Can Manufactured Homes Be Rental Properties?

Sometimes, but the decision is not yours alone. Renting out a manufactured home takes a yes from up to four parties: your lender, the community if the home sits on a rented space, the city, county or homeowners association if it sits on your own land, and your insurer. A no from any one of them ends the plan, so the time to ask is before you buy, or before a tenant moves in.

Start with the financing. Some buyers use manufactured homes as rentals, but many programs and communities require owner-occupancy. Ask whether financing is available for your intended use before you buy.

Who has to say yes

Who decides whether a manufactured home can be rented out

A loan is approved for the use you describe

Every home loan application asks how you will use the home. Under the federal mortgage reporting rule, Regulation C, lenders covered by the rule classify the property as a principal residence, a second residence or an investment property. The answer you give is part of what the loan is approved on.

The category matters because programs are written around it. Many manufactured home programs are meant for a home the borrower lives in, and a loan made on that basis generally cannot be used for a home bought to rent out. Three things follow:

• If you are buying, say how you plan to use the home in the first conversation. Describing a rental as your residence on a loan application is a misrepresentation, and lenders treat it seriously.
• If you already have a loan, plans can change: a job in another city, a move in with family. Before a tenant moves in, read what your loan documents say about occupancy and ask the company you send payments to, in writing, what it requires.
• If a relative will live there, the home is not one you occupy. A lender looks at whether you, the borrower, will live in it, so a home bought for a parent or an adult child raises the same question as a rental.

If you are still shopping, tell a specialist at Santiago Financial, Inc. how you plan to use the home when you first contact us. Every application is reviewed individually, and it is better to hear what is and is not available before you make an offer.

In a community, the rules usually decide it

When the home sits on a rented space, you own the home but you are the community’s tenant for the land. A renter in your home is someone living on that land whom the community never approved, which is why many communities restrict or prohibit renting. Space rent is the monthly rent for the homesite, and it stays your obligation whoever lives in the home.

Get the current rules and regulations from the office and look for four things:

• whether renting the home or subletting the space is allowed at all, and for how long;
• whether the person who would live there has to apply and be approved, as a buyer would;
• in an age-qualified community, whether the age requirement applies to whoever occupies the home;
• who answers for the space rent and for any rule violations.

Park tenancies have their own laws: California’s Mobilehome Residency Law and Arizona’s Mobile Home Parks Residential Landlord and Tenant Act. Read the current text, or ask an attorney, about how they apply to renting out your home.

Seasonal owners who picture a tenant in the months they are away should read this rule before anything else; buying as a snowbird in Arizona covers the other seasonal questions. The rental rule is also only one of several that can change a buyer’s plans, and how park rules affect a purchase goes through the rest.

On your own land, check zoning, the HOA and local rental rules

With no community office to ask, the answers are spread across several places:

• Zoning and the HOA. The planning department can tell you whether renting is allowed at the address. If the lot is in a subdivision with a homeowners association, its recorded covenants can limit or bar leasing.
• Short-term rentals. Many cities and counties regulate short stays separately from ordinary leases, often with a permit or registration of their own.
• Rental registration in Arizona. Arizona law requires owners of residential rental property to keep registration information on file with the county assessor (A.R.S. 33-1902). Ask the assessor how that applies to your home.
• Landlord duties. Once a tenant moves in you are a landlord, and state landlord-tenant law applies to you.
• Taxes. Rent you receive is taxable income; the IRS explains the basics in Topic 414.

This article is general information, not legal or tax advice. An attorney or tax professional can tell you how these rules apply to you.

Insurance changes when a tenant moves in

A policy written for a home you live in is not written for a home you rent out. The National Association of Insurance Commissioners, the organization of state insurance regulators, puts it this way: a house that becomes a rental has gone from a residence to a place of business, and the insurance has to change with it. A landlord policy generally covers the home and your liability as owner. It does not cover the tenant’s belongings.

Tell your insurer before the tenant moves in, and ask three questions:

1. What type of policy applies to a manufactured home with a tenant in it?
2. What happens to the coverage if the home sits empty between tenants?
3. If there is a loan on the home, what coverage does the lender require? Lenders generally require acceptable insurance for as long as a loan is outstanding.

You can also ask the manufactured home insurance team whether a policy is available for a home that will be tenant-occupied.

The costs that continue with or without a tenant

Rough rental plans tend to count the rent coming in and overlook what goes out every month regardless. Before you rely on the income, list the costs that do not stop when a tenant leaves:

• Space rent, if the home is in a community. It is owed every month whether or not anyone is living in the home.
• The loan payment, if financing is available for a rented home.
• Insurance, on a policy written for a rental.
• Property taxes or the home’s annual registration fees.
• Repairs and upkeep. A tenant calls you when the water heater fails, and the community holds you to its standards for the outside of the home.
• Vacancy. The weeks or months between one tenant and the next.

What a home will rent for, and how often it will sit empty, cannot be known in advance. Run the plan with the home empty for part of the year and see whether you could still carry every item on the list.

Questions to settle before you count on rental income

If any answer is no, or nobody will put it in writing, weigh the home as one you would live in yourself.