Webster’s Dictionary defines “failure” as the “lack of success”. So it’s the exact opposite of winning. But many mobile home parks fail for that very reason: the owner’s do the exact opposite of what common industry doctrine would suggest. In this five-part series on parks that have failed, we are going to dissect what went wrong and look for commonalities in poor park selection, management and financing stewardship. And in this first segment, we’re going to review how choosing the wrong type of park can consistently lead to doom – and there’s no reason to put yourself in that position if you just use some common sense and good due diligence efforts.
Episode 66: Lessons Learned From Failed Mobile Home Parks Transcript
Webster's dictionary defines failure as lack of success, so clearly, failure and success are polar opposites. So, which one would you rather invest in, something that's a failure or something that's a success? How do you learn how not to have a failure? In this next Mobile Home Park Mastery Podcast series, we're going to do a five part review on lessons learned from failed mobile home parks. We're going to go over why things went bad and from that, we can learn how not to repeat those same errors.
The first type of mobile home park failure we're going to be going over in our first segment of this five part series is buying the wrong type of park. Yes, there are mobile home parks out there that no matter how good a negotiator and how good an operator you are, they are almost always doomed to failure. The first type is the illegal mobile home park. This is a mobile home park that has no proper operating permit. It should not even be there. Now you might say, "How's that possible? How could there be a 20 or 50 or 100 space mobile home park that the city has allowed to operate even in the complete absence of permits?"
I personally walked and met with the owner of one of them in Fort Worth, Texas. About 130 lots and he had no permit. What he did was he filed for a permit and he was denied, so, being a cantankerous old guy he just started building it anyway. The city, not wanting to get crosswise with him because they didn't want to spend any legal cost, they went along with his little project. However, when all this began, it was a small town. Over the years it became to be a large suburb of Fort Worth with a hefty budget and a city manager and the ability to stop him and file a suit. But, they made a decision internally. They decided they would not come after him, they would wait until it's sold and come after the next person.
You see, Ted also had kind of a good old buy network and he was very much part of the network, so back in the days when he built it, he was friends to everyone and they didn't want to upset their friend. But, they thought, "Well, when he ultimately sells it, the next person, we don't know them, we don't care, we'll go ahead and shut it down then." If you had bought that property, which I looked at buying the property and fortunately didn't, but if you'd bought that property you would've been doomed because a minute after closing, they would've come out and turned off your water and your sewer and your power, claiming the property was illegal and it had no right to be there. In fact, it didn't. If you'd gone to court, you would've lost.
The next item that would make you not want to buy a park because it's doomed to failure are failing utilities. Now, there's a few that we want to put special attention on. On the water side, there's always private well water but that's not really dooming you to failure. We have some of those properties. There's always septic on the sewer side, we have some of those too. You can still succeed with septic. There's packaging plant. Packaging plant is like a miniaturized city sewer system, they run fine. That's not going to doom your property. It might doom you financially if it breaks on your watch, 'cause those things can cost half a million dollars or more.
I'm talking more towards something called the lagoon. The lagoon is a cesspool, it's just a big hole in the ground where all the sewage goes and the liquids evaporate and it's just not something that most health departments in most states like these days, so that's kind of a bad system. But that's not the only bad system, there's other bad things, there's master metered gas. Terrible concept, your gas will go out, you have to pressure test to get it re-hooked, you'll never make the test, you ultimately lose your gas. When you lose your gas, your customers have no way to cook, no hot water, no way to heat their homes.
Another is master metered power. You can survive it but you got to get a handle on it. These kinds of things are not for people who don't know how to proper due diligence. Master metered power system, if it pulls too many amps for how it's designed, the lines can theoretically catch on fire and on top of that, since the system is grandfathered, many cities will not let you come in and replace those lines so you have to be very, very careful.
Other things that can sink a mobile home park in the infrastructure mode are bad roads, floodplain issues. Let's say that your park is in a floodplain where it can flood up to nine feet high, if the rain only reaches a certain level and lo and behold, after you buy it, what happens to you? It rains and rains and rains, hurricane Harvey style and the park is destroyed. So, floodplain can be a huge issue, just ask anybody who owned a mobile home park in hurricane Harvey and those who were in flood areas have now learned the hard way that mobile home parks and flooding, simply don't work.
Another thing that can ruin a mobile home park are tiny lots. In a mobile home park, which is effectively a parking lot, you have to be able to freely bring your homes in and out just like cars in a parking lot. If your lots are too small, you can't fit any of the modern mobile home models in to your lots. So, it's just basically a terrible time delay of doom. How big does a lot have to be to fit a new mobile home? Traditionally about 14 feet wide by 56 feet long will get you a two bedroom two bath and 14 by about 48 feet long will get you a two bedroom one bath and if you can't fit a two bedroom one bath, if you can't get a 14 by 48 foot home on your lot, that's not really a usable lot. Now that lot has basically become an RV lot and while RV sounds nice and glamorous, it's not nearly as good a product as mobile home park. When you have an RV on a mobile home lot, what you typically have is a customer who's there only temporarily if you can find a customer at all. It does not really fall in line with what most of us are trying to do with a mobile home park to introduce RVs into it, so our lots have to hold a 14 by 48 6 home to actually be a usable lot.
Now what other things can make a park the wrong type of park to buy? Well, there's many things. There's locational issues. Nobody wants to buy a park that's in a rural area. That's just not going to work for you. Nobody wants to buy a park that's in an undesirable school district. Nobody wants to buy a park that's got bad test ad results. You're going to say, "Well, all these things sound so obvious. Anyone would know that. Who could be crazy enough to do that?" Well, let me tell you, back in the 2000s there was a company that thought that these things were not essential. They were buying up mobile home parks left and right but the whole idea to grow huge and ultimately go public, which they ultimately did, but they didn't do any due diligence along the way. Everyone in the industry watched them and watched all their misdeeds.
I saw in one case alone where they bought a mobile home park without doing any diligence on it, not ever realizing until after closing how small the lots were. Then, they found out that the lots would only hold one home if they sacrificed two lots for each one home that was brought in. Before they even realized that, they evicted all the residents out of the property wanting to bring in new classier looking homes, so in the end what happened was, they took a property that was roughly 100 lots and made it into a 50 space park. None of the numbers then worked. They could not possibly double their rents to get back to where they began so effectively they had basically completely failed on the purchase.
Many times, we watch, sadly as people make these terrible, dreadful errors. They buy illegal parks, they buy parks with utilities that are simply not working, densities that are bad, floodplain. At the end of the movie what do they really all have in common in buying the wrong type of park? It's very simple. Lack of due diligence.
Benjamin Franklin said that due diligence is the mother of good luck and he was completely correct about mobile home parks, although I don't think he ever owned one, nor would he have ever envisioned one day the concept of the mobile home park. The fact that he would affirm this sage advice makes him probably one of the great observers of mobile home park diligence. Because if you do the right things in diligence, if you pave the way by doing all the correct studies and asking all the right questions, for some reason you always have good luck.
I think we all would define good luck as success, which is the polar opposite of failure. So, what does it all mean? It means that although there are mobile home parks that are out there that are the wrong thing to buy and if you buy them you'll do terrible with them, the good news is there's a path not to do that. It's not left up to guesswork. You don't have to reinvent the wheel. All you have to do is learn what the correct things at a park has as it's attributes and then follow along and always make sure that the parks you look at buying meet those attributes.
There is nobody in the industry that would ever recommend you buy a park without a permit or a park with failing utilities or a park with tiny lots or a park in a floodplain. So, you can avoid buying the wrong type of park by just using good judgment. If you can just think clearly, if you can do due diligence and do it without any ... in the complete absence of emotion. What always ruins people in diligence is they say to themselves, "Oh I'm going to buy this park," or they tell their friend, "Hey, I'm buying this park." Not how you do it.
You put on your lab coat, you gather all the data and then you stand back and very impartially look at what you've established on all the different items of diligence, and go from that scientific 5,000 foot elevation view with no emotion attached. If you can do good diligence on a mobile home park then you can fend off ever buying the wrong type of park and you never have to worry about having a failure on your hands but only a success because you bought the right type of park, the type of park that makes for a solid investment with a good return.
In our next episode of this five part series on lessons learned from failed parks, we're going to talk about occupancy fails. People who buy mobile home parks with the estimation they can fill lots and fail to do so and as a result can never achieve any of their goals on that income and often cannot even maintain or find financing. This is Frank Rolfe of the Mobile Home Park Mastery Podcast series, hope you enjoyed today's show and we'll be back again next week.