If you want the smallest rate of delinquency, which states would you buy in? What about what areas have the most litigious residents? In this final installment of our five-part series on “Lessons Learned From Our Residents”, we’re going to review the unique attributes of our customers on a macro scale, both regionally and by state. It’s an interesting narrative on how large and diverse America is, and how mobile home parks throughout the U.S. have different challenges and opportunities based on where they are located.
Episode 33: Regional Differences In Our Resident Base Transcript
USA stands for United States of America. That's right, we're a collection of states, and not all of those states behave identically when it comes to mobile home parks. In this fifth of our five-part series on Lessons Learned from our Residents, we're gonna examine some of the state and regional differences we've found over the last two decades regarding the inhabitants in mobile home parks and how they kind of behave differently based on what state or region that you're in.
Now the first thing I wanted to talk about, and this is a horrible, horrible macro overview, but that's the whole concept of the stigma of mobile home parks. There's a certain point in America, as you progress from south or north, where a lot of that negative stigma just simply goes away. I know it goes away in my state of Missouri. I'm not really sure how far south from Missouri though it still contends down to. I don't think maybe it's even into Arkansas per se.
So what is this line of demarcation, what's going on? Well, none of us really know, but as you go north through America, you'll find that the northern states and the middle states and the midwestern states, they simply don't have that same negative stigma against mobile home parks as a lot of the more southern areas share.
Now one possible reason for this is as you go into the Midwest, you have more of an agricultural background, and a lot of farmers and very well-off people buy mobile homes to put on their farms and ranches. So it's very possible that part of it is simply that culturally there never really was a deep negative karma against mobile homes because a lot of people who own them are fairly well off. Or possibly it's because it's very common in the midwest and the northern states for seniors to downsize. They reach retirement, they sell their brick home and move into a mobile home, which they typically buy for cash.
So once again, perhaps that reduced the stigma down, but all I know, as you go north in America, that stigma goes away. Now because it goes away, you get a different type of customer as you go north. You get people who are not turned off the idea of living in mobile home parks because they don't have to face the shame of their friends, who say, "Ah, well, you must be trailer trash living in that there trailer park." So instead, you start attracting people in other careers who also earn a little bit more. In a lot of our northern parks, we have people who are tellers at Wells Fargo Bank, we have police officers, we have all kinds of people that typically you don't see necessarily in mobile parks to the south.
And as a result, as you'll see in a second, it has certain ramifications, so that's the first regional difference I want to talk about, is simply this kind of negative stigma against the industry line. Now some say that line matches the Mason-Dixon line. Is that true? I don't know, I'm not really sure exactly where the Mason-Dixon line even. All I know is that, as you go into the midwest, as you go north, you're going to find the stigma goes away. And that's why when you look at mobile home parks in states like Wisconsin and Minnesota, they often look so very different. I was in one of our parks in Wisconsin recently, I noticed there was a home for sale and in the yard was a sign from Berkshire Hathaway. A Berkshire Hathaway realtor had the home listed for sale. You typically don't see that kind of thing in many of the southern states, so again, often in the northern part of America and in the midwestern part, mobile homes are treated a little different , and I think that's fantastic that that occurs.
The next item is that the northern states particularly are known to have very, very high levels of collections. It's not uncommon in a mobile home park in states like Wisconsin and Minnesota to have perfect collections, month after month. So why do they pay their bills so well? Again, I don't know. Maybe it again ties back to that stigma issue, and you get a lot of people who have a little more disposable income living in the parks in those northern states. Maybe it's because you have seemingly a lot of seniors living in parks in the northern states. And once again, they've got a little more disposable income, a little more savings set aside for a rainy day, and they're just more capable of paying rent.
I spoke at a Wisconsin mobile home association event here about two years ago and, at the end of my speech, I said, "Are there any questions?" And someone raised their hand, and I said, "What is your question?" He said, "Well, how do I get this final holdout to pay their rent online?" Think how outstanding that would be. This was a park of about 100 lots and 99 of those 100 all paid their rent online. Unbelievable. We would never see that in many of the parks to the south, so once again, northern states are a little bit better on paying rent.
Also, in the midwestern, in the northern, and the western states, you see greater pride of ownership. Now I'm not really sure in some cases if that's the pride of ownership that I'm seeing, or the fact there's just seemingly better landscaping, thanks to a lot more rain and just general looks to some of those markets, and they just apparently look better. I know if you go in a typical mobile home park in Minnesota, for example, you will always see all kinds of really beautiful evergreen trees. Now is the evergreen tree really a part of that tenant's pride of ownership, or is that just sheer random luck that it grows there because it has sufficient rain and temperature. Not really sure, but I do know that if you are out looking for the best looking parts in America, you typically will find those in the western states, the midwestern states and the northern states, they just simply display greater prides of ownership.
Again it may tie back to the fact that possibly there's little bit different customer as you go to the north, possibly it's the fact that the home prices are so much higher in the western states, so again you track a little different customer in those states. I'm not sure, but I do know, if you look at photographs in mobile home parks in the midwest and the northern states and the western states, you'll see one thing they typically all share in common. They just aesthetically look a little bit better.
Now up to bat next is the most troubled state in America for mobile home park owners and operators legally and that would have to go to California. Now there's two things that make California mobile home park ownership difficult, the first is the eviction process. Whereas in the states that we are in, in the great plains and the midwest, we are able to typically get a customer evicted within 30 to 60 days of when they decide not pay us rent. But in California, that timetable can expand greatly, up to sometimes a year or two years in length. That's a really long time. Imagine if you have somebody that hasn't paid you rent, and yet continues to live there for another year or two while you try to evict them, that's a tremendous amount of rent lost. That's why so many California operators typically go immediately a cash-for-keys program. They try and buy those homes or buy the customer to leave early, just to avoid the incredible pain and suffering of those lengthy eviction processes.
The other issue in California is this crazy law called failure to maintain. If you goggle it up, you'll see it right there in the flesh. Poor ole' Sam Zell had to contend with it. He lost a $100 million judgment to some park residents who filed kind of a crazy case against him, saying he was not maintaining the park up to standards that were, therefore, resulting in damage to their property values. And the things they had against ELS, Sam Zell's company, were so trivial. For example, there was some kind of algae, just a little mild bit of algae growing in the fountain at the front of the park. In most parts of America, people would celebrate you have a fountain at the front of the park. But in California, these residents banded together to say that a little bit of algae was causing them to have great grief and loss of quality of life.
California is the only state that has, to my knowledge, the failure to maintain law and it's a complete mess. I had a call from a park owner, not too long ago, that had residents who were deliberately sabotaging the park in their attempt to file a failure to maintain action. Even though the park owner was doing their best to always to keep the park perfect, people were going around at night and doing everything possible to deface the park so they could file a class action failure to maintain case. Now maybe that'll be diminished a little bit because it didn't work out for the residents originally as planned on the ELS case. Even though they won a $100 million judgment, it was of course reversed in a higher court and ELS ended up settling that for around $10 million. So possibly people in California will kind of back off because there isn't as much big money at stake now as there might have been. But nevertheless, when it comes to legal problems for park owners, I think typically California takes the cake. I'm not sure of any other state that shares their evictions and their failure to maintain woes.
Up to bat next is the demographics of having Hispanics in your market. Often parks that are predominantly Hispanic are some of the best mobile home parks in the US. Residents really care about the property, pay their rent on time, and where do you find this demographic? Well, typically you'll find that in the south and in the west, and that's why there's so many great looking mobile home parks in those areas is because you have residents who are very much devoted to trying to create a high quality of life through habitually working and improving on their property. I've taken photographs of mobile homes in predominantly Hispanic mobile home parks that look better than new ones. They're basically old flat roof mobile homes, from the 60's and the 70's, that people have gone in to rehab to such a high level, they should be on the cover of Architectural Digest.
Often what happens in Texas, how parks go from being not so good to being much better, is you have a changeover of the resident base from non-Hispanic to Hispanic and, as a result, the pride of ownership grows dramatically, and slowly a property that wasn't that great looking only years earlier suddenly becomes a small oasis.
That's what happened to my very first park, Glenhaven, down in Dallas. When I bought Glenhaven, it was just a complete mess. It's well documented and well chronicled in all my early books. However, as it transitioned into more of a Hispanic demographic, it became so nice, people landscaping, improving their homes. Ultimately, the park became a very easy to manage property and a real dream of a property to own and operate. So in the southern parts and in the western parts of America you have this potential. There's many, many states in the US which have a very, very low level of Hispanic demographic, so all these wonderful things won't happen there. Bf you have a park in the south or a park in the west, you have that magical potential.
Next, a market that's completely misunderstood, and that would have to be the southeast. When I got into the mobile home park business, all I heard from people is never buy in Louisiana, Mississippi, Alabama and Georgia. Why did they say that? Well, back then people thought those markets simply did not have enough economic power to be a successful investment, however, times have certainly changed. I would particularly take note with the state of Alabama and the state of Georgia.
Alabama, particularly, has done a phenomenal job in attracting the automotive industry. You have large plants for BMW and others and the median home prices are well above $100,000 in the larger markets, with the apartments well above $1,000 a month. You have very good levels of job growth, very low levels of unemployment, very low levels of vacant housing. You would never have thought about this only a few years ago, but really the entire region has completely transitioned. If you'll google up, you'll see there's many, many articles on the fact that you've got a lot of economic vitality now happening in the southern states. Some people chalk that up to the fact that, as the rest of America became very expensive, the southern states didn't follow that same path. Today's employers are attracted to these areas because they can buy land relatively inexpensively, their workers can get housing relatively inexpensively, and also the workers themselves, their h ourly wage is very, very reasonable. So again, I think you'll see a lot more power in the southeast in the years to come.
So, what does it mean? It means if you're looking to buy a mobile home park, it might not be too bad a concept to buy something in the southeast, in a good market, and not in a rural area. You've gotta follow all the regular principles of trying to be in a metro of 100,000 and up, with home prices of $100,000 and up, and average apartments of $1,000 and up. But if you can find those pieces there in the southeast, maybe this is your time to strike because I really think that, over time, you'll see nothing but positive gains in those markets.
So, in conclusion, what do we have? Well, we have a nation that is a little bit like Europe. We're really like a bunch of different countries, but we call them states. They all have their own different macro and micro differences. There are regional differences and differences between states. They have their own certain pluses, their own certain minuses, and it's very important, as you look for mobile home parks to purchase, that you always acknowledge the fact that America is not all identical. There are certain states, different regions, that all show different characteristics, some of them better for investing, some of them not as good. But what's important is you acknowledge these changes, you watch for these characteristics, and you be very mindful of them when it comes time to put that park under contract and, ultimately, write that check at closing.
Again, this is Frank Rolfe, of Mobile Home Park Mastery Podcast series. I hope you enjoyed this fifth in our five-part podcast series called Lessons Learned from our Residents, and we'll be back again soon with another podcast.