Mobile Home Park Investing Newsletter

If mobile home parks are so good, why would anyone want to sell one? We get that question all the time. In fact, we once made a list of the parks we’ve purchased to compare what the sellers all had in common. The answer was a life-changing event of 1) medical issues 2) death 3) divorce or 4) the inability to continue to manage the park due to age related issues. So the answer to the question is simply “they sell because they have to”. The reason that the volume of parks available is accelerating right now is simply the advancing biological clock of most sellers – often those referred to as the “Greatest Generation”. These were the men and women that built this nation, and also built the mobile home park industry following WW II. They are terrific individuals who offer fair pricing and also frequently provide seller financing. But nobody can stop the clock, and it will eventually happen to all of us. And that’s the reason that most mobile home parks come up for sale.

Paul Revere’s contribution to the American Revolution was to give information to the colonists that “the British are coming”. This gave them the ability to act before the British arrived and gain a competitive advantage. There is no question that having timely information on your competition is extremely valuable for any business, and that includes mobile home parks. So what type of information should you gather and, just as important, how do you get it?

Rates

For most park owners, one of the most important pieces of information is what the competing lot rents are. In many cases, the park you purchase will have the lot rent massively below market, so it’s imperative that you know roughly how high you can raise it. To get this information, you will need to call all the other mobile home parks in your market, posing as a customer, and simply ask “do you have any mobile home lots available, and how much are they”? You will fail in this mission if they suspect that you are merely trying to comp them – they will deliberately tell you the wrong amount to screw you up.

What utilities are included

As important as the amount of monthly rent is, it’s equally important to know what that rent includes. The growing trend in parks is to make the tenant pay for their own sub-metered water & sewer, and often trash as well. It’s not apples to apples if you have a lot rent of $300 per month including water & sewer, and the other park is $300 per month not including utilities. If you find that most of the parks in your market include water & sewer, it may be that you should file suit to remain attractive.

Special Incentives

Do the other parks have move-in specials, such as free rent for 3 months or a lower rent for a year? Ask the managers of the other parks when you do the rent comps. This is important. If you are the only park out there that does not have such an incentive, then you are likely to get no new business. You will typically have to match market incentives, except in those cases where your park is far superior to the others and does not need a financial incentive to attract new customers.

Occupancy

Once you have the rent comp data you need, we often ask the other park “do you have many lots to choose from?” followed by “how many lots does the park have”? This gives you an immediate ballpark of their occupancy. Parks with few lots available are less likely to offer incentives, and a market with 100% occupancy means that you will be able to raise rents briskly in the near future. You can also get a rough idea of occupancy from Google Earth, but this is only indicative of the month and year the aerial photo was taken.

RV rents, amenities and occupancy

For RV occupancy, you typically have to drive your competition and see what the actual, current results are. Some parks have RV sections, and the owner is thrust into that business model, although in a smaller scale. You need to comp the overnight, weekly, and monthly rents in all of the RV parks by phone, as well as list out their amenities. The RV business is highly competitive, and you should probably comp these prices at a minimum of once per month.

Lonnie dealers

Lonnie dealers can be a very valuable source of filling your vacant lots. But how do you find them? Typically it involves some phone work. You will need to call all of the mobile home movers and repairmen to see if they know of the local Lonnie dealers. When you consider that one single occupied lot these days can be worth $30,000+ more than a vacant lot, this information gathering is well worth the effort.

Market conditions

This intelligence can be gathered from a number of sources, most notably www.Bestplaces.net and the local Chamber of Commerce. The key is to watch for troubling trends in such metrics as housing vacancy, unemployment and population. You should learn the top ten employers, and learn about their businesses and, if they are publicly held, follow their stock for signs of problems. Advance knowledge of a declining market is extremely important data – imagine if you had sold out of your park in Detroit in the 1980s vs. holding it through today.

Conclusion

Paul Revere only had a horse, a lantern, and his eyesight. You’ve got a telephone, internet and a car. There’s no excuse not to have great competitive information on your park in the modern world.

With three $2 billion transactions in six months, the mobile home park industry is finally getting on the radar screen of even the largest news services. We were recently interviewed by U.S. News and World Report and the article just came out with the title “Mobile Home Parks are a Viable Investment”. It’s always interesting to see the input of groups that have never discussed the topic before and, in this case, it’s safe to say that U.S. News and World Report is a fan of the industry.

As many people know, we are the largest users of 21st Mortgage/Clayton Home’s CASH program in the U.S. We have around 1,000 homes in our parks under this initiative. So why are we such huge fans of CASH?

• It allows you to fill your vacant lots with no money out of pocket.
• You are not the home owner: the customer is the buyer and 21st is the lender.
• 21st Mortgage handles all the paperwork, so you do not have to be SAFE Act licensed.
• 21st does a terrific job of screening applicants, and has very low defaults.

We’re not alone in our excitement for this program, as the number of homes ordered under CASH has more than doubled this year from a variety of park owners, both large and small.

For more information on this program, call Candice Doolan at 800-955-0021 ext 1735 or email her at [email protected].

We received the following announcement from MHI – the industry lobby – regarding the recently passed changes to Section 8 that allow for buying mobile homes using Section 8 vouchers. This new law is awaiting a signature from President Obama to take effect. Here’s the announcement.

Bill to Reform Federal Housing Assistance Programs Passes Senate - Includes MHI Priority to Support Purchase of Manufactured Homes

The U.S. Senate has passed H.R. 3700, the Housing Opportunity Through Modernization Act (HOTMA), which includes language allowing Section 8 vouchers to be used for the purchase of manufactured homes. MHI was a part of a coalition of more than 40 housing and advocacy groups advocating for Senate passage of the legislation, which was already passed unanimously by the House of Representatives in February. The bill now heads to the President's desk, and he is expected to sign it into law.

The provision increasing the flexibility for low-income families to use a Section 8 voucher to purchase a manufactured home was added on the House floor by an amendment offered by Representative Peter Welch (D-VT). Passed by a voice vote, the amendment allows Section 8 vouchers to be used not just for the cost of leasing the land (which is currently permitted) but also for other monthly costs of purchasing a manufactured home, including mortgage payments, property tax and insurance. This change would allow families that receive a tenant-based Section 8 voucher to help pay for an alternative to renting an apartment - allowing them to actually purchase a home. The language does not provide any direct funds or require anyone to use a voucher to live in a manufactured home. However, with this change, the approximately 2.1 million Section 8 voucher holders in America will now have the option to use their Section 8 voucher to buy a manufactured home.  

The amendment was supported by Financial Services Committee Chairman Hensarling (R-TX) and Ranking Member Waters (D-CA). MHI commends Congressman Welch for his leadership in adding this important policy to the housing assistance reform bill.

Overall, H.R. 3700 reforms federal housing programs to improve families' access to high-opportunity areas, improve public housing residents' quality of life, cut program costs, encourage work, expand homeownership opportunities and reduce homelessness.

For more than a decade, MHI has worked as a part of a coalition of housing and advocacy groups urging passage of these reforms. MHI played a major role in first getting an identical manufactured housing provision passed in the 2007 Section 8 reform bill (H.R. 1851) and in Section 8 reform bills in subsequent Congresses. While Congress has vetted most of the bill's provisions over the years as part of previous proposals that have had broad support in Congress and from stakeholders, the reforms never became law.

If you have any questions, please contact MHI's Senior Vice President of Government Affairs and Chief Lobbyist, Dr. Lesli Gooch, at (703) 558-0660 [email protected].

This will increase the demand for mobile homes in mobile home parks exponentially

There are 24 million people on Section 8 vouchers. That’s as many people as currently live in every mobile home in the U.S. These people were denied the ability to live in a mobile home until this law is passed. They can then choose between their terrible Class C apartment or a mobile home park, in which they have no neighbors pounding on their walls and ceilings, the ability to park by their front door, a yard, and the ability to be a homeowner. Can you imagine what will happen as tenants learn that they no longer have to live in a dreadful apartment?

This will finally give parks in weak economic markets a possible path to success

Many park owners already have more demand than they know what to do with. They don’t need Section 8 residents to stay at 100% occupancy. However, there are other park owners who can’t find a single tenant, due to weak markets and poor locations. Now, this Section 8 change could create a market in areas where the lack of jobs has created a sea of people who rely on Section 8 vouchers for housing. Effectively, those parks you drive by in blighted areas could effectively come back to life in the future with the introduction of this new Section 8 program.

The Fair Market Rent report will now include mobile home parks

One of the most important byproducts of inclusion in the Section 8 program will be the government’s requirement to then produce a Fair Market Rent (FMR) report for mobile home and mobile home lot rents. They have avoided this for decades, claiming that it was not required since Section 8 did not allow for owning a mobile home. Apartment owners hide behind the FMR when people question if their rent is too high. Mobile home park owners will be able to take advantage of this ability to raise rents under the apparent support of HUD.

Conclusion

The potential inclusion of Section 8 vouchers for the purchase of mobile homes is a really big deal – a potential game changer for some park owners. In the battle of Section 8 apartments vs. mobile home parks, parks will no doubt become the big winner and Section 8 apartment owners will soon be crying and trying to figure out how this ever happened when they had tried every political trick in the book to maintain their monopoly position.

There are “shotgun” parks on one straight road. There are “HUD” parks with curving streets and clubhouses. But these still lack the “feel” of a residential subdivision. To take a normal mobile home park to the next level requires some additional capital investment and planning. We see this predominantly in expensive parks in southern California, but there are concepts here that any park owner can adopt to take their park up a notch.

More elaborate entry

A typical park entry is just a mowed patch of frontage. But the top-tier parks offer something more. Typically it’s a massive brick monument, or a fountain. Something that’s expensive and impressive. You can’t fake this type of feature – it’s going to cost a significant amount of money. But the unusually striking result is what gets the customer’s attention.

Significant use of fencing and landscaping

The top-tier parks typically feature perimeter fencing, and it’s often a combination of stone or brick columns and wrought iron. And they supplement this with lush landscaping and, in some cases, seasonal color. This fencing and landscaping can also be found on key corners and common areas throughout the interior of the park.

Superior grounds maintenance

A typical park has mowing and edging on a periodic basis – but often simply enough to get by. A top-tier park has constant grounds maintenance. Hedges are freshly trimmed. There’s not a single blade of grass out of place. This unnatural state of affairs can only be accomplished with extremely expensive, constant mowing and maintenance. I have seen topiaries in parks before – and you don’t even see those in top subdivisions.

Top-flight signage

The average park has old rusted signs on rusted pieces of angle iron. That’s not acceptable. A good park has new signage held up by white vinyl PVC with attractive PVC caps. But the top-tier parks have signage that is predominantly decorative aluminum, exactly mirroring the best subdivisions and custom home developments. The only problem with this concept is that these poles are easily bent and destroyed, and very expensive to replace. Make sure that you are willing to stand behind this commitment if you go that route.

An arborist not a hack

Many park owners tell the tree company “remove all the dead limbs and trees, and do it as cheaply as you can”. The best parks say “and be sure to raise the trees and shape them”. Trees can be very expensive to prune properly, but the payback is great aesthetics. You will also find that parks that get into shaping trees also have trees that seem to live longer and healthier.

Strict adherence to rules

How strict you enforce the rules is typically based on your expectations of your customer. If they have a rough and tumble life, it’s impossible to ask of them more than no trash or big items in yard (like appliances), skirting around the house, reasonable paint job on the house, and no non-running vehicles. But in the top-tier parks rules enforcement can become a 24/7 job. We walked a park at Boot Camp recently in which the owner told everyone that they tow the resident’s car if even one tire is off the parking pad. That’s way too extreme for most parks (and we’re not even sure it’s a good idea to be that fanatical in any park).

A fantastic manager

Here’s probably the biggest difference between the average park and the ones that resemble fine residential subdivisions: the manager. Our park in Riverside, Missouri looks like a luxury resort. The reason is a terrific manager that is obsessed with making it spectacular. Typically, you can’t really hire this type of person, it’s normally just a matter of luck. In the case of Riverside, the manager lives in the park and has an extremely high level of respect for the property. He’s out picking up even the smallest litter several times a day. Just as a top-level restaurant typically has the hallmark of the owner walking among the tables, making sure the guests are happy, the best park managers have an enthusiastic pride in the property and you can immediately see the results.

Conclusion

Top level parks are not an accident. They are the result of a dedication to being the best, and a financial commitment to stand behind it. Such conditions are clearly not for every park and owner, but there are some aspects that can be adapted to almost any community.

If master-metered gas and electric are so troublesome for today’s park owner, then why did they ever get built in the first place? The answer ties back to the early history of the industry. Originally, mobile homes and RVs were part of the same family, and mobile home residents wanted the ability to pull in and have their gas and electric on in a matter of minutes, just as the modern RV enjoys.

My copy of the 1950 handbook “How To Build and Operate a Mobile Home Park” by L.C. Michelon talks about this issue:

“When a mobile home is being parked and connected up, the owner is anxious to settle down and often gets irritable when asked to put up with needless delays. Nothing is more impressive than a park operator who can park a mobile home quickly, make the necessary connections, and block it up and level it properly. To the trailerist, this is tangible proof that the park is efficiently run and well-organized.”

So, effectively, the speed you could hook up a mobile home was similar to a pit crew at a NASCAR race. And to achieve this ability, you have to have master-metered utilities that do not require any city permits or inspections, nor the utility company turning the utility on.

That’s definitely not a case of the “good old days”. We prefer letting the utility company be in charge of such things, and so should you.

Whether you are simply in need of an insurance quote or you have the unfortunate, yet common task, of filing a claim, Mobile Insurance is ready and waiting to take your call. We’ve used Mobile Insurance for over a decade, and their superior service is known throughout the industry. Kurt, the owner of Mobile Insurance, is a top resource for any park insurance question, and they provide free quotes on parks that you are acquiring. That’s why around 2,000 park owners in the U.S. are Mobile Insurance customers.

Mobile Insurance can help you engineer the policy you need to cover all your concerns, and their prices are unbelievably low. Being able to contact them when you need them is just as important. We recommend that every park buyer call them first, as we know of no other group that has the same expertise, quality of service, and low prices. Call them at 800-458-4320 or email [email protected].

Here are some actual city and state ordinances from around the country. Yes, they’re stupid. But what’s equally disturbing is how they were voted into law in the first place.

• In Hawaii, it is against the law for a person to insert pennies in their ears.
• In Chicago, it is illegal to eat in a place that is on fire.
• San Francisco prohibits walking down the street with an elephant, unless it’s on a leash.
• Portland, Maine makes it illegal to tickle a girl under the chin with a feather duster.
• Not to outdone, Portland, Oregon prohibits the wearing of roller skates in public rest rooms.
• Oregon prohibits the use of canned corn in fishing.
• Maryland does not allow lions to be taken to the theater.

Regardless of your political persuasion, let’s all collectively try to use our heads in this election season.

You can’t buy a mobile home park without doing a Phase I – you could lose everything if it turns out to have environmental pollution on it. So who do you choose to do the report? We choose Mike Renz. Mike is the consummate professional and his range of knowledge is unparalleled. Here’s an example. We were buying a mobile home park and it failed the Phase I. Most people would have given up, but Renz knew that something did not seem right. It seems that a disgruntled manager had called the EPA and claimed that the owner had been operating an illegal land fill at the back of the property, yet Renz saw no evidence of this on aerial photos. So he did some quick borings and found the claim was a lie and the EPA removed it from their database. Case closed and park purchased. That’s the reason that we refer so many people to Mike Renz. Have you ever seen the “Beard of Knowledge” character on the show Pawn Stars – the guy who is a walking encyclopedia of all trivia? Well, for environmental issues, Mike Renz is that guy.

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

I found these two antique, plastic pink flamingos at an upscale antique store recently. They have long been associated with mobile home parks, and actually have an interesting history. The plastic pink flamingo was designed in 1957 by Don Featherstone while working for Union Products. After the release of John Waters' 1972 trailer park movie “Pink Flamingos”, plastic flamingos came to be the stereotypical example of lawn kitsch. There is actually a collectors market for the original pink flamingos, which ceased production in 2001. These can be identified by the signature of Don Featherstone on the underside of each bird. While there are many replicas manufactured and sold throughout the U.S., the true pink flamingo afficianado knows to look for the signatures and the fact that the original flamingos were sold in pairs with one standing upright and the other with its head low to the ground like it is feeding. So if you thought that only mobile home parks have an interesting history, so does its mascot.

We do a lot of conduit loans -- and regular bank loans -- every year. A common feature of those loans is Security Mortgage Group. If you are buying or financing a mobile home park, let Security Mortgage Group get you the loan. They build the loan package, they pitch the banks, and they bring you the best options. It saves a ton of time and energy, and the rates and terms they find are always better than what you can obtain on your own – they effectively more than pay for themselves. If you have any loans you need help on, you can reach Anthony or Gerry at (585) 423-0230. Tell them Frank & Dave sent you.