“Metal Shoeboxes” is how some people describe mobile homes. And renovating and selling them is one of the “dirtiest jobs” that most mobile home park owners dread. But it’s really not that bad – if you know what to do. In this third segment in our six-part series on Dirty Jobs we’re going to examine the steps to successfully tackling this undesirable task. If you can handle the shoeboxes in your closet, you can handle this larger variety, as well.
Episode 62: The Dirty Job Of Park-Owned Homes Transcript
Metal shoe boxes, that's what some people call mobile homes. While that's not really an accurate description, nevertheless there are some unusual attributes to mobile homes. This is Frank Rolfe at Mobile Home Park Mastery Podcast series. We're doing a multi-part series on dirty jobs. We're rolling up our shirt sleeves and getting right out in the muck and dealing with dirty things that go on in mobile home parks and how to deal with them. To many people, there's nothing dirtier than having to go in and renovate and sell mobile homes. I'm here to try and dispel the myths of how it works and give you some constructive ideas on how to do a better job.
Now, let's start off with, what is a mobile home today? Mobile homes come basically in different generations of construction and styling. They come from the 1950s where the homes were only eight feet wide, and later in the '50s they become 10 feet wide. Then as you roll into the '60s and the '70s they conferred into 12 and by the end of the '70s into 14 feet wide. There's a distinct style between the '50s, '60s, '70s, '80s, '90s, and then I would say the 2000s and on all look about the same. They all have their own challenges in the way they're constructed. They all have their own challenges as far as their floor plan.
The first part, if you're going to tackle the dirty job of taking and using a mobile home as a device to get someone into your property to pay lot rent, because don't forget from earlier podcasts, our entire goal as mobile home park owners is simply to own and rent dirt. We have no interest ever in owning and renting the homes. There are those who do. That business segment is called Lonnie dealers. Those are people who like to buy and sell or buy and rent mobile homes. If you're listening to this podcast series, you're trying to learn the best way to approach investing in mobile home parks, and definitely as far as mobile home parks go, the best way to approach it is just to be in the land business.
When I've got a home in my park, the first question is, do I own it or do I not? How do I know? Well, when I bought the mobile home park, typically mom and pop gave me a lengthy list of all the mobile homes and items that come with the park. Often, it will come with a list of mobile homes that come with the park identified by their lot number, and then typically their size and/or number of bedrooms and bathrooms. Now, if the home is not on that list but it's vacant in my mobile home park, what does it mean? It means that somebody else owned it and they ran off and left it there. Mom and pop have done nothing to make that into a usable asset.
What do I have to do? I've got to convert that now into something that I control. What I will do is I will get a copy of the serial plate, the HUD plate off the back lower left corner of the home. I will enter that number into the computer database for mobile home titles and see if I can find a title. On the title, I will see if there is a lender. If there is a lender, then what I have to do is do a possessory lien notice. That means I send a notice to the bank and it says, "The mobile home is in my park. You're shown on the title as the lender. It's vacant and if you don't come and get it, you have to start paying rent within 10 days." In fact, the rent that they owe you is better than just normal rent. That rent is secured under a mechanic's lien. That means they can never pull the mobile home out without paying you, or they've committed a crime.
Now, typically if you send out that notice, what happens? The bank will call you and say, "Wow, do you want to buy the home?" Often, you can cut a deal with them. Their initial offer, however, I can warn you now is normally the amount of the loan remaining. Often, these homes are upside-down, particularly if the quality of the home they left is not in good order. However, those prices are very flexible. The home that they say they want $14,000 on in the first call, you may end up buying for $6,000 on a later call, so I would definitely not disregard that at all as an opportunity.
However, if there's not a lien on the home when you do your title search, then you go into the abandonment proceeding. How does that work? Well, every state is different, but I can tell you right now, you probably want to get an attorney who knows what they're doing. They're going to send a certified letter to the last name on the title. They're going to send a certified letter to the last person who had any connection to the home, which is probably your resident, and of course that won't go anywhere because they're not there to pick up the letter.
You also often have to post an ad in the newspaper describing the mobile home that's been abandoned and someone needs to come forward and claim it or need to show up at the auction, which would be on a certain date. Once you followed all of the legal requirements for the abandoned property auction, you show up at the auction as the park owner and you typically bid $1 and you get the home. Because, I don't think we've ever seen anyone else show up at the auction to make a bid.
Once I know have control of the home, what can I do? Well, the first thing you want to do is change the locks because now it's your home and you don't want anyone going in there and vandalizing it. Then typically, you're going to want to grade the home; A, B, C, D, and F. A home needs nothing more than cleaning, about $1,000 of work. A B home needs cleaning and some other light items, maybe $2,000 of work. The average home, a C, needs $4,000 of work: $2,000 parts, $2,000 in labor. The D home needs a whole lot of work, often up to $10,000. The F home, what are you going to do with that? You're just going to demolish it.
How do you get rid of those F homes? Well, you don't put them out on the highway, that's for sure. Towing an old home down the highway is like putting it in a wind tunnel. It's very likely the roof is going to blow right off the home, the wall is going to fall off the home. It's way too risky. What you do is you bring in a roll off dumpster, you place it on the ground, and then you hire someone to come and demolish the home and put it in the dumpster. Typical cost: $2,000, $1,000 for demolition, $1,000 for the dumpster. That's what happens to your F graded homes.
The A, B, C homes, what you're going to do is you're going to start with the A homes and you're going to go ahead and get those cleaned and ready to go. The B the same, the C the same, but you're going to leave your D around because you don't really know if you're going to ever renovate those D homes or not. That's going to be based on what happens on the next part of the story.
Once you have those A homes ready, what do you do? You put a sign in the window and a sign in the yard that says mobile home for sale. You also put, if you can, a banner on the front of your park also saying homes available. You put ads on Craigslist because they're free. You send a letter to all of your residents saying, "Hey, I've got this mobile home in the park, do you have a friend or relative who wants it? If you do, I'll give you $250 off your lot rent." You do all those many things and you see what happens. In most mobile home parks, that's all you have to do.
Next thing you know, you will have a customer within maybe a day or so, and now what you do is you show them the home and you strike a deal and you sell it to them. This entire process, though, is giving you valuable insight into your customers. Even though you're selling those very easy A homes, you're learning the kind of cash and credit your customers have. Hopefully it's good, because if it's good what that means is you're not going to renovate those D graded homes. Instead, you're going to buy new homes and put those in those positions. A lot of those D grade homes are older homes with very undesirable floor plans.
The new homes will make your park look much better and those new homes are much, much easier to sell. When I say new, I don't mean brand new. I mean new-ish. There's some homes out there from the year 2000 that look just as good as a new one, but they'd be a whole lot less expensive for you to do. As you work through the A homes, the B homes, and the C homes, you will ultimately get in a position where you are no longer in the home business. Hopefully you've converted back to being in the land business.
On top of that, on the homes you have to sell and carry paper on, you don't have to carry the paper anymore. If the home is going to be at least $10,000 or more, 21st Mortgage has a used home program under which they in fact will carry the debt on the home. That's a much better situation, because no one really wants to be a bank who's a park owner. They would much rather let somebody else be the bank. That would be a good source of capital for you that keeps you out of being in the home mortgage business. On top of that, don't forget the SAFE Act and Dodd-Frank that have been making mortgages in today's world even scarier and something that's even more undesirable than ever before.
Now, what about remodeling those homes? I mean, it sounds so simple, I glossed over the dirty, dirty job of remodeling. Well, mobile homes are very easy to remodel. That is one of the strengths of the fact that they are in fact kind of like metal shoe boxes. They're very, very simplistic. What do you do? Well, a lot of the repairs to mobile homes is merely cosmetic. A lot of the homes out there, all you're going to do is reseal the roof, that's about $250, you're going to repaint the home, that's about $500, and/or you might re-skirt the home which might be around $1,000. If you're handy, you can do most of that work yourself. If you're not handy, you can easily find someone who will do it for you. There's any number in any market of people who restore old mobile homes, so that's typically not a big problem.
Now, the interior, a little more complicated. Often, inside of mobile homes you will have weak spots in the floors. These were caused by moisture, typically leaks. Often the leaks are nothing to do with the roof. It could be the deck of the home was angled the wrong way, and when it rained the rain went up, hit the door, and the door is not water tight, it would then seep under the door which will then rot out the floor right around the door. Whenever you have soft spots in floors, the solution is just to cut those out and replace those with good old fashioned new American all-weather plywood. That's a simple fix. It's an inexpensive fix.
Other items inside the home besides soft spots in floors, the most common additional things you need to do are heating and air conditioning. Those, you are not competent enough to do. You'll have to bring in someone to put in that new central system, or perhaps a window heat and air. You additionally would probably want to have an electrician look at the home. Again, you're not competent for that. If there's any plumbing to be done, you're probably not competent for that.
The only value add you might have besides fixing those spots in the floor would be in painting the unit, fixing light items like reinstalling handles on cabinets, possibly reinstalling doorknobs. Then typically you're going to hire out the actual flooring. YOu're going to get inexpensive carpet, or the new latest and greatest is to put linoleum throughout the entire house, that which looks just like a wood floor and then supplementing that with area rugs. Therefore, in between tenants you don't have to re-carpet the home, you simply roll that up and throw it out in the trash or clean it. Getting the homes ready is really not that difficult.
Now, what about the mechanics of showing the homes? How does that work? It's so simple. The demand for affordable housing is so very heavy that getting homes out the door is not hard as long as you follow a few basic rules. Basic rule number one: make the yard decent. Right? Nobody wants to be walking up to the mobile home and having to step over some form of debris. That's never going to work. Get that yard good. Get it mowed, get it clean.
Number two: make the exterior of the home attractive. Again, paint it, skirt it, seal the roof, put the shutters back on it. So many mobile homes look so much better with shutters on them, it's not even funny. Number three: make the stairs nice and solid and the rail good. Again, your entire approach to the home is very, very favorable. Then as the customer opens the door, which I might add, you need to make sure the lock works easily, and go into the home, the home needs to be immaculately clean and smelling good.
You can often sell mobile homes that are not even fully completed cosmetically on the inside. Most states have a habitability warranty of the quality of what they find in the home, but normally the cosmetic touches are not covered under that warranty. Often, you can leave it up to the homeowner if you like to do the flooring and the painting. It is never acceptable to sell a home that is dirty. It is never acceptable to sell a home that does not smell good. Those are so easy to remedy, it's foolish for anyone who does not.
Also, make sure when the customer sees the home and says, "I'll take it," that you have all your contracts and forms ready. Our customers are extremely point of purchase. They don't like to wait around. If they want that home, by gosh, they want it now. Make sure they can get it now. Go ahead and have everything at the ready. Have your entire screening company that screens the residents ready so they can seamlessly go right into the application stage.
Now, you cannot rent or sell them the home on the spot. You have to do a background check with criminal and credit. You'd be foolish not to do so. You can typically have that done sometimes while they wait if you're very lucky, but typically that's impossible. Definitely by the next day. Be sure and take some kind of deposit on the application, $20, $25 is what most park owners charge. That holds them in the position because since they have some money out of pocket, they have some skin in the game, they will return to sign the final lease when in fact they are approved.
Now, we have done probably collectively thousands of homes over the last 20-plus years. I can tell you from experience, it's not really as dirty a job as people think. A lot of times what shocks people the most with old park-owned homes and mobile homes is the fact that people leave all their belongings in it when they leave. Old sofas, pizza boxes, all kinds of debris all over the home. That's probably the dirtiest job, to be honest with you, is cleaning it out. Once you've completed the clean out however, I don't think I would really qualify it as a dirty job.
Every time you look in a mobile home empty in a mobile home park, really I think you have to look at that old William Kaiser quote that problems are only opportunities in work clothes. That's how I look at it. Every mobile home you have in every mobile home park in America can be filled because the demand for affordable housing is that high. It's really, not really a dirty job. Not at all. It's actually just a great job because it's a great way for you to take something that most investors find too unpleasant to even consider, that is buying a mobile home park, and making lots of money simply by that supply and demand aberration.
This is Frank Rolfe with the Mobile Home Park Mastery Podcast. Hope you enjoyed this dirty job. We'll be back next week with another in our multi-part series on dirty jobs in mobile home parks and how to do them. Hope you have a great week, and talk to you again on Monday.