Mobile Home Park Mastery: Episode 172

Old Homes

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Douglas MacArthur once said “old soldiers never die, they just fade away”. But what about old mobile homes? In this episode of the Mobile Home Park Mastery podcast, we’re going to look into the definition of “old homes”, what their strengths and weaknesses are, and how to determine their future. We’re also going to review some budgeting tips when buying parks with old homes, and why some old homes should just be scrapped. MacArthur was a great General – can you be as good at honestly assessing your old home housing stock?

Episode 172: Old Homes Transcript

Douglas MacArthur once said old soldiers never die, they just fade away. But what about old mobile homes? This is Frank Rolfe, the Mobile Home Park Mastery Podcast series. We're going to be talking about old homes. What you need to know about them, where they stand as far as housing to the future, if you can put money into them, should you put money into them? And everything else you'd want to know about old homes.

Let's first define what an old home is. To me, an old home is a home that is pre-HUD. Now, for those who are unaware, HUD took over our manufacturing of mobile homes in about 1976. Prior to that, anyone could build one. There were no limitations. Some people set up small factories, other people built them in their backyards and in barns and Quonset huts, and they were all unique. They were handcrafted one of a kind in some cases.

And in 1976, the government took over manufacturing. They decided it was no longer safe to have amateurs building mobile homes. So from that point forward, if you wanted to sell a mobile home in the United States as a manufacturer, you had to be HUD licensed, HUD approved, and your home had to have a HUD seal on the back proudly announcing that you had built that home in accordance with HUD's laws. So to me, an old home is one that's missing that HUD seal.

1980s homes, they're not really old to me. Sure they're 40 years old, but a 14 foot wide, 1980s home, which is also called a round roof, those things are structurally extremely stable. They have floor plans very similar to modern homes, and to be honest with you on the inside, many customers can not tell the difference. We've sold hundreds and hundreds over those homes over the years, and they've always gotten very well. People were very happy with the value.

So I'm not going to count the 80s homes as old. To me, the old homes are predominantly homes of the 70s and the 60s. Now, what is wrong with a pre-HUD home? Well, a lot is wrong with the pre-HUD home often. The first item is they're very dark and dreary. The way they were constructed, they had that old fake paneling and the dark gray, dark blue or dark green carpeting on the inside, and the room sizes are terribly small.

Pre-HUD homes can be all the way back to eight feet wide, then 10 foot, then 12 foot. In all cases, it's not in line with what most Americans want today. So room sizes are a drag. The general look of the homes is also a drag. So then what's the value of an old home? Well, the first thing is it's still giving you the same amount of rent as a brand new home and therefore any vacant lot that you put a home on, or that has a home on it is worth more than a vacant lot.

So really an old pre-HUD home is just a conduit to getting lot rent, because as park owners, that's where all the real money is. We just want to get that lot rent every month. We get the same lot rate whether the home is from 1960 or 2020. So that's the first thing they have value in. Another thing they have value in is that they just are in fact, for most people, the cheapest form of affordable housing. And really, that's what our industry is all about. We're trying to provide places for people to live that are far, far lower than competing in single family homes and apartments.

So if I sell a customer a 1999 home, or a 2019 home, they're going to have a fairly significant mortgage on that thing. But if I sell them a pre-HUD home, given the typical pre-head home prices in most parks, they're going to buy that thing for maybe a thousand dollars, maybe $500. It's going be very, very inexpensive. So they'll typically be paying just lot rent after making the purchase.

So should you put money in old homes to bring them back to life? Well, it all depends. Not all pre-HUD homes were meant to be brought back to life in fact. So what would make some homes work and some homes not? Well, the first thing you would say is what's the fore plan like? Is this really going to be large enough that someone will want to live here? If you're looking at an old 10 foot wide home, the answer is probably not.

When you take into account the hallway, those bedrooms will hardly hold a double-sized bed, and most Americans today demand at least a queen and really want a king. So the floor plans can be awkward. I've been in some that I could not even understand what the manufacturer was thinking of. Again, these were not all professionals.

I was in one once, which I don't know if you could get a Murphy bed in it. I've never really understood the concept. This guy had built the cabinets into the wall so the drawers pull out. And by the time you get done pulling the drawers out, you only had like three feet before you hit the wall. What is that for? Why would someone want to have in the master bedroom a twin sized bed? And then why would you give up all that floor space for some stupid built-in cabinets? So look carefully at the floor plan and decide, is this really saleable?

Now one nice thing about virtually all mobile homes is, particularly single wides, there's no load bearing interior walls. So sometimes you can actually move those walls around, but in many of the homes, typically the 10 foot wides, definitely the eight foot wides, there's nothing you can even do with interior walls to ever make that thing a place that someone would actually want to live in.

The next issue is how well maintained are the homes? If I'm going to bring it a pre-HUD home back to life, I've got to have a really nice beginning palette to work from. I need to have at least structural integrity. I've got to have the various tools and resources to make that into something someone is going to want to live in.

Now, if the house is well-maintained, no water allowed through the ceiling or any kind of leaking pipe or leaking hot water heater, then that might be worth bringing it back to life because all of the big costs you would have to do so are off the table.

Now you're just down to flooring, painting, minor items like that. But if the home has had significant structural issues, if the roof has been leaking for two decades, the floor will be rotted, might even be black mold in the home. As a result, I'm not going to do it. So how well is it maintained? That would be question number two.

Question number three is simply how big is the demand for affordable housing in your market? If the market has horribly high single family and apartment rents, it's more likely that people will be really, really desperate for anything they can get in into that's reasonably priced. You see that particularly in some places like Florida, Denver, Colorado, you'll find mobile homes that are really, really old. They're still rocking along simply because even though people don't really like the floor plan, don't like the layout, don't much like anything about it, they just can't afford to live in that market in any other manner.

So the third thing is simply a question of how big is the demand? If the demand is not that big, then that old HUD home is not going to get much love and attention, and no one's going to want to live in it. If you're in an area where single family home prices are $350,000, people will probably live happily in that old pre-HUD home, just because they're so desperate to have a nice place to live that they can afford.

Now, how do you budget for these old homes? So for all in agreement that old homes do serve a constructive purpose as a conduit for lot rent, and they do provide the cheapest form of affordable housing, and we found a home and that home has got a decent floor plan, and it's well-maintained and the demand for affordable housing is high, then how do I do that? How do I put that in the budget when I'm looking to buy the mobile home park?

Well, remember that typically those older homes will not sell for much of anything so you can't put a whole lot of money into them. So if you're looking at a pre-HUD home and it needs $6,000 of work, you'll be lucky if you ever got $6,000 out of it. So it's certainly not a profit center. Never estimate your homes to be a profit center. That's not the business we're in as partners. We're trying to make our money from the land not from the homes. So don't mistake them like that.

And also make sure you budget enough to make all the necessary repairs. You don't really know what all that home will need until you really get into it. Maybe you think you just need some paint and some flooring, and you'll soon find out it needs some wiring issues, it needs HVAC, it's got plumbing problems. So make sure you're adequately budget.

Most mobile homes cost about $4,000 to rehab. So that's the reality. Don't be putting a budget of $1,000 and hoping that you get lucky because you rarely get that lucky. So that's where you are budgeting the repairs. Now, what can I sell them for when I get all done? Well, again, as little as you possibly can. That's its strength. It's the cheapest form of affordable housing.

Yes, I know in some parts of Florida and California, I've seen old single-wide pre-HUDS for sale for 20 and 30 and $40,000. Those are very, very unique markets. If however, your park instead of in those markets is in another state, let's say you're in the state of Oklahoma, it's unlikely you're going to get big prices on that pre-HUD home. So just be very careful when you budget. Also be realistic on which ones you're going to save and which ones you're not.

If the park comes with a handful of older pre-HUD homes, there's no guarantee, particularly if they're empty, that you're going to want to bring them back to life. And it's also very possible that when people leave them, you're not going to want to bring them back to life once you do an interior inspection.

On that note, it's very important doing due diligence, you really adequately look at what's going on in those older homes, both inside and out. If I wanted to really focus my attention doing diligence on home quality, I want to see those pre-HUDS because their fate is hanging in the balance. If it's poorly maintained, if it's in poor condition, it's probably not going to be salvageable.

However, that 1980s home it will be because you know you can probably sell that, and if it's $10,000 or more, finance that through 21st mortgage. And those 1980s homes are workhorses very, very, well-built, typically way more than the new homes do, and more than likely you'll bring that back to life too.

But as you see, it really is all about pre-HUD homes in these parks. Those are the ones that you're never really sure what to do with. So do they all just fade away? No, they don't all fade away. Over time, they either die and get destroyed and removed from the property because you simply did not want to put the money back in them because of the floor plan, or the maintenance, or the desirability, and that market is from a pricing perspective, and others get brought back to life.

And in some of our parks, some of the nicest homes we have from the exterior are those pre-HUD homes. I can show you photographs that I carry around in my own smartphone of some of these amazing looking older homes we have in our properties, beautifully maintained, all the original architectural features, the shutters and the [inaudible 00:11:28] carports really, really nice places to live. Typically still with the original buyer [inaudible 00:11:34] the resident. So the homes can be wonderful in the end, you just have to approach them properly. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.