Mobile Home Park Mastery: Episode 302

Fact Or Fiction?

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There are a huge number of myths about mobile home parks, as well as some items that appear fantasy but actually work in reality. In this Mobile Home Park Mastery podcast we’re going to explore some of these theories and determine which are fact-based and which are nonsense. Many of these items can be of great importance in buying and operating mobile home parks, so it’s important to know which ones you can trust.

Episode 302: Fact Or Fiction? Transcript

More than any other real estate sector, misconceptions swirl around the mobile home park industry. But which ones are true, and which ones are false? This is Frank Rolfe, the Mobile Home Park Mastery Podcast. We're gonna explore some of these myths and legends and try and figure out the fact from the fiction regarding the trailer park industry.

Let's start off with the first item, which is something that you see in the press frequently in recent times, and that's that 24 million Americans live in mobile home parks. Is that true? No, that is not true. That is fiction. Roughly about 8% of the 300 Americans in the US live in mobile homes. That's 24 million, and that's where that number comes from that's frequently thrown out there in the media. However, the fact is that 65% of those people who live in mobile homes live in mobile homes on their own land, out on farms and ranches, and you see these and drive by these all the time. And only 35% of mobile homes that Americans live in are actually in mobile home parks. That means actually only about 8.4 million people live in mobile home parks. Now, why does the media puff it up so big? Why don't they bother to do the quick and simple research to see the ratio between mobile homes on land and mobile homes in parks? It's obviously because they want to make their stories seem much more significant, so by saying that there's 24 million people living in parks, it seems to make the time they spent writing the article more reasonable, rather than if it was only 8.4 million.

Another item is that mobile homes aren't mobile. You hear this all the time. For the last couple of years, we've been bombarded with people writing articles on the fact that mobile home park residents are basically stuck, that mobile homes can't be moved. Is that fact or fiction? Well, that's part fact and part fiction. It is a fact, and this is done by the US government, not by the mobile home product itself, that any mobile home that is built before 1976 does not have a HUD seal on it, and therefore is grandfathered in a position where it sits but can never be moved. You can't bring a mobile home into a mobile home park in virtually anywhere in America unless there's a HUD seal on the back. And that's not a thing that mobile home park owners did, that's something that HUD did. So when the manufacturing process changed in '76 and HUD took over the process and demanded you have that seal on the back, that's what changed the playing field from being able to move those homes that are 1976 or older. But let's be honest, you couldn't move those anyway. Those homes are now 50 years or so old. No way you could take that, jack it up, mount wheels on it and take it down the highway safely. So, that wouldn't happen.

However, it is not true that mobile homes after 1976 can't be moved. In fact, they're moved all the time. So the very conception that this mobile home is somehow stuck in position is a falsehood. Your 1990s and newer homes, all of the hitches required to move them are simply sitting beneath them, ready to bolt back on. And those homes are all fully road-worthy, so to say they can't be moved is not true. What's another item that people talk about? Well, they say that mobile home park residents are trapped. Playing off that same concept that mobile homes can't be moved, they'll claim that even if mobile homes can be moved, the customers are trapped. Is that true or false? Well, that's false. Mobile home park customers are never trapped. They could always re-sell their mobile home, if they like. No one ever talks about that, but certainly, that's what you do. The reason people don't resell them is because they can't find anywhere less expensive to live. So when they say they're trapped, what they're trapped by is not the fact that they can't move the home and they can't resell the home, they're trapped because they can't find anything cheaper. That's actually a compliment to park owners, that we produce the least expensive housing in America, but a complete falsehood when the media then tries to claim that these customers can't be moved.

On top of that, if a mobile home resident wants to move their home, any number of park owners will happily pay the cost to move them from another park into their park. It just makes good, logical business sense. It costs about $5000 to move a mobile home. What park owner would not wanna bring in a mobile home for $5000 if they can get all their money back in the span of maybe a year and a half? So customers are not and have never been trapped. It really drives me crazy when people use the falsehood of my old Waffle House quote. We simply meant that... Why our revenue in the park industry is so stable. It did not mean that people are ever trapped in their homes. Clearly, anyone, even in a pre-1976 home that cannot be moved legally under HUD, could still resell it. And right now, with housing being as strong and affordable housing so hotly in demand, you can obviously sell that home in no time at all.

Next is an old saying that I was told when I got in this industry, and that's that the mobile home park business is all about the newly wed and the nearly dead. Is that true or false? Well, that's really kind of true. Certainly, a very large number of people who live in mobile home parks are new household formations or seniors. There's nothing wrong with that. Those are two basic, large segments of our demand pool. So, that one is partially true. Another statement people say is that mobile home parks are for poor people. Fact or fiction? Fiction. Mobile home parks are not and have never been about what we would call "poor people." Mobile home parks serve probably the lower 30% of US households based on income, but certainly, they're not the bastion of poor residents. That, in fact, would be the apartment industry through the Section 8 program. Under Section 8, you pay maybe 20% of your income regardless of what it is, and the US taxpayer pays the difference. Section 8, though, is hardly ever found in the mobile home park arena. So as a result, anyone who tries to tell you that mobile home parks is where you find the poor people in town, they're wrong. Actually, they're found over in the nearest apartment complex.

Next, there's the old saying that one half of two-bedroom apartment rent demonstrates what the correct lot rent should be for the market. Is that fact or fiction? Well, it's one of those items where it really turns out to be fairly true, although no one really knows why. But if you look at most markets and you see what the two-bedroom apartment rent is on, and then you simply take times 0.5, that number is fairly representative of what lot rents typically are. However, I don't think that's where it's going to be in the future, because it makes no sense of why mobile home park lot rent should be half of two-bedroom apartment rents. When people tell me, "Oh, well, that's because you have the burden of the home and the mortgage," it's, again, a falsehood. That's not true. 80%, roughly, of all mobile homes are paid in full. The lot rent is the entire cost of living. So as a result, probably the reason that mobile home lot rents are only half of two-bedroom apartment rent is that mobile home park owners have been traditionally moms and pops who are too timid in setting the rents to market levels. I see that rising significantly in the future. So that's one item which is a fact perhaps today, but probably will become more of a myth in the future.

Then there's the old saying that someone told me when I first got in the business. I was at an evictions hearing, I used to do all my own evictions work, and they said, "Before you evict a tenant, you should walk a mile in their shoes. And that way, when you get the eviction, you're a mile away and you have their shoes." Fact or fiction? Well, it is a little bit of fact. Obviously, it was a joke that was told to me by another park owner. But if you really think about it, when it comes to mobile home parks and evictions, number one, the park owner always wins the eviction because it's a non-payment eviction. There's no defense other than, "Did you pay the rent?" And if the answer is no, well, then you automatically lose.

But the other part is, you can add a little humor to most evictions in the mobile home park sector, because the amount that's typically owed is so very small. It's very hard to come up for a reason why you can't pay it. I've had judges on many occasions, back when I did all my evictions work, who'd admonish the resident, "Why in the world have you not paid this amount? It is so small." You can work for three days in minimum wage, three days, and come up with the money to pay the average lot rent in the US, which is around $300 per month. So when people say, "I can't afford the rent," that's nonsense. When they say, "I couldn't pay it because my car broke down," it's, again, nonsense. So perhaps the true answer there is that that story, that joke is probably in keeping with the same myth and fantasy when people say why they can't pay the rent.

Then there's the theory that three calls equals one showing, and three showings equals one application to buy a mobile home. Is that fact or fiction? Well, that's fact. In fact, that's something that we developed based on observations we had from a huge amount of sales data over roughly 200 mobile home parks and how they operated on selling homes. What it means is, you have to have about nine calls to get one application on a mobile home. And this is a theory that's used when you're trying to gauge how many homes you can sell, and at what speed. You look at your test ad results, and that will suggest to you the pace in which that park can sell homes.

Then there's the topic of, mobile homes cost an average of $125,000. Where do I get that information? If you simply go to Google and say, "What do mobile homes cost?" That's the answer you will get, $125,000. Is that fact or fiction? Well, the answer, of course, is complete fiction. 80% of all mobile homes in the United States that are in mobile home parks are debt-free. As a result, when those old homes sell, they sell typically from between $1000 and $5000 or so. So, where did $125,000 mythical number come from? Well, that's what a new double-wide or new triple-wide would cost, that you might go out and put on a nice piece of land. But when people talk about, "What does a new mobile home cost?" What they're really talking about is from the manufacturing side, the retail side. That has nothing to do with the mobile home park industry. So when people try and say that mobile homes cost $125,000, they're not talking about our industry at all.

Finally, you hear this comment. Now, constantly in the media, we're being bombarded with the statement that commercial real estate is heading for a depression. Is that fact or fiction? Well, it depends on what sector of commercial real estate you are in. Obviously, the office building industry is doomed. American occupancy in office buildings is down to now roughly about 50% in most markets. And if you're in St. Louis, my nearest major city, it's 35%, is the average occupancy. That, of course, is a recipe for complete failure. And then all of us go to shopping malls, or at least we do occasionally, and we notice in there that they're so very empty. So, clearly, on the retail side, once again, yes, it is doomed. And then you have the hotel industry, which is, again, suffering mildly from all the aftershocks of COVID, but on top of that, people aren't really having business conferences like they used to. So as a result, they're suffering mildly. And yes, they're probably all doomed, they'll probably all go into foreclosure.

But the one bright spot in commercial real estate is anything that has to do with housing. Whether it's apartments, the multi-family sector or mobile home parks, that is the sector that actually is strong and getting stronger. Mobile home parks in particular have always been contrarian, and as the economy retracts and goes into recession, we only get more demand, we only get higher revenues and greater occupancy.

The bottom line is, the mobile home park industry has always long been filled and surrounded and swirling around us with all of these fantasies and misconceptions. And it's important that all of us know what the facts are, so when people say these stupid things, we can say, "No, wait, you're wrong. That's not correct whatsoever." And hopefully, these few observations will help on that front. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.