Entity Structures for Holding Mobile Homes

For our latest mobile home park acquisitions, we are looking into using a separate entity for holding mobile homes. Although using a separate entity creates administrative overhead, there are reasons for doing this.

Financing – In one deal, we are assuming a conduit loan for a mobile home park. The loan document states that the park needs to be held under a single purpose entity for the park. The entity cannot have any personal properties and mobile homes. There are some homes in the park and we plan to bring in more to increase occupancy. Thus we have to use a separate entity.

Liability – Having homes in another entity can be additional layer of protection against liability.

Accounting – Homes are really a separate business model within a mobile home park. Home sale, home maintenance and home rental are different from the main business model of land lease of a mobile home park. Keeping separate books makes sense when you have a large number of homes. Later when we want to refinance or sell parks, it will be much easier for banks and buyers to underwrite the park because books are separate.

Entity Options

Here are some possible options:

Asset Management Company – Often park owners create separate entity to manage mobile homes. You can use the asset management company to hold mobile homes. It sounds good because you can reuse an existing entity. This option, however, has a problem with shielding from liability. Asset management companies are created to shield assets from liability. Having asset management company hold homes would defeat the original purpose.

Individual Holding Entity for a Park – Another options is to create a separate entity for each park. This can create administrate overhead. When you buy a mobile home park, you need to create two sets of entities – one for the park and one for mobile homes. If you have to get mobile home dealer license or get financing for mobile homes, you will have to duplicate effort each time. Despite the overhead, there are park operators who do this. This may be necessary when there are a large number of mobile homes in a park or partnership/financing prevents using an entity across multiple parks.

Common Holding Entity – This is the structure we opted for. You create an entity that will hold all of mobile homes across your mobile home park. You set up separate accounting for each park so that you can monitor accounts. You can re-use any license (unless parks are in different states) or financing program without having to reapply

A nationwide mobile home lender told me that she really saw all of these options being used. It really depends on the need and the situation of each park owner. She did mention, however, bigger operators are moving to the Common Holding Entity option.