RSO’s and ROC’s: The Connection
By David Loop, VP of Resident Owned Communities
This article is about the connection between rent stabilization ordinances (“RSO’s”) and resident-owned MH communities (ROC’s). The connection: having a local RSO gives you a better chance of converting your park into a ROC.
RSO’s. RSO’s are local laws that prevent park owners from raising rents unfairly, while allowing them a fair rate of return on investment. More than 100 California cities and counties currently have RSO’s for mobilehome parks. RSO’s keep your rents affordable, and secure your equity in your home. And as I’ll explain below, RSO’s have another significant effect: they make it easier for your resident group to buy the MH park where you live.
If your city or county doesn’t have an RSO, you and other local MH owners should organize and work toward getting one. An RSO is “the” thing that will protect your economic future as an MH owner.
ROC’s. ROC’s are manufactured-home parks where the homeowners have “bought out” the investor-owner. Out of California’s 4,500 MH parks, approximately 150 are ROC’s. In most cases, ROC’s are owned and operated by resident-created nonprofit corporations. This “corporate” approach works better than the “subdivision” approach (a membership in the ROC corporation will cost far less than buying your “lot”).
Two Effects of RSO’s. Obviously, an RSO stabilizes your rent. Its second effect is less obvious, but very important. An RSO stabilizes the market value of local MH parks. To understand why, first consider how a MHP’s market value is calculated.
What’s That MHP Worth? MH parks are income-producing properties. The value of a MH park is calculated by using the “income” appraisal method. An appraiser takes the property’s net annual operating income (all rents collected in a year, minus that year’s operating expenses), then divides that number by a capitalization rate. The capitalization rate is the rate of return the property should generate, based on its net income. 6% is a typical capitalization rate for a California investor-owned MHP.
Three Step Logic. (1) An RSO limits how much park owners in a city or county can raise rents. (2) This also limits the net income those parks produce. (3) In turn, this limits the market value of the MHPs in that city or county.
Another RSO benefit – Discouraging Predatory Investors. If you can get your hands on a copy of the WMA Reporter magazine, check out the advertisements regarding MHP’s for sale. Note that some of these ads say in bold type, NO RENT CONTROL. This is a not-so-subtle dog whistle that says: “Investor, buy this park! You can make lots of money! Raise rents as you please, while also increasing the park’s market value!” But “aggressive” investors typically buy MHP’s in areas without rent stabilization. They can make more money (quickly and easily), by buying parks in areas without MHP rent stabilization laws.
Being the Best Buyer. At the end of the day, an owner selling their MHP has one big question: “How much will you pay me?” Of course, the buyer who will pay the most usually gets the property.
In 2016, a northern California park owner had his 150-space MHP on the market. The park’s homeowners wanted to buy it. The owner was asking $13 million for the property. After some number-crunching, the homeowners and their financial consultant told the owner, “We can afford $11 million, no more.” The owner thought it over for a while. Then he accepted the homeowners’ $11 million offer. The homeowners’ corporation bought the park and became its owner and operator.
But why accept $11 Million? Because no one would pay more. This MHP is protected by a local RSO. This means no investor-buyer could aggressively raise rents to increase the park’s income and market value. To an investor-buyer, the park was worth no more than $9 million. So, the local RSO made the park’s homeowner group the Best Buyer for the property.