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Welcome to the Mobile Home Park Mastery Podcast where you will learn how to identify, evaluate, negotiate, perform due diligence on, finance, turn-around and operate mobile home parks! Your host is Frank Rolfe, the 5th largest mobile home park owner in the United State with his partner Dave Reynolds. Together, they also own and operate Mobile Home University, the leading educational website for both new and experienced mobile home park investors!
Mobile homes come in three basic roof lines. The flat roof, the round roof, and the pitched roof. But some mobile home parks seemingly only have nothing but flat roof homes. And we call these parks ones that are predominantly with pre-HUD homes, because HUD took over the manufacturing of mobile homes back in 1976. And when they took it over, they ushered in a change in the roof line to the round roof. So we can tell just driving in through a property the rough ages of the homes. And even though most mobile home parks have a mixture of these homes of various vintages, there are some out there where it's just all pre-HUD. It's just all flat roofed homes. And when you come upon those deals, what does it mean? Can you navigate that kind of deal and still make a success out of a mobile home park with nothing but old homes?
This is Frank Rolfe, Mobile Home Park Mastery Podcast. We're gonna talk all about working on deals where all the homes are very, very old. Now there are some good attributes and some bad attributes to those type of properties. Let's first explore the good things about parks that are all pre-HUD homes. Number one, the homes are paid for. And as a result, the lot rent is the whole housing cost of that resident. If you have a park with predominantly new homes, then they have their lot rent to pay, but they also have the mortgage on the home. But when you work on parks that have all very old homes, it's a given that there's no mortgage payment. The mortgage on mobile homes back in the 1960s and 70s, the longest mortgage you could humanly get was 15 years. And the norm was somewhere between 10 and 15 years. And that means those homes were paid off in full decades ago with no exception whatsoever. No one did a 30-year mortgage back in 1970. And even if they did, it would have been paid off in around the year 2000.
So that's the first big item is, if you've got a mobile home park where the lot rent is $400 a month, then everyone in that park is only paying $400 a month. But if that park had 1990s homes or 2000s homes or 2010 homes or brand new homes in them, then they would be paying probably $400 of lot rent plus some form of mortgage payment. It may be $400 a month. It might be $1,000 a month. But on these really old parks where you have the really old homes, the first great thing is that the lot rent is their entire obligation. And since we're in an industry where lot rents are ridiculously low and are gonna have to go up substantially in the years ahead, it just makes common sense. There's no way many of these mobile home parks are worthy of being brought back to life without higher rents to pay for that new mortgage and all the other capital infusion required plus professional management. That's why you're seeing so many articles right now of mobile home parks being torn down. It's because a lot rents are too low. And nobody is going to buy a mobile home park and inject that capital and turn that thing around unless they can make some money in doing it. Just not going to happen.
Now, the next good thing about parks that have predominantly old homes is those homes, when they do sell from one tenant to another, they sell very inexpensively. We have owned mobile home parks where virtually every transaction from a current resident to the new resident is $1000 or less. It's not uncommon to have homes trade hands for $500 or $1000. And what it means is you are really at the bedrock ground zero of affordable housing because not even your current residents but the future residents are still not gonna have mortgages. They're only gonna be paying the lot rent and nothing else. Another positive of a park with all old homes is that those homes are never going to leave the park. Why? Two reasons. Number one, they do not have a HUD seal on them. And when the government took over manufacturing back in 1976, they declared that every mobile home to go into a mobile home park from that moment forward had to have a HUD seal on the back to let the city know before they gave it the green tag to connect utilities that in fact it was built to HUD's strict standards. So those pre-HUD homes, they can't leave your park 'cause they can't go to another mobile home park. They could maybe go out to raw land somewhere. But as far as them being in a mobile home park, where they sit is their last stop. The only place they can be.
And number two, of course, no one would be crazy enough to try move a pre-HUD home. They're far too old, far too fragile to be moved. So if you buy a park that's 100% occupied with all old homes, you can check back in on that park five years from now, 10 years from now, or five months from now, it'll still be 100% occupied because the old homes are never leaving. Now let's look at some bad attributes to a park with all old homes. The first thing is that prior to when HUD took over the industry, the width of those old flat roof homes runs typically eight feet wide, 10 feet wide, and 12 feet wide. And that's a problem because that yields really, really small room sizes. How small? Well, some of those pre-HUD homes, they can only handle a twin size bed in the master bedroom. That is just not going to work with most people's opinions of housing today. That does not tie and coincide with the aspirations of most homeowners to have a master bedroom where they're lucky if they can jam a double bed in there.
Most of our customers today, they want a king size bed or just a minimum, a queen size bed, but you can't really deliver beds of that size when the width of the home is only eight, 10, or 12 feet wide. And what that means is you're gonna have very great difficulty retaining residents because they're always gonna be unhappy with the house wanting to move. And it also makes it very hard to attract new residents who really are not prepared for that kind of a room layout. Also, when you buy a park that has all old homes in it, if you have any park-owned homes that come with the deal, you know they're gonna need a lot of renovation. They're gonna be in very, very poor condition more than likely because they're very, very old and probably would never properly maintain. And the same is if you buy a park with all old homes which has no park-owned homes that come with it, you know you're gonna lose a tenant. Someone's going to die. Someone's going to run off and abandon the home. You're gonna take the home through abandonment.
And once again, you've got much greater renovation costs than you would if the home was, say, from the year 2000. So you've got to make sure you budget appropriately for that capital expenditure that you'll need to bring those really old homes back to life. Another bad problem with those parks with all old homes is that it may represent a bigger problem. It may not be just that, hey, we've got these old homes. It gives you, it denies you the affirmation you can bring newer homes in. Many cities, if not most cities in America, hate mobile home parks with a passion. That's why there haven't been any new ones built in any number, meaningful number, since 1970 to 1980. And some of them, despite the laws of grandfather and what they're supposed to do legally, they still try to block park owners from bringing new homes into these parks. So when you have a park with all old homes, it suggests, it doesn't mean it, but it's possible that one issue is you can't bring any newer homes in.
So it may suggest there's actually an underlying message, which is the city is actually blocking bringing newer homes in. Now, if the park has newer homes in it, if it has a mixture of those old pre-HUD homes, but also '80s, '90s, and 2000s homes, then that lets you know it can be done because you can physically see the homes that are newer that have been brought in. And that gives you, as the buyer, a much happier sensation that you can touch and feel the fact that the city will agree to allow new homes to come in. Now, let's get back to the original message, which was, so can you buy those kinds of parks or not? Well, as you probably just heard, there are good and bad attributes. So if the park has all older homes, all pre-HUD homes, that does not necessarily mean you can't buy it. So it's not normally a deal killer, but it definitely needs more analysis. When you buy a park that has that mixture of the old and the new, then you have a whole different range of feelings about the property. You know that the newer homes can be brought in. Your lenders are more used to seeing parks that look like that, as are your customers.
And you know that the housing stock you have will be much easier to retain customers and attract new ones. But sometimes those old parks have phenomenal locations. Remember that since cities hate mobile home parks, the parks in America with by far the greatest locations have predominantly older homes. That's just the way it worked out. People moved their homes into those older parks back in the '50s, '60s, and '70s, filled the parks right up, and that's why it has those older homes. Typically, parks with older homes do have superior locations. And as we all know, there are five key drivers to buying a park or not. Infrastructure, density, economics, age of homes, and location. And those older homes offer a clue to several of those attributes. The bottom line is when you look at parks which have all old homes, don't discount those parks and say, oh no, I can't buy that. It's got all old homes. It may be a great property. It may have a great location. It may have wonderful economics. But it is something that makes you step back for a moment and consider. Because remember that for every attribute that's got a little bit of a negative, you need something with a little extra positive. This is Frank Rolfe, Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.