WaitingToBuyByAndBy_IHB
New member
This thread is in response to IrvineRenter's blog post (09-07-2009): <a href="http://www.irvinehousingblog.com/blog/comments/irvine-boulevard-northwood-irvine/">The Royle Family</a>. My comment became a little too verbose for the blog comments section. I thought making this thread might also provide an anchor for discussion of this and possibly other housing traps.
[Disclaimer: This account is from memory of what I have been told by my relatives over the last 12 years. If you know differently, please correct me.]
I have relatives who purchased a manufactured home around 1997 and had it installed in a rental park in Anaheim. I believe the plan was to use the manufactured home as a "stepping stone" (as if you bought a condo, then traded up after building equity) the difference here being that the home had 3 bedrooms and den at a price of around $90k.
They were not crazy about the $800 space rent, but they wanted to own a home and could not afford a "real" house. They initially made payments on both the house purchase and the monthly space rent.
The original contract had a maximum rate by which rent could increase annually and apparently that is the exact amount by which the space rent has grown each and every year since then. My relatives told me at one point that although they were only paying $1200 a month in rent, anybody who purchased their home now would have to accept the "current" space rent of $2000 a month.
Needless to say, they have been trapped there for years. It does not make financial sense for anybody to buy the home. They've had interest a couple times, but once the rent is disclosed the deal is off.
They believe the park owner raises the rent as much as legally possible in an effort to force occupants into abandonment (failing to pay rent). I was given the impression that when this happens, the lot eventually gets the home, and can then sell it to the next sucker.
If they had not paid off their home, it is unlikely they would have lasted as long as they have because at the current rent, they would not have been able to afford both the space rent and the home payment. And yet paying off the house was probably the worst use of money they could have made (since it was poured into the very asset that is trapped).
They once told me it would cost about $30,000 just to move the home and then they'd have to repair the damage from the move (the house gets split into two pieces) so at the very least, they'd have to repaint the seam. If you haven't figured it out yet, $30k to these people is astronomical. Still, at one point they looked for a different lot that might have reasonable rents, but said they could find no such beast in Orange County.
Some morals of the story:
(1) When making any deal, consider carefully the aspects that lie outside of your direct control (e.g. space rent, variable rate financing, etc.);
(2) Don't follow good money after bad. This is easier said than done when its your home.
(3) Consider your exit strategy before you enter (will you be able to sell to another buyer?).
I'm thankful IrvineRenter has included such considerations in many of his posts.
Finally, in the original post, IrvineRenter mentioned mobile home parks as a "cash cow". I can't deny that whoever owns the mobile home park where my relatives live is probably very well off. I'm sure as a young single male I would have relished being the tyrant of such an empire. However, as a father, and after seeing what this has done to my relatives over the years, I would say there is no honor in making money through the exploitation of the ignorant. It is my hope such people die slow, mercilessly painful deaths.
It's one thing to charge exorbitant rents in a free market to whoever is stupid enough to pay it and quite another thing to leverage your control over the land to trap your prey then continue to suck them dry year after year until they (eventually) are unable to maintain the outflow.
I am happy to hear the featured property is in "The Groves", a resident-owned park in Irvine (although this does my relatives little good until one of them reaches 55 -- about 15 years from now).
I briefly wondered if HOA dues for "real" homes are like the space rent in this example (always going up and making the home harder to sell in the future). One big difference is that, by definition, all home owners associations are run by the homeowners, which should generally ensure fair dues for the majority of homeowners.
[Disclaimer: This account is from memory of what I have been told by my relatives over the last 12 years. If you know differently, please correct me.]
I have relatives who purchased a manufactured home around 1997 and had it installed in a rental park in Anaheim. I believe the plan was to use the manufactured home as a "stepping stone" (as if you bought a condo, then traded up after building equity) the difference here being that the home had 3 bedrooms and den at a price of around $90k.
They were not crazy about the $800 space rent, but they wanted to own a home and could not afford a "real" house. They initially made payments on both the house purchase and the monthly space rent.
The original contract had a maximum rate by which rent could increase annually and apparently that is the exact amount by which the space rent has grown each and every year since then. My relatives told me at one point that although they were only paying $1200 a month in rent, anybody who purchased their home now would have to accept the "current" space rent of $2000 a month.
Needless to say, they have been trapped there for years. It does not make financial sense for anybody to buy the home. They've had interest a couple times, but once the rent is disclosed the deal is off.
They believe the park owner raises the rent as much as legally possible in an effort to force occupants into abandonment (failing to pay rent). I was given the impression that when this happens, the lot eventually gets the home, and can then sell it to the next sucker.
If they had not paid off their home, it is unlikely they would have lasted as long as they have because at the current rent, they would not have been able to afford both the space rent and the home payment. And yet paying off the house was probably the worst use of money they could have made (since it was poured into the very asset that is trapped).
They once told me it would cost about $30,000 just to move the home and then they'd have to repair the damage from the move (the house gets split into two pieces) so at the very least, they'd have to repaint the seam. If you haven't figured it out yet, $30k to these people is astronomical. Still, at one point they looked for a different lot that might have reasonable rents, but said they could find no such beast in Orange County.
Some morals of the story:
(1) When making any deal, consider carefully the aspects that lie outside of your direct control (e.g. space rent, variable rate financing, etc.);
(2) Don't follow good money after bad. This is easier said than done when its your home.
(3) Consider your exit strategy before you enter (will you be able to sell to another buyer?).
I'm thankful IrvineRenter has included such considerations in many of his posts.
Finally, in the original post, IrvineRenter mentioned mobile home parks as a "cash cow". I can't deny that whoever owns the mobile home park where my relatives live is probably very well off. I'm sure as a young single male I would have relished being the tyrant of such an empire. However, as a father, and after seeing what this has done to my relatives over the years, I would say there is no honor in making money through the exploitation of the ignorant. It is my hope such people die slow, mercilessly painful deaths.
It's one thing to charge exorbitant rents in a free market to whoever is stupid enough to pay it and quite another thing to leverage your control over the land to trap your prey then continue to suck them dry year after year until they (eventually) are unable to maintain the outflow.
I am happy to hear the featured property is in "The Groves", a resident-owned park in Irvine (although this does my relatives little good until one of them reaches 55 -- about 15 years from now).
I briefly wondered if HOA dues for "real" homes are like the space rent in this example (always going up and making the home harder to sell in the future). One big difference is that, by definition, all home owners associations are run by the homeowners, which should generally ensure fair dues for the majority of homeowners.
