The Economics Of Buying Vs. Building Mobile Home Parks


With the values of existing mobile home parks getting so high, there is renewed interest in the concept of building a mobile home park from scratch vs. buying an existing mobile home park. It’s an interesting topic that has been increasingly discussed in recent years due to such strong trends as affordable housing and tiny homes. In this event, we’re going to review the precise economics of these two concepts, as well as hidden issues that you might not immediately realize.

If you want to learn more about buying and building mobile home parks, consider attending our Mobile Home Park Investor's Boot Camp. You'll learn how to identify, evaluate, negotiate, perform due diligence on, finance, turn-around and operate mobile home parks. The course is taught by Frank Rolfe who, with his partner Dave Reynolds, is one of the largest owners of mobile home parks in the U.S. To learn more, Click Here or call us at (855) 879-2738.

The Economics Of Buying Vs. Building Mobile Home Parks Transcript

Welcome to the MHU.com lecture event. This is Frank Rolfe. Tonight we've got something that's new and different we've never done before, and that's a discussion of the economics, a comparison between building parks and buying parks. We're getting a lot more feedback from people these days, questions on the topic, and as you'll see, it's kind of a complicated topic, and we're going to go review it depth here.

Let's just start off with a quick history of mobile home park construction. As you probably know, if you've ever even bothered to go on Google Images and search, the industry started back in about the 1920s to 1930s kind of as a campground theory but, basically, people pulling trailers and parking them in fields, sometimes with improvement, sometimes paved.

You really can't count that as the start of the industry because there wasn't a lot of infrastructure to it. There really weren't mobile homes back then. They were more along the lines of something you pull behind a car, more like an RV than a mobile home, so I'm going to basically set the start of the industry as the 1950s. That's really when you see real mobile home parks, infrastructure, laundry buildings, clubhouses sometimes, paved roads, concrete curbs, so I think that the '50s would be the beginning of the modern era of mobile home park development.

Then, into the 1960s, suddenly, HUD got involved in the deal and, for whatever reason, folks in the government back then, and I wish they were as appreciative today, thought the industry was a really good way of creating affordable housing, so to encourage construction, they brought out some extremely attractive loan products. The parks built during that time were called the HUD parks, which actually today is a compliment if you're a HUD park, because HUD parks were designed using the government's own architects and designers.

They have nice curving streets, larger lots, very, very well built streets, loads of concrete, concrete curb, concrete pad, always had a giant clubhouse, typically two to three thousand square feet. Inside the club house, you had to have a commercial kitchen so that the residents could have communal get-togethers and meals, typically would have a pinball table, a ping-pong table, and then always a pool. You had to have a male and female commercial bathroom area. The parks were just well-known to be like battleships. They're probably overbuilt maybe as much as 100% above how thick the normal road base had to be and how thick the concrete had to be, so they're wonderful, wonderful parks.

The '60s really were kind of the golden age of parks. I'd say exhibit A to that period would be the fact that Elvis himself, the King, lived in two mobile home parks in two different movies: It Happened At The World's Fair, I think 1963, and the movie Speedway in 1968. Also, if you'll read up on it, because it to auction recently, Elvis himself lived in a mobile home on his property on Graceland. He had a kind of a weekend vacation home in part of the acreage back there, and he actually liked the mobile home product. In fact, Priscilla Presley said, before the auction recently of the old Mobile Home, that that was her favorite housing that she ever shared with Elvis. You know it was a golden age if even Elvis lived in mobile homes back in the '60s.

By the 1970s though, the window was closing rapidly. The appetites were changing. The perception of mobile home park residents were evolving. By the 1980s, it was the final last breaths of the end of construction because the whole thing was winding down. Really, what you had is you had a window from about 1950 to about 1980. There was about a 30-year window from start to finish under which mobile home parks could be built. Then you fast-forward to today and, today, no one knows the exact statistic, but kind of the industry myth is there's roughly about 10 parks built per year in the entire United States, so hardly any at all, less than one per state per year.

That kind of gives you a quick overview of the construction era, which was really the '50s, and then really ending in the '80s with the highlight being pretty much the 1960s.

Then the next question is why did it end? If the government was so supportive in the '60s, why the heck was it dead by the '80s? We think there's really three main reasons that the window ultimately ended. The first was the perceived decline in the quality of residents. Basically, nationwide, American citizens and city leaders all felt that people that lived in mobile home parks were basically undesirable, that they were just not an asset to the community, and they were not people you wanted to attract, so the first reason to die was, basically, they just didn't like the people.

The second is there was a stigma attached to mobile home parks that suddenly began to really impact property values. If you look at any zillow.com online moment, you'll see that the homes nearest the trailer park decline in value precipitously compared to those that are not. If you look a standard single-family home next to a mobile home park, and then you compare a home that's identical, same outside appearance, same age, same quality, same size, it's about 20 to 30% more, if not more than that, than the one next to the mobile home park.

Suddenly, having a mobile home park in your community did not only bring in undesirable residents, in their opinion, but also undesirable impacts on property values. That pretty much sealed the deal because, if you even proposed building a mobile home park, clearly, all the residents who would be living near it would march on City Hall with flaming torches demanding that you not vote for it. Since politicians get to be politicians by getting votes, it looked like political suicide to even propose the idea of a mobile home park.

The third reason has been hidden for the longest time. I've written articles on it and kind of exposed it, but cities still would never admit it, but you know it's true when I tell you what it is, and that is that mobile home parks are really, really bad financially for your average city, and here's why. Let's just take a mobile home park, a 100-space mobile home park in Anywhere, USA, and let's assume it's in a state like Missouri where your tax rate is 1%. Yes, I know, in some states like Texas, it's closer to three, but in most of the states the tax is closer to one.

In this example, the mobile home lot, the occupied lot, in which there is 100 of them, each occupied lot is valued at $40,000, let's say, and the mobile home that sits on it, which is personal property but it's still taxed, it's assessed at $10,000. The land, the lot, the home, the whole thing combined is assessed at $50,000, 40 for the land and 10 for the home. In Missouri, a $50,000 valuation brings the city 1%, which is $500 per year.

All right. Now you've got 100 of those things paying $500 a year, so that doesn't sound too bad, right? You're thinking that's not that inconsequential for the city, except for the problem of what that actually costs. Each kid in that park ... and let's be honest, there's a lot of kids in most mobile home parks. Each kid is costing the school district $7,000 or $8,000 in tuition. Then, on top of that, many of these people are not insured. They got to the hospital, they break their arm, they have a heart attack, and now they're popping up uninsured, which is going to cost even more money to get that fixed medically.

They are heavy users of different social programs, so the city is suddenly losing a lot of money. In fact, I would say, on a park of probably 150 lots in the right location, the city could be losing as much as $1 million a year on the mobile home park, so even though they don't want to talk about it, even if they did not impact property values, that even if the residents were deemed to be incredibly desirable, cities probably would have still shut the door down anyway.

Now, you might say, "Well, why didn't they shut the door down back in the '50s, and the '60s, and the '70s?" Well, the costs were a little different. Tuition was not so high. Competing housing prices were not as high. I mean mobile home prices back then were not far off home prices in some locales, so I think the impact really grew over time, but then I think, on top of that, what also happened was the cities just began getting a little poorer.

They suddenly had more trouble paying their bills and, as a result, they suddenly started tightening their belt and saying, "How can we cut back? What can we cut back on?" They thought, "Well, this here mobile home park, that looks like a no-brainer. Let's go ahead and get that fixed." That's kind of, I think, what happened was they just basically grew up and started doing all of this a little differently and, as a result, it dramatically changed their perception of the value in the community of having the mobile home park.

Now, if the cities suddenly find the parks undesirable on many fronts, not only the fact that citizens don't like them, but they actually are losing money with it, and that the residents are not going to be beneficial to the community, you can quickly and easily see how the window closed. Just as it had opened when cities thought and even HUD thought that this was a good idea for America and for cities, suddenly, it was no longer perceived to be a plus.

Now, on top of that, it should also be noted that the media was very much to blame for this. They were a very, very big culprit in the whole situation because they almost systematically built this image, this stereotype of mobile home park people as being undesirable, and it's simply not true. Those on the call here who own mobile home parks are fully aware that our residents get the worst wrap ever. There's probably no group that is as unfairly portrayed in the media as people who live in mobile home parks.

Even worse, now that we're more politically correct as a nation, these people still don't get a break. I mean you can just walk up to any person and use the words trailer trash or anything, and it'll be on the cover on the National Enquirer. There was an article just recently claiming that Priscilla Presley's boyfriend lived in a trailer park, and he was described in the article, I believe, as trailer trash, and yet there's no pushback. It's crazy.

A lot of the perception of the residents, I just want to go and say that here on the front end, is not the reality. The perception that they're undesirable, that they don't have much money, anyone who says that needs to go around with me for a day and tour some of these actual properties, and they'll see that our residents are no different than the single-family subdivision people down the street. Nevertheless, the damage was done by the media, and people changed their minds and, suddenly, it was undesirable.

If the window has been effectively shut, then the question is could you even build a mobile home park today? Under what circumstances could you build it? Well, this is the steps you would have to do to build one. First, you have to find land that is either already zoned for a mobile home park, or you'll have to go in and get the land rezoned. That is the hardest part because, again, as we just described, cities, counties, towns of every description are hostile to the industry. How would you even do that? How would you find land and get it properly zoned? Here's how it works. I did not know, for the longest time, how you do that.

Early on in my career, I was trying to do expansions of various mobile home parks and not getting anywhere. I would go to the zoning, and I would say, "Hey, I want to expand it," and they'd say, "Now, I don't think we'd want to do that, but if you want, you can file for a variance." That's how all these all we get ... so you say, "Okay, I want to file for a variance to build a mobile home park," so you file your variance, and you always lose. You wouldn't even get a single vote. If there's 10 people on the city council, it would be a unanimous 10-0, you lose.

On one of these cases, I just kept losing and losing, I thought of and heard from someone who said, "You know, you ought to hire someone who does this, because every developer does the same thing. They go in, and they have to get rezonings and variances, so why don't you hire one of their consultants?" All right. Well, that's an interesting idea. What if I hire a professional who's used to doing this? Maybe my odds will be better. I called some of them up and they, of course, said, "No. I would never do that," but then one guy, I think maybe just for fun, said, "Hmm. No one's ever asked me to do that before, so yeah, I'll do it. I'll give it a whirly-dirly." Okay, great.

Well, here's how the professionals do it. This tip alone is worth your time of listening to the entire lecture here, because this is how you, in today's world, get things done. What the political consultant did was he went to each person on the council behind the scenes, not up front, just behind the scenes. He got the list from the city of each council member and their contact information, and he went to them and he said, "What would I have to do to get you to approve the zoning for this mobile home park expansion? What would I have to do?"

Well, he got answers. One person said, "Hmm. You know, the only way I would vote for that expansion is if you build a fence down the frontage so that I don't have to look at your park anymore when I drive home." Next person said, "Hmm. You know, I would vote for it if you would build a really landscaped, lush entry to give it the look from the street that it's a single-family development." Each council member, as I recall there were about seven, they all had their own pet peeve, and if I could only cure the pet peeve, then they would vote for it.

Well, this was interesting because every pet peeve they had I could do. Yes, it would be more capital. Yes, it was not in the original plan. Some of it was actually beneficial to the community. Building a nice landscaped entry, well, that's actually good for the park. Suddenly, eureka, I figured out how to get these kind of things done, and that's what I did on every expansion since. You never go before the council until you have the votes. That's what the guy taught me. You never do it. If you go to the council and three of the seven said, "Yeah, I'd vote for it if you did XYZ," and the other four said, "No, I wouldn't do it," you don't proceed. You keep waiting it out. You keep working the floor until you get one of them to say, "Well, you know what? Yeah, I'd do it if you did XYZ." Now you've got the majority. That was the main lesson learned.

If you don't find land that's already zoned, you'll have to go behind the scenes and get that approval. Can you do it every time? Oh, no, not at all. We've tried many, many expansions using that same technique and crashed and burned many, many times, unable to get enough support to even do it, so that just simply won't work. At any rate, if you can get the land that is suitable, flat and buildable, has the bare bones to be built on, and you can get that variance, that permit to build and/or buy land that already is zoned, then you can make your project happen. That's really the backbone of why these things aren't being built today. It's not because you can't find land. It's not because people can't come up with the money to build it. Problem is the whole political process of getting zoning and getting variances.

Now, that being the case, don't be thinking to yourself, "Well, I know a way around that. I'll go where there's no politicians." While that may sound like the perfect world today in today's messed-up environment, doesn't work with mobile home parks because the only place you won't find any politicians or any pushback is way out in rural areas, and don't even think about doing that. Let me give you some reasons why you can't go build in a rural area. Probably the biggest problem is there's no water and sewer. That's the one reason that the city developments might work but the ... way out in the county won't. There's no water and sewer so, basically, you'll be on private water and private sewer, which is very, very expensive, very undependable, just scary stuff and very, very, very expensive.

The other problem is, even after you've done that, even after you've gone out and built the park and built your own private water and sewer system, which could cost you $1 million just for the water and sewer, nobody wants to live there because you're out in the middle of nowhere. There's just no demand. Those developments, and I've seen many built, they always end in bankruptcy. There was a very large Dallas developer, very smart Dallas development group, that went to build a mobile home park back in, I'm going to say in the late '90s to early 2000s. They tried to build it on land they owned in the city, and they got shot down, so they decided to build it on some land they owned that was way outside the city, I guess to prove a point that you can't stop them from building.

They built this giant mobile home park with its own private water and private sewer, and it sat empty for the longest time, and it finally shut down. I don't think they even got up to 20 occupied in maybe a 300-lot development, so that option's not even on the table. For the course of our discussion here, we're going to assume that you're smart enough to not to try and build one way out in the middle of nowhere, so we're talking only parks that have all the other dynamics to succeed: city water, city sewer, good location, high demand, high home prices, et cetera.

What would make you want to build one? If we say it's this challenging, there's these many issues, what would make the average investor want to build one? Well, several reasons. Number one, other mobile home parks in that area may be very, very expensive per lot. There have been parks bought and sold in California in modern times for as much as $200,000 or $300,000 per lot. Clearly, if you're in a market that's costing $200,000 or $300,000 per lot, it probably is not a really good idea to buy a park unless those numbers are corresponding to high lot rents, which normally they're not. Those highest parks bought and sold were sold on cap rates that were phenomenally low, so ... but if the cap rates are crazy and the prices are crazy high, then yes, maybe you could build the park despite the costs I'm going to be going over in a minute, and you can say that it would work.

The second thing is you could build, theoretically, in a market where there already are some trailer parks, that you could build a super modern one that has modern amenities and modern lot sizes, bigger yards, better stuff, jogging trail, that kind of stuff. That's another reason you might build is because you just can't even find ... because it doesn't exist, the quality of what you're trying to do.

Then there's also some specialty niches which we should discuss. The first one is the specialty niche of building what appears to be a subdivision. We own one of these in Bloomington, Illinois. It looks just like a subdivision because it has ground-set installations, which means the mobile homes are not up in the air like they are in a traditional mobile home park, but they're set slightly above ground level, and that gives the complete appearance as being on a slab foundation. What the interesting trick of that kind of development is you can provide that full single-family product, looks no different than the stick-built community down the street, but at a fraction of the price. The homes in our park are $60,000, and the homes down the street are $150,000. That's a specialty niche that really, really works if you're going to build from scratch.

Another one would be to build something that appeals to HUD code tiny homes. Now, the best example that comes to mind is not a new development, although it was a retrofit of an old, abandoned, screwed-up mobile home park. That's the one that Tony Hsieh, the guy that founded Zappos, did out there in Las Vegas. I've written on it in different newsletters. I've had photos of it. It's called Airstream Village, and it is a utopian community of tiny homes. He has a mixture of Airstream RVs and tiny homes in there.

Now, I would like to point out that tiny homes is a little bit of a problem right now because they really don't technically meet the law. The reason for that is that they are not HUD coded, so they're not really built for permanent residency, so therefore, they can't go in a mobile home park because they don't have the HUD seal. Instead, they often go in the RV park, but many RV parks are deed restricted against people living in them, although cities typically look the other way until you get children involved. Now they're back to the same issue we talked about of school tuition, et cetera, and suddenly, the city freaks out and says you can't have it in there.

The tiny homes I'm talking about here are HUD-coded tiny homes. Yes, they now make tiny homes that have the HUD seal on them. Most of your major manufacturers build them. They're nice. They're different. They're not like mobile homes. They're not expected to look like mobile homes and they, therefore, don't reflect the look of a mobile home. They're a whole different product.

I would think that, in many areas, particularly in the Pacific Northwest, this product would go over very well, just as developers are rebuilding these old factories into tiny micro-apartments. I'm sure you've seen those, 200-square-foot, 300-square-foot apartments that share common amenities. Some of those amenities are pretty neat. I've been in one of those micro-apartments, and they have like a food court out of a mall in them. They're actually kind of neat. There's an interesting vibe to it. There's a lot of college students and stuff in there. I could see mobile home parks having a new role in development as HUD-coded tiny home areas.

Taking it to another extreme, out in California and some other spots, they make two-story mobile homes. It's a mobile home that, on the first story, is a garage, and then the other mobile home is set on top of that. It's kind of a cross between mobile home and modular. Again, you get my point. Basically, the one reason you might build a park today is because nothing like it exists, and it's an all-new concept. In fact, it may be a gray area. Remember, the industry started out as a gray area. It's kind of like a hot rod. It's kind of like a Model A hot rod, right? The old Model A would be those trailer parks from the '30s, '40s, and '50s, and then the hot-rodders took the old trailer park and slapped a giant engine in it, and redid the seats, and put in chrome doodads, and took it to a whole new level.

The industry has been built, really, from its foundations on the ideas of morphing into something neat, or something cool, or something more in demand. I believe, probably, there's a future product in those kind of tiny home subdivisions. I could see that happen. Again, there's several reasons why you would want to build a mobile home park from scratch today.

What are the economics like when you build them? This is a topic I know well because we've done expansions. We've done them in the past. I'm sure we'll do them in the future. Here is a bare-bones rundown of what you need to know about building a mobile home park from scratch. It's not very complicated. It costs you ... and again, this is so broad-brushed, so this is a 5,000-foot elevation. This would be what you would say on a game show. The cost of building a lot in a mobile home park from scratch is roughly $15,000. $15,000 will get you the following. It will get you the street out front, a 20x20 concrete parking pad, water, sewer, power, and even gas, everything you need. About 15,000 per pad, that's expense number one.

Number two, the land itself. When I say the land, I want to also throw in, not only the land, but often land needs work. If there's any dirt work, or putting some kind of water feature into a culvert, or a box culvert or something, that's additional. When I say land, I mean land and improvement, so that's your second cost. Your third cost is called the soft costs, and that's mostly things like engineering, and permitting, and that type of item.

There's one other dreaded animal, and you better know this one or you could get in real trouble, and that's what is called tap fees. What the heck is a tap fee? Well, a tap fee is this unpleasant cost you have to pay to hook into the city's water and sewer lines. If you want to hook into water and sewer, they're not going to let you just do that. You're going to have to pay a tap fee.

How much is a tap fee? Well, in some places, it's nothing. We've done expansions in which the tap fee was zero. The city was very accommodating to growth. They encourage growth. They like to say, "We added X number of new residents, X numbers of new customers in our water and sewer," and they don't charge you much, but if you look at some towns in such states as Colorado, it may be $25,000 per lot, so think about that. Think about the tap fee being more than the entire cost of building the park per lot. That's scary, but it could even be worse.

If you get into an area like New Mexico, some parts of New Mexico, the water rights trade for more than the mobile home parks do. I looked at a park once in Las Cruces, New Mexico. This has been probably 15 years ago or so. That park, it was hard for me to figure out how to buy because what they were selling was the park with water rights, but the water rights were valued more than the park. Talk about an area most Americans are not equipped to handle. It took it beyond the mere cost of land speculation.

Some people always want to charge extra for buildable land. Picture how hard it is to plan when you're having to hedge what the cost of the water or what the water rights are worth. Obviously, that's a really, really impossible position, so ... but that's how it was. Whenever you're looking at building a park, always ask about the tap fees or any utility connection costs because we have found, over time, that can be more than the entire construction cost. There's another little item you've got to really watch out for.

That's basically the economics, $15,000 a pad, plus the cost of the land, plus the cost of improving the land, the soft costs like engineering, and then the associated tap fees, but there's one other big issue that you have to consider if you really want to build a park, whether it's a new park from scratch or even an expansion, and that is how are you going to fill the lots?

Another topic I've written about many times is the fact that modern mobile home park dealers don't finance customers. That all went away all the way back in about the year 2000 when we had the personal property meltdown. We beat the single-family industry to the punch as far as having a recession about seven years ahead of them, and what you had is what's called the Great Channel Collapse of the year 2000, '99 to 2000. It was so bloody. The end result was so significantly bad that most lenders withdrew from the market and never went back.

Today, if you want to build a mobile home park and fill it, you will have to bring in the homes to fill it. How do you bring in the homes to fill all the lots in whatever you build, whether it's an expansion or a new build? How do you do that? Well, the first one, which most people know, and we are huge users of the program, is the CASH Program through 21st Mortgage. Fantastic program if it works for your park. Greatest program of all time if it works for your park.

I won't waste a ton of time on the topic, but just the quick overview, under the CASH Program, you pick a home. It can be any manufacturer today. It used to be only Clayton. Now it can be anybody's. You bring in the home, and they pay for the home, the move, the set, the skirt, the stairs, the connections, the whole deal. Your out-of-pocket, basically, nothing or near to nothing on the home coming in. Then you have to run the ads, show the home, turn any customer who wants to buy it over to 21st. They paper them, and you can effectively fill lots for free.

However, there's still a catch. You have to pay the mortgage and the cost to put it back together, and clean it, and marketing costs if the customer runs off, because the way it works, 21st wants an uninterrupted stream of payments. You're not really personally guaranteeing the loan, technically, that's not the way it works, but you are guaranteeing to cover the shortfall, the negative when the customer vacates the home. Now, not all customers vacate the home. The loss rate right now is very, very low. Their default rate's only running 5 or 6%. Will it always remain that low? I don't know. Nobody knows. That's the CASH Program.

However, the CASH Program doesn't always work because, sometimes, your customers are not creditworthy enough or have enough down payment to be qualified by 21st Mortgage, so you have to have a plan B. Plan B for many park owners is you buy an old or used home and bring that in, and you try, once again, to do it through 21st Mortgage, this time under their Used Home Program. They'll do used homes all the way down to a $10,000 purchase price. What that gets you is a much lower down payment, much lower monthly, but yet again, they may still not qualify in some markets. If that's the case, all you can really do is bring in the home, paying it completely out of your own pocket, and then rent the home or do a rent credit on it. Those are three ways you could fill lots.

A fourth is you could fill it with RVs, but that's going to all boil down to your permit of whether the city even allows you to bring RVs into the lot. You'll be shocked that many mobile home parks in America have deed restrictions against RVs. Sometimes you have a deed restriction that only allows a certain percent of RV, like 20%, so sometimes, filling it with RVs is not an option.

Another option you have, but it doesn't happen a lot, are what are called organic move-ins. That's where a customer who already has a home hates where they're living, and they prefer your park, and you pay the cost to move them from the park they hate to your park. That's called an organic move. Those are some ways to fill lots, but hopefully what you heard from that is little risky, capital intensive. It's not the most fun thing in the world to do.

Other issues you have to think about if you want to think about building a new mobile home park or even an expansion, number one is the cost of carrying the land until you fill it up. If you build that 100-space park, and you're going to have to buy every home to fill every lot, I can guarantee you that, let's say you could only fill one lot per month. You have enough demand, enough money, enough firepower to do one a month. Well, that's going to take you eight years to fill that. Remember that, at a 10% interest rate compounding, everything doubles in seven years, so you're going to be shelling out a lot of money. You'll be feeding that property for many years until you get to break even. That's another issue is the cost of carrying the project. How much more are you going to have to put in in capital to carry it until it's self-sufficient?

Another issue to think about is the risk of building that park. When I say risk, I will remember I never felt more nervous, probably ever, than when I had to get my green tag on a 100-space expansion I did in Texas. It all sounds fine and dandy until you finally come down to where you have to apply to get the green tag and then the sign off for you to open the park up, in this case, my expansion section. Here I had plowed all that money into that expansion. I had almost $1 million into the expansion, and I had no guarantee that any of it would ever be anything that could make any money. That's what happens when you build things from scratch, so I really sweated it out getting my permit. Now, I got my green tag to open, but what would have happened if I hadn't? What would have happened if they said, "Oh, my gosh. You know what? We just realized your lots aren't big enough," or, "You're water system's no good"? That terrified me. That's another thing to think about.

Another issue is bank financing. There's almost nobody that does construction loans today, and for good reason, because since the window closed on building parks back in the '70s to '80s, who does them? Nobody ever does one, so they're completely unfamiliar with the idea, and they have the same concerns as what I'm expressing to you now.

Next one is liquidity. That means what are you going to do from the moment you build that park til you get it on up to a stabilized position, which in the industry is 80%? What are you going to do? How are you going to survive? What happens if something happens and you have to sell it off, and you're only at 40% occupancy? How can you sell it? What can you do? How can that buyer get a loan on it? That's another key worry people have.

There's another hybrid option that has much less worry, which I'm going to go over why it's easier, and that's expanding an existing park. I mean it would be easier to expand a 10-space park into a 110-space park than to build a 100-space park from scratch. Why is that? Why is it easier? Well, here are the reasons why. Number one, the park stigma's already there. People in the neighborhood already have a mobile home park there, so when politicians ponder, "Well, will it hurt my chance of being reelected?" the impact's lower because they already have a park, so the people just don't seem to have as much aggressive fervor as they do if it's something that's starting from scratch.

Also, it's a very important bargaining chip to already have the park there. How can you go to the council and say, "What do I have to do to get you to approve my expansion?" unless you have an ugly park there that they have reasons to make you want to do more with or a nice park they want you to take to even the next level? You really need that bargaining chip.

Another thing is the land choice is really easy when you're doing an expansion. You know exactly that it has to be one of the parcels of land immediately surrounding the park, so it's a lot easier on you mentally because, otherwise, you're always trying to figure out, "Should I build it here? Nah. Maybe over here. No, wait, maybe over here." Also, you have some lower operating costs because you already have your manager for free. When you're first starting out with your ground-up development, you're going to be feeding that manager out of your pocket at the start, there's no revenue coming in to cover that, but you do an expansion, the manager's already there.

Another issue is you already have the utilities figured out. You already know that you're going to connect to your existing utilities, so there's no utility issues. Now, there still will be tap fees, so you can't get away from the tap fee monsters. You have to make sure you can handle the tap fees there.

Bank lending is easier because, when you already have the existing park, it's much easier for the bank to visualize what the heck you're doing when you say, "I want to expand the park," than it is, "I want to build a park from scratch." They can go out to the park. They could eyeball it. They could see where the streets end. You could tell them, "The streets will now extend on out into that pasture with mobile homes on either side," and they can visualize it, so the bank lending's a whole lot easier on the expansion.

Also, you have more liquidity because, again, you have an asset that people already want. If you're trying to sell a park with expansion, and you get caught midstream, and you get diagnosed with stage four cancer with a week to live, much better chance you'll be able to sell the park that exists with the expansion, which interests many people, than a greenfield development, which scares many people.

Now, what is the comparison to building a mobile home park versus buying a mobile home park? Well, it's a pretty easy formula if you really think about it. Let me just explain it here how we would look at it. If I have a 100-space existing mobile home park and current rents at $300, that's the same, in the end, as a raw piece of land that you then build 100 lots on it to rent them out at $300 a month, so it's really all about the carrying costs. If you're going to get to the same position seven years from now as where I began with my existing park, then we will be of the same value seven years from now. You'll be there with your brand-new 100-space park at 300, and I'll be there with my existing 100-space park at 300, so I guess we matched.

However, as you've already figured out, I have a carrying cost to consider. You have no carrying costs. I have massive carrying costs, so I have to load all that carrying cost in. However, as you probably also just said, wait a minute now, right, if I'm having to buy my park at 100,000 a pad, and you could build your park for 20,000 a pad, even with the carrying costs, you may come out far ahead of me. That's what it's all about. It's all about the carrying costs. That's really what it's all about.

When you're looking at building something from new or buying something existing, it's just simply a question of numbers. You build out your statement based on your assumptions of fill rate. That will tell you in the end how much money you're out of pocket into the development, and that will tell you whether you're better off buying an existing or building from scratch.

There's also some risks to consider, and I cannot emphasize these enough as someone who's built probably 200 lots of expansion and watched as people built brand new parks, which we'll go over here in a minute. These would be my top 10 risks you have to worry about. The very first risk you have is what if you don't get approved for zoning? Because they're not going to let you go the full cycle of getting the park fully zoned and permitted until you do all the engineered drawings and other items, and you've got to put up money on each of those steps. What if you end up having $40,000 in engineering and fees and stuff, and they shoot you down? That would be a very, very bad day.

That can't happen when you buy an existing because, when you buy the existing, out of pocket you'll have a phase one, and you'll have maybe some other third-party reports like an appraisal or property condition report, but nowhere near the kind of money you're going to have. On the park you're buying, you're going to do all those items after you've done most of the diligence, so you know that if you go forward and spend the money, even your phase one, that you can still buy it, but in this case, you're taking a lot of risk with no guarantee at all. You may not get it.

Number two, even if you get all of that put together, you may not get the construction loan because, again, it's a very rare animal. I can only think of one or two banks in America that I know of that would do a mobile home park construction loan. You might get everything together, and then you still can't build it because you can't get the loan, and that's a problem.

The third one I just discussed, and that's getting the permit to open it once you build it. I mean I don't understand how people who build things have the guts to do it. It just blows my mind. I mean, here in the St. Louis area, you go down to the Arch Museum in St. Louis, and what do you have? You have an arch, a 700-foot-high, stainless steel structure that they didn't know if the top piece would go in til they put it up there. Everyone was holding their breath. This was before they had laser technology, so they had done this with engineering, literally with slide rules. This was built back in the '60s, so before the computer existed, before the pocket calculator existed.

They built this mammoth object, and the way they built is they started on each side of the arch, and it went up with this gradual curvature, but then they had to bring in the very top section with a crane, and it had to exactly fit between those two spans, and they were extremely worried. If you read about it, they were freaking out because nobody knew with precision that it would fit. Absolutely terrifying to someone like me who doesn't build anything. Getting the permit, that's another scary item.

The next thing is can you fill the lots? Are your customers creditworthy? You won't know til you try. What if you try, and they're not creditworthy? That's another huge issue.

Next item, can you meet the budget in filling the lots? You say, "Yeah, I'm going to fill two lots a month like clockwork," but can you do it? You don't know til you try. What if you can't get two a month? What if you only get one a month? Will the bank shut you down? Will you miss all your targets? Will you miss the whole budget? That's another risk you have to worry about.

Next, can you hit 80% occupancy before you try and refinance again? Is that humanly achievable? Because if you can't get it up to a stabilized occupancy, it's very possible you might be stuck with it. It might be really tough, a lot of bank renegotiation issues there that'd be really, really hard. What if you get into the project and die midstream? Then what do you do? How are you going to deal with that? How do you get that financed? What happens then? You're effectively illiquid.

Now, here's one you may not have never thought of before right now, and that is what do you do with the sewer while you're filling? Because here's a problem, and I didn't know this til I built my first or second expansion. If you have a mobile home on a sewer line, the sewer line is built to assume enough water going through it to push everything downstream. Remember that sewer lines are not pressurized. They rely on gravity, and they rely on that water to basically float everything down the line, to push it down the line. If you don't have enough water pressure in the early parts of the development, there's no way to push the stuff.

I knew that I had one expansion, and we were Roto-Rootering the thing constantly, sometimes every week, and the reason was, as the Roto-Rooter man observed, we don't have enough water going through there to amount to anything so, as a result, every time someone goes to the bathroom, there's nothing to push it down the line. You take that and look at a much larger development, many fold in size, and you can see you might really be very seriously in the sewer game to a level you really had not originally anticipated.

Another problem is can you cover the negative until you hit break even? Bear in mind, when you first start the park, you're going to have a negative. You're going to have a manager and other operating costs, marketing, and tax, and everything, insurance with no revenue coming in the door. Can you handle that? Can you physically write that negative check?

Then, finally, what if your partnership blows up during that period? A lot of people buy parks or build parks using partners. You're talking a fairly long-term thing here. By the time you start the park, you fill the park, you might be in the park five years or more. What if your partnership breaks up along the way? Your health holds out, everything's fine there, but your partnership doesn't hold out. Again, you're still in an illiquid territory. Those would be the key top 10 risks I think most people would figure.

Now let's take all this data together and examine it going back to our original theme of building a park versus buying a park. Well, basically, when you add it all together, to us, buying an existing park with upside is better than building one from scratch for various reasons. It has a higher overall return, typically, not always, which we'll go over in a minute. It has less risk, that's for sure, so that one's a given. There's less risk when you buy an existing. All those risks I just went over, those all evaporate.

Definitely higher liquidity. No one would dispute that. You definitely have higher liquidity because you have an income-producing asset, and that's a lot easier to refinance or sell than a non-income-producing, and definitely easier lending. Getting a loan on a mobile home park today that's existing has been the easiest it's ever been of all time. Getting one on one that you want to build you could not say is the easiest of all time. Back in the '60s, those HUD projects were amazingly attractive, but there's no HUD construction projects today financing out there for mobile home parks.

Basically, when we look a it, we look at the existing park as being superior to the new park, but that being said, there are still some other niches, some other players that might beat that, that might actually beat the existing park. The first one is those situations where you have already-zoned land. Let me give you an example of that. I always like to give people examples as opposed to just theory. Theory is not nearly as interesting as reality.

The one I can think of that already had the zoning to be built was a park in Dallas, and here's what happened. There was somebody who apparently just perusing the world of zoning maps, and he noticed a piece of land that was zoned MH there in the Dallas metroplex, in fact, right in the city of Dallas, right in the loop, right in Dallas. It wasn't a huge parcel of land, but yet it was big enough to hold 100 lots, so there it was ready to go, already had the zoning on it. How had everyone missed it? I don't know. I guess not many mobile home park people probably ever even look at a zoning map. Not really sure why this guy was, but nevertheless, he found already-zoned land and needed nothing from the city at all.

All he had to do was meet the modern requirements of building a park, which in Dallas are not that hard. Dallas doesn't really have really rough, rough parameters to build a new park. They'd never give you the zoning to do it, so they don't have to worry about them, but it didn't have unreasonably large lots or anything in it, so he built that 100-space park. It had city water, city sewer. The demand in Dallas in really large. He filled every lot, and I think he got the project over with, as I recall, in about four years.

He was doing about two homes a month and had plenty of customers, and so that project worked. I bet if you looked at his numbers based on the four year whole, he probably did at least as well as if he had bought an existing one at a decent price, because he didn't have a whole lot of whole ... not a lot of carry on it. Project went very well and, in the end, he had a brand-new park with new PVC piping, so okay, I think that one might compete with buying an existing.

Then here's another example is someone who built a project, in fact, the name is Scott Roberts. He built a project in Austin over the last five years. In this Austin project, what he took advantage of was super high housing prices coupled with a very proactive City Hall that wanted to help affordable housing. Austin, as people are probably aware, has extremely high median home prices, extremely high apartments, but the council there is a little more proactive on social welfare issues. Some people call Austin the California of Texas, and the people there are really, really concerned and really try to figure out, "how can we help everyone out, not just the wealthy of Austin? What can we do?"

He was able to harness that energy and couple that with building a new park that's kind of like a subdivision but not a subdivision. It's truly one for manufactured homes, but nevertheless, he put that together. He's done very well with it. It's a large property. I think it's 700 lots approximately. I'm not sure of his current occupancy. I was out there a couple years ago, and he was doing pretty well with that. Again, if you look at the price of a park in Austin, and what he paid for the land, and soft costs, and building it all, he might tie or he might even be ahead. I mean I don't think there are any existing 700-space parks in Austin, so that one, again, that might have worked just as good as buying one that was new.

The third item would be buying a mobile home park in a small town in ... or building, sorry, building a mobile home park in a small town in the path of progress. Now, the example I think of here, which is not necessarily a park construction example, but you could easily see how it would happen, was the city of Frisco, Texas. Texas or the Dallas-Fort Worth area has always grown north. I knew it back when I was in the billboard business because, if you looked at all of the road studies for the area, you saw all the highways were being built north, so you knew the city was going north.

There's a city north of Dallas called Frisco that had everything. It was right in the path of all the major roads going in, very, very small town, very quaint, good schools, safe. If you had built a ... gone to Frisco back in the days when it was very, very small, and you could have pulled it off back then. Your city council in Frisco ... I know this because I approached them once for billboards. It was basically farmers. It wasn't a sophisticated crowd, and they wanted the city to grow. It didn't have a lot going on back in the day. You could have probably gotten a permit to build a mobile home park because they would have looked forward to having more people living in Frisco. If you had done that, the value of that park today would be immense.

That would be the third time that it might work to build is if you have the niche of a town that has a council that's very amenable because it's not yet super sophisticated, it's not yet super hostile, the residents are not yet super hostile, and you're able to latch on and build that right as progress comes raging towards you, then that might be another option.

One of my favorite books is a book written by Conrad Hilton. It's called The Man Who Bought the Waldorf. In the book, it follows the life of Hilton, and Hilton was a great real estate investor. I really like the book. If you've never read the book, I highly recommend, if you need a book to read, The Man Who Bought the Waldorf because what it talks about is Hilton's amazing roller coaster ride in real estate. It starts off in a small town in a little motel he owned called The Mobley. He didn't own it. His dad owned it. He worked there. He ultimately inherited it, but at any rate, so he has The Mobley, which ... I mean I've been there, and you can go there. The Chamber of Commerce of Cisco, Texas is located inside of The Mobley. It's not much to talk about.

He had this vision. He wanted to be a big-time hotel person, so his mother ... He was always talking and drawing pictures of these grand visions of big hotels. She said, "Conrad, if you want to launch big ships, you have to go where the water is deep. You got to get out of Cisco, and you got to get up into the big city and pitch your hotel plan and give it your all." Well, he does that. He goes up, and he convinces a bank in Dallas that his experience at The Mobley, this little motel in Cisco, would propel him to greatness, and the bank allows him to build the first really kind of luxury high-rise hotel in Dallas, and it goes over gangbusters. This is back in the 1920s.

He builds a few more, and then the Depression hits, and he loses everything. He then gets a job managing the hotels that he lost through foreclosure. Then, while he's doing that, he puts together an investment consortium over the years, and he goes and buys the hotels back that he already lost through foreclosure, so he gets this second shot of running the hotels. His timing was amazing. Then we go into World War II and, basically, he ... the man is so high, he's able to rent chairs in the lobby by the night. Then he just keeps buying more and more hotels using the cash flow from the hotels that he bought. His main quote from that era, his big lesson learned in the book, and I don't have the exact quote memorized, but he basically said what he learned from his life was never to build anything new, to just wait and buy it during a depression for 10 cents on the dollar.

In that same theory, when you build a park, you're basically building it new, which if you could buy a park that's on hard times to turn around, you can often buy it for less than constructions costs, even when you add in tap fees and all the other associated costs. It's a very complicated dilemma because, as you'll notice, his heirs, the Hiltons of today, they build all their hotels. They don't buy any hotels, so I'm not really sure that his quote really works. It worked for him because the midpoint of his career was the Great Depression and then working his way out of the Great Depression, and he really died before there was another Great Depression.

The Ying and the Yang of how this all fits together, cycle of life, this is what really makes the issue hard to really get a handle on of whether you should build or buy because, as you see, it's really kind of complicated. The moral of it all is will there be more attempts to develop parks going forward? The answer is very possibly. As the parks become more valuable, it makes greater pressure to want to build the new. Will you be able to get permits to build new parks in the future? Maybe, maybe if you can come out with a better product, a newer product. Maybe you can ride the wave of Uber and Lyft and people who are getting around the old taxi cab franchise laws. It's really a more complicated issue than meets the eye.

Now, when the average person calls me and says, "Hey, I want to build a park. What do you think?" I ask them, "Where's it going to go?" 9 out of 10 times they tell me, "Middle of Nowhere, Oklahoma," and I always say, "No. You never want to build a park in Middle of Nowhere, Oklahoma." If that's your strategy listening to the call, then that's not going to work for you, and it never has worked for anybody, but if you can find the key certain features that would make that project work, if you can find land that's already zoned in an area where mobile home parks that are existing are already very expensive, or areas that have extremely high housing prices coupled with city councils that are very aggressive in trying to solve a horrible housing, or small towns in the path of progress, then it might work, but it would only work in those conditions and would only work if you can meet and beat all those risks that I have laid out.

If you can pull all that off, then building a new mobile home park might work. However, for the average person, ourselves included, we prefer to buy the existing because we find the existing to be, basically, a safer form of investment. Really, if you want to hybrid them together, then the ultimate deal would be an existing mobile home park that you can buy inexpensively because there's lots of things you can fix like pushing around and submetering water, then maybe also be coupled with expansion potential.

If you've enjoyed the lecture and you want to hear more lecturing, I would urge you to come to one of our boot camps. It's my hobby. It's what I do several times a year with Brandon is basically talk about the industry and teach about it. Our next boot camp is in Chicago July 13th to 15th. It's a three-day immersion weekend where all we do is talk all things mobile home park, and we also go out in the field and evaluate mobile home parks real life in the fields. That's coming up in Chicago July 13th to 15th, so contact Brandon if you want more information on that.

Beyond that, as you know, we talk mobile home parks all the time. You can come to the Frank and Dave shows on Wednesdays. You should be receiving the newsletter, all the many things that I constantly am writing and talking about. We really appreciate everyone for taking the time to be here tonight to talk about the unusual topic, although one that has growing interest, as you can tell by the questions and people in attendance, on the concept of building mobile home parks going forward. It's an interesting topic that's always a changing playing field, and so we think it'll be something that people will be talking about much more going forward, and that's why we wanted to do it. Again, we appreciate everyone for being here at the MHU.com lecture series event on building mobile home parks.