Whose Responsibility is Housing Affordability?
I.
Whose Responsibility is Housing Affordability?
Maybe the time has arrived for a ‘New Way of Thinking’ when it comes to manufactured housing sales in landlease communities & retail salescenters…
Think about it! When was the last time, or anytime for that matter, you or your salespersons sold a manufactured home, within or outside a landlease (nee manufactured home) community or retail salescenter, and had this sincere, conscientious thought:
“Can this homebuyer truly afford to buy this new or resale manufactured home?”
Even more to the point; did or do you even care, to accept any responsibility for ensuring the affordability of said home, relative to the homebuyer or household purchasing it? If you work in the manufactured housing industry, and or the landlease community (‘LLCommunity’) business, the answer is probably and understandably ‘No’. Why? Because, as some are wont to say, ‘It just generally isn’t in our DNA (i.e. business model) as housing purveyors!’ A review of manufactured housing’s sales training literature, over the past 40 years, clearly demonstrates we haven’t been taught, nor do we generally teach today, personal and corporate responsibility for ensuring our ‘affordable housing’ product evinces ‘housing affordability’! By practice, we’re taught to sell to what customers are willing to pay each month, not necessarily what they can realistically and comfortably afford.
Gary W. Pomeroy, back in the 1970s, then VP of Marketing for Golden West Homes, and chairman of the Western Manufactured Housing Institute’s marketing committee, authored the 200 page textbook titled: How to Successfully Sell New and Resale Manufactured Homes. Early on in this classic text, Pomeroy describes the importance of qualifying one’s prospect: “If your prospect has the need for housing, if he has the income to enable him to purchase housing, and if there is a degree of urgency…he is someone you should spend time with.” P.22 (emphasis added. GFA)
A couple pages later, the author described how to ‘set the banker up as the source for qualification’ by saying: “Mr. Jones…the prices of our homes run from $15,000 to $35,000, (Reader; remember, this is 40 years ago!) and our lender tells us a person should have a gross income between ______ and ______ per month, with a minimum down payment of between ______ and ______, depending upon the price of the home he purchases.” P.25. Notice the not so subtle focus ‘depending on the price of the home he purchases’, NOT ‘…depending on how much prospective homebuyer can realistically afford to pay on his or her mortgage each month.’ Does this focus on home price absolve the housing salesperson, and salescenter for that matter, of personal and corporate responsibility for ensuring our affordable housing product is ‘just that’ for the variety of homebuyers we serve? I don’t think so! But the real issue is; ‘What do you think?’ And, if that wasn’t enough to consider, know there’s ‘something missing’ from the quoted material. See if you can spot it when rereading the paragraph, and the next few to follow.
A couple pages later, Gary Pomeroy introduces Grayson Schwepfinger and ‘his ‘use of a rather unique system of qualifying the customer’, characterized by ‘locking all the homes on a sales center…forcing prospects to come to the office’, where they are pre – qualified, by Urgency, Income & Need, before seeing homes. P.26. How so? Schwep’s methodology isn’t described, but we’ll revisit Grayson later, when we take a look at contemporary 21st century sales training literature….
I became a Redman Homes, Inc., MHRetailer, on – site in my first owned LLCommunity in the early 1980s. Still have the Retail Sales Training Program used by that firm, to teach me the ropes of manufactured housing sales. Here’s what they said about how “Qualifying the customer is a necessary and productive part of the selling process. If customers are properly qualified, they are more likely to buy the house that is right for them. If they do, they will be happy, satisfied customers who will generate a lot of referral business. You need to know what the customer is looking for in a home, and their financial limitations, so you know what you have to work with.” P.7 Fair enough, and a good start. So, what’s next?
“There are two approaches to qualifying a customer – the qualifying interview, and the rapid qualification. Most sales centers have a prospect interview form they use with their customers.” OK, but why no sample Interview Form included with this program guide? And the ‘rapid qualification’ approach? A series of questions: “Do you work nearby?”, “Do you live near here?” “How soon are you going to need your new home?” “Are you married, do you have any children?” Give me an idea of what type of home you are looking for, and what kind of monthly investment you are interested in making (i.e. monthly loan payment amount)?” & “Do you have any idea of what you are going to invest initially (i.e. down payment)?” p.9 No dollar guidelines or formula offered here, just that bugaboo emphasis on ‘what customers are willing to pay each month, not what they can comfortably and realistically afford.’ And know that ‘something missing’, mentioned earlier, is absent here too. Spotted it yet?
During the 1990s, as I traveled from one end of the country to the other, working as a freelance management consultant, serving LLCommunity owners/operators and MHRetail salescenters, picked up the Selling and Training Techniques manual prepared and used by franchiser A-1 Homes, out of Texas (in the MHBusiness since 1969). Their approach to Qualification? Three parameters: 1) Determine if customers live in a mobile home (Their term, not mine; and in 1990s, ‘that’ should ‘tell you something’ about their mindset) or have any other potential trade – in, through tactful and complimentary inquiries., 2) Maximum monthly investment customer will accept based on income, 3) Specific floor plan desired and any unusual requirements, such as space for a piano or a family heirloom.” Once again, no dollar guidelines or formulae offered for qualifying prospects, and continued emphasis on ‘maximum’ monthly mortgage payment, with no mention of ‘affordability’. And yes, once again, there’s ‘something missing’, from this 1990s training material, just as during the 1970s and 1980s.
Champion Home Builders Company, of the late 1980s & early 1990s, (cum Champion Enterprises, now Champion Homes) took a different approach to qualifying homebuying customers. In Joe Morris’ Sales Success School, the author defined USP (‘Unique Selling Proposition’) as being “A real or percieved (sic) consumer benefit in a product or service that distinguishes that product or service from the same class of competitive products or services.” P.L1-9. Whew! Did you get that? I barely did. Anyway, a few pages later, an effort is made to ‘splain’ why PRICE isn’t a USP, by pointing out: “At every income level, there is affordable housing” & “the affordable tag has no sales appeal – people buy affordable things but in response to some other appeal” P. L1-12). OK. But where are the guidelines or formulae one might use to calculate affordability per homebuying prospect? None are given! Though, a few pages later (P. L2-4) the manual describes USPs for three distinct manufactured housing markets: singles, young marrieds, seniors (empty nesters); and once again, implying differences in ability to qualify to purchase new and resale homes, but sans any practical aids. Yes, ‘something missing’ from this training exercise as well…
Know what? Doesn’t get any easier, or to the point, quoting contemporary authors/trainers who straddle the fence between site – built housing and various types of factory – built housing. In Jerry Rouleau’s The Complete Guide to Selling New Homes, on page # 91 three of five Finance Qualifying questions are these: “3) How much of your cash savings will you put into the building project?, 4) Gross Income? (Combined total yearly income), & 5) What are you looking to spend per month for mortgage payments?” Point? Once again, as in the previous several examples, the ‘affordable housing’ or ‘housing affordability’ question or determination is left to the homebuyer, with little to no guidance from the home seller. But, to Rouleau’s credit, on the next page (# 92), he does provide a Rule of Thumb, for calculating one’s Mortgage Limit – presumably, for a ‘house and realty combination’: “Take the combined gross annual income (i.e. homebuyer or household) and multiply by 2.5. This will help you establish a rough mortgage limit. When interest rates are around 6%, you can calculate the mortgage limit at 3 times gross income. If interest rates go up to 12% you have to use a number 2 times gross income.” P.92. We’ll return to the results of this Rule of Thumb shortly. In the meantime, and for one last time, have you spotted the ‘something missing’ from this recitation too?
Give up? Well, here’s that something that’s been missing! Not once, in any of the preceding tutorials, regarding the sale and financing of ‘mobile homes’, HUD Code manufactured homes, has mention been made regarding anticipated monthly homesite rent amount(s), characteristic homes sited in LLCommunities! Obviously, from the historic through to contemporary training and methodology, emphasis is generally on 1) home only, and 2) designed to relieve the homebuyer of whatever cash he/she thinks they can part with each month to buy, and pay a mortgage on said home – irregardless of other recurring household expenses for taxes, insurance, and utilities – even that phantom factor, ‘homesite rent’, literally throwing any idea or concept of housing affordability right out the window. Moving right along…
Said we’d return to Grayson Schwepfinger. In his Selling for Success Seminar material, dated year 2000, he presages the case I’ve been building in previous paragraphs: “There is no place they (homebuyers) can go for information on how to intelligently invest in a manufactured home! If you wanted information on how to invest in a manufactured home, where would you go? There aren’t any books, seminars, audio or video tapes that will tell you how to intelligently invest in one of our homes. All the internet gives them is prices.” (pages not numbered)
While Grayson’s point is on target (i.e. Nowhere to go for help!), he isn’t entirely correct. There are indeed books ‘out and about’ that purport to teach ‘How to Buy a Manufactured Home’, but they’re either universally incomplete, per content of previous paragraphs (Oft produced by MHIndustry advocacy bodies, etc.) or by self – proclaimed manufactured housing experts with axes to grind. A few such titles include:
Kevin Burnside in his Buying a Manufactured Home (168 pages, 1999), opines “The one constant…dealers want maximum profit from you.” And, “Your pocketbook is their target.” Pages # 15 & 31.
Steven Taylor, writing in MANUFACTURED HOMES, The Buyer’s Guide (144 pages, 2004) suggests, “For the best possible deal, time your shopping for the home either at the end of the month or…last two weeks of December….” P. # 99.
Wes Johnson’s does no one any favors in The Manufactured Home Buyer’s Handbook (226 pages, 2005), when he hyperbolizes: “The manufactured housing industry…feeds a negative stereotype of itself because of tactics its’ salespeople employ. Take every trick a used car salesperson ever had and multiply the total exponentially.”
Yikes! If this tripe commentary is even half true, there’s a lot the manufactured housing industry needs to do internally before ‘going national’, or even regional, with a brand promotion and or image – improvement campaign. But in the meantime, where do the previous dozen paragraphs take us? Right back to the title and subtitle of this week’s blog posting!
Whose Responsibility is Housing Affordability?
Maybe the time has arrived for a New Way of Thinking when it comes to manufactured housing sales in landlease communities retail salescenters
What do YOU think? What are YOU going to do about it, in and around your sphere of business and trade association influence? In the meantime, allow me to share at least one hopeful and helpful development along the line of calculating housing affordability, based on proven affordability parameters, designed to estimate maximum recommended ‘affordable’ and ‘risky’ purchase prices for new and resale, privately – owned homes of any type, sited on realty owned fee simple with home, or leased, as in a landlease community!
For results – comparison purposes, and hearkening back to Jerry Rouleau’s Rule of Thumb, given $36,000 as Annual Gross Income (‘AGI’) or Area Median Income (‘AMI’) per local housing market identified by postal zip code, here’re ‘his results’ first, then those from the new methodology, a.k.a. ‘Ah Ha! & Uh Oh! Formulae.
J. Rouleau’s Rule of Thumb:
AGI X 2.5; or $36,000 X 2.5 = $90,000 max mortgage @ stick – built home & real estate
AGI X 3 when 6% interest, or $36,000 X 3 = $108,000. -do-
AGI X 2 when 12% interest, or $36,000 X 2 = $72,000. -do-
The relatively new, though increasingly popular ‘Ah Ha! & Uh Oh! Formulae:
AGI or AMI X 30% expense factor & $333/month rent & 9.5%, 20 yr. loan = $41,000 for ‘affordable’ home purchase sited in a LLCommunity!
AGI or AMI X 30%, with TI/util pd separate, & $333/month rent & 9.5%, 20yr. loan = $68,000 for ‘risky’ home purchase sited in a LLCommunity!
AGI or AMI X 30% expense factor & 6.5%, 20 yr. loan = $101,000 max mortgage for ‘affordable’ home and land purchase! Pretty close to Rouleau’s $108,000, with mortgage term at 6%. (For estimated value of home alone, back out land cost)
AGI or AMI X 30%, with TI/util pd separate, & 6.5%, 20yr. loan = $134,000 max mortgage for ‘risky’ home and land purchase! (For estimated value of home alone, back out land cost)
I hope you see the differences, at a couple levels. First, leaving the home payment decision up to the homebuyer is frequently going to trump affordability. Consumers are rarely schooled in the concept, let alone methodology about how to measure and achieve it, to their ultimate benefit. And Yes, that’s what we rely on lenders to do for us; and today, they’re covering that responsibility well. But it wasn’t but a couple years ago, when many banking institutions transitioned from prudent lending to predatory lending, clearly demonstrating their commitment to ‘affordability’ was in turn trumped by their desire to fatten the bottom profit line. So, hope you too ‘see the light’ relative to protecting your homebuyers, sometimes from themselves. And don’t forget, those folk buying new or resale homes in, or going into LLCommunities, must figure in the appropriate homesite rental amount, right along with calculating their maximum monthly mortgage (PITI) payment!
I truly hope there’re blog floggers (readers) ‘out there’ who are already looking out for the affordable housing interests of their prospective homebuyers! If so, would you please share your business model and methodologies with me; to in turn, present in future blog postings like this one? Thank You. GFA
If you’d like a free copy of the aforementioned ‘Ah Ha! & Uh Oh! Formulae worksheet, simply respond via this blog, website, email: gfa7156@aol.co, or the MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764. And Yes, continue to send your observations, critique, suggestions for improving this weekly blog posting.
II.
FLASH NEWS. A possible investment opportunity for an experienced LLCommunity developer/investor.
If you’re familiar with what’s happening about 100 miles North of Las Vegas, NV., relative to what’s locally referred to as the SWIP Utility Corridor (bringing long term electrical power to CA from ID, Canada, and elsewhere), then the following opportunity to develop raw land into much – needed rental housing (i.e. LLCommunity &/or RV Parks) will interest you.
“The Caliente City Council has approved a parcel split of the 30.98 acre parcel fronting HWY 93 into two parcels. 16.24 acres zoned Highway Commercial on the HWY 93 frontage, and 14.54 acres zoned Recreational Vehicle Estates, with a Conditional Use Permit for 123 Mobile/RV Estate lots on the southern portion.”
The two parcels can be purchased separately, if someone wants to build the Mobile/RV Estate lots. The lots will be permitted as manufactured housing rental homesites. The RV Estates ordinance allows each site two RV/Mobile hookups, so that during the SWIP construction, the crews can occupy both (total of 246 RV spaces). The Recreational Vehicle Estates zoning allows the sites to continue as RV rental sites and allows long – term stays to continue. The sites can be marketed as manufactured home rental sites, where the home will hook up to one pedestal, and the second pedestal can be used for guests in RVs. Manufactured home marketing and sales can start immediately.
For information, contact Jan Cole via jancole@land-water.com or 6772 Running Colors Ave., Las Vegas, NV. 89131 or phone (702) 270-9194
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George Allen, Realtor®, CPM®Emeritus, MHM
Consultant to the Factory – built Housing Industry &
The Landlease Community Real Estate Asset Class