase if you’re considering selling your park. Naturally, most park owners want to know if it’s worth it to sell their park off piece by piece. But it’s not quite as easy as that. While a lot of parks in Oregon are doing it, I think this is one area where I’m going to go my own way. If I wanted to sell, and I wanted to keep my tenants protected, I’d just sell to an owner operator. It’s easier that way.
What’s The Benefit In Turning Your Mobile Home Park Into A Co-Op?
The 1970’s led in the co-op boom. Everyone wanted to own their place, but they didn’t have enough money to buy an entire structure. This was where the co-op was born. Corporations would build a structure and sell off pieces to tenants, pulling in a tidy profit. These people got to own their spaces, and with lending rates what they were, usually paid a lot less to own than they would to buy. Co-ops generally benefitted the original owner because of these features:
- No worries about vacancy rates: The owners are only selling the space, not renting it. Once someone else buys it, it’s not their problem anymore.
- Minimal maintenance costs: Co-op owners must pay monthly fees to cover maintenance, and they must handle any problems that arise.
- Allows for quick profits: Co-op owners could profit quickly by selling off units and not have to worry about making back the cost through collecting rent.
- Limited taxes: The original owner pays taxes on their profit from the sales. They don’t have to worry about yearly property taxes, since those belong to the new owner.
Now, in an ideal world, the co-op arrangement works for both the buyers and the sellers. Sellers make a profit right away and buyers get the benefit of owning a home without a huge investment. But we know it’s not an ideal world. After all, we all lived through the 2008 housing collapse and know it’s a lot harder to get lending these days. While co-ops might have been a great option in the 70s, with today’s tight lending and expenses, it’s just not worth it. This is especially true in the mobile home parks business, where your tenants don’t have a lot of money to invest.
The Problem With Mobile Home Park Co-Ops In Oregon
I considered co-ops because some Oregon parks are going this way. If you own a mobile home park in Oregon, then you know about the one-year notice rule. The rule says that you must offer tenants the opportunity to compete for the bid when you’re selling your park, by giving them notice as soon as you’re considering an offer. However, if your tenants know the park is going to stay open, they’re probably not going to fight the sale. It’s only when you sell a park with the plan of shutting it down that the tenants are going to push back and try to compete on the sale. Most tenants who do manage to do this do it by raising the funds together – and in the end, those tenants don’t wind up owning anything at all. This is because they have to turn to lenders or state programs which take an ownership stake on their behalf.
The problem when you’re trying to create a co-op in the mobile home park is that your tenants already have limited finances. If they’re going co-op, they’re going to need the help of a housing non-profit. Those non-profits don’t have a lot of resources. They’re usually dependent on taxpayer money and can only afford to fund the buyout. But what happens when there’s a problem in the park? The tenants don’t have a reserve to rely on to cover unpredictable mobile home park operating expenses. As owners, they’re the ones who must pay for those repairs.
Usually, non-profits turn these parks into co-ops saying “we must preserve this property for the good of the public.” But really, they’re not doing your tenants much of a favor. Those tenants are going to be on the hook for problems they couldn’t afford in the first place.
In the end, these co-ops aren’t good for you and they aren’t good for your tenants. In today’s tight lending environment, tenants are going to have trouble getting a loan to fund the buyout. If they do, it’s usually through a non-profit that doesn’t offer them much support. They’re going to have a long wait and not a lot of resources if there’s a problem. If you want to sell your park, but you don’t want it shut down, then your best bet is selling it to an owner operator.
Selling Your Mobile Home Park To An Owner Operator Instead Of Creating A Co-Op
Selling your park to an owner operator in Oregon can offer you a few benefits over the co-op. You’re dealing with a less complex situation. The owner operator will just take over the park and manage it, without changing its use. That means your tenants don’t have to worry about moving, or coming up with the money to buy their spaces. They also don’t have to worry about not having reserves to cover major repairs. The park will keep operating and the tenants will get to stay where they’re at.
An owner operator, like myself, is going to keep that park open and your community running smooth. If you’re thinking about selling your park, don’t make it your tenants’ hassle by trying to go co-op. Give me a call or shoot me an email for a fair quote on your entire park.