In most mobile home parks, collecting money is the number one priority. But some people consider that unpleasant – even though it really isn’t. In this episode of Mobile Home Park Mastery, we’re going to start a six-part series called “Dirty Jobs” in which we examine in detail the things that owners do that scare most people. If you want to know the insider secrets of how collections work in a mobile home park, this podcast is for you.
Dirty jobs are the ones that most people fear, or shy away from. This is Frank Rolfe with the start of a six part series on dirty jobs in mobile home parks. We're going to go over some of the things that people dread the most, and the correct way to take on those actions. Today, we're going to be going over collections, that's one of the primary functions of any mobile home park owner, is actually collecting the money. And I'm going to start off with going over how the basic collections systems work in a mobile home park.
We call our process no pay, no stay, and what that means is simply if you don't pay your rent, then you can't live in the mobile home park. Now, here's how it works step by step. Number one, you have a lease, and the lease states the rent is due on the first of the month, and it's late if you don't receive it by the fifth. That period between the first and the fifth is called the grace period, that's the period in which the resident can pay you, and there's no harm, no penalty, as long as you get the rent between the first and the fifth.
Now, if you don't get it by the fifth, then what happens is you assess a late fee. It's a penalty to the resident letting them know this is the cost that you have to pay if you don't pay your rent on time. So, after the fifth, you assess a late fee. At the same time, you send what's called a demand letter. This is a letter prescribed by law, and it varies by state, it even varies often by the justice of the peace court themselves. Typically, what it does, it gives you series of time that if you don't pay in, then you will be evicted. So, in some states, it might be a 10 demand letter, that means you give them the letter after the fifth that says you have 10 days to pay the rent, or I'm going to file for eviction. It's a type of warning letter letting them know that they're getting in very serious consequences if they don't pay. And again, it varies by state, and it can even vary by the judge. I've seen them as short as three day demands, and in Texas, for example, you have to give two different demands. So, make sure you understand what that is.
So, you've sent off the demand letter, then what happens is that starts the time clock. If they have not paid you by the end of the demand letter, then you file for an eviction. How does that work? It's a simple form that the justice of the peace has. You fill out the form with all the data, you attach the check, and they then go out and serve using the constable, the eviction notice to the resident, letting them know they have to be in court on a certain data at a certain time.
After you file the eviction, what'll happen is you will be given a notice of the date you have to be in court. Then, you show up in court on that date. The resident typically does not show up, because they often know there's no defense to an eviction, other than having already paid. Whether they show up or not, you have court, you'll typically always win because the only point in contention is have they paid or not.
Once you've won, they typically have a short period to appeal. Not very long, typically two to three days, and they typically cannot appeal unless they can post a bond of the amount they already owed you. If they already had the money, they would've paid you, so you never see anyone file the appeal.
After so many days after the appeal, you have the right to file what's called a rid of possession, also known as a rid of execution. What it means is it's going to give the constable the ability to go in and physically remove the resident from the home. After that happens, they're basically banished from the park, they're not allowed to come back on, and you've basically through no pain, no stay, made it so that they can't live there without paying the rent.
Now, how do you actually get the rent in your hands? There's different ways to do that. There's basically six different methods. The firsts is to have a drop-box where the customer puts the rent. We've seen these attached on 4x4 posts at the front of parks. We've also seen them be attached to a post or the actual building over by where the office is. What the tenent does is they go in and put a check, or money order in that box at the first of every month.
Another way you can do it is have them just physically give the check to the manager. If you have a full-time manager, then that's often the easiest system. They simply go to the manager's office during regular business, on their way to work in the morning or when they get back at night, and they pay the manager directly.
There's a third way, and the third method what you do is you go ahead and have them put the money in a PO box. So, that's another method, that you have them mail it in. That's always great, because you can basically never have to go very far, venture far from your home or office to the PO box to get the rents each day.
Another method is to have them pay the bank. So, how that works is they basically go to the bank, and they deposit directly in your account their rent. You'll have to select a bank that's near the park to pull that one off.
Another method is for them to go ahead and do an auto withdrawal. So, in that case, they basically are going to set up with you to have every month the money directly taken from their checking account over into your account.
And then, there's a final method that we would never recommend, and that's payment in cash. We do not allow cash at any of our properties. Nobody's allowed to pay in cash, they can only pay with check or money order.
So, what happens then? So, you've chosen your collections method, and we already know what no pay, no stay, how that works. That's all great in theory and all, but what are some of the important to make this dirty job more manageable? How can you take the fear and the concern out of collections, and make it where it's not that difficult of a task? Well, there's some things you need to know, some insider things you need to know.
Number one, is typically all about education. So, what do I mean by that? I mean, in a typical mobile home park throughout America, your average lot rent is $280 per month. So, anyone who has a job that makes minimum wage can easily afford to pay the $280 a month. And even when they're getting a home and lot in the bargain, and you're renting the home, it's still typically, in the US, only about five to six hundred a month. So, once again, it's typically not an affordability issue, instead it's a priority issue. People don't like spending money on rent, there's many other ways they could have more fun with that $300 or $600, and paying you is last on the list of what they would like to do.
So, typically, what you're doing through having a collections program like no pay, no stay, is you're educating them that rent comes first. They have to pay the rent first. Any other item they don't want to pay, whether it's the car payment, or the big screen TV, it doesn't matter to you, but they have to pay rent first. Once you've trained them that rent is a top priority, typically it's not a big issue, because they always have the money to pay it, because our rents are so low.
Another item is don't ever take rent collection personally. You are not an immoral crusade to punish those who don't pay on time. If anyone pays you during the entire process that we just went over of no pay, no stay. If they pay you in the demand letter, if they pay you during the eviction's trial, if they even pay you up to the final moment that the constable goes out to their home to remove them, happily take the money and move on. Don't say, "No, I'm not accepting your money, you're late." That's ridiculous.
Things happen to people. Don't be so aloof. Don't be thinking that it would never happen to you, it could. Your car could breakdown, you could have a medical emergency. You could lose your job, and you might be in the same rut that they're in, so don't take it personally, don't hold any grudges. We've had many residents who got behind on their rent, they got caught up, and we never had a problem again.
Next, if you help them pay, it all works out easier. And the best way to help people pay is to accept Visa and MasterCard. Now, what happens then is when they can't pay the rent, and you're going to evict them, you filed evictions, often the will appeal to a family member, but they don't have the kind of money to pay the balance right on the spot. We'll get a call from someone in the park, it might be an aunt, an uncle, a mother or a father, and someone calls and says, "I can't pay my rent, their going to evict me. What do I do?" That's when you need to take Visa or MasterCard, that allows the person to get the balance paid up while still meeting their budget without coming directly out of pocket. So, it's very important, if you can, to take Visa and MasterCard.
It's also not hard to take Visa and MasterCard, because in today's world with the internet, signing up is very simple, and it doesn't cost that much per month. It used to be a big deal to Visa and MasterCard, but that is not the case today.
So, what other inside scoops are there on collecting money? Well, another big issue for a lot of community owners is get the manager proactively involved in the collections process. It's one thing to send someone a letter saying pay me, or I'm going to evict you. It's another to have them kindly nudged by the manager at different times and different situations. Some of our properties that have the best collections don't have necessarily the wealthiest residents. But instead, it has a very affable manager, who when they see the customer over at the mailbox, they got to them, and say, "Hey, I noticed you had not paid your rent. Are you going to be able to get it in? You got to get it in, because if you don't, you're going to get that late fee." That kind of just careful affable nudging. Never threatening, never, hey get the rent in, or else. But instead, giving them kind of a VIP treatment of, hey I actually am concerned for you, and want you to get the rent in.
So, if you can get your manager in the loop on convincing them to bring in the rent, it is definitely helpful. Again, we have some properties that have a fairly hard scrabble resident base, and they have perfect collections. And if you look into why they have such good collections, typically, it's always because the manager is actively involved in making sure that, that money comes in on time.
Another item you can do to help on your collections is to stay really tightly focused, and never let your guard down. Once you've started to train people, don't let your foot off the gas. Keep them always knowing that rent must come first. If you stop doing it, if you stop filing those demand letters, if you stop filing your evictions on time, now you undue the training you did, that rent is the top priority, and it sends the message, uh-oh, rent's not the top priority anymore, so I guess I don't have to pay anymore, and then they spread that rumor throughout the property. So, you've got to always stay on a no pay, no stay system.
Another tip, don't do payment plans. They do not work. What happens when you do a payment plan is you take the role of the bank. You don't want to be a bank, you want to be a mobile home park owner. There are other groups out there that don't mind being a bank, they're called banks, they're called pawn shops, payday lenders, many other groups, but you do not need to be in the business of extending credit like that. You are not any good at it. It's not a good thing to do as a park owner. Stick to your business, which is providing a safe, clean, affordable place to live. Don't start thinking that you're going to go in the banking business.
And even worse, one of the worst things you can do ever as a community owner is to start letting people dig themselves a hole that they cannot get out of, and by that I mean do not let them get by not paying the rent in full every month. When I first got into the business, I thought that's what smart park owners do, they'd let someone skip a month here and skip a month there. And let me tell you, I learned over time that was stupid.
What happens is this, when you force them to pay the rent every month, that keeps them out of trouble, because they don't get behind. I see some owners let people skip a month or two every year, and then years later, they have a balance of $1000, $2000, $3000. They can't possible pay that. When you let people not pay the rent each month, you let them get in such a situation they can never get out of it. You're not helping them at all, you're basically putting them in the situation where they ultimately cannot pay the rent, and have to leave. So, you're not helping people out by doing that.
You want to stick always with a no pay, no stay system. You want to educate the residents that the number one priority is paying. You want to make sure when they do pay you, that you collect with a smile, and you never hold a grudge. You never get morally aloof. You never for a moment think, oh that would never happen to me, because I guarantee that it would. You'll always want to accept MasterCard and Visa to help them out, or more importantly family members that want to help them, and you'll always want to proactively do it in the best interest of the resident by not letting them get themselves far behind on their rent, but make sure that they keep themselves out of trouble by paying every month.
This is Frank Rolfe with Mobile Home Park Master Series, and wanted to go ahead and give you this first installment of Dirty Jobs in Mobile Home Parks, and how to make them a little less dirtier, a little more palatable. Next week, we will be going over rules enforcement, and how to keep the residents all living within the confines of the rules of the mobile home park. We'll talk to you again then.