The flowers start coming out around March in most states, and that signals the arrival of Spring. But those flowers come from seeds that were planted months or years earlier. And the same is true of mobile home park investments. The great parks of today started out as rough turn-around parks of yesterday. To have a bright investment, you have to start off with the dirty work of choosing the right location, digging down in due diligence, watering it with continual attention to collections, occupancy and property condition, and then harnessing the power of rent increases, cost cutting and more customers on formerly vacant lots. While you can always go down to the florist and buy cut flowers and put them in a vase, it’s very expensive and they die shortly thereafter. To grow the truly great mobile home park investments, you have to put some work in at the front end, but the final result is a financial thing of beauty forever more.
Memo From Frank & Dave
Lessons Learned From The Louisville Home Show
The Louisville Mobile Home Show is the largest of its type in the U.S. An annual tradition for many years, it features around 50 new homes under one convention-center roof, showcasing the latest designs and price points. Even those who are not currently looking to buy new homes can learn a lot about new renovation ideas on older homes as well as current trends in the industry. If you missed out on attending, here’s what we came away with.
What’s new this year
- Color scheme going to grey on both cabinets and walls. The new, hip color seems to be grey on mobile home interiors. That’s not a bad thing as studies have found grey to be a soothing color that is universally liked. I’m not sure that grey cabinets have appeared before this show, and it gives me kind of a mid-century modern feel – which is not bad since the 1950s were the golden age of the mobile home.
- Trim that includes columns on the exterior. Manufacturers continue to try to find ways to give the mobile home exterior a little magic. Columns are the latest in this attempt to make the outsides as good as the insides. At least people are trying.
- More horizontal transit windows that give light but allow for big-screen TV on the wall. This is a great improvement, that we saw a little of last year and even more this year. With modern tastes running to giant wall-mount televisions, there’s no room for the windows if you want to have a giant television on the wall. These “transit windows” are narrow and wide and go on the top of the wall so there is room for the largest big-screens made.
- Framing out external windows with vinyl trim to mimic the look of stick-built housing. Another good idea. One of the most obvious visual differences between a mobile home and a site-built one is the windows, which have no adornment to make them stand out. So manufacturers are starting to make those necessary changes.
- 45 degree angle walls instead of 90 degree to make it less “boxy” looking. We saw some of this last year, but it’s an interesting idea. The concept is to “soften” the interior walls to lessen the feel of a “box” in a mobile home. So you make the corridors and room entrances with 45 degree angles instead of 90 degree. Cool idea but hard to use without wasting a lot of space.
- Titan exterior skirting that weed-eaters can’t cut through. We all know that weed-eaters are the kryptonite to vinyl skirting, and will destroy it over a period of years if the owner lacks common sense. This new skirting material is so strong that you can’t cut through it (unless residents start cutting grass with acetylene torches).
- Fireplace on the deck. This was the first time I’ve seen this concept on a mobile home (but it was an option on “park model” units last year). Having a fireplace inside a mobile home has always seemed risky to me, but having it safely on the deck is perhaps a much better idea.
Gossip overheard at the show
Of course, you always get good input just standing around and talking to other park owners and industry veterans. So here are some of the discussions that were prevalent at the show.
- How good the décor has become on the model homes – just like stick-built homes. There’s no question that the interiors of mobile homes have reached such a level that there’s not much more that can be done to elevate it. When Clayton brought in the best interior designers in the U.S. to decorate their models, the end result was spectacular. People still can’t believe how good the homes are on the inside.
- The attendance seemed to be up from prior years. Urban legend is that 50% of all mobile home sales are to community owners. We think that’s pretty much true. As a result, there is more and more attendance at these shows from park owners who are trying to decide which homes to buy to fill their vacant lots.
- Attempts to be more radical in design are coming out. Perhaps it’s an attempt to harness the love of tiny homes as evidenced on HGTV, or the desire to attract more younger buyers, but there’s no question that manufacturers are trying to find new ways to address the mobile home design. The coolest was the home with a flat roof that is high on one side and low on the other (kind of like a car port turned sideways). This was similar to the Frank Lloyd Wright designs back a half-century ago. We applaud any effort to brand the product as unique and more in-fashion.
Things that still need work
Despite the great things going on in the mobile home product right now, there are still some areas that need improvement.
- Exteriors are still not up to par with the interiors. It’s so painfully obvious as the interiors have become so good is that the exteriors are not up to par. It’s not a structural issue – the homes are long lasting. It’s strictly a design problem. The challenge is how to adorn a shoe-box to make it look more like a site-built structure. Nobody has cracked the code yet. But we’re sure the solution is out there lurking somewhere.
- Some bedrooms are still too small. While master bedrooms are fine, the kid bedrooms are kind of too tiny on some models. Perhaps the home of the future will find ways to shrink the footage of the living/dining/kitchen to enhance all bedrooms. It’s a zero sum game, and the only way to expand one room is to reduce another.
- Skirting still looks like a trailer – it needs to be integrated into the overall box. There’s no getting around the fact that one feature of mobile homes that make it look completely un-site built is the fact the home sits about 3’ off the ground. Then the skirting serves as a constant visual reminder of this fact. The industry would be well served to find ways to build a home that has no skirting. How is that possible? Perhaps you have skirting that completely matches the home and complete aligns with the existing walls, so it’s a seamless addition.
If the manufacturers can get these final issues worked out, the mobile home product will be a dangerous adversary to all forms of housing at all price points.
The Louisville Home Show is the centerpiece of the product showcase in the U.S. But if you missed this year’s event, this will bring you up to date. Or you can go to Tunica. You can view our image gallery from the event here.
Why Mobile Home Parks Are The Greatest Business Model Of All Time
Many Americans love Shark Tank. Similarly, we have spent our entire lives searching for the perfect business model. We have started and operated many businesses and done due diligence on many others. And the best business model we have ever seen is the mobile home park. That’s why we have devoted the past two decades strictly to this one asset class. So scientifically what makes it so great?
We are the only form of affordable housing in the U.S. when the nation’s need has never been greater
Who would have ever imagined that the goofy “trailer court” of the 1950s would evolve into the only form of true affordable housing in the U.S.? How did that even happen? Well, the apartment industry lost it’s focus on providing affordable housing when they discovered that they could con the U.S. government into paying the bill via Section 8. As a result, the average apartment rent in the U.S. is around $1,250 per month. Meanwhile, the single-family home industry went down the path of focusing on the $250,000+ price point for bigger profits, while the lot cost in most major American markets advanced to around $80,000, so the opportunity to build a $100,000 house is gone forever. There’s no better feeling than having a monopoly over the most in-demand price-point in the U.S. and that’s what the mobile home park industry has achieved.
We have the biggest “moat” of any American business model
You have not been able to build a mobile home park in most American cities since the 1970s. That means that our “moat” against competition has now spanned nearly a half-century and is pretty much set in stone at this point. Why can’t cities just relax this stranglehold on new construction? The reason is simple and will never change: mobile home parks lose cities money. Big money. Let’s assume there’s a 100-space mobile home park which contains 50 children. Each child costs $8,000 per year in public school tuition. Not even including hospital and other city service uses and programs, just the school cost for the park is $400,000. Meanwhile, let’s assume the park is valued at $3,000,000, and the 100 privately-owned homes are valued collectively at $1,000,000 for a total taxable value of $4,000,000. Assuming a property tax rate of 1% (standard for many states such as Missouri), that’s total tax income to the city of only $40,000, which yields a $360,000 city loss from the mobile home park each year. Now, of course it’s wrong for a city to try to limit the number of less affluent people that live within its boundaries. But their weapon is the hatred that most Americans share for mobile home parks. All you have to do is to tell the neighbors (via giant “rezoning” signs) that somebody is trying to zone land for a mobile home park, and every neighbor in a 5-mile radius will show up in opposition. That’s all the city council needs to deny the application and save the city a ton of money. We recently tried to re-zone some land for a park expansion in Iowa, and that’s exactly how it worked out.
Once again, we have the biggest “moat” of any American business model
We are one of the few industries in America that has a double “moat”. The second one is that the homes never move because they can’t. While mobile homes are “mobile” when they first come out of the factory, that’s pretty much the end of it. Those built before 1976 can’t be moved because they are grandfathered in place when HUD took over manufacturing. Those from 1977 to about 1989 rarely can make the move due to years of frame deterioration and fatigue. And the cost of moving a mobile home of any age – even new ones – is around $5,000, so nobody can afford to move them even if it was physically possible. This has resulted in the most stable income streams of any form of real estate, which has also resulted in the lowest bank default rate.
Mobile home park lot rents are insanely low and will rising rapidly going forward
Mobile home park lot rents are roughly 50% lower than they’re supposed to be based on basic economics. The source? Charles Becker of the Duke University Economics Department. Why are they so low? It’s the result of “mom & pop quantitative easing” which means that the original builders of mobile home parks neglected to ever raise them in pace with inflation. New owners are correcting that problem, and that’s making mobile home park lot rents soar (in tandem with apartment rents). There are few industries in America with as big a potential for price appreciation.
We are on the correct side of every U.S. megatrend
America is currently facing some huge dislocations, and the mobile home park industry is on the correct side of each of these tidal waves. There are 10,000 baby boomers retiring in the U.S. each day – and downsizing their housing costs. Roughly 50% of the jobs created in the U.S. since 2007 pay $15 per hour or less and need affordable housing. Apartment rents are currently roughly two times that which is affordable to the average U.S. household. 70% of Americans have less than $1,000 in savings. Interest rates are among the lowest in U.S. history, so the spread on mobile home park deals has never been higher. The list goes on and on. How did mobile home parks get in that position? Sheer luck.
We have spent our working lives looking for the greatest business model to invest our time and money in. Mobile home parks are it. We are proud of this sector of real estate – and for good reason. There’s nothing wrong with taking advantage of an epic business opportunity when it presents itself. What’s wrong is when you don’t.
Why Most Smart Park Owner Are Changing Over To Purchasing Platform To Buy Virtually Everything For Their Property
In 2018 we became huge customers of Purchasing Platform – one of their largest. And we suggest any park owner to look at what this new buying service can do in regards to positively impact your community. It’s literally a game-changer.
What is “Purchasing Platform”?
Purchasing Platform is an online GPO (group purchasing organization) and eMarketplace that has been created specifically for the mobile home and mobile home park industries. More than 1,800 MH communities access Purchasing Platform every month to take advantage of their pre-negotiated pricing, single checkout from 40+ vendors, auto expense mapping to their chart of accounts, multi-level workflow approval to provide accountability across their portfolios, etc. They offer 20-30% savings on more than 10 million products and an integrated "Buying Desk" service that acts as a purchasing agent for your community to make sure they always deliver aggregate savings on every order.
How big do you have to be to use Purchasing Platform? Can you use it with only one property?
The answer is yes – there’s no minimum limit of properties or dollars spent. Some of the largest industry portfolios use them but the majority of their clients own and operate between 1 and 30 mobile home parks. This is not a service that is only available to the largest owners – it’s one that every park owner in the U.S. can utilize.
Why use Purchasing Platform?
In addition to the obvious cost savings on products and services, use of Purchasing Platform drastically reduces the number of trips your manager has to make to retail stores (time spent not managing your property), eliminates the need for expense classification and receipt transcription while also providing valuable oversight to the owner with workflow approval. They also allow members to load their own catalogs to make sure that managers only can order what they want them to.
Summary of benefits
Here are the main reasons that we have become huge users of the Purchasing Platform:
- Easy to use interface. Not hard at all for any manager to master.
- Single checkout from more than 40 of the industry’s largest vendors.
- Huge savings on more than 10 million products.
- Price Match Guarantee: if you can find it lower somewhere else, they’ll match it.
- Create your own custom catalog.
- On-Demand Buying Desk feature gets you immediate support for volume quotes.
- Comprehensive Workflow Approval functionality to keep you in control of all buying.
- Maps out all expenses to your Chart of Accounts.
- Integrates everything seamlessly into your property management software.
You can try Purchasing Platform at no risk for 90 days
Purchasing Platform allows all park owners to try their system for three months with no obligation to continue. That’s how we got started – we gave it a try and liked it. So if these advantage look good to you (which they certainly should) we recommend you contact Purchasing Platform today at 312-622-6552 and [email protected] and get set up on a 90 day trial.
We think you’ll find this to be one of the big improvements in your operation for 2019.
How To Build Resident Loyalty
Harry Potter is an international phenomenon. It has extremely loyal fans who flock to Universal Studios in Orlando to ride the rides and revel in all things Hogwarts. Harry Potter fans would not even think of turning their back on this franchise. So how can you build an equally enthusiastic customer base in your mobile home park?
Have a manager that the residents respect and trust
It has been our experience that most mobile home park retention disasters begin and end with a poor manager. What normally goes wrong is that the manager chooses a few favorites among the residents and then treat everyone else with zero respect or consideration. They will scream at one resident about their mowing, while allowing one of their friends to let their grass grow 2’ high. This sows the seeds of bitterness, and unhappy residents start making arrangements to move elsewhere – either their home if it’s transportable or a different housing option if it’s not. To combat this evolution, you must always ensure that your manager has the respect and trust of all residents, not just a select few. How do you make sure this is happening? Give your residents a toll-free “Help Line” number and email and see what is reported to you. Also, mystery shop your manager constantly by *67 calling to see if they have any lots or homes for rent and see if they demonstrate a sour attitude. Finally, watch over the property condition HD videos that the manager should send you monthly, as well as collections and occupancy numbers. At the first sign of decline, act fast to replace the manager.
Create a sense of community that can’t be replicated
One of the greatest amenities in any mobile home park – and the one most overlooked – is the “sense of community”. What this represents is a support and friends network that residents develop when they are actively engaged with their neighbors. Obviously, it’s hard to leave a mobile home park when all your friends live there. So how do you do that as a park owner? Create opportunities for residents to meet and interact. Install picnic benches in that green space. Put in a playground. Put soccer goals in that empty field. Make your clubhouse nice and open to the residents. Have periodic events like a BBQ dinner to bring residents together, and talk to local non-profits about offering classes in business or language. The sky’s the limit.
Offer a great value
Residents appreciate a good value. Who doesn’t? So the park owner needs to be vigilant that they are offering that, as well as to explain that value to the customer. No mobile home park owner wants to be perceived as the most expensive property in town, so make sure that you know the exact rent and what utilities are included in every community in your market. Don’t keep raising rent blindly without tracking your competitors. Tenants do not move to another park if the rents are the same or only slightly lower. But if you’re running $100 per month more than everybody else, it’s only reasonable that you will fail to retain residents. Another thing to do is to send out a bar graph with every rent increase that shows where your mobile home park stacks up against apartment and single-family rents and costs. Finally, give back to residents – even in small ways – to help them feel good about the value. A couple picnic benches cost maybe $500, and a firepit another $250, but the net impact on your value assessment is far higher than $750.
Create a Help Line to correct any problems
Sure we mentioned that earlier, but we can’t emphasize it enough. Retention losses in many parks could have been solved and avoided with a simple Help Line. Get a toll-free number and an email address and have it ported to a Google or Grasshopped number. Calls will be captured and transcribed. You can immediately see damaging patterns in these calls, such as lack of respect from the manager, as well as cases where the manager has failed to respond to maintenance calls. You may even catch suspicious charges that the manager has started to claim that certain residents owe. The number of calls you will receive is very small, but each one could have a huge potential impact on your business.
Resident retention is critical as a mobile home park owner. Don’t forget that it’s of no use to fill vacant lots and homes if you hemorrhage those gains out with departing customers. Correct your retention issues quickly and improve your net income and customer happiness.
How M.J. Vukovich Can Help You Build An Empire By Re-Using The Same Capital
There’s an old concept of tying a string to a dollar bill and buying each item in the vending machine and then yanking the dollar back out and using it again. That’s illegal in most applications, but not in buying mobile home parks. The way mobile home park owners yank the dollar back out is in the form of cash-out re-financing. To accomplish this, you need to obtain a conduit or Agency loan that allows for this to occur. And the master of putting together this type of debt product is M.J. Vukovich with Bellwether. We have been using him on all of our institutional debt (which means deal sizes of $1.5 million or more). If you are working on park financing on deals $1.5 million or greater, you should give M.J. a call at 720-758-9227 to discuss the options, or email him at [email protected]. The call costs nothing and the results may give you huge cash-out proceeds (which are also tax free as they are technically a loan).
The Unique Story Of Spartan Aircraft And The Glamour Era Of Our Industry
We saw this advertisement in a sports car magazine recently – it’s an auction of a 1951 Spartan Royal Mansion, with an estimated auction price of $200,000 to $250,000. The Spartan models of the 1950s embody the best of the unique housing option that is now known as the mobile home park, although back then it was often called the “trailer court” or “trailer park”. The 1954 Spartan is considered the original mobile home. But what was Spartan and why did they build these luxury “trailers”?
The Spartan Aircraft Company was founded in 1928, and originally built upscale private planes, the most well-known being the Spartan Executive – the first to have a cruising speed of 200 mph. When World War II broke out, the company immediately started building a reconnaissance plane for the Army called the Zeus. When the war ended, the manufacturing plant was filled with aircraft-grade aluminum and no demand for its product. J. Paul Getty – the owner of Spartan and the richest man in the world at the time – made the unique business decision to forego further aircraft construction and to instead begin building luxury “trailer coaches” (a common name for mobile homes at that time) out of this pile of surplus aluminum. Utilizing the monocoque building technique used in airplane manufacturing, they spared no expense in producing the most unique all-metal mobile homes the public had ever seen. Spartan mobile homes were far more lavish than any other offering of that time period and were considered the “Cadillac” of the industry for more than two decades. Through the 1940s and 1950s, Spartan units commanded prices above $4,000 at a time in which stick-built homes only cost around $8,000. Spartan produced over 40,000 trailer homes before ending production in 1961.
You can still find Spartan mobile homes in park throughout America, thanks to their virtually indestructible design. We say one recently in a park in Indiana. It’s unlikely that the residents have any idea of the value of these units today in the collector’s market – similar to the collectible muscle cars that are sometimes found sitting under tarps in mobile home park residents’ yards.
It’s also an interesting fact that Warren Buffett – nearly the richest man in the world today – is also currently building mobile homes via his investment in Clayton Homes. In that way, mobile home history has repeated itself.
Get The Recordings To The 2019 Affordable Housing Summit!
This is the 10th Anniversary of our annual think tank on the latest trends, developments, and predictions for the mobile home park industry. Our theory is that every attendee should come away with at least a couple ideas that are worth ten times the investment in time spent listening. And this year we outdid all former events with more speakers and more topics than ever before. These are this year’s speakers and discussions:
- Megatrends In The Industry By Frank Rolfe
- Mobile Home Park Laws And Regulations With D.J. Pendleton
- Mobile Home Park Financing With M.J. Vukovich
- Revenue Enhancement Concepts With Amy Moore
- How To Properly Insure Your Mobile Home Park In 2019 With Kurt Kelley
- Purchasing Platform With Dave Bowen
- Filling Vacant Lots With David Graham
- Environmental Report Issues With Mike Renz
- Buying Used Homes To Fill Lots With Quinn Keyser-Cochran
- Hiring, Retaining And Firing Managers With Todd Burget
- Third-Party Management Of Mobile Home Parks With M. Shapiro Real Estate Group
- How To Sell Mobile Homes With George Andrews
- Filling Vacant Lots With The CASH Program From 21st Mortgage
- Creating The "Sense Of Community" With Heather Blanks And Tory Wilson
- Water/Sewer Sub-Metering With Metron Sustainable Services
- Legal Issues In Buying Mobile Home Parks With Dave DiMarco
- Buying Mobile Home Parks In 2019 With Two Top Industry Brokers
- The State Of The Mobile Home Product With Clayton Homes
- Making Marginal Deals Great And What Deals To Avoid With Dave Reynolds
- Summary And Highlights With Frank Rolfe
If you would like to share in this portfolio of information – on both park purchasing as well as operations – then you can still buy the recordings and full text transcripts of the entire event for only $99. Order your copy today!
How To Harness The Prime Occupancy Season: Which Starts Now
Retailers have Christmas, which accounts for up to 80% of their annual revenue. And mobile home parks have Spring and Summer, which represent the prime selling season each year. Our key season starts around March and runs through September – about a six-month window. This is when most Americans move, while the kids are out of school and the weather is good. So how can you best harness the power of this prime selling season?
Have a “Spring Clean Up” event
The first order of business is to clean up the property and make it a place that people would want to move to. And the logical theme right now is a “Spring Clean Up” event. All you have to do is to pick a date (one in which the weather is warm enough to paint) and check with the city on what days they pick up large trash in the mobile home park (couches, etc.) and make sure these two are the same. The leader of the event should be your manager, and you should enlist the aid of all residents in bringing the park up a notch. Start at lot #1 and work your way around the entire park doing yard clean-up, removal of large trash items, painting fences, decks, stairs and mailboxes, fixing skirting, installing mini-blinds, and the like. You will find that once you jump start pride-of-ownership, the residents will really take up the baton and run with it. Even those customers that have little interest in aesthetics will feel the need to participate out of peer pressure.
Get all of your vacant homes ready
You can’t sell or rent homes that are not fully ready for occupancy. So take this next month to get every single home perfect and ready for showings. That means that yards are clean and tidy, home exteriors are painted and free of mold, and interiors are clean, painted, all cabinet doors working, and smelling good. If you would not live in that product, then why would you’re customer? And there’s no excuse to get this going, even if the current temperature is 5 degrees below zero, as the bulk of this work is indoors.
Get all vacant lots ready for occupancy
If you have vacant lots, you need to take every step possible to get those occupied. At a minimum, that means getting them well-mowed and free of any debris. But in some states, there are installation guidelines required by HUD that include concrete pads, piers or runners. Since these take a long time to put in, you might as well get that process going now (although they can’t pour concrete until the weather is warm enough for concrete to set). We typically always try to keep a lot or two ready for immediate occupancy in case we get a call from a customer or dealer who wants to move a home in, or we find a great deal on a new or used home for that lot.
Start advertising aggressively
Every good park owner has their marketing and advertising fine-tuned and at full blast when the prime selling/renting season begins. Get your social media presence up and going, order and install banners and feather flags at the entry, put “for sale” and “for rent” signs in the yards and windows of all vacant homes, get those tear-sheets in the laundromats and grocery stores, the resident referral letters out, and even the apartment direct mail chugging.
Properly train your manager
If you have neglected working on making your manager a success, then it’s time to ramp that effort up. Your manager needs to answer the phone within three rings with a hearty “[name of park] – how can I help you?”. They need to put the focus on any incoming call all about getting the customer to come in for a showing. They need to translate every showing into an application for residency. And they need to close every possible rental or sale. If they are not competent in any of these areas, try to retrain. How do you know? Role play where you are the customer and see how they do, coupled with mystery shopping.
Build the mechanism to track performance
The normal industry metric is 3 calls = 1 showing and 3 showings = 1 sale or rental. When a park is not doing well, it’s typically due to a failure in one of these three critical tasks. If your phone is not ringing, then your advertising is deficient. If you’re not getting a showing with every three calls, then the manager is doing a terrible job on the phone as far as getting them to come in. And if you’re not closing a sale/rental with every three showings, it’s a sign that your manager has no ability to close the deal, or your pricing is too high.
Never take “no” for an answer when it comes to occupancy
Sales is all about not taking “no” for an answer. Reinforce this with your manager. It’s stupid to blow a sale over $100. If the customer says “I don’t have the $1,200 you need for deposit and first month’s rent, but I have $1,000” then take it. If that home sits empty for another two weeks you already lost the difference. If the customer says “I can buy the same home down the street for $500 less” then match that price. Your motto should be “what do I have to do to get you in this house?” and be willing to negotiate to make that happen, as long as it’s within reason.
The prime selling/renting season is basically here. Don’t blow this once-a-year opportunity. Get to work now to make sure that you hit or exceed your occupancy target.
Why We’ve Been Converting All Of Our Water Sub-Meters To Metron
We have been rapidly converting every existing water meter in our 30,000 lot portfolio to Metron-Farnier Sustainable Services. So why are we such huge fans of the Metron metering system? The answers are many:
- These meters are read remotely and do not require our managers to read them (or screw up the readings).
- The meters are read by Metron every 60 minutes, 24 hours a day. As a result, Metron can alert you when there’s a leak, and that can save you thousands of dollars per year.
- The meters are amazingly accurate and strong.
- Metron’s meter bodies have been manufactured in Europe for years – they are well-established and a proven performer.
- Metron’s electronics are built and tested in Boulder, CO.
- The cost is only around $5 per month per meter, and in most states this cost can be passed on to the resident.
- These meters do not require you to have access to them, so they are perfect for winterization or difficult access situations.
So why would you not use Metron? We don’t have a clue.
To get more information on Metron metering, call Rick Minogue at 303-449-8833 or email him at [email protected] Tell them that Frank & Dave sent you. We’re their biggest fans.
Here’s Your Copy Of This Month’s Manufactured Housing Review
If you enjoy this monthly newsletter, then you will certainly also like the Manufactured Housing Review – the industry’s only monthly magazine that covers many different industry topics. Edited by our friend Kurt Kelley of MobileInsurance, MHR offers many insights and opinions that reflect current events in the affordable housing industry, with no topic taboo.
To view this month’s issue, click here!
The Top 6 Steps To Feeling Good Taking A Shot On A Mobile Home Park
It’s always stressful to take the shot. You fear failure and the opinion of your peers. You worry about wasting your important investment dollars. But there are ways to reduce the stress in buying mobile home parks, as well as helping to ensure that every property you buy is a success. So how do you accomplish this and feel good about taking the shot?
# 1: Did you run the numbers at least three times?
No one should ever buy a mobile home park without checking and re-checking the numbers at least three times. If you have only run them once, then you’re only a third of the way there. After you close on the property, it’s too late to discover your math errors. There is a true sense of confidence in having a total mastery of the numbers.
#2: Can you handle the worst-case scenario?
We’re not talking about the ultimate worst case, such as the fact that every time you drive your car you may die and therefore you refuse to drive. We’re talking more about being able to handle a slight decline in revenue when those folks that have not paid in several months get evicted after your start a no pay/no stay philosophy. Every deal can be broken up into a range which includes the best case, the realistic case and the worst case scenario. Can you handle that worst case option? The other two can take care of themselves.
#3: Did you do exemplary due diligence?
Ben Franklin once said “diligence is the mother of good luck”. He was totally correct. You should never buy a mobile home park unless you have conducted a thorough and accurate review of every piece of the deal. Our “30 Days of Diligence Guide” is the industry bible on this, based on our 20-year review of hundreds of deals and the lessons learned. You HAVE to know every component of the physical plant, permits, revenue, expenses and the market to have the confidence to take the shot.
#4: Have you identified your biggest risks and do you have a Plan B on each?
Every deal – even those that have successfully been vetted in diligence – begins life with one or two weak points. It could be a well or septic, or maybe small lots with high density. Regardless, the key is to acknowledge what these problems are and then have a Plan B ready to address them when they pop up. For example, if your park has a water well, you need to know exactly who to contact if it goes dry, as well as what the cost is to drill a new well. When things go bad, you need to calmly open your Plan B folder and make some calls and get it fixed. Knowing that you are ready for the unexpected gives you much greater confidence.
#5: Is your financing sufficiently long enough to allow you to refinance the park successfully?
There’s nothing scarier than a short duration mortgage on a mobile home park. We generally suggest that all park owners start to replace their debt at least two years or so before it comes due. That gives you a year to find a bank and another year to sell the park off if you fail. That being said, a 3-year note only gives you a break of one year before you have to get into the financing game again. You really need a note that is at least 5 years in length before it comes due – and 10 years is even better. A 5-year not at least gives you three years to push rents and fill lots before you have to worry about financing again.
#6: Are you excited about the purchase and have a good “gut feeling”?
We have always found that the best deals are filled with excitement on the part of the buyer. If your “gut instinct” is that this deal will be a winner for you, then that’s a great endorsement. However, if you’re still worried after conducting due diligence, then maybe you should pass on it, or at least put on the brakes until you figure out what’s bothering you.
Buying a mobile home park always getting out of your comfort zone. But if you follow these six steps it should help you have the confidence to make that final decision and pull the trigger.
The CASH Program From 21st Mortgage: One of the Big News Stories of 2019
One of the biggest things going in the mobile home park industry is the CASH program from 21st Mortgage. If you own a mobile home park, the power of this program is astounding. You can fill vacant lots with zero out-of-pocket cost. You can get customers approved to buy homes with amazing speed and a “can-do” attitude. You don’t have to get in the middle of financing or the SAFE Act. And you can tap hundreds of thousands – or millions – of dollars sitting there in vacant lots. The demand for affordable housing in the U.S. is enormous, and the only thing holding most parks back from 100% occupancy are new and used homes that your customers can qualify for. With the CASH program, those obstacles can be overcome and your occupancy can soar. We are the largest users of this program in the U.S., and we know how great it is.
The Enormous Profitability In Filling Vacant Lots
It’s always mind-blowing to compute the value of an occupied lot vs. a vacant one. While a vacant lot is worth zero, an occupied lot – based on lot rent – can range from $20,000 to $100,000+. With this in mind, every park owner should put a massive effort into filling those vacant pieces of ground. So how do you tap into the money?
Getting in the “ready position”
Just like tennis, there is a ready position required before you can start the point. To get in the game of filling lots, you have to make your property nice looking so that people would want to live there. You have to make the vacant lots clean and attractive, You have to start advertising to find potential occupants. And you have to make the necessary improvements to meet HUD requirements if that’s what your state dictates (concrete slabs, piers or runners).
The options to fill vacant lots
There are several different options for filling vacant lots, and you should attack each one with aggressiveness simultaneously:
- RVs. Recreational vehicles (RVs) can pull into lots immediately and require no modifications under HUD (at least in the states we’re in). Make sure that your park’s permit allows these, however.
- Lonnie deals. These are people who buy and sell mobile homes as a business model.
- Organic moves. This is where a customer moves from a different mobile home park to yours.
- Used homes. Typically from the 1980s and 1990s, these include repos that you buy and bring in.
- New homes. Normally tackled under the 21st Mortgage CASH program, these are new homes funded 100% under the program.
As you can see there are a variety of ways to tap into occupying your vacant lots.
We have learned a lot over the past 20+ years of filling vacant lots. These lessons include:
- Never commit fully to any strategy until you learn you customer base. Until you start putting in applications, you never really know your customers’ credit scores and down payment amounts. Go slow until you fully understand what you’re working with.
- Try to creatively close every deal. Don’t allow your managers to have a “take it or leave it” mindset. Be negotiable and be creative. Live by the motto “what do I have to do to get you in this home”.
- If things are not working as planned, verify what’s really going on in the field. It has been our experience that failure is typically caused by manager issues. Mystery shop constantly, or port your number through Who’s Calling and record the calls. Call those who don’t buy and ask them why. Remember Ronald Reagan’s slogan “trust but verify”.
Filling vacant lots is one of the most lucrative parts of owning mobile home parks. Use this guide to get that process going in your park.
How And Why To “Stage” A Mobile Home
As you can see from the Louisville Home Show, manufacturers understand the benefits of putting furniture and decorations on the inside of a mobile home. This process is called “staging”. And some smart park owners have started using this strategy in selling vacant homes in their park.
The benefits of staging a home
Staging takes the guesswork out of how a home would look with the furniture installed. Some customers have little imagination, and this cures that issue. Other times, staging is important to demonstrate room sizes and that a queen or king size bed fits in the bedroom. There’s certainly no downside to it.
How to do it on the cheap
If you try to mimic the Louisville Home Show staging, it will cost you $5,000 or more per home. However, that does not mean that you can’t do it on a bargain rate. We have staged homes using furniture from Goodwill and Salvation Army. And you will find that this furniture is pretty good quality and insanely cheap. You can also find smaller furniture (small sofas, chairs and tables) at these sources, as modern furniture is much larger. This can be an important part of staging old homes with small rooms.
An in-between option
If you can’t afford $5,000 yet don’t want to shop at Salvation Army, another option is to partially stage a home, which means just putting in a few items. Typically, these would be a king size bed in the master bedroom, a sofa in the living room, and a dining table with chairs. You can buy these items new at a lesser furniture company and not break the bank. And when you sell or rent the home, you can move all of this to the next vacant home so you only have to buy it once.
Sometimes it helps to make the sale
We have had cases in which the customer demands that the furniture go with the home if they buy or rent it. Fine. It’s not that expensive and if it makes the deal happen, then good job. You can just go buy the same stuff again to stage the next home.
Staging homes is an old-school practice of stick-built and apartment developers who have learned the benefits of a “show home” in getting the sale of rental made. Follow those lead on your vacant homes if it will help to get new customers in the door.
Is Your Attorney a “Deal Killer” or a “Deal Maker”?
How many deals have you seen go down the drain because your attorney stacked up a million roadblocks to even the simplest problems, and then failed to offer any path to solve them? This is called “deal killing” and some attorneys do this so that they take no risk – if the deal never happens, they can never be criticized for missing a deal point, or for not spotting a flaw in the contract. The problem with this, however, is that you can’t get anywhere. At the other end of the spectrum are the “deal maker” attorneys that recognize real problems from trivial ones, and strive to solve these roadblocks using common sense and legal experience. And the best of those type of attorneys is Dave DiMarco from Woods Oviatt Gilman. We once had a deal go south in a big way – the very driveway into the property was determined to be on somebody else’s property. Any other attorney would have said “well, that’s it, the deal’s dead” but Dave DiMarco sprung into action. We located the owner, negotiated a purchase, personally handled the details, and the deal went forward. And all that over a weekend, no less. And that’s why we love Dave DiMarco and you should, too. If you need service like that, then consider using Dave DiMarco on your next transaction. You can reach him at (585) 987-2833.
Notes From TEXCO
We try to attend most of the major industry events, and one of those is the annual TEXCO meeting, which is a loose association of park owners and related industry folks from the Texas region. With Texas being the largest mobile home park state in the U.S. – based on total number of parks – it’s always an interesting event. Here are some observations from the recent TEXCO symposium.
Interest in the industry is soaring
The attendance was the highest since the event started. It’s always great to see that park owners are finally getting engaged with the industry and trying to improve it. A good way to judge the actual interest in the audience in learning was the attendance at the speeches – and it was virtually everyone there. Nobody appeared to be there for the food or to just hang out with their friends, The enthusiasm appeared to be genuine.
The make-up of the audience is changing
When I first started going to these type of events, the audience was mostly mom & pop old-school owners who operated normally just one property. But the audience has rapidly changed and the attendee base is now significantly younger, more professional, and filled with more portfolio owners. Back in the old days, the audience was obsessed with trivial issues like “using the name mobile home park versus manufactured home community” and why there’s no bacon at the breakfast bar. Now nobody cares if you call it “trailer park”, “mobile home park” or “manufactured home community” as long as you’re hitting the right IRR.
Management is the new hot-topic
The majority of speeches revolved around mobile home park management. That’s becoming a big issue with an industry that is trying hard to “grow up” and be in-line with its multi-family peers. With lot rents increasing, the ability to hire better-quality talent for managers is coming into view. With good management the key element of hitting maximum net income, this is becoming an important part of every park owner’s strategy. We would imagine that this topic will be prevalent at all industry events going forward.
Overheard at the event
The hot point of discussion was “green field development” – basically building mobile home parks from scratch. There was at least one speech on this topic, but a lot of further discussion in the hallways. Of course, the type of new construction being discussed was not the traditional park concept as cities have shown a firm resolve to block any new “trailer park” construction in perpetuity. Instead, the talk was about a new type of park product which is one park tiny home, one part park model, one part insanely nice amenities and one part millennials and seniors (with virtually no kids). The homes are small (about 400 square feet with the park models) but that’s offset by vast activities in the form of fitness center, jogging trails, clubhouse, tennis courts, pool and other recreational items. Even though they have limited viability in most markets, these type of new projects definitely help to break down the stigma barrier.
The TEXCO event is always interesting and worthwhile if you are near to the venue. Based on this year’s edition, there’s a lot of good things going on in the industry.
Need A Phase I Environmental Report? Mike Renz Is Your Man For The Job!
The New York Times called Frank a human encyclopedia of all things mobile home park and, if that’s true, then Mike Renz is the human encyclopedia of all things under the ground. You see, when it comes to Phase I Environmental Assessments, nobody in the industry is more knowledgeable than Renz. He’s our go-to guy for all things pollution-oriented, from Phase I reports to simply asking questions on what we see going on next door to the property (or even inside that concerns us). We were once walking through a property and saw a brown colored solution oozing from the property. Within minutes, Mike had pulled up the data and figured out what it was (rusty water from an iron-ore- rich artesian spring). That’ the kind of information that we find invaluable in today’s litigious world of environmental condition. On top of that, we’ve had Phase I reports that failed for existing pollution, and Mike Renz has been able to solve them by using common sense and technology, like the time he proved the EPA wrong by doing a simple core-drilling to prove that a supposed landfill on a mobile home park did not actually exist (it had been phoned into the EPA by a former manager who had a grudge against the owner). If you want that level of expertise on your side, then you need Mike Renz to be your Phase I Environmental provider. That’s who we use, and he’s amazingly good.
You can contact Mike Renz at (614) 538-0451.
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