The tenant-owned homes model (TOH), where residents own their homes but rent the land beneath them, is

an increasingly popular option in manufactured housing communities. This model can foster a sense of pride

and community among residents.

The tenant-owned homes model (TOH), where residents own their homes but rent the land beneath them, is

an increasingly popular option in manufactured housing communities. This model can foster a sense of pride

and community among residents, as homeownership brings stability and investment in the place where they

live. However, for owners and managers of these communities, the tenant-owned homes model presents

specific challenges that can impact financial performance and the long-term success of the park.

In this post, we’ll explore three key disadvantages of the tenant-owned homes model: limited revenue

streams, quality control challenges, and infill difficulties. Understanding these drawbacks can help current

and prospective park owners weigh the pros and cons of adopting this approach.

1. Limited Revenue Streams: A Cap on Income Potential

One of the most significant drawbacks of the tenant-owned homes model is the limitation on potential

revenue. In this model, community owners or managers can only generate income through lot rents, which

are the fees charged to residents for leasing the land their homes sit on. This contrasts with the park-owned

homes (POH) model, where the community also earns income from renting out the homes themselves.

When you only collect lot rents, your top-line revenue can be lower compared to the POH model, where rental

income from homes adds to the overall cash flow. Park-owned homes provide a dual revenue stream—

renting the land and the home—creating more immediate profit opportunities. In a tenant-owned model, thisadded layer of income is lost, and the focus shifts solely to keeping lot rents competitive while covering costs

like infrastructure maintenance, utilities, and property management.

Additionally, raising lot rents to increase revenue comes with its own challenges. Since residents own their

homes, there’s a delicate balance in setting rent prices. Increase lot rents too aggressively, and you risk

alienating tenants who may not have the flexibility to pay more, especially in low- to moderate-income

communities. Unlike rental communities where turnover might be expected, in tenant-owned communities,

residents are often more permanent, and steep rent hikes could lead to dissatisfaction or even legal disputes

over rent control.

Moreover, depending on the location and demand for manufactured housing, raising lot rents may be limited

by the market’s affordability thresholds. Thus, even if there’s a demand for housing, the potential for

increasing revenue from lot rents is inherently capped.

2. Quality Control Challenges: Disparities in Home Maintenance and Appearance

Another disadvantage of the tenant-owned homes model is the lack of direct control over the quality and

maintenance of the homes within the community. In a park-owned home setting, the park owner can ensure

that all homes meet certain standards in terms of maintenance, aesthetics, and functionality. However, in a

tenant-owned scenario, once the homes are sold, the responsibility for upkeep falls entirely on the residents.

This can lead to disparities in the condition and appearance of homes, with some homeowners maintaining

their properties to high standards while others may neglect upkeep due to financial constraints, lack of

knowledge, or simply a lack of interest. Over time, this can result in a patchwork of homes that vary widely in

quality and curb appeal. Poorly maintained homes can bring down the overall aesthetic and desirability of the

community, making it less attractive to potential new residents and impacting property values.

For park owners, this lack of control presents a significant challenge. While many tenant-owned home

communities implement rules and guidelines around property maintenance, enforcing these rules can be

difficult, especially when dealing with long-term residents or those with limited means to invest in necessary

repairs. Disputes over maintenance standards can create tension between management and residents, and

without the power to step in and make improvements directly, community owners are left to hope that

residents will follow through on their responsibilities.

In contrast, the park-owned model allows community owners to handle maintenance issues in a timely and

uniform manner. Park owners can upgrade homes as needed, ensuring a consistent look and quality across

the community, which can help maintain property values and attract new residents. The tenant-owned

model, on the other hand, often leaves park owners in a reactive position, addressing problems only when

they arise, rather than taking a proactive approach to maintaining community standards.

3. Infill Challenges: Difficulties Filling Vacant Lots

A third disadvantage of the tenant-owned homes model involves infill challenges. Infill refers to the process of

bringing new homes into the community to fill vacant lots. This can be a significant issue when existing

homes within the community are outdated or poorly maintained, as prospective residents may be hesitant to

move into a community where the housing stock appears aged or neglected.

In a tenant-owned community, filling vacant lots can be more difficult because prospective residents are

typically looking to purchase a home that’s already on-site or bring in their own home. If the existing homes

are in poor condition, it can detract from the appeal of the community, making it harder to attract new buyers

or lessees for vacant lots.

In contrast, park-owned homes give owners the flexibility to replace old homes with newer models that meet

modern standards and preferences. This approach allows park owners to maintain control over the

appearance and desirability of the community by ensuring that homes are up-to-date and attractive to

prospective tenants. Additionally, with park-owned homes, community owners can offer move-in ready units,

which are often more appealing to potential residents who may not want the hassle of purchasing or moving

their own home.

In a tenant-owned model, however, this process becomes more complicated. Park owners may face delays in

finding new buyers for vacant lots, especially if the existing homes detract from the community’s overall

appeal. Moreover, the cost of bringing in a new home—either for the owner or the prospective tenant—can be

prohibitive, further limiting the pool of potential residents willing to move into a community where much of

the housing stock is outdated.

While the tenant-owned homes model offers benefits like promoting homeownership and creating long-term

community stability, it also comes with several key disadvantages for community owners. Limited revenue

streams, quality control challenges, and infill difficulties can all hinder the financial performance and

attractiveness of the community over time.

For those considering this model, it’s essential to weigh these drawbacks against the potential benefits,

taking into account the specific market conditions, tenant demographics, and long-term goals for the

community. While the tenant-owned model may work well in some situations, owners should be prepared to

address these challenges head-on, implementing strategies to mitigate their impact and ensure the

community remains desirable and financially viable in the long run.

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