Mobile Home Park Investing Newsletter

A recent article in the Dallas Morning News was titled “Homeownershp rate expected to keep failing”. It described how the U.S. is rapidly becoming a nation of renters, with the home ownership rate in the U.S. to fall to around 61.3% by 2030 – and decline below 50% in the decades after that. What’s causing this trend? You can argue, as the article does, that it’s caused by family units becoming more temporary, and mortgage laws more difficult. But the real reason – as any sensible person would know – is that our housing market has continually outstripped the earnings of the average American. Look at the stats. The median home price in the U.S. is around $200,000. To buy that median home, you’d have to have a gross income of around $50,000 per year. Based on current statistics, only 30% of American households earn that much. So there’s only two ways that home ownership could increase in the U.S. One is if American wages rose substantially. Some would point out the recent increase in the minimum wage to $15 in New York City. But $15 per hour only equates to $30,000 per year, so increasing the minimum wage is fruitless in trying to increase home ownership. The other attempt would be to create more affordable housing. Stick-built homes would need to fall in half to hit the sweet spot of American earnings. That’s not going to happen. That’s why our phone rings off the hook at every park we own – nobody seems to get the fact that our American housing model – based on the norm of stick-built homes – is doomed. Until such time as American wages double and triple, and the cost of stick-built homes falls in half, mobile home parks are the last vestige of the American dream of home ownership for around 30% of the U.S. population. And that’s never going to change.

When the bus went to pull out of the hotel parking lot on the recent Seattle Boot Camp, we had something blocking its way: protestors. It seems a group from a new political action committee called MHAction.org was there to protest the existence of the Boot Camp and the concept of making money with mobile home parks. They have also been protesting at all Equity Lifestyle annual meetings (the largest mobile home park REIT), demanding the resignation of Sam Zell (the CEO of ELS) because he raises rents annually. So I guess we’re in good company.

What is MHAction.org?

MHAction.org is a fairly new department of a decades-old non-profit called Center for Community Change. Its goal is to address the “issues of retirement and economic security on the national level” regarding mobile home parks. What does that mean exactly? You probably already guessed: they want all park owners to forever stop raising their rents. That’s not asking much, right? What mobile home park owner would not be happy to enact their own private rent control in perpetuity?

Why does anyone think this is more than a waste of time?

Good question. There is a liberal slant to the U.S. that honestly believes that the sole purpose of American business is to provide everything for free. Just look at our Federal Government, which subsidizes over 50% of our entire population. Somewhere along the way, the concept of capitalism got lost in a socialistic agenda, and you have to defend yourself for making money. But let’s get serious. You could attach the concept of price freezing to any product or service – from milk to Rolex watches – and nobody would take it seriously.

What are their other causes?

Here are the primary focuses of the Center for Community Change (pulled directly from their website)

• Building a Clean Energy Economy. Using the large-scale investments required for transition to a clean energy future to create millions of good jobs that are accessible to workers of color, women, and economically distressed communities.
• Valuing Families.  Ending the systematic devaluation of care work, which disproportionately keeps women in poverty, by making high quality child care available to all working parents, raising the quality of jobs in the early childhood education and care fields, transforming homecare and providing financial support to unpaid caregivers.
• Guaranteeing Good Wages and Benefits. Requiring every job in the United States to meet a minimum standard of quality – in wages, benefits, and working conditions – and offer unhindered access to collective representation and a real voice for workers.
• Unlocking Opportunity in the Poorest Communities. Investing resources on a large scale to restart the economy in places where racial bias and sustained disinvestment have produced communities of concentrated poverty.
• Taxing Concentrated Wealth. Funding new investments in job creation, care, and economic renewal by taxing those who benefit most from the current economic model – investors, financiers, wealth managers, and individuals in the highest income brackets.

While these are all great causes, we have no idea how the CCCC can hope to accomplish any of these in the real world. It’s also interesting to note that the top five officers of CCCC earn between $150,000 and $180,000 each – is that a little hypocritical?

But there is a win/win opportunity here

We’re hoping that the CCCC comes to the realization that the only way to stop rents from rising in mobile home parks is for the tenants to buy out the mobile home park themselves, and own both their homes and the land. This is not a new concept; we have tried to sell parks to Resident Owned Communities (ROC) for a couple years. ROC is a non-profit that helps park residents to organize into a structure that can obtain financing to buy the park. Why is this a win/win? Simple. Nobody can pay more for a mobile home park than the tenants, as they are simply trying to break even after the mortgage payment. Of course, the ROC structure is extremely difficult to succeed at, so CCCC will have to muster every resource they have to pull it off. But there’s probably not a park owner in America that would not be a player if the tenants wanted to do a buy-out. We intend to educate CCCC about this real-life alternative to the fantasy concept of park owners amiably freezing rents.

Conclusion

Having protestors at our Boot Camps may be a reality going forward. We’re OK with that, as it’s a free country and we respect that right. However, we hope that the protestors can realize that there is a business model that solves their complaints, and it has been around for a while. If they put as much effort into doing park resident buy-outs as they do in their protesting, they should be able to actually accomplish something.

The first time we ever saw white vinyl fencing, we knew we had seen something that would forever change mobile home park decoration. And, over the years, we have found that it is so adaptable that it is a winner for more than just fences. Every park owner should be aware of the power of that white vinyl invention.

Is there anything better looking for a park’s entry?

As you can see in the above photos, white vinyl can be summed up into one word: “striking”. The contrast of the white fencing against a green background is breathtaking. But it also has some subliminal benefits. It’s “classy” – it looks like an expensive estate. It has that look of an upscale Kentucky horse farm. Every American seems to have a positive connection to it. We don’t think that, given some mundane road frontage, that there is anything that’s better for a mobile home park.

It allows you to standardize all signage

White vinyl is extremely adaptable, and allows you use it in every application throughout the park, so that everything matches. We use it for entry fencing along the frontage, as well as for all speed limit and stop signs, and even street sign posts. Any application that requires a post is a simple fix of just setting a 4” x4” wooden post, and then using the white vinyl as a sleeve and adding an attractive white PVC cap. In this way, everything matches and looks like an extremely expensive commercial signage program that costs ten times more.

Ease of maintenance and replacement

White vinyl has many positive attributes besides sheer beauty. It is extremely easy to maintain. Every time that it rains, it cleans itself. It never needs any painting. If someone sprays graffiti on it, it comes right off with solvent. You never have to worry about matching paint when replacing a component. And one of the best things about white vinyl is the low cost to fix and/or replace it after a car hits it. With an expensive aluminum pole or post, you have to replace everything if a car barely hits it. But with white PVC you simply pull off the cap and sleeve, replace the broken wooden post, and put it right back.

Low cost because you only have to do it once

Many people think that they can save money over a white PVC fence by simply using the old fashioned wooden stockade fencing that comes in 8’ sections. Sure, it’s cheaper on the front end, but it starts to rot the minute you install it, not counting the times in which the various pickets fall out or are knocked out. In the end, you get a rotted, gray fence that looks like its teeth have been knocked out. With white PVC fencing, you install it once and it’s there for life.

Another secret trick

If you want to make an amazing statement along your park’s frontage, don’t just stop with the white vinyl fencing. Instead, plant a row of ornamental trees or shrubs immediately behind it. The result is the white fence with a colorful backing or dense green foliage. But if you decide to plant that greenbelt, make sure to use only plants that are hardy and native to the area, as they will get to watering and have to make it on what nature provides.

Conclusion

White vinyl is a great asset to any mobile home park. If you’re not using it on your entry fencing and signage, you’re missing a huge opportunity to make your park more valuable.

This is a photo of a park that we have under contract. It is immaculate. And the reason is a manager who works 24/7 to keep it that way. I drove through it on a Saturday and the manager was out edging on a day and time that most managers would be sleeping. So where can you get a manager like that?

The difference between good and great is only about 10%

The difference between mediocre and spectacular is not that much. Many managers are able to get the job done reasonably well, but then drop the ball at the 10 yard line. The “great” manager goes the extra mile and puts in that little extra effort that makes the park so much tighter and well detailed. If you really think about it, something as simple as a piece of litter – like a McDonald’s sack – can ruin your impression of a manager. That’s a really minor item. So it’s those little items that separate the great from the average.

Hire people who fit the profile

Many of our managers come from within the park when we buy it. And they are selected because they have great looking houses and yards. Exceptional managers have basic habits and traits that you can spot from a mile away. I have never seen, in 20 years, a manager who is a perfectionist who lives in a home that is a dump, with a yard piled with debris. They say you can’t judge a book by its cover – well, in this case, they’re wrong.

Manage them effectively

Any manager will fail without proper direction. Communicate to the manager your expectations to get off on the right foot. But you can’t stop there. You need to communicate with the manager at least weekly, to let them know that you care about what they do and are excited about the property. You can do that either by phone, or with a written format. We use a system called the “Friday Facts” in which they list out move-ins, move-outs, and any other observations or happenings at the property. Another great way to manage the property from afar is to have the manager send you, at least monthly, a video of the park, or at least 50 photos from every angle, to demonstrate that at least the grass is mowed and the lots are in decent shape.

Let them know what you want them to do

If you go into a park that has no trash on the ground, no debris on the vacant lots, well-mowed grass, no weeds that have not been cut down, no grass or weeds growing in any paved area, and the streets well edged, the park will look fantastic. None of these items is that difficult or complicated. You just have to have that attention to detail. Continually remind the manager that it is unacceptable to have any of the above not completed. Let them know your expectations.

Challenge them to take it to the next level

Most people like a challenge, so give them one. Tell the manager that you want the park to be the “best park in town” and not just “another mobile home park”. Give them some type of small incentive to reward them for doing a great job, such as a dinner certificate at a nice restaurant. Most managers respond favorably to a “game” in which they try to beat your expectations. Be creative in your rewards and make it fun for both of you. Southwest Airlines has done a terrific job of motivating employees to be the best, and it’s paid off with the most on-time record of any airline. Follow their lead.

Do your best not to lose them

We have found that great managers often have certain duties that they are weaker on. Nobody is perfect. So try to work around their weak spots without forcing them to do things they don’t want to do, and are not good at. If your manager tells you that they are uncomfortable showing up in evictions court, for example, then hire a lawyer to appear. Or if they are not comfortable renting homes, then find someone else in the park to do that duty. The worst thing you can do is to lose a great manager because you burned them out doing duties that aren’t really even that critical to the park making money.

Conclusion

Great managers are a rare breed. When you get one, don’t lose them. Give them a structure to challenge and fulfill them. When you go to sell or refi, you’ll be glad you did.

Clayton Homes and 21st Mortgage have partnered together to bring a game changing new program to mobile home park owners. If you have any vacant lots in your mobile home park or in a park that you are looking to buy, then you definitely need to be aware of the CASH program to fill vacant lots with nearly zero capital out of your pocket.

For more information you can contact Lance Hull at 21st Mortgage. You can call him at 800-955-0021 ext.1218 or email him at [email protected]. You can also contact Aaron King at Clayton Homes. You can call him at 865.380.3000 Ext. 5164 or email him at [email protected]. To visit the Community Calculator website discussed in the webinar, click here.

Disclaimer: The materials and information available from this posting are for informational purposes only and not for the purpose of providing legal advice. The contents should not be construed as, and should not be relied upon for, legal advice in any particular circumstance or situation. Further, the information presented on this posting may not reflect the most current legal developments. An attorney should be contacted for advice on specific legal issues.

Disclaimer: The information in this posting is not for consumer use and is not an advertisement to extend consumer credit as defined by TILA Regulation Z.

Albert Einstein once said “if you can’t explain it simply, you don’t understand it well enough”. We share that same opinion. That’s why we’ve condensed the business down to a small group of simple formulas and metrics – the streamlined profit drivers. At Boot Camp you’ll learn the “I-D-E-A-L” system for evaluating parks, the “60/70” formula for making initial offers, and a host of other easy-to-remember systems. We’ve distilled this information down from 20 years of buying parks, owning over 200 parks, and currently ranking as the 6th largest park owners in the U.S. If you want to learn the correct way to identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn-around and operate mobile home parks, then the Boot Camp is a must. For more information or to sign up call us at 855-879-2738 or visit the sign up page.

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.

This is an actual photo of a lot that a park owner told us was “full” in the description of his park. He told us he had no vacant lots, including this one. So how is this lot full? He claimed that somebody was paying for this lot, even though the home was burned – that they were going to buy a new home and put it back on the lot. Would you fall for that? Hopefully not. You can never count a lot as full unless it has a habitable home and a tenant in it. What if the tenant does not bring another home into that lot? What if the tenant just ran off and the seller is making the whole story up? You cannot count any lot that is not actually occupied in the here and now. There’s no credit given for a bird in the bush. Sellers lie like this all the time, so be ready to call their bluff.

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.