We all associate age with wisdom, and rightfully so. Nobody knows more about any subject than those that have experienced it – particularly through many cycles. And I am forever indebted to those older mobile home park community owners who gave me words of wisdom in my early career, and still do so for new investors on a regular basis. So what is some of this old-timer wisdom? In this episode of the Mobile Home Park Mastery podcast we’re going to review some of the best thoughts of experienced owners and how they relate to today’s mobile home park industry.
Episode 156: Old-Timer Wisdom Transcript
We all equate age with wisdom and why not? Because certainly we equate age with experience and experience leads to wisdom. This is Frank Rolfe with the Mobile Home Park Mastery podcast series. We're going to be talking about old timer wisdom in the mobile home park industry, all the things that I've been told over the years by folks who were in the industry long before me and made complete sense to me then as they do today. The first item I was told when I first got in the business by smart people who were then in the industry was that you should focus everything on the land and nothing on the homes.
Now, what does that mean exactly? Well, it means you want to be in the land rental business, not in the home rental business. If you go back through American history, all the way back to John Jacob Astor, the first American real estate millionaire, that was his theory. Astor owned a huge part of what is now Manhattan, but he never wanted to build and rent structures. He only wanted to rent land. That's all he did. So if you wanted to build a house, if you wanted to build a store on Astor's land, he wouldn't sell you the land, but he would rent you the land and you could then build the structure on a long-term lease because he just didn't want to get involved in anything but the land.
Mobile home parks are the most pure form of land rental. We are basically a parking lot, nothing more. Just like the parking lot downtown or the one at the airport you park cars on, well we allow people to park their trailers on, which are defined in all states as personal property, just like a car. So we just want to be a parking lot. Now, why do we want to be a parking lot? Why not expand from that one business model? Hey, let's bring in homes or rent those out as a way to make money. The reason is, there's not that much money to be made. If your lot rent is actually at market, the spread between your lot rent and the home rental is not going to be a big profit center.
And on top of that, your lenders want nothing to do with it, and since everyone buys mobile home parks, not with cash but using debt, we have to go with what the lenders want and the lenders want just a pure land play. So the first bit of wisdom that I was told, which I would tell anyone today is, focus on the land. Don't get in the home business, just being the land rental business.
Next one is that less than 10% of residents actually use the amenities, and it's not that important. Back when I first got in the industry, I was obsessed with these large mobile home parks that were amenity-rich. They had swimming pools, they had clubhouses. I thought, "That's what you need to be doing. I shouldn't be messing in these parks that don't have those big amenities," but then I learned those old timers were completely correct.
First time I had a mobile home park with a pool on it, what did I notice? Nobody ever used it, and the few people who used it were just repetitive. It was the same people over and over again. Maybe 10 people, 20 people, and just to please those 10 or 20 people, we were putting out huge amounts of capital in maintaining that pool. So today, if you don't have an amenity, if you don't have a pool, if you don't have a clubhouse, don't be upset. Nobody really cares.
Now, we've been trying to add amenities on that more people could use. We found that the actual amenities people want are not swimming pools. People like to have picnic tables, pavilions, outdoor grills. These are the things that people of all ages can all enjoy and they can enjoy year-around. A pool is only good for a few months of the year, but outdoor dining, outdoor gatherings, that can happen all year round.
Now, Charles Becker, an economist at Duke University, in fact supported this idea. He wrote a paper once on the importance of amenities on mobile home parks, and what did he find? Virtually zero. He looked at the correlation between amenities and park pricing and amenities and park occupancy, couldn't find any scientific reason to think the amenities were that important, and he in fact was completely correct.
Third one, nobody cares about the roads except the lenders. This is something I was also told early on by people who really knew what they were talking about. They were totally correct. Your residents could care less whether your road is concrete, asphalt, road base, gravel. All they care about are potholes. As long as there's no potholes in the roads, they're happy. So why do we go, why do we strive to put in expensive road systems?
Well, once again, it's based on what lenders want. Lenders like asphalt. Lenders like concrete. We want to please the lender. The lender is the one who's backstopping our purchase. They're providing the mortgage on it, but it's not a resident issue. If the lender is happy with that road being road base, well leave it road base. You won't get any more rent by paving it. You won't get anyone who's more excited to move in by paving it because basically the customers don't much care about the road's surfacing. All they care about is that the road be free of potholes. They find that very jarring and very irritating.
Another great line from an old timer, I had someone once say to me, "It's easier to change people than to change people." How exactly correct they were. What they referred to is that basically with a mobile home park, you do not have the ability, the luxury of retraining your sole manager. If that manager's not working out, you have no choice but to replace them. It's not like IBM where someone has a substance abuse. They can put them through, I don't know, some type of IBM substance abuse training program. No, in this case, we can't afford that. You only have, typically in a mobile home park, one employee, the manager.
So is it easy to change the manager's behavior? No, it's very difficult to change someone's behavior, but at the same time, that behavior may destroy your investment in no time flat, so there's this sense of urgency. If someone isn't working out, you need to replace them. That's all that it meant, but it's a very, very clever saying to always remember, because if your park is not working properly, if it's not running all eight cylinders, the answer is probably you need to change out your manager.
Another old timer concept that was given to me is that old homes never die. It's basically all in the presentation. I used to, at one time, thought that the future of the mobile home park industry was we take all these old homes and we destroy them all and replace them with new ones. Why not? That's what all the retailers would tell you. That's what all the dealers told you. That's what all the brochures said back in the day. Just like an automobile, you need to change out your mobile home every so many years to the newer model, but it's not true, and it makes no sense for the customer.
Those old homes are basically just like any other form of dwelling. They're made of lumber, metal, resins, only their sheathed in metal. They're not going to rot. They're not going to wear out. That's all just a myth. We have park... In our parks, we have some homes in there that date all the way back to the 1950s and they still look great. It's all in how you maintain them. You need to keep them painted. You need to keep the shutters on there. You need to keep them well-skirted. You need to have pride of ownership. As long as you have those characteristics, there's nothing that says you have to remove a home after a certain age.
I can take you in some of our properties and show you that the best-looking homes and some of them are the old ones and not the new ones. Wouldn't make much sense to anybody, but it's completely true. If I have a homeowner with an older home who keeps that in good condition next door to a brand new home with a resident who has no pride of ownership, the older home looks so much better, and there isn't like there's any kind of time clock on them. I don't think that a mobile home from the 1960s has to be replaced by 2060 or 2160. Why? Because as long as they're well-maintained, why would they?
Do you think your house has to be replaced or torn down after a certain age? Probably not, so old homes are just fine. Just make sure that they are properly maintained and they can certainly get along happily with newer homes as neighbors. Another problem is, or another thought, another old timer wisdom is, you always want to amiably resolve everything in the mobile home park. You never want to go to court. Just solve things. Let's assume that you have a tree and a tree limb falls out of the tree and hits somebody's car.
Now, you have damage to the car. The customer has insurance, so they've got the car insured for repair, but yet they've got a deductible. Now, the way it works with trees and tree limbs is, if the tree limb is dead, it's your fault as the owner, but if the tree limb is live, it's called an act of God, which falls back on the resident's own insurance. However, let's be reasonable. If the limb is big and it's questionable, sometimes these tree limbs can kind of go either way. They can be half alive and half dead, so when the tree limb hits, you don't really want to get into an endless dispute with the resonant if there's some possibility that the limb in fact was dead or partially dead.
It's easier just to pay the deductible, and you'll find over and over again with mobile home parks, it's always simplest just to solve. Don't get at odds with the resident. That doesn't do anyone any good. So whenever you have an issue with a resident, try and solve it amiably. You don't want to have an unhappy customer, not ever. It's bad business, so instead do good business. Try and always mediate them to a happy ending.
Remember the mobile home park business was built and is built today on the concept of a win-win. Every transaction only has a successful ending when the buyer and seller are both happy at closing. Take that win-win attitude and apply that to your residence as well. It's not the mark of a good business person to have constant struggles with residents. Yes, maybe you can outspend them on lawyer bills, but why do that? It doesn't benefit anyone but the lawyers, certainly will not benefit your business. So always try and amiably resolve them to the best of your ability.
Finally, don't forget that they are... Hold on. [inaudible 00:11:11], you have to edit this. Hold on a second. I [inaudible 00:11:14] writing. Oh, here we go. Finally, never forget what an old timer told me that when you see something that you like, just copy it. Don't be a pioneer. Pioneers get killed. It's true. Across America's West, people used to get on wagon trains and go out seeking some kind of new goods, some kind of new service, some way to make their fortune, but often, those same pioneers died of disease and violence. No reason to do that in our industry.
Everything you ever want to know is already there before you. All you have to do is find one that you like and exactly copy what they're doing, so what am I talking about here? Well, let's say for example that you've got a home, a park-owned home, and you need to paint it and you don't know what color to paint it. Well, the best place to get the color is to go down to the local dealership. Find a mobile home there that you really like the way it looks and just copy it verbatim, both exterior color and the shutters, or let's say that you need to get new signage for your mobile home park, should you dream up your own kind? No. Just find another property, doesn't have to be a mobile home park, might be an apartment complex. You really like that sign and just copy it exactly.
Even your park, from one end to the other, if you see a mobile home park and you really like the entrance, like the way the fence is done and the flags and the whole thing, or you just like inside, the way they've treated some kind of repetitive feature, like coach lights or fence, just copy it. You don't have to reinvent the wheel. There's no additional points given in our industry for creativity, so whenever you're trying to do something, just model it after something that you already know is a proven winner.
It's very, very expensive to make mistakes in that arena. If I go out and paint that home and hate the color, I'm at $500. If I put a sign in, and I don't end up liking the sign, about $2,000. There's no benefit to that. Don't be a pioneer on anything. Everything you need to know about mobile home park investing is already laid out clearly before you. Just find the ones that you like, the things that you think are superior and copy them verbatim.
This is Frank Rolfe with the Mobile Home Park Mastery podcast series. Hope you enjoyed this concept on old timer wisdom, and we'll talk again soon.