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April 1st, 2015

Memo From Frank & Dave

Today is April Fool’s Day. So today must be dedicated to the oil and gas industry, which is locked in an industry meltdown that makes all those wild investments in fracking seem maybe not so smart. And all those RV parks built in the middle of nowhere to house oil and gas workers seem like an incredible bad joke. There are many industries that must take April Fool’s Day personally because they can’t figure out how to make a profit or how to sell at a profit, or even what a profit is any more. Look at Radio Shack, which has gone into bankruptcy and sold for a fraction of the assumed value of only a few years ago, thanks to rapid changes in technology and customer perceptions. The great thing about being in the mobile home park business is that it is stable and boring, and we are the dollar store of housing at a time when most Americans are becoming poorer. Our timing is fantastic, with interest rates at all-time lows, park returns at all-time highs, and the decline of the U.S. economy a given. Of course, there’s danger in being too smug. That’s why all park owners need to strive to deliver a good value and keep costs down, as well as to stay proactive on mitigating liability and play smart on financing (some of these topics are discussed in the Gary Rivlin interview showcased below). But you have to admit that the industry is in a unique position of strength that nobody would have predicted 20 years ago. So who’s the fool now? The guy that invested in oil and gas over mobile home parks, that’s for sure.

What Have We Learned Since The New York Times Interview?

It has been almost exactly one year since the article “The Cold Hard Lessons of Mobile Home U” was published in the New York Times. The write of that article, Gary Rivlin, agreed to be interviewed by us to discuss the issues raised by the article and what he’s learned since the article came out. It’s a fresh perspective from an unbiased source.

Our industry is well positioned for the new normal of the U.S. economy

The whole reason that Gary thought up the article to begin with was his obsession with the never-ending decline of the U.S. economy. His top-selling book “Broke USA” focuses on the payday lending and pawn shop industries, which grow as poverty increases. He said “yes, I was writing about the poverty industry where there’s all these businesses that counter-intuitively make a lot of money when people have no money”. “What I was thinking about that really made me want to do this story was that all these people lost their homes after 2008. There were foreclosures – eleven million, or something like that in that year. So I was just wondering, where do you end up? You lose your job. Unemployment has essentially doubled. Where do you end up if you can’t afford your home, you can’t afford your apartment? So that got me interested in mobile home parks”. “If you want to talk about what is going on in this country – like a downward mobility through tough economic times”. “I was interested in the linear edges of the economy”.

Our own industry is its worst enemy on becoming mainstream

One of the strangest side effects of the article was the reaction of the mobile home park industry. Gary used only the terms “trailer park” and “mobile home park” to describe what we do. As a result, one industry guru wrote an article on Gary’s article stating that using the nomenclature “trailer park” instead of “manufactured home community” was “the exact same thing as using the “N” word”. Gary’s reaction was “yes, that stuff is really, really important to political debates in discussing something. I mean, that doesn’t fool the bank, does it?” The amazing part of this was that Gary’s article was the first positive article on the industry since the disastrous 2011 Wall Street Journal article “Tide Changes for Manufactured Housing” blasted the poor business model of the lifestyle choice park REITs – so you think industry people would be appreciative. Of course, I guess that the Wall Street Journal article got the industry’s name correct – while it skewered it – so that was more important?

An affirmation of the positive future of the industry

For an admitted skeptic on businesses that cater to the poor, Gary has an unusually positive opinion of the future of the industry. Said Gary “what is so fascinating about your industry, and I didn't appreciate this walking in, which is another thing I learned is that there is a finite number of these things. In fact, arguably they are reducing because no municipality is going to have allowed more of them, and occasionally they are sold off and turned into a shopping center and all. So, talk about supply and demand. I mean, how are they not going to always be worth something? In a capitalist economy, there is always going to be winners and losers. There are like ten million people on disability in this country, which means they are living on under a thousand dollars a month. There is always going to be a need for people to be someplace relatively safe and relatively comfortable. I'd be shocked if this wasn't a good industry in fifty years. The only thing that could change that is if suddenly there was a change in heart with municipalities saying, “You know something, what we really need in this country is more affordable housing, so we are going to allow a lot more trailer parks.” That's not going to happen. You know that”.

Even the most hardened reporter can be swayed by popular support

What was the biggest surprise from Gary’s work on the story was how happy our customers are. Gary said “pretty much everyone I met was pretty happy. That is not only a compliment for you, that they were happy with the management. I think that they were just sort of happy to keep their monthly rent really low, so they wouldn’t have to work as hard or struggle for money every month”. One couple he interviewed told them the story of their move to our park in Pontoon Beach. “Again, they fit that category of folks who used to have a house, got frustrated, or just saw that life was expensive and this might be a cheaper alternative for them. They had bought—I can't remember the exact numbers, but it was fifteen or twenty grand. They bought a trailer ten or more years ago in Pontoon Beach. Again, they just didn't want to have to work as hard. He was a salesman. A year or two after he bought the place, suddenly he just started having these terrible back problems. Here is a guy who just flew and drove. He was a traveling salesman. He had to travel all the time for his work and suddenly he couldn't work. So, for four years of fighting for disability and stuff--his wife, ironically enough is a physical therapist. They had somehow survived that four years because they had such a relatively cheap monthly for their housing; whereas, if they had been in the house they were living in prior it would have been a disaster. Right there, they would have fallen behind on their mortgage and then their bank would have seized it and they would have desperately had to find some place and they don't have the income. So, they really stuck with me because they were so fortuitous. They had made this decision earlier, and it really turned out to save them a lot of heartache in their life”. It was these types of interviews that converted Gary to a fan of the mobile home park business.

Conclusion

The New York Times article was the first of its kind. And the author’s continued viewpoint on the industry serves as an interesting and intelligent glimpse into the perception of what we do. We plan to continue to interview Gary in the years ahead, to follow the progression of his opinion of the mobile home park business. If you would like to read the original article again, here is the link:

Read "The Cold, Hard Lessons of Mobile Home U."

The Importance Of Having A Great Attorney

Of all the alliances you have to forge in successfully buying and operating a mobile home park, one of the most important is your attorney. There are many different attorney profiles, and you must select the one that is best suited for the task at hand. The most common occurrence, for most park buyers, is the attorney to read and protect your interests regarding loan documents and questions that come up on title and contract issues. Like anything else in life, if you chose a bad advisor, you will have a bad outcome. So how do you find a terrific lawyer well-versed in mobile home park law and issues?

The best corporate lawyer we have ever used is Dave DiMarco at Woods Oviatt Gilman, LLP. We have used him exclusively for all of our conduit loans, as well as traditional bank loans. What we love about Dave DiMarco is that he knows what we are trying to accomplish (get the loan closed quickly and inexpensively) and he can quarterback the situation and push it to the goal line without us having to bug him or worry about our progress. How many attorneys have you had to nag, or even worse, call 100 times to get them on the phone? With Dave DiMarco, you don’t have to worry about if he’s making progress – he’s typically bugging you to push you along on your part of the equation. We have given Dave some extremely complicated, time-sensitive tasks and he has successfully completed them on-budget and on-time. He also has terrific people skills and can take charge of a rogue bank attorney and bring them back around both in speed and complexity. Our success rate with Dave DiMarco has been 100%. We get calls all the time from people looking for a good lawyer, and we always tell them to call Dave. If you need a lawyer to represent your interests in a transaction, then you will be well served to call Dave DiMarco at (585) 987-2833. And, yes, he’s the brother of Anthony and Gerry DiMarco – the #1 mobile home park loan brokers in the U.S. This is a family that definitely shapes the industry.

New Parks for Sale on MobileHomeParkStore.com

Mobile Insurance Is Our Insurance Expert!

Whether you are simply in need of an insurance quote or you have the unfortunate, yet common task of filing a claim, Mobile Insurance is ready and waiting to take your call.

They offer you the best mobile home park insurance coverage when you need it. Being able to contact them when you need them is just as important. Shopping for insurance or setting the wheels in motion to get your damaged home or your business back on track is not easy. At Mobile Insurance, they work to make the whole process easier with greater value for your money. Call them at 800 458-4320 or email [email protected]

Can You Really Trust City Hall?

Mobile Home Park City Hall

If you have a fundamental distrust of governmental authority, then you are definitely on the right track concerning mobile home park ownership. City Hall is certainly never your friend – and often your worst enemy—when it comes to protecting your rights as a property owner. Personal agendas and hypocrisy are more common at City Hall than on the Kardashians, and both are unpleasant to watch. So why do mobile home parks have a uniquely unfriendly relationship with City Hall.

City Hall is often wrong

Mobile home parks are protected by certain zoning laws, many of which are too complicated for the usual inspector to understand – certainly for an individual with the brain power of an inspector. Because of this fundamental lack of sophistication, most city inspectors and managers come to the wrong conclusions all the time. The most common misstep is the interpretation of “grandfathering”, also known as “legal non-conformance”. Under this law, any mobile home park that was legally constructed at a certain point in time, only has to abide by those ordinances in effect on the day it was built. Thereafter, no new ordinances have any application and are void. If the park was legally built in 1974 with 5’ setbacks from the street, and the city passes an ordinance in 1994 that the setback must be 50’, then the law is still 5’ for that park. This is federal law, and has been tested in court repeatedly. In fact, there is Supreme Court case law to support this in Missouri and Ohio.

City Hall is typically stubborn even in the face of overwhelming fact

Despite the fact that this is federal law, and should be part of the training of any city manager or inspector, it is all too common for City Hall to get it wrong. But even worse is the stubbornness of City Hall to correct their thinking when their ignorance has been pointed out. It is very common for us to be forced to resolve such issues using a call from our lawyer to the city attorney. The city attorney then educates the city manager, and then that water falls down to the inspector. But in some cases City Hall -- despite knowing and understanding the law -- chooses to refuse to acknowledge it because “they just want that damn trailer park gone”.

You have to fight for your rights and not back down

When that happens, you cannot let City Hall deprive you of your rights as a property owner. If you do that, you jeopardize your ability to maximize the park’s income, as well as potentially damage or destroy the ability to refinance or sell the park down the road. And, worst of all, such loss is not even necessary, as you are 100% in the right under federal law.

But you have to pick when to fight

But that does not mean that you should fly a “Don’t Tread on Me” flag in front of your house. You need to pick your battles carefully, and not be labelled as a “cry baby” by the city. For example, if the inspector says that a certain house has to replace the broken coach light on their front door, and it costs $20 to do that, the last thing you want to do is file a lawsuit to block such an action. We will give on many issues that we don’t have to, because it simply is not financially sensible to fight them, or they have no impact on future park operations or valuations. But if a city says “you can’t use those vacant lots” then we declare war.

How to turn the tables on City Hall

There are three basic techniques you need to know to improve your odds of beating City Hall and getting them to back down. The first is that you cannot force your rights until you have been harmed. Essentially, you can’t sue someone based on an assertion of “what if”. You have to bring a mobile home into that lot that’s in contention and wait for the city to red tag it, and then you can sue. What we have found is that, despite what City Hall claims they’ll do, it’s actually 70% bluff. So, before you can break out your big guns, you have to let them fire first.

The second item is that the key to satisfaction in most cities is by enlisting the aid of a “municipal” lawyer. This is a special variety of lawyer that only sues cities. That’s their whole world. Most large firms have one, and it is essential that you use only a lawyer that has this expertise. If you hire a regular old family or real estate lawyer, the city will know they are ineffectual and not be scared. It’s like bringing Pee Wee Herman to a gunfight.

The third item that we have learned is that nothing scares City Hall more than the threat of a jury trial. In those cases where we have had to go to war, we have threatened to file for a jury trial, as opposed to one decided by a judge. Why is that? Because the judge is effectively on the City Hall payroll. They often have their chambers at City Hall, and they certainly look to City Hall to bring them business. City Hall knows that, in front of any judge, they have the advantage. But when you flip that to a jury trial, not only do they lose their top mobster, but they must now deal with the reality that everyone hates City Hall. The jury will almost certainly vote against City Hall, and they know it. We have used this one strategy against simple tickets from inspectors for petty items, and they always get dismissed.

Conclusion

In the Andy Griffith Show, City Hall was depicted as a fair and sensible institution. Well, maybe it was in 1950. But half a century later, City Hall is often ignorant, petty, and corrupt. Don’t feel like you have to obey what they tell you, or that they are always right. Stand up for your rights as a property owner and here the bully will cry like a baby.

Warren Buffet’s 21st Mortgage Announces The “Community Rental Program”
And The Mobile Home Park Business Will Never Be The Same!

We all know that Warren Buffet is the second richest person in the U.S. And we also know that the reason Buffet is so rich is that he develops great ideas and then acts on them. Well, one of the best ideas he ever had has made its way to the mobile home park industry. And this idea is the Community Rental Program, also known as “CRP”. We believe that this program will become a mainstay of the industry going forward, as it finally unlocks the door for park owners to fill their vacant lots without using any of their own money, and is supported by the endless financial resources of Warren Buffet. If you own even one vacant lot in your park – or are looking at buying a park with vacant lots – then you need to pay careful attention to this new program and see what it can do for you. We will be having a Lecture Series Event with question and answers on this topic in the next few weeks. Be watching for the announcement.

How A Ferrari And A Mobile Home Park Are A Lot Alike

Mobile Home Park Vs. Ferrari

It may seem absurd to compare a Ferrari and a mobile home park. One appeals to the top income earners in the U.S., and the other to the bottom. One is a work of art, and the other is often thought of as the ugliest thing on earth. One is often associated with super models, and the other with Roseanne. So how can a Ferrari and a mobile home park have anything in common at all?

Both are exotic

When it comes to rarity, both are pretty similar. Ferrari only produces about 7,000 cars per year, compared to 1.9 million produced by Ford. But mobile home parks are even rarer. There are only maybe 10 parks built per year in the U.S. And the similarity does not end there. Ferrari’s are not your typical kind of car, and turn heads when they go by. And trailer parks are equally unusual to spot, and also turn heads (although maybe for other reasons).

Both have high performance

The Ferrari is one of the fastest cars in the world, reaching speeds around 200 mph. Similarly, mobile home parks have the highest financial performance of any form of real estate, often producing 20%+ cash-on-cash returns in a world where many other sectors are lucky to break 10%. You can floor a Ferrari and go from 0 to 60 in under 4 seconds. Similarly, you can take a mobile home park from $0 of net income to $270,000 of net income in one year (we did that at Kankakee, Illinois), or other extreme net income increases outrageously fast.

Both can kill you if you don’t know what you’re doing

If you drive a Ferrari at 200 mph and lose control, you’re almost certain to die. And if you push a mobile home park to its limits – and don’t know anything about the laws, or private utilities, or master-metered gas and electric, or how to collect rent, or how to manage a property – you are almost certain to go bankrupt. You can’t engage in high level performance without reading the operating manual and getting familiar with the techniques involved.

Both offer great discounts if you are a good shopper

The typical Ferrari costs around $300,000 new. But on the used side, the prices are incredibly variable. A quick check on Autotrader.com shows the cheapest used Ferrari in the U.S. right now is $26,500, but there are a ton of them in the $35,000 to $55,000 range. You can get an incredible deal if you know how to shop and what to look for to ensure the car is a winner. The same is true with mobile home parks. The used market (remember that there are virtually zero new parks in the U.S.) reflects incredible elasticity, with one park costing $5,000 per lot, and another at $50,000 per lot. If you are a good shopper and really work the market, you can find parks for a penny on the dollar – and that’s where the real money is made.

Conclusion

Most people don’t think about Ferraris and mobile home parks in the same sentence. But they really do have some striking similarities. While we don’t advocate painting mobile homes racing red, many people don’t “get” mobile home parks in the same way that they don’t understand why you’d want a Ferrari over a Hyundai, as they are both just basic transportation, right? It’s not important that the masses understand any of this – only that you do.

A Testimonial For Renz And Associates

I wanted to share my recent experience with Mike Renz. Jeff and I needed a Phase I completed for a mobile home park purchase late last year. I shopped around, including Mike Renz as one of my quotes, and eventually chose a local consultant to perform the work. The savings was on the order of $300, and the local guy was "local"--meaning, he should be familiar with the area databases, industries, geology, etc.

In my initial conversation with Mr. Renz (and during every presentation he's given for you), he mentioned that regardless of who I chose, if I had questions, to call him. His advice would be free of charge.

The report I received from the local consultants was pretty bad. Being an engineering consultant in my prior life, I was expecting a much higher quality report. The local guys didn't really do any consulting, and worse, made blanket assumptions, suggested scientific theories that were incorrect with no supporting data, and worst of all, erroneously listed recognized environmental conditions (REC). I called Mr. Renz--he immediately/graciously reviewed the report, talked me through his major concerns, and provided a detailed email with a list of talking points that helped me discuss the report with the local consultant. With the talking points, I was able to reason with the local consultant. The final product was a Phase I report that I felt comfortable with, and more importantly, that the bank accepted.

Needless to say, next time Jeff and I need a Phase I, we're calling Mr. Renz.

As always, Jeff and I appreciate your help and advice and your willingness to share your experiences. After listening to Mr. Renz' presentation oat the Summit, I wanted to thank you again for bringing professionals like Mr. Renz to our attention.

-Jill S.

You can contact Mike Renz at (614) 538-0451.

The Truth About Trash

Overflowing Dumpster In Mobile Home Park

Trash is that unsightly stuff that you put in a bag – if you are the tenant. But it’s real money lost or gained, as an owner, if you dispose of it in the correct way. And there is a real science to trash collection in mobile home parks, and you have to understand the dynamics to make the right decision.

Choose your trash system based on your roads – not the price of trash itself

Mobile home parks have two choices on trash collection: 1) dumpster or 2) polycart. While it would seem that the most effective way to decide would be based on a price comparison, the truth is that the bigger issue is what each choice can do to your roads. Trash trucks destroy park roads. A dumpster truck is like running a railroad locomotive through your park – the weight well exceed what most roads were built for. Look at the stats; a typical car weighs around 4,000 pounds, while a dumpster trash truck weighs around 60,000 pounds fully loaded. That’s 14 times more than a car. So the few dollars you can save in comparing dumpster and polycart prices can be lost a hundred fold in damage to your roads. The general rule is that the best plan for trash is to put dumpsters right at the entrance, so the trash truck never enters the property. But many parks do not have the room for this, and others feel that dumpsters are too tacky for the quality of customer they’ve got. In that event, you are better off with the polycart trucks, which weigh about half as much. You’ll still get street damage, but not quite as bad. The worst plan is to put dumpsters at the farthest end of the streets – that will lead you to have to re-pave the entire park frequently, and that could be $50,000 to $100,000 per paving, depending on the park.

Dumpsters can hold unique problems

Dumpsters by the entrance, however, can also cause huge problems. Tenants often will use the dumpster as a convenient place to jam mattresses, furniture and other items that do not fit. They will also frequently just throw these items up against the side of the dumpster, not even bothering to put them inside because they can’t lift them. So they leave this mess to you to clean up. If you really run the numbers of what it costs to have your manager periodically break up and throw these items in the dumpster, however, you will see it’s still a bargain over the potential road damage.

There is another type of dumpster abuse, however, that makes no financial sense for your park – and that’s when outsiders, who are not tenants, use your dumpster for illegal tossing of everything from construction materials to trees and leaves. It’s one thing if you have to clean up after your own tenants – who pay you rent – and another to clean up after those who pay you nothing.

How to minimize illegal dumping in your dumpster

There are two basic ways to minimize or eliminate illegal dumping. And you should take advantage of both simultaneously. The first is to build a dumpster enclosure. Typically made of wood or metal, this is a giant fence around three sides of the dumpster, with a gate that opens on dumpster dumping day (typically unlocked by your manager in the morning and locked back that night). The key to the enclosure is that it eliminates the “hit and run” action that most illegal dumpers prefer. You have to pull up your pick-up truck to the enclosure, and then hand-carry it around to put it in. The preferred method is to just back up the pick-up truck and shovel it directly into the dumpster, which the “wall” eliminates. The enclosure alone often stops the illegal dumping as the contractor will simply find an easier target that does not have such a barrier (such as the dumpsters behind retail strip centers).

The other corrective action is to send a flyer to all park residents offering a reward for reporting any illegal dumping that leads to an arrest. The very word of this will stop all internal dumpers, who are afraid of their neighbors needing some extra money. Remember when Bill Clinton’s attorney said (of Paula Jones) “if you drag a $20 bill through a trailer park you never know what you’ll pick up”? Well, everyone in the park is also aware that tenants will kill for $50 or $100, and it’s not worth the risk. And if you do get calls about illegal dumpers, act on them by turning those leads over to the police. Any contractor who gets a call from the police about your dumpster will never go there again, and in the today’s world of smart phones, they all know the evidence is way too easy to assemble.

Make sure you have your dumpster on the right schedule

Even without dumping, many dumpsters are overflowing in the parks we buy. The reason? The owner has never paid attention to the natural cycle of the tenants and their trash. There is a natural flow of trash, the same as there is of sewage. And you have to adjust the rate of emptying to the rate of trash coming into the dumpster. Many owners shoot themselves in the foot all the time, but not wanting to pay for the correct number of pick-ups per week, and then spending ten times more in the clean-up after the dumpster erupts over the top. And that does not even include the damage from city inspector and lender tours of a property with an over-flowing dumpster.

Conclusion

There is much more to selecting a trash collection system than simply comparing dumpster and polycart costs. Choosing the correct avenue will save you thousands in road issues and lead to a happy tenant base and positive park inspections.

Security Mortgage Group Is Our Banking VIP

We did a lot of conduit loans -- and regular bank loans -- last year. A common feature of those loans was Security Mortgage Group. If you are buying or financing a mobile home park, let Security Mortgage Group get you the loan. They'll get you better terms than you'll ever be able to find on your own. That's why the win the industry mortgage broker award virtually every year from MHI. If you have any loans you need help on, you can reach Anthony or Gerry at (585) 423-0230.

The Man Behind Novelty Trailer Park Teeth

Trailer Park Buck Teeth

You have probably seen “Billy Bob Teeth”. But do you know the story behind this multi-million dollar product? Well, it’s as strange as the teeth. Jonah White was at a college football game in 1994 when he saw a guy in the stands with fake buck teeth. Rich Bailey, a dental student, had built them for fun in the school’s lab. So a deal was cut, and the product known as “Billy Bob Teeth” was born to give Americans the appearance of hillbilly trailer park idiots for $20 a set. In 2000 – the best sales year ever – there were $7 million of these teeth sold (yes, that’s 350,000 units). Due to the decline in Duck Dynasty ratings, and the need to fill that time with something equally outrageous, Jonah White now has his own television show where he does a Shark Tank style selection of goofy inventions from budding novelty inventors.

White was the leading rusher for Missouri State University in 1992, but failed to get drafted into the NFL. So he lived with his parents, built Billy Bob Teeth, and sold them at every venue he could find. His father was a Stanford anthropologist, who allowed White to live in his backyard inside of a cave while he was getting the company off the ground. He recently gave Miley Cyrus a potbelly pig, to replace a dog that was eaten by wolves. “At first she was hesitant – but this is Miley Cyrus we’re talking about” he said “she’s a huge rock star but deep down she’s a little country girl from Nashville”.

And you thought the mobile home park business was weird.

The Market Report

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Equity Lifestyle Properties - 70.27

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