When you’re buying a mobile home park it’s essential to start off on the right foot. In this Mobile Home Park Mastery podcast we’re going to review the vital first step strategies and explore what makes them so important. Since you never get second chance to make a first impression it’s important that you understand what you need to do when buying the property.
Episode 337: The First Steps After Closing Transcript
First impressions mean just that, you only get one time, you have a first. You can't go in and later change the perception that you are a good mobile home park operator. And when you buy a mobile home park, it's vital that you get off on the right foot. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. We're gonna talk about all the various steps you need to make when you first buy the mobile home park to start off correctly, to start off in a positive fashion, to start off showing the residents you do have, in fact, a control and a mastery of the mobile home park that you're buying. So what are those items that every buyer should do either prior or on the day of closing? The first thing you need to do is you need to join your state mobile home association.
There's one for every state in the United States other than in Hawaii because Hawaii only has one mobile home park and it's actually owned by the state of Hawaii. Now, the state association is designed for several purposes. Number one, to help guide the industry in that state forward, trying to fend off negative legislation and trying to adopt positive legislation, but it's also become the repository of case law and all the things you need to know about owning and operating a mobile home park in that state. We're members of every state association in every state that we own a mobile home park in, and we hardly recommend that everyone do that. It's a great way to get from 0 to 60 in one second, talking with your state association. It also helps backstop you so you never are unaware of any changes in case law that's going on.
And by joining the state association, you'll have access to all the information you need on some of the other items we're about to talk about. Now, the next thing you'll need to do is you'll need to have your utility deposits already done. Now, what are utility deposits? Well, throughout America, particularly with the mobile home park, which can run up some fairly large bills, because of the scale of the number of people who live there, you put deposits up, which makes the utility company feel better about the fact that they should give you the credit because normally you pay your utilities in arrears. So the utility company wants to know there's money up, so in case you don't pay the bill, worst case, they can seize that money to help offset the loss. And unfortunately, a lot of utilities are very coy about those deposits that are needed to be placed.
There was a case not too long ago, where a mobile home park owner bought a mobile home park only to have the water turned off for a couple hours because the utility company revolted against the fact they'd not put up a deposit. Don't let that happen to you. Go to the utility company in advance, say you're buying the mobile home park as of the state. What do you have to do in the form of putting up that deposit so that you have no interruption in service? You'll also wanna give all your residents an announcement letter letting them know that you have in fact bought the mobile home park. It needs to be something that reinforces to them that not only the good news that the park is under new management because for most residents, the old mom and pop, although very nice people, may have not been managing it up to their pleasing, but also additionally lets them know it's not being redeveloped.
It quells all of the gossip and urban legend that floats around parks when people see surveyor stakes go in. Also, I assume as part of buying the mobile home park, you may be bringing in a new manager because often when a park trades hands, mom and pop, either self-managed or you don't like their selection of the managers, so you make a change. This is the appropriate time upon closing to let people know along with your announcement letter that the park has in fact closed, that you'd say who the new manager is, and you'll need to go ahead and select the manager during your due diligence and financing period. You can't go looking for the new manager on the day of closing. You need to announce on that very day who the new manager is. You'll also need to get out new lease and rules probably.
And why do we do that? Why is it so vital that we do that? Well, because many mom and pops had no leases in rules. At least we haven't been able to find a copy in some cases. But additionally, you now have real good insurance and there's some provisions of your insurance policy that do not match the city's law, because when you don't have a proper lease and rules, the rules, they default down to what the city's rules are. And the three main things that mobile home park insurance companies don't allow but cities do are large and dangerous breeds of dogs, trampolines and inflatable swimming pools. And there's no way you can ban these things and therefore be in the exact positioning that you've promised your insurance company until you get those new rules enforced. Also, it may be that whatever lease and rules mom and pop were using were in fact wrong for your state, which you've now fully vetted through your state association. Also, you're probably gonna be raising the rent, and in that case, once again, you'll want to have a lease and rules that reflect what the new rent will be at the time that that lease and rules is adopted.
Next up to bat is you're gonna wanna notify the state, the county, and the city about the fact that the property has changed hands to make sure that you get lined up for any annual permit renewal, whether it's on the state, county, or city level. Now, some mobile home parks in America don't have any annual renewals required. There is no annual health inspector certification or any kind of permitting process. So if you're in one of those markets, well then you don't have to do this step. But in many other markets, in fact, there is something annual, it may be on the state, maybe on the city, maybe on the county level. And you may also want the inspectors to know who to contact if there's a problem. You would not want them to try and reach you about some issue with the property only to instead call mom and pop who no longer own it and then never return their call.
And then that kind of builds up with pressure over time because they can't reach you when the entire time you could have happily and proactively solved the issue if only you had known. So it is typically a good idea to make sure that everyone is fully aware that there's a new sheriff in town because you want to get off on the right foot with the city as much as you do with your residents. You also want the residents to know exactly how and who to pay, because it's very, very important in mobile home parks that we have no break in the collections process. Now, often mom and pop did a terrible job of enforcing what we call No Pay No Stay in the industry, which means you don't have to pay your rent, but if you don't pay, you can't live in the mobile home park.
That that very mathematical strict way to collect money has always proven to be vital in our industry when many of our residents are strapped economically and they need to understand that rent comes first, of all the bills that they pay, the rent and the mobile home park has to be priority number one. Many of them know if they don't pay their car payment, the car will be repossessed. But many times, mom and pops ill-trained the residents to understand that there's a tie between paying rent and not being evicted. So you want residents to know when you buy it, that definitely here is how you pay the rent. Now, that doesn't mean they necessarily will, but you have to get off of the right foot to at least educate them of the process. They'll soon learn through your adoption of No Pay No Stay, that if they don't pay the rent, they'll get a demand letter and a late fee.
And if they still don't pay the rent, they'll be served with an evictions notice. And if they still don't pay the rent, well, you'll be in court to go ahead and get your eviction completed. And if they still won't pay, that you're gonna go ahead and get that Writ of Possession or Writ of Execution to throw them out of the home so that you can go ahead and remove them so they're not costing you time and the spot in the mobile home park and valuable utilities without any form of payment. So it's extremely important when you buy the mobile home park to let them know, "Here's how it goes starting now." Also make a decision on the front end whether or not you're going to pursue any past rents owed. In many cases, the smartest attack plan since you bought the mobile home park, looking only to rent coming in monthly and not even looking to amounts of the past, is to effectively forgive those amounts.
Someone who's even three or four years back who has not paid in the longest period of time is suddenly redeemed when you simply tell them, "Look, I don't care about the past. All I care about is going forward. If you'll start paying your rent like clockwork on the first of every month, then you don't have to worry about those big amounts from the past." Often the reason they were not paying mom and pop is they were so convinced that they owed mom and pop so much money that they could be evicted at any point and it seemed rather hopeless that they continue to pay. The bottom line to it all is the goal when you buy the mobile home park is to get off on the right foot. You want to get off on the right foot with your residents, with the city, with your community at large, and often how you position yourself, how much preparation you took on the front end, how much knowledge you have of what you need to be doing, can make all the difference whether or not you get that good first impression or not. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.