It is impossible to be a landlord and not receive frequent requests to "help" your tenants. These requests normally revolve around payment of the rent either to pay late or to pay a reduced amount. And the way you handle these requests has a huge impact on your business, and the life of your tenant.
First, let's look at the request to pay rent late. Normally, the tenant has an excuse for paying rent late, such as a delayed check from an employer or social security. And sometimes the reasons are legitimate. However, you must never allow someone to pay rent late without consequences. The tenant who is paying late must pay a late fee, as should be standard with all of your customers. If you allow the tenant to pay rent late and not pay a late fee, you have set a dangerous precedent that will be spread by word of mouth throughout the park. Additionally, you must explain to the tenant that you will begin the eviction process as scheduled if the rent has not been received during the grace period, but sill stop the process as soon as the rent is received. For example, if the park sends out ten day demand letters on the 7th of the month, then you should go forward with sending the letter, regardless of any advance request by the tenant. You can always call off the eviction process if the rent is received. However, you cannot afford to delay beginning the process as scheduled. That way, if the tenant is lying and is not going to pay the rent, you can kick him out in line with any other tenant who failed to pay the rent. Bear in mind that a lot of times the condition that forces the tenant to request to pay late is a structural change in the tenant's finances that will eventually force him to leave the park. For example, the delay in receiving disability payments from the government may be the result of being kicked out of that program. Similarly, a tenant who claims he is getting paid late by his employer may actually have lost his job, or has been laid off due to lack of work. This problem is not going to go away in the near future only get worse.
Requests to pay less than the required rent require the same proactive approach. If you agree to let a tenant pay less than the required amount, you will create a deadly precedent in your park. Nothing will put you out of business faster than receiving partial rent every month none of your bills can be paid with partial payments. But the truth about letting a tenant pay less than they owe, including no rent at all, and not evicting them is that you are really setting them up for losing their home and putting them out on the street. You have become an accessory to the crime. The fact is, if you let the tenant get more than one month behind on their rent, they will never be able to catch up. It is very hard for the average tenant to manage their finances well enough to pay the existing month's rent, much less an even greater amount. If you force the tenant to pay the rent or be evicted, then you force them to take immediate action to solve their financial problem. Maybe they need to get a second job, or change their payment priorities, or get a bridge loan from a relative. The sooner they focus on their finances, the faster they will get back out of trouble. By letting them pass on their rent, you are basically loaning the tenant money a loan they will never be able to pay. Think sub-prime predatory lending, because that's what it is. And the result will work for them as well as it has for the mortgage industry. When you don't force the issue that very month, you are actually doing a disservice to your tenant. And their family and any other person living with them, who is soon to be homeless. In a mobile home park, the rent is relatively low maybe $200 per month and well within the reach of any person even earning minimum wage. It's not a money issue when a tenant can't pay it's a prioritization issue. They are testing you to see if you are one of the bills that can be rolled when that big screen T.V. is on sale, or there is an Aerosmith concert to buy tickets for.
So how do you respond to a rent request from a tenant. First, tell them that you have systems in place that do not allow for customization. Explain that you have to continue with the eviction process no matter what, but you will call it off once the rent has been paid in full, plus the appropriate late fee. It also helps to tell the tenant that you are not the owner (even if you are) and that your boss (even if you are the boss) doesn't allow any rent deals. This is the type of response that the tenant is used to hearing from the more important bills he has (car payment, charge card, utility company) so he will immediately group you with the "have to pay" bills.
Nobody likes to be the "tough guy" with their tenants. However, when it comes to the rent, "tough love" is imperative. So do your tenant and yourself a favor, and don't give in when tenants call you about rent.
Tuesday, November 30, 2010
Monday, November 29, 2010
How to Handle Your Tenants
In Kung Fu, the concept is to combat aggression with the least amount of human effort and movement. Evidently the oriental masters' theories can be applied to mobile home parks. The best way to handle mobile home park tenants is to use very little effort to pretty much ignore 99% of what they say and do.
Complaints
There is no point to listening to tenant complaints that you have no intention of acting on. If you have recently converted your park's curbside service to dumpster and all the tenants hate it, and you have no interest in changing it back to curbside, then why would you waste your time listening to them complain? A better plan is to let them phone in their complaints to voice mail, and then erasing them all at the end of each day, without even listening to them other than to verify it is a complaint on trash. This is why it is a good idea to have a regular phone line with voice mail as the tenants key contact and then always let it go to voicemail. Never give out your cell number to a tenant.
Collections
Nothing your tenant can say can make up for not paying the rent. Either they have paid or not. If they have, then you have nothing to talk about. If they haven't then they need to pay their rent. You need cash not conversation. Don't waste your time discussing why the rent's not there. If they don't pay, evict them. If they do then don't. But there is absolutely no point in discussing the situation. Often, the tenant will want to talk to you to make a payment plan. You never want to accept payment plans. So there really is nothing the tenant can say to stave off eviction. So don't waste your time.
Rules
Adopt some basic, simple rules that are obvious and you feel enthusiastically must be kept. The best of these are no non-running vehicles, no big trash in yards, and no ridiculously tall grass. Once you have derived these basic essentials, then when you cite tenants for abusing the rules, or tow their non-running cars, you should feel free to ignore their calls. If they call to scream and vent their anger, there is little point to listening to it. So let it go to the voicemail, and then erase it without listening to it unless you want a good laugh.
Everything Else
When driving through your park, and a tenant approaches your car to tell you something, pretend you don't see them and drive off. There is nothing they can say that has any importance to you or your property. If you have lots of time on your hands, and don't mind chit-chatting with the tenant , then feel free to learn about the movies, and the weather, and how cool a hemi engine would be. As for me, I'd rather reserve my free time for my family.
Conclusion
It sounds cruel, but ignoring your tenants is often the best business move in a mobile home park. They can drive you nuts if you listen to them or, even worse, try to please them. There is no solution to their problems certainly none that you would want to participate in, like letting them live free for a few months. So, rather than put yourself in a lose/lose position, just avoid it altogether. I have never had a situation that could be improved through one-on-one conversation with a tenant, either by phone or in person.
So put a karate chop to your tenant's time wasting, and just avoid contact altogether.
Complaints
There is no point to listening to tenant complaints that you have no intention of acting on. If you have recently converted your park's curbside service to dumpster and all the tenants hate it, and you have no interest in changing it back to curbside, then why would you waste your time listening to them complain? A better plan is to let them phone in their complaints to voice mail, and then erasing them all at the end of each day, without even listening to them other than to verify it is a complaint on trash. This is why it is a good idea to have a regular phone line with voice mail as the tenants key contact and then always let it go to voicemail. Never give out your cell number to a tenant.
Collections
Nothing your tenant can say can make up for not paying the rent. Either they have paid or not. If they have, then you have nothing to talk about. If they haven't then they need to pay their rent. You need cash not conversation. Don't waste your time discussing why the rent's not there. If they don't pay, evict them. If they do then don't. But there is absolutely no point in discussing the situation. Often, the tenant will want to talk to you to make a payment plan. You never want to accept payment plans. So there really is nothing the tenant can say to stave off eviction. So don't waste your time.
Rules
Adopt some basic, simple rules that are obvious and you feel enthusiastically must be kept. The best of these are no non-running vehicles, no big trash in yards, and no ridiculously tall grass. Once you have derived these basic essentials, then when you cite tenants for abusing the rules, or tow their non-running cars, you should feel free to ignore their calls. If they call to scream and vent their anger, there is little point to listening to it. So let it go to the voicemail, and then erase it without listening to it unless you want a good laugh.
Everything Else
When driving through your park, and a tenant approaches your car to tell you something, pretend you don't see them and drive off. There is nothing they can say that has any importance to you or your property. If you have lots of time on your hands, and don't mind chit-chatting with the tenant , then feel free to learn about the movies, and the weather, and how cool a hemi engine would be. As for me, I'd rather reserve my free time for my family.
Conclusion
It sounds cruel, but ignoring your tenants is often the best business move in a mobile home park. They can drive you nuts if you listen to them or, even worse, try to please them. There is no solution to their problems certainly none that you would want to participate in, like letting them live free for a few months. So, rather than put yourself in a lose/lose position, just avoid it altogether. I have never had a situation that could be improved through one-on-one conversation with a tenant, either by phone or in person.
So put a karate chop to your tenant's time wasting, and just avoid contact altogether.
Sunday, November 28, 2010
Take Advantage of This Great Buying Opportunity
Warren Buffet once said of Berkshire Hathaway "we only get greedy when others get fearful". That statement has never been more accurate in describing the opportunities in the mobile home park business. We are approaching a time in the industry when the owners of parks for sale are fearful, and their fear is amplified by a struggling, nearly dead mobile home retail industry and a sudden reversal of fortune in lending. It appears to be the perfect storm for many owners. And that cyclical train wreck is going to lead to some really great buys if park buyers are properly prepared to take advantage of this once-in-a-lifetime buying opportunity.
The Causes
The mobile home industry had its "subprime meltdown" all the way back in 2000. Just like today, lenders had been way too aggressive in their lending standards if they used any at all. Repossessions went through the roof, and with every mobile home dragged to auction came a new low in collateral value.
$35,000 homes were being sold for $5,000 at auction.
In turn, this re-valuation of collateral led to continually more homeowners walking off and leaving their hugely overvalued mobile home. As the lenders put an end to making loans on mobile homes, dealers found they could not find any credit-worthy buyers to buy their inventory. If you had bought one share of each of the publicly-traded manufacturers in 1999, you would seen the value of this portfolio fall by 90% in 2008. With dealers not selling any homes, the ability to fill mobile home lots has become difficult. In addition, many park owners are faced with the daily risk of losing more customer homes to foreclosure.
The other fundamental of the park business that has hit a brick wall is lending. A few years ago, many banks were aggressively approving loans for parks to be purchased. Unfortunately, several of these are no longer an active player as they once were. Indeed, many of the hard-core lenders from the last few years have virtually shut their doors to new loans.
Much of this was the result of the extreme losses in lending that are occurring right now, although interestingly, most of the mobile home park loans are doing fine. Repossessions of mobile home parks are not very common. But the lending industry has limited mobile home parks along with all forms of real estate borrowing. As a result, if someone wants to buy a park, they must have great credit and plenty of cash for a down payment or the loan will never materialize. In addition, many park lenders are being harder on occupancy, criteria, and location.
The Opportunities
With no dealers selling homes, and little lending for park purchases, many park sellers are becoming truly desperate. Day after day passes without any offers and, when they get one, the deal falls through predictably during the financing contingency. Many sellers do not know how to get their parks sold. And the panic feeds on itself and on other similar parks. A lot of value is based on perception and many sellers perceive their parks to be nearly valueless. Most notable are the parks that have less occupancy than is required for a bank loan (say 60%), yet show reasonable positive cash flow. Despite a lot of good, solid raw material, the seller may perceive that the park will never find a buyer despite the low asking price. And so the price just keeps dropping.
The key buying opportunities in parks today are:
*
Parks that have just enough vacancy to be unable to get financing, yet can reach this occupancy level (normally about 80%) with the addition of only a few homes.
*
Parks that have sufficient occupancy, but have lousy financials due to mismanagement, and costs that can be reduced.
*
Parks that can attain an enormous rent boost upon closing without any changes in occupancy to attain attractive numbers.
*
Parks that come with additional real estate assets which can be subdivided and sold off, to reduce the basis in the park.
These opportunities allow a buyer to increase the park income almost immediately, and with little risk. And they circumvent the weakness in the market (dealer sales/occupancy/financing issues) and allow the buyer to obtain a winning deal from the start.
Buyer Preparation
To be able to take advantage of these opportunities, the buyer has to sharpen the weapons in his arsenal. The first of these weapons is his knowledge of the industry. The mobile home park business is extremely complicated. There are over 30 different items that much be checked and confirmed during due diligence, and some of these can cause you to lose your entire investment. In addition, having the knowledge to build a sample budget in line with industry standard cost ratios is essential to success. And once a good deal has been bought, the buyer must know the strategies to successfully manage the property and maximize its profitability. To prepare these skills, there are complete courses on mobile home park diligence and management available, which are essential for the novice and even experienced investor who is crossing over from another asset type.
The buyer must also have the capital necessary to make the down payment on a deal, and afford the additional capital expenditures necessary to put the park in good working order. The time to line up this capital is before you begin your search for parks, not after you have found one. Normally, parks are sold with a 30 day due diligence and a 30 day financing period so there is really no time to raise capital after the property has been tied up. Capital can be obtained from your own liquidity, or family members or financial partners. Knowing the maximum amount of capital available to you will help shape the size of deals you will pursue.
Having a lender who knows and trusts you is another essential ingredient. Often, particularly on deals which have a blemish which you will resolve upon purchase, having the trust of your banker is essential to getting the loan. Another way to achieve a head start in banking is to consult with a loan broker who has access to all of the current lenders on mobile home parks. It is always a good idea to have current financial statements on hand, and a resume on real estate experience.
Conclusion
Not since the Savings & Loan crisis of the 1980's have so many great deals on mobile home parks been available. Since these cycles only come every couple of decades, this is one opportunity that may not come again in your lifetime. So it is important to "carpe diem" "seize the day".
If you take the necessary steps to succeed, you may find yourself owning a profitable mobile home park in the near future.
The Causes
The mobile home industry had its "subprime meltdown" all the way back in 2000. Just like today, lenders had been way too aggressive in their lending standards if they used any at all. Repossessions went through the roof, and with every mobile home dragged to auction came a new low in collateral value.
$35,000 homes were being sold for $5,000 at auction.
In turn, this re-valuation of collateral led to continually more homeowners walking off and leaving their hugely overvalued mobile home. As the lenders put an end to making loans on mobile homes, dealers found they could not find any credit-worthy buyers to buy their inventory. If you had bought one share of each of the publicly-traded manufacturers in 1999, you would seen the value of this portfolio fall by 90% in 2008. With dealers not selling any homes, the ability to fill mobile home lots has become difficult. In addition, many park owners are faced with the daily risk of losing more customer homes to foreclosure.
The other fundamental of the park business that has hit a brick wall is lending. A few years ago, many banks were aggressively approving loans for parks to be purchased. Unfortunately, several of these are no longer an active player as they once were. Indeed, many of the hard-core lenders from the last few years have virtually shut their doors to new loans.
Much of this was the result of the extreme losses in lending that are occurring right now, although interestingly, most of the mobile home park loans are doing fine. Repossessions of mobile home parks are not very common. But the lending industry has limited mobile home parks along with all forms of real estate borrowing. As a result, if someone wants to buy a park, they must have great credit and plenty of cash for a down payment or the loan will never materialize. In addition, many park lenders are being harder on occupancy, criteria, and location.
The Opportunities
With no dealers selling homes, and little lending for park purchases, many park sellers are becoming truly desperate. Day after day passes without any offers and, when they get one, the deal falls through predictably during the financing contingency. Many sellers do not know how to get their parks sold. And the panic feeds on itself and on other similar parks. A lot of value is based on perception and many sellers perceive their parks to be nearly valueless. Most notable are the parks that have less occupancy than is required for a bank loan (say 60%), yet show reasonable positive cash flow. Despite a lot of good, solid raw material, the seller may perceive that the park will never find a buyer despite the low asking price. And so the price just keeps dropping.
The key buying opportunities in parks today are:
*
Parks that have just enough vacancy to be unable to get financing, yet can reach this occupancy level (normally about 80%) with the addition of only a few homes.
*
Parks that have sufficient occupancy, but have lousy financials due to mismanagement, and costs that can be reduced.
*
Parks that can attain an enormous rent boost upon closing without any changes in occupancy to attain attractive numbers.
*
Parks that come with additional real estate assets which can be subdivided and sold off, to reduce the basis in the park.
These opportunities allow a buyer to increase the park income almost immediately, and with little risk. And they circumvent the weakness in the market (dealer sales/occupancy/financing issues) and allow the buyer to obtain a winning deal from the start.
Buyer Preparation
To be able to take advantage of these opportunities, the buyer has to sharpen the weapons in his arsenal. The first of these weapons is his knowledge of the industry. The mobile home park business is extremely complicated. There are over 30 different items that much be checked and confirmed during due diligence, and some of these can cause you to lose your entire investment. In addition, having the knowledge to build a sample budget in line with industry standard cost ratios is essential to success. And once a good deal has been bought, the buyer must know the strategies to successfully manage the property and maximize its profitability. To prepare these skills, there are complete courses on mobile home park diligence and management available, which are essential for the novice and even experienced investor who is crossing over from another asset type.
The buyer must also have the capital necessary to make the down payment on a deal, and afford the additional capital expenditures necessary to put the park in good working order. The time to line up this capital is before you begin your search for parks, not after you have found one. Normally, parks are sold with a 30 day due diligence and a 30 day financing period so there is really no time to raise capital after the property has been tied up. Capital can be obtained from your own liquidity, or family members or financial partners. Knowing the maximum amount of capital available to you will help shape the size of deals you will pursue.
Having a lender who knows and trusts you is another essential ingredient. Often, particularly on deals which have a blemish which you will resolve upon purchase, having the trust of your banker is essential to getting the loan. Another way to achieve a head start in banking is to consult with a loan broker who has access to all of the current lenders on mobile home parks. It is always a good idea to have current financial statements on hand, and a resume on real estate experience.
Conclusion
Not since the Savings & Loan crisis of the 1980's have so many great deals on mobile home parks been available. Since these cycles only come every couple of decades, this is one opportunity that may not come again in your lifetime. So it is important to "carpe diem" "seize the day".
If you take the necessary steps to succeed, you may find yourself owning a profitable mobile home park in the near future.
Tuesday, November 23, 2010
How to Accept and Love Your Mobile Home Park Utilities
When you first buy a mobile home park, you are a little terrified of your water and sewer system. "What if it breaks down?" you worry. "Can I afford to fix it?". "Will my tenants get mad and leave if the water goes out for a couple days?".
One of the key things to remember is that each mobile home park's utilities has its own personality. Just like people, all utility systems have their own strengths and weaknesses. The key to living with your utility system is to recognize it's unique "personality" and to accept it for what it is. Here are a few of the different utility systems and their typical strengths and weaknesses:
Metal Water Lines
Burying metal in the ground is not a great idea. Metal rusts. So metal water lines are a time-delayed disaster. But how much time do you have? In some cases, a whole lot. I have seen metal water lines that have virtually no corrosion despite the fact that they're 50 years old. If you think about it, virtually all the water lines you can think of (unless you live in a brand new subdivision in a town that was entirely built in the 1990s) are made of metal. And everything seems to be O.K. Sure PVC is better, but metal can be just fine. And there's nothing you can do about it. Can I sleep at night with metal lines? You bet I can. I have had little trouble with all my metal lines, and I can definitely be proud of them with all their faults.
PVC Water Lines
If you have PVC water lines, you are a very, very fortunate person. There are very few parks out there that have them. They are the best. Nothing else can compete with them. Before you get too excited, make sure that the whole system is PVC. A lot of times, the park owner has retrofitted PVC onto metal lines where they come out of the ground. To have a PVC system, it has to be 100% PVC below and above the ground.
Clay Tile Sewer
This was the standard design from about 1900 to the 1970s. Most of what you see out there is clay tile. It's basically sewer pipe that is ceramic it looks like pipe made out of the same stuff as the flower pots at the fancy nursery. And it is really a pretty good system. I have had many clay tile sewer systems, and I was not worried about them when I went to sleep each night. The biggest weakness with clay tile is tree roots. The clay tile pipe does not fit together so tightly that tree roots can't find a way to get into such a terrific water source. So when you have clay tile, you will be doing a lot of rooter roto repair calls. But that's a manageable expense. The other weakness with clay tile is its inability to survive jetting of the lines. When you "jet" a line, you spray extremely high pressured water down the sewer lines to push any debris into the city main line. The high pressure spray can often cause a cracked pipe to cave in. When we discontinued jetting our clay tile lines, we had no further cave-ins.
Cast Iron Sewer Line
These are very rare systems. Of course, they are easy to work with. They don't cave in. They can deteriorate over time, theoretically, but I've never actually seen that happen. We've only had one of these systems, and the only fault it had was a series of "bellies", where the flow was slightly uphill in places to it would not drain properly. You would never lose sleep over a cast iron system.
Thin-Walled Plastic Sewer Line
This is the bad boy of the sewer pipe world. This is the crazy, undependable cousin of real utility lines. This junk will cave in all the time sometimes in 50 foot segments. Having this type of sewer system is like inviting a mass murderer over as a house sitter. It might be O.K. or it might be a catastrophe. It's like the crazy gun slinger in a spaghetti western who might shoot you or smile at you. Living with that type of uncertainty will drive any sane person nuts. The only thing you can do with this type of system is "tough love" if it can't work properly, then replace it. And make sure you budget for this eventuality when you buy the park. If I was looking at a park built with this junk, I wouldn't touch it unless I could re-pipe the entire park into PVC, and still have a great return on investment. And that's probably where you are going to end up, either replacing the system at one time or in sections over time. I can't sleep well with this stuff.
PVC Sewer Line
This is the Cadillac of the industry. It is, if properly installed, flawless. Whoever invented this stuff was a genius. I can think of no weakness with PVC. If you have a full PVC sewer system, then you are very lucky indeed.
Conclusion
Like people, water and sewer systems come in all types of shapes and sizes. But that does not mean that certain types are to be avoided or discriminated against. It is possible to accept the type you have, and be happy with it. You just have to understand the character flaws, and work around them.
One of the key things to remember is that each mobile home park's utilities has its own personality. Just like people, all utility systems have their own strengths and weaknesses. The key to living with your utility system is to recognize it's unique "personality" and to accept it for what it is. Here are a few of the different utility systems and their typical strengths and weaknesses:
Metal Water Lines
Burying metal in the ground is not a great idea. Metal rusts. So metal water lines are a time-delayed disaster. But how much time do you have? In some cases, a whole lot. I have seen metal water lines that have virtually no corrosion despite the fact that they're 50 years old. If you think about it, virtually all the water lines you can think of (unless you live in a brand new subdivision in a town that was entirely built in the 1990s) are made of metal. And everything seems to be O.K. Sure PVC is better, but metal can be just fine. And there's nothing you can do about it. Can I sleep at night with metal lines? You bet I can. I have had little trouble with all my metal lines, and I can definitely be proud of them with all their faults.
PVC Water Lines
If you have PVC water lines, you are a very, very fortunate person. There are very few parks out there that have them. They are the best. Nothing else can compete with them. Before you get too excited, make sure that the whole system is PVC. A lot of times, the park owner has retrofitted PVC onto metal lines where they come out of the ground. To have a PVC system, it has to be 100% PVC below and above the ground.
Clay Tile Sewer
This was the standard design from about 1900 to the 1970s. Most of what you see out there is clay tile. It's basically sewer pipe that is ceramic it looks like pipe made out of the same stuff as the flower pots at the fancy nursery. And it is really a pretty good system. I have had many clay tile sewer systems, and I was not worried about them when I went to sleep each night. The biggest weakness with clay tile is tree roots. The clay tile pipe does not fit together so tightly that tree roots can't find a way to get into such a terrific water source. So when you have clay tile, you will be doing a lot of rooter roto repair calls. But that's a manageable expense. The other weakness with clay tile is its inability to survive jetting of the lines. When you "jet" a line, you spray extremely high pressured water down the sewer lines to push any debris into the city main line. The high pressure spray can often cause a cracked pipe to cave in. When we discontinued jetting our clay tile lines, we had no further cave-ins.
Cast Iron Sewer Line
These are very rare systems. Of course, they are easy to work with. They don't cave in. They can deteriorate over time, theoretically, but I've never actually seen that happen. We've only had one of these systems, and the only fault it had was a series of "bellies", where the flow was slightly uphill in places to it would not drain properly. You would never lose sleep over a cast iron system.
Thin-Walled Plastic Sewer Line
This is the bad boy of the sewer pipe world. This is the crazy, undependable cousin of real utility lines. This junk will cave in all the time sometimes in 50 foot segments. Having this type of sewer system is like inviting a mass murderer over as a house sitter. It might be O.K. or it might be a catastrophe. It's like the crazy gun slinger in a spaghetti western who might shoot you or smile at you. Living with that type of uncertainty will drive any sane person nuts. The only thing you can do with this type of system is "tough love" if it can't work properly, then replace it. And make sure you budget for this eventuality when you buy the park. If I was looking at a park built with this junk, I wouldn't touch it unless I could re-pipe the entire park into PVC, and still have a great return on investment. And that's probably where you are going to end up, either replacing the system at one time or in sections over time. I can't sleep well with this stuff.
PVC Sewer Line
This is the Cadillac of the industry. It is, if properly installed, flawless. Whoever invented this stuff was a genius. I can think of no weakness with PVC. If you have a full PVC sewer system, then you are very lucky indeed.
Conclusion
Like people, water and sewer systems come in all types of shapes and sizes. But that does not mean that certain types are to be avoided or discriminated against. It is possible to accept the type you have, and be happy with it. You just have to understand the character flaws, and work around them.
Monday, November 22, 2010
HOW TO PREPARE YOUR PARK FOR THE RECESSION
Unless you're George Bush, you probably already realize that we are heading into a national recession. And if you agree that we are heading into economic trouble, then it is worth your while to make preparations to survive and prosper during this cycle. It's important to remember that it takes time to make adjustments in your business plan, so you should start making these changes immediately.
Focus on Affordable Housing
The universal desire during a recession is to keep costs low. Consumers are looking to find the cheapest housing they can. Instead of focusing on bringing in newer homes that look nicer in your park, instead concentrate on older, uglier ones that can be sold or rented cheaply. Remember that old, ugly houses have no monthly mortgage payments and that means that your customer only has to pay lot rent to survive. You will have a more solid, bill-paying tenant base with older, paid-for homes.
Be Tougher Than Ever on Collections
When money is tight, your tenants have to pick and choose which bills to pay. You must never let them think that the rent can be delayed or missed. You must keep the big club of eviction dangling over their heads at all times. Never miss a beat on getting out your demand notices and filing evictions. And keep pressing with writs of execution don't delay because you are worried about losing tenants during a recession. These folks are not going anywhere. They can't afford to move their homes but they can afford to pay your lot rent. At minimum wage, you can still afford the average mobile home lot rent of $200 per month or so. So be relentless and keep your tenants' priorities straight.
Keep Raising Rent Annually
Some park owners make the mistake of delaying or eliminating the annual lot rent increase during recessions. The problem is that you still need that annual increase to cover the increased costs of running the park, plus ever greater cash flow to meet your budget and reward you for taking the risk of buying a park. There is no way that a tenant is going to be pushed over the edge by a rent increase of $10 to $20 per month. However, if you do not keep the rent escalating, you may soon find that you are losing your battle and having reduced net income annually. If you do not raise the rent a little every year, you will have to make a huge jump down the road, and that will be much more offensive to your tenants.
Cut Costs
Question every bill you pay. Do you really need that extra phone line? Can you mow the grass every two weeks instead of weekly? Never write a check without thinking of at least three different methods to cut that cost. Often , such as the power bill, there is not much you can do to about it. However, a lot of times, you do have some discretionary control over what you spend, especially in repair and park maintenance categories, as well as administrative and office costs. Although you do not want to live you life that way, it does not hurt to role-play the penny-pinching miser out of a Dickens novel. By focusing on cost control, you will spread that gospel throughout your organization.
Approach Loan Renewals Well In Advance
One of the big hurdles of a recession is the sudden disappearance of the usual banks and other lenders. In a world in which Indymac can fail, why not your lender, too? In that type of environment, you need to allow yourself extra time to line up a loan. If your current loan expires in two years, you might want to attack that problem starting now. It might take you two months to get our loan package perfected, another two months to find the right lender, and four to six months to put the deal together. So what's the other year for? Just in case that lender falls apart right before closing, and you have to start all over again. I would much rather pay a slight pre-payment penalty on my existing loan from starting early, rather than be unable to find a replacement loan and end up in foreclosure.
Never Pre-pay For Anything
You have to look at all other businesses that you do business with very cautiously. In a recession, anything can happen. Businesses that have been around for decades can suddenly disappear overnight. So never pay for any project until it has been completed. I have actually had cases, during recessions, where the contractor disappeared in the middle, or even the end, of a job. One time, I had a guy build a brick and stone entry to a park really fancy and he disappeared when the project was 95% complete. We never saw him again. Prior to running off, he had wanted me to pre-pay him for the project, but I had refused to pay him until it was done. By refusing to pay until completion, I ended up with a virtually free, fancy entry. So where did the guy go? I have no idea. Maybe he ran off because he owed so many people money.
Be More Aggressive on the Acquisitions Side
Some of the best mobile home park buys in history have been made during recessions. That is the exact time when all of the planets come into alignment to make the ideal buy. So start watching and listening for real distress mobile home park deals. You may see pricing that you never dreamed you would see. And that is why it is more important than ever to keep yourself out of trouble, so that you can reap the rewards that only a recession can bring.
Conclusion
Recessions are terrible things. However, once you get used to them, they are like a big rain storm. You want to make sure that you have a big umbrella when they hit, and make sure you don't step in a big puddle. But when they're over, everything is cleaner and smells better, and if you have put yourself in the proper position, you may end up with some great parks you bought for a penny on the dollar.
Focus on Affordable Housing
The universal desire during a recession is to keep costs low. Consumers are looking to find the cheapest housing they can. Instead of focusing on bringing in newer homes that look nicer in your park, instead concentrate on older, uglier ones that can be sold or rented cheaply. Remember that old, ugly houses have no monthly mortgage payments and that means that your customer only has to pay lot rent to survive. You will have a more solid, bill-paying tenant base with older, paid-for homes.
Be Tougher Than Ever on Collections
When money is tight, your tenants have to pick and choose which bills to pay. You must never let them think that the rent can be delayed or missed. You must keep the big club of eviction dangling over their heads at all times. Never miss a beat on getting out your demand notices and filing evictions. And keep pressing with writs of execution don't delay because you are worried about losing tenants during a recession. These folks are not going anywhere. They can't afford to move their homes but they can afford to pay your lot rent. At minimum wage, you can still afford the average mobile home lot rent of $200 per month or so. So be relentless and keep your tenants' priorities straight.
Keep Raising Rent Annually
Some park owners make the mistake of delaying or eliminating the annual lot rent increase during recessions. The problem is that you still need that annual increase to cover the increased costs of running the park, plus ever greater cash flow to meet your budget and reward you for taking the risk of buying a park. There is no way that a tenant is going to be pushed over the edge by a rent increase of $10 to $20 per month. However, if you do not keep the rent escalating, you may soon find that you are losing your battle and having reduced net income annually. If you do not raise the rent a little every year, you will have to make a huge jump down the road, and that will be much more offensive to your tenants.
Cut Costs
Question every bill you pay. Do you really need that extra phone line? Can you mow the grass every two weeks instead of weekly? Never write a check without thinking of at least three different methods to cut that cost. Often , such as the power bill, there is not much you can do to about it. However, a lot of times, you do have some discretionary control over what you spend, especially in repair and park maintenance categories, as well as administrative and office costs. Although you do not want to live you life that way, it does not hurt to role-play the penny-pinching miser out of a Dickens novel. By focusing on cost control, you will spread that gospel throughout your organization.
Approach Loan Renewals Well In Advance
One of the big hurdles of a recession is the sudden disappearance of the usual banks and other lenders. In a world in which Indymac can fail, why not your lender, too? In that type of environment, you need to allow yourself extra time to line up a loan. If your current loan expires in two years, you might want to attack that problem starting now. It might take you two months to get our loan package perfected, another two months to find the right lender, and four to six months to put the deal together. So what's the other year for? Just in case that lender falls apart right before closing, and you have to start all over again. I would much rather pay a slight pre-payment penalty on my existing loan from starting early, rather than be unable to find a replacement loan and end up in foreclosure.
Never Pre-pay For Anything
You have to look at all other businesses that you do business with very cautiously. In a recession, anything can happen. Businesses that have been around for decades can suddenly disappear overnight. So never pay for any project until it has been completed. I have actually had cases, during recessions, where the contractor disappeared in the middle, or even the end, of a job. One time, I had a guy build a brick and stone entry to a park really fancy and he disappeared when the project was 95% complete. We never saw him again. Prior to running off, he had wanted me to pre-pay him for the project, but I had refused to pay him until it was done. By refusing to pay until completion, I ended up with a virtually free, fancy entry. So where did the guy go? I have no idea. Maybe he ran off because he owed so many people money.
Be More Aggressive on the Acquisitions Side
Some of the best mobile home park buys in history have been made during recessions. That is the exact time when all of the planets come into alignment to make the ideal buy. So start watching and listening for real distress mobile home park deals. You may see pricing that you never dreamed you would see. And that is why it is more important than ever to keep yourself out of trouble, so that you can reap the rewards that only a recession can bring.
Conclusion
Recessions are terrible things. However, once you get used to them, they are like a big rain storm. You want to make sure that you have a big umbrella when they hit, and make sure you don't step in a big puddle. But when they're over, everything is cleaner and smells better, and if you have put yourself in the proper position, you may end up with some great parks you bought for a penny on the dollar.
Thursday, November 18, 2010
What Will You Tell Your Grandchildren?
You only need one mobile home park. That's all you need to create a sizable asset and a consistent source of income. That's assuming you buy it and operate it correctly.
There has not been a better time to buy that one park in the last decade. Due to problems in the commercial real estate lending market, prices for parks have plummeted over the last six months. Desperate sellers are dumping their parks at prices far less than construction cost. Just look at the prices on the site. Notice how many sellers have written on their price "must sell", "desperate", and "all reasonable offers accepted". And they are also advertising "seller financing available". It is, without question, a buyers market.
It wasn't always that way. Just twelve months ago, people would complain that there were no good deals out there. For sure, there weren't many. Sellers were trying to get 6% to 7% cap rates. And many were including in their numbers rent raises and increased occupancy that didn't even exist. Going through the list of parks for sale on the site was frequently depressing where were the good deals?
Well, they're here now.
So how can just one park change you and your family's life? Here's the economics based on a 30 space park that you buy for $270,000 from an anxious seller. Let's assume that the park is 80% occupied (24 lots) and the lot rent is $150 per month and the expense ratio is 30%. Then that gives you the following net income: [ 24 x $150 x .7 x 12] = $30,240. Based on a sales price of $270,000, that's an 11% cap rate.
Let's say you can increase the lot rent by $10 per month each year, so that in year five the rent is $200 per month net of utilities. That's pretty plausible, right? Let's also assume that you are able to fill just 3 more lots over that five year period, through aggressive marketing and thinking outside the box. That's not much, right? Well, let's look at the net income now: [27 x $200 x .7 x 12] = $45,360. That's a cap rate of 17% based on your purchase price. Pretty good, huh?
So what can you do with that 17% cap rate. Well, you could sell the park at a 10% cap, and put $183,600 in your pocket before tax. Or you could hold the park until the mortgage is paid off and put $45,360 in your pocket annually (assuming you never rent another lot or raise the rent another dollar, ever). And don't forget that you only put $54,000 [20% of purchase price] down on the park. That's a 300% return on your investment within 5 years, on pretty conservative assumptions. Try and make that kind of return on any other form of real estate, especially now.
Interested?
To learn more about the mobile home park industry, you will find ample books, CDs and courses on the industry on MobileHomeParkStore.com. These products are produced by Frank Rolfe and Dave Reynolds, who have over $100,000,000 in park deals under their belts, and who are real people with real experiences and real facts to convey. Although the materials are lengthy [some are up to 700 pages long], they are easy to read and completely essential to not make a mistake buying or operating your park.
So there's a road map for you to improve the lives of you, your kids, and your grandchildren. And the opportunity is right now.
There has not been a better time to buy that one park in the last decade. Due to problems in the commercial real estate lending market, prices for parks have plummeted over the last six months. Desperate sellers are dumping their parks at prices far less than construction cost. Just look at the prices on the site. Notice how many sellers have written on their price "must sell", "desperate", and "all reasonable offers accepted". And they are also advertising "seller financing available". It is, without question, a buyers market.
It wasn't always that way. Just twelve months ago, people would complain that there were no good deals out there. For sure, there weren't many. Sellers were trying to get 6% to 7% cap rates. And many were including in their numbers rent raises and increased occupancy that didn't even exist. Going through the list of parks for sale on the site was frequently depressing where were the good deals?
Well, they're here now.
So how can just one park change you and your family's life? Here's the economics based on a 30 space park that you buy for $270,000 from an anxious seller. Let's assume that the park is 80% occupied (24 lots) and the lot rent is $150 per month and the expense ratio is 30%. Then that gives you the following net income: [ 24 x $150 x .7 x 12] = $30,240. Based on a sales price of $270,000, that's an 11% cap rate.
Let's say you can increase the lot rent by $10 per month each year, so that in year five the rent is $200 per month net of utilities. That's pretty plausible, right? Let's also assume that you are able to fill just 3 more lots over that five year period, through aggressive marketing and thinking outside the box. That's not much, right? Well, let's look at the net income now: [27 x $200 x .7 x 12] = $45,360. That's a cap rate of 17% based on your purchase price. Pretty good, huh?
So what can you do with that 17% cap rate. Well, you could sell the park at a 10% cap, and put $183,600 in your pocket before tax. Or you could hold the park until the mortgage is paid off and put $45,360 in your pocket annually (assuming you never rent another lot or raise the rent another dollar, ever). And don't forget that you only put $54,000 [20% of purchase price] down on the park. That's a 300% return on your investment within 5 years, on pretty conservative assumptions. Try and make that kind of return on any other form of real estate, especially now.
Interested?
To learn more about the mobile home park industry, you will find ample books, CDs and courses on the industry on MobileHomeParkStore.com. These products are produced by Frank Rolfe and Dave Reynolds, who have over $100,000,000 in park deals under their belts, and who are real people with real experiences and real facts to convey. Although the materials are lengthy [some are up to 700 pages long], they are easy to read and completely essential to not make a mistake buying or operating your park.
So there's a road map for you to improve the lives of you, your kids, and your grandchildren. And the opportunity is right now.
Tuesday, November 16, 2010
Investing in Mobile Home Parks
The 2008 Olympics in Beijing offers an important lesson to the manufactured housing industry. Here you have an event where athletes have taken a certain specialty, a certain strength, and turned it into an extremely advanced skill. Some of these people you and I could beat in at least a dozen parlor games, but in their specialty, they are the tops in the world. So that begs the question: what is the specialty that the manufactured housing industry has to offer what can it alone focus on and excel at?
In my opinion, our specialty is affordable housing. That's what we do well, That's our strength. We can put a customer in a detached home for less money than anyone else on earth. So why can't we accept this specialty and run with it?
I think it's about time we stopped confusing the public with what our strength is. I don't think it's building the most attractive form of housing. I don't know anyone who becomes breathless with excitement with a glimpse of our product. Those two story homes that sit on dealers' lots are cool to look at but don't sell that well. I never hear folks at the local country club talking about the latest manufactured home designs along with the latest Lexus models. Let's face it. Our strength is not beauty.
Our strength is also not quality of construction. We all use the sales pitch that you can build a home better in a factory with factory testing and storing of materials, but every time I walk in a home and feel it jiggle and bounce, I am guessing that the whole "better quality" sales pitch is out the window with most customers.
So what do we excel at what can we win a gold medal at? The answer is affordability. Nobody does that better than we do. Our cost per square foot is lowest. We are the national champion in that category. And we are the only form of housing that someone who earns minimum wage can actually afford. Or who retires on $1,000 per month in total monthly benefits. For someone on a low budget, we are the Michael Phelps of detached housing.
While most manufactured home community owners have realized and accepted out niche, and are moving away from overzealous attention to rules enforcement and landscaping that customers never cared for anyway, most manufacturers have still not taken the hint. Many manufactured home community owners have come to realize that the only way to fill lots in their communities is to buy homes, bring them in, and sell them on location. There certainly is no future in waiting for the local dealer to sell a home and even then, you would be competing with at least 10 other properties trying to attract that customer to their manufactured home community. If your focus is affordable housing, and you are trying to buy and bring in a home, obviously your goal is to buy the least expensive home possible. Yet this concept is lost on most manufacturers. I have called to get prices to buy a home to fill a lot, and the manufacturers all want to sell you on the more expensive models they want you to focus on upgraded drapes and kitchen cabinets. Instead, they need to focus on building the cheapest home in the universe, and marketing that to community owners. For over a decade, the manufacturers have been pushing the price point higher and higher and, let's face it, it hasn't worked. Sure, you can build a $50,000 singlewide, but will anyone ever pay it off? I think we all learned the answer to that question with the chattel collapse. Let's focus instead on building truly affordable housing. Let's cut out every possible upgrade and extra. Let's strive to build an ever cheaper home; one our customers can afford and will pay off the mortgage on.
If you were to go door to door in any manufactured home community, and ask the residents why they live there, the resounding answer would be "because it's cheap". You won't find a bunch of eccentric millionaires, and you won't find retired symphony orchestra naturalists who want to commune with nature. Instead you'll find men and women who have a limited budget and are trying to wring some sort of quality of life out of a small income. Let's listen to this majority and get our heads screwed on straight. The customers want cheap let's deliver it!
This theme can also be lost on manufactured home community owners. While rent raises have driven many community lot rents to stratospheric levels, many owners do not seem to realize that there is a glass ceiling on how high they can go. When your sum of lot rent and home mortgage starts to break the $1,000 barrier (or even $800 level in most markets), you are no longer affordable housing. There are a million options at that price point; houses, condos, apartments of all types and locations. Nobody is going to live in a manufactured home community if they can own a brick house instead. I talked to an owner of a four-star community recently, and found he is having to buy out at least 10% of the homes in his property per year to keep the homes from being sold and pulled out. Why? His customers are leaving in droves. Why shouldn't they his lot rent is $600 per month, not including utilities. When you load in their home mortgage, they'd be crazy not to redirect that money to a better housing option. And this same guy is still raising the rents annually. Clearly, this is a flawed business model. Many community owners have apparently lost sight of the affordable housing goal.
So what can we, as an industry, do to win the gold medal to have a thriving, successful business that revolves around our strengths and the strength of demand in the market? The answer is for all of us to focus our energies on doing things as cheaply as possible. We need to be thinking "affordable housing" 24 hours a day. We need to deliver a product that is cheaper each year, not more expensive. That's what the market wants. That's what we have the ability to deliver. Until we do this, we are not even going to qualify for the finals, much less win a medal.
In my opinion, our specialty is affordable housing. That's what we do well, That's our strength. We can put a customer in a detached home for less money than anyone else on earth. So why can't we accept this specialty and run with it?
I think it's about time we stopped confusing the public with what our strength is. I don't think it's building the most attractive form of housing. I don't know anyone who becomes breathless with excitement with a glimpse of our product. Those two story homes that sit on dealers' lots are cool to look at but don't sell that well. I never hear folks at the local country club talking about the latest manufactured home designs along with the latest Lexus models. Let's face it. Our strength is not beauty.
Our strength is also not quality of construction. We all use the sales pitch that you can build a home better in a factory with factory testing and storing of materials, but every time I walk in a home and feel it jiggle and bounce, I am guessing that the whole "better quality" sales pitch is out the window with most customers.
So what do we excel at what can we win a gold medal at? The answer is affordability. Nobody does that better than we do. Our cost per square foot is lowest. We are the national champion in that category. And we are the only form of housing that someone who earns minimum wage can actually afford. Or who retires on $1,000 per month in total monthly benefits. For someone on a low budget, we are the Michael Phelps of detached housing.
While most manufactured home community owners have realized and accepted out niche, and are moving away from overzealous attention to rules enforcement and landscaping that customers never cared for anyway, most manufacturers have still not taken the hint. Many manufactured home community owners have come to realize that the only way to fill lots in their communities is to buy homes, bring them in, and sell them on location. There certainly is no future in waiting for the local dealer to sell a home and even then, you would be competing with at least 10 other properties trying to attract that customer to their manufactured home community. If your focus is affordable housing, and you are trying to buy and bring in a home, obviously your goal is to buy the least expensive home possible. Yet this concept is lost on most manufacturers. I have called to get prices to buy a home to fill a lot, and the manufacturers all want to sell you on the more expensive models they want you to focus on upgraded drapes and kitchen cabinets. Instead, they need to focus on building the cheapest home in the universe, and marketing that to community owners. For over a decade, the manufacturers have been pushing the price point higher and higher and, let's face it, it hasn't worked. Sure, you can build a $50,000 singlewide, but will anyone ever pay it off? I think we all learned the answer to that question with the chattel collapse. Let's focus instead on building truly affordable housing. Let's cut out every possible upgrade and extra. Let's strive to build an ever cheaper home; one our customers can afford and will pay off the mortgage on.
If you were to go door to door in any manufactured home community, and ask the residents why they live there, the resounding answer would be "because it's cheap". You won't find a bunch of eccentric millionaires, and you won't find retired symphony orchestra naturalists who want to commune with nature. Instead you'll find men and women who have a limited budget and are trying to wring some sort of quality of life out of a small income. Let's listen to this majority and get our heads screwed on straight. The customers want cheap let's deliver it!
This theme can also be lost on manufactured home community owners. While rent raises have driven many community lot rents to stratospheric levels, many owners do not seem to realize that there is a glass ceiling on how high they can go. When your sum of lot rent and home mortgage starts to break the $1,000 barrier (or even $800 level in most markets), you are no longer affordable housing. There are a million options at that price point; houses, condos, apartments of all types and locations. Nobody is going to live in a manufactured home community if they can own a brick house instead. I talked to an owner of a four-star community recently, and found he is having to buy out at least 10% of the homes in his property per year to keep the homes from being sold and pulled out. Why? His customers are leaving in droves. Why shouldn't they his lot rent is $600 per month, not including utilities. When you load in their home mortgage, they'd be crazy not to redirect that money to a better housing option. And this same guy is still raising the rents annually. Clearly, this is a flawed business model. Many community owners have apparently lost sight of the affordable housing goal.
So what can we, as an industry, do to win the gold medal to have a thriving, successful business that revolves around our strengths and the strength of demand in the market? The answer is for all of us to focus our energies on doing things as cheaply as possible. We need to be thinking "affordable housing" 24 hours a day. We need to deliver a product that is cheaper each year, not more expensive. That's what the market wants. That's what we have the ability to deliver. Until we do this, we are not even going to qualify for the finals, much less win a medal.
Sunday, November 14, 2010
HOW TO HANDLE CITY INSPECTORS REGARDING MOBILE HOME PARKS
Nobody can own a mobile home park without having at least one run-in with the city inspector. They normally come out of nowhere, and often when you think you are doing a great job with your park. There is no reason for embarrassment everyone has been there.
Normally what triggers an inspector showing up at your park is a complaint from a tenant or a neighbor. Often the tenant complaint has been made by someone trying to block their eviction for non-payment of rent (similar to pulling the fire alarm to try and get out of your calculus test). It has nothing to do with your management of the park, or any defect in the park. The neighbor normally complains due to loud music, or a park tenant creating havoc, and again has nothing do with your management faults. Yet, to cause the park trouble, he builds it up into some huge complaint and embellishes it with a pile of made up stories. So you should never take it personally when an inspector shows up it is not a condemnation of your work.
The correct way to deal with an inspector has two parts: 1) be as nice as you can and, if that fails, then 2) be as mean as you can.
First, the nice part. You can often get rid of the inspector by agreeing to everything he asks, and brown nosing him like crazy. Tell him that it is your goal to make this the nicest park in town, and will accept nothing less. Look like you are on his team. Let him blow off any steam and then accept complete guilt and plead for forgiveness. Whatever it takes to make the guy happy, within reason, do. It is a lot cheaper than the next option that we are going to discuss. So fix that sign, trim that tree --- whatever the inspector wants you to do, no matter how much you dislike the guy. Most of the time, this plan works, and you won't see the inspector again for a long time.
If the nice act doesn't work, then it's time to get mean. You cannot complain that the inspector is being too hard on you nobody is going to accept the idea that your mobile home park is a dreamland. However, the inspector must work within legal means, and that is his weak spot. By being mean, I am not advocating slashing his car tires. Instead, I am advocating that you take a moral indignation position that you have done a great job with the park and you are not going to sit back and let some inspector criticize your property with no basis in fact. And you back up your position with the help of a hard-nosed lawyer who knows landlord case law, and is not afraid of a little confrontation.
Often times, in your mean stage, the best solution is to have your attorney call the city attorney, and threaten him with a litany of legal actions. This often works because the city attorney does not want to mess with such a trivial item and time-waster. Although the inspector may not know how to spell G-R-A-N-D-F-A-T-H-E-R-E-D, the city attorney does. And the city attorney can sometimes shake up the inspector with a simple phone call telling him to back off. In fact, going over his head is often the best way to emasculate the inspector and put him back in his place. Although a bully, he cannot take much pressure himself, and may run and hide and never bother you again.
If that does not work, here's a real solution that I have used that has nearly lethal success in stopping an inspector cold. Remember that the ticket that a inspector gives you is just the same as a traffic ticket, and must be dealt with in municipal court. And cases in court have the right to a jury trial. So file for a jury trial on your ticket. Why? It puts a lot of pressure on the court system to hold a jury trial, and won't be heard for a long time. And the city knows as well as anyone that the average jury hates city officials and always sides with the common man, being beaten up by the heartless bureaucracy. In other words, you are probably going to win. And the city knows that.
I once had a park where an over-zealous inspector gave me over 20 tickets for code violations. So I filed for 20 jury trials. The judge dismissed all of the tickets, rather than tie his court up for months with jury trials. He even called the inspector and told him never to mess with me again, and he never did.
So there's the system. It's simple, and it has the best chance of success that I know of. Remember that, when dealing with an inspector, be as nice as your can and, if that fails, be as mean as you can. One without the other greatly reduces your odds of success.
Normally what triggers an inspector showing up at your park is a complaint from a tenant or a neighbor. Often the tenant complaint has been made by someone trying to block their eviction for non-payment of rent (similar to pulling the fire alarm to try and get out of your calculus test). It has nothing to do with your management of the park, or any defect in the park. The neighbor normally complains due to loud music, or a park tenant creating havoc, and again has nothing do with your management faults. Yet, to cause the park trouble, he builds it up into some huge complaint and embellishes it with a pile of made up stories. So you should never take it personally when an inspector shows up it is not a condemnation of your work.
The correct way to deal with an inspector has two parts: 1) be as nice as you can and, if that fails, then 2) be as mean as you can.
First, the nice part. You can often get rid of the inspector by agreeing to everything he asks, and brown nosing him like crazy. Tell him that it is your goal to make this the nicest park in town, and will accept nothing less. Look like you are on his team. Let him blow off any steam and then accept complete guilt and plead for forgiveness. Whatever it takes to make the guy happy, within reason, do. It is a lot cheaper than the next option that we are going to discuss. So fix that sign, trim that tree --- whatever the inspector wants you to do, no matter how much you dislike the guy. Most of the time, this plan works, and you won't see the inspector again for a long time.
If the nice act doesn't work, then it's time to get mean. You cannot complain that the inspector is being too hard on you nobody is going to accept the idea that your mobile home park is a dreamland. However, the inspector must work within legal means, and that is his weak spot. By being mean, I am not advocating slashing his car tires. Instead, I am advocating that you take a moral indignation position that you have done a great job with the park and you are not going to sit back and let some inspector criticize your property with no basis in fact. And you back up your position with the help of a hard-nosed lawyer who knows landlord case law, and is not afraid of a little confrontation.
Often times, in your mean stage, the best solution is to have your attorney call the city attorney, and threaten him with a litany of legal actions. This often works because the city attorney does not want to mess with such a trivial item and time-waster. Although the inspector may not know how to spell G-R-A-N-D-F-A-T-H-E-R-E-D, the city attorney does. And the city attorney can sometimes shake up the inspector with a simple phone call telling him to back off. In fact, going over his head is often the best way to emasculate the inspector and put him back in his place. Although a bully, he cannot take much pressure himself, and may run and hide and never bother you again.
If that does not work, here's a real solution that I have used that has nearly lethal success in stopping an inspector cold. Remember that the ticket that a inspector gives you is just the same as a traffic ticket, and must be dealt with in municipal court. And cases in court have the right to a jury trial. So file for a jury trial on your ticket. Why? It puts a lot of pressure on the court system to hold a jury trial, and won't be heard for a long time. And the city knows as well as anyone that the average jury hates city officials and always sides with the common man, being beaten up by the heartless bureaucracy. In other words, you are probably going to win. And the city knows that.
I once had a park where an over-zealous inspector gave me over 20 tickets for code violations. So I filed for 20 jury trials. The judge dismissed all of the tickets, rather than tie his court up for months with jury trials. He even called the inspector and told him never to mess with me again, and he never did.
So there's the system. It's simple, and it has the best chance of success that I know of. Remember that, when dealing with an inspector, be as nice as your can and, if that fails, be as mean as you can. One without the other greatly reduces your odds of success.
Thursday, November 11, 2010
The Retirement Experience: Men vs. Women
Do men and women see things differently? At least on the topic of retirement, the answer may be yes. A recent study commissioned by Ameriprise Financial reveals that gender may play a significant role in how we feel about and prepare for this major life event.
According to findings from the New Retirement Mindscape IISM study, women tend to have a more positive outlook towards retirement, while men are more likely to feel financially ready for it. The study also found that the recession has impacted men and women differently, a fact that may account for dissimilarities in the way they plan and prepare for retirement. For those in a couple, these differences could cause some major bumps on the road to a shared retirement. Financial pitfalls and stress on your relationship are just two of the potential fallouts you and your spouse or partner could encounter if you fail to communicate effectively about your plans and goals for retirement.
The Findings: Understanding the Gender Split
In 2005, Ameriprise Financial commissioned the New Retirement Mindscapestudy, which examined how Americans ages 40-75 view retirement. Five years later, prompted by the seismic shift in the economy, Ameriprise revisited this research to discover how the retirement landscape has changed for U.S. consumers. Findings from the New Retirement Mindscape II study demonstrate that men and women continue to approach retirement differently, and that the recession may have actually made the contrast starker.
If you tend to feel more excited about retirement than your spouse or partner (or vice versa) you're not alone. In 2010, pre-retired women are much more likely than men to feel "enthusiastic" about retirement (74% vs. 65%). They're also more likely to feel "excited with anticipation" about the day they retire than men (53% vs. 38%). Meanwhile, among retired men, fewer express that they "enjoy retirement a great deal" in 2010 (56%) than they did in 2005 (67%), while the percentage basically has held steady for retired women (57% in 2005 vs. 56% in 2010).
Why the gender enthusiasm gap? If you've read the newspaper recently, you might guess one possible reason: men have been hit harder by the recession. According to the Bureau of Labor Statistics, men account for nearly two-thirds of the jobs lost between late 2007 and December 2009. With such lopsided economic fallout, it's perhaps no wonder that men report feeling less excited about retirement than women.
There's the old joke about men being reluctant to stop and ask for directions. In fact, when it comes to financial planning, this may hold true. Despite having been hit harder by the recession, men in general are less inclined to seek guidance from a financial advisor. Both genders are more likely to work with a financial advisor in 2010 than they were in 2005; however, women do so at a higher rate (46% vs. 38%).
What's more, it appears that men and women may be planning for a different type of retirement. More pre-retired men expect to work - either part-time or full-time - in retirement than pre-retired women (38% vs. 27%). Meanwhile, pre-retired women appear to place importance on being able to volunteer (31% vs. 22%) and spend time with family (77% vs. 68%) during retirement.
Time to Talk Retirement
The study's findings paint a complicated picture for anyone who's planning to retire with a spouse or partner. What if you're planning to retire next year and your mate wants to keep working for another decade? What if you envision a retirement filled with travel and your spouse or partner wants to stay close to home? What happens if you disagree about whether or not you can even afford to retire?
To avoid any unfortunate surprises as you approach or enter into retirement, open up the lines of communication with your spouse or partner about their hopes, fears and level of preparedness for retirement as early as possible. Discussing how you want to spend retirement is not only important from an emotional aspect, but also a financial one. Establishing your goals for the future will help you determine how much money you need to save in order to fund them.
A financial advisor can assist you with writing a financial plan that weaves together your financial objectives and your partner's. In addition to providing a roadmap to your financial future, it can be an opportunity to learn how he or she envisions retirement. The process may be eye-opening.
###
Kevin Lyle Schenck has a financial advisory practice of Ameriprise Financial Services. As a financial advisor, Schenck provides customized financial advice that is anchored in a solid understanding of client needs and expectations, and provided in a one-on-one relationship with his clients. For more information, please contact Kevin at 1.561.226.5838.
Advisor is licensed/registered in Florida.
The New Retirement Mindscape IISM and New Retirement Mindscape studies were commissioned by Ameriprise Financial, Inc. and conducted by telephone by Harris Interactive in May 2010 and August 2005 among 2,007 (2010) and 2,000 (2005) U.S. adults age 40-75. The sampling error for the 2010 study is +/-2.5%. The 2005 study was conducted in conjunction with Age Wave and Ken Dychtwald, Ph.D.
This information is provided for informational purposes only. The information is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. Neither Ameriprise Financial nor its advisors or representatives provide tax or legal advice. The views expressed may not be suitable for every situation.
Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.
File #108719
[1] Bureau of Labor Statistics, Household Data Seasonally Adjusted Averages, Q2, 2010.
According to findings from the New Retirement Mindscape IISM study, women tend to have a more positive outlook towards retirement, while men are more likely to feel financially ready for it. The study also found that the recession has impacted men and women differently, a fact that may account for dissimilarities in the way they plan and prepare for retirement. For those in a couple, these differences could cause some major bumps on the road to a shared retirement. Financial pitfalls and stress on your relationship are just two of the potential fallouts you and your spouse or partner could encounter if you fail to communicate effectively about your plans and goals for retirement.
The Findings: Understanding the Gender Split
In 2005, Ameriprise Financial commissioned the New Retirement Mindscapestudy, which examined how Americans ages 40-75 view retirement. Five years later, prompted by the seismic shift in the economy, Ameriprise revisited this research to discover how the retirement landscape has changed for U.S. consumers. Findings from the New Retirement Mindscape II study demonstrate that men and women continue to approach retirement differently, and that the recession may have actually made the contrast starker.
If you tend to feel more excited about retirement than your spouse or partner (or vice versa) you're not alone. In 2010, pre-retired women are much more likely than men to feel "enthusiastic" about retirement (74% vs. 65%). They're also more likely to feel "excited with anticipation" about the day they retire than men (53% vs. 38%). Meanwhile, among retired men, fewer express that they "enjoy retirement a great deal" in 2010 (56%) than they did in 2005 (67%), while the percentage basically has held steady for retired women (57% in 2005 vs. 56% in 2010).
Why the gender enthusiasm gap? If you've read the newspaper recently, you might guess one possible reason: men have been hit harder by the recession. According to the Bureau of Labor Statistics, men account for nearly two-thirds of the jobs lost between late 2007 and December 2009. With such lopsided economic fallout, it's perhaps no wonder that men report feeling less excited about retirement than women.
There's the old joke about men being reluctant to stop and ask for directions. In fact, when it comes to financial planning, this may hold true. Despite having been hit harder by the recession, men in general are less inclined to seek guidance from a financial advisor. Both genders are more likely to work with a financial advisor in 2010 than they were in 2005; however, women do so at a higher rate (46% vs. 38%).
What's more, it appears that men and women may be planning for a different type of retirement. More pre-retired men expect to work - either part-time or full-time - in retirement than pre-retired women (38% vs. 27%). Meanwhile, pre-retired women appear to place importance on being able to volunteer (31% vs. 22%) and spend time with family (77% vs. 68%) during retirement.
Time to Talk Retirement
The study's findings paint a complicated picture for anyone who's planning to retire with a spouse or partner. What if you're planning to retire next year and your mate wants to keep working for another decade? What if you envision a retirement filled with travel and your spouse or partner wants to stay close to home? What happens if you disagree about whether or not you can even afford to retire?
To avoid any unfortunate surprises as you approach or enter into retirement, open up the lines of communication with your spouse or partner about their hopes, fears and level of preparedness for retirement as early as possible. Discussing how you want to spend retirement is not only important from an emotional aspect, but also a financial one. Establishing your goals for the future will help you determine how much money you need to save in order to fund them.
A financial advisor can assist you with writing a financial plan that weaves together your financial objectives and your partner's. In addition to providing a roadmap to your financial future, it can be an opportunity to learn how he or she envisions retirement. The process may be eye-opening.
###
Kevin Lyle Schenck has a financial advisory practice of Ameriprise Financial Services. As a financial advisor, Schenck provides customized financial advice that is anchored in a solid understanding of client needs and expectations, and provided in a one-on-one relationship with his clients. For more information, please contact Kevin at 1.561.226.5838.
Advisor is licensed/registered in Florida.
The New Retirement Mindscape IISM and New Retirement Mindscape studies were commissioned by Ameriprise Financial, Inc. and conducted by telephone by Harris Interactive in May 2010 and August 2005 among 2,007 (2010) and 2,000 (2005) U.S. adults age 40-75. The sampling error for the 2010 study is +/-2.5%. The 2005 study was conducted in conjunction with Age Wave and Ken Dychtwald, Ph.D.
This information is provided for informational purposes only. The information is intended to be generic in nature and should not be applied or relied upon in any particular situation without the advice of your tax, legal and/or your financial advisor. Neither Ameriprise Financial nor its advisors or representatives provide tax or legal advice. The views expressed may not be suitable for every situation.
Brokerage, investment and financial advisory services are made available through Ameriprise Financial Services, Inc. Member FINRA and SIPC. Some products and services may not be available in all jurisdictions or to all clients.
File #108719
[1] Bureau of Labor Statistics, Household Data Seasonally Adjusted Averages, Q2, 2010.
Wednesday, November 10, 2010
Top 100 Park Owners
We made a list of the top mobile home park owners. Check it out!
http://www.mobilehomeparkstore.com/articles/mobile-home-park-100.htm
http://www.mobilehomeparkstore.com/articles/mobile-home-park-100.htm
Tuesday, November 9, 2010
Why Invest In Mobile Home Parks?
Check out our newest FREE webinar!
http://www.mobilehomeparkstore.com/articles/why-invest-in-mobile-home-parks-webinar.htm
http://www.mobilehomeparkstore.com/articles/why-invest-in-mobile-home-parks-webinar.htm
Monday, November 8, 2010
Help Your Tenants and Keep Your Cash Flow
It is impossible to be a landlord and not receive frequent requests to "help" your tenants. These requests normally revolve around payment of the rent either to pay late or to pay a reduced amount. And the way you handle these requests has a huge impact on your business, and the life of your tenant.
First, let's look at the request to pay rent late. Normally, the tenant has an excuse for paying rent late, such as a delayed check from an employer or social security. And sometimes the reasons are legitimate. However, you must never allow someone to pay rent late without consequences. The tenant who is paying late must pay a late fee, as should be standard with all of your customers. If you allow the tenant to pay rent late and not pay a late fee, you have set a dangerous precedent that will be spread by word of mouth throughout the park. Additionally, you must explain to the tenant that you will begin the eviction process as scheduled if the rent has not been received during the grace period, but sill stop the process as soon as the rent is received. For example, if the park sends out ten day demand letters on the 7th of the month, then you should go forward with sending the letter, regardless of any advance request by the tenant. You can always call off the eviction process if the rent is received. However, you cannot afford to delay beginning the process as scheduled. That way, if the tenant is lying and is not going to pay the rent, you can kick him out in line with any other tenant who failed to pay the rent. Bear in mind that a lot of times the condition that forces the tenant to request to pay late is a structural change in the tenant's finances that will eventually force him to leave the park. For example, the delay in receiving disability payments from the government may be the result of being kicked out of that program. Similarly, a tenant who claims he is getting paid late by his employer may actually have lost his job, or has been laid off due to lack of work. This problem is not going to go away in the near future only get worse.
Requests to pay less than the required rent require the same proactive approach. If you agree to let a tenant pay less than the required amount, you will create a deadly precedent in your park. Nothing will put you out of business faster than receiving partial rent every month none of your bills can be paid with partial payments. But the truth about letting a tenant pay less than they owe, including no rent at all, and not evicting them is that you are really setting them up for losing their home and putting them out on the street. You have become an accessory to the crime. The fact is, if you let the tenant get more than one month behind on their rent, they will never be able to catch up. It is very hard for the average tenant to manage their finances well enough to pay the existing month's rent, much less an even greater amount. If you force the tenant to pay the rent or be evicted, then you force them to take immediate action to solve their financial problem. Maybe they need to get a second job, or change their payment priorities, or get a bridge loan from a relative. The sooner they focus on their finances, the faster they will get back out of trouble. By letting them pass on their rent, you are basically loaning the tenant money a loan they will never be able to pay. Think sub-prime predatory lending, because that's what it is. And the result will work for them as well as it has for the mortgage industry. When you don't force the issue that very month, you are actually doing a disservice to your tenant. And their family and any other person living with them, who is soon to be homeless. In a mobile home park, the rent is relatively low maybe $200 per month and well within the reach of any person even earning minimum wage. It's not a money issue when a tenant can't pay it's a prioritization issue. They are testing you to see if you are one of the bills that can be rolled when that big screen T.V. is on sale, or there is an Aerosmith concert to buy tickets for.
So how do you respond to a rent request from a tenant. First, tell them that you have systems in place that do not allow for customization. Explain that you have to continue with the eviction process no matter what, but you will call it off once the rent has been paid in full, plus the appropriate late fee. It also helps to tell the tenant that you are not the owner (even if you are) and that your boss (even if you are the boss) doesn't allow any rent deals. This is the type of response that the tenant is used to hearing from the more important bills he has (car payment, charge card, utility company) so he will immediately group you with the "have to pay" bills.
Nobody likes to be the "tough guy" with their tenants. However, when it comes to the rent, "tough love" is imperative. So do your tenant and yourself a favor, and don't give in when tenants call you about rent.
First, let's look at the request to pay rent late. Normally, the tenant has an excuse for paying rent late, such as a delayed check from an employer or social security. And sometimes the reasons are legitimate. However, you must never allow someone to pay rent late without consequences. The tenant who is paying late must pay a late fee, as should be standard with all of your customers. If you allow the tenant to pay rent late and not pay a late fee, you have set a dangerous precedent that will be spread by word of mouth throughout the park. Additionally, you must explain to the tenant that you will begin the eviction process as scheduled if the rent has not been received during the grace period, but sill stop the process as soon as the rent is received. For example, if the park sends out ten day demand letters on the 7th of the month, then you should go forward with sending the letter, regardless of any advance request by the tenant. You can always call off the eviction process if the rent is received. However, you cannot afford to delay beginning the process as scheduled. That way, if the tenant is lying and is not going to pay the rent, you can kick him out in line with any other tenant who failed to pay the rent. Bear in mind that a lot of times the condition that forces the tenant to request to pay late is a structural change in the tenant's finances that will eventually force him to leave the park. For example, the delay in receiving disability payments from the government may be the result of being kicked out of that program. Similarly, a tenant who claims he is getting paid late by his employer may actually have lost his job, or has been laid off due to lack of work. This problem is not going to go away in the near future only get worse.
Requests to pay less than the required rent require the same proactive approach. If you agree to let a tenant pay less than the required amount, you will create a deadly precedent in your park. Nothing will put you out of business faster than receiving partial rent every month none of your bills can be paid with partial payments. But the truth about letting a tenant pay less than they owe, including no rent at all, and not evicting them is that you are really setting them up for losing their home and putting them out on the street. You have become an accessory to the crime. The fact is, if you let the tenant get more than one month behind on their rent, they will never be able to catch up. It is very hard for the average tenant to manage their finances well enough to pay the existing month's rent, much less an even greater amount. If you force the tenant to pay the rent or be evicted, then you force them to take immediate action to solve their financial problem. Maybe they need to get a second job, or change their payment priorities, or get a bridge loan from a relative. The sooner they focus on their finances, the faster they will get back out of trouble. By letting them pass on their rent, you are basically loaning the tenant money a loan they will never be able to pay. Think sub-prime predatory lending, because that's what it is. And the result will work for them as well as it has for the mortgage industry. When you don't force the issue that very month, you are actually doing a disservice to your tenant. And their family and any other person living with them, who is soon to be homeless. In a mobile home park, the rent is relatively low maybe $200 per month and well within the reach of any person even earning minimum wage. It's not a money issue when a tenant can't pay it's a prioritization issue. They are testing you to see if you are one of the bills that can be rolled when that big screen T.V. is on sale, or there is an Aerosmith concert to buy tickets for.
So how do you respond to a rent request from a tenant. First, tell them that you have systems in place that do not allow for customization. Explain that you have to continue with the eviction process no matter what, but you will call it off once the rent has been paid in full, plus the appropriate late fee. It also helps to tell the tenant that you are not the owner (even if you are) and that your boss (even if you are the boss) doesn't allow any rent deals. This is the type of response that the tenant is used to hearing from the more important bills he has (car payment, charge card, utility company) so he will immediately group you with the "have to pay" bills.
Nobody likes to be the "tough guy" with their tenants. However, when it comes to the rent, "tough love" is imperative. So do your tenant and yourself a favor, and don't give in when tenants call you about rent.
Thursday, November 4, 2010
How to Make $$$ with Your Mobile Home Park
Although it has taken us literally thousands of pages to describe how to do due diligence and operate mobile home parks effectively, the general theory on how to make money with mobile home park investments could fit on the back of an envelope.
These are the few, simple steps to making money in mobile home parks.
I. Buy a park in a big market. It doesn't have to be New York City, but you need to have a market that has enough size to fill vacant lots and push rents. A mobile home park in a tiny town suffers from few new move-ins and great danger from the employment trends of a couple of large employers. Also, you need prevailing two-bedroom apartment rents in the $700 or so range. If you are looking at a market with two-bedroom apartment rents of $295 per month where is the affordable housing niche? The apartments, in that case, are already delivering affordable housing so who needs mobile homes? And how can you push rents in that scenario?
II. Stick to city water and city sewer, if you can. If you can avoid private utilities, you can avoid huge potential capital calls. In the absence of private utilities, the worst capital expenditure you will be forced into spending is a few thousand dollars on pothole repair. But if you have a water well or packaging plant or lagoon, the overnight cash you might have to cough up could be $50,000 to $250,000.
III. Never count any income but lot rent. You can't use any mobile home rentals, or note income, or laundry income in your calculations. Only lot rent. Period. Even if you are insist on trying to use it, your bank will stop you by turning down your loan.
IV. Buy at a 10% cap rate or better. You should only get in the mobile home park business to make money. To make money, you have to put yourself in a position to do that. Buying parks at a 6% or 8% return is starting off behind the 8-ball. All you will do is, maybe, cover your mortgage. You will have no cash flow to reward yourself for all your time, effort and risk. And that's just not a fair deal to yourself.
V. Push rents. Relentlessly. There is no better way to make money in the mobile home park business than to increase rents. Every dollar that you increase rents falls directly to the bottom line. And every dollar of rent you increase equals 10 times more in value. Increasing rents by $1,000 per month yields $120,000 in sales value enhancements, at a 10% cap rate.
VI. Groom the park into a 20% cap rate. If you push the rents by about 10% each year, it will take you only until about seven years to have doubled the rent. Can you push rents this aggressively? You bet. At $3,000 or so to move a mobile home, there is a huge barrier to moving out, so tenants will accept pretty much whatever you raise the rents to within reason!
That's the entire roadmap to success. It's not complicated. It's not hard to understand. Yet people are making errors on this strategy every day. In an effort to buy something quickly, many people will sacrifice their lives and buy a mobile home park that can't possibly make the owner money even if it tried.
If you respect yourself, you have to hold your ground with our strategic deal points. If the seller won't sell at a 10% cap rate walk away from the deal. The same is true with all the other subpoints. Without the correct alignment, the park is going to be only a "tar-baby" that you can't get rid of. And there is certainly no money in that.
Want to make a million dollars in the mobile home park business? Then don't try and get fancy and violate all of the successful formulas that have come before you. Follow our plan, and you will have your best chance at winning.
These are the few, simple steps to making money in mobile home parks.
I. Buy a park in a big market. It doesn't have to be New York City, but you need to have a market that has enough size to fill vacant lots and push rents. A mobile home park in a tiny town suffers from few new move-ins and great danger from the employment trends of a couple of large employers. Also, you need prevailing two-bedroom apartment rents in the $700 or so range. If you are looking at a market with two-bedroom apartment rents of $295 per month where is the affordable housing niche? The apartments, in that case, are already delivering affordable housing so who needs mobile homes? And how can you push rents in that scenario?
II. Stick to city water and city sewer, if you can. If you can avoid private utilities, you can avoid huge potential capital calls. In the absence of private utilities, the worst capital expenditure you will be forced into spending is a few thousand dollars on pothole repair. But if you have a water well or packaging plant or lagoon, the overnight cash you might have to cough up could be $50,000 to $250,000.
III. Never count any income but lot rent. You can't use any mobile home rentals, or note income, or laundry income in your calculations. Only lot rent. Period. Even if you are insist on trying to use it, your bank will stop you by turning down your loan.
IV. Buy at a 10% cap rate or better. You should only get in the mobile home park business to make money. To make money, you have to put yourself in a position to do that. Buying parks at a 6% or 8% return is starting off behind the 8-ball. All you will do is, maybe, cover your mortgage. You will have no cash flow to reward yourself for all your time, effort and risk. And that's just not a fair deal to yourself.
V. Push rents. Relentlessly. There is no better way to make money in the mobile home park business than to increase rents. Every dollar that you increase rents falls directly to the bottom line. And every dollar of rent you increase equals 10 times more in value. Increasing rents by $1,000 per month yields $120,000 in sales value enhancements, at a 10% cap rate.
VI. Groom the park into a 20% cap rate. If you push the rents by about 10% each year, it will take you only until about seven years to have doubled the rent. Can you push rents this aggressively? You bet. At $3,000 or so to move a mobile home, there is a huge barrier to moving out, so tenants will accept pretty much whatever you raise the rents to within reason!
That's the entire roadmap to success. It's not complicated. It's not hard to understand. Yet people are making errors on this strategy every day. In an effort to buy something quickly, many people will sacrifice their lives and buy a mobile home park that can't possibly make the owner money even if it tried.
If you respect yourself, you have to hold your ground with our strategic deal points. If the seller won't sell at a 10% cap rate walk away from the deal. The same is true with all the other subpoints. Without the correct alignment, the park is going to be only a "tar-baby" that you can't get rid of. And there is certainly no money in that.
Want to make a million dollars in the mobile home park business? Then don't try and get fancy and violate all of the successful formulas that have come before you. Follow our plan, and you will have your best chance at winning.
Wednesday, November 3, 2010
How to Properly Charge a Late Fee in Your Mobile Home Park
Mobile home park tenants are not rich. Most of them live from paycheck to paycheck. As a result, they frequently don't pay their bills on time sometimes at all. To motivate these tenants to pay their lot rent on time, you must enact a late fee for rent that is not received by the due date. However, enacting such a plan is a lot more complicated than most park owners recognize. And messing up the plan can cause extreme legal and financial penalties. Here are a few initial points to consider:
How much to charge the tenant.
There is a law in most states as to the maximum late fee you can charge. It is not left up to your discretion. You are not allowed to charge a punitive amount. For example, if the lot rent is $150 per month, your late fee cannot be $100. The law is very specific on what you can and can't charge. Don't know the maximum amount allowed by law? You've got to get this data before you can go forward.
How much to charge the tenant as long as it is within the law.
You do not want anyone to ever be late. As a result, you should charge the maximum amount allowed by law to definitely get their attention. If the maximum is $50, then charge $50. I've toyed with this as much as anyone, but I've found that you have to make it absolutely not an option to be late, or the tenant may rearrange his payment plan and pay for that needed car repair/case of beer/cell phone bill before your lot rent. I cannot think of any reason not to go for the full amount allowed by law.
When do your charge it?
You should charge the late fee after a certain grace period. For example, if the rent is due on the first of the month, then you might have a grace period of the 5th. Any rent paid between the due date and the grace period (and obviously before the due date) would not be assessed any type of late fee. However, any rent received after the grace period would receive a late fee. In our example, any rent received on the 6th or later would be charged a late fee.
How do you prove when you got it?
The best way to do this is by postmark, assuming that you have the rent sent in to a P.O. Box as we do. If the postmark is after the fifth, then you will charge a late fee. What if the postsmark is on the fifth? Well, in some areas, if you sent it on the 5th, it can still reach its destination theoretically by that afternoon. So you are much safer just using the day after the end of your grace period for the postmark definition of late rent. And obviously, you want to save every late postmarked envelope as Exhibit A if you have to go to court over it. No judge is going to rule against you if the postmark is later than the grace period end date.
What about a late fee system that increases with every day?
These systems, and we've tried them, are just too complicated. Although you may feel like it is going to motivate the customer, we've found that it really doesn't they don't think that strategically. Basically, if they have the money in hand they'll pay you, and if not they can't. It's not like you are reminding them. Normally, if they miss the first of the month, they don't get paid again until the 15th, and as a result can't pay you again until the fifteenth, no matter what the penalty. Just keeping track of a daily escalating late fee will cost you way more in time than it is worth.
How do they know they owe a late fee for next month?
The best system is to send a monthly invoice, showing the rent plus a late fee, if they have one. Obviously, you have to have some kind of notification system if you want to be paid. If you let the tenant pay the rent in person at the park office, then the manager will need to keep a list of who owes it and collect at that time. If you send the rent to a P.O. Box, then there will have to be some type of system in place or you will never get your late fees. They can't pay it if they don't know they owe it. And don't imagine that they should know themselves it doesn't happen in the real world. They always dream that somehow they got around the system, or you screwed up and forget to assess it.
Am I being mean charging a late fee?
No. On the contrary, you are being a bad landlord if you don't. If the general tenant base starts delaying or stops paying altogether their rent, then the property will either go bankrupt or into disrepair. Neither scenario is for the good of the community. You must maintain order and keep the bills paid for these folks to have a home. And a late fee is the magic ingredient to help keep them paying, and at least create a small buffer if they don't. Would you rather charge a late fee or kick them all out on the street, because that's basically the choice you are making over the long run.
Can I forgive the late fee once assessed?
Legally you can. However, if you do that for one individual, then word will spread, and you will be besieged by folks wanting the same perk. You are far better off to stay uniform in your treatment of tenants. If you want, you could spread the late fee over several months to make it less painful, The only exception would be for extremely mitigating circumstances concerning a tenant who has never been late. For example, an elderly gentlemen who was put in the hospital on the 29th and released on the 7th. Even then, I would come up with a spin on it like you kept the late fee, but gave him an early payment discount for the next month of the same amount.
Other considerations?
It has been our experience that the total late fees in a stabilized, seasoned tenant base equals the amount of bad debt. This is very important, as it theoretically eliminates your line item of bad debt, when offset by late fees. Without late fees, you will never have perfect collections. With late fees, you scientifically can. And that's essential for hitting your budget.
Conclusion
Late fees are an essential part of being a good landlord. And it is very important that you do them the right way for them to be fair and accurate. In addition, you have to build a system to assess the fees that it simple, consistent and not time consuming.
If you follow the system shown in this article, you will see an immediate improvement in your income and general happiness of your customers in your mobile home park.
How much to charge the tenant.
There is a law in most states as to the maximum late fee you can charge. It is not left up to your discretion. You are not allowed to charge a punitive amount. For example, if the lot rent is $150 per month, your late fee cannot be $100. The law is very specific on what you can and can't charge. Don't know the maximum amount allowed by law? You've got to get this data before you can go forward.
How much to charge the tenant as long as it is within the law.
You do not want anyone to ever be late. As a result, you should charge the maximum amount allowed by law to definitely get their attention. If the maximum is $50, then charge $50. I've toyed with this as much as anyone, but I've found that you have to make it absolutely not an option to be late, or the tenant may rearrange his payment plan and pay for that needed car repair/case of beer/cell phone bill before your lot rent. I cannot think of any reason not to go for the full amount allowed by law.
When do your charge it?
You should charge the late fee after a certain grace period. For example, if the rent is due on the first of the month, then you might have a grace period of the 5th. Any rent paid between the due date and the grace period (and obviously before the due date) would not be assessed any type of late fee. However, any rent received after the grace period would receive a late fee. In our example, any rent received on the 6th or later would be charged a late fee.
How do you prove when you got it?
The best way to do this is by postmark, assuming that you have the rent sent in to a P.O. Box as we do. If the postmark is after the fifth, then you will charge a late fee. What if the postsmark is on the fifth? Well, in some areas, if you sent it on the 5th, it can still reach its destination theoretically by that afternoon. So you are much safer just using the day after the end of your grace period for the postmark definition of late rent. And obviously, you want to save every late postmarked envelope as Exhibit A if you have to go to court over it. No judge is going to rule against you if the postmark is later than the grace period end date.
What about a late fee system that increases with every day?
These systems, and we've tried them, are just too complicated. Although you may feel like it is going to motivate the customer, we've found that it really doesn't they don't think that strategically. Basically, if they have the money in hand they'll pay you, and if not they can't. It's not like you are reminding them. Normally, if they miss the first of the month, they don't get paid again until the 15th, and as a result can't pay you again until the fifteenth, no matter what the penalty. Just keeping track of a daily escalating late fee will cost you way more in time than it is worth.
How do they know they owe a late fee for next month?
The best system is to send a monthly invoice, showing the rent plus a late fee, if they have one. Obviously, you have to have some kind of notification system if you want to be paid. If you let the tenant pay the rent in person at the park office, then the manager will need to keep a list of who owes it and collect at that time. If you send the rent to a P.O. Box, then there will have to be some type of system in place or you will never get your late fees. They can't pay it if they don't know they owe it. And don't imagine that they should know themselves it doesn't happen in the real world. They always dream that somehow they got around the system, or you screwed up and forget to assess it.
Am I being mean charging a late fee?
No. On the contrary, you are being a bad landlord if you don't. If the general tenant base starts delaying or stops paying altogether their rent, then the property will either go bankrupt or into disrepair. Neither scenario is for the good of the community. You must maintain order and keep the bills paid for these folks to have a home. And a late fee is the magic ingredient to help keep them paying, and at least create a small buffer if they don't. Would you rather charge a late fee or kick them all out on the street, because that's basically the choice you are making over the long run.
Can I forgive the late fee once assessed?
Legally you can. However, if you do that for one individual, then word will spread, and you will be besieged by folks wanting the same perk. You are far better off to stay uniform in your treatment of tenants. If you want, you could spread the late fee over several months to make it less painful, The only exception would be for extremely mitigating circumstances concerning a tenant who has never been late. For example, an elderly gentlemen who was put in the hospital on the 29th and released on the 7th. Even then, I would come up with a spin on it like you kept the late fee, but gave him an early payment discount for the next month of the same amount.
Other considerations?
It has been our experience that the total late fees in a stabilized, seasoned tenant base equals the amount of bad debt. This is very important, as it theoretically eliminates your line item of bad debt, when offset by late fees. Without late fees, you will never have perfect collections. With late fees, you scientifically can. And that's essential for hitting your budget.
Conclusion
Late fees are an essential part of being a good landlord. And it is very important that you do them the right way for them to be fair and accurate. In addition, you have to build a system to assess the fees that it simple, consistent and not time consuming.
If you follow the system shown in this article, you will see an immediate improvement in your income and general happiness of your customers in your mobile home park.
Tuesday, November 2, 2010
How to Enforce the Rules in a Mobile Home Park
Many park owners feel that it is their duty as the owner to rule with an iron hand. They think that they can cure all of the park's ills with rule after rule. At many parks, the rules section is longer than the lease itself.
But is the park any better off with "rules phobia"?
I have tested operating parks with extreme rules enforcement, and also with virtually no rules enforcement at all. And I think I have found the solution to successful park rules.
Think Subdivision
For inspiration on proper rules enforcement, look no further than the nearest residential subdivision. These rules are found in the city's code enforcement manual, and are monitored and enforced by the code inspector. They must be important, since most of the city lives under these guidelines. And what do they focus on? Only a few, very important items such as 1) no non-running vehicles in yards 2) no big trash or debris in yards 3) grass mowed to a certain maximum height 4) reasonable maintenance of your property. Is there really any reason for a mobile home park to expect, and enforce, greater rules on their residents? I would argue that there is no possible way that you can expect a park resident to be more proactive on rules than someone who lives in a subdivision.
Be Reasonable
If a resident has a car up on blocks while he is fixing the radiator for a few days, you cannot count that as the same offense as someone who has a car up on blocks for ten years, waiting to sell it off part by part. When you fail to see the gray areas, but only black and white, you will begin to really offend residents and rightfully so. You would never accept such treatment yourself. You need to allow room in every rules problem for extenuating circumstances. These are another reason not to micro-manage. You will get caught up in too many special cases if you go crazy over hundreds of rules.
Enforcing Rules Costs You Money
The more rules you write and enforce, the more money it costs you. How? Every time you spend your time, or your manager's time in writing letters and following up and meeting with residents regarding rules violations, it costs you money. In addition, when you have to kick residents out to set examples that you won't allow your rules to be pushed around, you cost yourself legal fees, filing fees, and opportunity cost of a lot income lost. Remember that the average park as a multiplier of 10 times the net income in valuation, so that resident you just kicked out for too many loud music violations cost you $200 x 12 x 10 = $24,000. Was it worth it?
Nothing Scares Residents Away More Than Overly Tight Rules
The number one reason I've found for a resident to come to our park and talk about moving their mobile home over, is ridiculously tight rules enforcement. To many residents, you create a "prison" atmosphere when your rules are too intrusive. Would you want to have that kind of rules enforcement by the code officer in your subdivision? Or would you go nuts and tell the wife and kids "that's it we're out of here, I'm putting the home on the market" after you receive your fiftieth code violation ticket?
Conclusion
Rules are important. But they can be taken too far. Remember that it's pretty crazy for you to expect more than a subdivision. And every minute spent on rules is costing you, not making you, money. So ease up, and let those residents alone. You will be richer and happier, and so will your resident base.
But is the park any better off with "rules phobia"?
I have tested operating parks with extreme rules enforcement, and also with virtually no rules enforcement at all. And I think I have found the solution to successful park rules.
Think Subdivision
For inspiration on proper rules enforcement, look no further than the nearest residential subdivision. These rules are found in the city's code enforcement manual, and are monitored and enforced by the code inspector. They must be important, since most of the city lives under these guidelines. And what do they focus on? Only a few, very important items such as 1) no non-running vehicles in yards 2) no big trash or debris in yards 3) grass mowed to a certain maximum height 4) reasonable maintenance of your property. Is there really any reason for a mobile home park to expect, and enforce, greater rules on their residents? I would argue that there is no possible way that you can expect a park resident to be more proactive on rules than someone who lives in a subdivision.
Be Reasonable
If a resident has a car up on blocks while he is fixing the radiator for a few days, you cannot count that as the same offense as someone who has a car up on blocks for ten years, waiting to sell it off part by part. When you fail to see the gray areas, but only black and white, you will begin to really offend residents and rightfully so. You would never accept such treatment yourself. You need to allow room in every rules problem for extenuating circumstances. These are another reason not to micro-manage. You will get caught up in too many special cases if you go crazy over hundreds of rules.
Enforcing Rules Costs You Money
The more rules you write and enforce, the more money it costs you. How? Every time you spend your time, or your manager's time in writing letters and following up and meeting with residents regarding rules violations, it costs you money. In addition, when you have to kick residents out to set examples that you won't allow your rules to be pushed around, you cost yourself legal fees, filing fees, and opportunity cost of a lot income lost. Remember that the average park as a multiplier of 10 times the net income in valuation, so that resident you just kicked out for too many loud music violations cost you $200 x 12 x 10 = $24,000. Was it worth it?
Nothing Scares Residents Away More Than Overly Tight Rules
The number one reason I've found for a resident to come to our park and talk about moving their mobile home over, is ridiculously tight rules enforcement. To many residents, you create a "prison" atmosphere when your rules are too intrusive. Would you want to have that kind of rules enforcement by the code officer in your subdivision? Or would you go nuts and tell the wife and kids "that's it we're out of here, I'm putting the home on the market" after you receive your fiftieth code violation ticket?
Conclusion
Rules are important. But they can be taken too far. Remember that it's pretty crazy for you to expect more than a subdivision. And every minute spent on rules is costing you, not making you, money. So ease up, and let those residents alone. You will be richer and happier, and so will your resident base.
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