In virtually every sector of real estate, a big focus of due diligence is market occupancy – except for mobile home parks. Why is that? In this Mobile Home Park Mastery podcast we’re going to explore the unique reasons that the occupancy of other parks is not always an accurate indication of demand and, for most buyers, is mostly ignored.
Episode 432: Why Nobody Cares About Market Occupancy Transcript
If I was buying an apartment complex, I would make a graph of every apartment facility in that entire city and I would try and get a really good handle on how occupied they were. If I was buying a self-storage facility, I would probably make a graph of every self-storage property within that market and how occupied they are. But in our industry, in the mobile home park industry, that type of market occupancy is not something that most people study with great rigor. This is Frank Rolfe, the Mobile Home Park Mastery podcast. We're gonna talk about why mobile home park buyers don't typically pore over and spend huge amounts of time analyzing market occupancy in other mobile home parks. Now, you would think we would, you would think that's a big issue. But there's a big difference between a mobile home park's vacancy and an apartment complex's vacancy. And that is those apartment units are right there for the taking.
So if there's nobody in them, we have to assume that the phone is not ringing. But in the mobile home park business, the only way you can fill a lot is with a home on the lot. You can't rent it for someone to pitch a tent. And you may have your phone ringing 24 hours a day, but if mom and pop have not brought a home in to fill that vacant lot, then that demand doesn't really do any good. Now, the first problem with moms and pops and vacant lots and market vacancy and market occupancy stems from the fact many of them don't even try. They just don't want to put in any effort to fill their vacant lots. And this came to light in a property we used to own called Sugar Grove. And in this particular mobile home park, what was at issue was, tremendous location, great location, down the street from a major shopping center, fantastic school district, very high single-family home price, but the guy was about a third empty.
Now, why was he a third empty? You might say it makes no sense. Huge demand, third empty, you must be wrong, nobody must want to live there. No, by his own admission, he just never had the desire to bring in homes. He was one of these original mom and pop characters that if someone wanted to bring in their home into the vacant lot, he was fine with that. But he was not going to act as the intermediary, not going to be the middleman, not going to bring the home in so that it could be sold. And during due diligence, he admitted, "Oh yeah, I get in five people a day in the office say I want to buy a mobile home, but I don't want to get involved in the homes." He had visions that when you're involved with the homes, you have to spend capital to buy and bring in the home, which that part is true. He did not know about any of the financing programs out there like PEP or 21st Mortgage. And additionally, he didn't want to have the phone ringing and he didn't want to have to show the homes because he officed in the office.
He was kind of a self-manager. So as a result, he let that property trade hands with us buying it for about a third off of what he would have had if he simply brought in those homes. And sometimes when mom and pop do bring in the homes, sometimes they finally do get a hankering to increase their occupancy, what often happens is they have absolutely no idea how to sell them. So they may bring in some number of homes, but they just sit there vacant, gathering dust. And then you realize they're not even running any ads. They don't even answer the phone. Their manager never answers the phone. They don't have any ties with any home financing programs. So basically, it's an exercise in frustration. There's nothing ever going to happen with those homes and they will sit there vacant forever as long as mom and pop are in charge. Also, you find that many park owners only aggressively put homes in up until they get to 80% occupancy because they've heard in one of my podcasts or books or somewhere that 80% is the magic number because at that number, lenders feel comfortable.
They feel like that mobile home park is a good mobile home park. Why? Just because it got to 80%. It's kind of crazy. You might say, why is a 78% park less valuable than an 80%? And the answer is because the lending community for some reason tends to think that. It's not really based on any kind of math. But as a result, many park owners will take parks up to 80% and then they'll quit. And as a result, parks will sit often that have massive demand, 10 calls a day, people dropping in the office wanting to buy homes, but they don't bring a single home in once they hit 80% saying, "That's all I have to do. Now my park is liquid. Now the lenders love me," even though that's really not the case. And then some park owners, going back to those who bring in homes and don't sell them, sometimes they make terrible decisions on the homes that they import into the community.
They will often bring in a $100,000 double-wide in a market where the customer can only qualify for a $40,000 single-wide. And as a result, the greatest sales team in America could not make that happen. The only way you could get that home sold would be to take an enormous loss on it, which mom and pop would never agree to. So the home basically just continually sits there vacant. So then when you're looking to buy the mobile home park, how do you tell if the market is strong? If we're not going to be studying market occupancy or market vacancy because that's not a good bellwether of how mobile home parks really perform, how do you do that? Well, you do it through a test ad. A test ad is an excellent gauge. You do it through researching the profile on that market. What do single-family homes go for? What do apartments rent for? We know you don't need affordable housing when all housing is inexpensive.
Common problem down in southern Illinois, for example, where you can buy a stick-built two-story colonial home with a detached garage for $80,000. It's pretty unlikely you're gonna be able to sell a mobile home for 60,000 in that same market. So, there are other ways that we can tell whether a market is vibrant or not other than looking at the parks. And one of the best is if you go to bestplaces.net and look at housing vacancy. That will show you how strong that market truly is when it comes to residential units, because a strong market has low housing vacancy. So the healthy number is typically around 11% or lower. I've seen markets all the way down to 2%. But then you have markets like Gary, Indiana and others, Flint, Michigan, that are up over 20%. What that tells you is that people are fleeing. They're not moving there. They're not looking for housing. And if you buy that mobile home park, it's unlikely that you'll do any better than they have, because simply nobody wants to live there.
And of course, it's important. In fact, it's imperative. If you are going to change your existing market occupancy, you have to be smart about it. You have to bring in the right home that matches what your consumers can spend. Remember, it's the combination of the lot rent and the home payment times three, which is the minimum earnings mandate of most of your home financiers. So you've gotta reach that correct number. And you have to run the right ads. You have to answer the phone. You need to port that phone through Who's Calling or VoIP if you have Rent Manager. You need to do the showings. You need to mystery shop. You need to make sure that you are very, very strong at what you're doing. But that is how you impact vacant lots. It's not looking at macro stats and thinking, "Oh, look, well, the market occupancy is at 88%, so this park is only at 81%. So therefore, I should be able to drive it higher." No, you may not be able to drive it higher based on just that one item. What you have to look at instead is, can I buy homes, new or used, bring them in and sell them?
Remember that most of your homes in mobile home parks are completely paid for. Most of your homes, even a home from the '90s, that mortgage has already been fully paid. And the homes older than the '90s, they certainly could not even have a mortgage on them. So you could theoretically have a market with very high occupancy, but it's a filler. The demand simply is not there. Should anything happen to your occupancy, big windstorm blows through, homes get destroyed, you may not have the demand in that market to bring those homes in and resell them, to bring in new and used homes. So it's imperative when you're looking at this stuff is do not pay that much attention to mobile home park current market occupancy. Look at the byproducts that create the demand. Those are the key drivers as to whether or not you should buy that mobile home park. This is Frank Rolfe, the Mobile Home Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.