The most “low-hanging fruit” of any potential real estate acquisition is the hope of increased revenue, and the easiest means to that end is simple: raise the rent. The mobile home park industry has appeal in this regard, especially since many novice operators and investors think that since tenants (usually) own their homes , they’ll be less likely to leave because of a rent increase compared to an apartment tenant, who doesn’t have as much invested in the property. 

While this may be true, cavalier rent increases “just because you can” are not only unethical but also carry significant legal liability.  In fact, some mobile home park operators are finding themselves the subject of attorney general investigations of improper or excessive rent increases.  To own properties with integrity and operate above the law, it’s critical to develop a comprehensive understanding of the limitations of rent increases.               

What happens as rents get higher?          

Let’s be clear: Raising rents to an unsustainable level is ethically and morally wrong, and any operator who feels entitled to undertake such an action is behaving in a completely inappropriate manner. The recent enforcement actions taken by the Washington Attorney General  against such unscrupulous operators are justified and necessary to deter future unethical actors in the industry.

It’s not an easy fix, either. Irresponsible rent increases can’t readily be undone. Once an operator demonstrates a lack of knowledge, competence, or ethical standards it is difficult, if not impossible, to convince tenants or public officials otherwise .  For these reasons, and many others,  taking the time to understand a market and determine a suitable rent is absolutely critical for any investor or operator 

Rent is affordable ... until it isn’t.

It’s essential to understand that what defines affordable is not a linear progression. In most cases, rents jump quickly from affordable to not, and the line can usually be tied to the average income of the residents in the property. As mentioned earlier, one of the attractive aspects of mobile home park investing is the relatively low turnover of tenants due to their homeownership. That said, there is also an extreme disadvantage to this: When tenants are pushed to their limits of rental affordability they don’t simply walk away quietly. Past experience has shown that tenants tend to organize and fight back in the face of unaffordable housing being thrust upon them. It cannot be overstated how dangerous  and effective a group of organized angry tenants can be, particularly when they are mobilized against a cause as politically sensitive as affordable housing.   

To succeed, it’s essential to know your tenants.

Market studies can’t help you avoid the pitfalls of excessive rent increases. It’s critical to have competent and compassionate managers who understand the needs and affordability thresholds of the residents living in their unique property, not just the macroeconomic conditions of a city or municipality. Conducting rent increases in a judicious and ethical manner will ensure long-term affordability for your tenants, which will in turn streamline management and operations while still delivering an excellent return on investment.

[1] Please see my market rent article for an in depth analysis

[2] It should be noted that this is completely justified in my opinion, and I fully support tenants coming together and fighting unethical owners and operators