Mobile Home Park Mastery: Episode 43

The Toughest Turnaround Of All

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In this final installment of our series on Tough Turnarounds we’re going to examine the story of a mobile home park that required not only a complete renovation of all common areas, but also the renovation and sale of over 200 park-owned homes. It’s tough enough bringing a mobile home park back to life, let alone all of the homes inside of it. But we learned some important lessons from this unusually difficult project and successfully finished within 36 months. Hear how we did it in this week’s Mobile Home Park Mastery Podcast.

Episode Transcript

We've talked about Outlaw's giant piles of trash and debris, a 300-pound man in a diaper, and what looked like a Hollywood set design of Berlin after the war. But in this fifth part in our five part series on tough turnarounds, we're going to go over one of the toughest of all time. This is a property in the Dallas, Texas area, and let me give you the story of this. It's such a fascinating backstory on it, even to begin with.

When I bought my first Mobile Home Park, Glenhaven, and I didn't know what a Mobile Home Park was all about, or what the whole goal was, or even what I should aspire Glenhaven to look like, I was told by all the different Mobile Home dealers and people, "Go down and look at this one park south of you. This thing is the best-run Mobile Home Park we've ever seen." So I went down there and I was blown away.

Here I was with Glenhaven, which was just a complete dump. Then here was a Mobile Home Park that had tremendous pride of ownership, a beautiful entry, great streets, totally full. I thought, "Man, that is what I want to be someday. I want to have a Mobile Home Park as nice as that property." I went down there a few times in the early days of Glenhaven, trying to get ideas of things I could do to make homes look nicer, common areas better, even what color to paint buildings, things like that.

Then I stopped going down there, and I never thought about it again. Years and years later, that property comes on the market. It's not the same property that I remember back in the olden days. This new property is just a total train wreck. No pride of ownership, everything in total disaster, unbelievable contrast between what it had been to what it was. What happened, of course, is the mom-and-pop had died, and left the properties, as they do so often, to a family member. The family member had no interest in it, no idea of how to make it work.

So, they pretty much took the road of least resistance. Typically, that leads properties into the area of kind of slum lording, people who don't want to put any money in, and just take all the money out, and don't really have any desire to make it a nice quality place to live. But it was shocking because it had at one time been so nice. Now, the other part of this story, which makes it so fascinating, is how this heir has so dramatically screwed the thing up.

When I looked at the property originally, all of the homes were resident-owned, at least I think that they were. But the modern property was all rental. It was a gian property, around 250 lots, and every single home in there, virtually almost every one, was a park-owned rental. Now what had happened there? How did it Segway like that? Well, I assume as the guy let the thing go down the drain, all the residents basically just ran off. Some may have sold their homes back to the owner, and others may have just selected to throw their stuff in a pickup truck and drive off and abandon it.

Then, the other took it through the abandonment process. It was a night and day difference from what had once been a high quality, to one that had no pride of ownership at all. What really made it really extra special odd was the fact that of those rentals, he was only charging about $395.00 a month in rent. But the lot rent, in the Dallas area itself, is more than $395.00 a month. So, he was renting the entire home and lot for less than what you can just rent the lots for.

That causes a huge dilemma in a turnaround, because often what you want to do is you want to get the people instead of being renters, into being owners. To become an owner, you want to give them some kind of financial incentive. Let's look at this deal if it had been a little different. Let's say that the homes had rented for $600.00 a month, and the lot rent should have been $400.00 a month. What you do is you go back to the people with the homes, and you would sell them, or give them the home that they're in, and it would reduce their payments from $600.00 a month down to $400.00 a month.

So, it's a win-win for everybody. You get somebody who owns their own home, greater pride of ownership, and you're no longer in the loop on repairs and maintenance, and they get a $200.00 a month lower payment. But I couldn't do that in this case because the lot rent itself was the same as what we were renting the home and lot for. The basic pitch was, "Hi, we don't want to rent homes anymore, so we're going to sell you or give you the home that you're in. By the way, your monthly rent does not change at all."

Well, that's not very appetizing because most people realize that owning that home will inherently come with it taxes, and insurance, and repair and maintenance. People were not really thrilled by this plan, but there really was no other way to maneuver it. That's kind of where it was at. The heir to the park had basically never kept the rents up in line with inflation, never charged the right amount for these homes, never ever realized that the lot rent was actually higher than what he was charging for home and lot.

So, this thing had been positioned incredibly poorly economically. As a result, what happened is when we told people that they could have the home, that their rent would not change, many of them elected to leave. So, we were left with a giant mountain of vacant homes. We then had to enter each one, and rehab and then sell it off. Now, there was a huge lesson learned, which is why I wanted to go over this park as a very important turnaround situation, because I learned something new from this deal that I had never known.

At that point I'd been told that most of the parks we'd done turnarounds on only had a few park-owned homes in them. By few, I mean it might have five, 10 or even 20, which doesn't sound like a few, but it's not really a lot. When you're in the Mobile Home Park business, you'll often find deals that come with five or 10 park-owned homes, but I'd never seen one that had over a couple hundred homes in it. I had never before tried to venture into selling or renting 100 vacant homes, or something, at one time.

This was unexplored territory. What we did was we went and graded the homes like we talked about on our last installment, ABCDF. We tore down the F graded homes, and the A homes we cleaned and got those out the door. The B and the C got those ready, and the Ds we held off on for the moment. What was interesting is the tact that our manager took in trying to get these homes out the door.

Again, we had this giant pile of homes. How do you do it? How do you attack that? This is what they did, it was very successful. They realized that we had homes that ranged in price from thousands of dollars all the way down to free. That's right, we would give you the home for free, if you would take it and restore it. That's kind of the lowest of the level of the homes we had in there. Well, if you advertise that ... see, a lot of people would advertise the lowest-priced home first, right? That's what car dealers do.

Car dealers would put the least expensive car of their entire lot in the ad, and they wanted to get you to come in the door, and then they try and bait and switch you into a more expensive car. That's been a common sales tactic in everything from cars, to boats, to lawn movers, since I think sales was invented. But the problem was the manager realized that if you ran the ad saying "Free Home", people would come in on a bicycle. No credit, no job and say, "Hey, here's $1.00, give me that home."

Those aren't really the customers that you want, particularly when all of these homes needed some form of capital improvement. We needed people who had the capital to actually fix the homes. Instead, they ran the ads for the most expensive home in the park, and then the people who came in to look at the most expensive home, who had the money to go ahead and buy that one, were then told, "Would you like something less expensive?"

We're all familiar of the idea of upselling, right? But how about the concept of down selling? That's exactly what they did. So, the customer would come in, they'd say, "I want to buy this home for $6,000.00," the manager would say, "Let me show you something that's only $3,000.00." They'd take them down to another home that was not in as good condition, and say, "Here's this home. It's far less expensive. You can take the difference in money and easily rehab it in the same color scheme that you would like, so you all around save money."

If they didn't say, "Well, that's interesting," they'd say, "Do you want to see something even cheaper?" They would ultimately take them to the homes that were a complete train wreck that they could have for free. Many of these customers who came in to buy the expensive home would ultimately buy the least expensive home because they could run the numbers in their mind as far as how much it would save them in money, and they had the capital to actually makes those repairs.

It was a very interesting theory that worked out and practiced extremely successfully. That was the big takeaway from this tough turnaround, was the whole idea of down selling homes as opposed to upselling homes. What we also learned from this property was the fact that often when you get into a property that's had that much deferred maintenance for so very long, a very large property with very poor management, it does take quite a long time to retrain people on how things work.

The former owner had basically let people do anything they want. It was absolutely no fixation on paying the rent, or following rules. So he basically had to retrain these people from scratch after years of being trained poorly. When it came time to pay the rent to them, it meant nothing. Why pay the rent? The guy would never evict them, so they could get along living in there for months, maybe even years, without paying. Of course, that word is spread around the property.

Also, why fix up your home? Why clean it? Why not just throw your sack of trash in the yard instead of the dumpster? Because what the heck, everybody else is, and the owner doesn't seem to care. These kinds of behavioral issues are things that just don't work well for you as a park owner. At the same time, you have to set the standard. In this case, this heir lived in a home in the Mobile Home Park. Not a mobile home itself, but a stick-build home, and it was just chock-full of trash and debris, and deferred maintenance, and non-running cars.

That doesn't work. You have to be the leader. So what we did in this property is before we even asked people to do the right thing on their own homes, we had to show through example that we did the right thing. We went out and we fixed all the common areas. We took and fixed the clubhouse, the pool, we mowed everything very well, we put in new signage. We did all these items and then basically said, "Hey, follow our lead. We're trying to make this a nice place. Now it's your turn to kick in and do that."

That helped enormously. It was really hard to argue with us when we were pushing them to improve the quality of their living condition when they could look at our common areas and see that we had done that. So, we basically went in and as before, the whole concept was stabilize and maximize. To stabilize the property, we had to bring all the common areas back to being clean and presentable. We had to get new signage, we had to make the whole thing look like a nice place to live because before we could take all that mountain of vacant homes and get those occupied, we had to have a property that would attract good customers who would want to buy a property and have pride of ownership and pay the rent every month.

We had to basically stabilize, which meant on many of these park-owned homes, doing a full renovation of the exterior, skirting them, painting the exterior, sealing the roofs. All those items. You couldn't expect someone to pull into the park who'd never been in there before, and have a positive impression and want to live there if it all looked terrible. We knew that, so basically we had to get in there and we had to stabilize, make it attractive, and then maximize. In this case, what that meant was selling a lot of homes.

It seemed like an impossible mission on the front-end that we could possibly actually sell that many homes, and it took us about three years to pull it off. But by the end, I saw the number dwindle. We were getting down to the final 20. The final 10, the final five, and then magically we had none left to sell or rent. Then we basically finished the property and then we have in fact since then gone ahead and sold it off.

The new owners are taking it to the next level. We brought it back to life, we made it a nice place to live, they want to make it really nice place to live. They're going to put in further capital and redo the clubhouse, they're even going to change the entry to the property and do all kinds of great stuff. But again, it was a very, very tough turnaround for the simple reason that we had no good positioning. If only mom-and-pop had kept the rents of those homes up to a reasonable level, even $500.00 or $600.00 a month, it would have been a whole lot easier to pull that turnaround off because many, if not everyone, would have taken the home and saved themselves a couple hundred dollars a month over their budget on housing.

Because they had never raised the rent for so many years, and allowed the home and lot rent to rent for less than a simple lot rent does, it put us in a very, very tough position. We ultimately were able to get them all rehabbed and all sold off, but at one point it looked fairly impossible. Would we do turnaround again like that? OF course we would. What's interesting on that kind of turnaround where you have lots of park-owned homes, including ones where you own all of the homes, you can raise the rent to the full maximum market level without any pushback from residents because all they know is that they're paying one amount for home and lot.

They don't care about the break damage between the home and the lot. This mom-and-pop had done such a poor job of managing the property, what if they had set this instead of being all park-owned homes, as all privately owned, but the lot rent was only let's say $200.00 a month when the market's $400.00? Think how hard that would be for people. Basically, there's no giveback. There's nothing there. Just, "Hey, the guy screwed up. He never raised your rent, and now I've got to take decades of mismanagement and inflation adjust it all at one time."

That's a much more difficult plan. So really, in many ways, there are some benefits when you have all park-owned homes, because you can reset the lot rent to the correct level on day one. What made this deal extra hard and what I kept this in mind as our toughest turnaround, was the simple fact that I had absolutely nothing in my corner as far as having a strategic advantage on the pricing. I basically had to get people to take the homes over with all of their repair and maintenance issues, taxes and insurance, at no cost benefit at all.

Again, I hope you enjoyed this series of five tough turnarounds. Each one was a little different. Each one there was a major lesson learned. This is Frank Rolfe, the Mobile Home Park Mastery podcast series. We'll be back shortly with a new adventure.