Mobile Home Park Mastery: Episode 215

In Times Of Uncertainty Focus On What You Can Control

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It seems that America has gone insane. Nothing is on a solid footing, whether it’s the stock market, the single-family home market, the economy, the approach to public health – it’s all on the verge of collapse. In fact, most of the world economists predict a global recession within the next 18 months. In this Mobile Home Park Mastery podcast we’re going to review how you can take proactive steps to garner control over your future.

Episode 215: In Times Of Uncertainty Focus On What You Can Control Transcript

America has never seen more uncertain times. Everything right now is in a state of flux, don't know what's going on really any front. We're not sure how you approach the current public health issues of COVID and masking and socializing. We're watching the stock market, it hit an all time high and appears to be now in the early stages of a collapse. Single family home price is higher than the 2007 collapse. Everything seems to be dangling in the balance. And at times like these, it's important to embrace those things you really can control. This is Frank Rolfe, the Mobile Home Park Mastery Podcast, we're going to talk about why mobile home parks do give you some degree of control over your life at a time when it's very much needed.

The first thing about mobile home parks as an investment vehicle is it they are active, not passive. When you invest in the stock of John Deere, or Tesla, or Microsoft or any company, you run the risk of how those people are going to manage that business, and henceforth, how your investment will do. The same when you invest in a bond. When you buy a municipal bond, you don't know really and have no control over whether you'll get paid. They'll get paid. Maybe that municipality will default, you have no idea. But when you own a mobile home park, you call all the shots. You chose the property, you operate the property, you select whether to sell it. And that active mode is really what gives you control. There's nothing that gives you less control than riding in the backseat of the car, where you're not holding on to the steering wheel, or manipulating the gas pedal or the brake.

Another nice thing about mobile home parks in uncertain times, is that they are based on income, they're income properties. Typically in great crashes who gets wiped out? It's the speculators, the people who are banking on nothing more than a dream and a wish and a promise and a hope. Companies like Tesla, which have never shown a net income or net profit ever, yet are valued higher than large auto companies that have made money for decades. So when you have a mobile home park, the very fact that you are tied to income is both a blessing and a curse. It's a curse because income properties can't show wild up swings in value, like a stock like Tesla. But at the same time you're backstopped from a great crash. Because at the end of the day, your value is based on that income stream.

The Canadian stock market doesn't allow companies to go public unless they have positive net income. A lot of the companies that go public in the US, they would not allow to go public in Canada, because they've always felt it's important for investors to have some form of income tied to their money that they invest. And certainly right now in America, that's a very, very important axiom. Because really, we don't know what's going to happen to a lot of these companies, which are currently darlings, and America is fascinated with and spending their investment money. But how will they fare over the long term when they have absolutely no income to backstop what they're doing?

Also, don't forget that mobile home parks do give you that hard asset backstop. Because the mobile home park is nothing more than a little bit of improvement on top of a whole lot of land. And land throughout American history has had value. Now land can go up and down because a little bit of land is all about speculation. But again, it's a hard asset. When you invest in a restaurant, what do you have at the end of the day? Well you've got a big bunch of nothing. If you're renting the building, you've got nothing more than a lease. Yeah, you got some old furniture that you could sell for pennies on the dollar, old kitchen equipment. But there's really nothing there. You invest a million dollars to open a big restaurant and it fails. Guess what you get? Zero, less than zero. You still have lease obligations to pay. Mobile home parks on the other hand backstopped by having actual value in real estate.

And that value in real estate is also going to be important if we enter this new era of inflation, which we certainly seem to be. I don't see anyone now who is saying, Oh, well, this inflation it's all going to pass shortly. No, it's not. It's slowed a little, but it will probably ramp back up. And real estate is one of the few things that does well in inflation. Back when I was an economics major at Stanford, I remember well, when I had on a test or a quiz or something, I was to name all the different investments that do well during inflationary periods. In fact, the answer is, there's really only two: real estate and hard assets like silver and gold. That's pretty much it. Everything else gets wiped out typically in an inflation mode, but not real estate. And again, that harkens back to why mobile home parks do give you some sense of control. Because at the end of the day, you've got something that as inflation increases, the value of that mobile home park should also increase. In fact, inflation has been one of the big drivers to real estate profits over the years. Some say that the great inflation America suffered back during the 70s was a huge attribute to those who did well on real estate during that period in time.

Also, remember that you have control of the mobile home park, because of due diligence. And the ability you can do such good due diligence on a mobile home park. Mobile home parks are basically based on a number of issues, all of which you can actually control. And as a result, you know that that mobile home park, if you've done your homework correctly, if you have done your analysis, correct analysis of all the various cost centers of the mobile home park, and go out and look at the trailers and count how many there are and how many are occupied, it's really hard to get burned. There's a lot of investing that goes on in America, where really, the investor knows very little. All they had to look at is maybe some kind of offering from the company or the stock, but they don't really know behind the scenes what's going on. And they're not really in the due diligence cycle.

And there's other businesses where due diligence is so very complicated. If you're looking at buying a technology company, good heavens, how would you ever come to grips with how it even functions and what the many risks are? Very bright business people have been wiped out, in fact, with technological advances, but you typically don't have that in the world of housing. And you certainly don't have it in the world of affordable housing, like mobile home parks. So since you can control your assessment of revenue, and since you can control with very high levels of accuracy what the expenses are, as a result, you hold the risk down to a very small level. That's why Benjamin Franklin said, "Diligence is the mother of good luck," and he was totally correct with mobile home parks. As long as you can properly analyze what you're buying, it should keep you out of harm's way.

Another nice thing about mobile home parks, as far as having control of what's going on out there, is that we have fairly preferable tax treatment, which is currently showing no chances of changing significantly. It's really comes in two areas. Number one depreciation, typically about 75% of the value of a mobile home park is improvement and can be depreciated. Also, you have capital gains tax, which is a reduced tax rate that normally allows you when selling that mobile home park down the road to enjoy a more preferable tax treatment than those who don't own long term assets. Now, I know there's been discussion of it changing, raising capital gains rates from currently around 20% to 25%. But even if that were to occur, they went to the higher number, it's still imminently better than every other thing you can do out there. As far as investing in short term basis. Your pain, not quite, but nearly just half the tax of those who invest in short term items.

Finally, you have the quote that I am most famous for which so rings true, but I get bashed into the media so much. And that is the simple fact that you can really control your revenue going forward. Because as I once said, mobile home park customers are basically like those in a Waffle House chained to their booths. That quote has been horribly misinterpreted over the years, it was very, very, I think, factual and very well understood by the reporter from Bloomberg that I told it to. And the reason I gave them that quote was they were not understanding why mobile home parks were so much safer than other investments. So I said, "What's the riskiest investment you can make statistically?" and they said, I don't know. I said, "What's a restaurant? Restaurants have the highest failure rate of any American business." So if you have a waffle house every day, you unlock the door and you don't know if anyone will come in. But with a mobile home park, it's like having the customers chained to the base. All I was trying to impart to them was the fact that mobile home park customers are there every day. The average tenancy of a mobile home resident is about 14 years. And that's just for the resident; the homes almost never move. It is very, very rare with a mobile home park to see a home move out and as a result you have continuum of revenue by virtue of that home being there. Even if the customer moves and sells it to somebody else. If that customer abandons the home and the park owner takes it through abandonment process and re rents it.

The key issue is that you really have an unbelievable control over what your revenue will be. And when things are very, very uncertain as they are in the US right now, that gives you huge peace of mind. I would go nuts if I had a conventional business, I could never handle it. Owning a True Value hardware store or an auto dealer. I would assume every night I would have nightmares that no one would show up the next day. And here I had my great budgets and all my dreams and they just crash on the rocks because in the end people are unpredictable and the worlds are pretty deductible. That's why we're talking about uncertainty. But there's no uncertainty with mobile home parks, as long as you provide a good value, property is nice, clean, safe, affordable, right in line with the market. There's no reason why you would not have that endless wonderful continuum of customers paying you the rent, so that you always know where you stand.

The bottom line to it all is America is becoming a very scary place. I everyday wake up, look at my phone to see the latest news story, expecting the worst and I'm often not disappointed. However, you can still have some degree of control over your life. And a great source of that control is with a mobile home park. This is Frank Roth, hope you enjoyed this and talk to you again soon.