The Growing Gap Between MHP Buyers and Sellers

Insights from the Front Lines of Midwest Mobile Home Park Brokerage

If you've been following the manufactured home park market over the past year, you've probably noticed that something has changed.

It's not that buyers have disappeared, and it's certainly not that quality manufactured home communities have become less desirable. Throughout the Midwest, however, we're seeing a growing gap between buyer expectations and seller expectations that's slowing transaction activity.

During the exceptionally strong market from 2020 through 2022, buyers and sellers were often able to bridge valuation gaps through inexpensive debt, seller financing, and abundant value-add opportunities. Those conditions helped create one of the strongest seller's markets our industry has ever experienced.

Today's market is different.

Buyers Are Looking Through a Different Lens

Higher borrowing costs and more conservative lending have fundamentally changed how investors evaluate manufactured home communities.

Today's buyers are placing greater emphasis on current cash flow, realistic returns, and investment risk.

Value-add opportunities remain an important part of many acquisitions, but the nature of those opportunities has changed. During the housing boom, many communities experienced significant rent growth as demand for affordable housing surged. As a result, much of the easy upside from below-market rents has already been realized.

Today's buyers still pursue value-add opportunities through operational improvements, infill, utility bill backs, expense reductions, and selective rent adjustments. However, they're less willing to pay premium prices based on the assumption that substantial rent growth still remains.

Lenders have also become more conservative in their underwriting. Cash flow, occupancy, operating history, debt service coverage, and overall property quality now carry greater weight than they did just a few years ago. Even when buyers are willing to stretch on price, lenders are often unwilling to support those same valuations.

As a result, many buyers simply can't justify paying yesterday's prices under today's financing environment.

Sellers Are Still Remembering Yesterday's Market

Many park owners understandably continue to benchmark their communities against prices achieved during the exceptionally strong market from 2020 through 2022.

One recent conversation with a park owner perfectly illustrated what we're seeing throughout today's Midwest market.

The owner approached Mid Plains Land & Realty about listing a well maintained older manufactured home community. Based largely on the property's strong operating performance, the owner believed the community should command a valuation near an 8% CAP rate.

After reviewing the property, we explained that we believed today's market would likely support a value closer to $1.4 to $1.5 million rather than the solid $1.8 million the owner was seeking.

The issue wasn't the property's financial performance. It was how today's buyers, and ultimately their lenders, would evaluate the asset.

In addition to the NOI, buyers would evaluate an aging inventory of 1970s-era park-owned homes that represented the community's entire housing stock, 50-year-old septic systems nearing the end of their useful life, and the significant capital investment the property would likely require over the coming years.

Those future capital expenditures become part of today's valuation. If they aren't reflected in the purchase price, buyers will often retrade during due diligence.

Because we didn't believe today's market would support the owner's pricing, we mutually decided not to move forward with the listing.

That conversation reinforced an important reality we believe many owners are overlooking: CAP rates don't exist in a vacuum.

A buyer's required return reflects not only a property's income, but also its asset quality, future capital requirements, and overall investment risk.

Buyers aren't simply purchasing income. They're purchasing future risk as well.

We're also finding that many owners who initially express interest in selling never move beyond an initial conversation or provide the information needed to prepare a Broker Opinion of Value. Rather than sell below what they believe their community is worth, many simply choose to continue operating their parks.

The Financing Gap Has Grown Too

Price isn't the only area where buyers and sellers are struggling to find common ground.

Many buyers still rely on seller financing, partial carrybacks, or other creative financing solutions to offset today's higher borrowing costs.

The difference is that many sellers who were once willing to provide those terms are now seeking clean cash closings instead.

After years, or even decades, of ownership, many are ready for immediate liquidity and the opportunity to move on without continuing to act as the bank.

Neither perspective is wrong, but differing expectations regarding deal structure are causing many otherwise qualified transactions to stall before reaching the closing table.

A Market Waiting for Agreement

From our perspective, today's Midwest market isn't suffering from a lack of buyers or a lack of sellers.

It's suffering from a lack of agreement.

Buyers are underwriting today's financing costs, future capital requirements, and investment risk. Many sellers are valuing the income they've worked hard to create during one of the strongest seller's markets our industry has ever experienced. The challenge is that those two perspectives no longer produce the same valuation.

We've also found that some owners never even reach the valuation stage. Rather than test today's market, many are simply choosing to continue operating their communities.

When you combine differences in valuation, financing expectations, deal structure, and future risk, it's easy to understand why transaction activity has slowed.

Looking Ahead

None of this changes the long-term fundamentals of manufactured housing.

Affordable housing remains one of the nation's greatest needs, and well-operated manufactured home communities continue to be one of the most resilient commercial real estate asset classes.

Markets change. Buyer expectations change. Seller expectations change.

At Mid Plains Land & Realty, our role extends beyond marketing communities. We help buyers and sellers understand today's market, establish realistic expectations, and structure transactions that work in today's environment.

As both manufactured home park brokers and owners, we're navigating the same market as our clients every day. Whether you're considering buying, selling, or simply want an honest opinion about where your community fits in today's market, we're always happy to have the conversation.