In this third installment in our five-part series on “Tough Turnarounds”, we’re going to discuss Hidden Hollow – a mobile home park that didn’t even have a rent roll or a financial statement. This turnaround came with the added twist of Frank being chased down the street by a 300 pound man in a diaper. Learn the techniques that can allow you to take a piece of land with some old, rusted flat-roof trailers and no law and order (or dress code apparently) and make it into a tame, income-producing asset.
How many of you have been chased down the street by a 300 pound man wearing only a diaper? I have. This is Frank Rolfe of Mobile Home Park Mastery podcast series. We're talking about tough turnarounds in this third part of our five part series. We're going to talk about a park that I own called Hidden Hallow. Now, let me tell you the background on this property. It's such a strange, strange deal.
A broker came to me and said, "I've got a property, but it's a really, really big mess. Because of that, the seller wants a very small amount for it, and will even carry the paper." Check out the price on this, $60,000.00 with $5,000.00 down. It came with 15 mobile home lots, and a brick home built back in the 1940s. It had petrified wood stuck into the bricks as a decorative feature. I mean, that's a really old home.
The deal was, the mom-and-pop would sell this so cheaply because the park had no rent roll, no PNLs, they didn't know the name of any of the residents, no one had ever paid rent. Now, you might say, "How is that possible?" Well, it was an inheritance. This person inherited this Mobile Home Park from a family member. When they received it, they were so afraid of it, they didn't know what to do with it. So, they didn't want to charge anyone any rent because if they had to charge them rent, they thought they might have some kind of friction with the people who wouldn't pay.
Besides, you have to get people's names. These are kind of affluent people. They wanted nothing to do with the Trailer Park. So, they just wanted to sell it as-is. All they could tell you about it is how many lots it had, the fact that it came with a house, and that's it. No other information was provided because they frankly didn't have any. Now, when you hear a deal that that's cheap, of course you're going to take on the project. That's exactly what I did, sight unseen.
I said, "Yes, I will take it. I'll have the $5,000.00 ready for you immediately. Let's go see what's going on here." I knew some things on the front end, I knew enough about Dallas Fort Worth to know that Lake Worth, which is where the park is, is an area that's not bad. It's okay, it's not a bad area. I already knew the market was decent, but the park itself, wow, what a wreck. The first thing I had to do is I had to reestablish the rent roll. I had to know who lived in the park. I couldn't even send invoices until I knew which homes were occupied and which were vacant.
So, I knew that I had to go door to door. I would go and knock on a door and say, "Hi, I'm Frank from the management company," interesting point, never say you're owning a Mobile Home Park. It's a very, very bad idea. If you're just from the management company, people are not nearly going to be as mad or treat you poorly as if you're just with the management company. So, I was Frank from the management company, "We're trying to get a handle on the park. Could you give me your name?"
Well, I went to each successive home, and the first few people were fairly friendly, but they all said, "Don't knock on number seven." I thought, "Why is that?" They would say, "Just don't do it. It's a bad idea. You will not be happy if you knock on the door of number seven." So, I did number one, number two, number three, number four, five, six, and I came down to seven. I knocked on the door and without any question or anything, the door flies open and a giant bearded man, he must have weighed at least 300 pounds, wearing only white underwear, which looked just like a diaper with his stomach hanging over it.
He just starts running at me, kind of just growling. I thought, "Oh my God, this is no time for quiet discussion." So, I ran off the steps of the mobile home and started running down the street, like a big old baby, with him in pursuit. The only good news is he was giant and couldn't run very far, so he winded himself. I ran out of the park and thought, "Wow. Okay, now I see why you don't knock on the door of number seven."
Obviously, the guy must have been either mentally ill, or has a very, very poor temper. He certainly doesn't like strangers. So, in any event, I ultimately went back, finished the mission, got all the names, knew what was vacant, knew what had residents in it, knew who I could then bill. Then, I had an idea of how to stabilize this big old mess. All I have now is the information of who lives in each unit, which ones were vacant and occupied. But, that doesn't really get me anywhere.
I've got to figure out how to actually make this a stabilized income-producing property. So, what do I do? Well, first thing you do is I've got to get the invoices out for the next upcoming month. So, I sent the invoices out based on what the residents told me they thought the lot rent was. It's all I had to go by since there were no leases of any type. I would assume that everyone in this park on a month to month basis.
I sent out all of the invoices for that monthly amount, and right away many people paid me, others did not pay me. So, those who did not pay me, I sent them demand letters. Those who did not pay after the demand letter, I filed an eviction on. I pretty much filed an eviction on about a third of everybody in the park. They had all been living there for free, and frankly they'd had no money anyway. The bearded man in the diaper was among them. He never paid, no effort to pay, no response to the letter, filed eviction.
The great thing about evictions, of course, it's then up to the process server to face the wrath of the giant bearded man, so I never had to see that guy again. Most of them did not even make any efforts to pay, or had even communicated. They just basically ran off. They threw their stuff in their pickup truck and they drove off, leaving me with a few occupied units, a bunch of empty units, empty lots, and an empty house. Then, what do you do?
Well, the people who were living in there, the few residents I had that were occupying those dwellings, they had no pride of ownership at all. So, if I was going to try and build the park back, I knew I had to first off, make the park look presentable. I went to them and explained to them that we were trying to make the property the nicest it could be, and that meant a few minimum items that they had to have skirting on their homes, they had to paint their homes, they had to have no non-running cars, no debris in the yards. Just basic items like that.
To be honest with you, most of these folks were pretty friendly. That's why they had paid, because they actually wanted to live there. They wanted a nice place to live. They kind of had been held hostage by all those crazy people, the giant mountain man with the diaper. So, they were relieved to finally have a nice, safe, quiet, clean place again. They did a pretty good job of cleaning up. The ones who could not afford to make repairs, I made the repairs for them.
The homes that were occupied suddenly went from looking awful to looking fairly decent. That left with me the homes that were abandoned. I went through all of the abandoned homes to figure out which ones could be saved, and which ones needed to be scrapped. To my amazement, none of them needed to be scrapped. They fell in two categories, either not bad that needed just a little bit of work to be ready; And those that needed more significant work, but nothing that was of a level that would make you want to scrap the home.
There was not a lot of water intrusion, not a lot of roof issues, I didn't see any evidence of any mold. Basically, I hired some guys to come in and start rehabbing the homes. We started with the exteriors on all of them so that when we had the first one ready to rent or sell, the drive-up would be decent. At the same time, I also did some work on the abandoned stick-build home, which in fact had been mom-and-pop's house when the park was built. I basically just worked on trying to stabilize what I had.
I had a few residents paying rent, I had a bunch of vacant stuff that was all my property now. [inaudible 00:08:00] take my property and make it nice and decent again. So, that's what we did. We cleaned it, we painted it, we put [inaudible 00:08:06] on, we fixed it all up. Now, the next step of the puzzle, of course, went to stabilizes ... You want to maximize your income. What I did was I ran an ad in the newspaper. This pre-dates Craigslist, so there was no Craigslist.
I put signs in the yard saying "Homes for Sale/Homes for Rent" in the windows. Lo and behold, I started getting calls from people who wanted to live in a detached dwelling in Lake Worth, and they would go out and I myself would show them the homes. I would drive over there and meet them and show them the homes, and most of them liked what they saw. We signed up leases, did a background screening, and put them in there.
Pretty soon, I had all the vacant homes occupied. At that point, I needed to go ahead and get somebody to serve as my eyes and ears in the field. It really wasn't much to do for anyone when I had only three or four occupied. But now that we're getting closer to eight or nine, I found somebody in the park who seemingly was nice and pleasant and liked living there, and someone I felt I could work with, and made them the manager. I was really ready to go to town in trying to maximize the income with the property.
The next step was I've got to fill those vacant lots. I had these lots sitting there doing no one any good, where they could really be nice and communist. The rent was fairly high, it was in the $300.00 range. So, I went to all the local dealers and said, "I've got vacant lots, can you bring any homes in?" I suddenly realized I had a niche that might work. The dealers in Lake Worth, many of them had trade-ins that they had in the back of their lots that were not in very good condition, but they were decent.
They were never going to be purchased inside the back of a Mobile Home Park lot. So, I proposed that they bring those homes over to the park, put those on the vacant lots, and then skirt them, connect the utilities, and they could sell them on location as a turnkey done deal. I convinced two different dealers to try it, in both cases it worked. Then, I got some repeat business. I even had one dealer bring in a new home. He did so well on the old homes, he actually stuck a new home in, and it sold also.
The next thing you knew, we had the park basically full. Then came the house itself. What do you do with the house? Well, obviously sitting there it's of no value. But, if I could just get it rented, that rent would count the same as lot rent towards the eventual loan or sale of the park because it is after all a real property. Remember, the lots are real property, the stick built's real property. Mobile homes are personal property, so lenders don't give them the same credit.
If I could just get that stick built rented, I would really have something going on. What do you do? I called in people who do home renovations. We found the foundation was shot, the roof was shot, the wiring was shot. But, I ran the numbers. I could do the foundation and the roof and the wiring for about $10,000.00-$15,000.00. If I could get all that done, the home would rent for about $600.00-$700.00 a month. If you do the numbers on that, $700.00 of rent, less the expense ratio which was about 30%, went to that home, would be worth $60,000.00 roughly at the applicable cap rate.
So, it was well worth investing $15,000.00 in the home to get back $60,000.00 of value. That's exactly what I did. Meanwhile, I put up a new sign to make the park look nice. I did some landscaping to it. I cut down dead trees, dead tree limbs, all the items you typically would do with a property, and soon I had myself a nice little property that was making a nice income. What are the lessons learned from this? How did I go from a park where I knew no one's name, no leases, nothing to a park that was actually functioning well and sightly, and something you could have pride in?
Well, first off, the item is always think about that concept of stabilize and maximize. That's kind of the chant of the turnaround expert. You've got to take what's there before you even start to think about, "Hey, I can do this," or, "I could do that." Stabilize what you have. Get rid of any of the dead wood. In this case, I had people in there who were not paying, not following the rules, they had to go.
First, you stabilize, then you maximize. Number two, you have to pick turnaround situations where you know that you can fix the problem. What was the big problem in this park? Well, it was the owner. They had it let it go completely to seed. They didn't know anyone's names, they weren't doing any billing. So, obviously, you do not attract good customers when you could live there for free. I knew I could beat those problems.
I had one important tool working for me. I knew the location was good. I was in a residential area in a town that was fairly nice. So, I knew that if I could just go in there and get this park cleaned up, I would win because I knew the location was not bad at all. Also, what was very important in this deal was buying it really cheap with a lot of seller carry.
There's a maximum out there that any park is desirable to buy if it's zero down, with the seller carrying all the paper in non-recourse. While that may be true to some degree, there are certain cases where you still wouldn't want to buy it. For example, if it has some kind of environmental hazard issue. That is what got me into the deal to begin with. I would have been smart enough to know, and you should also be smart enough to know, that you could not get a conventional bank loan on a property where there is no rent roll or any PNLs.
Banks like to see the last three years' performance. They would never, ever underwrite a deal where there was no financial performance of any type. So, I just would not work for about anybody. Another lesson learned from this deal is even deals that are really, really, really messed up like that can ultimately be fixed. You have to come up with the methodology to fix it.
I knew that even despite the fact that no one was paying, and we didn't know who anyone was, or what they paid, that these are fixable items. There's a methodology to do it. You give people new leases, you non-renew people, you send demand letters, all the items that no-play no stay, and no-pay no stay, those two features can all be done even on a Mobile Home Park that's been virtually abandoned in the field. There's nothing holding you back from making things happen if you'll only give it a try.
That's the story of Hidden Hallow. Now, you can't go out and look at it today because it's been redeveloped. The location was good enough that in fact it ultimately became commercial property that was ultimately purchased and demolished. So, there's no real evidence of Hidden Hallow that remains today, but I thought it would be an interesting tough turnaround to go over, because I've really never, ever since, ever had one where there were no records of any type.
I've certainly never been chased down the street by a giant man in a diaper before, or since. Now, in our next in this five part series, we're going to go over a park that looks just like Berlin after the war, maybe even rougher, over in Illinois. This is Frank Rolfe at Mobile Park Home Park Mastery podcast series. I'll be back again soon with another tough turnaround.
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