We answer the top 20 questions we receive most frequently about mobile home park buying and operations, providing you with truthful answers to help you decide if investing in this industry is right for you.
The lecture is filled with valuable information that's fast-paced and science-filled, perfect for anyone looking to gain insight into the industry. We also open up the floor for limitless Q&A, covering topics that are typically considered taboo.
Whether you're a seasoned investor or just starting out, this video will provide you with the knowledge and tools to make informed decisions about mobile home park investing. So sit back, relax, and enjoy the insights from this Lecture Series event.
Top 20 Questions On Mobile Home Parks - Transcript
Welcome to our MHU.com lecture series event. This is Frank Rolfe. Back in about 2014, the New York Times declared that I was the human encyclopedia of all things mobile home park, and since then, just about everybody has sought me out on the topic of mobile home parks and trailer parks, and how they work and what the problems are, and the good sides and the bad side.
That everybody from Bloomberg and Time and National Geographic, to just complete strangers I've never talked to in my entire life, which call me up with either questions on the industry and to see if I know a solution to whatever problem they have.
So we thought for tonight's lecture series, I would basically go through the top 20 questions I most commonly get about mobile home parks. Coming from all those different sources. Most of the questions tend to congregate around just a few issues. So I thought we go over these top 20 because I think most people would share at least some desire to talk about these items.
So let's start with question number one, which is a very, very common question I get, particularly right now as the economy is heading for what would appear to be a deep dark recession, we don't know how bad, but I think almost every economist in the world right now predicts the US will enter a recession either this year or next year.
So the first question is, do parks do well in recessions? Perfectly reasonable question based on the timing. So here would be my response. Number one, that in a recession, by definition when things are bad the demand for affordable housing increases. And we know this from watching what happened from the 2007, 2008 great recession, because mobile home parks saw a huge spike in demand at that moment. People realized they can no longer buy stick-built homes for zero down and with no income verification.
So suddenly people found that they needed to find places that they could actually get financing for and they could actually afford to make monthly payments on, and mobile home parks fit that bill very, very well. In fact, we're the only form of detached housing out there that is truly affordable today. So the answer to the question will be number one, yes, parks do do well in recessions because the demand for mobile homes goes up.
And number two, in recessions typically interest rates. Finally, the recessions make really all of your real estate returns, everything more attractive. Because what happens is stocks get killed. And when stocks get hammered, the big winner is every other type of investment that's not stocks.
So people put much greater interest, for example, in mobile home parks back during the dot com bust back in 2000, I was in the industry back then. And what happened was people when they saw their stock portfolios deplete down enormously they thought, "Oh-oh, wait a minute here, this isn't good. I think I better look into something else."
So it's always good when the general economy goes down the drain in a recession, if you are in alternative investment, in which mobile home parks are an alternative investment, because our rates of return are so much better than everybody else. So the bottom line to the question, do parks do well in recession? The answer would be definitely, yes.
Question two, does inflation help or hurt park owners? Because as we all know, right now we have walked this tight rope in America between recession and non-recession, and inflation and then more attractive low rates of inflation. So inflation hasn't been this high since the days of Jimmy Carter. And so if we have inflation in the US and it's running rampant, it's nearly, it was nearly 10%, now it's worked its way down more like 7%, but it doesn't seem to be going down very fast.
So what happens in that event? Does the inflation then hurt park owners? Does it help park owners? What does it do? And the answer to that would be, well, if you get out your old handy handbook for most colleges, I went to Stanford and got an economics major, in my old Stanford Economics handbook, it said that in inflation the two best things to invest in are real estate and precious metals.
And so I'm gonna go with that, because that's what my textbook told me. And the reason is because they are thought to hold their value. So we all know what happened with US dollar, it used to be hooked to gold back in the day, and then the government unhooked it from gold. It no longer backed the dollar with a dollar's worth of gold. And we all know how that went.
In fact, they made owning gold illegal during the Great Depression for a while, because gold was pointing out the flaws in what was then the new financial system, that the currency not being tied to gold, really wasn't worth nearly as much and was more subject to being devalued.
So both real estate and precious metals are both big winners in inflation. But unlike precious metals, real estate has two other reasons why it does well in inflation. Number one is, it allows you to dramatically increase the rent, so in mobile home parks in specific, we're able to do that because -- is only half of that amount. So the bottom line to that is, yes, inflation definitely helps park owners.
Third question I get most commonly is, do rental mobile homes work? And first I have to define what "work" means. When people ask me that question, what do you mean by work? Now, if work means actually making money, if that's the concept of work, not just physical labor, then the answer is, no, rental mobile homes don't work, because they don't traditionally make any money. At least not in the way that most people think that they would or they could or they should.
So, why is that? Well, rental mobile homes are often money pits. You pour the money in, lets just model it for a minute, if I have a customer who rents a mobile home from me and pays me $800 a month in rent. Now let's assume my lot rent is $400 a month. So I could literally give them the home and get $400 without any time or effort in this rental concept.
But no, in this case, we have to pay from the rental home to the land, lot rent part of your park $400. It leaves you about $400 delta. And when I get done paying property tax and insurance and repair and maintenance, I'll be lucky if I clear a $100. And so that's not really very good.
And the other problem is going to be that tenant is going to run off probably within six to 12 months and probably do $2,000 of damage to the home, and by the time I get done redoing the home, I've in fact lost money. So I'm literally renting homes to lose money. So that's the killer of the rental home concept, is two-fold.
Number one, the huge amount of repair and maintenance that you have, which is often coupled with the tenants not staying for that long a period of time, so that's problem one. And problem two is, you have to take out the lot rent portion, which you could obtain if you just simply gave the home away. It's what we in economics call "opportunity cost".
So when you add the two together, no, rental mobile homes don't work. And in fact, you see that so often with the parks that you buy because mom and pops are often completely worn out by the park-owned homes. And that's why they're selling the parks to begin with, is, they're tired of them, they're burned out and they don't wanna deal with them anymore.
And then you also have to add in that banks and appraisers hate park-owned homes. So if you're trying to buy a park that will give you very, very little grief, you're not going to obtain that with park-owned home rentals because at the end of the day the banks hate them. So you're not really aligning yourself with the mainstream of the industry. What you've done is you've gotten involved in something that is not really what the banks and the appraisers and all those people want to deal in. So the bottom line to it all is, no, rental homes are not great.
Now, there are some positive attributes to rental homes, right? So the rental homes do a few things, they do occupy lots which gives us our lot rent, which is what gives us our value. So we have to have a home and a human in the home to get our lot rent. So that's one beneficial item they do. But as far as the business model themselves, would I wanna go out and have a mobile home park with all rental homes in it? No, the answer to that is I would not.
Question four of common questions. Can you profitably own a park with a septic system for sewer? I get this question a lot, I think because most people are a little confused on how septic works. It seems kind of magically odd that you could have a working sewer that's approved by the US government and considered safe by health and safety officials, yet is nothing more than you just pouring your sewage into the ground, 'cause that's what you're really doing.
So septic goes into a giant tank, it goes out with perforated pipes, then out from that tank, and that's where the liquids go from the sewage. So what happens is, you have this thing, this feature, yet what's really your sewage disposal facility is in fact mother nature. That's what it is. So it's like you have a business contract with mother nature that you're gonna put sewage in this tank and then the earth is going to soak it up.
It sounds very basic, very awkward, very weird, but it does work. And the septic is like a terrarium, if it's been working for 50 years, there's no reason to imagine it won't continue to work. So with most of these parks, and almost all parks are built in the 1960s and '70s, then if the septic is working, then it should continue to work.
Now, can you own a park with septic system for sewer and be okay? Well, it's all gonna be about your due diligence. Now, over the years they developed different ways of doing due diligence on septics, one of which is called the "perc test". And the perc test, they drill a hole in the ground and they see how long it takes for it to fill up with fluids to know how saturated your land is. Because that's where you get in trouble with septic, is when the land becomes so saturated it will no longer accept any of your liquids. That's when you get in real trouble.
So that's normally the moment that most septic system owners dread the most. But in general you don't see that, that's not that commonplace except for this one trivia item. If you buy a park, it's got a lot of vacancy and is on septic, and now you go about filling those lots on septic. You can see the problem. Because then when we say, "Well this park has worked fine for 50 years." No, not exactly.
It's worked for 50 years at a certain amount of capacity, which is less than what you are going to subject it to when you fill those lots. So that's another thing to consider if you're looking at a park with lots of vacancy that's on septic.
Common question number five. Can you safely own a park on a water well? Yes. Again, you can do it as long as you do really good due diligence. And I will tell you that most of your wells have very few problems. You rarely hear people talking about problems with water wells. And that's because the water well is a very basic tool.
It's basically you drill a hole, you get down to the where you find water, you have a pump that sucks it out of the ground, it goes through a coordinator, goes over into a holding tank, and from there it's distributed to the residents. There's not a lot of moving pieces to it. So water wells, traditionally, if you check them out of due diligence they rarely fail.
Now, all water wells will need some degree of testing. Most are tested monthly. But in some parts of America, such as New Mexico, they may be required to be tested daily. And you need to know that 'cause you need to allocate the correct amount of money for that kind of testing. Daily testing is obviously extremely expensive.
And there are some dangers in a macro sense with water wells and the biggest of which are areas that have aquifers which may potentially run outta of water. If you look in areas such as Las Cruces, New Mexico, its water system functions, at least last time I looked out of an aquifer, which I do not remember the name of, but so it's basically a water source deep underground that's been depleting.
So in Las Cruces, back when I looked at parks in Las Cruces, you had to own water rights and you could actually sell water rights. In some mobile home parks the water rights were worth more than the parks were. So when I'm asked this question about water wells, it really depends on what part of America you're looking at.
If you're looking at a part of America where water is simple and abundant, then yeah, it's probably fine. If you are out in a desert area where water is not a lot of it, one concern you might have is might you actually run outta water.
Next most common question. Can the city just shut down an old park at its whim? We all know that no one really likes mobile home parks, not the general public anyway, and city officials, they hate 'em. So can city officials wake up one day and say, "Hey you, shut your park down. I hate your park."?
Well, let's examine that for a minute. If your park... Your park is gonna fall under one of three zoning classifications, legal conforming, which means you can build it again tomorrow, just as it says, legal conforming. Non-conforming, which means you are grandfathered and illegal. If your park is illegal, sure they could shut you down at any time. You have no rights at all.
But most parks are not illegal. Most parks you'll find are gonna be what's called legal non-conforming, which is also known under the slang term "grandfathering". And grandfathering is kind of a universal property right in the United States. And that says if I built something that was legal when I built it and they changed the ordinance, it doesn't make me illegal because I was built based at that moment in time and anything since then doesn't matter to me.
And mobile home park are effectively a parking lot. So we are a grandfathered use. It's a place to park trailers and nothing you can change after that fact makes it any different of the fact that you can park trailers on it.
So no, cities can't just do it on a whim. However, they can shut you down or bother you if the grandfathering does not meet health and safety. That is their escape card. So basically, if you have a mobile home park that they can prove out as being dangerous, let's say your homes are too close together, let's say that your water or sewer system they believe to be failing, then they could cause you a lot of trouble.
If you look up on Google News of different mobile home park stories, you'll see a recurring theme of parks that cities shut down because they deem they can no longer be healthy and safe. So that's where you can run afoul, is if you don't do your job as far as keeping the thing in good order.
And also beware of SUPs, special use permits and variances that have end dates. Because you'd be shocked how many parks are out there that were built, and it seems crazy that anyone would do this, but people sometimes would build these parks even though they promised to shut the park down at a certain point.
I think what happened was you'd have some guy named Larry and Larry wanted to put a park on his raw land. This is an interim measure until he could later develop it. It's just a way to get some kind of side hustle income going. So let's say Larry puts 50 mobile home lots on that piece of land. He's got 50 years.
So it's not even hard for Larry to get a loan on the bank. He goes down to the bank and says, "Hey, I got this 50 year variance. I wanna build this mobile home park. Can you gimme a 30-year-loan?" They'd say, "Yeah, 30 years would mean you can pay it off and still have 20 years of profitability, no problem."
But now fast forward 50 years, that thing ran out. You can't get a loan on it, you can't buy that thing. 'Cause that thing shouldn't even be there right now. And you'd be shocked how many parks there are out there across America that basically the time clock is over and they're not supposed to be there, and nevertheless, they're still sitting there.
And that's because figured the city typically has not taken the steps to shut 'em down or they forgot about it, but believe me, if you try and buy it, if you go to the city and get what's called a "certificate of zoning", well, they're gonna figure it out pretty quick.
Question number seven. Do roads have to be paved to get a loan? Well, in general, the answer would be yes, but there are plenty of exceptions. Not all roads, in fact, in mobile home parks are paved. One exception are mountainous areas where there's lots of snow, such as Colorado, where asphalt is simply not practical, because asphalt does not do well in extremely cold climates.
What will happen in the mountains of Colorado is it snows so much, that when you go out and snowplow the roads, which is almost daily, every time you do it, you're gonna be scraping across that asphalt. And as water tends to get in the cracks that you create in the asphalt, it then freezes and re-freezes and breaks it up even worse.
So even if some of the luxury parts of Colorado, the roads are not paved, the roads are in fact made of what is called "road base", which is what lies directly under asphalt. And in those locations, that works better. Many lenders over the years have seen that and agreed with that.
You also have in smaller parks, often they are financed not through big sophisticated banks, but through small town banks, and those small time banks really aren't that concerned about whether your roads are paved or not. Most of the concern on paved roads comes from the big lenders, Fannie Mae, Freddie Mac, what are called "conduit lenders", the big banks. They're the ones who like to see that nice jet black spot asphalt was striping roads, or that concrete road.
But a lot of these smaller things, and even maybe some regional banks are not too obsessed with it. So do you have to have paving? Well the first question is, what does the bank say about that?
Now, there is one kind of road that nobody likes, and that is the classic dirt road, which is basically a road that only exists, or it looks like a road because the grass has all been killed by cars going over it constantly all day long. Nobody likes those, not any of the small banks, big banks. Nobody likes dirt roads.
Dirt road park is a hallmark of one that has very little attention, very little initial infrastructure. They're ugly. They get muddy. It's a mess. So no, you probably don't wanna buy a dirt road park.
Question number eight. Will an 80-year-old seller still make a seller note? Well, that's a good question. And the answer is yes. If you approach it properly. No if you don't, but yes if you do. So here's how you would approach an 80-year-old seller to create a note that will go well beyond his lifetime unless he sets the Guinness Book of World Records.
So here's the deal. When they create that note, they're building an asset that's totally to benefit their heirs. So then this question comes down to, do you give 'em cash if they were to sell the park for cash? Or instead you give them an income producing note?
Well, if someone gets an income producing note, let's assume the 80-year-old dies and the property passes to the next generation, let's say the next generation in this case is 55 years old. So the 55-year-old group is probably gonna come into fairly substantial money, but never had any before.
Typically, these mobile home parks, mom and pop's kids haven't really been not knocking it out of the park. And so if you give them an income-producing note, they get income every month, which they can spend all of it. And then the next month they get more income.
Now, if you give them all the money in cash, what happens? Well, they can spend all of the money in cash and then they have no income. You see this all the time with people who win the lottery. Instead of taking the installments, they normally wanna cash it all upfront. There was even a program on this at one time, I forgot the title, it was a great show. It showed how screwed up people are when they win in the lottery.
In one episode I saw, someone wins lottery and they buy all the stuff. They bought like a giant stucco covering McMansion, a Lamborghini, all kinds of crazy stuff. And then when they revisit them months later, they've blown the engine on the Lamborghini, everything is completely broken.
The house is falling apart, it looks literally like a mobile home with a poorly done lot and a mobile home park with a non-running car parked in the yard. The non-running car was the Lamborghini and the poorly done mobile home was in fact the McMansion.
Because that's what happens when you give people who don't have much money experience a bunch of money. So if you give them the note, then it limits them and it keeps them out of trouble. 'Cause they do get money so they can pay their bills, and then they're gonna blow it, but then every month they get more.
Now also, remind the 80-year-old seller that if they wanna cash it out just like the lottery, they still can. You can sell an income producing note, firstly note anywhere, even online. So it doesn't mean they can't ever get the money, but it's probably in many cases, better to give them a monthly dole that they can wipe out, than giving them all the capital in one lump which they can wipe out.
Question number nine. How far could you push the rent on any mobile home park? Now this is a question I get a lot. From all kinds of people, not only normal media people and people looking at the industry, but a lot of woke journalists are at fascinating with this question, they're obsessed with the fact that it would appear to them that mobile home parks can raise the rent endlessly.
So the question is, how much can you increase the rent at a mobile home park? Well, one old park owner rule often was that mobile home lot rent could be roughly half of two-bedroom apartment rent to be wildly affordable.
Now, of course when people thought up that rule, apartments were cheap, $600 a month or something on the two bedroom. Today, of course the average two bedroom apartment's gonna be 800 to a $1000 a month. The average apartment in the US is now at $2000 a month. So in many markets, half of the two bedroom apartment rent is massively higher than the current lot rent, and the lot rent will continue to go up and adjust until it reaches market rent, so there's a huge amount of room.
In fact, if you go and look at many markets in the US, you will find that you could double or triple the lot rent and still be ridiculously cheap. And I say that because if you look at the comparables of single family in apartment rents in most American cities, and I don't even mean the big ones, just take the mid-size, go to the tier three cities, you're gonna see mobile home park lot rents are crazy, stupid, ridiculously cheap.
The US average is thought to be about $300 a month, at a time when the average apartment rent is over 2000 a month and the average stick-built is over $400,000. So could you go from 300 to 600? Oh yeah. Could you go from 300 to 900? Oh, absolutely. Could you go from 300 to 1200? Yeah, probably over time.
Now, why are the rents so low to begin with? Well, it's a very simple reason. We call it "mom-and-pop quantitative easing". Mom-and-pops never kept up annual rent increases in line with inflation. It's that simple. So a lot of these parks, they were built, they charged $50 a month lot rent, and that dollar in 1960, today would be 500 a month. Then you see the problem. So the rents are at 300, they should be at $500. So they should already be double where they are now, but they're just not yet.
Now, Denver has proven you can double, triple the rents and still remain completely full with the waiting list. So for those who would say, "Ah, well, but if you raise that rent from 300 to 500, you lose everyone." No, you wouldn't lose anyone actually. You would lose nobody. The demand for the affordable housing is so high, you wouldn't. And then most importantly, when you compare that to the other real estate sectors, you still look crazy stupid cheap.
So the big issue really is not how high you can raise them, that number's probably infinite. The bigger question is how fast can you raise them? And we try and advocate people try to hold rent increases down to around $50 per year. That's based on the market and how much you have to catch up.
But at $50 a year increase, in other words if your rent was 300, you went to 350, it's not gonna change anyone's life. It's not going to mean they can't buy medicine or buy food or can't put the kid in private school. Well, that's not the case. $50 is a very, very reasonable amount when you look at the fact that the park owners could go up a quantum of that and still be beyond cheap.
But they don't want, park owners traditionally, that they... To them, successful rent increase is one in which they only not don't lose any customers, but also they don't get any pushback in the media or anywhere else. So we think $50 is probably more accurate.
Question number 10. Can you build new mobile home parks today? Oh boy, that one's simple. And the answer is no. Absolutely not. Forget it. Don't even bother asking. Now, why would that be? Why would cities basically not allow you to build new parks today? Seems odd. We're in an affordable housing crisis. So why wouldn't the city say, "Oh yeah, let's solve our affordability issue by allowing new parks to be built."?
Well, it's a very simple reason. It's called money. It's not because cities hate the poor, although let's be honest, they do. Because the poor, they feel don't really help the city out, don't help the city's image, don't help the city financially. But nothing loses money for a city like a mobile home park. I think it holds the Guinness Book of World Records.
If you have a hundred space mobile home park, and in that 100 space mobile home park, there are at least 100 kids, which would be pretty accurate, and these 100 kids all have to go to public school. And the public school tuition costs $10,000 a kid. Alright, well, there's your $1,000,000.
So I've got a $1,000,000 now of tuition for those kids. And all I have to offset that, that the city gets, is property tax. And let's say your park is assessed 50,000 a pad, so you'd have a total of 5,000,000 evaluation. Let's say your tax rate's 1% like Missouri. So what does it mean?
Well, I'm paying in 50,000 property tax annually. And then the homes, let's say are valued at some nominal amount, 5000 a home. So the bottom line is the city is losing close to $1,000,000 a year on that one mobile home park. Now, you think the city ever thinks to themselves, "Man, I sure missed that million dollars. That would sure help our budget shortfall for the city."? Oh, every day.
So when you go in and say, "Hi city, I'd like to build a new mobile home park," which translates to, "Hey city, would you like to lose a million dollars a year?" You can imagine the incredibly non-warm reception you get.
So to build a new mobile home park today, you have to go so far out of town that they actually will grant you a permit. So you're not gonna be in any city, you're not gonna be in any metro. You're gonna have to go way, way, way out in the county. And the problem is when you get way out there in the county, what's the first thing you notice? There's no water and sewer.
Now I'm going to have to build private water and sewer, which can be very expensive. That alone might cost a million dollars or more. But the big problem is when I now open my park way out in the middle of nowhere, I got no customers 'cause there's nobody around, 'cause I'm way out in the middle of nowhere. No one's gonna want to drive from the city way out in the middle of nowhere to live in your trailer park.
And the other problem is, I'm gonna have to bring in homes to fill every single vacant lot, because there's zero lending available for our customers in this industry. Only if the park owner brings in the home, can they ever fill a vacant lot or be sold. And then beyond that, there's no financing for park construction. No bank wants to do that. They all want to finance finished mobile home parks.
So the bottom line is, no, you don't see hardly any new mobile home parks being built. I've seen many that are built go bankrupt. So that's one of the great things about the park business is there's no competition from new entrants, new supply, because the cities just will not allow new parks to be built.
Common question number 11. Do you need to rip out old homes and replace them with new ones to improve the park? Well, it would seem kinda logical. You got a bunch of ugly old mobile homes in there. Let's just demolish those and start bringing in better looking new ones, right? That's what you would think.
But there's some problems with that argument. So you get the same lot rent from a 1973 home that you get from the 2023 home. So in that 50 year span, although the homes changed looks enormously, they still pay the same lot rent. They don't charge you more lot rent the newer your home is.
So if I replace that '73 home with a '23, I'm gonna get the same money for a lot of work and risk and capital investments. So therefore, no, you're not gonna just needlessly replace homes because of the age.
Also, all your homes need to be a baseline condition of quality. The roofs need to be sealed, the home painted, shutters, etcetera. But once you meet that baseline, there's not a whole lot of look different to most people between a really old home in the modern home, because the homes still basically look like the same mobile home shoebox thing that they invented, oh, back in the 1950s. So as long as they're painted.
A lot of people say, "Oh, look at those old homes. They look so bad." Well, they look so bad because they need to be painted. But once you paint them, they blend in just fine.
And also don't forget, your customers want the lowest cost option. This is all about affordable housing. The 1973 home is gonna be infinitely cheaper than the 2023 home because it would have no mortgage on it. So your customers are gonna definitely say, "Keep the old homes."
So the bottom line is don't just replace old homes and bring in new homes 'cause you think that's an important thing. It's not important to anyone. It really harms everyone. It harms you and it harms your customers. You have to pay more money. So just leave the old homes in there and only demolish those when the homes have become in such poor condition or such obsolete floor plan, you can't sell them anymore.
Common question number 12. Can someone buying a new mobile home live happily next door to an old mobile home? So if we're not gonna yank out all the old homes to make way for new homes, then if I put a new home on a lot next to a 1973 home, can that work? Will someone buy that home even though their neighbor is in a home that's 50 years older?
Well, the answer is yes. We see that all the time in our industry. But it's not just in mobile home parks, you see the same thing in most Americans subdivisions today. You'll see that people are tearing down, they're buying and tearing down the old housing from the '50s and the '60s and the '70s and they're putting up then new and typically larger housing.
So if you take an old neighborhood, even in a good part of town and someone has a mid-century modern looking house there, it's not uncommon for someone to knock that thing down to put in a new multi-story French chateau looking thing. And they happily coexist 'cause the home on the other side of them is that mid-century modern house. But it happens in subdivisions, so there's no reason why it can't happen in mobile home parks.
Where it all falls apart is not when the home is old, that's next door, it's gonna be when the old home is in very poor condition. So that's the issue. If you have a house as well maintained in any neighborhood in America in any staple subdivision, you have a 1920s, 1930s bungalow home in immaculate condition, no one thinks the worse of it at all. But where you do get in trouble is when the home is rundown. So that harkens back to the earlier question.
Common question number 13. How close can mobile homes be together before you have a problem? We all know that mobile home parks look very dense when you see them. The homes aren't really stacked on top of each other. But compared to where you live in your subdivision, they certainly are much, much tighter. So is that a problem?
Well, it can be. In general, 10 foot minimums facing between each home is required by the fire marshal in most cities. So if your homes are not at least 10 feet apart, side by side and end to end, then you could have a real problem. Because you could have a fire marshal jump in. And we talked earlier about health and safety.
So the fire marshal, he rules the roost on grandfathering. If he comes in and says, "Oh. Well your park is dangerous. It might burn to the ground." Now you have a real problem. So yes, if those homes are less than 10 feet apart, that could be technically a huge problem.
But there's other issues from high density that many people don't think about. They simply say, "Oh, well those homes are okay, they're 10 feet, three inches apart." But there's some other things you gotta look at. Number one, do you got enough parking in that mobile home park?
Because when homes become very, very high density, there's not typically a lot of parking. A typical parking pad is 20 by 20 feet. If the homes are spaced 10 feet apart, you don't have a 20 foot wide parking pad, you only have a 10. So a 10 by 10 parking pad only holds one car. Do you have enough room to put the car on the street too?
And if the answer is nope, can't do that, 'cause the street isn't wide enough to have cars parked on the street, well now you can see your big problem. You have very, very insufficient parking. Now, you can fix that in some parks if it has excess land by building what are called "overflow parking", but that can also be a direct result of high density.
And the other is, can you get homes in and outta the park? I've been in parks, I've walked in parks in Florida where you couldn't bring a new mobile home in that park in a million years. It would never make it down the roads. The reason is the park is so condensed, and the turns in the road are so sharp, and the road is so narrow you could never make it happen.
So then you say, "Well how in the world did this thing ever get filled?" Well it's easy. When the guy built the park, he brought in the first home, then the next home. They were brought in sequentially, just like a parking lot.
But the problem is the the first cars you brought in, they can't get back out ever. You have to move all the cars in the parking lot out to get those first cars in out. And there you have a problem because it also means if one of those old homes burns down and you wanna replace that with a newer home, you can't, 'cause you can't get a new home in.
So when you look at the density of mobile home parks, typically you're gonna see a lot of parks out there that will be from 10 to 15 units per acre of density, and that typically works out okay, but when you get beyond that, sometimes when you get up in the 20s, you have to look at that very closely, 'cause yes, you could get in trouble.
Common question number 14. Can you have a strong cash on cash return and still have negative cash flow? Now, cash on cash return is defined as how much money you make from on your down payment. So if I put in $200,000 down payment on a mobile home park, and that park produced $20,000 a year that I got back on my $200,000, that would be a 10% cash on cash return, 20 grand off of $200,000.
If I double that, I'd be making $40,000 on $200,000, which would be a 20% cash on cash return. But is it possible to have a positive cash on cash return, yet still have to come out of your pocket every month to pay the bills? The answer is yes, it is possible. There's two different ways that could occur.
Number one would be a zero down deal, because since cash on cash is measured by the return on your cash, if I put no cash in, then my return is effectively infinite. But it also means that one unit of measure isn't gonna save me much when it comes time to pay the bills. Because I would probably have a negative cash flow even though I have no money in, which would show, you would think it would be super strong, infinite in return, but it's not.
But the more common one is when you have a seller note with short amortization. Going back to the earlier question about the 80-year-old who's trying to... You try to cut the deal with. Let's assume the 80-year-old says, "Okay, yeah, here's the deal. I will go ahead and do your note like you're asking, and but I won't do a 30-year amortization, I want to do it in 10." Right?
Well, the principal portion on that 10-year amortization is gonna be crushingly large. It still counts towards you, because in the cash on cash calculation, the principal is still yours, even if you pay it down at the bank, well, it's kept for you. Some people call that, in fact, enforced savings, which means that that money is being saved, it's safely there for you, it's being put in the account every month, but you don't immediately have control over it. Right?
Some people call that "enforced savings", that's the common name for it. And what enforced savings means is, you're saving it, but you don't have it to spend. And if you're accelerating the amount of that enforced savings, you could technically have a very strong park on cash on cash return, but you would still have negative cash flow because you're just paying in a whole lot of principal every month.
Common question 15. Is it still okay to buy in blue states? Now, all you have to do is watch the news or read the news today, and you'll see that America is in this, one of its biggest conflicts ever right now. You have these two polarized extremes of red states and blue states, and traditionally the red states are all about conservatism and property rights, and then the blue states are all about all kinds of stuff, and they don't really have a lot in common anymore.
So a lot of people will say, "Well, can you still buy in a blue state successfully?" Well, here's what I would say. Number one, yes, as long as you understand the laws, because the blue states tend to have much more complicated laws than the red states. Red states are traditionally 100% landlord friendly, and blue states are often 100% tenant friendly, so you have to know when they're being friendly with tenants what they're gonna require you as a landlord to do.
Some of the rules and regulations, although somewhat distasteful and complicated, such as giving residents the first option to buy the park if you sell, which they never, almost ever exercise 'cause it's mathematically impossible, that's a lot different than having the dreaded rent control, which is the big danger of blue states.
So is it okay to buy in blue states? Well, as long as you know the rules of engagement and you know where you stand as far as rent control. Because as we all know, there's five states in the US that have rent control and in those five states, all of those are very, very blue states.
Now, at the same time, there are a lot of blue states that are very profitable. Even California, despite all of its many problems, is probably, from a mobile home park perspective, the most valuable state. It's second only to Texas as far as sheer number of parks. But the lot rents are a crazy high.
In the Los Angeles area, lot rents and parks are traditionally over $2000 a month. Highest rent I've heard of in California is $5000 a month. So you're getting paid to endure all of those wild tenant laws that they have. And that's why people still like to buy parks. In fact, the most expensive park in America was sold just a couple of years ago. Someone paid over $200 million for a single park near Silicon Valley. So yes, those things still do occur.
So the bottom line is, yes, blue states often, they correspondingly give you big lot rents, which kind of help you overcome your worry about it being a blue state. And also, don't forget, over time, states change color. People say, "Oh, well this is a red state or a blue state." Well, those states didn't always... Weren't always that way.
Now, California may always be blue, but it may not. It may be that California transitions over time. Let's assume people get tired of crime and other issues, and they kind of do an overthrow of the state government, and then the government kind of becomes very business-friendly again and attracts lots of businesses, possible that California itself might one day become red.
There's a lot of other states out there that have transitioned from red to blue, from blue to red, and they call those "purple states". So we can't really say over the long horizon even what will be a blue state or a red state, but can you still buy in a blue state profitably? The answer is yes.
Common question number 16. Well, trailer park people live anywhere, do they even care about location? I get this question a lot from all kinds of people who think that when it comes to mobile home parks, it's the one sector of real estate that location doesn't matter.
We all hear the adage, you know, "Real estate's all about location, location, location." Well, some people think when it comes to mobile home parks, there's no word "location" in it. And they're completely wrong. That's not true. Mobile Home Park residents, they want the exact same location to live in that you want. No different than what you want.
So where do you want to be? Well, you probably wanna be in a safe, urban location, like in a high-rise condominium building that's all nice and safe, but maybe in the heart of the city near the museums and everything. Or you want to be in a suburban area that has a good school district. Those are the two most common locations that most Americans want. Mobile home park people share that exact same desire. So what it means is people wanna live in safe areas with nice amenities. That's all it is.
Now, the mobile home park industry has benefited since COVID, because mobile home parks are rarely located in urban areas. You think about Manhattan and you say, "Oh yeah, that mobile home park over in Manhattan Island," well no, there isn't one. So no, you won't... You can't go visit a mobile home park over in New York City, in Manhattan proper. And you're not gonna find a mobile home park in San Francisco 'cause they would've torn that down decades ago to build a high-rise building.
So where are parks? Parks are typically what areas, they're called suburban and exurban. Suburban is the typical suburbs of the city, and exurban is the next rung out from that. And since people started bailing out of urban markets during COVID, couldn't get away from the cities fast enough, that megatrend has helped park owners enormously, because it's put a lot bigger spotlight on those suburban-exurban locations where parks are located at.
So when it comes to locations for parks, number one, stick with ones that are safe and stick with ones that are in good school districts. What you're gonna see right now, the demand for even the exurban parks, the parks outside the standard ring of the city, of those suburbs, is the highest we've ever seen.
Common question number 17. Is a military base a safe employer? Well, you know, we favor three types of employers with our mobile home parks. Number one, government, number two, healthcare, and number three, education. Why? Why do we like those three sectors? Government, healthcare, and education. Well, that's because they do well, even in recessions and depressions.
The US cannot simply lay off and shut down a hospital because there's a budget shortfall. Not gonna happen. And parents aren't gonna say, "Hey, I'm sorry. You can't go to USC because there's a recession." They'll still send the kid to college and people'll still get there. Still pay for it through educational loans or whatever it takes.
So military bases are very, very safe because they are in fact, perhaps one of the largest, as far as what you can see, largest congregations of government jobs. And the military's not going away. I don't know anyone who's right now saying that, "Oh yeah, the Army, we don't need that anymore. It's redundant. Let's shut that down."
You saw a lot of people say that, "Defund the police." No one said, "Let's defund the Army." We all know, we're constantly reminded by all the different wars, that yeah, you kind of gotta have an army in today's world. But we gotta focus off for first thing, when to really understand the answer to the question is, you have to know that all bases are not created equally.
You have some major bases out there like Fort Hood in Texas, and then you have other bases out there which really don't seem to need to exist, like the base in San Angelo, Texas. And where this really became visible was during the Bush administration when they decided that they would shut the small meaningless bases down, move all the people and equipment to the big bases and kind of have a streamlining deal, just like a business would. Just like Bed Bath & Beyond is right now shutting down its lesser stores. They don't sell as much.
Why waste the time having those lesser stores? They already thought waste of time with having these lesser bases. So they actually published a list of the bases to close, but they didn't ask anyone's permission before they did. And when that base list came out, the governors of the states all went to Bush and said, "If you shut my base down, I'm gonna never vote another thing you ever wanna do. I'll become your worst enemy. I will do nothing but try and destroy you."
So everyone chickened out and didn't do it. But the list was still out there. So you can actually go online, you can find that base closure list. Now, will those bases ever actually close? I don't know if anyone will ever have the political clout or desire to shut them, but it does give you a glimpse into what areas of America, what bases are at risk and which ones are not.
Now when it comes to military bases, you'll also find that military people make lousy mobile home park residents. Because when you're in the military, the whole point of it is you often have to move at the drop of a hat. You sign up for a four-year term and over those four years, you may be at four different bases.
You're not gonna go be signing any 30-year mortgage or 20-year note on a mobile home when you might have be ordered to leave three days from now. So what fills mobile home parks in military towns is not people in the military. It's all those ancillary base workers. That's your actual customer base. And those ancillary base workers, 'cause it is a government installation, their jobs are fairly well assured.
Most common question number 18. Will a park work in an area of negative population growth? Well, this is a very interesting question, because if you haven't spent a lot of time on bestplaces.net, which is definitely the encyclopedia of all data for any market you might look to buy the park in, you will notice that almost anything you pop into the thing has negative population. That's because America is actually shrinking. People are not having many kids anymore.
So as a result, we're following the same course as Japan, which is basically we're kind of a shrinking company. Now how come we're not shrinking into oblivion? Well, because we have enough people moving here from other countries to bridge the gap. But in most of your northern states, you're gonna see negative population growth.
So what does it mean? Is that the end of mobile home parks? I mean, will people not need them anymore now? What we're seeing is that what's happening is the size of households is reducing. So, in the classic America post World War II, there was a... Two people got married and then they had an average of what, two kids.
So you had four people in the household and they were in that household for 18 years or so, and then the kids moved out and then you still had in the household two people. Well, today it doesn't look like that anymore. Today it looks like you have two people and they have no kids. So you have two in that household. And then later on they get divorced and so you have one in the household.
But we're in the household business. We don't really care about population. We only care about occupancy of households. So if you look at those markets with declining population on bestplaces.net, you still see very strong housing occupancy. Because we don't care how many people are in the homes. All we care about is that there's somebody in the home.
Now if we were the pizza business, if we were trying to feed people, it would've a huge impact because a small household would only order the cheese pizza, the small, but the big household would order two large pizzas. Our revenue if that household shrinks will be depleted cut in half.
But in our business it's simply about households. And you're gonna see that that's a very big megatrend in America that's unlikely to change soon. Millennials are just simply not getting married and they're not having kids, and when they have kids they don't have very many of them. So no one really knows how that movie is going to end.
But when you go to bestplaces.net and you're thinking about a mobile home park market, the key is to look for housing vacancy in areas that people don't wanna live in anymore, so you have negative population because they're fleeing the area, then you're gonna see huge high housing vacancy rates. If you show negative population growth and yet low housing vacancy, it simply means the size of households is going down.
Common question number 19. Can a park still work when single family home prices are only $60,000 or so? 50,000, 40,000, that kind of stuff. Well, our benchmark is typically $100,000 and up. So we like markets where the average house is at least 100 grand. Because when they're a $100,000, stick-built homes are simply not attainable by your typical mobile home park resident. So that's a very healthy price.
But when you go down from that, as you go down and down and down, so does the demand for mobile home parks. Because when you can buy a two-story colonial house with a garage on your own half acre for 50 grand, well who needs a mobile home park? 'Cause that's already plenty affordable living.
That's the issue. For mobile home parks to work, you have to have what we call contrast, which means the park has to be the affordable alternative to super expensive single-family housing and apartments. When you make single-family pricing insanely cheap, then who needs you?
Now you'll see this more than any other place that I know of when you go down into Southern Illinois. Now if you go down to Southern Illinois, you'll see many of the housing prices are very, very low. You may see a perfectly fine brick house or frame house with detached garage for 40, 50 grand.
But if you look at the mobile home parks in most of those cities, what do you see? You see very, very low occupancy. And there's a reason for that. If you buy a $50,000 single-family home and you go out and get a mortgage on it, what's your mortgage gonna be? 200 bucks a month maybe?
The lot rent at the mobile home park is let's say 150. Well, why would you go live in the mobile home park when you can have that house? So consequently, nobody needs the mobile home parking except those people who cannot even afford the $200 mortgage or simply are not bankable. So your mobile home park in these cases end up basically these very difficult to operate ensembles for people who cannot live in the mainstream of housing. So yes, you need to have single-family home prices that are high.
Now, is it impossible to buy into a market when the home prices are $80,000? Is that, is it too low? No, it might still work, but just be very careful as you go down in home price. Because there is inherent risk as you get lower on the home prices, that your park is no longer the only affordable housing game in town.
Finally, common question number 20. Can you get into the park business without a lot of money? Now everyone started out, unless they inherited a bunch of money, with no money. So it's a very common and reasonable question. People would say, "Well is this really something I can get involved in where I am right now? Or do I have to wait and look at this much later in life?"
Well, the answer to the question is yes. Mobile home parks are a very egalitarian industry. It's one of the few in real estate. You cannot get in any way into the office building sector, for example, unless you have millions and millions of dollars. It's just not gonna happen. Nor can you go out and buy a shopping center. No, it's not gonna happen.
In our industry, there are basically three ways you can get into the business without a lot of money. Number one, selling deal assignments. So how that works is you go out and find a mobile home park, you put it under contract, put it under contract with and/or assigned contract, then you advertise you wanna sell your and/or assigned contract and then you assign the contract to the person who actually buys it.
Those kinds of deals traditionally garner maybe 5% to 10% of face value of the park, which is big money. If you have a million dollar park, the assignment fee might be 50,000, it might be a $100,000. So that's a perfectly fine way to get in the business with very little money. And many of the people who start off that way ultimately then go on to use that money to buy their own mobile home park.
Another one is the zero down deal with seller financing. My partner Dave Reynolds and I have done 12 of those to date. My very first deal was tighter that way. It was $400,000 with $10,000 down. So it wasn't zero, but it was only 2.5% down, was close to zero. My second park I ever did was 65,000 with $5,000 down. Again, it wasn't zero, but it was about 8% down. But we've done 12 that were 100% zero. Just no money down at all.
Now how do you get those? Well, you have to bond well with the seller, you have to find the right niche opportunity where the park looks really, really ugly, but it isn't structurally ugly. It's very easy, ugly things, bad mowing, things like that.
Finally, master lease with option. Master lease with option is a very strange construction. Basically what you do is you lease the entire park and you pay a monthly amount to have the entire park under your control, but you have the right to buy it at a predetermined price at any time you want over a certain period of time. It might be three years or five years, something like that.
So you're in the business with zero down, but then you have your moment where you'll have to have some capital, which is the end of the lease. So when you get to year four and a half on the five year master lease with option, you want to exercise the option, you could then sell it, kind of like a deal assignment, or you could have maybe have them carry the paper with zero down, done that before. Or you could get a financial partner then buy it where you would be the operator and they would be the financial partner.
But more than probably any other sector of real estate, mobile home parks have the most options with people for lower capital. And I think a lot of that harkens back to number one, the product itself is so screwed up. It's so screwy and so weird that lots of moms and pops assume that they'll have to carry the paper or you wouldn't ever get the deal done.
But also a lot of the sellers are original moms and pops who are very easy to work with and very attuned with what's called "bonding", which just means they like the buyer, they wanna to help the buyer and therefore they try and craft something that'll actually work for them.
Alright. So those are the top 20 most common questions I get asked, but I'm sure we have lots of other questions here which are not amongst those top 20. So we wanna now open up the phones for live questions, for people who have any questions on the industry. I'm more than happy to answer anything you have, with no topic taboo. And we'll just keep running on through the questions until we run out of them.