You can’t own a mobile home park without having to deal, at some point, with remodeling a mobile home. In this third installment of our nine-part series on “Mobile Home Park Perfectionism” we’re going to review the top techniques and strategies to attain the highest level of success in mobile home park renovations. You can’t successfully own a mobile home park without a full knowledge of how to do perfect home renovations.
Television is packed with so many exciting programs concerning home renovations. However, the reality is far different. This is Frank Rolfe with Mobile Home Park Mastery podcast series. We're in our third part of a nine part series on mobile home park perfectionism. We're going to be talking about home renovation perfectionism in a mobile home park. Yes, even though mobile home park owners prefer renting land, that's our business model, you cannot be an effective operator in the industry unless you know how to properly renovate homes. Now, there are four basic goals when you own a mobile home park and you have to think about home renovations. The first is to produce a product that is safe, clean, affordable, and completely in line with all laws and regulations, and yes, there are laws and regulations concerning mobile homes. Most every state out there has minimum habitability requirements, and you cannot deviate from these. Also, we're trying to produce something that is saleable or rentable, desirable by our customers.
The second goal is to renovate homes as quickly as possible and to never forget the time urgency. Every day that that $600 a month home is sitting empty, it's costing you money. It's costing you $20 a day. Miss a week, you're out $140 out of your pocket. Time is not your friend when it comes to home renovations, so the second rule of perfectionism in home renovations is to get the move on, get it out the door quickly.
The third is to renovate homes at as low a cost as possible. We are in the affordable housing business, we acknowledge that, and even on the upper end, on the more expensive mobile homes, then the double wides. Nevertheless, we are trying to get the home back in service at a low price point. That's what our customers want. Even if they could afford a higher price point, they don't want to pay that. What they're looking for is something that fits their budget, that gives them a great product at a low price.
The fourth goal is to understand which homes should be renovated and which homes should be demolished, because that's another frequent issue with park owners. Somebody dies and the estate gives you the home. Someone abandons their home and you end up with the home. You must look at that home and decide, wait, should I renovate it? Or is a smarter plan of action just to demolish it and get a different home in to fill the lot? So now let's go over the action steps to mobile home renovation perfectionism.
The first thing you have to do whenever you have a mobile home that is vacant in your park is to gain access to the home as quickly as possible. How do you do that? Well, if it's your own park owned home and the customer leaves, then you basically get the home back. But what if it's not owned by the park? In that case, you've got to take that home through what's called abandonment. Every state that I'm aware of has abandonment procedures that allow you to take personal property if you follow the right methodology that the state provides you.
Remember that mobile homes are not real property, they are personal property, and every state has a statute on personal property. You can't just and abandon a bicycle in your neighbor's yard and expect to go retrieve it five years later, so all you have to do is follow the statutes for abandonment. Basically what happens is you post advertisements in different spots, you send a certified letter to the last known owner of the property, and if they don't retrieve it by a certain date it goes to auction, in which case the park owner seemingly always ends up with it.
Number two, as soon as the access is gained, you need to secure the home. You need to change the locks or if the locks are not working you need to get working locks on the home, because you don't want to start renovating the home when anyone can simply go in and steal and ruin what you've done. The third item is the home's condition needs to be assessed and you need to get bids for renovation, because you're about to come to the point where you need to decide, do I want to keep it or don't want to demolish it, so you've got to have a good handle.
We like to grade our homes A, B, C, D, E, and F. An F home needs to be scrapped. An A home simply needs to be cleaned. A B home needs a little work, often to such things as counters, maybe some flooring, or possibly a furnace. That's about $2,000 of work. Our C home, our average home, is about four to $5,000 of work, both parts and labor combined. And then we have a D home. A D home is a rough home that will need an excess of $5,000 of work, but yet has enough potential you may not scrap it. So you need to go in there and get those homes graded and you need to get an idea of what it will cost to fix them. Next, if the budgets are in line with the budget, you need to start work immediately. Don't hold back, you're racing the clock.
So if you go in and that home just needs to be cleaned, there's no time like today. Let's get it going. Let's clean out the trash. Let's get it clean. Let's get it back out the door. Next, all contractors should be pushed to finish the homes as fast as possible. You want to have in your agreement with the contractors the start date and the end date. And you want to have a penalty in there everyday they don't have it done by the date they promised, they have to take a financial penalty, which makes up for your loss of revenue. All contractors should be immediately disciplined if they do not finish the home on schedule, and if along the way they seem to be falling behind, you need to jump on them immediately, because always time is money. There needs to always be a sense of urgency as to what is going on. Anytime it takes you longer than a week or two weeks to renovate a home, there's clearly a potential problem unless the home requires so much work that that's unreasonable.
No contractors should ever be paid until the job is completed and inspected. Do not under any circumstances take their word for it. They may say it's done, but until you've seen it, it's not technically done. And we don't live in the era anymore of one-hour photo. There's this neat thing you have in your pocket right now called the smartphone. Have the contractor take the photos of the home both inside and out if they want to get paid and text those to you and you look at the photos and you be satisfied. If you have a manager, have them look at it too, but don't make them the sole decider. You yourself can take the time, just a few moments, to look at the photos to make sure that it is completed exactly as you wanted, and then to pay the contractor.
Remember that a home is not complete until it a tenant can move into it. Ninety percent done is still not done. Never let your foot off the gas as far as your sense of urgency, until the home is 100 percent complete and inspected and ready to move in. And that includes such items as the stairs in good working order, the lights good working order and all those little items that could make or break the sale need to be done before you count that home as being part of your inventory. So you've got to get those things done. If anything is found wrong with the home after the resident moves in, you need to immediately go back to the contractor for repair or replacement whatever they did wrong, contractors who do not stand behind their work can no longer be used, and the repair should be done immediately. Once again, the sense of urgency is ticking.
So let's go over some other considerations in mobile home renovation perfectionism. Contractors often do not meet their timetable or quality standards, and you have to watch them like a hawk. You can never get too friendly with them. When you get friendly with them, you lose your edge. You can be polite, you can be respectful, but you never want to be buddies. We have noticed that in most properties that have a problem with mobile home renovations what always is an issue is the contractors become too much of a pal to the manager, and when that happens the manager lets their guard down as far as watching over the contractor, making sure they get the job done.
That is never going to work for you. Also, do not pour money into a home if it is less than 14 feet wide, if it's any older than the 1970s, has an unattractive floor plan. There's no point in renovating homes that nobody wants to live in. If you've never been in those 1950s and 60s homes, you have never lived as far as seeing what happened in the industries progression into the modern product, because they're very, very small and cramped. Nobody wants to live in them. They're like being inside of a travel trailer only it's a permanent fixture and not a very well built travel trailer at that. They're just not attractive housing units, so do not start pouring big money into the stuff that is 10 wide or 12 wide or has tiny, tiny bedrooms that those 1960s and earlier homes have.
Next, do not let homes faster for any reason. If you're waiting on the city permit, then hound the inspector to get it. Don't let people ruin your business model. The squeaky wheel always gets the grease, so if you're not getting your permits in time, if you're not getting what you need, always raise your hand and complain. Don't do it in a manner that makes the inspector mad, but if you need to get your home skirted and you can't put the skirting on until all the foundation has been inspected and the inspector has not shown up as they promised they would, now in two weeks that isn't going to work. You've got to call them up and say, "Hey, I've got to get the skirting on. I've got a customer for the home. Is there any chance you could come by?" Do it in a pleasant manner. You'll work with that inspector potentially for years, but don't just sit there and wait and hope and pray they'll come out, because they normally don't. And for all you know, they even lost their note to themselves to show up and until you call them they don't even remember.
Always make the home the condition that you would live in. That's a key item. Always makes sure that it is clean, detailed, and smell good. Don't ever get an attitude of, oh well the people who are going to live in this home, they're not very discriminating, they really don't know what nice quality is, because that's not true. Just because people do not have a lot of income does not mean they lose sight of a good product from a bad product, and if you start letting your guard down, you will send that message to the manager and to your repairman, and the next thing you know the quality will become extremely poor. You need to be on top of the total renovation cost of every home you do. Do not think that anyone else will track that or even care, so you have to work strictly off a series of written bids, both parts and labor all the way to completion, and then you need to always make sure that everyone is staying on budget because that's your money, and if you let that go over the budget, well then that money is lost.
Also, if you're going to go over budget on a home, then you need to immediately panic, stop work, and figure out what is going on here. If the workman budgeted $4,000 to do the home and he's gone ahead and spent the $4,000, and now in the course of doing that he's detected new problems, black mold hidden in the walls, electrical issues that require full rewiring. Before you just mindlessly continue on into a money pit, you need to stop, put on the brakes and say, "Hey, is that the best thing I could do with my money or should, despite the fact I said, let's renovate the home, should we stop and move onto something else?" Because the thing you have to always remember, which has become so important in the industry, is there's always this other option lurking around out there, and that other option is known as bringing in new or repo homes.
In many mobile home parks, in the olden days when you had homes to renovate, you renovated them. Why? You had no alternatives. New homes were very expensive and there were no financing programs whatsoever. No owner in their right mind would not renovate a home for $5,000 when it cost $30,000 cash to bring in the new home. However, thanks to Warren Buffett's 21st Mortgage times have changed. Now I can bring in a brand new home through the 21st Mortgage system at zero out of pocket expense. Now I can go out and buy a used home, bring it in and renovated, and although I have to pay that price out of my own pocket, I can now finance it through 21st Used Home Program and get all my money back.
You have to constantly be thinking about your opportunity cost, because it may be that there's some better option than renovating the home. And you feel pretty dumb if you spend a lot of money renovating, it only to come to find out, you could have brought in a new home and possibly given the financing programs through 21st, it would not be a whole lot different in the final price to the customer. Again, mobile homes are not what our business model is all about. We are all about the land business, but nevertheless that you will never be an effective owner unless you understand completely and abide by these tips on mobile home renovation perfectionism. This is Frank Rolfe with the Mobile Home Park Mastery podcast series. Hope you enjoyed this installment and coming up to bat next, next week will be property condition perfectionism in a mobile home park. Talk to you again soon.