We’ve saved the most important for the last. In our final episode of our five-part series on “The Top Five Tools of Mobile Home Park Owners” we’re going to discuss the power of the human mind to make you a successful investor and operator in this asset class. If you think that Sudoku is the only way to keep your brain active and sharp, then try mobile home parks – it can be much more challenging and a whole lot more rewarding.
Have you ever watched those specials on PBS about how aircraft carriers operate? What you have is, you have a room in which you have a whole lot of sailors on a bunch of computer screens, and they're all looking and watching those screens and they're calling out information. One will be screaming, "10 planes on the deck." The next will be screaming, "Incoming missiles. 4,000 miles." Next one will scream out, "30 degrees Northwest." Then, you have in the center of the room, this guy, and he's standing there with an erasable marker and a glass wall just writing down notes, pondering life, and then shouting out commands. So he'll say, "Ship off the 10 planes and load three more. Turn the ship 90 degrees to the north. Increase speed 10 knots. Fire the anti-missile missiles." You watch the show and you wonder why? Why don't they just link all those computers into one big computer, and that's how they control the aircraft carrier?
But the truth is, the human brain is still superior to the computer, and that's why in this installment, our fifth installment, and final installment in our top five tools in Mobile Home Park Owners, we're going to be talking about the number one tool that we all possess, and that is our brain. So, how do you use your brain as the ultimate tool, as a mobile home park owner, mobile home park operator? Well, the first is you have to respect your gut instinct, because what your brain does better than a computer is it sorts through all kinds of gray areas, and based on experience, tells you the correct path to take. While the computer can look at things on a very, very kind of black/white scale, it has difficulty with those things which are more in the gray realm.
Things that there's not a clear cut answer, right or wrong. That you have to make kind of judgment decisions based on the past. The first one is when you figure out whether property is good or bad to buy in the first place. We have found over the years that if you buy a property that is not a good deal for you to buy, you won't feel good about it at closing, and we call that bad gut instinct. If you have a bad gut instinct on a property, you should not be buying it. That system has always proven to be accurate for us, and we've learned from experience that if we're not feeling good at closing about buying the property, we need to put on the brakes. We need to rethink why are we not feeling good about it. We need to double check our due diligence. Any number of items. You might want to delay the closing for awhile until we get comfortable with it.
If we can't get comfortable with it, if we're not going to feel good about it, then we should pass on buying it. So, the first item to use your brain on as a park owner is simply, in the very front end, buying the right park. Another item your brain is great at telling you is it's good at sending off an alert when there's potential litigation brewing around a tenant. As a mobile home park owner, you often are faced with residents who are professional, what we call systems users. These are people who have learned the system. They learned how to manipulate it for their own financial gain. One of the worst of these are people who are professional deadbeats on paying rent. What they'll typically try and do is entrap you into what has the appearance of landlord retaliation. That's when you evict someone, not because they didn't pay their rent, but because they reported you to the authorities for some other reason.
What these systems users will do is they will take opportunity of the fact the system is flawed in determining what is retaliation and what is not, and when they haven't paid their rent, they'll come up with any number of excuses. All complete lies as to how you evicting them, not because of the rent, but because of a lengthy and skilled masterminded program to retaliate them against for some unknown thing which makes no sense. Whenever you see a resident who's not acting in the norm, you file the eviction and instead you get emails from them saying, "I know what you did." Or, "I'm turning you in." Clearly, you need to turn that over to a lawyer, because that's a tenant who's trying to suck you into some kind of crazy scheme on their part. Always use your brain as a park owner, whenever you see residents behaving oddly, because that's typically a sign of litigation.
Speaking of potential litigation, your brain's also great at proactively watching over and fixing liability hazards. Most of the problems that happen in mobile home parks, you can see them on the front end. I drive into so many parks. that thankfully we don't own that other people do, that we're evaluating for purchase, and I see the craziest things. I've seen giant master metered power boxes. These are breaker boxes as big as a human, with fuses the size of an arm. If you touch most anything in that box, it would kill you, yet that box is not only unlocked, but the door is flapping in the wind. What is the seller thinking? What is the seller thinking when you see holes, maybe in the sidewalk? They went in and dug out something. Maybe it was a water leak. Maybe they removed the tree and they never filled the hole back in.
There's not any markings around it even, so basically you're walking down the sidewalk, minding your own business. You fall right in the hole, break your leg, or even worse. We see these things all the time, and all you'd have to do if you're using your brain, is fix them and all those risks would go away. How many times have you seen a mobile home, in a mobile home park that's for sale or rent, and the stairs are broken, or there's no rail on the stairs, or there's a stair missing on the stairs. Those are the kinds of things that, when you use your brain, you'll fix them. You'll see them coming and you'll fix them so they can't come back to get you later. Another thing you do with your brain is figure out which rules are really worthy of fighting over and which ones are not. A lot of times our residents will do things in their yards, or with their homes, that are not exactly in keeping with what we want them to do as the park owner.
However, you have to pick your fights very, very clearly and accurately based on what the ramifications are. Whether it's really worth getting in trouble with the resident and kind of ruining your relationship or not. A non-running car in the driveway, well clearly that needs to go. That's not good. That has to be towed away. But what if it's a non-running classic car that the tenant is restoring? What if it's some kind of classic Mustang? Is that really a non-running car or is that really more of an asset? You'll find a non-running Mustang in many McMansion neighborhoods. So again, you've got to look at that, and kind of decide the gray areas. Same on grass heights. You know when the grass is mowed, but then the question is at what top point is the grass high enough you need to issue a rules violation, and then on top of that, what's the normal pattern for mowing grass?
If you've had a lot of rain recently, and the grass has grown really, really high and it would be hard to mow in the rain, you might want to say, "You know what? That's not really a rules violation per se. That's just kind of a timing issue and I'm going to wait it out and see if that's not fixed the next time I look." So, a lot of time you've got to use your brain in deciding what really is a problem in the community, and what is not in the community, and then act accordingly. Another item you do with your brain, just to note changes in the market early on, both good and bad. Both in the overall market and then just with competitors. If you're driving out to your property and you see some new development going in, and you've got RV lots, the best thing you can do is contact the Chamber. Get the name and number of whoever's building the development. Talk to them and see if possibly you could house the workers while they're building the new development in their RVs on your property.
See if you could send them a stack of flyers on that. All the times, if you keep your eyes open and your brain attuned to what's going on, you'll catch articles and different things that will be fantastic moneymakers for you, because you'll get a jump on the competition. In the same vein, if you notice parks around you, they're offering specials on homes that are far lower than what you are doing, then you might want to adjust your pricing accordingly. We've had situations where suddenly we come to a dead stop on filling homes, both for sale or rent, only to find that there's another mobile home park down the street a ways that's offering some kind of great move-in special, and we do not on paper look in any way compelling. We need to adjust what we're doing accordingly. So, all the time you need to let your brain constantly freewheel. Read the local newspaper. Read the headlines. Focus. Soak up anything that might impact your business because that's how winners go.
They react as quickly as they humanly can. They note trends and they jump onto those trends as fast as they can, so always let your brain be a very powerful tool to watch what the competition is doing, and what the market's doing so you can adjust accordingly. Next, you've got to definitely use your brain to effectively plan your goals and performance, and to see how you're doing on that. Whether you are looking at buying a mobile home park from scratch, or operating the one you've got, you've got to use your brain at all times. We like every year to do very laborious budgets for every property we own, so we'll map out what we want to do this year. We'll kind of guesstimate based on what we think our best shot is on occupancy, or maybe bringing in new homes to fill lots, raising the rent, that type of thing. On the cost side, we'll go down and we'll try and brainstorm down that list of all those expense items.
How can we do a better job this year? How can we lower the repair costs? What can we proactively do to make things better? Should we get different mowing bids this year? Should we look at maybe rebidding our insurance, and try and drive it down a ways? We even try to get creative on things we can do as far as additional income streams in the park. For example, the last few years we've been monetizing our cable. We then go into cable companies, and getting them to pay us what we call door fees, which is an amount per occupied lot, as well as revenue share of the cable revenue coming in. Always be watching for new satellite ways to create income streams from your property, and then plan all those out to the umpteenth degree. Now this next part's equally important. Once you've established your roadmap, now you get to roll out your brain on another thing because every month you take what happened during that month, your performance for the month, and you compare that to what your budget was.
We call this budget/actual difference. So first, your brain built the budget, but now your brain is going to brainstorm where you missed the budget, how you can improve on that. So if you budgeted, for example, repair and maintenance for the year of coming in at $500 a month, and this month your repair maintenance came in $1,500, you need to say, "Okay, why? Why was it different? What happened? What is going on? Is there a proactive way that I can fix what's going on? Maybe what I should do is I could go out and jet my lines, which means blasting water, high pressure water through them to blow it all the sludge so it reduces the amount of rotor rooter calls I have. Maybe it should be, I need to go in and just replace or remove those three trees that seem to be causing so many issues with limbs falling and things like that."
You you want to use your brain to look at every line item and say, "How can I beat that? What can I do that's new and different? That will make things better?" So, use your brain to create your budget, but then also use your brain to monitor your budget monthly and brainstorm, "What can I do better? How can I make my park more profitable?" It's amazing to us that more people don't use their brain in this regard, because really, your budget is nothing more than like a GPS system. You've loaded in where you want to go, but your brain has to act like a GPS, to tell you how to get back on the road. You missed your turn. Okay, what do I do now? Where do I turn again to get back to where I want to be? That's a big part of the brain power of a mobile home park owner, is using that effectively to help guide them to where they want to be, profitability wise. Never underestimate your brain's power because it really is the number one tool of all park owners. We've all got a brain, we just all have to use them better.
You really can never really reach the full potential of your brain, so feel free to keep loading more and more information in. I study, and Dave studies constantly, all kinds of things. Trends not only in our industry but in other industries. We'll go to the apartment show in Las Vegas one year. We'll read a book about how to properly manage a retail center, because we can't get enough information to load in our brains. The more information you stick in your brain, the more accurate decisions your brain can make, the more ability it has to tell you in those gray areas of life, whether you should take a left, or a right, or go straight, so you really need to use your brain to its fullest potential. Now, that completes the fifth in our five part series on the top tools of mobile home park owners. Hope you found it interesting. I know I certainly enjoyed talking about it. Join us next week for new discussions in the Mobile Home Park Mastery podcast series. This is Frank Rolfe, and we'll talk to you again next week.