When a mobile home park has bad financial records or poor occupancy, it’s a pretty good guess that there are other problems lurking. In this week’s Mobile Home Park Mastery podcast we’re going to examine some of the typical “skeletons in the closet” regarding poorly managed properties – including items above ground, underground, and regarding the residents. As you’ll see, there is often a chain reaction of problems in a mobile home park when bad management is evident. And you need to budget and plan for these probabilities so you don’t get taken advantage of.
Episode 165: Where There’s Smoke There’s Fire Transcript
So you are looking to buy a mobile home park with the records are terrible purple crayon on a sheet of paper thatís all I have for accounting. Or maybe they have massive amounts of vacancy you just send something is not right about the way this park is being managed.
This is Frank Rolfe of the Mobile Home Park Mastery Podcast, we are gonna be talking all about ìWhen there is smoke, there is Fireî. Issue that typically stamp from really really poor management and you need to be aware of so you donít get caught short as far as your budgeting.
Letís first look at things above ground that we can see typically if youíve got a poorly managed park you gonna have some basic things or it could be terribly terribly wrong above the ground. The first in the park on homes themselves, if the park has park on homes which perhaps it does not, but if it has any, then you are gonna probably find that the poor management extended into those homes and may be huge massive differed maintenance in them.
The worst of all once which you have lots of water intrusion need to go through the home and make sure there wonít any leaks in the roof, leaks in the hot water heater, leaks in any of the plumbing because the bad manager never fix those and the leaks went on for years and years and even decades and as a result lot of times your flooring is rotted, you may even have black mould growing in the walls.
So the first thing you look for when you have a property that is poorly managed is has or been a lot of water inside the park on homes because if it has been and may be youíll have to actually destroy those homes and you may not even be able to be savaged. Also watch for homes that arenít exactly park on homes but arenít exactly tenant owned either these abandoned homes that often fill some portions of the poorly managed park. Mom and Pop lost the resident in some point but never went through legal hurdles to get that in the name of the park youíll have to be doing that.
So in every home make sure you either can say Hey this belongs to somebody and there is someone living in it or be that belongs to the park itself and thereís either someone living or someone who is not living in it, but that third category of home which we donít know who owns and no one is living in, now that will take you a quite a bit of time and trouble to obtain a title on in some states to make sure you have that already accounted for.
Next the Electrical, assume itís not a master metred park itíll still have electrical issues often in the poorly managed park look for sides of scorching, look for the signs of plates missing off of the breaker boxes, look for the issues with drop holes that are broken or bent. Typically Mom and Pop you didnít care anything about management, also did not manage the electrical system well at all. You want to have an electrician go through the entire park lot by lot taking notes on anything he sees that appears wrong or dangerous. Remember that youíll be found responsible if there is something wrong with the parks equipment regarding electricity and you certainly donít want to be in that position.
Also look at the roads, typically the mom and pop parked as poorly managed also has roads in very poor condition. They may have been patched in very superficial manner but never really properly and never really professionally. Moms and pops support management skills often like it is just poor air dry and asphalt in the holes that they buy from home depo or even Wal-Mart, it doesnít really work. It looks like asphalt and it is black, they cannot hold any form of pressure. All it takes is one car tyre basically start squeezing and oozing out of the pothole. So make sure that you walk those roads carefully and make sure that you know the kind of conditions of everything as the roads are very very expensive defects.
Underground there is two key components that we normally see on the parks that is poorly managed. Number one the water lines, the water lines typically mobile home parks are either galvanize metal or PVC. They are always galvanized metal with this poorly run parks and thatís okay because almost all parks began as galvanized metal since most parks are built back in the 50ís and the 60ís. However, the good park owners with galvanize lines, they go and fix the leaks when they happen. Moms and pops who are poor managers never fix the leaks so probably has a very high water bill, youíll have to bring in American Leak Detection to find those leaks and fix them and budget accordingly to fix those leaks.
But on top of that you may also find that mom and pop did fix the water leaks did terrible job of it. I once spot a park and we started to spring in water leaks on almost in every other day basis when I first bought it because we came to find out that what mon and pop did was they did their own plumbing repair and they didnít know how to do it. So they would dig down to the leak, theyíd turned the water off, they would wrap rubber, literally rubber like something you would buy at the hardware store. I donít even know why people buy rubber looks like a what would be the thread of a tyre. They would wrap it around the pipe 10 or 20 times and then take bailing wire and rap that around the pipe about another 10 or 20 times and that was what they considered as FIX. Of course it is not a fix even if it did stop the water to some degree, it would blow off after a while as soon as that wire starts to corrode. So be very very careful youíve allocated enough to make water line repairs.
Same as sewer line, often times mom and pop never wanted to spend the money to fix sewer line that was in bad repairs. So as a result you had to bring in a rudder rooter and cut the tree roots out of the line or make any other repairs needed. You may have to run a camera down the sewer line just to get to handle on were those problems may be and may be quite a few. Weíve bought mobile home parks before from the poorly managed perspective only to find that we had leaks everywhere in the water and disruptions everywhere in the sewer and it is very very frustrating. Remember it is one of your primary duties as a park owner is to provide uninterrupted utilities. You can do that when the water line keeps springing a leak which lowers the pressure nor can you do it when your sewer lines can drain because you are some kind of giant clog or collapse or root intrusion in the pipe. Now the good news on the sewer is typically once you fix it is probably fixed for a life time. All the water line is typically galvanized metal with corrosions youíll be working on that frequently.
The sewer lineís a little different, normally the sewer line material thank heavens from the poorly managed parts are older so they normally CLAY tile and CLAY Tile is a great product we can work around. Orange Bird however is a terrible product which typically came in later in life. So she run a camera down the sewer line, I wouldnít if there have not been evidence of leaks in past and backups. I talked to the city and see if they have seen that as you walk around look for evidence of backups it could typically be literal tiny pieces of what looks like paper which is actually toilet paper in the yard around that sewer clean out. So if you donít see it if the city says havenít seen any then you may not have to do the camera but just be aware there probably are things lurking down there in sewer lines that you will have to work with.
Finally, at the residence, we seen two main items that residents suffer from when there is poor management, number one lots and lots of unpaid rent. Someone called me the other day with a deal we were looking at which the unpaid rent was almost 40% of the entire gross revenue. So whatís going on when you have month after month apart for 40% of tenants do not pay the rent. Whatís going on is they never enacted the law known as ìNO PAY NO STAYî Mom and pop took partial payments made payment plans and often if they really like the person they will even ask for them to pay at all. I have seen residents who have not paid four or five straight years who are still living there happily because they donít even know there is a problem because Mom and pop never wanted to mention it to them because they were either their friends or they were afraid of them. But you canít do that, so when you buy the park bare in mind if you have got lots of unpaid rent you have to not only enact ëíNo pay No Stayíí but you have to budget for the fact you may lose some residents and while that may be painful, it would be necessary to get your collections back to where they need to be.
The other item which is very obvious when you first try the poorly managed park are the rules violations because you see them everywhere - cars, nor-running cars in yards, giant appliances laying in yards, may be a pit-bull on a chain in the front yard. Well mom and pop sounded problem with this, you certainly would and should because thatís going to preclude you from getting you from any kind of good debt programme from a real bank. Or a nice appraisal or nice buyer down the road. So remember you have lots and lots of rules to jump over and to solve.
Youíll probably have to get your insurance company involved on those dog issues. You probably have to get rid of all the trambulance all those various items. And donít forget that as you do this, you may lose some Tenancy , itís very very possible many residents may say ëI donít want to work in or live in an environment where the new owner isnít like mom and pop because I really enjoy not paying my rent, I really enjoying having 3 not running cars in my yard and there are some people do think that is the utmost in life but itís not gonna work for you trying to do the utmost in be the good park owner and manager so you need to budget appropriately to lose some residents but itís necessary for the overall community good.
Now whatís the bottom line of all these various items? The bottom line is you need to budget accordingly. You need to give yourself a whole lot of safety caution when you looking to buy an a park that is poorly managed. Itís more than just the fact it has got a lot of vacancies and you say well I have to buy a lot of home to bring him in to fill those vacant lots.
More importantly as you gonna come out of pocket with enough of money to fix all these differed maintenances that mom and pop never did and you donít want to be caught behind the eight ball, you want to make sure you budgeted the appropriated amount to handle those items with the Electrical, Lines n Boxes, Water and the Sewer and the particular Park on Homes on the Roads and the trees and all those various items. So you want to make sure you have the correct amount of Cap X already budgeted for, but you also make sure you have the correct amount of potential income loss budgeted for. Because as you enact ìNO PAY NO STAYî and as you enact ìNo Play No Stayî youíre going to soon find that some residents simply will not tolerate and will leave and you have to make sure you budgeted accordingly.
So always make sure when you buy that poorly managed park you do not cut things too tight, and now when you buy a well-managed park, a stabilized park it has still has up sided in the rent and up side in fully vacant lots, you often can budget pretty tightly and its gonna be okay because the general business itself was being properly run and managed. When you buy those parks that have massive turnarounds, just always make sure that youíve got plenty of safety cautions because you typically will need it. A lot of other things mom and pops do to create the bad management spill over to many other areas of the property.
This is Frank Rolfe of Mobile Home Park Mastery Podcast series, hope you enjoyed this, and Talk to you soon