A ‘lie detector” is a device that gives you insight into whether a statement is true or false. So in this week’s Mobile Home Park Mastery podcast we’re going to analyze some of the most common things we get told by sellers and brokers to see if they are telling the truth or simply trying to spin fiction into their own selfish motives.
Episode 259: The Seller And Broker Lie Detector Test Transcript
A polygraph or lie detector test was developed in 1921 with the purpose of assessing whether someone was telling the truth or not. This is Frank Rolfe of the Mobile Home Park Mastery Podcast. We're gonna go ahead and apply a polygraph test to some of the common things we are told by both sellers and brokers to try and differentiate those things which might be true from those things which are probably not. Let's start off with a very common comment made by sellers to us, which is, "Well, I have no records." Now, there's no buzzer on that one because it may well be true. We've bought mobile home parks over the decades from people who have no records whatsoever. I once bought a mobile home park north of Fort Worth, it didn't even have a rent roll. In fact, he never even charged rent. It was an inheritance and he was afraid of the tenants, and as a result, never sent an invoice, never collected a penny of rent, had no rent roll, no records of any type. Now, it's not necessarily always true, some sellers may have records, and they don't want you to see them, because they don't align in any way with what the seller is telling you, nor will they support the price the seller wants.
But by and large, if a seller says, "Well, you know, I have no records," it is possible. The same with tax returns, when the seller says, "I have no tax returns." Well, there are sellers out there who don't file income taxes, there are sellers out there who don't have a handle on where their income taxes even are, so it is possible that that is true. Now, some sellers do have them and simply will not give them to you. And these days, most banks are not going to make it a requirement, because they know that many sellers are hostile to the idea, but no tax returns again might be true. Then we have, when the seller tells us they are selling to pursue other opportunities.
Okay, well, that's clearly not true. No one that I've ever met sells something that's successful to pursue another opportunity. They may go out there and try and find a new opportunity, but why would they sell the park they have currently? A well-running park, as we all know, is fairly low in management, all you do is collect rent, pay maybe 10 checks a month. So if that was going really, really well for them, wouldn't they wanna keep that stream of income? And the answer is, of course, "Yes, they would." But normally, when the seller wants to sell, they don't wanna tell you what the problems are, so instead they'll say, "Oh, well, things are going great, but I wanna pursue something else," and that's not really true. Next, you have when the seller says, "I'm selling because of health reasons." Well, that's definitely probably true.
That's the most common feature of most of our sellers over the last 25 years, has been situations where they go to the doctor, and they get told, "Oh, my gosh, you've got cancer or some other disease." Or they simply just don't feel up to it anymore, they just need to stay at home and rest. So as a result, when someone is telling you that they're selling for health reasons, that in fact is the number one most common truthful reason why people sell, at least that's been our experience. Next, when the seller tells you, "My rents are kind of low." Yeah, that's typically true, because the rents are really low. It's always mind-boggling that sellers don't maximize the rents prior to selling, I don't really fully understand that. I would think that if you were gonna sell, you wanna push those rents as high as you humanly could, yet we've bought mobile home parks from people who haven't raised the rents in a decade. I once bought a mobile home park in Grapevine, Texas, from a guy that hadn't raised the rents in over a decade. He was $100 a month in a market where everyone else was in the 300s. So is it possible that the rents are low? Yeah, it's very, very possible.
Next, sometimes a seller tells us, "My manager is great." Yep, that's probably a complete lie. Most mobile home park managers, when you buy the mobile home park, you're going to find you're going to soon be replacing the manager. And why? Because the manager is not really part of the solution but more a part of the problem. Now, that's not to say all managers cannot be saved. We once bought a mobile home park in the St. Louis metro area, this manager is putting in so much effort, but the seller was undermining them in every step. So everything that they could do with their own sweat and a little bit of their own money, they would accomplish. The office was immaculate, the relations he had with the tenants were superb, they added a little marker board outside the office door that told what's going on in the park. They put so much effort in, people's birthdays, people graduating, all that kind of stuff. But yet the roads were shot, everything was shot, but it wasn't the manager's fault, it was the owner's fault. They were just starving the manager for capital to make any repairs. But by and large, when the owner tells you the manager is great, then normally that's not necessarily always true.
Next thing a seller tells us is, "I got an offer once of blank." Whatever that number is, and of course, it's a really high number. And of course, yeah, that's also probably completely wrong. Normally, when the seller tells you things like that, it's supposed to try and impress you, that this is a hugely valuable property and therefore they're hoping you will give them a really, really big number. But normally when they tell you that, no, they didn't really get an offer. What happened is someone sold a park down the highway or maybe on the whole other side of the city at a really big price, and they got wind of it and kind of over time, they just kind of altered the story that they also had an offer of that magnitude. If someone got an offer of that magnitude, why would they be talking to you? They would have taken it. And once again, why would they talk to you? They would've already called that person and said, "Hey, remember when you offered me 10 times more than the park is worth? Well, now I wanna pursue that."
Next, when the seller tells us, "You don't need a phase one." Yeah, that's always wrong. It's scary how many mobile home parks fail phase one environmental examinations. It typically ranges, if you talk to Mike Renz at Renz Environmental, he does lots and lots of mobile home parks, including almost all of ours, he finds typically somewhere between one and 10% on any given year fail. And even 1% is too much. If you buy a mobile home park that's got environmental pollution and you buy it, well, then you're responsible to clean it, and that may be in the millions and millions of dollars, far more than maybe you're paying for the entire mobile home park. Now, let's spin it around to brokers, so we're talking to mobile home park brokers, doing that all the time. Here are some of the things that the broker will tell you, let's analyze whether these are true or false. First one is, "We already have several all-cash offers." Yeah, we know that's wrong. If they had all those all-cash offers, well, why are they talking to you? That makes no sense, whether you're buying a house or a car or a mobile home park, it defies logic that if someone already had a full-price offer in cash, the property would not already be sold.
What are they holding out for? Someone just randomly coming in with a price even more than what they were asking? So, yes, when someone tells you that, you can just say, "Well, then you should take it." Call their bluff on it, because of course, there is no such offer. Next is when the broker tells us the park-owned homes are all in great condition. Yeah, that's, of course, always wrong. The park-owned homes are never in great condition. Never forget the time I drove all the way out to the mobile home park in diligence to walk all of the homes. I got there, I go into the office, I told the manager, "Here... I'm here to walk the homes." They give me kind of a puzzle look, they're like, "Okay, I'll get the key," and I'm like, "Okay." So I walk over the first home and here comes the manager, and the key in fact is a crowbar, pries open every door to every park-owned homes and inside what do I find? In fact, yes, they're all completely gutted.
They've been stripped of everything, all the wiring, all the plumbing, they're absolutely worthless. Got on my cell phone, called the broker and said, "Hey, I'm out here at the mobile home park, these homes you told me are in move-in condition are in fact completely stripped." To which he said, "Oh, it must have just happened, they were perfect when I was there," which was in fact another lie. Next is when the broker tells you, "It's kind of near the blank metro," whatever the blank would be, Dallas or Houston, or Des Moines, Iowa, whatever the case may be. But see, that doesn't really matter if you're near the metro, what matters is if you're in the metro. So what they're doing is, they're just telling you what's still a kind of a falsehood, they're trying to make you feel like that park is well-located, but they're not really lying to you, 'cause it's not in the metro, and they tell you it's not in the metro, but then why throw out the metro, if it's not near the metro.
That's the part that's always kind of puzzling, is it a little bit like when they give you those proforma budgets of what it might be if the park was running well, probably something like that. Next is when the broker tells you, "You can easily fill all the lots." Yeah, of course, that's, again, a complete and total lie. Filling lots today is very, very difficult. How difficult? Well, it's one of the hardest things to do in the world of mobile home park ownership. Because you have to go out there and find new or used homes to put on those lots, you have to renovate them and set them up, and then you gotta run the ads, and you gotta show the homes and make applications, and if you're real, real lucky, you can get all that accomplished and then get the homes sold. Maybe. It's very, very, very, very hard. And when the broker tries to tell you that you can easily fill the lots, that's a complete and utter lie. It doesn't matter what market in America you are in, with only a few exceptions, like Austin, Texas, where dealers will actually rent the lots from you just to have a place to sell a home to for a customer. But by and large, there's no way when someone tells you you can easily fill the lots, that it's true, because the lots are never easy to fill.
Finally, when the broker tells you, "Hey, well, this park has got expansion potential." Yeah, well, all parks, I guess, theoretically, would have expansion potential, because if there's any land next door, and even if there's a developed property next door, I guess theoretically, you could bulldoze the office building and put in some more lots. Or you could somehow take that raw land next door and get the city to go ahead and give you this variance. But, of course, it's not true.
It's very, very, very hard to get an expansion of an existing mobile home park. We try all the time to do it, but we succeed very, very rarely. It's always cause for celebration when we finally actually do get the permits to build. We once bought a park in Kansas City that even had a street that appeared to be ready to go. It was paved and it had electricity to it, but yet Kansas City wouldn't let us even occupy that street, because mom and pop had never finished it. They had never put in the water or the sewer, and therefore they'd lost their right to do so, oh, about 30, 40 years earlier. So when the broker tells you that something's got expansion potential, again, that is 99 out of 100 times a lie. And of course, there's many other things that brokers and sellers will tell you that are not truly truthful, but the key is you have to be able to discern what is the truth from that which is not. And for that purpose, there's nothing more important than great due diligence. No polygraph test will help you like simply doing the nuts and bolts of good due diligence to find out truly what is right and what is wrong. This is Frank Rolfe of the Mobile Home Park Mastery Podcast. I hope you enjoyed this. Talk to you again soon.