We have been talking for years about the difficulty in building new mobile home parks. However, there has been a shift in the parable of how you can get a permit to build yet still be in a desirable area. In this Mobile Home Park Mastery podcast we’re going to explore the new face of park development and why that’s a great thing for the industry.
Episode 376: A New Development In Park Development Transcript
I frequently get calls from people asking if it's smart to build new mobile home parks. And traditionally I tell them the truth, which is for them probably not that good an idea. But there's a science behind my answer to them. But there's also a new world opening for park development, which should be good for the industry. This is Frank Rolfe with the Mobile Home Park Mastery Podcast. Let's first start off while talking why it's typically not good for the average person to try and build a mobile home park. The first problem you have is that to get a permit, you're gonna have to be way, way out in the county somewhere. And that's because all cities and towns all harbor a grudge against the concept of trailer parks. And they do so for a number of reasons. Obviously the regular ones, which feel that mobile home parks are not attractive and that they attract undesirable residents. But an even bigger one is just the financial concern. Typically, a mobile home park has quite a few children and children cost quite a bit in tuition, typically around $10,000 in most municipalities. So if you look at the property tax paid by the mobile home park for the land and on the mobile homes by the residents, and you add them together, it's a fraction of the actual cost of each household to the city and the school district.
So as a result, just out of financial self preservation, they're typically very turned off to the idea. So as a result, when you want to build a new mobile home park, what happens is the city doesn't want it, and then all the neighboring homeowners, they don't want it either. And for good reason. If you look at the stats, go to any website like zillow.com find a mobile home park, look at the price of the houses immediately surrounding that, and you'll see they're significantly lower than identical houses, maybe a block from the mobile home park. As a result, all these groups kind of get together at that old P&Z meeting for your permits to vote you down. So building parks is very, very hard to find a location that you can get a permit on, unless you go way, way out in the middle of nowhere where there's no one to come and complain and where the rules are very lax. And yes, out there you can probably get a permit. If you go to any city in America and drive an hour or two away from the city, you'll probably find a spot where development of any type is appreciated.
And so that's the issue. The problem is, can you find a spot that you can get a permit that yet is close enough that someone would actually want to live there. And the next problem you have when you go and build a mobile home park on your own, and you build it way out of town, is you have no access to city water and sewer. So you have a gigantic upfront cost. The cost of that water and sewer might be a million dollars and it might be more. So there's another giant hurdle just to get in the game, you're gonna have to spend a million dollars up front just to have water and sewer. So that's again, another large problem for people. And then you have the very serious issue that no banks that I know of wanna make construction loans on mobile home parks. They wanna make loans all day long on existing parks with existing stable cash flow, but they don't wanna finance someone's dream, someone's vision of something that's a little bit like Field of Dreams the old, you build it and they will come. You don't know if you build a mobile home park, if anyone will show up.
So banks don't like that kind of risk. So getting the loans on it is very, very hard. And then you look at the cost of having to fill the lots starting from scratch, no money coming in the door on the front end, and yet interest to pay, operating costs, property tax, insurance. When you add all that together, based on the pace you will fill the lots, you add up all those holding costs, it really is in your profitability. So many of those deals, if you look at them really realistically and impartially, you'll see that they just don't make any financial sense. And that's why, for those reasons, when people call me traditionally and say, "Hey, I own a piece of land, should I build a mobile home park on it?" Or I'm thinking of trying to go build a mobile home park from scratch, I typically tell them you'll be way better off just buying an existing mobile home park, because for the average person, that's the truth. But now there's something new going on in the realm of mobile home park development, of greenfield development. And it's kind of an unusual turn in the way the industry is maturing.
And it's going to have some big benefits. And that's the fact that a lot of actual large builders are starting looking at building mobile home parks. And these are not individuals, these are not people who are focused on just doing a single development for a mobile home park. These are people who have a storied past in building developments. And now they're deciding to add mobile home parks, sometimes just to the mixture of larger mixed use developments. So let's assume you approach the city this time not trying to build a mobile home park, but instead trying to build a single family home community which also might have some townhomes, condominiums, apartments, and then maybe a mobile home park thrown on there somewhere as well. When you go to the city with that animal, it's an entirely different reception because they look at that and say, well, I'm probably not that psyched on the mobile home park component, but gosh, I sure like the rest of it. So now it's much easier to get the permit because we're not trying to sell just a single focused asset, we're trying to sell them on the idea of a giant complex thing that the city sees could very well be to their betterment.
And additionally, when you go to the residence in nearby properties, you can sell the sizzle that, oh, we're going to be building these nice homes and this golf course looking landscaping plan, et cetera. They look at that and they look at the mobile home park part and they're like, well, we don't really like the mobile home park, but the rest of it's way better. It totally offsets the mobile home park portion. Or maybe you have people who just want to build a standalone mobile home park where they're professional builders, they know how to present it, they know how to do it professionally so it looks good. It's not just you or I taking a survey, trying to map out ourselves with a sharpie where the roads might go and where the homes would sit. But people actually do this for a living and they know what they're doing, who know how to interact with city government, how to file, how to make renderings, how to go, how to speak, how to get politically with everyone who makes the decisions behind the scenes to see what their thoughts are and to amend the plans so they're more in line with what people want.
And because they have this ability, because they have the technical skill to work with cities and to work with neighbors, now they can locate those developments actually in town in attractive locations that often have access to regular city water and sewer. And then most importantly, they know how to manage the lending process because they're developers, they already know banks that do these kinds of loans. And they additionally understand how to properly generate budgets so that the project will be a success despite all those upfront costs, all that interest carry and every other dynamic like that. So suddenly building parks, which still may not be smart for the common man, for you and for I, but for a large developer, it might work. I think we're gonna start seeing some of those developments pop up and I think they will be successful and it's gonna be really good for the industry. And here's why, number one, it elevates the industry. Because when a well known developer decides to pick up the mantle and start building some mobile home park additions, it's kind of like when Sam Zell got into mobile home parks to begin with, which hugely elevated mobile home parks.
Because if Zell was in it, hey, it must be a good idea. So there's no question that if people build nice new mobile home parks, it generally changes the public perception of that asset. And that's definitely a good thing. Also think of it this way, if you've got a mobile home park near one of those newer developments and you're trying to sell some homes and you don't have the marketing muscle that those large developers have, you're gonna have the traffic and the interest in your market and it's gonna increase your ability to sell. You see the same phenomenon every time a Walmart goes in and someone plops a Dollar General down the street in a strip center, they're trying to get a little bit of that Walmart traffic because they depend on Walmart to really do the marketing and drive the customers and it improves them as well. Also, it's probably going to lead to higher lot rents in your market. They're inevitable anyway. Our rents are ridiculously low nationwide. But when you build the new mobile home park and have all the new mobile home park building costs and you run those numbers, you quickly see you can't really build a mobile home park unless you have a lot rent that's roughly $500 and up.
And since the US average for mobile home parks is probably around $300 a month, that's definitely going to boost rents. And once again, that's a positive thing. But probably most importantly, the benefit you're gonna have is if people start developing these, it's going to take a little of the pressure off City hall because City hall has for half a century now hated mobile home parks. I don't recall ever in due diligence ever having a city that just embraced me with open arms because of their utter love and affection for the mobile home park. But as new developments pop up, they start hearing at various meetings which city employees do have these conferences just like mobile home park people, and hear people talking favorably about mobile home parks and seeing mobile home parks presented by professional developers telling them how good they are, it's probably going to dull the stigma and the negativity to some degree because they're confused. How can they hate them so bad when their bosses are telling them they're good? How can they hate them so bad when they look at the renderings of the new thing going in and it looks nice? How can they hate them when they drive in the new ones once they're built and say, well, this is nice enough, I'd live here myself? The bottom line to it is that new park development, while impractical in the past, suddenly is starting to make sense.
But only for these large professional developers who know what they're doing, will it trickle down one day to where the common man can go out and develop mobile home parks, that remains unclear because the skills involved in development are extreme and the learning curve is large. The financial capability is difficult to obtain. But for right now, I do see a world in which you may start seeing new developments, and I'm all for it. This is Frank Rolfe with the Mobile Home Park Mastery podcast. Talk to you again soon. Have a good day.