Mobile Home Park Mastery: Episode 26

Operating Self-Storage And Commercial Buildings In Your Mobile Home Park

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The self-storage industry has been a part of mainstream real estate for about three decades, but it takes on a completely different dimension (and playbook) when it’s located inside a mobile home park. And commercial buildings are a lot harder to make money with when they have a “trailer park” address. In this third part of a five-part series on additional assets that often come with mobile home park purchases, we’re going to talk about how to correctly operate storage units and commercial structures inside mobile home parks.

Episode Transcript

We all use storage. I have a storage unit, and you probably do too. But what do you do when that self-storage is inside of a mobile home park? In this third part of our five part series on the ancillary assets that mom & pop sometimes give you with the purchase of a mobile home park, we're going to talk about self-storage, additionally commercial buildings, which also are typically also used for storage, and just kind of drill down on how does storage work inside of a mobile home park? How do you make money with it? How does it operate? Just some of the insider secrets regarding storage and commercial buildings.

Let's first focus on self-storage. The good news for self-storage, and for commercial buildings, is that is real property income, which means you are allowed to count that in your net income, apply a cap rate to it, and all of your appraisers and banks will stand behind that. Your self-storage income and your commercial building income is going to be counted the same as lot rent, so that's great news. It's definitely worth your while to maximize and fill all of your storage units and commercial buildings.

Now, what are some of the insider secrets of filling storage in a mobile home park? The first thing to remember is my self-storage unit, and probably the one you have too, one of the key deciding factors on where we chose to store our belongings was safety, security. The average American has this bad stereotype that mobile home parks are unsafe. As a result, it's really hard to get anyone mainstream to store their goods inside of a mobile home park storage space. Then who rents the stuff? Pretty much people who already live inside the mobile home park. Even worse, even they often do not feel it's safe to have their things stored there.

What's it all mean? It means to rent self-storage inside of a mobile home park, you're going to have to charge a very low rent, to offset that perceived risk of storing things there. Additionally, since you cannot really attract people from the outside, you're going to have to have a low price to get people inside your park, who typically have lower disposable income to rent the units.

How low do you have to go? Typically about one-half of the going rate is what we typically see. If the self-storage through Public Storage up the street's renting for $100 a month for that 10 by 10 space, you're looking more at $50. If the Public Storage a block away is charging $70 for their 5 by 10 space, you're looking more like $35. Be sure and give yourself a lot of sway. Give yourself a lot of cushion on two items, number one, what the rents are, but also degree of vacancy. Because again, you don't have a very big net to cast. You're only going to be able to capture, traditionally, people who live inside of the mobile home part, and that's not really a very, very large number.

Also remember that to have things to store, you have to own things, and a lot of people inside mobile home parks do not have enough income to really buy a lot of stuff. As a result, their needs for storage are much different than yours. If you look in the typical self-storage storage unit, what you're going to see inside of a mobile home park are a lot of Christmas trees and things like that, but not a lot of the more upper end items that you typically find in a public storage unit. As a result, again, demand is just not that high. Mobile home park owners get spoiled by having endless demand for the mobile homes themselves, but they don't share that same demand for the self-storage unit. Just be very careful the way you underwrite those. Give yourself a fair amount of discount both on occupancy and on rent.

Now, storage buildings are the same kind of a thing. They're real property income, but just like self-storage, it's really hard to find tenants for them, because of that inherent feel of danger for people from the outside world. Most of the time, who rents your storage units are people who live inside your mobile home park, or people that are connected to someone inside your mobile home park, maybe a family member, maybe a co-worker. A lot of times you find that it's contractors storing goods in those spaces. You rarely get an actual free-standing business in a commercial building in a mobile home park. We've had a few, quick wash laundry, a liquor store, even a Mexican restaurant at one time, but traditionally that's not what occurs. It's people who use those spaces kind of as a larger, more glorified place to store things, and sometimes even use that as a kind of a business address for their roofing company, or plumbing company, even though they don't really transpire any retail business there.

Just like self-storage, you need to give yourself plenty of cushion on the rental amount and occupancy. Again, you are not very desirable space for that use. If you look at a commercial space down the street, never psych yourself up into thinking that you're going to get that same amount of rent, because you're not. You're going to get a much lower figure, and you're also going to be empty much more than those other spaces are. Why? They have a big advantage over you, they're not inside or attached to a mobile home park.

Now, an item, an insider's secret to watch out for when a contractor wants to store things in your commercial building, be very careful it's not a Phase I in the making. See what they're storing. Ask them what they're going to store. You would never allow someone to store petrochemicals in a storage unit or building. There's some things you want to store, and some things you don't. If you're not sure what the dangerous items are, contact your insurance broker, and say, "Hey, what are the things you wouldn't want me to store in that building?" You might also call up a Phase I provider like Mike Renz and say, "Hey Mike Renz, what are the things that would typically, possibly cause you, when you do a Phase I when I go to sell or refi this mobile home park, trigger a Phase II?"

Clearly, you're not going to make any money if you put yourself in a position where, even if it's not really necessary, a Phase I is ordered. Just the terror of what they might discover, plus the cost to do that, would not be very good. You're better off passing on any tenant that wants to do anything that's dangerous. Typically, one forbidden item is auto repair. Someone wants to bring in a new auto repair inside some old commercial building in your park, my bet is your agent is going to tell you that's a no-no. My bet is that Mike Wrenn's will tell you that's a no-no. My bet is you shouldn't do that.

If they want to store regular items that can't cause an environmental problem, like perhaps shingles or lumber or vinyl siding, because they vinyl side a home, okay, that's probably okay. We had somebody who rented a commercial building from us in Kansas City, and all they stored were vending machines. That's fine. Storing vending machines doesn't, to my knowledge, ever create the potential for environmental problems, but a lot of other uses do. Don't let that happen to you. Always ask in advance what they're going to do, monitor what they're doing, and before you even begin, talk to your insurance agent, talk to a Phase I provider. Become knowledgeable on what does and does not work for you as far as making sure that your property never falls into any environmental problems.

Now, how do you find people to rent self-storage and commercial buildings? Let's start off with the self-storage. Typically, the best way to rent self-storage in your mobile home park is simply to inform the residents. What you can do is, you can send out fliers to your residents periodically, saying we have storage units available, and you can put a sign at the entry of your park saying Storage Units Available, See Manager. Those are the folks who are probably, 99% of the time, going to be storing things. It's a very finite base of customers. You need to work that base as strong as you can.

On commercial buildings, you can cast a little bit bigger net. On commercial buildings, I would definitely, probably advertise in the newspaper under commercial buildings for rent, because you can undercut almost anybody. I would also put it on Craigslist. Once again, I'd put a sign out front of the mobile home park, and the second one on the building itself that says This Building is Available for Rent. It also would not hurt if you put on your storage units somewhere a sign saying that those are available for rent, and also what the phone number is.

Never forget the Hollywood rule of seven. That was something developed during the Great Depression, when Hollywood was trying to sell movie tickets, but trying to cut back on advertising. They actually did an exhaustive study to figure out how many times they had to tell you about a movie before you would remember it and buy a ticket. What they found was seven times. They had to say the name of the movie seven times. So they had to say Tarzan on a playbill, Tarzan on a radio ad, Tarzan on a movie reel, four more times, to get you to go to Tarzan. Same is true when you're trying to rent storage space. You simply cannot educate the consumer enough that it's there. Don't hold back. Let them know at every turn that you've got that storage available. Same on the commercial storage building. You cannot post it enough places. You've got to go out there and really market hard. This is America 2018. Even though the economy's doing a little better, it's not back in 2006 proportions, so you've got to take that little extra edge in aggressive marketing.

Also, never forget, I cannot reiterate enough, you will never get big rent in a mobile home park. If you've got a large commercial building, even if that building would bring $2,000 a month just down the street, inside your park, you'll be luck if you get $1,000. Maybe more like $700. There are rare exceptions. We have a liquor store inside our mobile home park in Elsmere, Kentucky, and we get big rent for that little tiny space. We get $1,000 a month for what used to be the park office years ago. That's terrific rent, but that's a one in a million shot. That liquor store just happens to be in a spot that works well for the general community and has a built in base for the residents inside that large mobile home park. But that is the exception, rather than the rule. Don't anticipate you will ever get big rent, and don't go copying your rent off things down the street, because they're completely inaccurate and erroneous.

Finally, just like apartments, and just like single family homes that we already talked about, at the risk of sounding like a broken record, it's sometimes just better to subdivide and sell these assets off. Even though storage is regular real estate income, and even though it will ply your overall value, there are certain times when you're better off selling it, if you take the capital that you would get from selling the storage off and putting that back into your business in the form of making sure that you've got every vacant lot occupied, and perhaps improving your entry, and other items so you can push the rents up farther. That may be a better use of your funds than chasing after people to pay their monthly rent of $35 or $50 a month.

Same with the commercial building. If you subdivide off, sometimes you'll find that perfect buyer that wants to buy that building and have it, and have pride of ownership. It's very powerful, pride of ownership in the US. It makes people do crazy things. Perfect example were some old used car parking lots I had in front of a property in Oklahoma City. The park was losing it's rear end on these buildings, that the mom & pop owner had made a disastrous decision to build, because what they did is they were renting the buildings out for $500 a month. That got you a little portable building in a little auto lot, a paved parking lot, but he was so desperate to rent them, that he did it, instead of being triple net, where he had to pay all repairs.

When I looked at the numbers, I saw that those used car dealers were deliberately calling in as much in repairs per month as the revenue, so really he wasn't getting any rent at all. However, I only had one way out of this mess. I went to the people who were occupying those buildings, they all had longer term leases so I couldn't do anything immediately, and I offered to sell them those little dealerships, even though it made no economic sense. They were basically using these dealerships rent-free. Nevertheless, I convinced them if they would only buy them for $50,000 each, it would be theirs for an eternity, and they could tell people they owned that land. That ego boost was enough that every single one of them bought it, and it was the best thing that I could have possibly done. Sometimes, you ought to just subdivide those things off and sell it. The good news is, a lot of people buy and invest in self-storage, and also in these types of commercial buildings, so if you can just get them subdivided, typically it's not a big stretch, you'll be able to get them sold at a decent price.

Also remember, kind of like when we talked about mom & pop houses, it can sometimes be difficult to subdivide if it's located up in the property. To properly subdivide and sell off a commercial building or a storage complex, it's going to have to be on the periphery of the park. The good news, that's exactly where these things typically are. They're typically located right at the entrance to your property, so subdividing is not hard. In fact, if you look backwards a while at why they are even there, typically mom & pop built those to fill empty land. When they built the mobile home park originally, they didn't bring it all the way out to the street. In fact, sometimes there was a use underneath that storage. Often times, those commercial buildings at the one time, were of a different purpose. Some commercial buildings you'll see in mobile home parks were at one time restaurants, things like that, that basically tie to a different era in their trailer park history. Now, there they are, still sitting on the frontage ready to go, and easy, again, to subdivide.

Again, this is Frank Rolfe with Mobile Home Park Mastery, talking about storage and/or commercial buildings. Hope you enjoyed these insider tips. I'll be back next time talking on the fourth part in our five part series about laundry buildings, club houses, and other assets that come with mobile home parks, and how to make the best of them. Talk to you soon.