Are mobile home park residents really like “Waffle House customers chained to their booths” or is there much more freedom than this quote (that was taken out of context) would imply? In this episode of the Mobile Home Park Mastery we’re reviewing just exactly what the real options all mobile home park residents have, and why the media – and certain politicians – refuse to accept this reality.
Episode 136: Why Our Residents Are Always Free To Leave (Even If The Media Can’t Stand It) Transcript
In the film Talladega Nights, Ricky Bobby, which is Will Farrell's character in the movie. His father tells him, "If you're not first, you're last," and he lives his entire life based on that illogical comment that there's only one thing, "If you're not first, you're last." Now, my misquoted Waffle House quote has also haunted me just as Ricky Bobby's dad's famous quote did him.
What happened was I was talking to a reporter from Bloomberg and I was trying to explain them basic economics. They asked me, "Why Mobile Home Parks had such a low loan default rate?" I explained to them that, "A Mobile Home Park was very different from a restaurant which has a very, very high default rate and the reason is in a restaurant every day you opened the doors and you don't know if anyone will come in, but in a Mobile Home Park, if it was a restaurant, it would be like a Waffle House where the customers are chained to the booths. Therefore, you know precisely every day when you open the doors, how many customers you will have and what your revenue will be."
I didn't think of it much at the time because I thought it was a pretty good analogy for someone with no business experience to help them understand the various concepts of risk, and revenue, and banking. It then made it into the article on Mobile Home Parks and forever after. I've been haunted by the idea that all Mobile Home Park customers are chained to their booths.
This Frank Rolfe, The Mobile Home Park Mastery Podcast Series, today we're going to be talking about why our residents are actually not chained to anything and why they are always free to leave, free to do whatever they would like, and additionally why the media can't stand this fact.
Well, let's assume you live in a Mobile Home Park, and you live in a mobile home, and you own that mobile home, and you don't want to live there anymore. Maybe you don't want to live there anymore because you want to move. Maybe you don't want to live there anymore because you were living there with your spouse and you've gotten divorced. Maybe you don't want to live there anymore because you need to go into assisted living or maybe you just don't want to live there anymore because they just don't like it anymore.
Then what are your options? Are you truly chained? Can you just not even leave your home? Do we have the door chained shut? No. You have basically three options in that case. Option one, you can sell your home. You always have the complete freedom to sell your home to anyone you like. There's option one.
Option two, you can rent your home if you can't find anyone to buy it, well then rent to someone. Option three, if you don't like living in that Mobile Home Park you think you'd be happier elsewhere. You can go to the owner of the Mobile Home Park that you prefer and have them pay to move you typically free of charge from the Mobile Home Park that you hate so much to theirs. As long as you're not guilty of not paying the rent and having evictions and if your home looks decent, they'll pay to do that. We do that all the time. We do at least a hundred of those per year, and it's free.
What are your options again? Well, you can sell your home, you can rent your home, or you can have another park owner move your home for free. What's it all mean? It means you have every possible option. You are no way chained or handcuffed to anything. Why does the media make so much of my stupid Waffle House quote? It's because for some bizarre reason they don't understand our business model number one.
We don't want to be in the home business, we never have. Park owners have no interest in the mobile homes. We only have interest in the lot rent. The lot rent is real property, but the homes are personal property. Our CAP rates, our lending all stems from real property income and expenses. The banks will not even include personal property income or expenses and owning homes is not profitable to us, which is focused on land ownership.
There's really no money in it. If I buy a mobile home for $5,000 and sell it for seven, I make $2,000, but if I take that mobile home lot, which rents for $300 a month, and simply change it from being vacant to occupied, that's worth $30,000 or more to me. Why would I even waste my time messing with the homes?
For the longest time, the media has felt that park owners in fact are trying to force people out of their mobile homes so they can take possession of them through abandonment and resell them at a stunning profit. Let me explain it for a minute why that doesn't even make any sense.
If you are paying your rent in the Mobile Home Park and I suddenly wanted to force you out, which I don't know how you could force anyone out, but I guess the media believe it's because I could raise the rent so high you couldn't afford it so now you're going to leave. Well, let's see what it costs me.
Number one, I'll probably have to evict you if you won't pay, and that can take months of time, and legal costs, and court costs. Then I'll ultimately have to go ahead and take other necessary steps with the constable to have you removed from the home.
The legal side of that is probably a thousand. The loss of income side of that, based on a lot rent of let's say $300 a month is about another thousand. I've got 2000 in it at this point in the move. Now let's assume I ultimately take your home through abandonment after you leave. Well, let's tack another three months on there and let's tack on another 2000 of legal. Now I'm in at the tune of about 3000 legal and court costs, another $2,000 in loss of income. Now I'm not even $5,000 in.
Now, if I then try and remodel your home, which costs an average of $4,000. I'm now $9,000 in, but that isn't even solely the end of the movie. Now I have to run the ads, show the home, find someone to take it, and pay sales commission. When you add it all together, I'll be lucky if I get offered 10,000 bucks.
Now, otherwise, if your home is of no value and I have to demolish it, then I'll be out 2000 to demolish it. I'm looking at between seven and $10,000 out of my pocket if you run off and leave your home. Do I get seven or $10,000 back? No, I don't get that. We take a loss almost on every home like that we ever do.
What do I really accomplish here? Do I get more lot rent? No, I don't get any more lot rent. I get the same lot rent from the next customer that you were paying. I have no logical reason why I would ever want to take possession of a home unless I had to. Have no interest in the homes at all.
Now, this seems very confusing to the media because for some reason they believe that Mobile Home Parks are all about the homes. When I did the story with National Geographic and they came out to filmed me at our Mobile Home Park in Arnold, Missouri. I was in there in an old mobile home that we had just renovated because someone had left the park and we'd taken the home through abandonment. We were trying to sell that home for only $500 even though we had about $5,000 of renovations into the home. The guy from National Geographic couldn't understand it.
He didn't know why I wasn't trying to sell it for $10,000. I explained to him, "There was no market for that." No one was going to pay $10,000 for an old 1970s mobile home, but more importantly, I wanted to get my lot rent activated as quickly as possible. If I had someone in the home that would be valued at about $40,000 of enhancement in the value of the Mobile Home Park, but as long as it sat empty, it was worth nothing to me.
That's the big problem. People don't understand. We're not in the home business. We are in the land business. We have no interest in the homes whatsoever. What does it all mean? It means that people who live in mobile homes have every single right, every single one that anyone has in any stick built home, duplex, apartment, you name it. They can always sell it. They can rent it, they can do an organic move. They always have complete freedom of choice.
The entire argument that they can't, that they are somehow chained to their booth is as stupid as Ricky Bobby's dad saying, "Son, you're either first or you're last." Now the end of Talladega Nights, Ricky Bobby's dad rematerializes to explain to Ricky that what he told him is stupid. That he must have been drunk when he said it, but that if you're not first, you could always be second, or third, or fourth, or fifth. There's a number of options. Life is not as black and white as first or zero. I'm just kind of hoping here at some time in the Mobile Home Park industry, the media can grasp the same idiocy of being chained to a booth.
Now, that doesn't mean that my economic parallel for the Bloomberg reporter was wrong because it's still very accurate. That's why Mobile Home Parks have such a low default rate. Our revenues are well established every day. There's never any doubt when you wake up in the morning, when you own a Mobile Home Park, how much revenue you'll receive that day or that month. Completely different than a regular Waffle House which fail economically all the time.
Restaurants have the greatest failure rate in fact of any business in the United States, but my comment doesn't pertain to freedom. It's simply pertained to estimating revenue in a Mobile Home Park versus a restaurant.
As far as freedom comes and goes, our residents have every possible freedom that you can imagine. In fact, in most Mobile Home Parks today, the manager is even willing to bend over backwards and help the resident to sell their home or rent their home. We don't want to lose continuity. We want someone in that home paying lot rent, and at the same time, we want nothing to do with the home. We're in the land business. In our dream, we own none of the homes, we have never again a home that we have to ever take possession of. We simply want that infinite stream of lot rent. A real property income.
This is Frank Rolfe, The Mobile Home Park Mastery Podcast Series. Hope you enjoyed this. Talk to you again soon.