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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!
In 1974, Burger King adopted their new slogan of "Have it your way," and it was a direct attack on McDonald's, which did virtually no hamburger customization. This is Frank Rolfe, the Mobile Home Park Mastery podcast. We're gonna talk all about the concept of making exceptions with residents on the basic facts of life about mobile home parks and the same with managers and the often disastrous consequences you can have in trying to adopt the Burger King attitude of, "Have it your way."
Now, let me first note that, most, everyone likes to be the boss. We all like there to be exceptions. We all like customization. There's no question that "have it your way" was a successful ad campaign for Burger King. I remember back in the day when it came out, and a lot of people then who had not tried Burger King went over and tried to have the hamburger built to their exact specifications and were amazed that unlike McDonald's, you can get it done any way you want. The customer was always king. But at the same time, if you look at the financial performance, we'll see McDonald's has fared much better than Burger King without a doubt. So maybe this concept of letting your customers customize what they do and extending beyond that, even the managers, 'cause we all know if you've been to a Burger King, the quality of the food, service and cleanliness can sometimes be questionable, so apparently, even the operating manual was customizable back at Burger King. But in the mobile home park space, those doctrines just don't work.
So let's first review, on the tenant side, what happens when you think about, when you try and get on board with customization. The first issue you'll have with your tenants is, many are going to want to have customization of rent because of their status. Some will say, "Well, I need to pay a lower rent because I'm a senior, and I'm on my Social Security payment. I can't pay as much as that guy. He's got a real job." And of course, most of the requests from the tenants always revolve around money and wanting to pay somehow a lower rent. Or maybe they have other issues they want customization on. Maybe they want you to allow them to park a third car on their lot, or you need to allow them to cut down a tree because it bothers them that the birds go to the bathroom on their car or whatever the case may be. In our industry, in the housing industry, in the mobile home park industry specifically, you run the risk when you customize anything that you will be accused of violating Fair Housing. If you've never read the Fair Housing book, you need to, because there's a lot to Fair Housing that kind of even often violates common sense.
For example, if someone goes to the mobile home park and says, "Hi, I've got young children. Where in this park would the other families with young children be? Because I'd like to be near them so my kids have a very quick access to other kids to play with." You can't tell them that, because under Fair Housing, that is called steering. So there's many permutations of Fair Housing that many property owners are not even aware of, but it's a very clear one that you can't go setting rents for different groups. That just goes to the basic foundations of the whole concept of Fair Housing. So before you even think about customizing anything in your park for any individual, you need to learn what the law says about Fair Housing. You need to talk to your state Manufactured Housing Association to find out the most current case law in your state regarding Fair Housing. Because customization can often lead you to end up in some kind of Fair Housing investigation, which you may lose because it may be whatever you are allowing the tenants to do individually, customizably, having it their own way, actually is not technically even allowed by law.
Another way that tenants often want customization is, they want to selectively pay or not pay the rent. What they want is they wanna be able... If they don't have any money that month because they went to a NASCAR event or the car broke down or whatever, they want the ability to pass on that month, to just let it roll. Go ahead and pay a sum the next month. We've bought mobile home parks for moms and pops, where there were tenants on the payables list who hadn't paid here yet on the receivables, and they are five years in arrears. So they haven't paid the lot rent accumulative five years of past due payments. Now, they might have paid a few payments and then skip seven and then made four more and then skipped a year and a half. They might have lived in the park for 25 years, but nevertheless, no one would ever imagine that you would offer your goods and service with lack of payment for half a decade. And the problem is when you let the residents set their own boundaries on the very nature of payment, everything falls to pieces. The only collection strategy that works in a mobile home park is and will always be no pay, no stay.
The basic doctrine is, if you pay the rent, you can live in the park, but if you don't pay the rent, you can't live in the park. There is no option on the menu to not pay the rent and live in the park. So even though many moms and pops have adopted the idea of "no pay, stay," they're wrong. It must be "no pay, no stay." And when you have a resident who's been paying the rent and suddenly doesn't wanna pay the rent and comes to the manager and wants an exception, they say, "Oh, come on, I wanna have it like Burger King. I want it my own way. I don't wanna pay the rent this month," the problem is if you allow that to happen, you will destroy your relationship with all of the other residents who have been paying the rent because that's what's required. So if you adopt a uniform "no pay, no stay" across the whole wide range of your customers, which is the right thing to do, and you then deviate by customizing for one single resident, that resident will tell the others, "Hey, I don't know why you idiots pay the rent because I didn't pay the rent and nothing happened to me." So once again, you really cannot customize. The problem is when you customize with residents, you either destroy your business model or you run afoul of fair housing.
But what about the managers? Mobile home park managers frequently, they also want to have it their way. They also want to tell you the old Burger King slogan, and they want changes based on their own circumstances. One big one, of course, is they always want you, often when you take over the park, to continue on with what mom-and-pop was doing, which is normally paying them in cash under the table. They don't like the idea of having their payroll run through a payroll service like ADP. No, no, no. They want you just to give them whatever they get paid in $100 and $20 and $10 bills. They don't wanna report any of it. And you, of course, know why they want that. They want that because probably they're not allowed to have any income or they don't wanna pay any tax on the income. Either they haven't paid child support and they are supposed to, or they just haven't elected to pay or file any taxes in the last decade. But any way you cut it, you can't do that. You're a real business. You have to follow the real rules.
Don't let them force you into a trap by saying, "Well, mom-and-pop has done it for the last 20 years. I assume you would extend me the same courtesy." The answer is, "Well, I'm sorry. Our company doesn't do that." And if you're gonna lose the employee over it, good riddance, because more than likely, the employee who are so disingenuous that they want you to pay them in cash under the table and not report it to the government and not follow any other rule will not be a very successful employee for you, because once again, they're not going to try and follow your rules or your operating manual whatsoever. So every person you have must get paid under the conventional legal format, with taxes withheld. You cannot make any exceptions at all.
Also, managers will frequently not want to keep time sheets or anything that tracks their actual usage of time. They don't like to. "It's a hassle," they tell you. "It's meaningless. I don't wanna do it." So what's the problem with that? Well, the problem with that is you may run afoul of minimum wage laws. It may turn out that they are going to claim that they worked more hours than you paid them, and therefore, you violated your state's mandates on how much you have to pay people. The alternative is, they'll file a lawsuit from you when you ultimately fire them, claiming that you owe them over time, because all those hours you made them toil without any payment, and it's all your fault, and you're the evil landlord. And they will use the fact that they had no time sheet or any tracking of their hours as Exhibit A to try and prove that you owe them a giant amount of money.
The bottom line is that you cannot customize anything in a mobile home park. You have your various systems, your various gauges, your operations manual, and unlike Burger King, no one can have it their way. The only way that it can be is your way. You've gotta be a little more McDonald's and a whole lot less Burger King if you wanna do well as a mobile home park owner.
This is Frank Rolfe. The Mobile Home Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.