Nothing is more disconcerting than approaching a nice manufactured home community and seeing that the name on the sign is "Roll-a-coach" or "Mobile Heaven". If it is not bad enough that the industry is constantly battling the stigma of being lesser quality housing, let's just beat our customers over the head with their shame by giving their community a name that screams "substandard humans found here". Why can't we name communities with the same care as our brothers the apartment owners? What's the deal?
All manufactured home communities need a respectable name. If your property does not currently have one, please consider an immediate renaming. You are embarrassing the rest of us.
Here's how to successfully name a manufactured home community:
What is your community's greatest asset?
See if you can find a name that includes this benefit. That way, every time you say the name to a customer or dealer you will be subliminally selling the property. For example, if your property has beautiful oak trees, include "Oak Tree" in the name. If it is in the prestigious Norman school district, include "Norman" in the name. Surely, every property has at least one big selling point. Out in a rural area? How about "Country Vista"? Can't think of even one selling point on your community? Call me, I'm sure we can come up with something.
Can you spell the word "Estates"?
Good. Then slam this word on the end of the name or phrase above. For example "Oak Tree Estates", or "Norman Estates". Or reverse it and think "The Estates of Norman". Sound classy? That's the whole point. If you look at the name of all new subdivisions in your market, you will see that they all contain the word "estates". Maybe it has way too much overexposure, but it just gives customers the feeling that they are living in a place that has some degree of desirability and respectability.
Why should you bother?
If you haven't noticed, even the worst apartment complexes in the world have classy names. Why? Because the name helps sell the tenant on moving in. Would you rather live in "Pine Tree Estates" or "Big Wheel"? Well, so would your customer. Why do you think it is acceptable to stick an embarrassing moniker on their fragile self confidence? Would you like to be a kid going to school, telling your friends you live at "Grandpa's Shack"?
There are many financial reasons that are compelling. First of all, the prouder tenants are of where they live, the more likely they are to keep their homes and yards looking good. This "pride of ownership" will impress current and future tenants and help keep your tenant retention high. In addition, a good name will help impress bankers looking to refinance your property, as well as future buyers. It's hard to put an exact figure on how valuable a name is, but it's a safe bet that it could be worth hundreds of thousands of dollars in the right applications. It certainly can't help but to make any property more valuable.
It's Free.
It costs no more to have a nice, attractive name than to have a horrible, repellant one. Sure, you will have to redo the sign out front but isn't that sign ready for a facelift anyway? And telling the retailers you've changed your name is only going to elicit cheers particularly if they have been embarrassed saying it to customers. You would be amazed at what a new name can do for you. If your property has long been associated with drugs and crime, a new name can give it a new lease on life. Nothing can change your image faster than pretending it's not the same property that has the bad reputation.
When you look at all of the improvements you can do to your manufactured home community paving roads, building parks, planting flowers, re-plastering the pool nothing has more bang for the buck than changing the name. If there is only one change you could make to increase value with the lowest cost, changing the name should be on the top of your list.
So how do you do it?
Once you have decided upon the ideal name, there are several simple steps to make it a reality.
*
Change all of your marketing materials to reflect the new name. This includes your advertising, brochures at dealers, stationary everything. Anything that has the old name on it should be thrown away, so that someone does not make a mistake and use it.
*
Meet with the city your property is located in and make them aware of the change. You will want to tell every department, from planning and zoning to code enforcement. Even the Chamber of Commerce.
*
Inform 911 of the change. You do not want a problem with a tenant calling 911 and the responders getting confused as to the location of the call.
*
Change the signage for the property. Many times, new signage is needed anyway. Those parks that have a 4'x8' sheet of plywood for a sign should consider spending a few extra bucks for a better quality, longer-lasting option. Routed PVC is terrific, but even vinyl on aluminum (as found at most Fast Sign shops) is superior to paint on plywood.
*
Send a letter to the tenants informing of the change. They will normally be delighted at the sudden attention they are getting, and thrilled that the old, nasty name is gone.
Conclusion
There is no better investment in both time and money than renaming your manufactured home community. The process is simple, the cost low, and the results substantial.
So unless you have a great name, and a great reputation behind it, you should immediately give thought to a new one. "Out with the old, in with the new" may need to be your motto for your property. If the name you currently have is not helping, but rather hurting, your business, then don't hold back from fixing that problem. It's probably going to be the best money you ever spent.
Thursday, October 28, 2010
Monday, October 25, 2010
The Perfect Storm is Building in Mobile Home Parks
Like all forms of real estate, mobile home parks have had about a decade-long run of easy financing and low cap rates. However, those good old days are over. And the result can be some of the best yielding mobile home park deals since the first trailer rattled down the interstate.
Here's our weather forecast on the great mobile home park storm, and what the impact will be:
New home sales
Mobile home sales have been in a continual decline since 2000. From a peak of almost 400,000 units sold per year then, sales are down to under 100,000 today. And most of those sales are units that do not end up in parks. The good news is that, unlike the single family home industry, bad new home sales have been in every park owner's and bank's budgets for almost a decade. There is no collapse to worry about -- it's already been dead for a decade. And no sellers are trying to use numbers based on good sales that are not really there anymore, nor do you have to guess when the rebound will occur. This whole side of the industry has been dead and buried since before Bush was President.
Financing
Few banks want to make loans on mobile home parks. There were only about 20 that did it with any regularity, and that number has dwindled down to about 5. At the same time, there has been a "flight to quality" on the part of all banks when it comes to making loans. The net result is that only credit-worthy borrowers with 20% down can get a bank loan. This is a sharp contrast to the past decade when anyone who could fog a mirror and had 10% down was able to get credit. The effect will be a buyer's market for those who qualify.
Equally important, the death of financing will set in motion even greater seller financing availability. One of the attractive parts of mobile home park purchasing has been the existence of seller carry. Now, you should see even more of it. Most seller carry offers below market down payments [giving you greater leverage], as well as below-market interest rates and, perhaps most importantly, non-recourse.
Cap rates
This is where the opportunity goes from Category 1 to Category 5. Only a few years ago, cap rates on parks were around 6% to 8%. Due to the lack of qualified buyers, those rates have skyrocketed almost overnight to 8% to 12% or more. And that's not even the whole story. Back when financing was easy, sellers get comfortable capping income that wasn't really there. The home that just got pulled out, the asphalt repair that was capitalized and hidden from the actual profit and loss statement they were never really scrutinized. Today, with greater scrutiny, the income and expenses are a lot more accurate and capable of being banked on. Even if the buyer is an unaware, the bank normally lends a second, conservative opinion and reduces down the price or kills the deal.
Quantity of deals
There have never, in the 12 year history of www.mobilehomeparkstore.com, been so many mobile home parks for sale at one time. This enormous supply/demand disaster has rendered many terrified sellers into a panic mode. Sellers are stating on their parks "make offer", "must sell", and "seller will carry". This is the quintessential "buyer's market".
It's not as bad as it looks
This is the key part of the perfect storm. Although sellers are freaking out and reducing prices, and banks are shriveling up and blowing away, the mobile home park business has not really been much affected. Sales of new homes have been terrible for a decade, and every park owner has already adjusted their business.
Occupancy has remained stable at most parks for at least the last five years (many parks had a significant drop in occupancy at the start of the melt-down on new homes in about 2001). There is no reason to believe significant declines in occupancy lie ahead.
Operating costs, although feeling constant minor upticks in water and tax rates, remain very predictable and not out of control. There is no 800 pound gorilla in the expense closet.
And bank foreclosures on parks remain among the lowest of all classes of real estate. The decline in bank loans has not been due to problems with the mobile home park business model only guilt by association with the rest of commercial real estate market.
Once in a lifetime opportunity
The perfect storm of this magnitude may not come around again. Or it may come back in a cycle twenty years from now. But if you are trying to invest and get a maximum return, the time is now.
Put on your raincoat and hat, and head out into the storm, because it may not be this dark for long.
Here's our weather forecast on the great mobile home park storm, and what the impact will be:
New home sales
Mobile home sales have been in a continual decline since 2000. From a peak of almost 400,000 units sold per year then, sales are down to under 100,000 today. And most of those sales are units that do not end up in parks. The good news is that, unlike the single family home industry, bad new home sales have been in every park owner's and bank's budgets for almost a decade. There is no collapse to worry about -- it's already been dead for a decade. And no sellers are trying to use numbers based on good sales that are not really there anymore, nor do you have to guess when the rebound will occur. This whole side of the industry has been dead and buried since before Bush was President.
Financing
Few banks want to make loans on mobile home parks. There were only about 20 that did it with any regularity, and that number has dwindled down to about 5. At the same time, there has been a "flight to quality" on the part of all banks when it comes to making loans. The net result is that only credit-worthy borrowers with 20% down can get a bank loan. This is a sharp contrast to the past decade when anyone who could fog a mirror and had 10% down was able to get credit. The effect will be a buyer's market for those who qualify.
Equally important, the death of financing will set in motion even greater seller financing availability. One of the attractive parts of mobile home park purchasing has been the existence of seller carry. Now, you should see even more of it. Most seller carry offers below market down payments [giving you greater leverage], as well as below-market interest rates and, perhaps most importantly, non-recourse.
Cap rates
This is where the opportunity goes from Category 1 to Category 5. Only a few years ago, cap rates on parks were around 6% to 8%. Due to the lack of qualified buyers, those rates have skyrocketed almost overnight to 8% to 12% or more. And that's not even the whole story. Back when financing was easy, sellers get comfortable capping income that wasn't really there. The home that just got pulled out, the asphalt repair that was capitalized and hidden from the actual profit and loss statement they were never really scrutinized. Today, with greater scrutiny, the income and expenses are a lot more accurate and capable of being banked on. Even if the buyer is an unaware, the bank normally lends a second, conservative opinion and reduces down the price or kills the deal.
Quantity of deals
There have never, in the 12 year history of www.mobilehomeparkstore.com, been so many mobile home parks for sale at one time. This enormous supply/demand disaster has rendered many terrified sellers into a panic mode. Sellers are stating on their parks "make offer", "must sell", and "seller will carry". This is the quintessential "buyer's market".
It's not as bad as it looks
This is the key part of the perfect storm. Although sellers are freaking out and reducing prices, and banks are shriveling up and blowing away, the mobile home park business has not really been much affected. Sales of new homes have been terrible for a decade, and every park owner has already adjusted their business.
Occupancy has remained stable at most parks for at least the last five years (many parks had a significant drop in occupancy at the start of the melt-down on new homes in about 2001). There is no reason to believe significant declines in occupancy lie ahead.
Operating costs, although feeling constant minor upticks in water and tax rates, remain very predictable and not out of control. There is no 800 pound gorilla in the expense closet.
And bank foreclosures on parks remain among the lowest of all classes of real estate. The decline in bank loans has not been due to problems with the mobile home park business model only guilt by association with the rest of commercial real estate market.
Once in a lifetime opportunity
The perfect storm of this magnitude may not come around again. Or it may come back in a cycle twenty years from now. But if you are trying to invest and get a maximum return, the time is now.
Put on your raincoat and hat, and head out into the storm, because it may not be this dark for long.
Tuesday, October 19, 2010
Beware of the Seller Financing Trap
There are few things more attractive about the mobile home park business than seller financing. Non-recourse seller financing allows the buyer to escape the hassle and scrutiny of bank lending, while at the same time offering some degree of insurance against fraud (you have not yet paid the seller in full), the ability to give the park back and walk clean in the event of catastrophe, and often includes a below-market interest rate and longer loan term.
That being said, there is a trap often used by sellers that is baited with seller financing, and it is important to always be aware of, and stay clear of, this danger.
The trap begins with a seller who is having trouble finding a buyer. Maybe the park's vacancy is too high, maybe the location is too rural or in obvious decline. Whatever the cause, the seller can either sit on the park for an eternity, or find a creative way to attract a buyer. And what can be more attractive to a buyer than an easy to qualify, below market interest rate loan.
Of course, there's nothing wrong with a below-interest rate seller note. But not when it is used as a trap. And many times, that's exactly what is being set.
You see, the seller knows that the park will never hold up to the scrutiny of a bank he appraisal, the independent review of the numbers, even the negative logic of the loan officer. To keep you from finding out that the park is overpriced, or in a bad neighborhood, or basically completely unable to be financed, the seller offers to carry the loan and cuts the bank out of the loop day one. That's the first leg of the trap.
The second part of the trap is to bait the deal with a super low interest rate to make the park look like it is a profitable investment, even though it could never carry a regular bank debt load of the same size. If a park is a 4% cap, then what better way to disguise the poor performance than with a 2% interest rate on the mortgage? The seller is effectively cooking the books with the buyer's blessing. When you accept a cash-on-cash return that is spiked by ridiculously low interest rates, then you may be getting into trouble.
The final part of the seller trap is to offer only a short loan term, maybe two to five years, and the below-market interest rate for only the first year or so. What this does is to put the buyer in a negative cash-flow situation almost immediately, and force the round of bank loan requests that normally end in nothing but rejection. Faced with the loan coming due, and no bank loan prospects, the buyer often gives the park back to the seller, less his 20% down payment. There are sellers out there who have sold the same park two or three times under this framework, garnering 60% of their purchase price in down payments, and still owning the park.
So how do you avoid this trap? It's easy.
* You should never run your numbers based on any scenario other than one that considers legitimate bank debt.
* And never buy a property without finding out, with great detail, that it could have a real bank loan if needed.
Seller carry should be treated as gravy an extra perk but not a structural part of the deal's economics. If the park could support an 8% interest bank loan, and the seller offers 4%, then that's an extra spike on your yield until the loan runs out. But you should always run the financials as if a bank loan is involved.
So the next time you see a deal with seller carry, make sure you don't get sucked into a trap. Stay conservative and rational, and run your numbers based on a real bank loan.
Because, sooner or later, that's how your deal will ultimately be judged by a buyer or lender.
That being said, there is a trap often used by sellers that is baited with seller financing, and it is important to always be aware of, and stay clear of, this danger.
The trap begins with a seller who is having trouble finding a buyer. Maybe the park's vacancy is too high, maybe the location is too rural or in obvious decline. Whatever the cause, the seller can either sit on the park for an eternity, or find a creative way to attract a buyer. And what can be more attractive to a buyer than an easy to qualify, below market interest rate loan.
Of course, there's nothing wrong with a below-interest rate seller note. But not when it is used as a trap. And many times, that's exactly what is being set.
You see, the seller knows that the park will never hold up to the scrutiny of a bank he appraisal, the independent review of the numbers, even the negative logic of the loan officer. To keep you from finding out that the park is overpriced, or in a bad neighborhood, or basically completely unable to be financed, the seller offers to carry the loan and cuts the bank out of the loop day one. That's the first leg of the trap.
The second part of the trap is to bait the deal with a super low interest rate to make the park look like it is a profitable investment, even though it could never carry a regular bank debt load of the same size. If a park is a 4% cap, then what better way to disguise the poor performance than with a 2% interest rate on the mortgage? The seller is effectively cooking the books with the buyer's blessing. When you accept a cash-on-cash return that is spiked by ridiculously low interest rates, then you may be getting into trouble.
The final part of the seller trap is to offer only a short loan term, maybe two to five years, and the below-market interest rate for only the first year or so. What this does is to put the buyer in a negative cash-flow situation almost immediately, and force the round of bank loan requests that normally end in nothing but rejection. Faced with the loan coming due, and no bank loan prospects, the buyer often gives the park back to the seller, less his 20% down payment. There are sellers out there who have sold the same park two or three times under this framework, garnering 60% of their purchase price in down payments, and still owning the park.
So how do you avoid this trap? It's easy.
* You should never run your numbers based on any scenario other than one that considers legitimate bank debt.
* And never buy a property without finding out, with great detail, that it could have a real bank loan if needed.
Seller carry should be treated as gravy an extra perk but not a structural part of the deal's economics. If the park could support an 8% interest bank loan, and the seller offers 4%, then that's an extra spike on your yield until the loan runs out. But you should always run the financials as if a bank loan is involved.
So the next time you see a deal with seller carry, make sure you don't get sucked into a trap. Stay conservative and rational, and run your numbers based on a real bank loan.
Because, sooner or later, that's how your deal will ultimately be judged by a buyer or lender.
Thursday, October 14, 2010
Let's Give Up on the Star System
When I first got into the manufactured home community business, everyone was obsessed by the concept of a "star" system 1 for poor, 2 for mediocre, 3 for average to good, 4 for better and 5 for best. Owners would love to outdo each other by boasting "my property is a four-star, how many is yours?" Of course, the system was highly flawed, and there was definitely star inflation (people always seemed to add a star or two to their score), but it made for some apparent meaning to somebody (I'm not sure who). Unfortunately, unlike the hotel business, which takes it's star system seriously, and has many independent judges who allocate them and promote the highest winners, the manufactured home community star system has long been a joke, and about as accurate as a world atlas printed before WWII.
Why does there have to be a star system?
Star systems are very useful if they are consistent and monitored by an impartial source. The best example of this is the hotel industry. When I am picking out a hotel on hotels.com, the first level of screening that I am interested in is number of stars. I have no interest in staying in a hotel with less than three stars. How do I know that the three, four and five star hotels are superior? Because I have confidence that the system is being monitored by every travel agency and AAA-styled travel group in the world. I believe that the trust in the system is such that everyone feels confident placing reservations in hotels that they know nothing more about than the number of stars.
The goal of a similar star system for manufactured home communities is no different. The concept was to be able to rank, sight unseen, communities from bad to best. This system would be helpful for customers, banks and buyers, at least theoretically.
Why does the system not work?
If you gave a test to a group of students without any oversight, and allowed them to grade their own papers, what do you think they'd get? That's right, they would all get "A"s. The first problem with the system is no different. There is absolutely no oversight as to who gets what number of stars. Every owner is free to pick their own number, and it's about two times the real number.
Since no group with authority manages the star system, there is no tangible value to having a certain star score. If the guy with dirt streets down the block claims to be a four-star property, then why bother re-paving your old asphalt to get a higher ranking? It's like having a game without scoring, or a debate without a judge. There has to be leadership that monitors results, reward the winners, and penalizes the losers.
Why it will never work.
Before you can institute a real star system, you have to have commitment from all the community owners to embrace the concept and not cheat. Getting the manufactured home community owners in the U.S. to agree about anything is nearly impossible. With around 50,000 communities in the U.S., realistically, you are never going to great consensus on anything. And as long as there are enough rogue operators to claim more than their fair share of stars, the system will immediately break down. Who is going to hurt their business by claiming two stars, when everybody else is illegally claiming four and stealing their customers, lenders, and buyers? Nobody.
The other reason why any type of rating system will never work is that there is no funding to create a group to standardize and enforce the system. Let's face it folks, this industry is in terrible shape financially. The last time I checked my local Manufactured Housing Association, their dues received could not cover Denny's Grand Slam Breakfast for a family of four. In an industry that has been on the ropes for almost a decade, especially on the retail side, who is going to pay for this group of inspectors and enforcers? Nobody.
Why the system has been turned upside down.
You know, it's really a good thing that there never will be a star rating system for manufactured home communities. Why? Because the whole star system does not really work on communities. In fact, it distorts the truth and is a disservice to, if not customers, then definitely lenders and buyers.
You see, in all other types of real estate, from hotels to office buildings, the higher the star rating, the better the property. This formula, however, falls apart on manufactured home communities.
The communities that are struggling the most right now, in my opinion, are the four and five stars. These are the ones that have pools and clubhouses and big lots. They have everything except a winning business model. Most of these properties have lot rents so large that they are no longer affordable housing. When a customer is paying you as much in lot rent as a decent apartment costs, then you are definitely in uncharted territory as far as affordable housing goes. In addition, many of these same properties have rules on how old a home can be. As a result, there are very few "paid for" homes. When you add the home mortgage and lot rent together, and get a number above $1,000 per month, then the customer has many, many housing options available to them. This leads to reduced demand and, often, customers walking off and leaving their homes. I have met many four and five star owners who churn 25% of their tenants per year. That is a terrible statistic. Often they resort to buying these homes to keep them in the community. Maybe I'm old fashioned, but when you have to pay your customers to live there, you've got a big problem. On top of that, they are constantly involved in some type of large capital expense project to maintain all of their amenities and perks.
The properties that some would call one-star, or even no-star, often have stable tenant bases and are virtually full with affordable housing clientele. They produce consistent income with little capital expenditure. They're not pretty, but they are highly profitable.
Based on this data, which would you rather buy or make a loan on? Which is more desirable the five star or the one star? That's right, the one-star is often many times more secure and profitable for both lenders and buyers. So do you see the problem?
Why it's best just to let the star system die and never talk about a rating system again.
Clearly, the star system is not working, nor will it ever work for our industry. I often retort the question "how many stars is your park?' with the answer "it has five star cash flow and that's all that's important". And that pretty much sums it up.
You know, sometimes things just don't work out. The 8 track tape quietly disappeared off shelves and now is only available at garage sales. "New Coke" quietly disappeared out of the grocery store freezer, and nobody ever talked about it again. So let's have a moment of silence for the star system and move on. There are plenty of more important concepts to worry about like sales.
Why does there have to be a star system?
Star systems are very useful if they are consistent and monitored by an impartial source. The best example of this is the hotel industry. When I am picking out a hotel on hotels.com, the first level of screening that I am interested in is number of stars. I have no interest in staying in a hotel with less than three stars. How do I know that the three, four and five star hotels are superior? Because I have confidence that the system is being monitored by every travel agency and AAA-styled travel group in the world. I believe that the trust in the system is such that everyone feels confident placing reservations in hotels that they know nothing more about than the number of stars.
The goal of a similar star system for manufactured home communities is no different. The concept was to be able to rank, sight unseen, communities from bad to best. This system would be helpful for customers, banks and buyers, at least theoretically.
Why does the system not work?
If you gave a test to a group of students without any oversight, and allowed them to grade their own papers, what do you think they'd get? That's right, they would all get "A"s. The first problem with the system is no different. There is absolutely no oversight as to who gets what number of stars. Every owner is free to pick their own number, and it's about two times the real number.
Since no group with authority manages the star system, there is no tangible value to having a certain star score. If the guy with dirt streets down the block claims to be a four-star property, then why bother re-paving your old asphalt to get a higher ranking? It's like having a game without scoring, or a debate without a judge. There has to be leadership that monitors results, reward the winners, and penalizes the losers.
Why it will never work.
Before you can institute a real star system, you have to have commitment from all the community owners to embrace the concept and not cheat. Getting the manufactured home community owners in the U.S. to agree about anything is nearly impossible. With around 50,000 communities in the U.S., realistically, you are never going to great consensus on anything. And as long as there are enough rogue operators to claim more than their fair share of stars, the system will immediately break down. Who is going to hurt their business by claiming two stars, when everybody else is illegally claiming four and stealing their customers, lenders, and buyers? Nobody.
The other reason why any type of rating system will never work is that there is no funding to create a group to standardize and enforce the system. Let's face it folks, this industry is in terrible shape financially. The last time I checked my local Manufactured Housing Association, their dues received could not cover Denny's Grand Slam Breakfast for a family of four. In an industry that has been on the ropes for almost a decade, especially on the retail side, who is going to pay for this group of inspectors and enforcers? Nobody.
Why the system has been turned upside down.
You know, it's really a good thing that there never will be a star rating system for manufactured home communities. Why? Because the whole star system does not really work on communities. In fact, it distorts the truth and is a disservice to, if not customers, then definitely lenders and buyers.
You see, in all other types of real estate, from hotels to office buildings, the higher the star rating, the better the property. This formula, however, falls apart on manufactured home communities.
The communities that are struggling the most right now, in my opinion, are the four and five stars. These are the ones that have pools and clubhouses and big lots. They have everything except a winning business model. Most of these properties have lot rents so large that they are no longer affordable housing. When a customer is paying you as much in lot rent as a decent apartment costs, then you are definitely in uncharted territory as far as affordable housing goes. In addition, many of these same properties have rules on how old a home can be. As a result, there are very few "paid for" homes. When you add the home mortgage and lot rent together, and get a number above $1,000 per month, then the customer has many, many housing options available to them. This leads to reduced demand and, often, customers walking off and leaving their homes. I have met many four and five star owners who churn 25% of their tenants per year. That is a terrible statistic. Often they resort to buying these homes to keep them in the community. Maybe I'm old fashioned, but when you have to pay your customers to live there, you've got a big problem. On top of that, they are constantly involved in some type of large capital expense project to maintain all of their amenities and perks.
The properties that some would call one-star, or even no-star, often have stable tenant bases and are virtually full with affordable housing clientele. They produce consistent income with little capital expenditure. They're not pretty, but they are highly profitable.
Based on this data, which would you rather buy or make a loan on? Which is more desirable the five star or the one star? That's right, the one-star is often many times more secure and profitable for both lenders and buyers. So do you see the problem?
Why it's best just to let the star system die and never talk about a rating system again.
Clearly, the star system is not working, nor will it ever work for our industry. I often retort the question "how many stars is your park?' with the answer "it has five star cash flow and that's all that's important". And that pretty much sums it up.
You know, sometimes things just don't work out. The 8 track tape quietly disappeared off shelves and now is only available at garage sales. "New Coke" quietly disappeared out of the grocery store freezer, and nobody ever talked about it again. So let's have a moment of silence for the star system and move on. There are plenty of more important concepts to worry about like sales.
Wednesday, October 13, 2010
Invest in Landscaping for Your Mobile Home Park
Some people invest in Google. Some buy shares of Berkshire Hathaway. Other invest in Apple. But sheer investment geniuses invest in bushes. And trees. Because if you own a manufactured home community, these are, dollar for dollar, the best investments you will ever make. How good are the returns? I would estimate that one well placed $20 bush might add $1,000 of value to a manufactured home community. That's a 500% return on investment. And that's a lot better than any of the aforementioned stocks have produced lately. In fact, compared to the current stock market, if the bush was worth $10, it would still be better than the market has produced. And, unlike the market, at least the bush creates oxygen and has other productive uses.
So why is landscaping so important in a manufactured home community? Well, have you looked around recently? Most communities are not cornering the market on pretty. And landscaping has two functions:
*
It hides the hideous from view.
*
It creates beauty where there may be none.
In other words, you can hide those ugly homes, and trash dumpsters, and other eyesores with a well placed hedge or tree line. And bushes and trees are just naturally pretty. Especially ones that flower. It is amazing what a little landscaping can do to the aesthetics of a property.
So where do you begin a landscaping plan? At the entrance to the community. Every community should have a knock-out entry. It gives the customer a favorable first impression, and that's important to create since, later on, the property may not be worthy of its early favorable impression. A little color at the entry would be nice, but try and stay away from seasonal color, or anything that requires special attention or irrigation. Beyond the entrance, you need to figure out which lots need bushes or trees to look their best. Especially focus on highly-visible corner lots or lots which have curve-in-the-road visibility.
Some important considerations are:
*
Choose only hardy native plants. Plants that are built to withstand the local temperatures and rainfall. I don't care if none of the plants in your region turn you on those are the only ones that are going to survive year after year. And planting a bush or tree that is not going to survive in perpetuity is a complete waste of time and money. An example is the community I once saw where the new owner had planted a bunch of palm trees around his swimming pool, in an area that always freezes in winter. You guessed it, a year later they were all dead. What's the point of that exercise? You can easily find a complete list of native plants on the internet or your local bookstore. And if you look hard enough, you should find something that looks appealing to you.
*
Never pick plants that need a lot of water. Because nobody is ever going to water them correctly or at all. Even on rare occasions where you have landscape irrigation systems, good luck having them operate on a regular basis without a glitch. And it only takes a few days of lack of water to kill a plant that is very needy of water. Cactus, in some areas, may be the natural and correct conclusion. If you plant a bush or tree that needs constant irrigation, and you are not going to make sure to water it all the time, it's going to die. Even if it lives for three years and then dies, you've accomplished nothing.
*
Choose something that is a quality shrub or tree at maturity not just fast growing. In Texas, people often plant Hackberrys because they grow like crazy. But fifteen years later, all you have is a tree that blows down easily and breaks easily, and gets disease and, frankly, doesn't look very pretty. So you have really accomplished nothing. Quality trees take longer to grow, but they live for 100 years or more and are a real asset upon maturity.
*
Sometimes, you can choose shrubs or trees that actually do a job for you. The easiest example of this is shade. A tree that casts shade on the community clubhouse may save you a fortune in electrical bills from less air-conditioning. Another example is using a voracious "drinking" tree to dry up an area that has too much moisture. I once knew a community owner who had a septic problem one area of the property was too saturated. So he planted some mimosa trees, and the problem went away in short order.
*
When using shrubs and trees to block the visibility of an eyesore, be sure to pick one that is evergreen. If you pick a deciduous one, the leaves will fall off in winter and you will have defeated your purpose. At the time of year when you plant trees and bushes, they always have their leaves on, so be sure and ask if they stay on winter approaches. I never plant anything that is not evergreen, with the exception of crepe myrtles, which give such an outstanding job of color in the summer that you don't mind them turning into glorified sticks in winter (plus they are normally an understory tree, only used to create color anyway).
*
Don't plant shrubs or trees too close together. This is a common neophyte mistake. It looks fuller initially, but they start to die as they mature due to fighting for the same water and light, and in the end the entire effect of a mature hedge is ruined it looks like missing teeth.
One of the key reasons why planting a bush or tree is your all-time best investment is that they get better year after year, without any additional investment in them. Mother Nature provides the water (hopefully) and sun to make the plant grow and flourish. And every year it just gets bigger and prettier, without any effort on your part. What other item in your community can boast that. Roads? Pool? Not hardly.
Sure, plants can be a nuisance to the manufactured home community owner. Tree roots can cause sewer line problems in clay-tile systems. And they can push up concrete sidewalks. And leaves can fall all over the ground (I warned you to only plant evergreens). And they need pruning annually, and sometimes they die and require removal. But look at all you get for that little effort! I have seen properties that people rave over (and bring in significantly more lot rent) strictly as a result of great landscaping. You don't have to have topiary style perfection. But nice landscaping, within a reasonable budget, can really make the difference in getting that loan you desire or that sale of your community for big bucks.
So the next time you are at Home Depot looking for a new lock for your community storage shed, detour over to the plants department outside. Look at all the little investments waiting there to give you a huge dividend. But like stocks, choose wisely, and your investment will grow into something really beautiful and tangible. See, there really is a "bush" that is productive and worthwhile to have around! (Sorry George, but its election season). So get out that green thumb, and a shovel, and get to work on your community.
So why is landscaping so important in a manufactured home community? Well, have you looked around recently? Most communities are not cornering the market on pretty. And landscaping has two functions:
*
It hides the hideous from view.
*
It creates beauty where there may be none.
In other words, you can hide those ugly homes, and trash dumpsters, and other eyesores with a well placed hedge or tree line. And bushes and trees are just naturally pretty. Especially ones that flower. It is amazing what a little landscaping can do to the aesthetics of a property.
So where do you begin a landscaping plan? At the entrance to the community. Every community should have a knock-out entry. It gives the customer a favorable first impression, and that's important to create since, later on, the property may not be worthy of its early favorable impression. A little color at the entry would be nice, but try and stay away from seasonal color, or anything that requires special attention or irrigation. Beyond the entrance, you need to figure out which lots need bushes or trees to look their best. Especially focus on highly-visible corner lots or lots which have curve-in-the-road visibility.
Some important considerations are:
*
Choose only hardy native plants. Plants that are built to withstand the local temperatures and rainfall. I don't care if none of the plants in your region turn you on those are the only ones that are going to survive year after year. And planting a bush or tree that is not going to survive in perpetuity is a complete waste of time and money. An example is the community I once saw where the new owner had planted a bunch of palm trees around his swimming pool, in an area that always freezes in winter. You guessed it, a year later they were all dead. What's the point of that exercise? You can easily find a complete list of native plants on the internet or your local bookstore. And if you look hard enough, you should find something that looks appealing to you.
*
Never pick plants that need a lot of water. Because nobody is ever going to water them correctly or at all. Even on rare occasions where you have landscape irrigation systems, good luck having them operate on a regular basis without a glitch. And it only takes a few days of lack of water to kill a plant that is very needy of water. Cactus, in some areas, may be the natural and correct conclusion. If you plant a bush or tree that needs constant irrigation, and you are not going to make sure to water it all the time, it's going to die. Even if it lives for three years and then dies, you've accomplished nothing.
*
Choose something that is a quality shrub or tree at maturity not just fast growing. In Texas, people often plant Hackberrys because they grow like crazy. But fifteen years later, all you have is a tree that blows down easily and breaks easily, and gets disease and, frankly, doesn't look very pretty. So you have really accomplished nothing. Quality trees take longer to grow, but they live for 100 years or more and are a real asset upon maturity.
*
Sometimes, you can choose shrubs or trees that actually do a job for you. The easiest example of this is shade. A tree that casts shade on the community clubhouse may save you a fortune in electrical bills from less air-conditioning. Another example is using a voracious "drinking" tree to dry up an area that has too much moisture. I once knew a community owner who had a septic problem one area of the property was too saturated. So he planted some mimosa trees, and the problem went away in short order.
*
When using shrubs and trees to block the visibility of an eyesore, be sure to pick one that is evergreen. If you pick a deciduous one, the leaves will fall off in winter and you will have defeated your purpose. At the time of year when you plant trees and bushes, they always have their leaves on, so be sure and ask if they stay on winter approaches. I never plant anything that is not evergreen, with the exception of crepe myrtles, which give such an outstanding job of color in the summer that you don't mind them turning into glorified sticks in winter (plus they are normally an understory tree, only used to create color anyway).
*
Don't plant shrubs or trees too close together. This is a common neophyte mistake. It looks fuller initially, but they start to die as they mature due to fighting for the same water and light, and in the end the entire effect of a mature hedge is ruined it looks like missing teeth.
One of the key reasons why planting a bush or tree is your all-time best investment is that they get better year after year, without any additional investment in them. Mother Nature provides the water (hopefully) and sun to make the plant grow and flourish. And every year it just gets bigger and prettier, without any effort on your part. What other item in your community can boast that. Roads? Pool? Not hardly.
Sure, plants can be a nuisance to the manufactured home community owner. Tree roots can cause sewer line problems in clay-tile systems. And they can push up concrete sidewalks. And leaves can fall all over the ground (I warned you to only plant evergreens). And they need pruning annually, and sometimes they die and require removal. But look at all you get for that little effort! I have seen properties that people rave over (and bring in significantly more lot rent) strictly as a result of great landscaping. You don't have to have topiary style perfection. But nice landscaping, within a reasonable budget, can really make the difference in getting that loan you desire or that sale of your community for big bucks.
So the next time you are at Home Depot looking for a new lock for your community storage shed, detour over to the plants department outside. Look at all the little investments waiting there to give you a huge dividend. But like stocks, choose wisely, and your investment will grow into something really beautiful and tangible. See, there really is a "bush" that is productive and worthwhile to have around! (Sorry George, but its election season). So get out that green thumb, and a shovel, and get to work on your community.
Tuesday, October 12, 2010
Get All of the Leaks Out of Your Park Water System
Mobile home park tenants use, on average, about $30 per month of water & sewer. In some parks, however, that amount can run around $100 per occupied lot. Whenever you become suspicious that your water is running too high, here are the steps to find out where the water is going and proactively solve the problem.
Install water meters and read them.
Even if you have no interest in billing back tenants for their actual use, there is no way to track where the water is going without measuring how much tenants use. This will help you identify if your usage problems are tied to just a few tenants who abuse the system. I once had a tenant who was spending $600 per month in water. How? He sneaked into the park a large commercial construction water truck, and filled it up with his hose every night. That one tenant was the entire source of my water problem, and I found him through sub-metering.
Compare the master meter reading to the individual lot aggregate.
Once you have the individual readings, you can now add them up and see if they are the same as your master reading, from the main meter that you get your bill from. The difference between these two readings is the amount of water leaking in your system. Most parks have a small amount of leakage, so don't demand perfection. If, however, the difference is significant (say many thousands of gallons), you have a real problem.
Look for visual signs of leaks.
Before you put a lot of money into testing, see if you can find the leak yourself by walking the property and looking for signs of saturated land and tall, green grass. While this can also be caused by artesian wells and sewer line leakage, big-time saturation requires the kind of constant water pressure in line with a serious leak. Fix these leaks and see what the impact is to your readings.
If that fails, then hire a leak detection company.
It is amazing what a leak detection company can find. Don't ask me how they do it, as I do not fully understand the science. But I have been the thankful recipient of their work. The world record was a leak that had no surfaced evidence of any type, but it was huge maybe 400,000 gallons per month. That would fill 20 commercial hotel swimming pools. In the end, it turned out to be a crime scene someone who had their house downstream on a creek had tapped into the park's main line and run a line to the creek so that the babbling brook was running year round.
Once you find the leaks in the system, fix them.
Regardless of the cost, there is no way that you will be money ahead by letting them keep on leaking. The only exception is the natural, tiny leaks of a large system, caused by trace seepage in the connections.
Before you start evicting tenants for water use abuse, find out why it's occurring.
One of the best things you can do when exploring where your water is going, is to hire a plumber to come out to the park at 10 am on a weekday, and take all the clean out covers off and listen for running water. Most lots will have none. But some will have Niagara falls going down the line even though nobody is home! Why? Because they have all kinds of leaks in their house. Toilet leaks, leaky faucets, you name it. I once had a tenant who left all of his taps running 24/7 because they were broken and he couldn't turn them off. In these cases, you are better off having the plumber go to these tenants' houses and spend 30 minutes to fix their leaks, rather than evict them and try to find a new tenant. If you evict a tenant, you will have court costs, loss of income, and probably an outgo of cash as an incentive to bring in a new home. If you can fix the leaks for $100 you are much better off.
Conclusion
Water and sewer is the largest line item expense for most mobile home parks. That means that saving money on it is going to be the biggest savings you can make. Your park usage is not magic, it is just science. If you take these steps you can get a complete handle on where the water is going, and then take steps to reduce the usage. Always remember that, assuming a 10% cap rate, even an $80 per month savings increases the value of your park by nearly $10,000. And you should be able to save much, much more than that.
Install water meters and read them.
Even if you have no interest in billing back tenants for their actual use, there is no way to track where the water is going without measuring how much tenants use. This will help you identify if your usage problems are tied to just a few tenants who abuse the system. I once had a tenant who was spending $600 per month in water. How? He sneaked into the park a large commercial construction water truck, and filled it up with his hose every night. That one tenant was the entire source of my water problem, and I found him through sub-metering.
Compare the master meter reading to the individual lot aggregate.
Once you have the individual readings, you can now add them up and see if they are the same as your master reading, from the main meter that you get your bill from. The difference between these two readings is the amount of water leaking in your system. Most parks have a small amount of leakage, so don't demand perfection. If, however, the difference is significant (say many thousands of gallons), you have a real problem.
Look for visual signs of leaks.
Before you put a lot of money into testing, see if you can find the leak yourself by walking the property and looking for signs of saturated land and tall, green grass. While this can also be caused by artesian wells and sewer line leakage, big-time saturation requires the kind of constant water pressure in line with a serious leak. Fix these leaks and see what the impact is to your readings.
If that fails, then hire a leak detection company.
It is amazing what a leak detection company can find. Don't ask me how they do it, as I do not fully understand the science. But I have been the thankful recipient of their work. The world record was a leak that had no surfaced evidence of any type, but it was huge maybe 400,000 gallons per month. That would fill 20 commercial hotel swimming pools. In the end, it turned out to be a crime scene someone who had their house downstream on a creek had tapped into the park's main line and run a line to the creek so that the babbling brook was running year round.
Once you find the leaks in the system, fix them.
Regardless of the cost, there is no way that you will be money ahead by letting them keep on leaking. The only exception is the natural, tiny leaks of a large system, caused by trace seepage in the connections.
Before you start evicting tenants for water use abuse, find out why it's occurring.
One of the best things you can do when exploring where your water is going, is to hire a plumber to come out to the park at 10 am on a weekday, and take all the clean out covers off and listen for running water. Most lots will have none. But some will have Niagara falls going down the line even though nobody is home! Why? Because they have all kinds of leaks in their house. Toilet leaks, leaky faucets, you name it. I once had a tenant who left all of his taps running 24/7 because they were broken and he couldn't turn them off. In these cases, you are better off having the plumber go to these tenants' houses and spend 30 minutes to fix their leaks, rather than evict them and try to find a new tenant. If you evict a tenant, you will have court costs, loss of income, and probably an outgo of cash as an incentive to bring in a new home. If you can fix the leaks for $100 you are much better off.
Conclusion
Water and sewer is the largest line item expense for most mobile home parks. That means that saving money on it is going to be the biggest savings you can make. Your park usage is not magic, it is just science. If you take these steps you can get a complete handle on where the water is going, and then take steps to reduce the usage. Always remember that, assuming a 10% cap rate, even an $80 per month savings increases the value of your park by nearly $10,000. And you should be able to save much, much more than that.
Monday, October 11, 2010
How to Evaluate a Mobile Home Park By It's Grass
Of all the barometers of park performance, from a profit and loss statement to the annual license renewal, one of the crudest and simplest is the fine art of analyzing grass. Because you can tell a lot about a mobile home park just from looking at the grass.
The simplest first question is: "is there any grass?" If not, you may be in a desert, or under water. But if there is grass present, then here are some of the things to look for:
*Is the grass green in some areas when it's brown everywhere else (in summer)? This may be a tell-tale sign of water and/or sewer leaks. Anything that puts moisture in the earth is going to result in healthier, greener grass. When you spot these lush oasis in an otherwise burned out park grassland, you will probably find it spongy and saturated. If the green grass is in the general line of the main (at the back of the trailer) then it may be a break in a main line. If it is near the house, it may be a break in the line that feeds just that one house. The same is true about the sewer line. A clay tile sewer system with a collapse or separation in the line will continually leak moisture and give grass a boost. When figuring out park leaks, green grass is the first place you head.
*Is the grass brown in some areas when it's green everywhere else (in summer)? This may be a sign of an underground natural gas leak. If your park is on master-metered natural gas, and you see brown patches throughout the park, then you may have significant gas leaks to contend with. Had I known this on my very first park, I could have saved a fortune by not buying it, or negotiating for the seller to fix the leaks. Natural gas kills grass.
*Is the grass dead in a neat rectangle in the middle of a vacant lot? That means that a mobile home was just moved out of the lot. Due to the continual lack of sunshine under the trailer that was removed, the soil is relatively infertile and grass won't grow there for some time. When evaluating which vacant lots are already set up with utilities for occupancy, then look for big, dead rectangles. The same is true when you are looking for recent pull-outs and decline in occupancy.
*Is the grass un-mowed on each tenant's lot? That is a good sign that the tenants lack "pride of ownership". This will be a real problem with getting a loan on the park. Banks like to see a park where the tenants respect where they live and keep their lots looking clean and mowed. A park where nobody is mowing means they may also not be observing other key rules, such as paying their rent on time, or at all. You need to put in more diligence on a park with this problem.
*Is the grass un-mowed on the park's common areas? This could be a sign that the park management is not doing their job. Since mowing grass is not rocket science, if they can't manage that effectively, how can they manage more complicated issues like repair and maintenance and collections?
*Is the grass around the parking pads missing, and replaced with just dirt? This is a sign that tenants have more than the two cars the parking pad allows, and are parking at night up in their yards. This is something you would only know if you visited at night. The deader the grass, the more they are parking on it.
*Are the tenants smoking grass? Welcome to the mobile home park business.
In summary, grass is not as stupid as it looks. It knows quite a lot about a park it is very observant of its weaknesses, even when they remain unseen by the human eye. So take notice of the grass and let it guide you to where the problems are.
The simplest first question is: "is there any grass?" If not, you may be in a desert, or under water. But if there is grass present, then here are some of the things to look for:
*Is the grass green in some areas when it's brown everywhere else (in summer)? This may be a tell-tale sign of water and/or sewer leaks. Anything that puts moisture in the earth is going to result in healthier, greener grass. When you spot these lush oasis in an otherwise burned out park grassland, you will probably find it spongy and saturated. If the green grass is in the general line of the main (at the back of the trailer) then it may be a break in a main line. If it is near the house, it may be a break in the line that feeds just that one house. The same is true about the sewer line. A clay tile sewer system with a collapse or separation in the line will continually leak moisture and give grass a boost. When figuring out park leaks, green grass is the first place you head.
*Is the grass brown in some areas when it's green everywhere else (in summer)? This may be a sign of an underground natural gas leak. If your park is on master-metered natural gas, and you see brown patches throughout the park, then you may have significant gas leaks to contend with. Had I known this on my very first park, I could have saved a fortune by not buying it, or negotiating for the seller to fix the leaks. Natural gas kills grass.
*Is the grass dead in a neat rectangle in the middle of a vacant lot? That means that a mobile home was just moved out of the lot. Due to the continual lack of sunshine under the trailer that was removed, the soil is relatively infertile and grass won't grow there for some time. When evaluating which vacant lots are already set up with utilities for occupancy, then look for big, dead rectangles. The same is true when you are looking for recent pull-outs and decline in occupancy.
*Is the grass un-mowed on each tenant's lot? That is a good sign that the tenants lack "pride of ownership". This will be a real problem with getting a loan on the park. Banks like to see a park where the tenants respect where they live and keep their lots looking clean and mowed. A park where nobody is mowing means they may also not be observing other key rules, such as paying their rent on time, or at all. You need to put in more diligence on a park with this problem.
*Is the grass un-mowed on the park's common areas? This could be a sign that the park management is not doing their job. Since mowing grass is not rocket science, if they can't manage that effectively, how can they manage more complicated issues like repair and maintenance and collections?
*Is the grass around the parking pads missing, and replaced with just dirt? This is a sign that tenants have more than the two cars the parking pad allows, and are parking at night up in their yards. This is something you would only know if you visited at night. The deader the grass, the more they are parking on it.
*Are the tenants smoking grass? Welcome to the mobile home park business.
In summary, grass is not as stupid as it looks. It knows quite a lot about a park it is very observant of its weaknesses, even when they remain unseen by the human eye. So take notice of the grass and let it guide you to where the problems are.
Saturday, October 9, 2010
HOW THE OBAMA PRESIDENCY WILL EFFECT THE MOBILE HOME PARK INDUSTRY
The election is over and the President-elect is Barrack Obama. While that ends a lot of uncertainty over the general direction of the government, it only opens new worries over what this means to the economy and, on the micro scale, the mobile home park industry. Will Obama help improve the mobile home and mobile home park industry? Or will he further damage the already anemic manufacturing part of the industry, and cause new problems for the still resilient mobile home park part of the business?
These are the potential effects of the Obama presidency on the mobile home and mobile home park industries:
*
Improved conditions for financing. Obama appears poised to aggressively attack the still horrible environment for getting a loan. If he can accomplish this, it will make it easier to buy a mobile home and to buy a mobile home park. It is always easier for the new guy to heap the blame on the old leader and then come up with a radical plan to fix the problem. With $700 billion already at his disposal, and some great thinkers on the staff, there is new hope that the problem can be eased (but not eliminated). That's good news for both mobile home parks and manufacturing.
*
Improved Odds of Solving the Auto Industry Meltdown and Saving Their Workers. Obama appears to have an appetite to try and save the millions of manufacturing jobs that will be lost if the nation's auto makers shut down. Since such workers are heavy users of mobile homes and mobile home parks, this is a plus for both segments of the industry. Although he may not be able to pull it off, at least he appears willing to give it a chance. The failure to solve the U.S. auto industry problem is definitely bad for both mobile home manufacturers and mobile home parks located in states such as Michigan.
*
More Money in Lower-Income Workers Pockets. Since most mobile home customers are the lower earning part of the workforce, Obama's initiatives to reduce taxes and increase supplements for this segment of the population is a great thing for mobile home parks and manufacturers. A $2,000 annual savings from a family of four under Obama represents, in some parks, lot rent for a year, as well as a down payment on a new mobile home.
*
Hope May Lead to Better Consumer Spending. Since consumers are the biggest part of our economy, and since Obama seems to inspire hope in the average American, perhaps they will keep on spending rather than pulling back. This may lead to a more mild recession, and that is good for both mobile home parks and manufacturers.
*
Reduction of Military Spending May Allow For Stimulating Other Parts of the Economy. One of Obama's campaign stances was to end the war in Iraq and bring the troops home. If he accomplishes this, it will save billions of dollars that can be put into productive programs, and potentially improve the economy. And a better economy is good for both mobile home parks and manufacturers. In addition, bringing home troops will be a boon for parks located near army bases. These parks have seen a lot of vacancy issues as a result of troops deploying to Iraq. When they come home, they have to have somewhere to live, and the parks are more than happy to accommodate that.
*
Elimination of the Captial Gains Tax. This is one of Obama's tax strategies, according to some experts. Clearly, this would be devastating for the real estate industry, as it has been built into all budgets and proformas for years, and was seen as one of the big advantages to real estate investing. However, one factor that will mitigate this for park owners is the fact that most parks have a positive cash flow (the industry norm would be 10%), so unlike raw land and other non-income producting assets, or ones that produce little cash flow like office buildings, mobile home park owners will at least be able to wait out if the tax is reinstated, or hold out for a better price while the ramifications are digested.
In summary, the net effect of the Obama presidency is generally good for the mobile home park and manufacturing industries. Although many business leaders championed McCain as the solution for near-term problems, it may just be that Obama can deliver more economic solutions than McCain could have. Franklin Roosevelt was able to lead America out of the depression offering a message of hope. Now it's Obama's turn to give it a try.
These are the potential effects of the Obama presidency on the mobile home and mobile home park industries:
*
Improved conditions for financing. Obama appears poised to aggressively attack the still horrible environment for getting a loan. If he can accomplish this, it will make it easier to buy a mobile home and to buy a mobile home park. It is always easier for the new guy to heap the blame on the old leader and then come up with a radical plan to fix the problem. With $700 billion already at his disposal, and some great thinkers on the staff, there is new hope that the problem can be eased (but not eliminated). That's good news for both mobile home parks and manufacturing.
*
Improved Odds of Solving the Auto Industry Meltdown and Saving Their Workers. Obama appears to have an appetite to try and save the millions of manufacturing jobs that will be lost if the nation's auto makers shut down. Since such workers are heavy users of mobile homes and mobile home parks, this is a plus for both segments of the industry. Although he may not be able to pull it off, at least he appears willing to give it a chance. The failure to solve the U.S. auto industry problem is definitely bad for both mobile home manufacturers and mobile home parks located in states such as Michigan.
*
More Money in Lower-Income Workers Pockets. Since most mobile home customers are the lower earning part of the workforce, Obama's initiatives to reduce taxes and increase supplements for this segment of the population is a great thing for mobile home parks and manufacturers. A $2,000 annual savings from a family of four under Obama represents, in some parks, lot rent for a year, as well as a down payment on a new mobile home.
*
Hope May Lead to Better Consumer Spending. Since consumers are the biggest part of our economy, and since Obama seems to inspire hope in the average American, perhaps they will keep on spending rather than pulling back. This may lead to a more mild recession, and that is good for both mobile home parks and manufacturers.
*
Reduction of Military Spending May Allow For Stimulating Other Parts of the Economy. One of Obama's campaign stances was to end the war in Iraq and bring the troops home. If he accomplishes this, it will save billions of dollars that can be put into productive programs, and potentially improve the economy. And a better economy is good for both mobile home parks and manufacturers. In addition, bringing home troops will be a boon for parks located near army bases. These parks have seen a lot of vacancy issues as a result of troops deploying to Iraq. When they come home, they have to have somewhere to live, and the parks are more than happy to accommodate that.
*
Elimination of the Captial Gains Tax. This is one of Obama's tax strategies, according to some experts. Clearly, this would be devastating for the real estate industry, as it has been built into all budgets and proformas for years, and was seen as one of the big advantages to real estate investing. However, one factor that will mitigate this for park owners is the fact that most parks have a positive cash flow (the industry norm would be 10%), so unlike raw land and other non-income producting assets, or ones that produce little cash flow like office buildings, mobile home park owners will at least be able to wait out if the tax is reinstated, or hold out for a better price while the ramifications are digested.
In summary, the net effect of the Obama presidency is generally good for the mobile home park and manufacturing industries. Although many business leaders championed McCain as the solution for near-term problems, it may just be that Obama can deliver more economic solutions than McCain could have. Franklin Roosevelt was able to lead America out of the depression offering a message of hope. Now it's Obama's turn to give it a try.
Wednesday, October 6, 2010
Do Mobile Homes Have A Shelf Life?
Am I supposed to take the roof off and smell manufactured homes to see if they've spoiled like milk? Do they have an expiration date stamped on the frame? Can you fit one in a curbside polycart?
If not, then why, as a community owner, do I get asked all the time by banks, buyers, residents even at cocktail parties how long a manufactured home is expected to last? Is the correct answer "forever", or are manufactured homes truly temporary and disposable?
The construction process
A manufactured home is made predominantly out of wood and metal. A stick-built home is also made out of wood and metal. So why is one permanent and one temporary? Sure, the manufactured home is lighter than the stick-built home. This is mainly due to the absence of any masonry (bricks, fireplaces, etc.) and the fact that, by design, the framing is reduced. But the actual materials are the same in a manufactured home as in a stick-built one. Do these materials ever wear out? I live in a 200 year old house. Other than the stone walls, it is made of wood and metal. And I don't have any doubts it can go another 200 years. I grew up in a house that was 50 years old, and it's still standing today. In fact, I never hear of anyone who had to abandon a home because the wood and metal finally wore out. It just doesn't do that. Properly cared for, the components that make up a manufactured home should last forever.
So what about the design? Well, the design is not temporary in nature. If anything, the manufactured home design would imply a longer life span than a stick-built home. Rather than a foundation which can shift and crack over time, the manufactured home is on a metal chassis that should last forever. Additionally, the simple roof design, if kept up, keeps the possibility of moisture intrusion lower in the manufactured home. No, there is nothing about the design that would imply a lack of longevity.
Use and ability to wear out
You live in a manufactured home. You live in a stick-built home. What's the difference? The regular course of business in a home is to get up, go to work, come home, cook dinner, watch some T.V., go to bed. How is this going to wear out a manufactured home any quicker than it does a stick-built? Many people point to the rowdy lifestyle found in some one-star manufactured home communities. But with the exception of this subset, which would tear up a stick-built home with the same speed, where is the damage going to come from to destroy the manufactured home? From turning the door-knob too many times? From walking the same path from the living room to the kitchen over and over?
I can't see where the stress is coming from to render a manufactured home temporary and a stick-built permanent.
Obsolescence
At some point in a manufactured home's life does it wake up to find that it is obsolete? How can that happen? As a dwelling, the general pattern of American tastes has not changed that much over the last 100 years or more. Most people expect bedrooms, bathrooms, kitchens, living rooms, closets and the like in their homes. Are we expecting one day that all consumers demand an in-home movie theater and start to abandon all homes that do not have one? And if that did occur, why would they only abandon the manufactured homes and not the stick-built?
If we're going to be picky, let's remember that the manufactured home business has only been around since about the 1940s. And HUD code homes since 1976. But there's a ton of stick-built inventory that is from the 1800s almost 100 years earlier. If something's going to go obsolete, it would be that older stick-built housing, right? I live near St. Louis, and there are thousands of dwellings there built around the time of Abraham Lincoln, with tiny bedrooms and bathrooms that were installed later after the outhouse went out of fashion. I think we should be reviewing those in a conversation of housing obsolescence before we even bring up manufactured housing, don't you?
Maintenance cost
Well, maybe the problem is the cost to maintain manufactured homes, or the existence of replacement parts. But wait a minute. Manufactured homes are normally built with metal exteriors. That's going to hold up a lot longer than a frame house. And the average roof only needs to be coated with roofing compound every so often no shingles to replace. And the foundation looks good because there is no foundation. To level a manufactured home takes a couple hours. To level a stick-built home takes a fortune.
On the interior, you're talking about paint and carpet. The same as a stick-built home.
Sure, I worry about my Dodge Durango one day not having parts available, but that concern is ill-founded with manufactured homes.
Government intervention
I hear all the time that old manufactured homes will one day be phased out. By who? Cities often have codes now that require certain dates or earlier on new homes coming into manufactured home communities. But that does not apply to homes already sited in them. Those are grandfathered.
And let's be honest. There is a ton of single-family stick-built inventory out there that does not meet current code, either. One of the challenges of remodeling older stick-built homes is not triggering an end to all of the things that were grandfathered, such as inferior wiring, plumbing, setbacks, fire-codes, and the like.
Nope, manufactured homes are not likely to be outlawed.
So where does the "temporary" concept come from?
I suspect from two different sources.
First, the U.S. Government. With every modern weather catastrophe, FEMA rushes in with manufactured homes as temporary housing until real stick-built homes can be built and re-built. So they have created the impression that manufactured homes are not worthy of being lived in over the long term. They re-stress this point at least once a year during hurricane season. And they blast it all over the media.
The government did the same thing in the industry's formative years, offering it as "temporary" housing at military bases and, later, colleges on the GI bill. So they have been promoting this negative publicity for virtually the entire history of manufactured housing.
The other source is manufactured home dealers, themselves.
They constantly advertise and promote the concept of "trading in your old home for a new one". Just like a car. So the suggestion is that your manufactured home is only good for a few years, and then time to get a better model. When was the last time you saw Pulte or Lennar make this sales push?
The dealers also ruin things by putting old, destroyed manufactured homes out on their lots, or in fields next to dealerships, for all to see. These homes are normally trade-ins that are in such poor condition that nobody would ever buy one. But by putting them there in public view, it tells everyone who passes by what a disposable product it is that it just completely falls apart over time. If these homes were at least skirted and painted it would be different. But the dealers seem to have no problem leaving them there, leaning over to one side with the windows and doors missing and insulation blowing out from underneath.
Can you imagine a new car dealer having old wrecks rusting near their entrance?
Conclusion
As always, the urban legend of temporary, disposable manufactured homes is the result of poor marketing and public relations by the industry, not based on fact.
I am sorry to say that I have never seen any literature at any dealer, internet site, or association headquarters that tells the story of why manufactured homes last forever. So why would be expect anyone to know any better?
But then again, what would I expect from a manufacturing and retail industry that can't seem to ever do anything right? Thank heavens I'm in the community side of the business.
If not, then why, as a community owner, do I get asked all the time by banks, buyers, residents even at cocktail parties how long a manufactured home is expected to last? Is the correct answer "forever", or are manufactured homes truly temporary and disposable?
The construction process
A manufactured home is made predominantly out of wood and metal. A stick-built home is also made out of wood and metal. So why is one permanent and one temporary? Sure, the manufactured home is lighter than the stick-built home. This is mainly due to the absence of any masonry (bricks, fireplaces, etc.) and the fact that, by design, the framing is reduced. But the actual materials are the same in a manufactured home as in a stick-built one. Do these materials ever wear out? I live in a 200 year old house. Other than the stone walls, it is made of wood and metal. And I don't have any doubts it can go another 200 years. I grew up in a house that was 50 years old, and it's still standing today. In fact, I never hear of anyone who had to abandon a home because the wood and metal finally wore out. It just doesn't do that. Properly cared for, the components that make up a manufactured home should last forever.
So what about the design? Well, the design is not temporary in nature. If anything, the manufactured home design would imply a longer life span than a stick-built home. Rather than a foundation which can shift and crack over time, the manufactured home is on a metal chassis that should last forever. Additionally, the simple roof design, if kept up, keeps the possibility of moisture intrusion lower in the manufactured home. No, there is nothing about the design that would imply a lack of longevity.
Use and ability to wear out
You live in a manufactured home. You live in a stick-built home. What's the difference? The regular course of business in a home is to get up, go to work, come home, cook dinner, watch some T.V., go to bed. How is this going to wear out a manufactured home any quicker than it does a stick-built? Many people point to the rowdy lifestyle found in some one-star manufactured home communities. But with the exception of this subset, which would tear up a stick-built home with the same speed, where is the damage going to come from to destroy the manufactured home? From turning the door-knob too many times? From walking the same path from the living room to the kitchen over and over?
I can't see where the stress is coming from to render a manufactured home temporary and a stick-built permanent.
Obsolescence
At some point in a manufactured home's life does it wake up to find that it is obsolete? How can that happen? As a dwelling, the general pattern of American tastes has not changed that much over the last 100 years or more. Most people expect bedrooms, bathrooms, kitchens, living rooms, closets and the like in their homes. Are we expecting one day that all consumers demand an in-home movie theater and start to abandon all homes that do not have one? And if that did occur, why would they only abandon the manufactured homes and not the stick-built?
If we're going to be picky, let's remember that the manufactured home business has only been around since about the 1940s. And HUD code homes since 1976. But there's a ton of stick-built inventory that is from the 1800s almost 100 years earlier. If something's going to go obsolete, it would be that older stick-built housing, right? I live near St. Louis, and there are thousands of dwellings there built around the time of Abraham Lincoln, with tiny bedrooms and bathrooms that were installed later after the outhouse went out of fashion. I think we should be reviewing those in a conversation of housing obsolescence before we even bring up manufactured housing, don't you?
Maintenance cost
Well, maybe the problem is the cost to maintain manufactured homes, or the existence of replacement parts. But wait a minute. Manufactured homes are normally built with metal exteriors. That's going to hold up a lot longer than a frame house. And the average roof only needs to be coated with roofing compound every so often no shingles to replace. And the foundation looks good because there is no foundation. To level a manufactured home takes a couple hours. To level a stick-built home takes a fortune.
On the interior, you're talking about paint and carpet. The same as a stick-built home.
Sure, I worry about my Dodge Durango one day not having parts available, but that concern is ill-founded with manufactured homes.
Government intervention
I hear all the time that old manufactured homes will one day be phased out. By who? Cities often have codes now that require certain dates or earlier on new homes coming into manufactured home communities. But that does not apply to homes already sited in them. Those are grandfathered.
And let's be honest. There is a ton of single-family stick-built inventory out there that does not meet current code, either. One of the challenges of remodeling older stick-built homes is not triggering an end to all of the things that were grandfathered, such as inferior wiring, plumbing, setbacks, fire-codes, and the like.
Nope, manufactured homes are not likely to be outlawed.
So where does the "temporary" concept come from?
I suspect from two different sources.
First, the U.S. Government. With every modern weather catastrophe, FEMA rushes in with manufactured homes as temporary housing until real stick-built homes can be built and re-built. So they have created the impression that manufactured homes are not worthy of being lived in over the long term. They re-stress this point at least once a year during hurricane season. And they blast it all over the media.
The government did the same thing in the industry's formative years, offering it as "temporary" housing at military bases and, later, colleges on the GI bill. So they have been promoting this negative publicity for virtually the entire history of manufactured housing.
The other source is manufactured home dealers, themselves.
They constantly advertise and promote the concept of "trading in your old home for a new one". Just like a car. So the suggestion is that your manufactured home is only good for a few years, and then time to get a better model. When was the last time you saw Pulte or Lennar make this sales push?
The dealers also ruin things by putting old, destroyed manufactured homes out on their lots, or in fields next to dealerships, for all to see. These homes are normally trade-ins that are in such poor condition that nobody would ever buy one. But by putting them there in public view, it tells everyone who passes by what a disposable product it is that it just completely falls apart over time. If these homes were at least skirted and painted it would be different. But the dealers seem to have no problem leaving them there, leaning over to one side with the windows and doors missing and insulation blowing out from underneath.
Can you imagine a new car dealer having old wrecks rusting near their entrance?
Conclusion
As always, the urban legend of temporary, disposable manufactured homes is the result of poor marketing and public relations by the industry, not based on fact.
I am sorry to say that I have never seen any literature at any dealer, internet site, or association headquarters that tells the story of why manufactured homes last forever. So why would be expect anyone to know any better?
But then again, what would I expect from a manufacturing and retail industry that can't seem to ever do anything right? Thank heavens I'm in the community side of the business.
Tuesday, October 5, 2010
BUYING A MOBILE HOME PARK IS LIKE FLYING AN AIRPLANE
Everyone knows that commercial air travel is the safest in the world. But that's because of the high level of training of the pilots. From the pre-flight checklist, to the flight plan, to dealing with problems in the air, the pilot knows everything about what they're doing. The pilot who successfully landed in the Hudson River recently, did so because he knew every possible strategy of what to do in an emergency - he knew the options and could make an intelligent decision.
To succeed in the mobile home park business, you need the same amount of knowledge as those pilots. We offer educational products designed to give you as complete a picture on the mobile home park business as you will need to succeed - everything from how to differentiate a good deal from a bad one, how to find a park to buy, to how to do successful due diligence on it and operate it successfully. We cover every aspect from day one to selling the park you have purchased down the road.
There was a guy in Dallas who saved for years to buy a private plane. But he didn't want to invest the time or money in learning how to fly it. So he bought it and decided to try and fly it (this is a true story). He brought the whole family out to watch his initial voyage. He got about ten feet off the ground and then crashed and blew up. In the same way, we get calls at the site frequently from people who have bought mobile home parks without any prior training, and are already in trouble with them. When we review the deal with them, we are horrified that they have bought deals that make no economic sense, and there is no possible solution. This is as troubling for us as it is for the site visitor.
Mobilehomeparkstore.com has produced these materials to offer you a complete mastery of investing in mobile home parks. These are not promotional materials filled with stories of how much money you will make. These are real-life manuals on the technical aspects of the industry, written by two guys who have bought, operated and sold over $100,000,000 in mobile home parks. If you are going to get into the business, you need to know what you are doing, for the sake of you and your family. This is how to do it:
Search products offered through MobileHomeParkStore.com
We also offer a layaway plan in which you can pay over a series of months. We have tried to make everything we do more than affordable. Some people say we price our things too cheap, based on the sheer quantity of material.
What's important is that you know what you are doing before you even think about buying that first park. Remember the old quote:
"Think like a man of action. Act like a man of thought". To succeed in the mobile home park business is more than just action. And all of the information you need is right at your fingertips, at Mobilehomeparkstore.com
To succeed in the mobile home park business, you need the same amount of knowledge as those pilots. We offer educational products designed to give you as complete a picture on the mobile home park business as you will need to succeed - everything from how to differentiate a good deal from a bad one, how to find a park to buy, to how to do successful due diligence on it and operate it successfully. We cover every aspect from day one to selling the park you have purchased down the road.
There was a guy in Dallas who saved for years to buy a private plane. But he didn't want to invest the time or money in learning how to fly it. So he bought it and decided to try and fly it (this is a true story). He brought the whole family out to watch his initial voyage. He got about ten feet off the ground and then crashed and blew up. In the same way, we get calls at the site frequently from people who have bought mobile home parks without any prior training, and are already in trouble with them. When we review the deal with them, we are horrified that they have bought deals that make no economic sense, and there is no possible solution. This is as troubling for us as it is for the site visitor.
Mobilehomeparkstore.com has produced these materials to offer you a complete mastery of investing in mobile home parks. These are not promotional materials filled with stories of how much money you will make. These are real-life manuals on the technical aspects of the industry, written by two guys who have bought, operated and sold over $100,000,000 in mobile home parks. If you are going to get into the business, you need to know what you are doing, for the sake of you and your family. This is how to do it:
Search products offered through MobileHomeParkStore.com
We also offer a layaway plan in which you can pay over a series of months. We have tried to make everything we do more than affordable. Some people say we price our things too cheap, based on the sheer quantity of material.
What's important is that you know what you are doing before you even think about buying that first park. Remember the old quote:
"Think like a man of action. Act like a man of thought". To succeed in the mobile home park business is more than just action. And all of the information you need is right at your fingertips, at Mobilehomeparkstore.com
Sunday, October 3, 2010
HOW I MADE A MILLION DOLLARS WITH A MOBILE HOME PARK
The mobile home park industry is terribly misunderstood. There is massive opportunity, but everybody is looking in all the wrong places. Why? Because mobile home park investing, properly done, requires trusting in the opposite of what your initial instincts are. That's because it is an unusual investment real estate niche that does not work like apartments, single-family homes, duplexes, or any other form of housing you have ever seen before. And its advantages make those other forms of investment appear pale by comparison.
In most forms of real estate, the more upscale the property, whether it's a Class A skyscraper, or prime retail anchored by Chanel and Polo, the more valuable it is. And in most real estate niches, you have to take a lot of risk and leverage to play the game. Well, forget all that with mobile home parks. It's all about the downscale part of the market, and seller carry if you want to make a million dollars. Here's one example.
I bought my first park for $400,000 with $10,000 down and the seller carrying a $390,000 mortgage with no personal recourse. The location was near downtown Dallas, and the neighborhood was horrible. But the park served a clear purpose it was affordable detached housing for people with low incomes. The reason I could buy it so cheap and with so little down was that it showed terribly no sane person would buy a dump like that with so much deferred maintenance.
Of course, the deferred maintenance was mostly cosmetic. It was nothing that paint, an edger, a mower, some tree trimming, some trash collection and some pothole repair could not resolve. But even then, there were the collections problems, lack of management and a virtual culture of non-payment and no respect for park rules. All of that had to be corrected through evictions and non-renewal of leases. Sure, it was unpleasant. But it was necessary.
Once I had cleared out the bad element, I had to focus on attracting new customers, and to bringing in mobile homes to occupy vacant lots. And I had to suffer through the loss of my natural gas system and problems with my master-metered electrical system. I had to put another $100,000 in capital into the park during this time, which brought my total down payment to the standard 20%.
And after surviving such tough times and harrowing moments, I was rewarded with a $1,525,000 sale to another investor group, which netted us about $1,000,000 after paying off the seller note and recapturing our down payment.
What made this story possible? While I was working on the problems, the basic business was taking care of itself. Why? Because there is always a demand for affordable housing and it costs about $3,000 to move a trailer, so you don't have to worry about customers moving out on you. In addition, I was not responsible for anything but the dirt. I did not have to run around doing repairs on homes. And the entire time this was going on, I did not have the pressure of a full recourse loan my worst case scenario was just giving the property back.
Can you do the same thing I did? Yes, if you can find a great deal and know what to do with it. I was very lucky on my deal, because I didn't know what I was doing, and I made some guesses which turned out to be pretty good. But I also made some huge, costly mistakes. But you don't have to. With our Mobile Home Park Investing Home-Study Course, we will show you exactly what the correct steps are in buying a mobile home park, and how to manage it into a profitable investment.
Will you make a million on every park you buy? Absolutely not. But we can definitely put the odds in your favor, whatever your goals are.
Go to www.mobilehomeparkstore.com or call (800) 950-1364 and learn all about mobile home park investing, and our specialty products for investors.
And one more thought. The time to find good deals is when things are bad. This is the worst recession since the Great Depression. Harness that negativity into the buying opportunity of a lifetime. You can skirt the financing void with seller carry notes. And the focus on affordable housing means that the worse things get, the more customers there are. There are about 1,250 mobile home parks available right now on our website. And there are still thousands out there that might be for sale that are not on the site yet. You should be calling on these deals and using them to achieve your dreams.
In most forms of real estate, the more upscale the property, whether it's a Class A skyscraper, or prime retail anchored by Chanel and Polo, the more valuable it is. And in most real estate niches, you have to take a lot of risk and leverage to play the game. Well, forget all that with mobile home parks. It's all about the downscale part of the market, and seller carry if you want to make a million dollars. Here's one example.
I bought my first park for $400,000 with $10,000 down and the seller carrying a $390,000 mortgage with no personal recourse. The location was near downtown Dallas, and the neighborhood was horrible. But the park served a clear purpose it was affordable detached housing for people with low incomes. The reason I could buy it so cheap and with so little down was that it showed terribly no sane person would buy a dump like that with so much deferred maintenance.
Of course, the deferred maintenance was mostly cosmetic. It was nothing that paint, an edger, a mower, some tree trimming, some trash collection and some pothole repair could not resolve. But even then, there were the collections problems, lack of management and a virtual culture of non-payment and no respect for park rules. All of that had to be corrected through evictions and non-renewal of leases. Sure, it was unpleasant. But it was necessary.
Once I had cleared out the bad element, I had to focus on attracting new customers, and to bringing in mobile homes to occupy vacant lots. And I had to suffer through the loss of my natural gas system and problems with my master-metered electrical system. I had to put another $100,000 in capital into the park during this time, which brought my total down payment to the standard 20%.
And after surviving such tough times and harrowing moments, I was rewarded with a $1,525,000 sale to another investor group, which netted us about $1,000,000 after paying off the seller note and recapturing our down payment.
What made this story possible? While I was working on the problems, the basic business was taking care of itself. Why? Because there is always a demand for affordable housing and it costs about $3,000 to move a trailer, so you don't have to worry about customers moving out on you. In addition, I was not responsible for anything but the dirt. I did not have to run around doing repairs on homes. And the entire time this was going on, I did not have the pressure of a full recourse loan my worst case scenario was just giving the property back.
Can you do the same thing I did? Yes, if you can find a great deal and know what to do with it. I was very lucky on my deal, because I didn't know what I was doing, and I made some guesses which turned out to be pretty good. But I also made some huge, costly mistakes. But you don't have to. With our Mobile Home Park Investing Home-Study Course, we will show you exactly what the correct steps are in buying a mobile home park, and how to manage it into a profitable investment.
Will you make a million on every park you buy? Absolutely not. But we can definitely put the odds in your favor, whatever your goals are.
Go to www.mobilehomeparkstore.com or call (800) 950-1364 and learn all about mobile home park investing, and our specialty products for investors.
And one more thought. The time to find good deals is when things are bad. This is the worst recession since the Great Depression. Harness that negativity into the buying opportunity of a lifetime. You can skirt the financing void with seller carry notes. And the focus on affordable housing means that the worse things get, the more customers there are. There are about 1,250 mobile home parks available right now on our website. And there are still thousands out there that might be for sale that are not on the site yet. You should be calling on these deals and using them to achieve your dreams.
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