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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!
When I got in the billboard business back in the early 1980s, the very first promotional plaque I ever had made to hang on the wall of my office, the thing that I would look at while I was sitting there all day with a headset on trying to rent billboard space was something that said, "Time kills deals." And I've always known from my very first day of trying to start my own business how important time is. Because in real life, we are all under this sense of urgency. We all have limited amounts of time. And it's very important if you're going to buy a mobile home park and do a turnaround on that park that you understand how much time is required so you can properly make estimates of the time needed. It'll be important on your financing. It'll be important if you have investors to keep them informed. It's just good business sense to know how much time different things take.
This is Frank Rolfe with the Mobile Home Park Mastery Podcast. We're gonna talk about budgeting time on a mobile home park turnaround. So let's start off with getting collections corrected. Normally, from the minute you buy the mobile home park, you should estimate about 90 to 180 days to fix any and all collections problems. Because you're gonna adopt from the day of closing a new methodology called "no pay, no stay." It means that you can either pay your rent and stay in the park or not pay your rent and leave the park, but you can't not pay your rent and stay in the park. So you're gonna have to go out and let people know if they don't pay, you're going to evict them and then follow through on that and actually evict them, the things that most moms and pops refuse to ever do. So, yes, you'll be filing a lot of evictions with some turnaround parks with lots of delinquency, and you'll be having an attorney probably go to court a lot to get those judgments and get with the folks at the courthouse to enforce those people being removed from those homes. But it has to be done. And if you stick to your guns and you go through all the right steps, you will, in fact, within about 90 to 180 days, have that problem forever fixed. Because when neighbors see the people who will not pay be removed by the constable, they'll realize that collections are no longer optional. And many moms and pops have improperly trained the residents, in fact, they are optional. But when you reverse that, it will typically take about 90 to 180 days to completion.
Then you have your rules violations. Just like the folks who wouldn't pay rent, these are people who will not follow the rules regarding park condition and their own behavior. And just like collections, about 90 to 180 days to get that done. Again, like collections, it's based on where you start. There's many parks you may buy that things are in such good shape from mom and pop that you don't really need any time at all. But on a rough-and-tumble park where people have been breaking all rules on a consistent basis, about 90 to 180 days for you to go to the offenders and say, "Look, if you don't clean up your act, I'm gonna have to non-renew your lease." And under that penalty, most of them will go in and get the job done.
Then you have your park-owned home rental conversions, because rentals don't work in mobile home parks. And so a good buyer is going to immediately want to get those rentals converted into private owners. How long will that take? It completely depends on how many rental homes you have and what this rental rate actually is. Because we found on conversions the key item is to have a $100 spread where owning is $100 a month cheaper than renting. And in some mobile home parks, mom and pop have already set that in motion by charging a rental rate where I can knock it down 100 and net of lot rent I still have money there for them to pay the mortgage on the home. But in some parks it's the reverse. In those parks, the cost of ownership might be 100 a month or 200 a month more than renting. Those parks are very, very hard to convert. In fact, you probably can't convert them until you non-renew the lease of the people renting the homes and then take them out to market to get new people to come in and buy the homes. But if you have where the rental rate is somewhat in line with the market where you can drop the cost by 100 a month to own rather than rent, then in many parks you're gonna get the job done initially within 30 days. We have found that within the first 30 days, typically half of the people who have the option of owning and saving 100 a month will raise their hand and say, "Yes, I want to do it." But the balance don't take action until their leases run out. So that one will be predicated on how long those rental leases have. If they still have a year to burn, well, you might be able to convert the first half of the park initially, but you might have to wait a year to get to the next half as far as conversions.
On paving and capital infrastructure repairs and replacement, those type of projects, the key question regarding time is how close are we to summer? Because most of your CapEx issues cannot be done except when the weather is warm. In many states, they shut the asphalt and concrete plants down in the winter and they don't reopen them until the temperature gets warmer, often up all into April or so. But assuming the weather is warm outside, it's not that hard to actually budget all your CapEx concepts. All you will need is three bids and then talk to the winning bidder and say, "When can you do this?" And a good contractor typically can squeeze you in within a month or so.
Then you have your rent increases. Now, typically, most mobile home park owners, upon buying the property, you will in fact have to raise the rental because, number one, you're way below market, but number two, you've got a mortgage to pay and you're buying a property and you're trying to make money with it and maximize money with it. And it's very uncommon, I can't think of a property anyone's ever bought where they didn't raise the rent upon closing. But you have to remember that you have to give notice to the tenants and it will not take effect until so many days after you give them notice, and you can't even do it until their leases end. So that one is very much of a wild card. It will all depend on what your state rules are, which you can find out from your state MHA, and then additionally when you want to go ahead and do it. And I would never recommend you do that during the holiday season. So if you're buying a mobile home park in October, November, you are not going to raise your rents until it gets brighter out, warmer out, and people are happier, which will take you into the spring.
Then you have billing back, water, sewer, and trash. In many mobile home parks today, smart owners are realizing the only way that it's fair for everyone is for them to pay their own utilities. That's what bolsters conservation. That's what makes people fully accountable. But in order to do that, you typically have to get a lot of different licenses and things going. So again, this will be based upon what your state MHA says. But normally you're not going to do that until the second rent increase, so probably not until a year after your initial rent increase. That gives you a full year to understand what you need to do and to go out and get all the needed paperwork done to get that done.
Then we have filling vacant lots and homes. That'll depend a lot on do you have any vacant lots and homes? And if you do, every park seems to have its own cadence. Some parks can do one home a month, some two homes a month. Many mobile home parks can do four homes a month, which translates to roughly one per every week. But you don't know that until you actually start, until you run the ads and you see what happens. You may have done a test ad during diligence, but we don't really know in the test ad. You know how many calls you had, and we know that typically three calls is a showing and three showings is an application. But we don't know the quality of the people making those applications, how much money they have for the down payment or their credit scores. So we won't know that one completely until we start the process up. But if you're budgeting and estimating, I would assume you'll fill at least one a month. And if you got a lot of demand and you're in a decent market, you might be able to hit three to four a month to get full.
Then we have the seasoning of the financials. And by seasoning, we mean where a lender and a buyer going forward believes they've seen enough track record to make the loan. And many lenders today are only gonna need to see about three months of seasoning on a lot that has newly been occupied, and probably three to six months of seasoning after a rent increase. But they do typically like to see two to three years of financials for a refinancing. And if you're selling, the buyer's gonna want to see two to three years of financial performance. So that's roughly the time schedule that you're gonna need for those two items.
Then you have refinancing the mobile home park on a cash-out refi basis. To get there, you're gonna have to raise the net operating income in that park by 50%. So if the park was making $100,000 a year at closing, you'll have to get it to $150,000 a year typically to do a cash-out refi. And while every park is different based on your business plan, you can typically achieve that 50% increase with most mobile home parks within about three to five years.
And then finally comes the moment that most mobile home park owners relish, and that's when you get the offer you can't refuse to sell your mobile home park. And typically that moment comes about five to 10 years from when you buy it, because most mobile home parks kind of reach terminal velocity in five to 10 years. You're full, you have the rents fully maximized, the costs fully cut to where only essential things are there in the budget, and you've gotten rid of all the waste and utility leaks and overpayment to managers and all of those kinds of items. And then you're sitting there minding your own business, saying, "Man, I finally got the park completely done," and suddenly you get a phone call or a broker comes to you, and next thing you know, the thing gets sold. Typically that occurs five to 10 years. Let's call it an average of seven.
So those are typically what you're looking like as far as time frame. Now, let me remind everyone, every park is created differently. They're all different sizes, they're different markets, they all start from a different spot. But that'll at least get you going when you're trying to figure out roughly what kind of time schedules you need to hit in order to get your refinancing or your sale done on schedule.
This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.