Mobile Home Park Mastery: Episode 204

Speeding Up The Acquisition Process With A Bucket List

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Finding the right mobile home park requires sifting through a huge number of deals, and separating them into two buckets: 1) has the right raw material and 2) does not have the right raw material. But what does that raw material look like. In this Mobile Home Park Mastery podcast we’re going to review what makes a deal possible apart from a deal impossible. Mastering this one skill will allow you to speed.

Episode 204: Speeding Up The Acquisition Process With A Bucket List Transcript

Buckets are a normal part of many American expressions, kick the bucket, get a basketball through the hoop, that's a bucket, bucket list. But here's a new one for you for mobile home park buyers, and that's having the ability to put any deal you look at it one of two buckets, a bucket that says might be a deal, and a bucket that says probably not a deal. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. We're going to be exploring the concept and that most basic skill of being able to quickly move any deal into one of those two buckets.

The best buyers in America are the ones who can look through the most volume. And for those who look through volume, what more important characteristic can there be than being able to spot on any deal quickly, whether it's worth spending time on or not? At the beginning of every deal that we look at, we need to be able to quickly realize if the characteristics would suggest we're wasting our time, and immediately ditch that into probably not ever going to work bucket. So how do you do that? How do you separate deals into those two buckets?

Well, let's talk first about the good bucket. What makes a deal seemingly a winner? Things like city water, city sewer, paved roads. But wait a minute, those are manmade objects. I can take any mobile home park with some capital and I can put in paved roads. And I may be able to convert that well water to city water if I can build a line long enough to reach the city. So those are all things that I can literally change. So many, many, many deals are going to fall into that good bucket, however, it's probably easier when you're trying to look at deals, leaving all creativity aside, to instead spot the things that make deals simply bad on the front end that I can't fix or that I can't easily fix, that the odds are certainly against me and getting those items corrected.

So let's focus for a minute therefore on what goes into the bad bucket. So when a deal crosses your desk, here are some of the things that would make you say, "Wait a minute, no, this deal is probably not going to work and I'm not going to waste any time on it." The first one is if the park itself is illegal. And I don't mean the city says you can't use the vacant lots because it's very possible again, legal is the property is legal non conforming or grandfathered. There's three tranches that every property is in, and we know this from a certificate of zoning, it's either legal, legal non conforming which means grandfathered, or illegal. I'm talking in this case about the third alternative strictly illegal, cases where there is no operating permit, or an expired special use permit.

Now, the problem with those type of deals are, you probably are never ever going to be able to resuscitate them. And you certainly can't spend legal costs to get the city to change their mind. And you certainly don't want to buy a deal with no exit strategy because you can't get a loan on it. And you can't sell it because in fact the park is illegal. How do you know if the park is illegal as opposed to one that is grandfathered with the city trying to take the position you can't use it? Well, again, it goes back to the certificate of zoning. We bought lots of properties that were legal non conforming with the city challenging the ability to go ahead and bring homes into lots. We typically get that resolved in due diligence when our municipal law reaches the city attorney. But we've never tried to take on a property that's completely illegal. Now, there are rare exceptions. Over the last 25 years I've seen at least one instance someone who took a park that appeared to be illegal, and was able to bring it back to life through great amount of legal cost and effort. That's a very, very low odds shot. And in that case, that person personally funded that adventure. If they had failed, they would have not only not had their deal, but additionally a gigantic leftover legal fee. So I would say a park that is illegal is probably going to go fairly immediately into the not ideal bucket.

Another one is density, extremely high density. I'm talking the kind of high density that means you can't fit modern homes onto the lots. Now we all know that the smallest two bedroom one bath you can buy is typically 14 feet wide and roughly about 46 feet long. So a lot that will not hold something of that stature you really can't use. But even if I downgrade that down a tad, because they do make these FEMA trailers that are only 12 feet wide, so I might say, "Well, I can't get the 14, I can get the 12." I'm talking what's even worse than that. There are parks out there that will only hold eight and 10 foot wide trailers. You see these in a lot of the really old parks. And the problem is there's nothing you can do with that. I can't get any mobile home to fit those kinds of lots. And even if I'm relegated down to FEMA trailers people don't like those very much.

Can I fix density? Yeah, you can fix density. But let's be honest, typically, to fix density, you're going to have to surrender a certain percentage of lots, possibly as much as 50%. The odds of mom and pop, which have this park, which is let's say occupied with 60 homes, allowing you to rerun the numbers based on 30 under the supposition that the density is too high, well, that's just going to be basically nearly impossible. And there's no way I'm going to buy a park that the fire marshal may shut down. Because don't forget, health and safety has a higher priority than your zoning rights. So if the fire marshal believes the park is dangerous, well, they can go ahead and just make you forcibly remove every other trailer, or even worse, shut the entire park down. So definitely cases of extreme high density have to go into that not ideal bucket.

 Another item would be a lagoon. Now there's all different ways of doing sewage. You have city sewage, you've got septic, you've got packaging plant. Packaging plant can be very, very expensive but still, there may be a methodology, a path in your deal to make that happen. But lagoon across America is considered something that most cities and states want to eliminate. It's a cesspool of human sewage. It's something that no health department wants to condone. Some states have been very active in removing them such as the state of Colorado, it's probably only a matter of time in our current very environment focused world that lagoons can exist. So as a result, if the park has a lagoon it's probably going to go into your not ideal bucket. Not always, there may be special exceptions. It may be that the city sewer line is right next to the property, and you can somehow then attach. But by and large, when you see a deal with a lagoon on it, again, that's probably going to go in you're not ideal bucket.

What about environmental contamination? Well, that's the easiest one. You're never going to buy a mobile home park that's on a landfill, you're never going to buy a mobile home park is somehow tied or next door to a Superfund site, which renders your property completely dangerous for anyone to be living on. So environmental contamination really of any type, good to go into the bad bucket. Not always. You may do that phase one, you may fail. We had a deal once in which we failed the phase one, because a former manager had called the EPA and made a tip that the property was, in fact, doing its own trash disposal with mom and pop with the backhoe there on the property. It was a complete lie. The person doing the phase one, they realized it was a lie. They came to us and said, "I think for a very small amount of money, we can do a couple corings to prove it's a lie and have it taken out the database." And we did that and the EPA set, "Oh, well the guy that called that in, he was quite a cad, he made up the whole thing," and they had it removed. But that was one in a billion shot.

Traditionally, if a mobile home park fails that phase one environmental, you're never going to spend the time or money to go to the phase two, or to the phase three because frankly, our kind of property just can't afford it. If you talk to environmental people, there are people who can afford it. A giant hospital that cost $300 million to build, they find a buried barrel of dry cleaning fluid, it costs a million to clean it, they're going to do it. Now the building costs $301 million and they move on. Our stuff just is not valuable enough to typically take those kinds of hits.

Another item is floodplain. Now we have a lot of parks that have some floodplain, most mobile home parks do. But there's different types of floodplain. Now when you have floodplain in a property, the key item that a bank is going to want to know is how many lots are impacted. Sure that makes sense. What is the BFE, which stands for base floodplain elevation, in other words how high does the water get? And then finally, are you in what's called the floodway? Floodway is the part of the water that actually has force and is tagging and yanking anything in its path. Now, if you have floodplain where you have a certain number of lots with a very small BFE, maybe one foot, and you're not in the flow way, but you're simply in the pooling water area what that means is in the event of flooding, the hot water will not get up to the floor of the mobile home. It'll just sit underneath the mobile home. Some of your skirting will wash out, then it will recede back, and you're fine. But in those cases of impossibly dangerous floodplain, something where 90% of the park is in a BFE of 10 feet high in the middle of the flow way, that's not going to work for you typically. And that's going to go in that no deal bucket.

A final one that traditionally has been somewhat one of the biggest ones, you can tell at first glance whether or not you should go with the good or the bad bucket, is your location. Now, all of real estate, as we all know, it's an overworked phrase, location, location, location. And that's true on mobile home parks as much as any other sector. But what makes our locations work or not isn't the same as many other portions of real estate. Now, to us, we want to be in a metro of roughly 100,000 people with a single family home price of $100,000 or more, and a three bedroom apartment rent of $1,000 or more at a market vacancy rate of about 12.2 or less, which is the US average. But not all deals offer that; they don't all have that same attribute. They may find rural deals, but rural deals may work in Colorado. So I don't think rural is always going to blow me out of the possible bucket.

The one that's really, really going to kill me is low home price. That is something I can't really fix. If you look at things in some parts of America, you'll see insanely low home prices. There are parts of Louisiana, parts of Mississippi, in which the single family homes are only like $35,000. And the apartment rents are only in the hundreds of dollars. And the problem is when everything is that poor and that cheap, nobody really needs affordable housing. Why would you want to live in a mobile home park, when you can go and buy a stick built home? So that's one of the big problems you have. And you can't really fix that. There's no amount of money that can fix it. So when you're looking at a deal, and you look it up on, and you put in the zip code and look at the stats, and you see that the home prices are insanely low, then more than likely it won't work. Also, if you see the home vacancy rate is also insanely high, that location may not pass muster.

Now, on super high vacancy bear in mind that coastal areas where people do a lot of part time living, those get punished in the stats. So let's not count those, but you'll spot those because they'll still have very high home prices. The bottom line of all this is you won't really be a good buyer until you can quickly sift through lots of deals, throw it on the table. Imagine that you're some kind of estate sale or a garage sale, you're looking for those few items that are really valuable, massively underpriced. You can only be an effective buyer when you're able to quickly analyze and size things up and put them into the "might be a deal" from "might not be a deal."

So everyone out there if you really want to be an effective and successful mobile home park buyer, the first thing you have to know is what you shouldn't buy. And also there's attributes that make things seem insanely strong as far as so if you would want to buy. We all need to get down to the very simple exercise of simply splitting all deals into one of two buckets. This is Frank Rolfe, Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.