Mobile home park owners are in a tough position, as we have to wear two hats: both that of an investor as well as a mayor of a town in which the quality of life for the residents is paramount. So how do you strike a healthy balance between these two interests? In this edition of the Mobile Home Park Mastery podcast series we’re going to review strategies to navigate these conflicting interests and forge a healthy balance between making money and making customers happy.
Episode 123: Striking a Healthy Balance Between Resident and Owner Interests Transcript
Wikipedia defines balance as a condition in which different elements are equal or in the correct proportions. Balance is great. We all desire a healthy balance in our lifestyle, but can you have a healthy balance in a Mobile Home Park?
This is Frank Rolfe, The Mobile Home Park Mastery podcast series. We're going to be talking about striking a healthy balance between the residents and the owner's interesting in a Mobile Home Park. Let's first start off with that thing known as the "cage fight" of capitalism and socialism. It seems to be where everyone puts all their thoughts today. You're in either one camp or the other.
You're either trying to make money, or you're trying to save humanity. But let's go to a more important topic for starters, and that's basically morality. That's the one thing no one ever talks about anymore. You're a capitalist, you're a socialist, whatever the case may be, but where's the morality in any of that? What is morality?
Morality to me means providing a fair product at a fair price. That's what makes you sleep well at night. That's the key issue. I don't care what camp you are: Republican, Democrat. I don't care what country you're from. I think we would all agree that to sleep soundly, to feel good about ourselves and good about what we do would require providing a fair product at a fair price.
That means not gauging your Mobile Home Park residents, but it also means do not be gauged by your residents. It goes both directions, which we'll come to in a minute. Let's first start off, well where do the paths, where do the interests between the park owners and the residents not cross? Where are they never at issue? The first one is building the sense of community.
This is a very important theme for most every community owner right now, is trying to take advantage of that most important asset that every park has, that most important amenity, and that is what's called sense of community, people wanting to live in your property, taking care of their property, taking care of each other.
How do you do that? You do that by creating gathering spaces, places for people to build relationships, having immaculate common areas, making people proud to live there. That's how you do that. Are we ever at odds between owners and residents on this? No, everyone agrees, "Let's do that. Let's take that empty part of the clubhouse and make it into a nice meeting area. Take that little green space that's doing nothing for anyone, and let's install picnic tables and grills, and maybe a pavilion, maybe a basketball court." We're all in agreement on that.
Same with improving appearance, from the entry, to the common areas, to the residents adhering to their rules, making sure their property looks good, having pride of ownership. We're all in agreement on that. I've never met a resident who ever said, "Gosh, I wish this park looked worse. Gosh, I wish my neighbor's home looked terrible." No, you never hear that, so we're definitely not at odds on that either.
What about the manager being fair and responsible? Again, we're all in agreement: both the owner and the residents want a manager that steps in and gives everyone the same fair treatment, that understands the laws, that understands the rules of a civilized society, people who are professional in what they do, who treat customers with respect. That's what people want. That's what residents want. That's what owners want. Once again, we're not in any conflict at all.
If we just have no conflict, then where do our paths actually cross? Well, they all cross on one issue: rent, and most particularly, lot rents. For some reason, home rents never really get into the story much, although perhaps they should. It seems to be all about the lot rents. That's where we definitely get at odds with each other, or at least that's what we're told by the media that we're at odds with each other.
Basically, it's true. The owner of a property would definitely always want to higher rent, while the resident would always want a lower rent. I can't help that. That is just the natural force of nature. But let's examine that a little further, because there're some things that the resident and the owner would agree about, even as far as rents or potentially raising rents.
The first item is, the rents must be high enough to keep the park a park, to keep the wrecking ball from coming in and demolishing the park, and making it into another use. If you don't think that that's a definite possibility, you must not drive around too much. You must not read the paper too much. You must not look at the Internet and news too much. It's been a very large number of very important Mobile Home Parks, who have been redeveloped over the last half a decade or so.
Every time one of those parks comes down, every time they go in and clear the land and put in the Home Depot, or more likely the apartment complex, that seems to be the number one thing people do with Mobile Home Parks, you have to then wonder, "What rent would have kept it a Mobile Home Park?" That's the key item. If the rents had been just $75.00 higher, could it have stayed a Mobile Home Park?
The answer might be yes. It might be if the rents had only been a little higher, it would have been worth more as a Mobile Home Park than as a raw piece of land for redevelopment. I think since residents don't want to lose their home, they would agree, "Hey, let's keep the rents high enough to keep it at a Mobile Home Park." Okay, I think we're on to something. That's important. So, we're all in agreement here, let's make sure the rents can keep the Mobile Home Park looking attractive enough that it will stay a Mobile Home Park.
Number two, let's also keep the rents high enough to keep all of the infrastructure in good working order. Everyone wants streets without potholes. We want water and sewer that's running flawlessly, power that's going seamlessly. We want everything mowed well, the clubhouse painted. We want all these many things, both owners and residents. You can only get CapEx put back in the property, when the property justifies the CapEx.
If it's a Mobile Home Park that can barely cover it's bills with the current lot rent, there's certainly no change anyone will ever inject more capital into it. As we all know, it's a very important narrative in America today of bringing old Mobile Home Parks back to life. That requires money. That requires capital. If we all assume that we want to have a nice place to live, if we all assume that we want to keep that old Mobile Home Park in good order, or want to bring it back to life, want to make it good forever, then we must all be in agreement, the rents must be high enough to allow for that CapEx.
Okay, well we're in agreement yet again. But let's go to another issue. Let's all agree the rents have to be high enough that we can hire and retain a good manager. Managers do not work for free. In many of these older Mobile Home Parks that people buy, the manager is typically a resident who may or may even be getting compensated. I've seen some properties where the manager actually literally works for free, try and keep the property from getting to worser order.
How strange would that be? How weird would it be having a voluntary manager? But I've seen it, and it's never a good idea. A volunteer manager will have favorites among residents. They won't know what they're doing. They're not properly supervised. So, that doesn't work. I think we'd all agree the rents need to be high enough to allow for a good manager.
There's three things we can all agree on, but now where do we get at odds then? Once again, we've been in agreement on everything, it seems so far, so what then happens? Well, it all boils down to the fact that people must accept the simple fact that Mobile Home Parks are a business. We are not a nonprofit.
Now, can you name me any other industry that has to explain that it's a business? How in the world did America get confused on Mobile Home Parks and the fact that we're not a nonprofit? I think there's several reasons why. First off, mom-and-pop quantitative easing, that terrible disease that began decades ago where mom-and-pops did not keep the lot rents up. They left them ridiculously low.
How low? Well, let's just take a simple bit of math that Charles Becker, the Duke Economist, pointed out to me. If you take the lot rent when the parks are typically built back in the 60s, which back then was about $50.00 a month, and bring that up to modern dollars, it's about $500.00 a month. Yet, the US average lot rent is only $280.00 a month.
So, mom-and-pop clearly did not even keep their lot rents in line with inflation. As a result, many of the residents began to feel that Mobile Home Parks really weren't about the money. They were just about mom-and-pop, and just trying to provide them a place for free. So, they're a family member with no possible sensibility about making money.
But that's crazy. No business works like that. There must be some other mom-and-pop businesses out there that equally don't make any money, but I've never heard of that at a macro level. I think that started the origins of the idea that Mobile Home Parks are a nonprofit business.
The next one is, this assumption that everything in housing is subsidized. Yeah, look at that apartment complex down the street. You can live there on Section Eight for just a portion of your income. Have no income? No problem, don't pay anything. How is that possible? Well, the apartments are subsidized by the US tax payers. So, everyone listening to this is probably kicking in a little bit of their money every month to support that subsidized housing.
But Mobile Home Parks are not subsidized. We don't have that. We get washed into that same mold with the apartment, but yet we don't get any subsidies. That's not really a very picture, I think. Also, the media always wants to empower this concept that it's wrong or evil of Mobile Home Park owners to be a business. They demand, "Why raise rents? Why can't you lower them? Why? Why do they pick just on us? Why are we the only industry in America that has the media pressing us to try and explain why we're a business?"
I've never seen it before. Never may see it again in American history. The bottom line is, that park owners do in fact control the shots. They own the property. It's their property, and if they want to have it as a business, it's okay to be a business. There's nothing wrong with being a business in America today. I know we don't hear a lot about it. I know there's a lot of media frenzy on why it's a terrible thing, but it's not true. It is okay.
At the same point, what people don't realize is that even though Mobile Home Parks are a business, that owners want to keep the rents reasonable. It's hard for me to get anyone to understand this, but let me give you some reasons why, and they're all good business reasons.
Mobile Home Park owners don't like residents to leave. They don't want them to ever leave. When a resident leaves, it's very, very expensive. When they leave, you have to clear the lot, bring in a home, sell or rent the home to get that lot rent started yet again. We don't want to lose anyone. As a result, one of our goals is not to lose anyone. So, we're not going to push the rents to unreasonable levels because we don't want to lose any customers.
2. Park Owners Do Not Want to be Raided
What raiding is in a Mobile Home Park is when another park goes to your residents and tries to steal them out of your park to take them over to the competitor's park. Typically, raiding happens when you have that one park that's rents are way higher than everybody else, where they're way beyond market. No park owner wants to be in that position. They all want to blend in with the other park owners. They want to stay with rents that are reasonably low. Once again, park owners don't want to be raided, and therefore wanted to stay with their rents in the middle of the pack.
Finally, park owners don't like publicity. They like to stay out of the limelight. There are very few park owners out there with big egos, with flashy lifestyles. They typically don't want people focusing on them. As a result, I guess because we're kind of a shy group, we like to stay out of the limelight, and we want to charge rents that are seemingly fair, the residents never complain, and have no problem with.
Although park owners call the shots, they own the business, it's a for-profit business, that doesn't mean they go crazy with it. They never have. They always have a vested interested in keeping all the rents reasonable. Effectively, a healthy balance can exist between the park owner and the resident. People just don't seem to understand it, or more importantly, they care to disbelieve it because they have their own selfish motives in trying to convince people that's impossible, there's no way that the park owner can ever work in the same interest as the resident.
But it's not true. Park owners today are always thinking 24/7 of the needs of the residents. They're always trying to keep them as happy customers. You see, that's what it all boils down to in the final healthy balance. The healthy balance, by definition, would be nothing more than happy customers, happy park owners. That's what both parties, I think, want. That is achievable. That is part of the business model, and that's why you can have that healthy balance because at the end of the day that's what everybody wants.
The goals are not different. Everyone shares the same vision. They share the same morals. They simply want to provide fair product at a fair price. In most Mobile Home Parks today, the residents appreciate that. They feel that they're getting fair value for their money, and the fact they're happy, and the owners feel happy in the way the lot rents have been set.
This is Frank Rolfe, the Mobile Home Park Mastery podcast series. Thanks for listening. Talk to you again next week.