One of the most lucrative ways to get into the mobile home park industry is to buy a property that is “broken” and “fix” it. This concept has long been called a “turnaround” because what you’re effectively doing is taking something that is not performing properly and bringing it back to life. So how does that concept work in real life? In this first part of a five-part series on “Tough Turnarounds” we’re going to take give different parks we’ve bought and fixed over the years, and lay out the game plan from start to finish and what happened along the way. If you’ve ever driven by a rundown trailer park and thought “I bet I could fix that place” then this podcast series is right up your alley.
Episode 39: Tough Turnarounds Transcript
Old metal flat roofs with no skirting and beer cans scattered all over the ground, that's a typical American stereotype of a "trailer park." But what if that trailer park is in a nice area of town surrounded by McMansions and a private school? Then what do you have? Well, you have an underutilized asset. You have something that needs to be changed, repositioned. We call that doing a turnaround. In this next five part series of the Mobile Home Park Mastery Podcast we're going to be talking not only about turnarounds, but some of the toughest turnarounds we have ever done.
The first one we're going to talk about today is Glenn Haven, my very first mobile home park that I ever purchased and in Dallas Texas. Now, why would you even want to do a turnaround on a mobile home park? Well, it needs to be in a great market. Dallas obviously met that criteria. It also needs to have large enough lots you can put homes back on the lots as you start tearing out all the old junkers, and Glenn Haven had that. The lots weren't giant, but they would allow for 14 by 48, which are the smallest two bedroom one bath kind of homes. Then you also had to have a lot of demand.
Well, my test ads at Glenn Haven proved the demand was there and abundantly so. I was getting often 30-40 calls a day for mobile homes at Glenn Haven, simply because the Dallas market is such a giant metro. I knew there was all the raw material I needed to make Glenn Haven into something nice, so how do you begin? Well first, let me give you some background on Glenn Haven. Built in about 1951, this was your classic mobile home park from that era. It had nice streets, concrete sidewalks, concrete parking pads. All kinds of good things going on.
But the problem is that Glenn Haven had kind of been let go for a long, long time. As a result, it had lots of deferred maintenance. The park owned homes were in very poor condition. The roads had giant potholes. The laundry buildings were just completely a wreck, broken roofs, plywood over windows. There were water and there were sewer issues. Despite the fact it was city water and sewer, the water and sewer lines needed some help. They were springing a leak in certain cases or there were tree roots that were clogging the sewer shut.
I had to take all this raw material and decide first off, given these items I need to repair, can I make the numbers tie? I had to budget for all these items. In the case of Glenn Haven, yes, the purchase price was very low. The seller carry was very, very attractive, so I was able to budget in making these capital repairs and the numbers still worked. Next thing you do when you do a turnaround is you've got to figure out how do you cut the cost. Glenn Haven had one giant cost that was killing it. It had a cable television contract in which the former owner had been supplying free unlimited cable to 83 lots in the park.
The problem was, there were only 40 that were occupied, and the bigger problem was, he was not getting any kind of commercial discount, so those 83 lots were costing him about $2,500 a month. What I did on that case was, I realized of the 40 occupied lots, about 20 were on Dish or Direct TV with little satellites on them, so I basically turned the cable off and I got very little pushback because no one really cared. It was not a big item to people. Saving the park about $2,500 a month. If you look back on Glenn Haven, that in fact was the magical number that was able to turn it from being a monthly negative cashflow, to being break even.
I also had to get the collections fixed. We had people living in Glenn Haven who had not paid rent literally in years. I had to enact a no pay, no stay policy. If you didn't pay your rent, you couldn't live there any longer. It was no longer going to be satisfactory for people to defer making their rent payments for months or years. It didn't work for me, so I had to get everybody out who would not pay. Man, did I have some bad residents at Glenn Haven. When I showed up, there was a wrestling ring in the back corner. They were holding Saturday night wrestling matches. It even had little makeshift concession stands made of old rotted plywood.
All of that had to go. The whole attitude of Glenn Haven, since it had not been managed for the longest time, was that the residents ruled the roost and not the owner, not the manager. The people there had just been empowered to believe they could do anything they want. Throw their trash in the yard, why not? Stack up three or four non-running vehicles, why not? Nobody seemed to care. As I drilled down deeper, as I started to clean out the most obvious items, I still found all kinds of resident issues. I had the resident, for example, who got in a temper tantrum one day and broke out the windshield on several cars with a baseball bat.
That wasn't going to work for me. That resident had to go. Then I had the carnival worker. This carnival worker was collecting hookers into their old RV that he had. I went over there one time, because I had a report from neighbors that there were hookers wandering through the mobile home park, and I knocked on their door, and there were three of them in there with the carnival worker, so he had to go too. I had to get rid of all of the residents who would not comply with the general rules of living in a civilized society. Basically, we call it no play, no stay. If you will not play by the rules, you can't stay in the park for the simple reason you're damaging the park as far as all the other residents.
All of that had to go. Basically, when you do a turnaround, a tough turnaround, step one is just to get all the rotted wood out. You've got to get down to the solid things that you can actually nail things to, to build a nice place to live. Initially at Glenn Haven it was all about getting rid of unnecessary cost, getting rid of people who would not obey the rules, getting rid of people who wouldn't pay the rent, and then fixing all these decades of deferred maintenance. That was step number one in the turnaround.
Now, step number two in the turnaround at Glenn Haven was it had two terrible attributes that I did not even know what they were when I bought it. One, master metered gas. The other, master metered electricity. Master metered gas, what that means is there's a giant gas meter and then you have to pay for all the gas in the entire mobile home park. Even worse, you are the gas company. That's a terrible relationship. What makes that even worse is, is you have a leak, you have to, in the gas world, do what's called a pressure test. You have to pump air into your line to show there's no leaks anywhere.
Well of course, an old system like that, if they're built in 1951, is never going to survive a pressure test. That's exactly what happened. Not long after I bought Glenn Haven, the gas had a leak. They shut me off. Tried to pressure test and could not get the pressure to hold, so what do you do? I had to retrofit Glenn Haven completely into propane tanks, a giant mess. We had no heat, no way to cook, and no hot water for many of our residents for over a month. It's amazing I survived that. I would never ever want to do that again. Had I known what master metered gas was, I wouldn't have bought it.
Nevertheless, that came with the turnaround, so there was another notch on my belt of a scary and dangerous situation solved. Then I also had master metered electric. I had the worst of both worlds, both master metered gas and electric. What do you do? Well, in the end I had to go and hire a certified electrician to go unit by unit to figure out how to draw down the number of amps we were using. We were using so many amps that at one point the power lines lit on fire. That's right, the lines lit on fire in the air because they had ignited their own insulation. Think how hot you have to be to ignite insulation, but that's what happened.
We had to go around and basically remove window air conditioners and all these things the residents had done for years that didn't work on that system and bring the system back to life. All right. Once I had everything broken at Glenn Haven fixed, then what do you do? Well, the next thing I had to do at Glenn Haven was raise the rents. The rents were insane. Bear in mind, I'm just a little south of downtown Dallas and my lot rents were only about $150 a month. That's never going to work. The rents in Dallas today are about 500 to $600 a month, but even back then they were in the three, the $400 variety, and here I was at less than the next lowest park in the market, so I had to raise the rents.
Now, the good news was, as you raise the rents in a park like Glenn Haven as part of your turnaround, the residents are already overjoyed with all the improvements you made, so there wasn't really a lot of backlash. People were thinking, "You know what? I would rather pay $300 a month and have a nice, safe, clean place to live, than $150, where everything in the world was broken. I had no rules, nothing good going on." Raising the rent, that's another big part of most turnarounds. Normally when the park is in terrible condition, the rents reflect that. They're very, very low and for good reason. Mom and pop are afraid to raise them because then someone might say, "Wait a minute, this place is a pig sty." Once you clean it, then you logically raise the rents.
Another reason you have to raise the rent in a park like Glenn Haven is you will still have ongoing deferred maintenance that you need to clean up. There's all kinds of things in the ground you cannot see, even as you're fixing them. Future water leaks and things like that. The roads of course will also continue to wear down and need more replacement over time. If you don't have big rents than you don't get big capital repairs. As a result, the parks never get any good, so raising rents was the next piece of the puddle, puzzle. Then the next part was filling those lots. Remember, Glenn Haven only had 40 occupied lots and that was before I started kicking people out who wouldn't pay the rent or wouldn't follow the rules.
When I got done kicking people out, I had even more lots to rent. I needed to fill the lots. Now, in the case of Glenn Haven, I got a very, very lucky break. Another park owner in Dallas was going to rebuild their land into another use and they were cutting free all of the residents. I saw this in the paper. I ran down to the park owner and said, "Hey, I would like some of your residents." He said, "That's fantastic, because I got to get them moved as part of my demolition." We worked a deal where basically he would send me the residents over to Glenn Haven and even better, he'd pay to move them, because as part of his agreement with the city to build the property, is he had to pay the moving costs.
It was an absolute win-win for everyone involved. Families who were going to be displaced got to move to Glenn Haven and I got to fill the property up with nice people that wanted to live there who owned their own homes. It was a match made in heaven. What would I have done if that had not occurred? Well, to fill up in a turnaround today, there's about 10 different ways to do it. I'll just highlight some of the best ones. One would be recreational vehicles, also known as RVs. Glenn Haven would've worked well for RVs. They were allowed in Glenn Haven. In fact, there's a park right next door that is all RV. I didn't have to go there the way things worked out, but that would've been one way I could've filled lots.
Another would've been to buy older used homes, and bring them in, and rent them out, and do what is now known as a rent credit system where the people get credit to every month to help pay for the homes as they collect their credits, or today I could've brought in even CASH homes; homes through the CASH program through 21st Mortgage, brand new homes with zero out of pocket, brought them into those lots, and then marketed them, and showed the homes, and then people who wanted to buy them would've done that directly through the folks at 21st Mortgage. Filling the lots was a big part of that turnaround as well.
The final part of the turnaround is stabilizing and seasoning what you have, because typically when you do a turnaround, once you've done all the hard lifting, what you want to do is refinance that park and/or sell the park. That's typically where it goes. Glenn Haven's stabilizing and seasoning was basically just collecting the rent, making sure everyone obeyed the rules, keep trying to groom the property, and ultimately in the end that's exactly what I did. I stabilized, I seasoned it, and ultimately I sold the property off, and it's still sitting there today.
Now, what made the turnaround possible was, again, I had the raw material to do it. I had a great location. I had lots of demand. I had decent sized lots. I had city water, city sewer. But was it a tough project? It was a miserably tough project. There were moments in that project in which I thought, "I'm just going to give up. I can't take it anymore." Particularly when I lost the gas, that really, really, really hurt me bad psychologically. Was it worth it? It was very, very much worth it. That's actually what whetted my appetite for more turnarounds.
Because again, the most profitable niche in the industry really is when you're doing turnarounds, buying properties that are in poor condition for pennies on the dollar, and then fixing them up and bringing them back to their full value. On next week's part of this five part series, we're going to be going over a park in Oklahoma where people were living in school buses and I had ultimately a pile of debris 100 feet in diameter, 10 feet high, to contend with. Join us next week for more discussion of that. Again, this is Frank Rolfe with Mobile Home Park Mastery Podcast. Hope you enjoyed this of our five part series on tough turnarounds. We'll be back again soon.