We’ve been trying to unlock the science of mobile home park ownership for three decades, but there are some unwritten rules that are not supported by math and nobody even knows where these supposed “truths” came from. In this Mobile Home Park Mastery podcast we’re going to review the odd certainties that are used by bankers and bureaucrats yet have no basis in actual fact.
Episode 346: Where Did That Come From? Transcript
We've been trying to unlock the science behind mobile home parks and mobile home park investing for three decades now, and there are some certainties that people in the industry use as givens, as facts, but they're not. And it makes you wonder, where did those ideas come from? This is Frank Rolfe with the Mobile Home Park Mastery Podcast. We're gonna explore these unusual things that people think are fact, used by lenders, investors, others out there, which really aren't based on science, and in most cases are completely wrong. Let's start off with the fact that mobile home parks are on a metal chassis. Yes. It looks much like a boat trailer, built the same way. In the absence of the home, you'd say it is a boat trailer, but yet it's not. Many people believe that mobile home parks have to stay on that chassis, however, that's not true. Mobile homes can be removed from the chassis. The only reason mobile homes are on the chassis ties all the way back to when the US government got involved in the manufacturing of mobile homes.
It's my personal opinion that there was somebody inside the bureaucracy of the government that somehow gave ear or receive funds from those in the stick-built industry, back in that era, we're talking now many decades ago, because they did not want the competition of a small, what appeared to be a stick-built home on a foundation, and instead to kind of mark it with a scarlet letter, they required the mobile homes to stay on that boat trailer. The boat trailer was required for the shipment of the home, but it could have been detached. You could jack up the home and pull the trailer out and then set the thing on to some form of foundation, but yet the government didn't want that to occur. You've seen some recurrent articles recently on this topic. It's completely true, you can research it up. But the fact that mobile homes have this unusual stance, this sitting on stilts several feet off the ground, that isn't actually necessarily needing to be that way. That is something that some bureaucrat along the way decided it was a good idea.
Of course, the only good idea I can come from that is it was an attempt to make mobile homes look mobile and very unlike stick-built homes to give stick-built homes a competitive advantage. Another item what people think are fact is this concept of reserves on mobile home parks. And the idea is that all the various forms of infrastructure in the park wear out, which they do, and that you then replace them all at once, which in fact you don't. Take your roads, for example. We've owned mobile home parks that had roads which were 50 and 60 years old, and they looked just fine. They're solid, they're good, they have no pot holes. How is it possible? It's because every year, most mobile home park owners fix their roads. Every year, we go out and we patch pot holes. If the asphalt surface has become too rough, we may put a skim coat of asphalt on top of that. And since we repair the roads annually, we don't have to do it all at one time. Over the years, we are doing selective parts of the roads, bringing them back up to original status on a recurring basis.
The same is true with water lines. If you have an old galvanized water system, every time you have a leak, you go in and you replace that part of the line with PVC. Over time, many mobile home parks have become virtually all PVC over the years. But we don't go in at one time and replace the entire water system. The only time you would replace the entire water system is when mom and pop failed to make any of these recurring fixes, and they just let the water lines continue to corrode, to break, and then when you buy it, there are so many fissures in the lines that you decide it's just better to go ahead and replace it all at once. Same on your sewer lines. Sewer lines, whether they be in clay tile, cast iron, or early PVC, or even Orangeburg, those have typically all been redone over time because as the line caved in or some problem occurred, people made that residual fix, but you rarely replaced the systems all at once.
Banks typically charge a reserve fee of $100-a-year, $200-a-year, whatever they select for the concept of having the sinking fund to do the all-inclusive replacement of the infrastructure. But you rarely hear of that money being released by the bank to the park owner because it's very unusual you would do anything other than just regular repair and maintenance on the systems. Just like the old Johnny Cash song, One Piece at a Time, where a person who works on the assembly line at a car manufacturer steals one part, and ultimately assembles the entire car off of their regular theft of parts. That's how most of the infrastructure in parks works, is people go in on a regular basis, make good solid repairs, and over time the system becomes whole. And as a result, you don't go out and really hardly ever replace entire systems.
Another item you have to wonder and say, "How did that happen?" is the whole concept that seniors are 55. I still can't figure out where this one came from, because we declared that Social Security begins at 62. If you wanna go and say, "Well, I want the senior discount," typically you'll have to be 62 years of age to get it, and not 55. In fact, you start getting all of the information from AARP and others when you approach your 62nd birthday. So then why do we call senior communities 55 plus? Again, I don't know, I can't unlock the mystery. If you read about it, it just appears that somebody in the US government one day woke up and thought that 55 equaled a senior, but it doesn't tie to actually any fact. Senior mobile home parks are in fact always a little bit of a mystery. So many of them that people say are senior parks in fact are not senior parks. We've done due diligence on many, where what happened was mom and pop put a little sign up on big sign up front one day, 'cause he got mad at having teenage kids in the park bother him.
So he put up a little sign that said a senior community, but in fact he does not hold that HUD designation. And when you buy the park, you have to remove that plaque because it really is a form of discrimination the way that he's been working it. The whole issue of senior housing itself is chock full of misrepresentations and misconceptions. The very fact that you can have a household with one senior who's married to a younger person, then they have kids, kind of ruins the whole scenario that many people have that everyone in the mobile home park will in fact be a senior.
Then you have the question of why 80% occupancy equals stabilization. Many banks hold this to be true. They think that a mobile home park with 79% occupancy is somehow inferior toward the one that has 80%. But it's not really based on fact. I'm not really sure where 80% came in. Now, there is no question that a park that has high occupancy represents many things to the lender, which is probably true, which is perhaps a superior location and certainly better management. But I don't know how you can take and say one number, draw a line in the sand and say from that point up is safe, and from that point down is unsafe. In most cases with mobile home parks, the demand is so vast, that you can always fill all of your vacants if you simply go in and buy or bring in homes to sell inside your park. So many times the occupancy of the mobile home park and the vacancy is based on mom and pop's performance, how much they endeavored to go ahead and fill their vacancies. And if they didn't, then they're stuck in that position until the new owner comes along to bring the old park back to life.
But we bought wonderful parks that had greater than 20% vacancy, and we bought average parks that had better than 80% occupancy. So I'm just not sure that 80% occupancy equals stabilization or has any kind of magical power. I'm not really sure that any longer is true. Then you have the concept 'cause you just read in the media constantly that there is no free market, and that free market just doesn't even work with mobile home parks, that somehow we hold the upper hand on the residents and in fact, they are trapped. And this misconception, which I read about constantly in the media is very disturbing 'cause it's just so wrong. You have to wonder where did that come from? Here's what they'll tell you. They'll tell you that since mobile homes can't be moved, that is the sole reason that residents of mobile home parks are behind the eight ball. They have no freedom of choice, and somehow or other, we beat up on them constantly because we take advantage of their weakness that the homes can't be moved.
My first question is, what kind of housing in fact, can be moved? I was unaware that you could move stick-built homes, condominiums or apartments. So I'm not sure how moving the home is the big basis here. If someone is unhappy with your living arrangement, they're always free to sell their mobile home and move. I don't understand why you can't move and sell your home, but you can only move if you could move that home. Bear in mind that moving a mobile home is a very expensive endeavor, probably $10,000 or more to move it, and you can't even move the ones that are really really old. So why would the consumer wanna move it anyway? They're relatively inexpensive. Why would you spend $10,000 moving a 1980s home which is not even worth $10,000? They also don't apparently understand the concept of organic moves. Today, if you have a mobile home park and the customer comes to you and says, "Hey, I wanna move into your park because I'm unhappy where I live," you'll typically pay for that entire move.
You offer the customer a free transport of their home and all related items over to your mobile home park, and that is called an organic move. So in fact, residents of mobile home parks have many options which the media either doesn't understand or likely fails to want to print because they love the narrative that mobile home park owners are somehow inherently evil. And then you have the fact that people just assume that everyone who lives in mobile home parks are poor, that somehow all of our residents are economically challenged. That is absolutely not true. If you go by the definition of what economically challenged would be, you would find almost all of it falls under Section 8, and the place you'll find the fewest number of Section 8 consumers in America are in mobile home parks, because Section 8 does not allow residents to own homes. They actually passed some legislation recently on that topic, but they never enacted it. They never did anything with it. They were gonna offer vouchers for people to buy mobile homes in mobile home parks using their Section 8, but it has never really gone into practice.
So where do you find all the Section 8 in America? You find it all, virtually all in apartments. So apartments are where you actually find the people who are poor, that by definition, because in Section 8, you have people who are saying and registered as being unable to pay competitive rents in the market. It's a multi-family apartment issue, it's not in mobile home parks. In fact, mobile home park residents are doing better economically than almost any other group. Throughout this whole era of Bidenomics, mobile home park residents have flourished. Even at your typical McDonalds today, the minimum wage gets them to around $30,000 a year. Two-income household just working fast food, at an entry level would have about $60,000 a year of income. It takes them very far away from being poor. The bottom line to it all is that mobile home parks suffer from these misconceptions, these rules that people throw about as certain facts, but in fact they're not founded in fact, but founded on misconceptions. This is Frank Rolfe from Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.