Some of the theories behind the correct way to buy and operate mobile home parks comes from careful testing and study. But still others are passed down from earlier generations of park owners who simply believe them to be so, even in the absence of any scientific reasoning or data. In this Mobile Home Park Mastery podcast we’re going to explore some of these superstitions that often prove to be accurate despite their lack of statistical reinforcement.
Episode 334: Where Science Meets Superstition Transcript
For 30 years now, we've been trying to apply science to every aspect of mobile home park ownership. We find it reassuring to think that we understand, with every activity we do in buying and operating mobile home parks, that we're going to hit the desired end result. We're like a chef who has a recipe to make a really good cake, and we just know based on the science of past experience that when we apply the products in a certain sequence, we will get a really delicious birthday cake. But there are others in the industry who have just run their businesses using some superstitions; things that they were told by other owners or they just one day came up with on their own, never tested these things, never applied any science to them, yet they actually do sort of work. We call those items, rather than science, superstitions.
This is Frank Rolfe, The Mobile Home Park Mastery Podcast. We're going to explore some of these superstitions that some mobile home park owners carry around with them that actually turn out to be fairly accurate. The first one is the slang term, it's not a good thing to say. It's politically incorrect, but yet this is what many park owners will tell each other, and that is that our customer base is basically formed on the newlywed and the nearly dead. Now, what does that even mean when you make that derogatory comment, "The newly wed and the nearly dead?" What are you even talking about? Well, what they're talking about is that a good percentage of mobile home park residents are new household formations, and then another one is that the nearly dead suggests that you have a high concentration of seniors. Now, is that really true? Well, actually it is.
If you look at most mobile home park populations, you'll see that you have probably a greater percentage of seniors and a greater percentage of young household formation than you do in other types of housing, probably than you do in the local subdivision. I don't know. Maybe more than you have in the local apartment complex. Now, why is that superstition really kind of true? Well, on the young household formations, they're looking for affordable housing. It's very expensive to find a place to live these days. And most people, particularly young household formations who may have kids, they like the advantage of having a yard and detached housing where they don't have people banging on their walls and ceilings or where they feel guilty if the kids are making some noise. On the senior side, what's happened is that many seniors are downsizing, trying to lower their cost of living and they have found that they can sell their traditional brick house and use the proceeds to buy a mobile home for cash in a mobile home park, put the rest in the bank, and that way they can have a lot more disposable income for things they may enjoy more like eating out or going on trips.
Now, is there anything wrong with being newly wed and nearly dead? No, actually. It's neat having that full circle of range of residents. Having a product that's attractive to all generations is clearly good, particularly when you go into recessions and depressions and all kinds of cyclical economic forces. But it is a fact, even though it is a superstition and a slang term that we do house a very high percentage of new household formations and seniors. Another superstition that's been going around for as long as I've been in the industry is the supposition that if you take the local two bedroom apartment rent and you half it, that that equals the typical lot rent level. So for example, if you're looking at a market in the two bedroom apartment rent that is vetted out through a group like bestplaces.net, if it's $800 a month, that would suggest the lot rent in that market would be $400.
Now, it is true. It really does work if you apply it to most markets. It's not 100% accurate, it's more of a guideline. But still, why does it work out that way? Well, I guess the only explanation is that most mobile home park owners try and be ridiculously cheap with the rents and they just feel, I guess, that being half of a two bedroom apartment rent means that they are the cheapest game in town by far. Now of course, you're probably going to gonna see this formula change over time as park owners are not so insecure about charging market rents because I don't know why a mobile home lot rent would have to be half of a two bedroom apartment rent. Why not a three bedroom apartment rent? Because three bedrooms, our mobile home parks are much more typical than two bedroom models.
But I assume people think, "Well, we gotta leave some room on the table for the cost of the house and not just the lot rent." So I guess that goes through their mind, maybe that's part of the equation. But it is a fact, even though it is a superstition, it's not based on science and it's been thrown out there by many moms and pops who probably can't even spell science, that half of the two bedroom apartment rent equals the approximate lot rent level. And as long as that's holding true, when you're looking at evaluating a mobile home park, you know nothing about the market, trying to do a 5,000 foot elevation thought on whether you'd want to wanna buy it or not and what the rents could be raised to, that formula actually can be helpful. Another superstition many park owners carry around is that the deposits are absolutely meaningless on mobile home parks.
And that is pretty true. Now, in a lot of mobile home parks, when you go to buy them, you ask mom and pop, "Okay. Tell me about the deposits and how many do you have and what quantity?" And you always find that they give you these crazy, crazy stats that out of 100 space mobile home park, they only have deposits on 15 units and they're only $100 each. So their total deposits for this giant mobile home park might be $1,500. And of course, deposits have to be held sacred. There's all kinds of rules and regulations on deposits in most states. But the fact of the matter is with many moms and pops, they don't have any deposits. Now, why don't they have deposits? Why do they have this general superstitious attitude that the deposits don't mean anything?
And the truth is 'cause they normally don't. The only way a deposit would get refunded to a customer is if they gave the required notice under whatever agreement the deposit was put up and they return the property back to its original condition. Of course, they never give out notice like that. And then when they do, if they did, they would never return the property back to how it was because what we're talking about here would be the mobile home would have to leave the mobile home park, the lot would be have to be immaculately clean just as it was when the mobile home showed up. And of course, that's never going to happen. So as a result, most people do not take mobile home park lot rent deposit seriously. They're very rare animal and it's very, very, very rare you ever actually would have one return. So in fact, that superstition is fairly accurate.
Another superstition some mom and pops carry around is that late fees equal bad debt. Now, we have scientifically proven to ourselves over a 30-year horizon that that is in fact true. Why is that? Well, parks that have lots and lots of late fees typically have lots and lots of bad debt. Bad debt is defined as what happens when a mobile home park resident moves out. Whatever money they didn't pay you becomes classified as bad debt. And in parks where you have high incidents of people paying late and paying in lots of late fees, you also have a correspondingly higher group of people who just run off. In other parks, you may find that you get almost no late fees. You might have a mobile home park that has not had late fee in five years and in that same mobile home park, because that's the way those customers are wired, you'll find they also have had no bad debt in five years.
So once again, it's a superstition most people carry around. But it is, in fact we've found, actually based on science, it is very, very typical that your bad debt and your late fee as well may in fact wash. Another superstition a lot of park owners carry around is they need to fire the existing manager on day one, basically because they're all bad. Now, are all existing mobile home park managers bad, bad at their jobs? The answer is no. So based on science, that's not truly what you should be doing. We've had some managers that we've inherited from parks we've purchased who've done spectacular jobs. Top, top, top of their class as far as getting the job done, on resident satisfaction and managing the property well. But it probably is something that people found over the years, which is true, that if a park is not doing well, that the manager is more a part of the problem than the solution.
Now, in many mobile home parks, it is true that the manager is in fact a participant in whatever the problem is that makes that mobile home park not function properly. But it's a little bit unfair to say that all managers simply must go. That's one where on the majority, on the macro level, that superstition is probably correct. But on a more granular basis, science would say that there really are a lot of good managers out there. A lot of times when a manager is not working out and the property is not running at its full potential, the problem isn't the manager. Sometimes the problem was the owner who would not give the manager any capital to work with. You can't judge the manager on such items as potholes or other common area features, if mom and pop doesn't give them the money to fix the potholes or even mow the grass.
The bottom line to it all is there are some superstitions floating around out there and in many cases they are fairly accurate. However, there is no substitute for science. So as the industry continues to mature and develop and take its rightful place among all the other mainstreams of American real estate, hopefully we will replace the remaining superstitions with things built on actual scientific fact.
This is Frank Rolfe, Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.