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.
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