Mobile Home Park Mastery: Episode 28

Dealing With Raw Land That Often Comes With A Mobile Home Park Acquisition

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Mark Twain once said “buy land, they’re not making it anymore”. But land is not always what it’s rumored to be, as far as an investment – particularly when it’s attached to a mobile home park. In our final installment of our five-part series, we’re going to talk about the insider secrets to the options with raw land that sometimes comes with a mobile home park acquisition.

Episode Transcript

Land. What does that word convey to you? The feeling of security? Feeling of some kind of valuable asset? Well, in a mobile home park, that word may mean more confusion. What do you do with the raw land that's given to you by Mom & Pop as part of your acquisitions? That's what we're going to focus on in this, our fifth in our five part series on what to do with those extra assets that Mom & Pop give you when you buy a mobile home park.

And one of the oddest is when they give you raw land. Not raw land that's part of the mobile home park itself. Let's distinguish that right off the bat. I'm not talking the common areas, not the little bit of ground to the left and right of the entry, not the playground. I'm talking about when Mom & Pop present you with a piece of land, often separated by a fence from the mobile home park. So basically, just a piece of ground that is attached to the mobile home park.

So what do you do with that gift? Is that something that you should keep? Should you sell it? What can you do with it? That's what we're going to explore on today's Mobile Home Park Mastery podcast. Well, the first problem you have with land ... and we've talked about all the different asset types now. We've talked about apartment, single family, self-storage, commercial building, laundromat, clubhouse ... all of those things have a fairly simple path if you want to create them into real property income that can go towards the value of your mobile home park.

But land's a little bit different. It's really hard to convert that into an income-producing asset. Now, we've had land in ... next to some mobile home parks that we've been able to rent out for agricultural use, but agriculture doesn't pay much. It's one of the great observations about farmland or ranch land. One thing's for sure, there's not much money in it. As a result, that's not going to really get you much of anywhere as far as bolstering your net income on the mobile home park.

So what else can you do with it? Well, one thing you can do it is build something on it, something on it that would be real property and would get you some money. The first item you can use, if you could, to put on that property would be the logical choice of mobile homes. More mobile homes. Your mobile home park expansion. The problem is that most cities in America don't want mobile home park expansions, and it's not for the reason they claim. It's not for the stigma, because nobody cares. If the park is already there, why would any neighbor care about a two or three space expansion?

The city itself is the culprit, because they know that a single mobile home on a mobile home lot in most of America brings in a fraction of what it costs the city to educate the occupants and provide basic services. Just take one single lot as an example where you've got a family with two kids. The land, the lot for that mobile home may be valued on the tax rolls at $30,000, and the mobile home itself might be valued at $10,000, $40,000 total. In Missouri, which is a 1% state, that would give you a property tax of $400 a year.

But those two kids are going to eat up about $14,000 a year between the two of them in public school expense, and that does not even include those periodic trips to the hospital for the broken arm or the flu where they're not insured. So basically, the idea of adding more lots to a city just means more money down the drain. The inclusion of five more lots might be as much as one of the policemen cost in the city itself. So basically, you're always going to find a hostile environment towards expansion. We've tried to expand many times, but we've failed most of the time. So putting mobile home spaces on that land ... that's maybe not going to happen for sure.

So what else could you do with raw land? Well, probably one thing that you could look into doing is building self-storage. Self-storage, for some reason, is a use that most cities don't really mind too much. I think because it doesn't house people and, traditionally, it looks decent as long as you keep it painted. They're metal buildings. They don't really cause much flack from anybody, so that is probably where you should steer. If you can get storage on that land, now you've got real property income, and so you can cap that at a 10 cap or 9 cap or 8 cap or whatever you value the property at. And any appraiser or banker will stand behind that, so that's an excellent thing.

Now, what if Mom & Pop tell you, "Hey, I've already got the permit to put mobile homes on that land?" I've only ever seen it happen one time. What Mom & Pop forget is that when they built that mobile home park to begin with, in most cities, when you build something, you have to complete the construction of it within so many days. If you don't, you lose your rights. Mom & Pop never finished what they were doing on that piece of land, and as a result, all those rights are gone. There's no grandfathering involved. It was never actually legally completed, and therefore, you cannot use it.

So if Mom & Pop say you can expand your park into the land, you'd better double, triple-check that. Because I'm going to bet you, with a 95% certainty, you cannot. So typically, the only use you can do with land to make it income-producing again is to put storage on it. That's probably where I would head. And don't forget that land is very expensive to have hanging around. You have to mow it. You have to pay tax on it. You have to insure it. You have to mend the fence from time to time. So really, raw land without a pathway to income is just something that's not very attractive.

So what else can you do with land? "Well," you're going to say, "why don't I sell it off?" If you're saying, "I can't make it into real property income without some degree of difficulty and I can't put mobile homes on it. Maybe the best thing I can do is to subdivide it and sell it." And you would be, in many cases, 100% correct. But never forget the fact that you're talking about a piece of land that's next to a mobile home park. I cannot emphasize how big the stigma is by most Americans and developers against mobile home parks, and when you have a piece of land next to a park, it can sometimes render it nearly valueless.

We had a piece of land that came with a mobile home park in Colorado. We later sold the park, but the person who bought the park did not want the raw land. So we were left with owning the raw land without the mobile home park. Well, you can see the problem with this, because the land is not income producing and we're not in the development business, and we don't even want to go down to that area anymore because we no longer own the mobile home park.

So we decide to list it with a broker, and it sits there for about a year without a single looker or offer. Meanwhile, we had to pay the tax. We had to insure it. We had to mow it, so it was losing money every day. We finally decided to take it to an absolute auction hoping just to get rid of it. And this property that Mom & Pop told us on the front end that they thought would be worth, oh, $100,000, and that we ourselves then thought, "Well, it might be worth 30 or 40,000 on its best day ever," it ended up selling at auction for, I believe, about $7,000, and the only one who bought it was a neighbor who wanted to basically let it grow wild so they didn't have to look at the mobile home park anymore.

So really, this piece of land which everyone thought was so valuable turned out, in the end, to be nothing more than a visual obstruction to a neighbor looking over at the mobile home park. Hardly the great rags to riches story that people had been telling us. So be very, very careful on land when you go to subdivide and sell it. You will not get anything near what the local brokers will tell you it will derive, simply because it's next to a mobile home park.

But here's a newsflash. Sometimes, the land, including the mobile home park, is some of the most valuable development land there is. This is a unique wrinkle to mobile home parks. Since cities want to get rid of them so badly, they often will bend over backwards to let any other possible use go on the land because it cuts loose their obligations, their money loss of what they're currently spending between the taxes that are paid in and the money that must be spent out.

Case in point, my park in Springfield, Missouri. I had this park in Springfield down the street from a brand new Wal-Mart that had gone in, and the land ... signs started popping up, "Land for sale." I found a broker selling land along the highway there, called Sunshine Highway, and he agreed to list my land to a depth of 400 because it did not require rezoning on the market as commercial property. He pretty rapidly found a Harley Davidson dealership that wanted to build in front of the park.

But the weird part is what happened on the back of the park. After they sold the commercial land off, he tells me he can get me more money for the land behind it than he could commercial. It turned out there was a high density, multi-family builder who had been unable to ever get their permit in the city of Springfield, and they thought that my property had their best shot, because surely, they would vote for this high-density apartment model to get rid of the old trailer park. They were 100% correct.

So although our land that's adjacent to a park is not very valuable, that land, in coordination with the park for future redevelopment, might be very valuable. Also remember that when you sell off that piece of land, you've got to think about the future use of your mobile home park. Some mobile home parks out there are not always going to be mobile home parks. Maybe today, they're the highest and best use, but maybe they won't always be tomorrow.

As a result, you've got to think about the possibility that you may want that land in the end, because just possibly, down the road, when you go to redevelop the park and there's something else, that land could be the magic ingredient that gives you just enough land mass to attract that future thing you want to build there. Maybe by selling off that bit of land, you just don't have quite enough land to score that deal with Home Depot or Lowe's or that apartment developer. So sometimes, you want to keep that land handy, because you can use it down the road.

And also, think about the fact that if you sell that land, you lose control over what will go on the land. Think about that for a moment. If you sell that land next to your park, you have no control over what might soon be your neighbor. How will that impact your park? What if someone develops something on that land which is not good for you? What if the land ends up being light industrial with someone manufacturing some object, and it creates terrible smells in the manufacturing process? That would not be good for you.

So how can you sell the land and yet control what's going on? Well, one thing would be to deed restrict the land so you could stop some uses from going on there. Or another option would be to get that land, before you sell it, rezoned into a higher use. I had a mobile home park once in Lake Worth, Texas. It's a long story, but at the end of the movie, the city pretty much forced me to shut the park down. They wanted it done because it was an old, nasty trailer park with old, flat-roof homes. It had a very visible location entering the city thanks to the expansion of a highway, and it was clearly a money-loser for them. It had a lot of kids in there that went to school. The tax base didn't even come close to covering the cost.

So the city came to me and said, "We'll give you any zoning that you want if you will close that park down and sell it off." Well, I talked to my attorney, and he said, "Look, they're going to harass you to death. They're going to file violations on you all the time and make your life miserable, and they're offering you a sweet deal. So why don't you go ahead and take their offer? Take the land. Rezone into something of higher value, and then sell it off." And that's what we did.

The land had been zoned simply residential, which is not of much value in Lake Worth, Texas at that time. But they rezoned me into a commercial zoning, which allowed for the creation of anything else on the property. Restaurant, shopping center ... And I found someone who would buy the land almost immediately. So perhaps what you should do with raw land that you want to get rid of is either deed restrict it or rezone it into something more.

I wouldn't sell it off being zoned MH or some lower residential form of zoning. I'm not sure that's going to get you where you want to be. Maybe you should try and take it up a notch. Make it a more desirable zoning, something that might help your residents down the road. And it's a perfect opportunity to do it, because again, the cities love getting rid of anything that's even remotely attached to a mobile home park. So it's really an all-around win/win for everybody.

This is Frank Rolfe again with the Mobile Home Park Mastery podcast series. This pretty much completes the fifth of our five installment series on what to do with all those little extra assets that Mom & Pop give you. It's always nice to get free gifts, but at the same time, we all have to figure out what to do with the gift after we've had the excitement of opening it. Owning the mobile home land and getting the lot income is great. Owning the mobile homes is not always great, but it's the conduit to get your lot income. And we've talked about ways to manage that already, such as finding a path to ownership for the people who live in those mobile homes.

But I wanted to go over all these other additional assets, because so often when you buy that mobile home park, you never really anticipated you would one day own a commercial building or a bunch of storage units or an apartment complex, or even another stick-built home. So I hope you've got some great ideas from this of ways to convert that into real income, real property income, manage them effectively, and when all else fails, find a path to perhaps subdivide and sell those assets off. Again, this is Frank Rolfe of the Mobile Home Park Mastery podcast series. Hope you enjoyed this five part series, and we'll be back soon.