Most people think that operating mobile home parks must be difficult and complicated. What they don’t know is that successful mobile home park operations are built around simple management systems. In this week’s Mobile Home Park Mastery podcast, we’re going to discuss three of these systems and review the impact these action steps would have on your mobile home park. If you can drive a car – and watch and react to the what the gauges tell you – then you can operate a mobile home park like a pro.
Frank Rolfe: Can you operate a car? If the answer yes, then you can also operate a Mobile Home Park. Because the same basic skills that you use in operating every day your automobile are very similar to the systems that Mobile Home Park owners use to operate effectively their Mobile Home Park.
When you drive a car, what do you do? Well, you have a series of gauges on your dashboard? You have speed, you have engine tap, you have gas, you have RPM, you have your battery charging. You may have some additional gauges even beyond that. You may have oil pressure, many other items. You watch those gauges, and those tell you what's going on. You also have GPS. So the GPS tells you exactly what you have to do. When to turn right, when to turn left. So, all you have to worry about while driving that car is watching those gauges, watching that GPS, and keeping that car in the lane and doing exactly what it tells you, and you will always end up at your destination happily.
The same is completely true of operating Mobile Home Parks. This is Frank Rolfe with Mobile Home Park Mastery. Today we're going to be talking about three action steps to properly operating a mobile home park. The first gauge I want to talk about, 'cause these three action steps are basically three gauges that are on you dashboard as the owner of a mobile home park. The first one, a big one, is collections. That's a very, very important gauge. Now, why would you think that would be so important?
That might be even the biggest gauge you have on your instrument panel. And why would that be? Well, because in most cases, our industry is based on affordable housing. And when you deal in affordable housing, what does it mean? It means that people can often not afford to pay a lot of bills. And it's very, very important that you stay on the top of their list of who they pay each month. Now the good news is, collections is a very important meter on almost anybody, any businesses operating manual.
But, the good news is in mobile home parks, our rents are so low, that it's really impossible not to able to afford to pay them. If you make minimum wage in the U.S., which is $7.25 an hour, you make roughly $15,000 a year. Which gives you a total household income, assuming you are a single wage earner with a little over $1,200 dollars per month. And our typical lot rent in the U.S. is running around 280 a month. So clearly, there's no way you can hold a job and get paid minimum wage, and not be able to happily and easily pay your lot rent.
So then, why doesn't it happen? Well, obviously paying lot rent isn't fun. There's way more fun things you can do with $280 each month. It's a lot more fun to go to Chili's. My God, their burgers taste great. All kinds of things you can do they're a lot more fun than paying the rent. So as a result, you've gotta ensure that people pay their rent like clockwork. And you need it not only for your own selfish reason that you need the rent to pay your bills, or pay the mortgage, but we've also found over the last two decades that you really are not helping people out when you let them fall behind on their rent.
There really is a tough love aspect to keeping people in their homes by making them pay the rent each month. One of the biggest disservices that many mom and pop owners do, is by not enforcing the customer to pay each month, they allow them to build up large balances. And then, when mom and pop lose their cool one day and file eviction on them, they're screwed. They simply don't have the money. They might have had the $280 each month to do something, but six months in, and they haven't paid. They owe $1,800 and they don't have that.
You probably read the articles that the average American ... 70% in fact of all Americans do not have even $1,000 in the bank. So certainly, your customers as the mobile home park owner are not going to have enough money to dig themselves out of the hole if you let them get several months in arrears. So collections is absolutely key. So what does the gauge tell you? What's the collections gauge look like on the mobile home park owners dashboard? Basically, what you wanna do is, you wanna track how much rent you have in each day of the month. And you wanna compare that to how it was the month prior.
And, if you've owned it long enough, that same month a year prior. You wanna watch for any signs that people are not paying the rent in the manner that they typically do. Now a lot of your customers will get in certain patterns. Some people always pay early, so those rents will come in before even the first of the month. And the rent is due in most mobile home parks on the first, but is still considered on time if paid by the fifth. It's called the grace period. And other people will not pay on the first, but they will have it in there before the fifth.
In fact, in the average mobile home park, roughly 80% have it in by the fifth. But others, what they're gonna do is they're gonna pay the late fee, and pay you on the next pay cycle, which is typically the 15th. That's when they get their next paycheck. You're just wanting to watch and make sure that everyone is following their own certain pay cycles that they have established. Now, what happens if you start to see it going the wrong way? What if you had typically collected in your mobile home park $12,000 by the fifth of the month, but this month you've only collected in $10,000. What does it mean?
It means that possibly, you are not following your no pay, no stay requirements. It's always a good sign if there in lies the problem that your manager is not actually giving people the demand letter, nor are they following your orders to file evictions. So the minute you see that gauge declining, you gotta get on the phone with the manager immediately and say hey, what's going on, did you send out those demand letters? And what's a demand letter? It's a letter that you have to send out in most states that says that you're behind on your rent, and if you don't pay it by a certain number of days that you're gonna file an eviction.
It's kind of a warning letter. Kind of the first round of tough love to remind the resident that even though it's much more fun going to Chili's, that they have to pay the rent. However, sometimes the managers drop their guard. They don't send those things out. Why? It's like a homework assignment. Plus, perhaps they've started enjoying the love of the residents, and they have friends who say, oh come on, don't ... Let us be a little slacks this month. Come on man, it's near Christmas time. Not realizing people are gonna get themselves in the hole.
So when you see the collections begin to decline, you have to immediately step in, and find out exactly what's going on. You would wanna ask the manager to give you a copy of the rent roll, designating where the status was on each person on their payment. If they've not paid, has the demand letter been sent. If the demand date has passed, has the evictions been filed. If the eviction has been filed then one, was the writ of possession filed. You've gotta get a little more proactive.
And often, in a well-run park it's not an issue because, the collections look the same roughly each month. But you always have to watch that gauge. If you do not watch that gauge, and let the manager run amok, and not do their job on collections, you can get in trouble real, real fast. And bear in mind, if you typically have a no pay, no stay policy and you drop your guard even for one month, the word will get around the entire mobile home park and, nobody will continue to pay rent.
Because why should they? The neighbors aren't paying, so why should they? So you've got to watch that collections gauge. Another important gauge on your mobile home park owners dashboard is property condition. Now this gauge has changed so dramatically over the last few years. When I got in the business over 20 years ago, what that meant was, to make sure that property condition was looking good. You had to do one of two things, a, go drive to the mobile home park yourself, which is a lot of time depending on how far the park is from you, to spend ... To drive all the way out there just to drive through it and see what it's looking like.
And another thing people would is good old One Hour Photo. They would have people take pictures ... You remember One Hour Photo I hope. And they would send you that box camera ... That disposable box camera, and you'd run down to One Hour Photo, and you'd print the photos and see what it looks like. But that really wasn't very good, because you can take and from the right angle make almost anything look good. You can take that shot of the same great looking mobile home from nine different directions.
Always trying hard not to capture the non-running car by getting the tree branch there and, change the line of sight, so you can't see the big rusted thing behind the mobile home, and it really doesn't work. What we use today are HD videos, and they work fantastically well. We use a little camera called a Polaroid Cube, suction cup mount. Put it on the roof of your car, aim it forward, turn it on, and have the manager drive the entire park with that little Polaroid Cube camera taking a complete beautiful HD video.
Have them detach the card out of the camera, send you the card. You can download it, and it looks like you were there yourself driving in the park. In fact, if you wanna go one step further, you can actually get on team viewer with that manager, and you can both get in the car together and drive the mobile home park, and comment as you go. So it has completely revolutionized the way maintain property condition, and much to the better. So today, even if you live 2,000 miles from your mobile home park, you can still know what it looks exactly like as frequently as you'd like.
Some people do HD videos monthly, some people do them weekly, some people do them quarterly. It depends on how comfortable you are in your manager, and their abilities as well as, how your demographics of your park are and how much the customers attempt for pride of ownership on their part. But any way you cut it, that gauge is so much better today, thanks to HD video. So, that's the second gauge I wanted to talk about. Now, this is the big gauge, this should be the most important.
This is the fact that the GPS on your car ... And this is what we call budget actual different, also known as the acronym BAD. It's a shame that budget actual difference when you take the first letter of each word and put them together says BAD. Would've been nicer if it said GOOD. But, I guess it reminds you that if you don't monitor bad things can happen. So what does it mean? It means when you bought your mobile home park, you established ... Hopefully you established a budget on the front end.
And every month that goes by, you have the actual numbers. You basically have one column of your budgeted numbers, one column of your actual numbers, and then a third column, which is difference. And that's the monetary gain or loss, based on your actual numbers, versus your budget. So what does it look like? Well, let's say that you budgeted each month on that mobile home park, it would bring in $16,000 of revenue. But this month it only bought in $15,050. So what does it mean? So you wanted $16,000 but you brought in $15,500. That means you're $500 short. So, that would be a negative on the difference of $500.
Let's say you had another category on the water consumption, you budgeted it would cost $2,000 for the month, but it only came in at $1,700. So that's $300 better than what you thought in your budget. And so, you take each line item, every single one, and from one end to other of your entire P&L. And you look at each one and you figure out how did I fare based on my budget that I put in stone when I bought the property. And that difference is going to tell you where you're at.
Now, you shouldn't spend a whole lot of time on the good things, 'cause the good things don't really matter, they can take care of themselves. You have to get chronically uptight about the things that are bad. You if budgeted $2,000 for water and the water bill came in at $2,500, what's going on? Well, you may have a leak in your system. You've gotta find out. Any time a budget is more ... The actual is more than your budget, what the heck is going on and act on that immediately.
The BAD, one of it's strong points is it gives you complete visibility on proactively where to spend your time and effort. Because you've gotta steer that thing back on to the budget. Now, if you have one month off does that ruin the whole year? Not necessarily. You can perhaps better your position on other items. Possibly, you can go instead of mowing it let's say, every week. The way it's raining right now, you can mow it a couple of times every other week. Squeeze by and that helps offset where you went wrong on some of the category.
But you've got to always be looking at those numbers and seeing where you are. Imagine driving the car without the GPS. Remember the old days when they had those roadside maps that you tried balance them on your lap, and you could never figure it out and, you'd almost have collisions trying to find out where you were on the map. It was a terrible way to get around America. But that's what we all had to do, right up until they brought out the new video manner to make it all happen.
So, if you ... long as I follow my GPS, I know I will end up at my destination. But if I don't have a budget actual difference system, I have no idea where I am in relation to where I'm trying to be. That ... It's a very, very bad position to be in. So, not having a budget when you buy the property is a catastrophe. Having a budget that you don't follow along with, is an equal catastrophe. Knowing how far you are off from where you're supposed to be, is another catastrophe.
So you simply have to get in the habit of producing a BAD report each month. Now, let's assume you own the park yourself, you have no other members on your team, it's just you. Do you still produce a formalized BAD report? The answer would be definitely you would. So, think beyond yourself, think like a consultant to yourself if it's just you, if you're a one person team. And, have some kind of formalized meeting on a certain day of the month where you produce a report simply for your own sake, and see exactly what's going on.
Because it's all important that you always know exactly where you stand in relation to your budget. That is the GPS on your park purchase. Without that telling you where you are, and how far off you are, you cannot make the necessary corrections to get back to your destination. As long as you have a system of budget actual difference, and a road map on the beginning of how to get to where you wanted to be with your acquisition, the great news is, you'll always end up where you thought exactly you would be. And that, I find to be very reassuring.
I love looking at my GPS while I drive occasionally, even if it say next turn 80 miles down the Interstate. I like to look at it and see when it says I'll be there, what time, to refresh my memory of when I'm supposed to turn. It's that kind of constant reassurance that makes life easy, and low stress. And that's what the budget actual difference will do for you. It will allow you to go through your entire process of owning and operating the mobile home park in a very stress free environment, because you'll always know exactly where you stand, and that you are exactly on the path you've meant to be on.
Again, this is Frank Rolfe of Mobile Home Park Mastery. Hope you enjoyed this fifth part of our five part, three action step series. And now, hopefully you've got an idea ... A little better idea of how to successfully operate mobile home parks. Again, it's not difficult as long as you know the gauges, watch the gauges, and act on what they say. So again, thanks for being here, home you enjoyed our time together, and talk to you again soon.