Mobile Home Park Mastery: Episode 321

Churning, Burning And Learning

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The average tenancy of mobile home residents is around 14 years. But sometimes it’s only a few months. Some of this cannot be controlled but there are other factors that are within a park owner’s power to correct. In this Mobile Home Park Mastery podcast we’re going to explore what factors lead to short tenancy, its impact on your bottom line, and some practical tips to reduce this problem.

Episode 321: Churning, Burning And Learning Transcript

The average Mobile Home Park resident has a 14-year tenancy, but some may only last five to 10 years, but no matter how long a resident lasts in a Mobile Home Park, nobody hates losing one more than the Mobile Home Park owner. This is Frank Rolfe, Mobile Home Park Mastery podcast. We're gonna talk about churning residents, burning cash, and why it's a terrible thing for your park. And let's first start off with what it cost you roughly every time you lose a resident, first you lose your lot rent. So if you charge $400 a month in lot rent, and let's assume it takes you 90 days to refill that home, that's $1200 out of your pocket right from the start, then you add the legal cost to evict that tenant, if that's what's going on. You're evicting them for non-payment of rent or rules violations, that's another $600 just in legal fees, and then of course, you'll have to go through an abandonment process to ultimately legally get title to the home, because they will normally just run off and abandon it, and that's another $2000, and then comes the cost to renovate the home, if it can even be renovated, and that can run anywhere from $5000 to $10000, so when you add it all together, it cost the average Mobile Home Park owner somewhere between nine and $14000 every time we have a churn.

Every time we have a tenant run off and abandon their home. So, some initial big takeaways are number one, it costs you a ton of money when you lose a resident, and number two of the media is clearly dead wrong on this one issue. There are so many articles that say that Mobile Home Park owners desire, their goal was to run off the residents, and that's absolutely insanity. If there's one thing a Mobile Home Park owner would never wanna do, that's lose a resident. So what makes residents leave? And how can we do a better job on that? Well, let's divide our residents into two different camps, let's turn off to the ones that live in their own home, so let's assume you have a resident, they own their home. Why would that resident ever leave that mobile home. Well, the big issue is if you are no longer a good value, so when the Mobile Home Park no longer seems like it's worth the money, the person has no desire to live there, basically there has to be a parallel between the rent level and the perceived quality of life in your Mobile Home Park.

And it's not just about raising rent, that is a completely false narrative. As parks are brought back to life by new owners, the rents go up significantly, but the tenants love the improvements, so they have no interest in leaving. And annual rent increases of $50 or so, does not seem unreasonable to anyone, have you gone to a gas pump? Have you go to the grocery store? No one would leave what is the lowest cost form of housing on the earth because you raised the rents $50. But if you raise the rents aggressively and you don't give back to the residents through better property condition or management, or you're just unrealistic in your pricing to begin with, you can lose residents, and what those residents may do is they may choose to relocate to a different Mobile Home Park, and they can do so typically, at no out of pocket cost, 'cause most Mobile Home Park owners will pay the cost to move the mobile home from that park to their park. So as a result, we call those organic moves and they happen frequently, and that's your punishment when you don't offer a good value, the customer will say. "Well, I don't like that value, I'll move my home to a place where I'm happier."

Now, how do you mitigate that issue, how do you stop people from leaving your Mobile Home Park because it's a bad value. Well, clearly the answer is, keep the park a good value, give constant intention to enhancing the property condition and rules enforcement, and adding amenities and providing professional management, that's what customers really, really want. It also helps if you only raise rents in the spring, in the summer, because if you raise your rents during the holidays, if you raise your rents when it gets dark early and it's cold outside, they're more prone to make a snap decision, which they may later regret and say, "Why, I'm out of this park. I don't like this anymore." So you're not helping yourself at all if you raise your rent any time or the other than when it stays brighter later and the weather is warmer and people are generally more happy. Also, if you're $300 a month or more under market, which there are many, many mobile home parks that fit that description, still try to hold your rent raised maybe $50 increase per year, so the tenants can more easily absorb that into their budget.

It doesn't matter if you say, Well, I can raise my rent $250, and it's still a great deal. No one's disputing, it's a great deal. Throughout America, Mobile Home Park rents are absolutely ridiculously, insanely, stupidly low. We all know that, but the question is, can we further in those increases so it's easier to absorb them and to cause fewer ripples among your residents? And I also wanna point out that when you first buy a Mobile Home Park and you start enforcing collections and rules and you start raising the rents, you will certainly lose some residents who are just not prepared to live in a modern world. And those are the people that are often mom and pop fostered and empowered by letting them live there rent-free sometimes for years at a time.

But you can't continue that practice, you can't build a business around not collecting rent and not enforcing rules, so you have to look at all of those churning of residents on the front end. When you buy the Mobile Home Park, that's just a by-product of bringing the park back to life. And when you look down that collections list, when you buy the Mobile Home Park, anyone who has not paid the red in 60 days or so, anyone who's yard is stacked with non-running vehicles and trash, you're probably going to lose that resident and you should know that at the start and budget that into your initial number, so that really doesn't count as a churn.

Now, let's move on to park-owned homes. A park-owned home is basically a home that the park owns and maybe the park is renting that home, for example. Or in some cases, they may have some kind of system where they are selling and hopefully aligned with the safe act and Dodd-Frank. But regardless, if that home is titled in the name of the park, or if that park is a lean holder on that home, that's what we would call a park-owned home, and there's several different reasons for churning park-owned homes.

The first one is if the home is in very, very poor condition, really bad quality product, and what happens then is that the customer moves in and they're endlessly irritated, endlessly feeling they got a bad value because the home just doesn't function properly. JW Marriott the famous hotel owner once said, "It's the little things that make the big things possible," and that's definitely true with park-owned homes. Now, here are some of the most annoying issues for customers we've seen over the last 30 years, number one, a front door that won't open well, because it hits the deck, so to open the door, you have to pull up with an amazing amount of force to lift it above the deck, and that's because the deck is in fact higher than the home, and you can imagine how annoying that is. Now, it's not a difficult fix for you as the park owner before you sell the home, all you have to do, you shave a little bit off the legs of that deck, also making sure the deck drains away and not towards the home.

But you can imagine how it can make a customer mad, frustrated when they can't even open their front door every day. Next, a wobbly deck. So many decks are in very, very poor repair that did not use the correct weather outdoor type of wood, or they just built them very, very poorly and didn't maintain them. You've gotta have a solid deck. They give the first impression to the home, but also it's a huge safety issue. Also, a non-working heater or air conditioner is almost certain to cause a resident to run off because they don't have the money to fix them, if it's a central system, it can be thousands of dollars and never... So they're just very disappointed in you, whoever sold them the home or rent them the home, that they don't even have a such a big ticket item, a good repair. Soft spots and floors are a very very common issue with many poorly done park-owned homes. What could be more disturbing than having a soft spot on your floor that you have to remember every time you walk, not to get near that spot.

Also poor carpentry issues, things that just look terrible, we've all seen it. Framings around doors that don't match up, molding that is missing pieces. And then finally, items in the bathroom that don't work, namely a wobbly toilet or a shower that pops or bends when you step into it, these are the type of things that really turn customers off and make them have second thoughts on living there and ultimately will cause greater churn. Now, well the solution's just do a better job. Do not put any home on the market until it is fully complete and ready to go, and you may say, "Well, but this guy walked in off the street and he said. Hey, do you have any homes? And I thought, Man, I wanna go ahead and score that sale." No, you can't do that. You have to make sure all of your homes are in good shape, if you would not live in it yourself, you should not be selling it or renting it. Number two, cause for churn in park-owned homes is that customers just can't pay steadily, so from the get-go, when they first get in, it's tough collecting the random, then ultimately they just run off.

What's the solution here? Well, the solution is, it falls back on you as the park owner. You're not vetting your customers properly, you've gotta make sure that everyone who walks in the door is treated fairly, but also treated thoroughly. You need to go ahead and make sure that they do have a source of income to pay you, and you have to have the correct ratio, typically of income above housing costs, which is normally roughly about three times.

Also, you may not be pricing the home properly because all the value is in the lot, and if you need to take a loss on the home to get the value of the lot by getting the home occupied, you should definitely do it. If an occupied lot is worth $50,000, then you can certainly lose five or $10,000 on the home and still feel good about it. And then finally you've got to stop renting homes. Renting homes is a terrible idea in the Mobile Home Park business, it always has been. We've tested it for 30 years. We do not believe you can show a profit in renting the home, just sell them. When a customer does not have the desire or the commitment or the income to buy a Mobile Home, so instead you rent it to them, that's a guaranteed churn, you've got to eliminate that. Some managers will say. "Well, I can't sell homes, our customers only wanna rent," I'll tell you what, you tell the manager you don't rent anymore, and suddenly things will change and they'll be selling homes like crazy.

Now, one final wild card on the idea of customers and churning, is your manager's people skills, whether it's collecting rent or rules violations or just giving a warm and sincere hi to the residents when you see them on the street. It can make all of the difference. Those things all add up to the customer on feeling appreciated, which again, ties back to feeling they're getting a good value. So what's the solution? Well, hire people who have good people skills, that's the number one role of the manager today. In most Mobile Home Parks today, most of the accounting is done using software. A lot of the rent is paid through ACH.

So what your manager's role is to be kind of a cheerleader, someone who works well with people who resolves problems, a customer service agent. Make sure your manager has those skills. Also have a helpline, a way for your customers to inform you of what's really going on in the park and with the manager. Simply give them a magnet that says, Need Help? And then a phone number they can call and an email address. Monitor that line closely and you'll be able to spot issues with managers, and don't forget the old adage, one of the first things I ever heard a Mobile Home Park owner tell me, "It's easier to change people than to change people," and when your manager is lacking good people skills, when your manager is not really on your team as far as making people feel happy and that they're getting a good value then they need to go.

Basically, the bottom line is that the worst thing you can do with your Mobile Home Park is to churn residents. Every time one leaves, it cost you a lot of money. And because of that, you need to treat every move out the same as the FAA does regarding every plane crash or incident, as if that was a very big deal, 'cause it is a big deal to you. You need to isolate what happened and you've gotta fix it and these suggestions should help get you started in that analysis.

This is Frank Rolfe, the Mobile Home Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.