Mobile Home Park Investing Newsletter

To most people, Halloween is in October. But to us, Halloween can come any day of the year in which we get a call from a stranger who says “I’m having a problem with a mobile home park I bought …” We always cringe when we hear these words, because we know what is likely to follow. We have always been huge on due diligence, but unfortunately not everyone shares our passion. Take, for example, the caller who wanted to know how to find the park they owned, because they had no record of its name or address. They had responded to an on-line ad for someone needing a capital partner, and wired them $100,000 without even bothering to get their name, the park’s name, or even how the profits would be split. They had not heard from this guy since the day they wired the money – which had been about a year earlier. Another caller told me that they had a “septic problem”. It turned out that they had never had the septic system inspected, and the tank had ruptured and was leaking sewage everywhere. And they were getting fined by the EPA $10,000 per day. And they had no money to fix the tank. And the fines were already totaling about $900,000. And they had elected to stop answering the phone or responding to letters. We have at least 1,000 other similar stories, and they always revolve around the same thing: the seller fails to do any due diligence. Benjamin Franklin once said “diligence is the mother of good luck.” Those words are still true today. We urge everyone to please never buy a park until you know enough to perform professional-grade due diligence. We would be happy to never have a mobile home park Halloween-style fright again – and a Butterfinger bar doesn’t make it any better.

This is a photo of a park we own in Texas. What we liked about the park when we first looked at it was the unusual use of design features that make it look much nicer than it really is. We own many parks with these type of features, and think they’re a great addition. We’ve seen them used in everything from dirt-road parks to five-star properties on the ocean in California – and in all cases they add significantly to the overall appearance and feeling of quality.

Bring needed charm to a bland property

Let’s face it, many mobile home parks have no charm. They don’t have much to work with. If a park has no trees, what is there to look at but a bunch of old singlewides? As a result, smart owners try to introduce an element of charm into even the most homely property. Bear in mind that even a glimmer of aesthetics can pay a huge cash reward, as it can effect everything from appraisal cap rate to attracting bankers and buyers. It also gives the park owner greater tenant retention and higher sales speed.

They don’t need watering or pruning, and can’t die on you

One great thing about utilizing coach lights, decorative fencing and similar design touches is that they don’t need watering and can’t die on you. Anyone who has ever planted ornamental shrubs knows the heartache of visiting the property six months later only to find that half of their plantings have died due to neglect. These features may require the occasional painting or straightening, but they won’t just disappear on you.

Can effectively and aesthetically hide tenant behavior problems

The use of individual ornamental fencing on each lot is particularly good at hiding such things as a messy yard and crummy looking cars. In a world in which the tenants rarely live very aesthetic lives, repetitive features tend to mask this problem with a classy touch. It’s no different than putting a cap and gown on high-school and college graduates – can you imagine what their wearing underneath: T-shirts with their favorite rock group on them? Hardly a crowd pleaser.

Helps to bring a sense of order

Repetitive features tend to bring order to the chaos of the typical park environment. The haphazard arrangement of yard furniture and toys is suddenly transformed into merely the lines going outside of very well delineated boxes. You will find the same comfort in simple parking pads – look at a park with standard two-car concrete pads on each lot versus those that have none. At the density of a mobile home park, you need something to hold it all together in proper order.

A huge bang for the buck

White vinyl fencing on each lot is not prohibitively expensive. Nor are coach lights (if you use the new solar variety that does not require wiring. Solar coach lights, for example, cost around $100 per unit. Can you find a cheaper way to get so much impact? Carports, by comparison, can cost $1,000 each – nearly ten times more. In a 50 space park, the total cost of the coach lights might be $6,000 including installation. Do you think that will be more than made up with the increase in park value?

Conclusion

If you are looking to improve the looks of your park, you might consider repetitive features like fencing and coach lights (or maybe both like our park pictured above). These are great ways to enhance the aesthetics of any property for a small cash outlay.

Ross Kinzler is the Executive Director of the Wisconsin Housing Alliance. He’s also a well-known figure in the manufactured home community industry, and has some great viewpoints on our sector of real estate. We are proud to be members of the Wisconsin Housing Alliance, and were fortunate enough to get to interview Ross to get his perspective on things, which we have summarized into this Top Ten List.

1. The industry is missing the opportunity to capitalize on the “tiny house” movement.
   
   Everywhere you look today, from Architectural Digest to MSN, there are articles about the new trend to living in smaller homes. Gone are the days of the McMansion being chic: now it’s the turn of the micro-home. However, what’s disturbing is that all publications glamorize the conversion of everything from park models to metal shipping containers into such dwellings, at incredible high price points. The metal shipping container concept costs around $30,000 for 400 square feet. Meanwhile, 1,000+ sq. ft. homes are available at any manufactured home manufacturing plant for around $20,000 or less. The industry needs to be aggressively educating and participating in the “tiny house” movement, not sitting silently on the sidelines. It’s a terrible missed opportunity.
2. More work needs to be done on home exterior design.
   
   While there have been landmark improvements in interior design in most manufactured homes (just go to any home show to see this first hand), there has been little advancement in exterior appearance. That’s not to say that there have not been huge improvements. The vinyl sided/shingled roof design that is the most advanced version to date is no doubt a great looking home. However, Clayton’s I-Home and E-Home demonstrated that you can provide the product in a more cutting-edge wrapper.
3. There needs to be more of a “grouping” of sub-100 space properties coupled with professional management.
   
   There are roughly 1,200 manufactured home communities in Wisconsin. About 400 of these have 20 sites or less. The other 800 average around 75 lots or so. In a world in which the future consolidation of the industry is a given, there needs to be a more proactive way to organize these assets to allow for more professional management. Smaller communities should be grouped into single units of management, to meet the needs of the larger buyer. This should not be a problem when the communities are in a small geographic area that is perfectly capable of being managed by a single office.
4. Problems with well water need to be proactively addressed.
   
   Particularly in Minnesota and Pennsylvania, we are seeing increases in government cost in sampling of water systems, which will logically lead to further operating cost in the years ahead. For smaller communities, such as 20 lot property, it may become impossible to afford these increases going forward. As a result, the industry needs to proactively work with water companies to find ways to provide municipal water to these communities. Perhaps there is a way to create a government funding source for bringing water to these parks. People talk about the government needing to be more involved in “affordable housing” – this is a perfect project for that goal.
5. Tenants do not understand the need for higher rents.
   
   It’s no surprise that nobody likes to pay higher prices. However, when it comes to manufactured home communities, the alternative to higher rents may be closure and re-development. Math is math, and when a property can be used to make more money through a different use, it’s going to happen.
6. The industry is never coming back in the old form: the future for manufacturers is in selling to park owners, not the public.
   
   When home sales fell from around 400,000 units in 1999 to around 60,000 today, there has been the perception that one day the sales will increase – effectively a return to the good old days. However, that’s unlikely to happen. The future of manufactured home sales, particularly single-section units, is not from the public directly, but from the U.S. community owners. These owners have the financing capability, and the ability to buy in large scale. As a result, those dealers that are hanging on waiting for a return to the past, will probably be very disappointed. The future is in the community owner as the nation’s largest source of home sales.
7. HUD code does not receive the respect it deserves.
   
   There has been talk in some circles that HUD should be taken completely out of the manufacturing loop. The proponents see this as the first move to building modular homes on single-family lots in all housing markets. HUD has not been a bottleneck to the industry, but a workable partner. Modular only produces 35,000 homes per year in the U.S. currently, and that’s about half of the HUD-code home production. We need HUD, but we need to push to keep it perpetually innovative to meet the market.
8. The CFPB keeps moving the goal posts and causing unnecessary problems.
   
   If the CFPB had created a simple map that all community owners could follow to complete compliance, they definitely would. But instead, the CFPB keeps changing the rules and moving the goal posts. They are not creating clarity, but confusion. The SAFE Act and Dodd-Frank has become more confusing than the IRS, and nobody seems to have a handle on it. It’s also a sad fact that there is probably no help coming from Congress on this issue. That being said, the CFPB can change themselves without Congressional vote. And they need to do that immediately.
9. Nobody understands the truth about rents or where they’re heading.
   
   Nobody wants to talk about it, but manufactured home lot rents are way too low in many communities. Here’s a simple way to prove what the problem is. Take any community when it was built, and then increase that lot rent based on CPI, you will end up with a number significantly higher than current lot rents. Effectively, the mom & pop owners often failed to raise rents in line with inflation or, in many cases, at all. How many properties had no rent increases for a decade while inflation compounded at 5%+ per year? Here’s another example. The residents of a manufactured home community recently purchased the property from their landlord, through a non-profit that organizes such purchases. The shocking ending was that the rent had to increase 30% shortly thereafter, to meet the loan payments on their purchase. Math is math, and it’s not subject to negotiation.
10. Wisconsin is a magical state for park ownership.
    
    Wisconsin is a terrific place to own a manufactured home community. First of all, Wisconsin residents take the concept of paying their bills very seriously. Some have said this is a heritage issue, others chalk it up to great parenting. But the fact is that Wisconsin natives pay their rent on time and keep their property to a high standard, with little prompting. Additionally, the state has made dramatic changes in the landlord/tenant laws under Governor Walker, and we have changed course from a tenant-friendly state to a landlord-friendly state. We are also a state that has prohibited rent control, state-wide.

Thanks, Ross, for some terrific input!

Are you a member of a legally protected class? To answer that question, ask yourself, do I have a gender? Do I have a religion? How about a sexual orientation? An age? A family status? A race? A pet I have a deep emotional connection with? If you answered yes to any of those questions, then, yes, you are a member of a legally protected class. As my dad used to say, “You are unique and special. Just like everyone else.” An expanding definition of “disability” coupled with substantial increases in the operating budgets of government enforcement agencies are leading to record numbers of housing discrimination complaints against property managers and landlords.

The Federal Fair Housing Act is intended to prohibit illegal housing discrimination against the buyer or renter of a property and promote residential integration. When the Fair Housing Act was first passed, it only prohibited discrimination based on race, color, religion, sex and national origin. A 1988 amendment to added disability and families with children under the age of 18 to the list of protected classes. In June of 2015, the Supreme Court held that the law also allows for claims involving situations that have a discriminatory effect, even if there is no discriminatory intent. Activities such as advertising only in a Hispanic targeted newspaper or only in a certain section of town have been found to violate the law. Housing discrimination law compliance is a bigger issue in the U.S. than most property managers and landlords understand it to be.

“The Fair Housing Act” and “The Americans with Disabilities Act” have similar definitions of a disabled person: a person who has a physical or mental impairment that substantially limits one or more major life activities, or a person who has a history or record of such an impairment, or a person who is perceived by others as having an impairment. Visible disabilities, such as those of a wheelchair bound tenant or a blind tenant, are easier for property managers to acknowledge and accommodate.

Lesser apparent or invisible disabilities are far more difficult to identify and accommodate. Yet, reasonable accommodation without question is required. For example, a military veteran suffering from Post-Traumatic Stress Disorder who needs the services of a Chow to reduce anxiety or a person who has seizures and relies on the services of a German Shepherd that can predict the onset of those seizures both suffer from invisible disabilities. Both tenants are legally allowed to keep their pets despite any property management rules prohibiting such animals. Because invisible disabilities are both more difficult to recognize and more likely to be fraudulently claimed by tenants, there is a greater likelihood property managers may initially deny such tenants reasonable accommodations. Such denials may cause more discrimination complaints.

Worse yet for property managers, evolving ideas of what constitutes a disability are creating new problems. Recent court cases ruled that hoarding and the use of medical marijuana were considered disabilities. These disabilities create special problems for property managers because they pose additional safety hazards when tenants with these disabilities reside close to other tenants. For example, marijuana users produce toxic second hand smoke and hoarders pose a fire risk. While discrimination is still illegal in these situations, property managers may put in reasonable limitations and controls to address safety concerns. For example, someone who claims that their pit bull helps them manage anxiety may still be required to remove the dog from the premises if the dog attacks or attempts to attack another person.

It brings added urgency to any property manager when they read about an increase in the operating budget for the agencies that are tasked with enforcing these laws and investigating these complaints. These agencies are searching hard for discrimination complaints. Enforcement of the Fair Housing Act is administered by the Office of Fair Housing and Equal Opportunity and overseen by HUD. Ninety five separate fair housing and nonprofit organizations whose mission is to find and eliminate housing discrimination were recently awarded $38.5 million from the government.

These agencies’ budgets are ultimately defined by how many complaints against landlords they find and help prosecute. Therefore, finding more violations is good for their business. So when they contact you as a property manager and claim they don’t favor either side of a housing dispute, be wary. The best practice when dealing with these investigators is to be polite, succinct, and let them know you’ll have someone in your organization reply in full. At that time, get help from a lawyer or other type of fair housing professional to help you properly respond.

It’s important that your property management team be well trained in Fair Housing and Discrimination laws. Periodically test your staff to see if they are in full compliance. Check to see that your sales and lease forms as well as your advertising comply with Fair Housing laws. Finally, as a failsafe measure, make sure that you have proper insurance in place (Tenant Discrimination or Employment Practices Liability Insurance with 3rd Party Coverage). Property managers and landlords are more predisposed to discrimination lawsuits than ever before.

Kurt Kelley, J.D., President
Mobile Insurance
[email protected]

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.

This is a photo of a park I drove recently. What’s happening is that nobody seems to respect the concept of the dumpster. You have people pulling up and just throwing trash around the base – many of which probably don’t live in the park. So how do you battle this issue?

Build an enclosure

We have found the most effective cure to be building a dumpster enclosure. That’s right, three walls to block access to the dumpster from the street. You can build the enclosure out of wood, metal or PVC. What’s important is that it forces the person to carry their trash all the around to the back – they can’t just fling it from their pick-up truck bed. This is important, not from the tenant perspective, but from illegal dumpers. Those are the people who will destroy your dumpster cost and appearance, pouring in all types of construction materials and tree limbs, etc. When you are doing illegal dumping, you are engaging in a crime. To be an attractive dumpster to do this to, it has to be out of the way and easy to back up, dump, and run. The enclosure ruins the speed element, and can often be the barrier that makes them find a different target. It also makes your dumpster area look nicer, which is important in everything from cap rate to tenant retention.

Send a letter to all residents offering a reward

The next weapon in your arsenal is to send a letter to every resident offering a cash reward for information that leads to the arrest of an illegal dumper. Mobile home parks have a lot of density and there are eyes looking out of windows 24/7. If you offer people real money for tips, you’re going to get them. But more importantly, you’re going to scare the heck out of those tenants who are also dumping there. You can probably tie back every illegal dumper so someone who lives in the park and works for that roofer, landscaper, or contractor that dumps. This type of letter makes them tell the boss “I don’t think we should use that dumpster, they’re watching for us”.

Act on any tip

If you do get a tip from a resident, act on it immediately. Call the police and open a case file. The police will probably contact that license plate with a call or letter, and if nothing else it will scare the heck out of that dumper. And pay the reward regardless of what happens. Word will get around the park, and you will have 100 eyes looking at the dumpster 24/7. If you pay out $500 or whatever the award is, it will save you ten times that in additional fees to clean up and have extra frequency on that dumpster.

Install a fake camera that is very visible

We have never had to do this, as the three steps above always fix the problem, but park owners I talk to have said that they have also had success installing a fake camera aimed at the dumpster. I can see how that would scare an illegal dumper. Just make sure it is easy to spot, as it is a deterrent only, and if they can’t see it, it can’t scare them.

Conclusion

There is nothing more annoying than a dumpster over-flowing in trash and debris. Take proactive steps to cure this problem and you’ll save yourself from a lot of stress and cost.

At a bare minimum, I see nine immediate problems. The skirting needs repair. There are no stairs or deck. The roof needs repair. The house and trim needs painted or cleaning. The coach light is broken by the door. The door needs repair. The grass needs to be mowed. The weeds need to be removed. The roads have potholes.

But the good news is that all of these are relatively inexpensive to repair – maybe everything for $1,000 or less on the home and mowing, plus a few hundred dollars more on the potholes.

Now compare that to the cost to fix an abandoned apartment unit from the exterior. That’s why we love mobile home parks.

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.

In the old adage “is the glass half empty or half full?” the answer is not about the current status, but the forward-looking trend. If the glass has a continual refilling coming due in a few minutes, then it’s half full. However, if you’re in a desert and there’s no water to be found, then it’s half empty. We think a smart decision maker is looking for the forward-looking trend to alert them of what they need to be doing. When my car hits the ½ gas remaining mark, and I’m in the middle of nowhere, it’s alerting me that I need to find gas. When I’m filling it up, it’s letting me know there’s still half a tank to go. So, in answer to McDonald’s question on the cup, I guess it all matters if you are near the drink machine and if they offer free refills.

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.

When I bought Glenhaven Mobile Home Park in Dallas in 1996, I heard tales from old residents on how classy it used to be. And then I heard from an even more reliable source – my dentist – that he actually lived in Glenhaven in the 1950s, coming out of the GI Bill, when everyone who lived there was in dental, medical or law school. He also said that everyone owned a British sports car, and there was a cocktail party every night. But I had no tangible evidence of this environment, other than Scottish street names and concrete pads that suggested ampitheaters and other strange archealogical findings. But then I saw this movie on late-night TV that showed me how things were in the 1950s and early 1960s in mobile home parks like Glenhaven, and I thing I now know the truth.

High demographics

The mobile home parks of the 1950s had higher demographics than residential subdivisions of that era. Basically, all those GIs who were in college on the GI Bill lived in trailer courts in mobile homes owned by the government. These are the same individuals who went on to build America and dominate their professions, but back at this time they were merely affluent college students living the good life.

Chic and cool

Mobile home parks were the new thing back in the 1950s, and were considered hip and cool. Americans had lived in conventional single-family homes for hundreds of years, but trailers were new ands difference and chic. Think back on the early cell phones – particularly the “brick phones” that weighed more than a barbell. Remember how cool you felt with one of those? But today you’d be laughed at.

Looked like the future, back then

Back in the 1950s, nobody knew what the future would hold. We had just won the largest war on world history, and technology was making huge gains. Mobile home parks must have looked like the cover of Popular Science back then. It was anybody’s guess how big the fad would grow, kind of like miniature golf in the 1920s.

Conclusion

If you own a mobile home park built in the 1950s or early 1960s, it may have looked just like the photos above in its heyday. The apparel and cars found in today’s parks are a little different, however.