Mobile Home Park Mastery: Episode 219

Why My Predictions Come True So Often

Subscribe To Mobile Home Park Mastery On iTunes
Subscribe To Mobile Home Park Mastery On Google Play
Subscribe To Mobile Home Park Mastery On Stitcher

I am a total skeptic and pessimist. And that adherence to the law of fear has paid huge dividends, as I have developed the ability to see failure ahead of the pack. But it’s not really that hard to make accurate predictions. In this Mobile Home Park Mastery podcast we’re going to discuss the clear signs of future success and failure and why it’s completely irrational to believe that you are smarter than the universe.

Episode 219: Why My Predictions Come True So Often Transcript

About 15 years ago, somebody called me up and wanted my opinion on a mobile home park they were looking at buying. I reviewed with them what they knew of the occupancy in the market, I looked at a little of the data online regarding the population home prices. And I told the person that's a deal you would never want to buy. It makes absolutely no sense. It violates every formula that I humanly know. And then I got a call from that same person years later. They had in fact, bought the mobile home park and it was not working out. I said, "I told you when he called me before, don't buy that mobile home park, it won't work." And they said, "Well, I thought I could still make it work. I thought I had a special talent, the ability to go ahead and make a success, where it looks like it might be a failure."

Same person called again, years later, it was getting even worse. They weren't able to get their homes sold, nothing was working. Now, how did I know all those years earlier, it wasn't going to work out? How can my predictions often come true? This is Frank Rolfe, the Mobile Home Park Mastery Podcast. We're going to talk about why you can really tell, any of you, anyone listening, whether a deal is going to work or not. There are just some key attributes that I use to help you also predict the future success or failure.

Now, why am I so good at it? I'm not that good at it. I've been in the industry a long time, don't a lot of deals. But I have some native things that I do in my decision making that you should also perhaps think about. Number one, I am the eternal pessimist. I'm always looking at the worst case scenario. I live my entire life that way. Every time I drive an automobile at every moment, I assume I'm going to have a flat, the car next to me is going to lose control and smash into me, every driver coming towards me is going to be drunk and veer into my lane. And when you're a pessimist, you harness that fear and it guards you against a lot of problems.

I also like to read a lot. I'm always reading articles, online, old books, because I can't get enough information into that computer thing called my brain to help me get the best decisions on what I should do. Also, I never bet against the fundamentals. The science of what makes mobile home parks work or fail has already been well established. And you cannot veer off of that. Finally, I never bet against the megatrends. I believe there are some giant forces at play economically in our country. And you have to be on the right side of those megatrends.

So how can you adopt the same viewpoint that I've got? Well, let's go over for a moment the concept of best case, worst case, realistic case. Going back to the person who called me all those years ago, it was clear that they could not survive the worst case. The property that they were looking at, although it had some good attributes, the area was kind of attractive, it had many things that wouldn't work. Chief among those the low home prices, both single-family and apartment rents. So they had visions of increasing occupancy and raising rents, and I knew they'd never achieved those visions. They were focused on what they thought to be their best case scenario, what they could make of the property. I was focused on the worst case scenario, what if their theories proved to be untrue? Never buy a mobile home park unless you can survive the worst case scenario. You need to figure out the worst case, the best case, which is what it would be in a perfect world, and then the realistic case, which is somewhere in between. If you're not utterly thrilled with the best case and if you cannot survive the worst case, and if you're not happy with the realistic case, then you shouldn't buy that deal. But don't focus only on the good stuff. Bad stuff happens, too.

On the fundamentals, these are the things we know that the industry has proven to be true over and over again, for as long as I've been in the industry. Number one, for a mobile home park to work you must have contrast you must be expensive housing, which makes affordable housing needed. So you need to be in markets where single-family homes are roughly $100,000 and up, three-bedroom apartment rents of roughly $1,000 and up, household vacancy of roughly 12.2% or lower. If you don't have these things, you're not going to have any demand for your mobile home park. It also helps to be in a metro population of 100,000 and up. That has enough folks moving in all the time and enough people out there trying to bring in employment, that if you lose an employer, you're still okay. If a customer moves out, you still have someone new to take their spot.

You also have to make sure that any mobile home park you buy has the correct things for infrastructure, for density, for the age of homes, and for the location. If you do not have these various items, no matter how good you are as a manager, or how great you are at constructively thinking about how to renovate the property, it simply will not work. I never bet against the fundamentals.  Now you can make a calculated gamble on some of them. You could buy a mobile home park in a small town in Colorado that seemingly violates much of what I just said, and it may still work out because the demand for affordable housing is so high in Colorado that it's really hard to screw up there. So there are exceptions. But by and large, you cannot succeed. You're going way out on a limb if you don't abide by the basic science has been developed over the last series of decades.

Finally, you have to be and must acknowledge the megatrends in the United States right now. Let's just go over some of these megatrends and you can see how vast and important they are. The first one, which we're all seeing right now, is stagflation, not just inflation. Clearly, we have entered stagflation. You have to be old enough to have been around in the days of Jimmy Carter to know where we are headed. Under Carter, what did you see? You saw very, very high inflation coupled with the economic recession. It was a very scary time. Every time you went to the store or the gas pump, you didn't know what the price would be, but you knew it would be a whole lot higher than it was before. Carter stagflation was caused by a supply shock in the oil industry. This time, it's a supply shock, not only in the oil industry but mostly just in that supply chain caused by COVID. Look it up on Wikipedia, read stagflation on Wikipedia, compare it to our current times, you'll see it's almost identical.

So what happens when you have stagflation? Well, the good news is mobile home parks are on the right side of that megatrend. Stagflation is basically going to do two things. A, inflate values, that's good for mobile home parks if you can raise your rents in line with inflation, which you can. Unless you're in a state with rent control, you're free to raise the rents as you like, and most mobile home parks redo their rents every year. You could even do it more often if you had to, and the amount of really, really ramping up inflation. Then you have the stagnation part of stagflation. Unfortunately, we're the contrarian industry of offering affordable housing, we're the Dollar General Store of housing. So on that megatrend, we're all in good shape.

Then you have the megatrend of the great migration. This is a new trend that started up during COVID, also fueled by all the riots that we had during COVID. People are leaving cities. It's never happened before. People were all moving to cities for about a century, all Americans left the farm and went to the big city. Now they realize that living in the big city isn't what it used to be. They don't like the fact that they don't have privacy and safety. And that all those things they like, like restaurants, museums and things, they've all shut down. So as a result, millions of Americans are moving out to suburbs and exurbs. That's great if you own a mobile home park in a suburb or an exurb where most of them are located at. However, it's changing locations dramatically and quickly. People are leaving certain states moving into other states, or leaving certain cities moving into other suburbs and exurbs. You want to be a part of that. You want to harness the power of that movement.

Next, you have The Great Resignation. What in the world is that? That's people walking off the job like crazy. You probably saw recently that 1,000 appointments to pick up freight I think at the Long Beach freight catastrophe we have in the nation right now, they didn't show up. I had to call Southwest Airlines a couple of days ago, the hold time was an hour. I got the person on the phone. I said, "What in the world is going on with you guys? You used to answer within five minutes." The person said, "Yeah, we can't get anybody to work here anymore. They're not showing up to work. They don't even apply for the ads." I'm not sure what's causing the great resignation. But I think what it is, is America's tired of the two-income household. I think people liked the old way, the way it used to be where you had one person who was at home, raising the kids and doing things, and then we all swapped that at some point in the 70s for this idea that no everyone really wanted just work, work, work, work, work, and it will all work out in the end. All it really did was just inflate values. No, I don't think anyone actually enjoyed it very much. And clearly, they're voting that way now. Many people at the end of COVID are saying, "No, I'm not going to go back to my old job, not going to go back to putting my kids in daycare, not going to do it anymore." Once again, what does it mean? It means you can see a huge push for affordable housing. You can't, if you go from two incomes down to one, or from one income down to none, you can't afford expensive housing. So once again, I think that mobile home parks on the right side of that megatrend.

The final megatrend is that you just have to be in the right industry. I feel very strongly right now that affordable housing is the place to be. However, if you can't provide affordable housing, if you're in a market where everything already is cheap, nobody needs you. Most mobile home parks that fail, if you look back at them, if you looked at the loan servicer of the bank that handled that foreclosure, you should have seen that coming way, way, way before the lender ever made that loan. They trusted the buyer, they trusted the operator, that it would all work out, okay because they certainly seem confident in it. But the truth is, whoever it was, they were not following the easy set pattern of what's successful. I look back on my career of all of these park owners that I saw fall apart. And what they all shared in common is they veered off the path. They didn't try and stick with the science. They always thought they were smarter than everybody.

I remember a group that went into the states that have very low lot rents like Mississippi, and started importing all these double wides into those mobile home parks, places where the lot rents were like $100 a month. They would bring in these double wides, and they'd try and rent those for $1,000 a month, claiming they were making all that money. It didn't last long before they failed. Nobody wants to be a rental landlord renting mobile homes, in mobile home parks in areas where there's really not much demand to begin with. Being a pioneer is great in some aspects, but also a lot of pioneers were killed along the trail. It's really a risky way to do business, very risky thing to do with your capital.

The key to it all the key is if you want to make accurate predictions, it's not hard. Just follow the science that's been forged of what works and does not work and don't deviate from that plan. And always assume the worst. If you assume the worst, then if it's a surprise, then it's always a good surprise. Because you always thought the worst of everything and if it goes well, well that's a lot better than you thought. Many of those deals that go bad go bad because the person never thought through their worst case scenario. They never realized or accepted the fact that if things didn't work out like they hoped that they couldn't make the note payment. That was just faulty thinking' that's not a testament that there's a problem with the mobile home park industry, just a problem with some buyers and operators. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.