This webinar on mobile home park turn-arounds explored the science behind these transformations, covering all aspects of the process, including the challenges and successes. The event featured Frank Rolfe, dubbed “the human encyclopedia of all things mobile home park” by the New York Times, who shared his extensive experience from turning around hundreds of parks. The lecture provided valuable insights into the good, the bad, and the ugly of mobile home park investments.
Following the lecture, there was an engaging Q&A session where no topic was off-limits, offering participants the chance to gain a deeper understanding of this investment model and potentially giving them an edge in the market.
And if you want the complete science on how to correctly identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn-around and operate mobile home parks – in the same format as this discussion – then consider attending our next Mobile Home Park Investor’s Boot Camp. It’s 100% live yet virtual, so you have no travel time or cost.
The Good, Bad and Ugly of Mobile Home Park Turn-Arounds - Transcript
It's a series event. Tonight we're gonna be talking about Mobile Home Park Turnarounds. The good, the bad, the ugly. And it's an interesting topic for many, because often when you buy a Mobile Home Park today, inherently it comes with some form of turnaround. I've never seen a park you could not improve. And the definition of improvement in Mobile Home Park business is a turnaround. Some are minor, some are major. Most are lucrative. Some could be financially catastrophic. But tonight, that's our topic. We're gonna talk All About Turnarounds. And you might say, "Oh, hold on. It will not advance. Hold on here, we'll call our technical supervisor and find out why it's not advancing. There we go. Now it's advancing. Let's see it advance." Well, okay, this is interesting. All right. Well, at any rate, my first Mobile Home Park was Glen Haven down in Dallas, Texas.
And it was as big a turnaround mass as you could possibly hope for. It had everything in the world wrong in one property. I had a master metered gas, a master metered power system. I appeared to have floodplain, but I did not, I never flooded there. But I had the roughest crew of customers you've ever seen. I was half occupied. I had people who built an amateur wrestling ring in one corner out of old plywood, and then they put in little concession stands also made of old rutted plywood. So, it was part Mobile Home Park, part illegal sports venue. No one was paying for the most part, it just couldn't get any worse. And that's how I got in the business. I was attracted to Glen Haven for one item only, and that was the amazing financing. It was so bad that the seller would sell Glen Haven for $400,000 with only $10,000 down, and then he would carry the other $390,000.
So, I found the financing more intriguing than the park itself, and I self-managed it at the start, I had perpetual problems and managed my way through all kinds of disasters, such as losing my natural gas in the dead of winter and losing my electricity in the dead of summer. But in the end, it all worked out just fine. Bought it for $400,000 and sold it for 1,000,005. So I was hooked. I knew that Mobile Home Park Turnarounds was the next big thing for me to be involved in. And since Glen Haven, I've been involved in hundreds of these turnarounds. Some big, some small, but that's just been the nature of how it all worked out. And Brandon the... Let's go to the next slide there. Or there we are. All right. So, what is a turnaround? Well, one big part of turnarounds are fixing the collections and the rules.
Literally, you're going into Dodge City. There's absolutely no law and order at all. And you are hoping to bring about some form of order, some form of logical business-like metrics where people pay the rent on the first of the month, they follow the rules of the park. They do all these many things, the things you have to have to build a business. Because otherwise, it's impossible. It's like trying to nail jello to a wall if you do not have law and order. So, that's one big part of the turnaround is simply to take a park. And it could be a park in pretty good condition. But you can't operate any business without having revenue coming in or without your customers doing what they're supposed to do. So, that's one part of almost all turnarounds. Another thing that comes with some turnarounds is solving big problems with City Hall.
Now, let's talk for a minute why City Hall hates you so much. City Hall hates you, not only because they think that you are a Mobile Home Park owner, and therefore are greatly harming the appearance of their city, but also because of money. Now, you might say, "Well, why money?" Well, let's just analyze a typical Mobile Home Park in America. Mobile Home Parks often have large numbers of young people who have large numbers of kids, and kids typically cost throughout America about $10,000 a year in public school cost. So, if you have a household with two kids, it's costing that city $20,000 in, out on tuition, but yet they don't get much tax income in a Mobile Home Park. Let's say the mobile home is valued at $5000 and the lost value at 50,000, then that means they would get $550 of revenue in per year in property tax.
But they're paying out in that example, 20 grand on that space. Multiply that times only five lots, and the city is losing 100 grand a year. Multiply that by tenfold, and it's losing a million a year. And most cities are not that rich anymore. They can't really take a hit of a Mobile Home Park, which is costing them a million dollars a year. So as a result, they want you out of their city and for good reason. If you were a city administrator, you would also want all the Mobile Home Parks to be removed. But Mobile Home Parks typically have grandfathered zoning. So, the city cannot remove you necessarily. They can't say, "Oh, we don't allow Mobile Home Parks anymore." Because grandfathering basically states that whenever rules were in effect when you bought the property, they have to abide by. If you did not have a grandfather and you would have absolute anarchy because everyone's business would be in jeopardy 24/7 as the city morphs and grows.
They would just say, "Oh, well, you know what, we don't wanna have any more grocery stores in this area, we would only boutique shops." So grandfathering is what saves the day for Mobile Home Parks. But sometimes cities will take the smallest item if they can and make it into a big deal. They'll even invent items to try and harass the park owner or park buyer to convince them that they shouldn't or can't buy the Mobile Home Park. Simply hoping that by starving out any buying of the park, the park will ultimately close. We've been dealing with this attitude for 30 years now, and we've done well with it. We have not really lost any cases that we have filed. We've not had any permanent problems, but it can be a part of the turnaround process to solve outstanding city issues.
Cases where the city says, "Oh, you can't use those vacant lots." When in fact you can. And part of your Turnaround may be to get the city to back down and say, "Okay, you're right. You can use the lots." And we've done a lot of rebuilding of infrastructure. When you buy a Mobile Home Park, you're responsible for the roads and the water and the sewer and the power and all these utilities being available to your tenants. And often over the decades, they're in really poor condition. If you walk, go into any old mom-and-pop Mobile Home Park that's been under the same ownership for 50, 60 years, you'll immediately notice in most of them large potholes, you'll notice water leaks, sewer backups, all of these types of things. And so, as the Turnaround guy or girl, you're gonna go in there and you are going to fix these things.
Some don't need a lot. We've seen Mobile Home Parks that had $5000 a month wasted in water with just a series of leaks that you could repair for $5000. So, when I say rebuilding infrastructure, I do not mean complete water line or sewer line replacement. I don't mean ripping out the roads and putting them all back, but I do mean getting where they work properly, fixing those potholes, fixing the water leaks, fixing obstructions on the sewer lines. That's the kind of stuff your tenants really need to have a happy life. And that's what you need as a park owner. Also, filling vacant homes. A lot of times when mom-and-pop give us the park, it comes with a smattering of what are called Park Owned Homes, also known as POHs. And a Park Owned Home is a mobile home.
It's owned by the park, and they typically have been renting them out. And renting mobile homes is a very, very tough concept. You wanna sell those homes. You don't wanna rent the homes. When you rent mobile homes, you have endless repair and maintenance problems. So as a result, you wanna get them at the door, you wanna get them sold. And often mom-and-pop don't even understand the thought concept of selling the homes. So they rent them for a while, people trash them, they run off, they rent it again, they trash them and run off. And at some point they give up. The homes are just sitting there. And it's not that hard to fix them up and sell them. So one part of Turnarounds typically is taking all those vacant Park Owned Homes that mom-and-pops have collected up over the years and getting those sold.
And then building back water and sewer is a very logical step in America today in the process, the relationship between landlords and tenants. Because, the concept today is you need to pay for what you personally use. It's called personal accountability. And we found that when we bill back water sewer to the customer, it drops the consumption of the utility by about 30%. So it's a win-win for the park owner. It's a win-win for the environment for environmentalists, because if I bill back water and sewer, the tenants are gonna use 30% less water and sewer, and yet they're gonna pay for it. I don't have to. And in many parks, water sewer is the single biggest line item cost that the park has. And then just cutting all unnecessary costs, you'll find in many Mobile Home Parks, crazy things are occurring. Small parks that have maintenance men with literally nothing to do.
We've found that if a park has less than 150 lots, it should never have a full-time maintenance person. Yet I've seen full-time maintenance people in parks as small as 25 lots. Other issues you have often are hugely overcompensated managers that can be a common problem. You have issues where mom-and-pop are horribly overpaying for such things as cable television that they're supplying to the entire property. But you got to go through and say, "Okay, this is wasteful. We're gonna cut this off." So it's another Turnaround thing. And then filling vacant lots, not quite as easy as filling vacant homes. Filling vacant lots is definitely still an important thing because there's a lot of value to be lost if you don't get those vacant lots full. So as a result, it's one of your key items as a park owner is, you've got to look at your lots, come up with a plan, and if you do it, in fact, wanna fill them, which I don't know why you wouldn't, this is a demand for what we do is gigantic.
You'll have to still buy used homes and remodel them or buy new homes. You'll have to bring them in, set them up, skirting on them, stairs on them, run ads, show them and sell them. Also raising rents to market levels. Most Mobile Home Parks are ridiculously low in rent. I know it's a touchy subject that no one ever likes to talk about, but it must be talked about. The average lot rent in America is around $300 a month, at the same time that the average apartment is $2000 a month and the average single family is $400,000. Why are we so cheap? And the answer is because moms-and-pops never kept rents anywhere near market levels. They never raise them in line with inflation. They never raise them in line with other housing costs. And then when you buy the park, you've got 30 or 40 years of deferred price raising that's never been done to try and catch up with.
We literally bought a park once in Austin and a 250 rent when right across the street the rent was 550. About a parking grapevine. Texas is a 100 rent when everybody else was four times higher. So often, as part of our job of doing the turnaround, as part of making the business work, as part of making the Mobile Home Park the best use for the land, we have to raise the rents insignificantly. I would say that the average lot rent in America today should not be 300. It should be more like 600. 600 is the kind of price range you would need to be in to provide competent management and keep all of the utilities and things working properly. Then you have improving the aesthetics. Many Mobile Home Parks, as we all know, from driving by them are ugly. They look terrible from the street.
Mom-and-pop has done absolutely no work to elevate their appearance. The signage is a piece of plywood that's rotted, and it may be even fallen on the ground. The road looks terrible. They don't monitor anything to do with rules. So, you have people with washing machines and refrigerators and yards, non-running cars, dead trees everywhere. And that's not good. It's not good for your business. It's not good for the general community. It's certainly not good for the residents. So, often a big part of turnaround is simply improving the aesthetics, putting in a nice entry, making the park look nice on the inside. And that ties to the next one, which is enhancing the pride of ownership. Because for a Mobile Home Park to function, remember that everyone owns their own mobile home and you own the land for this all to happily coexist.
They have to care. They wanna clean it up. Often when we turn around the Mobile Home Park, what happens is, the customer initially doesn't believe us. They don't think we're gonna make it nicer 'cause mom-and-pop told them 50 times they were so they hang back, they don't do much. But when you actually physically start fixing it, fixing potholes, cleaning things up, then suddenly you ignite their pride of ownership and they start doing it themselves. You've really won the turnaround process. When you go into your park, you see your park is looking better all the time, but you're not doing any of it. People are painting their own homes or improving their yards or landscaping. That's when you really have a happy ecosystem is when the tenants and not you are making it all happen. And then you have building the sense of community.
Now, the sense of community is kind of an ethereal amenity. And it means basically it's a support network. It's a friend group. It means that the residents get a sense of being from being in the Mobile Home Park. And often to get them in that spot requires you to go in and bring the old Mobile Home Park back to life. Even residents who moved in back in the '60s when it was first built and are still living there, they lost over time the sense of community because it seemed that nobody cared, and they didn't know their neighbors. And so, they just kind of exist in a very lowly solo pattern. But when you bring the park back to life, all the steps you do as far as improving it, holding events like spring cleanups, all these things tend to rebuild the sense of community. And a resident who has a strong sense of community is a very happy resident indeed.
Time Magazine wrote a glowing article on the industry a few years ago, and it said that the Mobile Home Park is the gated community of the less affluent. If you read the article, what they really liked about Mobile Home Parks was the sense of community. So, it's an extremely strong asset that you need to rekindle. Oh, need to move the next slide here. But now, not all of these are of the same level of difficulty and risk. Of all the things I just mentioned, some cost capital and some don't cost much capital. And some are hard to achieve and some are not hard to achieve. So, let's start off with the heavy lift turnarounds. These are parks that have extremely poor physical condition often. So, everything is broken, the roads are shot, the parking pads are shot, the water has got leaks everywhere.
The sewer is haphazard if it's running. Everything is all messed up. And you are gonna go in and save that property by typically injecting a lot of money in it to get those things working again. So, that would be the first kind of heavy lift turnaround. And the next one will be the park that has massive amount of vacancy. In our industry. Lenders like 80% occupancy or higher. They call it stabilized occupancy. But we have bought Mobile Home Parks that had only 20% and 30% occupancy and then worked to get that thing up to stabilize at 80% and even beyond. And fixing vacancy is a big deal. It's very time and risk and capital intensive because you've got to go out and buy homes, bring them in, set them up, run the ads, answer the phone, show the homes, and sell the homes. Many, many steps involved.
And that's why that's again, a heavy lift turnaround item. It's got so much CapEx and energy involved. And then you have the parks where you've got to actually go in and replace the entire infrastructure system. So, it might be replacing all the water lines 'cause those old galvanized metal lines accrued so badly they turned into soaker hoses. Or maybe it's the roads can't be patched anymore. The road base is in such poor condition, you have to go in there and replace the whole thing. And that's definitely a heavy lift turnaround item. It's very expensive to replace a utility. It's one thing to patch broken sections of water pipe. And it's a whole nother thing to actually drill and dig and put in a whole new water system. It can literally cost over a million dollars to do so. And then you have the parks that have no books and records at all.
We've bought those before. Maybe it comes through a foreclosure. They weren't paying their mortgage to the bank, and the bank takes the property away from them. And what happens then? Well, once they take the property away and you're the buyer, guess what? You have no books and records to consult with at all. So as a result, you don't know who pays. You don't even know who lives there. One of the early heavy lift turnarounds I did, it was my second or third park, was a wild deal. A guy inherited a Mobile Home Park and he did not know who lived in it, how much they pay, because he had never collected in a penny on it at all. He would just pay the bills out of his own pocketbook. He didn't like the Mobile Home Park business. He didn't want it to go through the steps to even try and rebuild the rent roll. So he just let the thing fester. And then after a while he was like, "Well, I can't afford the negative anymore. I guess I better sell it." But I literally had to go door-to-door to find out the name of every tenant in the property and rebuild everything from scratch.
Other times heavy lift turnarounds revolve around very, very poor tenants who simply cannot pay the rent.
So you send out your rent notices, you're supposed to pay on the first, right after the fifth. You might have a few stragglers in some Mobile Home Parks. I'm talking the kind of park where you might have 50 percent not pay. What do you do then? Well, two things. You're gonna have to manage a very painful collections process as you ultimately file eviction on all of them through the court system, but then you're gonna have to also then replace them as they typically run off and abandon their home. And then finally, heavy lift turnarounds can revolve, as we mentioned earlier, about state, county, or city governments threatening to restrict you from using your lots or threatening to shut your park down.
So from the very get-go, you are embroiled in a big old mess with a city that's so hostile against your park, they don't want you to use it. Typically, what they'll say is, "Oh, you can't use any of those vacant lots." Or, "If a home pulls out, you can't put one back in." Now, in most states that's blatantly untrue, but it's up to you to figure that out and find it and to get that solved. Let's go to the next slide there, Brandon. So, what are some of the heavy lift turnaround issues? Well, the first one is the capital required to make improvements. Because, some of the things I mentioned don't cost anything. Pride of ownership, sense of community, some of the aesthetic items, mowing, those aren't big dollar, but then others are.
Others have all kinds of issues with replacing water lines or sewer systems or roads or whatever the case may be, and that costs a lot of money. And who has the money to pay for it? If you buy a heavy lift park, it's gonna require a big capital commitment. Then a key question is, who's got the capital to meet that obligation? So, you have to make sure you've budgeted properly. You have to make sure you have the access to the capital to do it.
It's one thing to buy a Mobile Home Park that needs a heavy lift turnaround, which will require a lot of money, and it's another one to actually have the money to then do it. Sometimes people miss budget. They do not budget enough money.
They perhaps talk to some vendor who says, "Oh, I can replace your water lines for X," not realizing that when his bid finally comes in after you bought it, it's 2X. So, working around big, risky capital items, that's one big issue with the turnaround. And for that reason, many people say, I don't wanna do turnarounds, or I don't wanna do heavy lift turnarounds. As, we'll come to in a minute, the lighter lift model don't have those same CapEx requirements. But on the big ones, on the ones that are really, really screwed up, you have to make sure that you do in fact have the money to fix it. This next one is gigantic, and that's, can you even obtain a loan? Now, lenders are pessimists by nature. They look at every deal only from the worst case and not the best case scenario. And there's every reason why they should do that.
Because when you're a banker, all you get, your best day ever, is your money back and then the specified interest rate of return on your money. You don't get any upside, not at all. So, then why would a bank want to take big gambles? They get the same rate of return as the ones with small gambles. They don't get any additional equity. They don't get a piece of the action. They don't get any upside. So as a result, heavy lift turnarounds, as long as I've been in the industry, have been very, very hard to get debt on. Now, the normal way you bridge that is by having mom-and-pop carry the paper.
You look at the deal and you say, mom-and-pop, this deal is a terrible condition. So as a result, you realize you'll have to carry the paper, right? So that's often the solution is you're going to have to go ahead and be the bank for you. Now, once you fix it up to a certain level, then you could refinance and pay them off. And they're not gonna carry the paper to the end of the movie. The first park I had, Glen Haven, was a fluke.
I've never had a mom-and-pop offer to carry paper for three decades. But they are gonna probably have to carry that paper for at least five to ten years before you can get it in a condition where you can get a bank loan on it. And that just comes with the territory. Also, you have to always shoulder the risk when you do heavy lift turnarounds that things will not work out as you planned. I think it was Omar Bradley in World War II who said that, "Great plans never survive first enemy contact."
That was a problem throughout World War II. Invasion of Normandy, all the other campaigns of World War II, they had these insanely elaborate plans, but they never worked out like that. You've probably seen the old war movies where they were gonna land with gliders in the middle of the night into German territory, only to find that they got lost and confused and they didn't land anywhere near where they were supposed to land. Then every other part of the plan fell apart too.
So when you do heavy lift turnarounds, one thing you have to contend with is risk. Now, we're gonna go over in a minute how you can address risk and how you can improve your position, but it's inherent in the business. So as a result, you've got to be a little bit of a risk taker. You have to realize how to acknowledge the risk and how to work around it. Let's go to the next slide there, Brandon. So, what are some of the fundamentals required to do these heavy lift turnaround kind of deals?
Well, let's talk for a minute about risk reward. There's a great book out. It was written by a guy named Sam Zell. He died a little while ago, but for those of you who don't know him, he was the number one real estate investor of all time. Just as Warren Buffett is the greatest stock market investor, Sam Zell was the greatest real estate investor. In fact, he was the largest owner of office buildings, apartment buildings, and Mobile Home Parks in the United States. And they called him, 'The Grave Dancer,' because for some reason he was able to move in and out of real estate sectors before they got in trouble. He sold off almost all of his office buildings before office crashed. He sold off a lot of apartments before apartments crashed.
He's never sold a single Mobile Home Park though. So, clearly up until the day he died, he spoke very strongly about our industry. But in his book, and just if you ever read on articles of things he told people, he was obsessed with this concept. He would tell his employees, "If a deal has low risk and high reward, you don't need to ask me, just buy it. If a deal has high risk and low reward, you don't have to ask me, you should never buy it. If a deal has high risk and high reward, okay, then let's talk about it."
Often on these Mobile Home Park turnaround deals, if you're gonna take on the risk, you have to have the high reward. They typically normally always fall in that strata. Those other two, the low risk high reward and the high risk low reward, those are typically not gonna work when you're doing a heavy lift turnaround. So, if you're gonna take the gamble, you have to make sure it's worth it. If you imagine in the Powerball Lottery was you buy your ticket and the winner of the Powerball Lottery is $30. Well, they're not gonna sell a million tickets from people who wanna have a one millionth of a percent chance of wanting $30.
So, you've got to make sure your risk reward is in a proper and healthy relationships. Next, you have to have spectacular financial return to do the heaviest lift turnarounds. You're not gonna do a heavy lift turnaround if you are seeking a 10% rate of return. That's not what they're all about. If you're gonna take the gamble, the effort, the risk to do the heavy lift turnaround, you've got to have fantastic returns. Many people who look at deals like that are gonna have a minimum requirement of making like about a million dollars and more.
So, it has to be something where if I buy this park with all these problems and I fix them all, the carrot that is dangled in front of me has to be a very, very large amount of money. If it's not, then you just shouldn't do it. Also, on these deals, you have to have access to enough capital to get the job done. And you probably need a plan B in case you budgeted incorrectly. So, if things break that you didn't know about, you can't stop. You've got to get them fixed.
Where do you get the money? So you wanna make sure that you've got enough money in reserve to come to your rescue in the event that things don't work out as originally planned. And then you've got to have strong, what we call ideal rankings to make it worthy of the attempt. Let me explain what the ideal system is. We'll go to the next slide there, Brandon. So, these are the five metrics of analyzing any Mobile Home Park deal.
And the acronym is IDEAL. I-D-E-A-L. And it stands for the I is infrastructure, the D is density, the E is economics, the A is amenities, and the L is location. And it just happens to spell IDEAL, which is awesome. These are the five drivers on any deal. And the way it works is if you're strong in one, you have to assume you might be weak in another. And the strong stuff has to be stronger than the weak is weaker. For example, if you have an old Mobile Home Park, you probably have a really great location, 'cause the best locations in the US for a mobile home park date way, way back. Because Mobile Home Parks began really back in the 1930s and '40s. So if you wanna have that oceanside spot in Newport Beach, California, it's gonna be a really old Mobile Home Park 'cause they haven't let new Mobile Home Parks be built almost anywhere in America since the '60s.
But if my location is phenomenal, I know because of the age my infrastructure is lousy. That's the way they are. So the way they built Mobile Home Parks in 1950, which provided a great location, also provides you with less than ideal issues on infrastructure, including master-majored utilities. Also, old parks are typically dense. Density refers to how many units per acre of Mobile Homes, or more common sense-like, how close they are jammed in upon each other? Which determines how big a home you can have and also determines all kinds of things, all the way up to safety in the event of a fire. So, you look at the old park and you say, okay, old park, you got great location, but you got weak infrastructure and you got weak density. Then, you know, should I buy it? Well, if the location is so strong that it counterbalances that infrastructure and density, then the answer is, probably. Now, the A, we have it mismarked on the slide, so let's all correct that slide.
The A is for age of homes, although amenities is an interesting new idea. But the age of homes typically, that's not gonna really typically make or break your deal. Most people wanna have mobile homes that are paid for, which means it'll be from the 1960s, '70s, '80s, and '90s. Why? A Mobile Home that's paid for means it will not be repossessed. But the big one of ideal that often is the tiebreaker is the economics.
Because you'll buy almost anything if it's offered to you with zero down and non-recourse debt. That's why I bought Glen Haven. It wasn't because, "Oh, I wanna be a Mobile Home Park owner or, oh, I wanna own a parking lot for trailers on Interstate 35 in Dallas." No, no, no. The guy offered to me with only $10,000 debt and he would carry the rest of the debt non-recourse.
So, sometimes the economics is the big deal. You may take out a really, really rough turnaround park that has all kinds of problems simply because it's priced super cheap or mom-and-pop will finance it. Let's go to the next slide there, Brandon.
So, then how is turnaround money made? How do you make any money with the turnarounds? If by definition, you're not gonna tackle the tough turnaround unless it makes you lots of money, let's talk about making money. Now, I live in Missouri. And as everyone knows, Missouri has one strong sports team at the moment, which are called the Chiefs. And Andy Reid is the coach of the Chiefs.
And he's famous for having lots and lots of plays. He has plays, some plays he comes up with, he never even does them one time during the season. So, no one sees them as they prowl around all these videos. He's got that one secret weapon play that he uses only in the Super Bowl. In our industry, we're the opposite. We do not have that many plays to make money.
So, the first big play is raising rents. As we already discussed, it is mandatory. It's gonna happen. It's gonna be a lot of rent increases in the years ahead because if you don't do it, then all the parks will just be torn down. You see articles almost every week now of parks throughout America that are being demolished. And they're being demolished because the rents weren't high enough to justify keeping it as a park. So, in those cases, it just made more sense to demolish it and make it into apartments. How high would the rents have to be to stay as the park? It's a case-by-case basis but it's gonna be a whole lot more than $300 a month. I can promise you that. Remember, you can stack apartments two or three high on top of one single Mobile Home lot.
Those apartments ran on average in the US for $2,000 a month. So, if you've got $6,000 of potential revenue on apartments, and all you have holding it back is $300 of lot rent, clearly that park owner will redevelop. So, raising rents is probably the most profitable part of doing the turnaround. You also have building back utilities. Building back utilities has already been done in most all other industries, from apartments to even triple net leases. But the concept is you pay for what you use, and therefore you restrain what you use. On parks that we have built back utilities, we've found typically the utility cost goes down by a third. And a third is a lot. So building back utilities is kind of a win-win.
It allows the customer to decide their own fate as far as how much they use. It keeps you as the park owner out of the loop on what the customer does. And it helps in those markets of America where they have diminishing amounts of water. Then you have filling vacant lots and homes. Of course, it makes complete common sense. A vacant unit has no income and no value. But in our industry, an occupied home or an occupied lot is going to have a value which is then derived by a cap rate on the net income. So, it's a very important step to always maximize your entire income stream by filling all your vacant lots and homes. And then you have eliminating expense waste.
Now, there are typically two categories in most Mobile Home Parks of extreme waste. The first one, as we mentioned, is water and sewer. A single break in your entire water system in the park could easily set you back several thousand dollars a month. So, if you had two mainline leaks, there's every reason to believe that might cost you $60,000 a year. And at a 10 cap, fixing those leaks creates $600,000 of value. The other is overcompensation of managers. We once bought a park in Kansas City and the manager was making about $102,000 a year on an 85 space park with maybe 70 occupied. And you might say, well, that's ridiculous. How in the world could you make any sense of that? Because a typical mobile home park manager in that circumstance might make $25,000 a year, but certainly not 102. So during diligence, we asked the owner, "How does the manager make 102?"
And he said, "Well, it's really stupid, right?" He said, "The manager basically started off like any manager at a reasonable amount. And then every year they'd hit me up for a bonus. So, I give them a raise. And then one year I really screwed up and I said, okay, I'll pay your health care. And it just kept growing and growing with compounding interest until he hit $102,000." Now you might say, "Well, why didn't he fire them then?" Well, many moms and pops, they just don't like taking that kind of drastic action. They don't like to evict residents and they don't like to fire people. So, the problem is on that Mobile Home Park, if you looked at the numbers, he gave up about $800,000 of value just to maintain that $102,000 a year manager, as opposed to swapping them out. And then you have improving the property for a higher valuation. So, think of this, when you buy the Mobile Home Park, it's all beat up, it's down the toilet, it looks terrible from the street. What does the appraiser then think?
What does the buyer then think? They think I want nothing to do with that property, it's a dump. But as you make it look nicer, as you approve the drive up appeal, suddenly that park is worth more to everyone, appraiser, banker, buyer. So, just making them look nicer, cleaning them up, making them more orderly plays huge dividends. Let's go to the next slide there, Brandon. So, now how do the tenants benefit in all this? We've talked about the buyers and how that works for them. We've talked about the community at large, but how do the tenants benefit from any of these changes? Well, first off, they get nicer roads, better working utilities, which are big deals to people. No one likes driving down the road where you've got a giant pothole that hits your car so hard it almost breaks your wheel off. Nobody likes to live in a Mobile Home Park where the power goes out all the time or the water has to go out all the time as they try and patch it together. So, they definitely benefit as we make the road utilities better.
They also benefit from the nicer appearance 'cause it's nice to come home to a pretty place. It makes you happy when you live in a place that's nice and nicely mowed and nicely taken care of. And then safety is a big issue because nobody likes to be unsafe. All Americans like safety. It's regardless of how much money you earn. I've never heard anyone tell me, oh, I wanna go live in a dangerous area.
They don't, nobody does. And part of being the park owner who does the turnaround is you're going to restore safety. Now you do this by having a zero tolerance on crime and letting the residents know this and you proactively watch. And if you see anything going on, this has got criminal elements to it, then you immediately report that and get that fixed. Even adding things like ambient light, putting in solar lights, things like that also tend to improve the safety. We've bought Mobile Home Parks where mom-and-pop were so lenient. They would let street people with abandoned live just inside the Mobile Home Park. Saying, "Well they have to live somewhere, gosh." not realizing the punishment to the residents, they didn't live in the park. What if you move those people out to their driveway, do you think that might get their attention?
So, safety is a big deal. And then rules enforcement is something where people say, "Well, Mobile Home Park people, they don't like rules enforcement." No, they totally like rules enforcement. Nobody likes looking out on the home that has the washing machine in the yard. Now the guy in the home where the washing machine is in the yard, he doesn't see that when he looks out his windows, he sees all the other homes that are well maintained. So, it's highly unfair to make somebody that does a good job of maintaining their property look out on things that look awful. So, rules enforcement is pretty much universally welcomed by all residents. And then professional management, people like professional management. They like it when they have somebody who does not play favorites, somebody who gets the job done, someone who is cordial and professional. So, residents really like it when you go from mom-and-pop who may be nice but are terribly misguided often in how they're running the property to a professional form of manager.
Also, let's just talk about value for a minute. So you're paying $300 a month to live in a Mobile Home Park that's a total dump. Would you rather pay $400 to live in an nice place? Most people would say, sure I would. You'd rather pay $500. Yeah, absolutely. I would totally rather pay that extra $200 a month to live in a place that's clean and safe and pretty and everything functions than someplace that's ugly and dangerous and nothing works. And that concept is called value. So, when people shop traditionally on almost anything, food products, cars, they shop not by dollar value alone, but they also look for value for the dollar. In my small town of Missouri, we've got a dollar store. Many small towns in Missouri have dollar stores and there's one particular product at the Dollar Store that you learn early on isn't very good. And that is the Dollar Store Barbie, which is not made by a Barbie. It looks just like one. The problem with the Dollar Store Barbie is, that if you move the arms up and down or do any form of play with it, with your child, they just fall off.
So, if you move the arm up to, to wave to the other Barbie and say, hey other Barbie, the arm will just fall off. Now that Barbie is a dollar or actually $1.25 now 'cause they raised Dollar Store prices up to $1.25, but the Barbie they sell at the Walmart, the real Barbie, which costs like about $7, that's a better value. It costs seven times more. But the real Barbie, the limbs do not fall off. The real Barbie you could probably have around for 30 years and never need another one. And that's called value. So, your customers in the Mobile Home Park, they like a better... Is a good value as much as anybody. And then you've got greater pride of ownership. Now what does that even mean? It means that when tenants are treated fairly and they see the property brought back into a good condition, when you bring it back to life, then typically they care more about their own property.
They're more attuned to landscaping and painting and cleaning their own property. And everyone likes that environment. I seriously doubt anyone on this call as they go home every day says, "Gosh, I hope my neighbor hasn't mowed their yard. I hope my neighbor has maintained that non-running car in the driveway." No, people don't like that. And then we talked about a greater sense of community. When tenants have a strong sense of community, it is a support network that helps them in times of need. When my partner Dave went and self-managed a park down in Texas, he was shocked at how he self-managed. He moved in after a tornado and he was amazed at what a large support network people had put together for themselves. If a neighbor's car broke down, someone else would drive them somewhere. If somebody else ran outta food, the other people would cook dinner for him. They had meals on wheels before the term was even coined. And again, that's the kind of thing that you only find in the well run Mobile Home Park. Let's go to the next slide there Brandon.
So here's something that nobody seems to understand about the process of the turnaround. And the fact is that when you turn around a Mobile Home Park, 99.9% of the residents love it. They love having a nice place to live and they're more than happy to pay more money for that. Because this little fractional number in 100 space park, literally one person who hates change and they wanna live in complete squalor because it's cheap. And any park you turn around, I guarantee you you're gonna find the same phenomenon. It doesn't matter what you do. You might take a park that was just about to be shut down by city hall for being an absolute dump, bring it completely back to life and there'll be the one person who will just complain and complain, I hate it. I liked it way better before. I don't like it. I don't like the new. And the bottom line is you can't please everyone. That was a popular Ricky Nelson's song back in the '80s.
But it is true. You'll never find anyone who unanimously likes anything done in the history of the world. You could go around to people say, Hey everyone, I'm gonna give you $10,000 each. And one person will say, I want a million. They never appreciate a darn thing. And that happens in Mobile Home Parks all the time. But the key is that the majority wins. You can't really run a society where you can have one person out of 100 hold back the quality of life for the whole rest of the park population. Yet if you read those articles in the newspaper that frequently come out, you ever notice it's just this one person. Residents hate Happy Hollow Estates. And you read the article and Sally Jones hates Happy Hollow and all they do is talk to Sally Jones and all she hates it all.
And she wishes they put all the dead trees back and she thinks it's just ruined her quality of living. No one else agrees with that. Not a soul. Absolutely nobody. We had a park down in Austin once called North Lamar. We were on TV a lot about it. Newspaper, radio, of course we all know Austin is a strange place. Their motto is Keep Austin weird. And it was definitely weird. We took a 68 space park, we made it phenomenally nice from an absolute dump and yet we still had a resident in there who hated everything about it. And they would call and call the media and the media loved to run the stories 'cause the media in Austin just hates business people or anything to do with capitalism. They hate it all. But it was so annoying because it did not reflect any of the opinions of anyone in the Mobile Home Park other than just one person. So, when you bring old Mobile Home Parks back to life, will you have any people who don't like it? Oh, absolutely you will. Is it a majority? No, it's typically literally like just a person. Let's go to the next slide.
So, what are the basic reasons that investors do turnaround deals? Well, here's the secret truth is that Mobile Home Parks and particularly turnaround deals, are probably the most lucrative thing in real estate today. And let me just prove my point. If you took any 80 space Mobile Home Park that is fully occupied and you raise the rent by giving the residents notice once a year for $33 a month, which is nothing, and you repeated that process for three years, you just made a million dollars of value. So think about that again for a minute. If you take 80 times 33 times 12, which all falls to the bottom line and you repeat that three times at a 10 cap, you just created a million of value, the lower cap you created even more. Now why is that? You might say that's so simple. What? Why? Why normally a life simple things are extremely difficult to achieve.
So, how come this is so simple? It's because people do not understand our business or the fact that our rents are so ridiculously low. Now if you said, well geez, that seems mean raising the rent that much, but it's not because at $300 a month in this case we've gone to a whopping 400 when the apartments are 2000. But if you were to build back water sewer, that would account as one one year of the increase. If you filled up the vacant loss, it's probably another year. So, you could repeat the same and come to the same end conclusion on a three year pet plan. If you only raise the rent once for $33 total. But you could raise the rent for $11 annually and still hit that threshold. Let's go to the next slide Brandon.
So, what are some of the lessons we've learned over 30 years of doing these type of things? Well, the first thing we learned was the 75% rule of home conversions. Now what does that mean? It means if I've got a bunch of rental homes and I don't wanna rent homes 'cause I don't wanna rent homes and you shouldn't wanna rent them either. And if I go to the tenants and say, "Hey tenants, I don't rent anymore, but I'll sell you the home." Typically 75% will buy the home. Initially half of them will take it. And then as time goes on and their leases are coming to an end and they have to move out, half of the remaining half will then take it. And all you're left over with is this final half of the half. It could go any which way they could run off or they could buy it.
But typically when you're doing your budgets, you wanna assume that 25% of those renters will in fact run off. Another lesson learned is the dangers of $100 lot rents. You know when you buy a Mobile Home Park with $300 rents, it takes a certain kind of person to hold their finances in life together enough to pay $300 like clockwork at the first of every month. But it's a whole nother deal when you have a $100 lot rent. Those customers can often be so hard scrabble that as you try and bring the park back to life, they just can't cut it. A $100 a month lot rent park to my thinking is typically something that's like on a dirt road down by the river and often you're gonna have to scrape the entire tenant base and start all over 'cause Nobody can live in a civilized world.
I would much rather have a park with a two or $300 rent going in than a $100. It's just been our experience that customers who pay $100 lot rent are among some of the roughest customers you're gonna find anywhere out there in the real estate world. Next item is you gotta figure out where your water is going, because sometimes it doesn't go where you think. So what am I even talking about? Well, let's assume I've got a Mobile Home Park and it's losing $5,000 a month in water. And I say, well it must be a water leak. Well, I don't know that, I'm gonna have to have a group called America Leak Detection come and due diligence and they're gonna have to tell me.
"Oh yeah, yeah. We did find these leaks in the system." But yet again, they may say, "We can't find any leaks in the system." So the next thing to do is to say, "Well, then if there's no leaks, is it coming out of customers having their own internal leaks?" You may go around to the park at 10 o'clock on a weekday, look down the sewer clean out, see how much water's flowing down those lines. And if it's a lot of water, then they have a lot of leaks in their homes. They may have flapper valves and toilets that are broken or faucets or valves that are messed up. So, as a result, they, you've gotta maybe then fix it. But let's say you do all that, it still doesn't work. Then what does it mean? Well then what it means is you've got tenant abuse.
What's tenant abuse? It's where people deliberately use massive amounts of water. Throughout America You have people who work in the road industry, mobile car wash industry, landscaping industry, maybe these giant water containers on the back of their pickup trucks. I'm sure you've seen those. And what they do is they'll run a water hose into that tank from their Mobile Home and run that all night every night. So, when you first install the meters, what you're gonna find out is you've got nine people who are running $700 a month of water and everyone else is basically at about 40. But you can't just knee jerk think that you can solve every parks water issue just by installing meters, because you can't. If you install the meters, all you may find out is that all the water loss was coming from your own pipes, which are not metered.
Another lesson learned is the tough facts about really old homes. Really old Mobile Homes may look cool in history books. Give you a snapshot into the past, make you feel like they're in a 1950s movie, but nobody wants to live in them anymore. What's an issue is the obsolescence of the floor plan mainly revolving around the master bedroom. Because most of our customers, the master bedroom is their domain. They come in from a hard day work, they throw off their clothes, they jump at the king size bed, they turn on the big screen TV and they order in a pizza from Domino's. And they virtually live on this king-sized bed it's comfortable to them, it's relaxing, it makes them happy. And if I cannot provide an environment where they can have that king-sized bed, then that is going to be a real problem.
And they may not wanna live in the home. Whereas a single family home, the customer almost immediately gravitates to check out the kitchen and the bathrooms. In our industry, they typically get out to check the the master bedroom and if you can hold a king size bed. So, if you have old mobile homes, it cannot hold large beds in the bedroom, that can be a real problem. Also, you have to understand the receivables list because if you have a customer who's not paid rent in six months, then they may never pay again. But yet they may. We found a lot of times the customers can be redeemed if you simply go to them at the start of the turnaround and say, "Look, the records show you're four months back, but here's the deal. When I bought the Mobile Home Park, I only budgeted starting this month.
I don't really care about the past. So if you'll just start paying this month, you have no problem with me. I'm not gonna evict you. So just start paying me going forward." If they say, "Well, what about the the old money?" You can say, "Well that doesn't belong to me. That belongs to the old owner. But here's the deal, he can't evict you. He can try and get a judgment on you, won't be able to collect it, but he can't evict you and I won't evict you as long as you stay current." We've taken people who are sometimes literally three and four years in arrears and cured them just doing that. Often they're not paying because they assume they're gonna get evicted anyway. And often they're confused 'cause mom-and-pop never evicted them. Just explain to them then what new way it's gonna work. The rent's due in the first every month it's late if not received by the fifth.
And as long as they pay every month, they're golden as far as you're concerned, you don't care about the past. Another item is the necessity of using a municipal attorney. Now a municipal attorney is an attorney that sues cities. That's what they do. And as a result they have a special skillset, a city that says you can't use the vacant lots. A city that says that you only bring in homes that are five years or newer. You bring in the municipal attorney and many of these issues are immediately cured. Suddenly, overnight the city realizes that you've called their bluff and your attorney goes to them and says, "Look, under state law you can do none of these things. You know that, right?" And then often they completely cave. And all the years that we've been doing this, we have always won to get City Hall.
We've never had City Hall ever win on any issue as long as in diligence you make sure that you're in the right. But often to get your rights, you have to use a municipal attorney. You can talk as much as you want, they're not even gonna listen to you. But when you bring in the municipal attorney, suddenly the city's attorney takes notice. And then finally you gotta have faith in yourself. The first park I bought Glen Haven, no one had any faith in me at all on that. I'm not sure I even did, but I thought it was worth the gamble. I had so little in and so little at risk, I thought I learned the business. I knew there were some good things about Mobile Home Parks. I knew that the zoning for Mobile Home Parks was extremely rare. So through supply and demand, I figured that Glen Haven had to be worth something if I could just turn it around.
But often being a park owner is a lonely business. Number one, you won't meet many of the park owners. But number two, everyone else has such a terrible stigma against the industry. They'll always tell you you're crazy. They'll always say, "Oh, you're gonna get killed. Oh, you're gonna get wiped out." But none of it's true. So you have to make sure you did really good due diligence that you really ascertained the risk-reward relationship. But if everything looks good to you, you're gonna have to be, have enough self-confidence to go forward and do it and take the gamble. Because often not having faith in yourself is what really holds you back. Let's go the next slide.
So, the concept is similar to buy a non-running classic car that's rusted and under a tarp and bringing it back to life. You probably watch those car shows on TV. I myself like restoring old cars. And the key is you find a car that's got really good bones to it. That's a truly collectible classic. Maybe like a 65 Mustang old Corvette. Something that really has inherent value. If you can just fix it and then you ascertain that you can fix it and what the cost will be. And if when you get done the money you inject into that old 65 Mustang, you get it back on the road and looking nice is less than the value, well then you're probably gonna do it. It's something, it's a process. Bringing old things back to life is not rocket science. It's not a very complicated process. As many other parallels in society. Let's go to the next slide.
But there are some parks out there can cannot be turned around. So despite our discussion of turnarounds tonight, don't for a minute think that I'm advocating that every park out there be brought back to life. Some just aren't worthy of it. What are some of the things that make it not worthy of it? Well, a terrible location. I over the years have documented with videos and photographs, some of the crazy parks I've found driving across America, looking at our other parks that have no reason to exist. There's a park in Indiana that is so far away from civilization, it makes no sense yet it's sitting there. It has a little clubhouse thing, it's got about a 100 lots. It has about, I dunno, 10 customers in it. They're all hillbillies. I don't know if anyone's even paying rent. And you look at that and say, now wait a minute, how's that park even there?
Well, I assume there was a military base near there back in World War II or Korea, which has long since been torn down, but the park was left behind. So, just because you see a Mobile Home Park somewhere doesn't mean it should be brought back to life. Or it might be in an area of town that is so downtrodden that nobody is ever going to live there. No one feels safe to live there. There's no purpose to bringing old parks back to life in terrible locations. That's just never gonna work for you. Also, you gotta make sure that you have the demand of people to live there. I once did a turnaround of a park. It was a horrible failed turnaround in Shreveport, Louisiana. Because there was this big park and it had a clubhouse, it had a pool, it had a tennis court.
And I got so excited about all the amenities and stuff that it was... I forgot the one missing part. It had no demand. This is back before we even knew how to do test ads. We didn't know anything about anything. And once again, a Mobile Home Park that had no basis in being anywhere 'cause no one wanted to live there. And then you have deals where the risk reward metrics is completely out of sync. Back to what Sam Zell said you should never do. It has extremely high risk, very low reward. Mom-and-pop wants so much money for the thing that they have imputed into the price. What you would get when you turn it around.
Well, why would you do that then? Why would you even bother to turn it around if all you do in turning it around is to make sense of what you paid for it? That wouldn't be very intelligent. And then if you do not have the capital or the access to the capital to see the project through, don't touch it. Because what's gonna happen in the end is when you don't get it finished and you can't get a loan, you're gonna lose the property. So, any deal you get involved in in a turnaround, you have to do an excellent job in diligence of budgeting and you have to have a plan and you even need to have a plan B for that. Also, you cannot buy Mobile Home Parks where you have not on the front end resolve with the city your inherent right to bring homes into the lots.
What will happen is if you don't have that established every time a customer moves out, every time a home burns down, you lose the lot. Over time, your park will go to zero and you'll never be able to finance it or sell it. Because the first thing that any good lender or buyer checks on is your ability to bring homes into vacant lots. If the city says, oh no, you can't, even if they're lying, then you're in deep trouble. And then finally, just a lack of a good gut feel about the deal. Sometimes you get involved in turnarounds and you just, at the end of the movie, you're not excited about it. It's coming up on time to buy it, but you say, eh, I don't know. I'm just not really into it that much. You gotta trust yourself just as you have to trust yourself to buy a park. You have to trust yourself not to buy a park. So, if you do not feel good about it, is you've done all the diligence and in the end you still think, ah, no, I don't like it that much, then you should not do it. Let's go to the next slide there.
So, those kinds of deals are like rusted cars with the edges missing again under the tarp. But the problem is nobody collects them. Just as there are people who collect all kinds of classic cars. There's nobody that collects a... Well, actually I was gonna say Ford Pinto, but people have actually started collecting those, but nobody out there is collecting a 1979 Delta Olds 88. There's certain kinds of cars that are highly collectible, Ferrari, Lamborghini, but then there's a whole bunch of zones that that are not. And you don't want to pretend on the turnaround deals that all of those are created equal because there's not. When you see some of these Mobile Home Parks which need a complete turnaround, the answer is you just gotta let them die. They're not worthy of turning around, they're not gonna provide you any money. They're gonna be a colossal pain in the side, cost you a ton of capital, and in the end there's no reward to them.
So, don't think that by virtue of talking about turnarounds, that we are implying that all parks are worthy of it. The answer is many parks are not worthy of it. And you've gotta be able to pick and choose the right ones in order to have a happy ending with it. Let's go to the next slide. All right, now we're onto Q and A. We've already had a lot of questions come in, so all you have to do is put the questions in the chat bar and we will continue on till we run out. So here we go. Question, what if I...