A budget is a road map that takes you to your financial target. In this fifth installment of our nine-part series on “Mobile Home Park Perfectionism” we’re going to review the techniques and concepts required to be a master of your budget and, as a result, the master of your financial destiny.
Do you use a GPS system? Did you know that a budget is just like a GPS system, only for your financial future? If you follow where you're supposed to be on the budget, you always end up at your goal. But just like a GPS, if you go off the road, off the path, you just never get there. This is Frank Rolfe, in the fifth of our nine part series on Mobile Home Park perfectionism. And we're going to talk all about budgeting, how to do Mobile Home Park budgets with sheer perfectionism.
So, how do you do that? Well, let's start off with the goals. Why do we even have budgets? We have budgets because they're our roadmap to success. The budget tells us what we estimate to bring in in revenue, what we estimate to spend in cost, and the net income is how much money we make. So, then what's the purpose of the budget to get you where you want to go? Number one, we know that we need to meet or exceed the annual budget for net income, that's essential. We also know that we need to keep costs contained at the budget's level, or even lower if we can, without giving up the quality of life for the residents.
So, all the time we try to maneuver, we're trying to strategically change the financial picture of the Mobile Home Park in a positive way, a way that benefits both customers and obviously the owners. So, how do you do that? How do you achieve Mobile Home Park budget perfectionism? First off you should be constantly referring to and learning every inch of your park's budget. If you do not know the budget on your Mobile Home Park by memory, you're in trouble. There's not many line items, most Mobile Home Parks only have roughly 10 line items in costs, 10 basic categories. And our revenue is super simple. What do you have? You have lot rent. You have home rent if you have any park owned homes, which you might not.
Other site items like late fees, or maybe some other item, laundry room income, something like that. It's not much, so it should not be very hard for you to pretty effectively memorize where you're supposed to be. You should know your budget like the back of your hand, because if you don't have that virtually memorized, you're never going to be as good an operator as you could be, because you should know at the mere mention of this kind of repair, or that kind of water bill, whether that's on track or not.
Secondly, you need to continually mystery shop and become an expert on every other competing park's lot rent and home rent. So, if you follow along your competitors and you see that their rents are going up, then you should in turn also raise yours. It's a fundamental issue in the United States Mobile Home Park lot rents are absurdly, stupidly, ridiculously low. It's not just our opinion, sure you could say, "Sure, well you're a Mobile Home Park, so you're making that up." Just think about Charles Becker, google him up. Charles Becker of Duke University, he is an economist. He by no means has any vested interest in the industry at all, he just studies it because nobody else does. And what did he find in his study? He found that our rents are at least 50% too low. Our nationwide average on lot rents is about $280 a month, and it should be somewhere up in the 400s. And that's just this one moment in time, it should be going up every year, at least at CPI increases, if not more.
So, you need to watch and see, can I advance the rents? Can I advance the rents still in keeping with my competitors? Because every time you can, you want to raise those rents, because raising rents is one of the best ways to increase the park's net income.
Next, every bill that comes in the door should be compared to the budget. Not only the budget from last month, but the same month last year. And watch for any type of variation that suggests a problem. One of the biggest ones, water and sewer. If you see your water and sewer bills changing, what does it mean? It means you may have mainline leaks. That can be a disaster for most Mobile Home Parks. Our largest single line item is water and sewer. If you do not watch that like a hawk, all it would take is one or two leaks in your main water line, it could set you back thousands of dollars per month. We once brought a property that had been losing $60,000 a year in water leaks. And what's crazy is we brought in American Leak Detection, we studied it and we fixed it. And there were only basically four or five leaks in the entire system costing the $60,000 a year.
And the sad ending for mom and pop was they had this urban legend they couldn't fix them, because a plumber once told them they were under the paved streets. It turns out they were not, they could have easily remedied them years ago. And the $5,000 or $6,000 of leaks that they had, had decreased the value of that property by about $600,000. Where did they go wrong? They were not staying on top of the bills. They should have noticed when the very first leaks happened that they were occurring, and then got them fixed. But they failed, and it cost them a whole lot of money.
But it doesn't have to be water and sewer, every bill, every line item, every time you see the bill, you should if it compares properly to what the budget is. And you should also brainstorm, is there a way to reduce this? It's amazing how many costs you can get reduced if you simply ask. Often, if you call up the trash company and renegotiate the rates, they'll go along with you. Many properties have had their poly cart rate drop by a dollar a unit a month. Well, in a 100 space park, that's $100 a month. If you annualize that, $1,200. That's basically adding about $12,000 of value to your property.
So, never just pay things out of routine. You want to think through every single check that you write. Now, also always be thinking of ways to reduce costs that are outside of the box. It's one thing to think, "Well, I'll just call up and I'll try and renegotiate my trash," or "I'll try and renegotiate my mowing." That's all great and everything, but let's try for something even bigger, let's think outside the box of things that you don't even think you can do. One big item we've been working on recently is what we call cable monetization. Every Mobile Home Park out there, virtually without exception, has cable TV lines in it. And most of the cable companies never got agreements to have cable in those Mobile Home Parks when they were installing cable. They literally were just laying the cable in the town, they're all on a monopoly basis.
And when the guy was out there with his digging tool, he just went ahead and dug the lines on into the Mobile Home Park, didn't really ask permission. The argument was who would stop them? Who would turn off a cable to the Mobile Home Park? And of course, they were right. Now it's four or five decades later, and these lines are still there without any compensation to the park owner. You can go back to those cable companies now and often renegotiate your cable. You can get paid what's called a door fee, that's a flat amount per door just to get you to sign the agreement, and then a form of revenue share.
On top of that, there's a new thing coming out right now called cable bundling. We can actually bundle the cable television, the internet, and the telephone into one insanely low cost. I'm talking $20 or $30 a month. And your customers are paying for the same item maybe $100 to $150 a month. It's a win win for everybody. So, think outside the box too, don't be thinking you have to do the same old worn out paths to try and keep the costs down, because sometimes there's new ways you can do it.
The same it true on the revenue side. Don't just say, "Well, I'm stuck at the same revenue every month." No you're not, think of other items you can do. If you have some unused land on your Mobile Home Park, maybe you could expand and build some more lots. Maybe you can install self storage units in some cities, you can install self storage as a unique loophole. They make a kit that looks just like a public storage complex, but it has no foundation. It's held by its own gravity under the ground. It has a metal floor, metal walls, metal roof, but no concrete foundation. As a result, you do not have to have a permit, because you're not building a permanent structure.
Or maybe you have an area on your property in the corner, maybe that can be used for a cell tower. I know a park owner who did that recently in South Carolina, they're making a steady $1,000 a month on what they thought was unusable land. So, just always think outside the box on every single item. You should almost find this enjoyable, kind of a creative outlook. "Oh look, it's time to look at the budget. Let's see what I can come up with this time." And then keep copious notes of all your thoughts.
You must always fight to stay on budget. Don't let other people get you off of where you need to be. Don't let them walk all over you and make you miss your budget. So, if you've got a manager in that property and they are not doing what they need them to do and it's causing you to miss budget every month, stop, don't do it. Don't let them do that this is your money at stake, your livelihood. You call all the shots, you're the owner. Don't let people stand in the way of getting where you the be.
Now, how do you go over the budget in an effective way if you're a budget perfectionist? Well, you have an established budget hopefully before the start of each year, and it tells you month by month where you want to be. But on top of that, you should have the formality to have a meeting with yourself, if you're the only investor, or with the other investors if there's group. And you should compare the following. One line, the budget for each item. The next line, the actual results for each item. And finally the third item, the difference between the two.
Now, what I like to do is if you take that chart, which I will call the BAD, budget actual difference, and I got a green highlighter, and let's say a pink highlighter. I'm going to highlight anything that's better than I thought, in other words higher revenue than I thought, lower cost than I thought. I'm going to put a green slash through that. Anything that's worse than I thought, I'm going to put a pink highlighter slash through that. And what do you suppose I'm going to focus on? I'm going to be focusing on those pink highlights. Those are things that I absolutely am going to be mad about, that I did not my budget, and I want to get them fixed.
Now, the green items, they can take care of themselves. But those pink items, they can't, they need your help. They need your guidance to make it happen. So, by all means focus on each of those, and don't let them out of your sight, don't let them out of your frame of intention. Every day let it eat at you with a sense of urgency you must get those fixed, because if you do not steer your park back on budget, you're never going to hit your goals.
Also, always remember that not all mistakes are the same. There are really expensive mistakes, and there are very minor mistakes. Prioritize your time. If there's four different categories on the old budget that you're missing, which one's costing you the most money? They're not all the same. If you're manager went out and she spent $3 more on office supplies than your budget, that's nowhere near the earlier example of losing $5,000 a month on water and sewer. Yet some owners fail to realize this, and some sadly focus on the easy things to fix, not the more difficult, regardless of the fact that the more difficult is where all the money is. So, you definitely want to prioritize your time on what you're doing.
Never forget, ever, that nobody, and I mean nobody worries about budgets like the owner. You can not just pass that duty on to your community manager, because it's not their money. It's your money. And you're going to find that in the world of budgets, the person whose money is at stake, is the one who has all of the sense of urgency. They're the one who really wants to get things fixed, and that is you. You're the owner. Have that budget actual difference meeting. Take notes on where you're failing. Brainstorm on every line item. What could I do better than I am? On the items that you're failing, have a burning sense of urgency to get those fixed. Do not let another month pass before you attack those, because every day that you don't is getting further off track, hurting your net income, hurting your budget, hurting your return on investment. And that is never a part of Mobile Home Park budget perfectionism.
This is Frank Rolfe from Mobile Home Park Mastery podcast series. I'll be back next week, and we'll be talking about being proactive on liability risk perfectionism, basically keeping yourself out of trouble in the modern world. This Frank Rolfe from Mobile Home Park Mastery podcast series, talk to you again soon.