Mobile Home Park Mastery: Episode 230

Clarification Needed

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USA Today released an article titled “Meet the New Mobile Home” which, although positive in nature, is certain to confuse most readers as to the true economics of the product. What’s missing from this article is the simple differentiation between mobile homes and land. In this Mobile Home Park Mastery podcast we’re going to discuss why it’s really all about the land, and that’s what makes mobile home park owners and mobile home manufacturers so completely different in their goals, profits, and future outlook.

Episode 230: Clarification Needed Transcript

Clarification needed. It's all about the land. This is Frank Rolfe the Mobile Home Park Mastery podcast. It was a recent article in USA Today titled meet the new mobile home. Manufactured houses deliver the American Dream amid tough housing market. It's nice to see articles in USA Today that talk somewhat positively about the mobile home industry. But unfortunately, this has many other articles before it too many that will come after miss the main point of real estate and that is the land. Let's go over what needed to be clarified in the story and why so many people read the story may come away from it a little confused. Clarification number one, the mobile home park industry and the mobile home industry have nothing in common. Mobile Home manufacturing to many people is all part of one giant, over encompassing blob known as mobile homes. And they fake that park owners are all kinds of interested in how manufacturing and retail sales are doing. Advice averse. And the truth is, no, we don't care. The typical customer in a mobile home park, who brings in a home or buys an existing home the park owner has brought in will remain in that home on average for 14 years. But that's the customer's length of tenancy. The home doesn't leave the customer then whenever they decide to move on. Whether it's on to assisted living on to another city on to a different form of housing. They will then sell that home but the home will remain in position. When you have a mobile home park that's full. You could care less about mobile homes being manufactured, or even the cost of mobile homes because park owners don't focus on the homes. We only focus on the land. We rent land, we're like a parking lot. Imagine that a park and fly parking lot out of your local airport. Why would they care anything about car manufacturing? It means nothing to them. They don't care the make model or year of any of the cars that are parked in the parking fly parking lot. All they care about is that you pay the daily parking rate. And that is how mobile home park says business model are constructed. We don't have any interest really in manufacturing other than the fact if we have vacant lots, we will have to engage in buying homes to fill those vacant lots to turn around and typically sell or even rent those homes to get lot rent. But beyond that we don't care. park owners are in the land business. Manufacturers, however, are not in the land business. All they have to make money is taking some lumber and some metal and some products and putting them all together and then selling them as a completed mobile home to the public. So what does it all mean? When you read the article? It looks as though we're all one big industry. It talks and moves from one fact to the next, talking about the fact that there are around 44,000 mobile home parks in the US with roughly 4.4 million lots. I don't know if that's really true. That stat came from MHI. I don't think they've individually counted those 4.4 million lots. So that's kind of just a guess. And if you assume two and a half people per household, that would mean roughly about 11 million 12 million people in mobile home parks. But yet, the government states there's 24 million people living in mobile homes. So clearly you've got two separate industries. You've got mobile homes. They're out on land, which is about half of Americans live in mobile homes. And then mobile homes are located in mobile home parks. But again, they're very, very separate industry park owners are all focused on land. Retailers are all focused on not land, but the homes themselves and they're never going to be united on that. Because the very things that home builders are after, which is a higher Cost per home with more profit in it is the very thing that park owners don't like. We prefer our customers to have no debt, nothing note on the home, that gives them a greater ability to pay us timely, and to not default. So we're really at odds with each other. The second clarification is that mobile homes are not have not will never be looked upon as something that appreciates.

It's not the homes that depreciate, it's the land. If you read the article, it gives the example of someone, a firefighter, I believe, who bought a mobile home in a mobile home park in California, I think it was for $80,000. And then he sold it for $180,000. But they weren't buying the home. If you go out to those parks in California, and you look at some of them, and what appear to me is a Midwestern or crazy price points. What they're selling is the complete package of the home and the location. And the location is 99% of it. There's old beat up double wides and some of those parks in Malibu, they still sell for four or $500,000 not because that's what an old beat up doublewide goes for. But because the fact that it's in Malibu on the beach, so we need to clarify that mobile homes are not an appreciating investment. The land is what appreciates. So when you read the article, you're perpetually confused. I mean, so the guy is talking about a mobile home in California, he sells it for 810,000 and then buys what he calls his forever mobile home in Malibu for $850,000. And anyone reading that will be highly confused. How would a mobile home be worth 850? If you read the article, it looks like it appreciated over time, from based on each time he jumped from one part to the next, that the home went from 80 to $800,000. A price. That's not true. The home itself depreciated that entire time. If you were to take his original mobile home and stick it out on a retail sales lot, or these most recent and stick it under retail sales lot. Neither of those things ever went up in value. What went up in value was the land, the location. And again, that's the difference between mobile home parks, and mobile home manufacturing. The parks have the land, the land holds the value. When you also look at the example they give in there of of a customer, I believe by the last name of Chesney buy in the mobile home of their dreams because they can't buy in the stick build. The problem in that is they're buying the home, but it doesn't include the land. There's never any discussion of what the price point is when you include the land. They talk about the price per square foot of the mobile home being roughly $57 per square foot versus stick build at $119 per square foot. But where's the Land Component? Where does that go into the whole movie? It doesn't do you any good to buy a mobile home for $57 a square foot to stick it out a piece of land that dwarfs that price and is still completely unaffordable. That part of the narrative is sadly left off. Now there's no question in America we have a true affordable housing crisis. But that crisis is partly responsible not by the cost of building a home. But by the lot itself. The average lot in the US right now costs $80,000. If you then use the numbers in the article, and if you build a 1000 square foot house, they would cost you 119,000 For the house 80,000 for the lot and you come in right at around $200,000 well beyond the ability of most Americans to afford their housing. Also remember that when someone buys a mobile home from a retail dealership, these are not affordable housing people. You cannot buy a mobile home and have sufficient downpayment and sufficient credit to obtain the loan. Unless in a mobile home park you're backstopped by the park owner. Through a program like 21st mortgages CASH Program, it's the park owner that sticks their neck out and makes the mortgage possible by agreeing if the customer defaults, to take over the mortgage to abate the lot read and to make the necessary pairs to go ahead and find a new person to buy the home. In the absence of that protection, the mortgage company is going to look very, very strictly at the applicant's financials. And in most cases, the average person who really needs affordable housing could never qualify. Only those who are taking those homes out on their own personal land, typically can get the job done. So once again, it's all about the land.

Clarification number three, let's give up let's drop this semantical argument on what in the world our product is called. The article refers to trailer, then mobile home, and then tries to claim that in 1976, magically, everything called mobile home or trailer prior is now called manufactured home. Because that's when HUD stepped in waved a wand, and the new name began. Nobody is buying that. No one has ever bought that. Let's just drop the name entirely. I felt sorry. For the manufacturing industry within the article. They're talking so glowingly about the fact that, hey, when you build something in a factory, you can build it cheaper. And then they slap the old manufactured on it over and over. Nobody likes the word manufactured. In America, things that are built one off, that are custom are always more valued, than things built on an assembly line. Who in the world thought through this marketing plan? Let's just drop it. Let's let the home whatever you want to call it just be called a home. In so doing, what you're also going to do is you're going to further separate the two products. I know they had the product they tried so hard to push called cross market went nowhere. Because it doesn't really serve the niche that's needed the need in America, the rig big need is affordable housing. It's not a lower price per square foot for wealthy people trying to buy a home to put on their own land. What really needs to be hammered home is the fact that the mobile home park is the only thing that provides the complete package, the home and the land, the home and the spot to park it a turnkey package in that affordable housing price point. It is in our estimate about 500 to $800 a month based on the market of America that you live in. The bottom line to it all is that it's all and has always been about the land. In the mobile home industry. Manufacturing, retailing and park ownership have absolutely nothing in common. One business model works fantastically well. One business model is anchored on real estate. And the other is just a business trying to build and sell at a profit. A product that most Americans have a negative stigma against I would love to see the industry one day become a main stream feature, not have any negative thought against it. But for that to occur, we've got to separate these things out in the minds of the consumer. Maybe we need a new name for the product. When it's not a mobile home park, maybe the word mobile home and mobile home park and manufactured home and manufactured home communities should be one subset. And then maybe they should call retail manufacturing something entirely different. Cross mod certainly didn't work. But maybe there's a new name. tiny home is been working great but tiny homes suggest the home to be small. It's not it's not necessarily a another consumer turn on. But the long and the short of it is the industry has to separate out in the minds of the average American. The fact that the land and the home are very separate beans. It's a big industry. There's plenty of room for all who want to enter it. But at the same time it has to be done in the absence of complete confusion. This is Frank Rolfe, the Mobile Home Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.