Mobile Home Park Mastery: Episode 216

Can Park Owners Live Off The Land?

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America is in real trouble and the odds are extremely high that it will enter a new recession cycle in the near future. When all around you is in shambles, the only way to have confidence is to have a fail-safe back-up plan that works without depending on anyone or anything else. “Living off the land” is the expression for having the ability to fend for yourself without the help of any other group. In this Mobile Home Park Mastery podcast we’re going to see just how self-reliant mobile home park owners truly are.

Episode 216: Can Park Owners Live Off The Land? Transcript

I recently found at an antique store a letter from the Rogers & Hubbard Company dated 1932, a group that made fertilizers for farms. And this was literally wrote to all those various farmers who they sell fertilizer to, and obviously, it's at the height of the Great Depression when America has completely crashed. You've got people in giant lines all across America, standing in line, hoping for a handout, hoping for a little piece of bread or food. And all these farmers as we all know, going into the Great Depression, the result was what's called the dustbowl. All the farms that through a series of terrible coincidence of timing, and bad timing, crops were not producing as well as they were. So the nation was not only in terrible condition, so were America's farmers.

And so they sent this letter out in 1932. And what it tells their clients to do is to set aside as much of their farm as necessary, and go back to growing just the stuff they need because there just isn't much of a market to sell food. Times are tough, and you just need to go in and take and become self reliant. The article tells him to go ahead and figure out what it will take as far as their landmass, to create all of the pork, eggs, poultry, milk, potatoes, and cabbage and any other item your family needs. And go ahead and also set aside enough land to grow the crops necessary to feed your horses, cows, pigs and poultry. Effectively become completely self reliant, no longer rely anymore on America whatsoever, couldn't be trusted to get the job done. So they were basically telling their customers that they sold fertilizer to traditionally to grow crops to sell to the public, to instead take their land and simply make crops for themselves.

And it suddenly made me wonder for a moment, mobile home park ownership, how self reliant is that? How well can park owners literally live off the land? What is the definition of live off the land? It means you're not relying on other people. It means you don't ask for a handout, you're not desperately waiting for some bureaucratic thumbs up on some legislation that you need. That you're not dependent on a boss to say, "Oh, well, I guess we'll keep you employed for another month." But instead, you control your destiny, and you completely are in control of your life.

So how do mobile home park owners score on that basis? Well, first off, obviously mobile home parks have monthly income. That's very different than most other investments out there. If you own shares of Tesla, you may have had a wild ride in stock valuation, but you've never gotten a penny in distributions. Mobile home parks monthly get their monthly rent, they pay their bills, whatever's left goes to the owner. That from a subsistence basis, from a self reliance basis, that is about as attractive as you can humanly get.

Also, we have insanely high demand in the mobile home park business, we're not relying on any kind of ad source. Facebook can go down for a day, a week, a year. We could be tossed off of social media, it still will not stop people coming in the door and your phone ringing off the hook looking for a place to live. And that's very, very reassuring in a time of great political instability like we have today. Also, you don't have to worry about any impacts from COVID, or the next COVID or COVID 3 or COVID 50 or whatever we're going to do here in America on an annual basis when the flu season returns. And we've got COVID out there somewhere, because we were determined to be an essential service. So as a result, it doesn't really matter what happens as far as masking, shutting things down, because mobile home parks have already been through that process. And since we're housing, we're an essential service.

We also have no risk of technological obsolescence. The Internet cannot stop us in any possible way. We're not like the makers of Betamax later replaced by the next best way to store and replay video content. We're very simple. We rent land to people who place objects on the land that they can live in. And those objects may change over time, that's for sure, they already have. Look at the trailers from 1940 versus the things today they look nothing alike. But since we just rent the land that's okay. Over time, that market can change. But as far as our business model, you cannot make it obsolete.

Also, we're a wonderful inflation hedge. In times of inflation, only two investments do well: precious metals (gold and silver) or real estate. And the best of real estate is income property real estate where you can change those leases and keeping with inflation. Fortunately, that's exactly where our industry sits. Unlike a shopping mall developer who enters often into decades long, fixed priced leases, ours and most mobile home parks are month to month, or at least no longer than one year in term.

Also, we have very, very strong property rights. We aren't reliant on any great association. We wish we had a great association, but we're not relying on anyone to allow our business to function. If we were gun manufacturers, we'd be constantly concerned about what happens as they change the laws, will they outlaw guns, will they outlaw liability protection against gun owners. However, in our case, we have very, very strong property rights. In fact, there have been no fewer than five state Supreme Court cases in which the rights of the park owner were upheld. We have grandfathering rights as far as our ability to operate. But we also have very strong property rights just as far as in America, the ability for no one to take your land away from you.

Also, in our industry, you get paid twice: once in cash and once in equity. So what does that mean? Well, it means that we've got two things to look forward to. Number one, that monthly cash flow. Every month when all the rent comes in, pay the expenses and keep the rest. But also as we pay down our debt, and as we raise our rents, fill vacant lots, cut costs and make the property more valuable, we have inherent equity in that property. So that means even though we may use up all of that money every month that comes in, to pay our living expenses, to be self reliant, we also have this great self reliance bonanza at the end when we go and sell the mobile home park or refinance the mobile home park, and tap into that equity. I don't know of any other thing you can invest in that pays you twice like that. Most stocks that pay dividends, and they're very, very small dividends, 2% or 3%, those stocks don't really typically have big run ups and value. At the end of the movie, when you go to sell the stock, you'll just get the same price you probably paid. But mobile home parks are well known to increase in value significantly over time as rents go up and you do all kinds of good things, and you're paying down your debt.

And not even going to mention the fact of inflation. Bear in mind the reason mobile home parks and real estate do so well in times of inflation is as those revenues go up, as net incomes go up, the debt remains constant. So over time, your property profit is growing every day. And that makes you feel even more self reliant because not only do you have that monthly cash flow, but you have this big safety net at the end known as equity.

Remember that when even in any conversation of self reliance and living off the land, you got to realize that Sam Zell who's known as the grave dancer, this is a guy who has profited over the decades more than any other person in real estate cycles, being the largest owner of office buildings and the largest owner of apartments, is also the largest owner of mobile home parks. And he has never sold any of his mobile home park holdings, even though he sold off over half of his office buildings and apartments. So that gives me a signal right there that being a mobile home park owner must be pretty good, pretty good living off the land. Must be very self reliant and very safe, or Zell wouldn't mess with it. He likes to buy things in anarchy and make them solid and stable. And then pick for the right moment to then sell them off. Well, in this case, he's been in the mobile home park business as long as Dave and I have, for about 25 years now, never sold a single property. So he must really like it.

Finally, any discussion of self reliance must rotate around safety, safety of your investment, protection against anyone taking away your self reliance. And of course, what is the one thing that mobile home parks have more than any other real estate sector on that front? And that's our gigantic moat. We have a moat so big, so successful and that moat simply revolves around the fact you can't build any more mobile home parks. Now, why is that? Well, because cities don't like them. They don't want them. They lose money for cities, they don't actually attract any kind of great tax base. So they're not economically in any way attractive for city government. And since they don't have to do it, they're just not going to do it. And they've been holding that line now for half a century. Almost every mobile home park in America was built in the 1950s, '60s or even '70s and that was it. And then it all ended. And since the zoning boards don't seem to ever have any desire to change, and I don't know why they ever would, our moat is so wide and so deep that no army of people trying to injure park owners or the industry has any chance of getting across it.

And they know that it frustrates them. That's why the media always launches into these tirades against park owners that they think it's unfair. We have an unfair business advantage. I don't know about you, I would like to have an unfair business advantage in the unstable America I see unfolding every day. You can't hurt my feelings by saying, "Gosh, darn it, you are too smart to be in the mobile home park business and it ain't fair." Well, tough. Those who hate the industry because they think that we have the best business model of all time, perhaps the solution would be just for them to enter it.

The bottom line is the mobile home park owners can really live off the land. We are very, very self reliant. If you talk to park owners, one thing you won't hear is the word fear or insecurity. They don't have that. They have a product that everybody wants. They have a product that is safe and sound under the law. They don't have to mess with constant new competition from developers. They get paid twice. They've got good monthly income. They've got inflation hedge. The bottom line to it all is there's no group out there that can live off the land better than mobile home park owners. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.