Some mobile home park deals are built around filling a huge number of vacant lots, while others are built on raising rents and cutting costs and increasing occupancy is a tiny part of the turn-around program. In this Mobile Home Park Mastery podcast we’re going to review the plan of attack if you have only a handful of vacancies to fill.
Episode 395: What I’d Do If I Had Five Vacant Lots Transcript
Some mobile home parks have built-in requirements to fill hundreds of vacant lots. And that is the turnaround program. But other mobile home parks have very few vacancies. And what the model is on those properties is that through raising rents and cutting costs, you achieve higher NOI and value. But filling lots just isn't that big a part of the business plan. And let's assume you had a mobile home park with just five vacant lots. Well, let me tell you what I would do to fill five vacant lots. This is Frank Rolfe with the Mobile Home Park Mastery podcast. We're gonna go over something, which is a good thing to have. And that is a little extra opportunity in your business to fill some vacant lots, but not a sense of crushing urgency or danger in doing so. Because you see, what causes you to fear vacancy is when you have more than 20% of your lots vacant. The way that lenders look at most mobile home parks is if you're at least 80% occupied, you have attained what they call stabilized status. And that means you're good to go. You're fine. It's like getting the score that allows you to pass the class in college.
If you've got 80% occupancy, you pass. You're fine. You have liquidity. You have peace of mind. And when you have just a handful of lots and you have stabilized occupancy, the first question you have to ask yourself is, do I want to fill these? And of course, the answer should be yes. Because every lot you fill is going to be worth a lot of money based on the market that you serve. A vacant lot is worth nothing, but an occupied lot can be worth 30, 40, 50, up to $100,000 per lot or even more. And five vacant lots in most mobile home parks means if you don't fill those, you're out somewhere between a quarter of a million and a half a million dollars. And I think that's enough money to definitely get someone's attention. So what would you do, what would I do if I had five vacant lots? Well, the first thing I would do is I would find out the rules of engagement in one specific area. I would want to find out if I am allowed to bring in RVs onto my mobile home park lots. Because in some communities you are completely unlimited in status. You can bring in as many RVs as you want and park them on mobile home park lots. Other communities say, "No, we don't allow you to bring in any RVs." And still others say, "Yeah, you can bring in some RVs, but not more than X percent of the park can be an RV."
Now, all of those ordinances are probably wrong because we all know under the rules of grandfathering, you can't change the rules on something that's already built beyond what they were when you built the property, with the exception of health and safety. And mobile homes and RVs were one in the same for decades and decades. And it's very unlikely when most of these parks were built back in the '50s and '60s, that there was any difference between a mobile home and an RV. So a lot of times the city is kind of just spitballing that. They're kind of making that up. So when they say, "Oh, yeah, well, you can't have more than 20% of your lots in RV." That's nonsense. The original ordinance doesn't say that. And if you were to press it, you probably would be right. But do you really want to go to court and lose your affinity with the city, your amiable basis you have with them? The answer is probably not. No, you probably don't. But often when you talk to the city, you will find if you only have five lots, they're probably going to say, "Yeah, okay, yeah, you can put some RVs in there." And if they did do that, here's what I would then do. I would go ahead and make sure that on any Google search of RV parks in blank, I pop up.
So anyone moving to my market who has an RV wanting to find a lot to place it, and they simply put that in Google, I want to find an RV park in blank, I need to pull up. And then when I do pull up and they click on it, I need to have a nice website. So I want to build a website. I want to have nice social media rankings. I would hopefully have five-star reviews by asking everyone that likes the park and likes you to give you a positive review, and pretty soon you could get that. And now, what's gonna happen is you're gonna start getting some calls from people with RVs. Because that's how RV people find the places to park them is it's mostly done online. And as long as your website is attractive and professional and you have decent social media reviews, your phone shall ring. I would also put a sign out at the front of your property saying "RVs welcome." I think that's another good thing to do. But if you're lucky and the phone rings and you're the matchmaker, hopefully you can fill a lot or maybe two with RVs. The beauty of that is you have no cost at all in RVs coming in. No lot preparation required. They can't possibly use more power than you already have on that lot. They don't use a lot of water. They don't use a lot of sewer.
So having an RV come and park on your lot is probably about the best thing that could happen to you. But I wouldn't just stop there. Next thing I would do is I put a big old banner out of my fence that says, "Move your home here for free." Because now I'm trying to reach organic potential customers. These are people who are unhappy in the mobile home park they're currently in and want to move it to one they find more pleasurable. And if your park fits the bill, you'll pay to move the home. This, unlike the RV, will cost you money, probably gonna cost you maybe $5,000 to $10,000. But look at all the great things you get for that. You get a built-in customer with their own tenant-owned home to start paying you lot rent immediately. You don't have to find a home, buy it, bring it in, rehab it, you don't have to get a floor panel, lander, or anything. So I would definitely put that banner out there. Will you get any calls? I don't know. Probably. You might. The phone won't ring all the time like that. But if you got just one customer, we just knocked off one more vacant lot. Then what would I do? I would bring in a nice used home, preferably 1990s, so it has a pitched roof, probably vital-sided shingled roof.
I'd be a good shopper. I'd buy it as cheap as I humanly could. I'd buy it off of a repo list, home wholesaler, maybe something you find on Facebook Marketplace. I'd remodel it looking nice, and I'd put it on the market to sell. Meanwhile, I'd go out and get a lender, most preferably Performance Equity Partners, PEP, out of Chicago. So I now have a built-in resource that I can create a mortgage on if someone wants to buy that home, and I get all my money back. And if I can sell that one used home, then what happens? I can go buy another used home with that same money and recycle it like that. And if I have all three of those things going at one time, if I have the RV advertising, I've got the organic advertising, and I've got advertising for my used home, we're going to let the market then dictate what happens after that. Because see, you get the same lot rent no matter which of those three should be the successful conclusion, so you're fairly ambivalent. You're just a scientist wearing a white lab coat, just kind of waiting to see what the market wants. What do the consumer wants? Where's the demand? Now, if you get very little action on all three of those, what's going to happen? You're still going to fill five lots. If you end up with two RV, two organic, and one used home, you're sold out. One RV, one organic, and three used homes, totally full.
So I'm pretty confident if you do everything I just said, probably something is going to give, and you're going to get them all out the door. Now, in the interim, you've got one more option. While you're waiting for the phone to ring for the RV or the organic, or finding a used home to do, you can still rent those five vacant lots to other people in the mobile home park who have neighboring lots, kind of an expansion of their yard. With the understanding that you can still take it away from them if you get a better opportunity to put something on that lot, but at least that would immediately get the clock started on clocking some revenue in. It would also allow you to at least at a cocktail party say you're full because you have rented those vacant lots. So I might also give that a little whirl around the block because that's gonna make you feel better because you've got a little money coming in on those to buy you time until you need the whole lot, you have nothing to lose in that arrangement. The bottom line is if you triple track this, if you do everything I mentioned, you just leave it out there for the consumers to choose what they want for their housing option, you'll not only end up full, but you'll end up full with that artificial construction.
Sometimes when people try to fill five lights, they do the worst thing. They go out and they buy five brand new homes and they slam them on the lots. Only to find those customers really can't afford new homes. So they sit and they sit and you show them and you show them and you get applications and they fail over and over. And mainly you also have the opportunity to sell it for less than you paid and actually even take a loss on it. That's not very much fun. But if you let the market itself dictate the ending of how you fill those final five lights, you'll end up with a much happier, healthier final occupancy. This is Frank Rolfe of the Mobile Home Park Mastery Podcast. Hope you enjoy this. Talk to you again soon.