As long as mobile homes are sold to fill vacant lots, there will always be a percentage of customers who will not make it to the of their mortgages. And with a recession officially arriving soon, the issue of home repossessions needs to be watched closely and planned for. In this Mobile Home Park Mastery podcast we’re going to drill down on the real facts regarding home defaults and how to proactively minimizing them.
Episode 358: The Facts About Recessions And Home Repos Transcript
As long as Americans buy homes with mortgages and make monthly payments, there will always be a risk of default. And that risk of default typically will accelerate during recessions. And every park owner needs to understand that risk and how they can proactively manage it. This is Frank Rolfe with the Mobile Home Park Mastery podcast. We're gonna explore this whole concept of home repos, which happen to mobile home parks on a regular basis. They happen in all forms of housing. Where we see that trend going and how you can properly analyze your own park and make plans and preparations to help minimize any impact.
Now, let's first start off by acknowledging that the home default rate in mobile home parks is very, very small. The average across America is roughly 5%, but we find that's very skewed based on geography. If you've got a mobile home park in some northern states where customers typically have higher incomes, you're going to find a probably even lower default rate. You might even have a mobile home park with a 0% default rate for as long as people have been buying homes on those lots.
But there are other parts of America, typically more rural parts of America often, where you may have a greater than 5% default rate. But our average in America from coast to coast is roughly about 5%, and that's really pretty darn good. If you look at what happens with those same customers on such things right now as credit card defaults and automobile loan defaults, well, that's running about 10% and greater. And that's because housing has always been, for most people, their number one priority to pay.
So as a result, and I see no reason for that to change, mobile home repossession rates will always remain very small, much smaller than probably any other asset that any mobile home park resident takes on via debt. And we also know that to default on a mobile home, you have to have a loan. So that then begs the question, all right, in any given mobile home park, how many homes really are at risk? And here's how you can look at that. Any mobile home park that's pre-HUD, pre-1976, we know is fully paid off.
How do I know that? Because mobile home park loans have never been longer back in that period than typically 10 years or at the most 15. So every home I've got that's pre-HUD has effectively a 0% repo risk. And then you got your homes from the '80s. Well, back in the '80s, the longest mobile home mortgage they made was 15 years. So once again, those are all paid off. And then what about the '90s? Well, they didn't start doing the 30 year mortgage on mobile homes until the very end of the '90s. Let's say probably 1997-98. But even then, on a 30 year note, those are almost already completely paid off if they have not already been paid off. So all of your '90s homes are paid off.
And then you have your 2020s homes. How are those doing? Well, those are the ones in that period of the 2000s and the 2010s and the 2020s where you have the highest risk of repossession. So you can actually look at the homes in your park and you can see how big an issue this is to you. Because unless you have a lot of really new homes with pitched roofs and shingled roofs and vinyl siding, then probably you don't have much to worry about because none of that older home stock, none of your round roofs, none of your flat roofs, none of those have any risk whatsoever. And even your early pitched roofs won't have much risk at all.
So you can quantify it, thank heavens, simply by looking at those different roof lines and the age of the homes and you can get a pretty good handle on it. And then you have to think about another issue. And that is the impact of COVID on mobile home pricing. Because if you own a mobile home park and you were buying homes to fill vacant lots, you were probably paying half pre-COVID of what the new home costs today. So the home today, which is $70,000 or $80,000, prior to 2020 was running about $40,000. Quite a difference, isn't it? Kind of amazing that we could go up 100% in price in such a short span of time, but that's what the industry has done. But again, that's gonna have a real bearing on repo rates because the customer who's having economic problems is gonna realize there's not anything in the world where they can live that's nearly as cheap as what they have. And if they should happen to default and the home does come back on the market, well, you can probably buy that home at a bargain and resell it because based on today's prices and they all look the same, the homes from the pre-HUD era look no different.
There was no change in model designs between 2019 and 2024. So those homes just based on competing home values will be worth far, far more than the loan. So once again, you'll be in pretty good position. But at the same time, we wanna put ourselves in the best position possible, put our best foot forward to make sure we have very, very few defaults and we can address them quickly when they come up. So then what can you do as a park owner to put yourself in the best possible spot?
Well, the first thing you can do is have your managers, a big part of their job, watch for any signs of distress. So if they hear any rumors in the park about someone having trouble making payments, if someone is not paying the lot rent on time, now you need to spring into action because it's possible that home might go into default. So what can you do? Well, you can have the manager go and talk to the customer and just see kind of what's going on. If the customer is having problems making payments, then perhaps you could proactively come up with a solution other than letting them default. It might be possible that you, the park owner, could buy the home. It may be possible you, the park owner, could take over the payments on the home.
It might be possible that you could help the owner of that home to sell the home and you help the process by allowing them to run the ads and your manager could even answer the phones and show the home. We don't wanna have anyone run off is the key. We wanna have continuity. In most mobile home parks, if the people living in the homes would only set in motion selling the home more in advance, then we would have probably no repossessions 'cause the demand for affordable housing is so insanely high that the phones ring off the hook, but you have to try. There was an article I reviewed in that news review I do weekly recently where a guy was saying he could not sell his mobile home that he had paid $80,000 for, so he just walked off and left it as though that was the fault of the park owner. But if you research the market that home was located in, the market was about $600,000 on the single family home. He could have easily sold that home. What happened was he didn't try. He just gave up, threw up his hands and never even bothered to run a single ad or even put in any effort whatsoever.
And that's a chronic problem with a lot of people who go into default on the homes is they could sell the home and get rid of their problem and pay off the mortgage. But they don't put in the effort. So your manager needs to go to those people and proactively see if they can help and resolve problems before they fester and turn into an all albeit big one. Also, see if there's any way that your manager can become a better salesperson. Now, we used to have a company where we were selling about 300, 400 homes a year. And in modern times, we've been selling over 1000 homes a year for the last several years. How do we turn the corner? We unlock the science behind what we were doing.
So today, when the phone rings, the manager has to answer it. And if they don't answer it, it rolls over to someone in a centralized call center to answer the phone. 'Cause if you don't have mastery of your phone, what do you have? You have nothing. No one buys a mobile home online. They don't go onto eBay. You have to be able to answer the phone and set up a showing. And from the showing, then you get applications. The normal trajectory is for every three calls, you get one showing. And for every three showings, you get one application. Now, one application may not mean you get the home sold. It may take multiple applications to sell it.
But it all boils down to that very first step. Don't answer the phone. You don't have a prayer of getting anything sold. And right there in most parks, that's the issue you have to unlock. How is your phone being answered? How does that all work? And if you port your phone through a service like Who's Calling or VoIP, if you have Rent Manager, that will help you not only see how many calls you're getting, but also it will allow you to listen to recordings of the calls or to call those customers to get exit interviews of what happened.
You'll also find that if you wanna be a more powerful sales group, you've got to produce the best product you can. In a lot of mobile home parks that we visited, you're going to see situations where the manager is not keeping that home in a position to be sold. The home is not tidy. You'll see often on the counter a coffee cup with an old cigarette in it. Things like that. Little details like that that could just ruin your sales. JW Marriott once said that it's the little things that make the big things possible. And when you're out there trying to sell homes, it's very much true. Also make sure you utilize all of your potential in the park as far as marketing for homes.
A big banner on the fence that said homes for sale. Signs in windows, signs in yard, very effective campaigns on Facebook and Craigslist. These are the type of things that will help you increase your volume of calls. And again, calls translate to showings and showings translate to sales. Finally, the quality of the person who answers the phone, the person who shows the home, needs to perhaps be raised in your property. The good manager today is someone with extremely good people skills. No longer is the typical mobile home park manager all about bureaucracy and accounting. Today, what you need from that manager is to be able to sell, to diffuse problems among residents.
And if you couple the power of answering the phones with making sure that the signs are up and that the park looks good, and that you have that whole aesthetic that most people want in buying the home, and you couple that with a manager who's got the gift of gab, someone who can talk to the customer, look them in the eye, shake their hand and say, welcome to our property, let me show you this great home I have, that's when you will really turn the corner. And the stronger you are on sales and marketing, the easier it will be for you to solve any repossession. This is Frank Rolfe with the Mobile Home Park Mastery Podcast. Hope you enjoyed this and talk to you again soon.