Tough love. You hear that expression in the media all the time. It's when families make tough choices in order to help their loved ones out. Maybe it's someone who's got a drug addiction, and they put them in a addiction center to get them fixed. But it's a behavior, where on the front end, you don't get a lot of compliments, and maybe you don't even feel that good. But at the end, it's exactly what needed to be done.
This is Frank Rolfe, and on this edition of Mobile Home Park Mastery, we're going to start a three-part series on mobile home park owner morality. We're going to talk about the tough choices and the tough decisions that mobile home park owners have to make and how they can do that in a right and correct way to help not only their residents but the community at large.
Let's first start off with the simple fact that when you make people pay their rent every month, you actually are helping them stay in their home. Now, this is a topic that many people, initially, are going say, "No, that's not true. You're just making that up. You're just trying to basically justify making people pay their rent." But it's not entirely true.
Let me tell, when I had my first mobile home park, Glenhaven, I noticed a simple fact. There were people at Glenhaven who had fallen behind in their rent because the mom and pop owner had allowed them, when they couldn't make the rent on certain months, just to skip that month. He would tell them, "Oh, just pay the rent again when you can. Just pay me later."
So every nine, 10 months, they would slip another month behind. The next thing you know, several years in, they're five, six months behind in their rent. So what happens then? Well, of course, what happens typically is mom and pop wake up one day, and they get all mad when they see on their rent roll that that person hasn't paid rent in six months.
So then, they hard press them to pay it, and if they don't pay it, they evict them. And they're really sending a terrible trap for people because anyone who definitely has strain on their finances is going to fall behind if you let them and put themselves in a really bad position that they can't pull out of.
Most of our residents can easily pay our lot rent or even home rent each month because it's the lowest in the United States. We, in fact, are the only form of non-subsidized affordable housing in existence. So when you're paying a lot rent, which the U.S. average is $280 a month, if you've got a minimum wage job, $280 a month is still going to fall with about a 20% to 25% expense ratio of your gross revenue, which is right at line with the U.S. standards on housing.
So there's no reason they can't pay you, but of course, they've got other bills to pay, and if you don't press them to pay you, they will pay other bills instead. Maybe they'll go out to Applebee's. Maybe they'll go ahead and get to that new car that they wanted, which they really can't afford, but they're going stretch on.
But nevertheless, what you're doing is you're putting them in a terrible bind because now, when you let them fall one month behind in rent, that's a hill they can't overcome because now, even though they could pay you $280 a month, they can't pay you $560 in one lump. And if you let them fall four months behind, now they owe you over $1,000.
You may have seen the headline a while back that 70% of all Americans do not have even $1,000 in savings. So why in the world would you expect your residents in the mobile home park to? So basically when you let people fall behind in rent, what you're really effectively doing or saying is, "I'm going to go ahead and get you thrown out of your house at some point in the movie going forward."
And that's not a moral position to be putting people in. The right, tough love decision is to make them pay the rent each month so they do not fall behind because once they start falling behind, they will never be able to recover. The next thing you know, you will have people who are displaced from their home who could have been just fine, could have made the payments every month like clockwork, but you let them fall behind. And then one day, they get stuck in that trap, and they can't get out of it.
Maybe not while you own the park, but someday, you'll sell the park, and then the new owner won't be as forgiving as you were. And they'll say, "Hey, I noticed you're seven months behind in your rent." And even though it took them 10 years to get seven months behind, nevertheless, the damage has been done. They won't be able to come up with the seven months of rent all at one time. The next thing you know, they'll be evicted.
Now the next form of tough love that park owners do is making people keep their goods, their yard, their home, their car in a good condition, and that tough love really is to the benefit not only of them but of the community. You know, there's many people typically in that mobile home park household, and some of them are going to be a little ashamed if their home looks lower than the normal standard.
They're going to be a little ashamed if the yard is not mowed, and there's junk in the yard, and it's going to really damage their psyche. It's going to give them a confidence issue. And then on top to that, it damages all of the neighbors, everyone else on that block in that mobile home park.
Every day when they drive home, they have to see that mobile home which looks so bad, that home which needs paint, the deck which is falling off or the grass that's that's too high. And it depresses everyone. And then the greater community at large. They drive by that mobile home park. They see that home. Maybe it's the home that fronts on the street, and it looks terrible, and it depresses them and makes them feel bad.
So really, the correct tough love you have to do for the betterment of everyone, not only the resident and the mobile home park community, and then the greater community at large is you have to make people keep up their property. Just because they are lawn-mower broke, just because they're tired, just because it's a hundred degrees out, and they don't want to mow. That does not give them the right to do that to the rest of the community.
Everyone has to maintain a minimum standard. That's the only moral way to live in a modern society. And when you do not make people do that, you're really damaging everyone. So again, that's another form of mobile home park owner tough love is to make people keep up their property.
Now, this next one I know I'll get criticized on from many, many groups. There's a group out there called MHAction. It's a non-profit. It's hugely mis-guided. They view anyone in the world who tries to do anything with any form of capitalism as evil. But this is the truth. If you do not make the residents pay higher rent, continually higher rent, what you will have is ultimately them homeless because the park will be redeveloped.
I was just driving through a bunch of parks we own, and I saw one in Indiana that's being redeveloped. Used to be a landmark of a park. It's on a major street. Here it was about a hundred lots. There's about 10 homes left. They're tearing the whole thing down to make way from some new development. It's on a main commercial thoroughfare. I'm going to assume it's going to be a big box retailer of some time, a Home Depot or a Lowe's, something like that.
But if those folks had just paid higher rent, perhaps they would not have been displaced. Perhaps the property would have stayed on as a mobile home park, and that Lowe's or Home Depot might have gone down the street to develop. So what's really happening is when you do not keep your rents up to market, when you do not make that property as valuable as it can be, then, there are always other options for that land.
You know, land's an unusual thing. A piece of land can be on anything. It can be a piece of land or golf driving range, or it could be a mobile home park or an RV park or a self-storage facility or apartment complex, office building, retail center, high-rise hotel. It could be a cemetery. There's many different, competing uses for land, and they all have their own value and their own amount of net income.
And basically, in a free-market society like we live in, everything will rise to its highest and best use. So if you've got a piece of land that's on a commercial thoroughfare, sitting there, and you have a mobile home park on it, that mobile home park is charging a $200 rent when it could be charging $500 like all of its peers around the area, and you sit there at $200, here's what's going happen.
Your tenants will say, "Thank you. Thank you for keeping my rent so incredibly low," not realizing the sad ending because one day, what will happen is that owner or someone who buys it from that owner will realize that that piece of land could be worth far more if it was scraped and made into another use. In many of the markets we serve, the apartment complexes are roughly $1,000 a month more than our mobile home park lot rents.
Austin, for example, has a typical lot rent of $400 to $500 but an average apartment rent of $1,500 plus. So what it means is the number one danger to most mobile home parks today are apartment complexes. You can just take that good old mobile home park, scrape it, put back in an apartment complex, and you can enjoy rents $1,000 a month per unit higher than what you were getting.
And that's going to give you a far higher return based on any form of return on investment than that mobile home park was producing. And so what it means is it's just a matter of time before it gets the wrecking ball. The only way you're going to keep parks in operation going forward, whether it's 10 years out, 50 years out or 100 years out, is to make those rents as high as economically feasible because that is the only chance you have in an ever-developing world.
Remember that most of these cities are gaining population each year, maybe not a lot, maybe 2%, 3%, or in some cities, it's 10% and 20%, and I've seen things on bestplaces.net as high as 100% a year growth rate in some very fast growing smaller markets.
When you have populations that are growing, and America is, of course, always growing, you have greater pressure on the land. They need new housing starts, new restaurants, new lodging, all kinds of items, and land is constantly being looked at by many sources, brokers, buyers.
They're all looking at all that different land out there because they're going to build their new development, and what can they buy that's the least expensive? And, of course, the least expensive is going to be the land that creates the least income since that land is valued based on an income stream normally.
So if your mobile park is sitting there, and your rents are very, very low, then on that whole, big spectrum of possible pieces of land for the developer to buy, you will be number one. So once again, if you do not keep pushing rents, if you do not allow rents to be where they economically should be, the end result is not going to be happy tenants who say, "Oh, gosh. I have low rent."
It will be tenants who get notices in the mail saying, "I'm sorry, we're redeveloping this mobile home park, and now, you must move." So the tough love answer is to keep your rents high, and make that property as high income producing as it can because that is what will keep it as a mobile home park going forward.
Next form of trailer park tough love is making people live by the rules of society. Now, we all live together in one giant society. We're not only Americans, but we're also people in our own, smaller subsets of communities and states. And we all live by rules, and we have those rules because we all need to be able to live happily together.
It's not going to work as a society if people are able to do things which diminish the quality of life of the people around them. For example, if you like large dogs, and you've got a large pit bull, let's say, or a Rottweiler, and even though you may love that dog, that may be scare the heck out of all of your neighbors. You can't let that dog free roam. There's no city in America that would allow you to let that dog free roam. It's got to be on a leash, or it's got to be in a fenced yard.
Why is that? It's because you are, even though you like the dog, you are diminishing the quality of life of those around you if you let it run wild and terrorize people. So what does it all mean? It means we all have to live by rules.
Now, we have, of course, federal laws. We have state laws, and every county has its own regulations, and most cities do as well. And the mobile home park, it also has its own rules, and the tough love is you have to make people live by those rules. Those rules are designed for their betterment. They may not like it. They may say, "Gosh, I want to have that wild party at 3 o'clock in the morning. Why can't I? It sounds like so much fun."
Well, the reason you can't is that loud party at 3 in the morning will wake up all of your neighbors. It'll hurt their sleep pattern. It'll make them grouchy the next day, make them very unhappy. It's not fair to everyone. So the tough love is you have to make people live by rules.
Now, that being said, you don't have to go crazy on the rules. I know a park owner, and what he does is he goes out and measures your car tire. And if your car tire is more than a few inches off of your parking pad, he will have your car towed. Now, that's too much rules. Those rules are not benefiting anyone. I'm not even sure how they're benefiting the park owner.
But most of us have to live within boundaries. You cannot have a society that works when there is a complete absence of boundaries. So the only moral thing you can do for the betterment of everyone in your mobile home park and the greater society out there is to make people abide by the rules. It's absolutely essential. It's the only moral thing to do.
So even though the residents may be unhappy, and they may say, "Oh, I don't want to live by your rules. I hate you. You always have all these rules that impinge on what I want to do with my life," you have to ignore that. You have to look through that because that's not the moral choice. The moral choice is to do what's right, what's right for the resident, the community at large, and that is people have to live within boundaries. They have to live within guidelines, and they have to live by the rules.
Again, this is Frank Rolfe with another Mobile Home Park Mastery podcast series. We're doing a three-part series called Mobile Home Park Owner Morality, so I hope to talk to you again next week, where we're going to talk all about waste, the morals of waste in mobile home parks and how to end the waste. So again, this is Frank Rolfe, and we'll talk to you again soon.