For over a decade –from the moment that financial institutions popped up to finance new and used mobile homes– older park-owned units were often relegated to the scrap heap. But the soaring price of new and slightly used homes has rekindled the notion of bringing many of these formerly doomed homes back to life. In this episode we’re going to discuss the building blocks to determining if an old home could or should be salvaged and tricks we’ve learned about doing it the correct way.
Episode 270: New Life For Old Trailers Transcript
As with everything in America, the price of new mobile homes and newer or used mobile homes just keeps going up, and that presents a particular dilemma for mobile home park buyers when they have park on homes that come with that mobile home park and deciding whether to demolish those or not. This is Frank Rolfe, for the Mobile Home Park Mastery Podcast. We're gonna talk about saving those old park owned homes that often come along when you buy a mobile home park, and mom-and-pop had these homes, they bought it from residents who might have needed to move and they bought them inexpensively, or maybe someone died and the estate gave it to the park owner, regardless of where they come from, one of the first things you have to decide when you buy the mobile home park is, do I demolish them, or do I try and bring them back to life, get them sold, put somebody back in them and get that lot rent restarted? So the first question when you approach this project is, are those old homes worthy of saving? And there's pretty much two qualifications that make a home fall into the category of worthy or not worthy.
The first one is the floor plan. Early mobile home started at eight foot in width, then they moved from eight to 10, from 10 to 12, from 12 to 14. Now, 14 is kind of the gold standard. At a 14-foot width on a mobile home, the room sizes are appropriate, and they're similar enough to modern homes that people like living in them. When it comes to things such as a king-sized bed in the master bedroom, you gotta have a 14-foot wide mobile home. When it comes to having just what we all consider to be a pleasant place to live, once again, you've got to have a 14-foot home for the most part, and what that means is, the eight and the 10 and the 12 sometimes just do not present a floor plan that's worthy of saving. The eight almost always. The 10, most of the time. And the 12, well, at least you're close enough to the 14 that you're almost within shooting distance, but you're still not quite there. On top of that, you have the length of the home, just a general layout of the home. Remember that pre-had before 1976, there were hundreds of people building mobile homes, hobbyists for the most part, some building only one home a year, and they did it their own way, to quote Frank Sinatra, and some people put a lot of thought and a lot of good design elements in and others did not.
So the first issue simply is, is this a home that if I put the money in to make it happen, is that going to be something that someone's gonna wanna live in? And if the answer is nope, no one will wanna live in that thing, no matter how well it's restored, well then don't bother putting your money into fixing it. The next is the condition of the home, how much work does it need? Sometimes you're doing a home from the 1960s and it's immaculate, it's a museum piece, everything is working, there's not a tear or a scratch on it, and you can have another mobile home that's maybe from the 1980s and it's just beat to death. That resident left the water run and leak and the hot water heater area and in the sink, and maybe had a roof leak in between water intrusion and just generally poor maintenance and rough and tough living conditions, that home is gonna cost thousands and thousands of dollars to bring it back to life. So the first issue you have to decide on any old home you're even contemplating on bringing back to life is, is it worth doing? Do you really wanna put that much money into it? Is it really a home that when you put the money in, someone is gonna wanna buy?
The next issue is the opportunity cost of your capital in bringing it back to life. Now, when you put a dollar in that old mobile home, that's a dollar you could put it in a different home, so if you put money into an old home, more than likely, you will certainly lose money with it. If you put in $10,000 in an old home, you're not gonna probably get $10,000 back, you might be able to get a few thousand dollars for that home, but you're going to probably end up at the end of the day having capital erased, and what if you instead put that money into a home where you don't lose any money? What if you just scrap that home and bring in a new home or a newer home, that you can get financed 100% by a finance company through the manufacturer. Cash program from 21st Mortgage is such a program, Performance Equity Partner, PEP, also has a program. These allow you to floor plan homes on your lots, both new and used at basically 100% where you have no out-of-pocket cost. So that's something you have to consider. So do I wanna go ahead and put those thousands of dollars in that older used home, or do I want to instead put it into a newer home to go on that same lot?
The next issue is, what can your customers afford? Going back to the item, the issue of 21st Mortgage Cash program or a PEP or a similar lender, can they qualify? Can your customers actually do it? Those lenders are gonna be looking for roughly three times the housing cost in income. In some parts, that's an easy bar to jump over, in others it's almost impossible. We had a mobile home park once down the street, we brought in a number of new homes through the cash program, and every single applicant, every single home had sailed through, we were 100% occupancy, we had another park down the street, thought we'd follow the same guideline, we brought in some new homes and we couldn't get those things out the door, no matter what we did, we just kept doing application after application, nobody qualified. So that park, we then knew we couldn't be bringing in new homes, we could only be bringing in used homes, and there's some parks where they can't even qualify for the used homes. So if you wanna restart the clock, if you wanna get your lot rent in those situations, you would have to actually just rehab the old homes you have, sell them for cash at a low cost, because even though customers can afford the lot rent, they can't afford much more than that.
Also going back to the Cash Program and PEP, can you get in those programs? Most of those lenders have minimum requirements, either a certain size number of lots or a number of vacant lots, it all stems back to the fact if they underwrite a park owner to get in the program, they wonder if they're gonna do a certain amount of business. So you may not be able to get into those programs at all. Another issue is, where is the home in relation to the park? It's not a big issue, but if the home, this old home, this old park on home you're pondering bringing back to life, happens to be located right at the entrance, it may not be a good idea to do so. The problem is, if I bring that home back to life in that location, it may drag down the overall value of the park. It's just not fair in the life that not all mobile home locations are treated equally. If you have an older home that's in the middle of a block, well, you hardly even see it, all you see is just the front of the home as you drive by, but if it's right at the entrance on either side, it's one of the most prominent features, and you can go in there and you can landscape that entrance and put up a beautiful sign and redo the roads, and it still spoils it all as far as the overall seeming value to an appraiser or a banker or a future buyer or a city inspector or a customer.
If you've got some old home sitting there, even if you repaint it and restore it, the simple fact of the matter is, your park's entrance, the first impression would be elevated if you had a shingled vinyled newer styled home there. And there may be other considerations when pondering should you bring that one home back to life. For example, does it have a title? In some states, you can't sell or rent a mobile home in the absence of a title, and often mom-and-pops don't know where the titles are to these older homes. So what's at stake is, if you put money into that home in the absence of the title, you can't do anything with it when you're done. Now, in other places, you can. Some states have much more lenient title requirements, in fact, in some states, all you have to do when you sell the home is promise if the title ever comes into your name, that you'll give it to the buyer, but that's another thing that you would wanna check out. Now, you gotta take everything I just talked about and you gotta add it all together like a delicious bowl of chili here, because all of these ingredients, the sum of all of that will tell you whether you need to be bringing old homes back to life or not.
And not all old homes are the same. You may not say, Well, I'm going to save every old home I have, that may not be a smart decision. Every home should be treated on a case-by-case basis. What's the floor plan? What's the condition? What will it cost to bring it back? What else can my customers afford? Not all parts of America are created equally when it comes to mobile home parks. There are some parts where customers are more affluent and they're much more demanding and they don't want those old homes, and there's other parts of America where those old homes are considered highly desirable, so the key is you gotta match this decision to your customer base. At the end of the day, that's what's really gonna tell you whether you will succeed or fail with those old used homes or even newer homes. Can people afford the newer style of home? Do they really need the newer style of home or would they just prefer having something that's inherently more affordable? Remember that mobile home parks are all about affordability, that we're in the affordable housing sector, so as a result, we need to always be watching how can we provide a housing option, a detached housing option for our customers at the lowest possible cost. And many times that's reflected in bringing those older mobile homes back to life. This is Frank Rolfe for Mobile Home Park Mastery podcast. I Hope you enjoyed this. Talk to you again soon.