When buying a mobile home park, the most important moment is the transition of the property from the old owner to you, which typically happens at the title company upon signing of a pile of documents. So what can you do to make this transition more smooth and successful. In this week’s Mobile Home Park Mastery podcast we’re going to review the key items to do before and after closing to make for a happier and less stressful community ownership change.
Episode 157: Before And After Closing Transcript
Closing on the purchase of a Mobile Home Park can be a very exciting moment. It can also be very stressful. We'd like it to be more happy than scary. So we've put this together to give you some idea of things to do before and after closing to give you a smoother transition. This is Frank Rolfe, the Mobile Home Park Mastery podcast series. We're going to be talking about before and after closing, some helpful tips. Let's first talk about things to do before closing. First off, you need to select who your manager will be. That's probably the most important item you have to do. Why? Because the manager is your single player out on the field. That's your quarterback, running back, wide receiver, all rolled into one. If you have a bad manager, your transition will be very, very hard. If you have a good manager, your transition will be much smoother.
Now, the Mobile Home Park you're buying may already have a manager. Is that the one you want to continue on with? Or does that Mobile Home Park have all kinds of problems, part of which was the contribution of that prior manager? If that's the case, you need to select who you want to have as your primary team member, and that needs to happen before closing. You also need to prepare letters that will go out to all the residents upon closing saying, "Hey, we've got great news. The Mobile Home Park has been purchased by the new entity. And we're going to make this the nicest Mobile Home Park in the whole city of blank." And then you talk all about your new manager, how to contact them, the fact that the rent is due on the 1st, late after the 5th, what to do with the rent. All those items, you need them to know.
And you want to get that out the very day of closing. So the day you close, you want to have your new manager, or the old manager if you're not going with the new manager, to take around and distribute those letters, door to door, that helps get you off on the right foot. They know about the change in ownership. They know the park is not being redeveloped, but simply brought back to life and who the contact person is. You also want to talk to your utility companies. What you want to have happen is you want to know, at closing, who you contact to get the utilities turned into your name and if there are any deposits due. And you want to do that before closing. Because some of these moms and pops right after closing, they'll call up the utility company and have everything turned off because they don't want anymore of it in their name. Disaster for you. Theoretically, you might turn your water or sewer off the night of closing.
Don't do that. Go well ahead to the utility company. Tell them precisely what's going on, that you're buying the Mobile Home Park on a certain date. Make sure you have all of the applications and everything completed successfully. If you have to put up a deposit, the deposit is ready to go. You want to have a smooth transition on your utilities. You also want to go ahead and get your lease and rules ready with the full knowledge that you'll be closing. Those need to meet the laws of whatever state you're in. If you're going to be raising the rent, you need to have the new rent in there. You just need to make sure that those lease and rules are going to include everything needed by the state, everything needed by your insurance company, everything you need to successfully do the property. No reason to wait and start doing those after you buy. Too much stress. Just do them well ahead.
You'll need one lease and rules packet for every resident, and you want to have that ready to go. You also have to make sure that your insurance company already has you in effect at closing. You don't want to have a delay after closing before your insurance is bound. If there's any liability, then you're in trouble because you may not be insured. So you have to make sure insurance is completely ready to go. You might also call your state Mobile Home Association and join. They can then go over your new lease and your new rules with you. They can make sure that everything is correct based on state law. You might also want to go ahead and form your helpline. That's going to be a phone number, preferably a toll free number. It could be just a Grasshopper or a Google disposable number, and an email address. You're going to go ahead and have magnets printed prior to closing that just basically say, "Need help?"
And then it's going to have that phone number, that email address. And that way, residents can reach you with any problems. If they're having a problem with the manager, for example, they can still get to you and let you know they're having problems with the manager. If you have only the managers are only point of contact and something goes wrong with the manager, you could have a real problem with your residents. So you've got to make sure that they have that helpline, that magnet is ready to go. You also should go ahead and get the HUD handbook. Tells you all about fair housing, fair housing laws, and make sure that your manager is received a copy of that. You tell him to read it. You might even have him sign something stating that he's read it and will abide by it.
Now let's talk about after closing items you may or may not think of. Number one, immediately following closing, make sure you get those utilities transferred into your name. Bear in mind that one of the biggest responsibilities you have as a park owner is make sure that you have working utilities for all the residents. You cannot allow those to ever be shut off. So make sure you have properly transferred all the utilities. You want to go ahead, and as we mentioned, deliver to all of the residents that letter stating you're going to make this the best property it can be and who the new manager is. So they know exactly who to contact. If you don't do that, if you replace the old manager, the old manager may run around to those residents after closing and say, "Hey, pay me the rent. If you give it to me in cash, there's a discount."
Don't allow that to happen. Get a jump on that. You also want to go ahead and get ready to send out that lease and rules based on state law, based on the existing leases, that'll tell you when you can and cannot send that out. But bear in mind, until you get that lease and rules out as effectively signed, it may cause you insurance problems. Because without those new rules, it will default back to the city's rules. And the city doesn't have rules like no dangerous breeds of dogs, no trampolines, and no swimming pools. So you don't get in trouble with your insurance company. Make sure you have all of this well thought out based on the laws of your state, and also have that insurance company in the loop on that. Also, merely following closing, start working on those common areas. You want to send a message to all the residents that you mean business.
You're going to be making this property the best it can be. Particularly, the big bang for the buck stuff. Entry signs, 3-rail white vinyl fence across the entry, common areas being painted. These are the things that send the message that we really mean it. We're really going to bring this back to life. And it gets the residents all excited about your ownership and it may help them to go ahead and start working on their own property. You want to make sure that you get the mowing perfected. A lot of these properties that you buy, the mowing's in very, very poor condition. Mom and pop just never did a very good job. Hopefully, you already have a mowing company that you put under contract prior to closing. The minute you close, get them out there and get it mowed, get it edged. Roundup on grass growing in the pads and the streets. Make that property look the best it can be.
You want to distribute all your helpline magnets, so the residents now have a way to reach you with their problems. If they're going to have any problems, will probably occur right at the very first part of when you buy it. There may be questions on everything from rules to the rent, to the manager. Make sure they have the ability to contact you, so you know what's going on. Now you don't have to live answer that helpline, but what you want to do is you want to see the information. So you may have a certain time every day, where you read all of the emails coming in, all the calls, and that helps you decide what's actionable and what's not. But what's important is that you realize that you are not going to succeed unless your residents are happy. You've got to make every attempt to keep them as happy as possible.
Also, you got to go ahead and start looking for your next manager. I only say that because sometimes, your new manager will not work out, that's what you want, to typically have that manager on some kind of a probationary contract, maybe a 90 day period where if they don't work out, no hard feelings. But you always want to have another manager at the ready. For all you know, that manager may be in there for just a few days and quit. So always be watching for your next candidate. If it's a smaller park, you're going to use somebody who already lives in that property. Start gauging who that might be. Also you need to have, make sure you have an effective bookkeeper accounting system. Some people manage the parks themselves using QuickBooks and Excel, nothing wrong with that. But if you're not that person, if you don't have that accounting background, make sure that you have somebody ready the day of closing.
Bear in mind that every budget you prepare after closing is going to impact everything. The last thing you want to do is send out bad financial statements. It would effectively be a form of bank fraud. And then on top of that, it also could end up messing up your taxes. You can't just be getting those checks and bills and throw them in a drawer and say, "Well, I'll work on them someday." Or do it yourself with the purple crayon today. It needs to be based on actual computerized records. If you can't do that, you got to hire someone who can. Finally, and most importantly, post-closing, you must start the clock on being the best operator manager that you can possibly be. So how do you do that? Well, learn everything about what you're doing. That would be a great start. And then really, really focus on the numbers on your budget.
When you bought that property, you had a budget. You had an amount you were paid as a down payment. You may have put in there some CapEx repairs, and certainly had a budget of bringing in X dollars of revenue and Y amount of cost. Make sure you're following all that. The worst thing you can do is get caught up in the euphoria of the purchase and forget about the harsh reality of numbers. Because those numbers are really going to dictate whether you succeed or fail. Even if you make that property pretty, if the economics aren't there, it's never going to sell for what you hoped it would. Because again, it's just an income property. Now, one of the best ways to stay on top of all these items is an exercise we call the BAD, Budget Actual Difference.
What you do is you had the budget when you bought it. So all you do is you take that budget, and then you add to that the actual performance for the month, and then what the difference was. Anything that is worse than what you hoped for, you take an orange highlighter and you draw a line through it with orange. Anything that's better than you thought it would be, you take a green highlighter and highlight that in green. Ignore the green stripes. Only focus on the orange. Remember that a Budget Actual Difference template is kind of like the GPS system on your car. If I have a GPS and I put in my coordinates of where I want to go, and I get off the track, GPS tells me how to get back. It may tell me, "Take a left at this road, then get back on the highway." Sometimes it tells me to get off, and you turn back.
I need that to help me get to my target. And the same is true of your budget. When you bought it, you had a budget. As long as you are told, when you're failing to hit the budget, you can still get to your destination financially. But if you fail to follow the GPS, if I turned the GPS off or if I put it on mute and I ignore everything that it says, where will I end up? I'll end up anywhere, but where I wanted to go, and that's not being a smart Mobile Home Park owner. This is Frank Rolfe, Mobile Home Park Mastery podcast series. Hope you enjoyed this. Talk to you again soon.