Mobile Home Park Investing Newsletter

If you have a fundamental distrust of governmental authority, then you are definitely on the right track concerning mobile home park ownership. City Hall is certainly never your friend – and often your worst enemy—when it comes to protecting your rights as a property owner. Personal agendas and hypocrisy are more common at City Hall than on the Kardashians, and both are unpleasant to watch. So why do mobile home parks have a uniquely unfriendly relationship with City Hall.

City Hall is often wrong

Mobile home parks are protected by certain zoning laws, many of which are too complicated for the usual inspector to understand – certainly for an individual with the brain power of an inspector. Because of this fundamental lack of sophistication, most city inspectors and managers come to the wrong conclusions all the time. The most common misstep is the interpretation of “grandfathering”, also known as “legal non-conformance”. Under this law, any mobile home park that was legally constructed at a certain point in time, only has to abide by those ordinances in effect on the day it was built. Thereafter, no new ordinances have any application and are void. If the park was legally built in 1974 with 5’ setbacks from the street, and the city passes an ordinance in 1994 that the setback must be 50’, then the law is still 5’ for that park. This is federal law, and has been tested in court repeatedly. In fact, there is Supreme Court case law to support this in Missouri and Ohio.

City Hall is typically stubborn even in the face of overwhelming fact

Despite the fact that this is federal law, and should be part of the training of any city manager or inspector, it is all too common for City Hall to get it wrong. But even worse is the stubbornness of City Hall to correct their thinking when their ignorance has been pointed out. It is very common for us to be forced to resolve such issues using a call from our lawyer to the city attorney. The city attorney then educates the city manager, and then that water falls down to the inspector. But in some cases City Hall -- despite knowing and understanding the law -- chooses to refuse to acknowledge it because “they just want that damn trailer park gone”.

You have to fight for your rights and not back down

When that happens, you cannot let City Hall deprive you of your rights as a property owner. If you do that, you jeopardize your ability to maximize the park’s income, as well as potentially damage or destroy the ability to refinance or sell the park down the road. And, worst of all, such loss is not even necessary, as you are 100% in the right under federal law.

But you have to pick when to fight

But that does not mean that you should fly a “Don’t Tread on Me” flag in front of your house. You need to pick your battles carefully, and not be labelled as a “cry baby” by the city. For example, if the inspector says that a certain house has to replace the broken coach light on their front door, and it costs $20 to do that, the last thing you want to do is file a lawsuit to block such an action. We will give on many issues that we don’t have to, because it simply is not financially sensible to fight them, or they have no impact on future park operations or valuations. But if a city says “you can’t use those vacant lots” then we declare war.

How to turn the tables on City Hall

There are three basic techniques you need to know to improve your odds of beating City Hall and getting them to back down. The first is that you cannot force your rights until you have been harmed. Essentially, you can’t sue someone based on an assertion of “what if”. You have to bring a mobile home into that lot that’s in contention and wait for the city to red tag it, and then you can sue. What we have found is that, despite what City Hall claims they’ll do, it’s actually 70% bluff. So, before you can break out your big guns, you have to let them fire first.

The second item is that the key to satisfaction in most cities is by enlisting the aid of a “municipal” lawyer. This is a special variety of lawyer that only sues cities. That’s their whole world. Most large firms have one, and it is essential that you use only a lawyer that has this expertise. If you hire a regular old family or real estate lawyer, the city will know they are ineffectual and not be scared. It’s like bringing Pee Wee Herman to a gunfight.

The third item that we have learned is that nothing scares City Hall more than the threat of a jury trial. In those cases where we have had to go to war, we have threatened to file for a jury trial, as opposed to one decided by a judge. Why is that? Because the judge is effectively on the City Hall payroll. They often have their chambers at City Hall, and they certainly look to City Hall to bring them business. City Hall knows that, in front of any judge, they have the advantage. But when you flip that to a jury trial, not only do they lose their top mobster, but they must now deal with the reality that everyone hates City Hall. The jury will almost certainly vote against City Hall, and they know it. We have used this one strategy against simple tickets from inspectors for petty items, and they always get dismissed.

Conclusion

In the Andy Griffith Show, City Hall was depicted as a fair and sensible institution. Well, maybe it was in 1950. But half a century later, City Hall is often ignorant, petty, and corrupt. Don’t feel like you have to obey what they tell you, or that they are always right. Stand up for your rights as a property owner and here the bully will cry like a baby.

We all know that Warren Buffet is the second richest person in the U.S. And we also know that the reason Buffet is so rich is that he develops great ideas and then acts on them. Well, one of the best ideas he ever had has made its way to the mobile home park industry. And this idea is the Community Rental Program, also known as “CRP”. We believe that this program will become a mainstay of the industry going forward, as it finally unlocks the door for park owners to fill their vacant lots without using any of their own money, and is supported by the endless financial resources of Warren Buffet. If you own even one vacant lot in your park – or are looking at buying a park with vacant lots – then you need to pay careful attention to this new program and see what it can do for you. We will be having a Lecture Series Event with question and answers on this topic in the next few weeks. Be watching for the announcement.

It may seem absurd to compare a Ferrari and a mobile home park. One appeals to the top income earners in the U.S., and the other to the bottom. One is a work of art, and the other is often thought of as the ugliest thing on earth. One is often associated with super models, and the other with Roseanne. So how can a Ferrari and a mobile home park have anything in common at all?

Both are exotic

When it comes to rarity, both are pretty similar. Ferrari only produces about 7,000 cars per year, compared to 1.9 million produced by Ford. But mobile home parks are even rarer. There are only maybe 10 parks built per year in the U.S. And the similarity does not end there. Ferrari’s are not your typical kind of car, and turn heads when they go by. And trailer parks are equally unusual to spot, and also turn heads (although maybe for other reasons).

Both have high performance

The Ferrari is one of the fastest cars in the world, reaching speeds around 200 mph. Similarly, mobile home parks have the highest financial performance of any form of real estate, often producing 20%+ cash-on-cash returns in a world where many other sectors are lucky to break 10%. You can floor a Ferrari and go from 0 to 60 in under 4 seconds. Similarly, you can take a mobile home park from $0 of net income to $270,000 of net income in one year (we did that at Kankakee, Illinois), or other extreme net income increases outrageously fast.

Both can kill you if you don’t know what you’re doing

If you drive a Ferrari at 200 mph and lose control, you’re almost certain to die. And if you push a mobile home park to its limits – and don’t know anything about the laws, or private utilities, or master-metered gas and electric, or how to collect rent, or how to manage a property – you are almost certain to go bankrupt. You can’t engage in high level performance without reading the operating manual and getting familiar with the techniques involved.

Both offer great discounts if you are a good shopper

The typical Ferrari costs around $300,000 new. But on the used side, the prices are incredibly variable. A quick check on Autotrader.com shows the cheapest used Ferrari in the U.S. right now is $26,500, but there are a ton of them in the $35,000 to $55,000 range. You can get an incredible deal if you know how to shop and what to look for to ensure the car is a winner. The same is true with mobile home parks. The used market (remember that there are virtually zero new parks in the U.S.) reflects incredible elasticity, with one park costing $5,000 per lot, and another at $50,000 per lot. If you are a good shopper and really work the market, you can find parks for a penny on the dollar – and that’s where the real money is made.

Conclusion

Most people don’t think about Ferraris and mobile home parks in the same sentence. But they really do have some striking similarities. While we don’t advocate painting mobile homes racing red, many people don’t “get” mobile home parks in the same way that they don’t understand why you’d want a Ferrari over a Hyundai, as they are both just basic transportation, right? It’s not important that the masses understand any of this – only that you do.

I wanted to share my recent experience with Mike Renz. Jeff and I needed a Phase I completed for a mobile home park purchase late last year. I shopped around, including Mike Renz as one of my quotes, and eventually chose a local consultant to perform the work. The savings was on the order of $300, and the local guy was "local"--meaning, he should be familiar with the area databases, industries, geology, etc.

In my initial conversation with Mr. Renz (and during every presentation he's given for you), he mentioned that regardless of who I chose, if I had questions, to call him. His advice would be free of charge.

The report I received from the local consultants was pretty bad. Being an engineering consultant in my prior life, I was expecting a much higher quality report. The local guys didn't really do any consulting, and worse, made blanket assumptions, suggested scientific theories that were incorrect with no supporting data, and worst of all, erroneously listed recognized environmental conditions (REC). I called Mr. Renz--he immediately/graciously reviewed the report, talked me through his major concerns, and provided a detailed email with a list of talking points that helped me discuss the report with the local consultant. With the talking points, I was able to reason with the local consultant. The final product was a Phase I report that I felt comfortable with, and more importantly, that the bank accepted.

Needless to say, next time Jeff and I need a Phase I, we're calling Mr. Renz.

As always, Jeff and I appreciate your help and advice and your willingness to share your experiences. After listening to Mr. Renz' presentation oat the Summit, I wanted to thank you again for bringing professionals like Mr. Renz to our attention.

-Jill S.

You can contact Mike Renz at (614) 538-0451.

Trash is that unsightly stuff that you put in a bag – if you are the tenant. But it’s real money lost or gained, as an owner, if you dispose of it in the correct way. And there is a real science to trash collection in mobile home parks, and you have to understand the dynamics to make the right decision.

Choose your trash system based on your roads – not the price of trash itself

Mobile home parks have two choices on trash collection: 1) dumpster or 2) polycart. While it would seem that the most effective way to decide would be based on a price comparison, the truth is that the bigger issue is what each choice can do to your roads. Trash trucks destroy park roads. A dumpster truck is like running a railroad locomotive through your park – the weight well exceed what most roads were built for. Look at the stats; a typical car weighs around 4,000 pounds, while a dumpster trash truck weighs around 60,000 pounds fully loaded. That’s 14 times more than a car. So the few dollars you can save in comparing dumpster and polycart prices can be lost a hundred fold in damage to your roads. The general rule is that the best plan for trash is to put dumpsters right at the entrance, so the trash truck never enters the property. But many parks do not have the room for this, and others feel that dumpsters are too tacky for the quality of customer they’ve got. In that event, you are better off with the polycart trucks, which weigh about half as much. You’ll still get street damage, but not quite as bad. The worst plan is to put dumpsters at the farthest end of the streets – that will lead you to have to re-pave the entire park frequently, and that could be $50,000 to $100,000 per paving, depending on the park.

Dumpsters can hold unique problems

Dumpsters by the entrance, however, can also cause huge problems. Tenants often will use the dumpster as a convenient place to jam mattresses, furniture and other items that do not fit. They will also frequently just throw these items up against the side of the dumpster, not even bothering to put them inside because they can’t lift them. So they leave this mess to you to clean up. If you really run the numbers of what it costs to have your manager periodically break up and throw these items in the dumpster, however, you will see it’s still a bargain over the potential road damage.

There is another type of dumpster abuse, however, that makes no financial sense for your park – and that’s when outsiders, who are not tenants, use your dumpster for illegal tossing of everything from construction materials to trees and leaves. It’s one thing if you have to clean up after your own tenants – who pay you rent – and another to clean up after those who pay you nothing.

How to minimize illegal dumping in your dumpster

There are two basic ways to minimize or eliminate illegal dumping. And you should take advantage of both simultaneously. The first is to build a dumpster enclosure. Typically made of wood or metal, this is a giant fence around three sides of the dumpster, with a gate that opens on dumpster dumping day (typically unlocked by your manager in the morning and locked back that night). The key to the enclosure is that it eliminates the “hit and run” action that most illegal dumpers prefer. You have to pull up your pick-up truck to the enclosure, and then hand-carry it around to put it in. The preferred method is to just back up the pick-up truck and shovel it directly into the dumpster, which the “wall” eliminates. The enclosure alone often stops the illegal dumping as the contractor will simply find an easier target that does not have such a barrier (such as the dumpsters behind retail strip centers).

The other corrective action is to send a flyer to all park residents offering a reward for reporting any illegal dumping that leads to an arrest. The very word of this will stop all internal dumpers, who are afraid of their neighbors needing some extra money. Remember when Bill Clinton’s attorney said (of Paula Jones) “if you drag a $20 bill through a trailer park you never know what you’ll pick up”? Well, everyone in the park is also aware that tenants will kill for $50 or $100, and it’s not worth the risk. And if you do get calls about illegal dumpers, act on them by turning those leads over to the police. Any contractor who gets a call from the police about your dumpster will never go there again, and in the today’s world of smart phones, they all know the evidence is way too easy to assemble.

Make sure you have your dumpster on the right schedule

Even without dumping, many dumpsters are overflowing in the parks we buy. The reason? The owner has never paid attention to the natural cycle of the tenants and their trash. There is a natural flow of trash, the same as there is of sewage. And you have to adjust the rate of emptying to the rate of trash coming into the dumpster. Many owners shoot themselves in the foot all the time, but not wanting to pay for the correct number of pick-ups per week, and then spending ten times more in the clean-up after the dumpster erupts over the top. And that does not even include the damage from city inspector and lender tours of a property with an over-flowing dumpster.

Conclusion

There is much more to selecting a trash collection system than simply comparing dumpster and polycart costs. Choosing the correct avenue will save you thousands in road issues and lead to a happy tenant base and positive park inspections.

We did a lot of conduit loans -- and regular bank loans -- last year. A common feature of those loans was Security Mortgage Group. If you are buying or financing a mobile home park, let Security Mortgage Group get you the loan. They'll get you better terms than you'll ever be able to find on your own. That's why the win the industry mortgage broker award virtually every year from MHI. If you have any loans you need help on, you can reach Anthony or Gerry at (585) 423-0230.

You have probably seen “Billy Bob Teeth”. But do you know the story behind this multi-million dollar product? Well, it’s as strange as the teeth. Jonah White was at a college football game in 1994 when he saw a guy in the stands with fake buck teeth. Rich Bailey, a dental student, had built them for fun in the school’s lab. So a deal was cut, and the product known as “Billy Bob Teeth” was born to give Americans the appearance of hillbilly trailer park idiots for $20 a set. In 2000 – the best sales year ever – there were $7 million of these teeth sold (yes, that’s 350,000 units). Due to the decline in Duck Dynasty ratings, and the need to fill that time with something equally outrageous, Jonah White now has his own television show where he does a Shark Tank style selection of goofy inventions from budding novelty inventors.

White was the leading rusher for Missouri State University in 1992, but failed to get drafted into the NFL. So he lived with his parents, built Billy Bob Teeth, and sold them at every venue he could find. His father was a Stanford anthropologist, who allowed White to live in his backyard inside of a cave while he was getting the company off the ground. He recently gave Miley Cyrus a potbelly pig, to replace a dog that was eaten by wolves. “At first she was hesitant – but this is Miley Cyrus we’re talking about” he said “she’s a huge rock star but deep down she’s a little country girl from Nashville”.

And you thought the mobile home park business was weird.