The Importance Of Continuity Of Rent

It should be the goal of every mobile home park owner to make sure that no home ever goes vacant. Part of being the caretaker of the property is to also be the catalyst to a happy resolution to any risk of a resident leaving without warning or the ability to mitigate the damage. In this Mobile Home Park Mastery podcast, we’re going to explore the reality of keeping a steady stream of rent from every lot in the park.

What is Mobile Home Park Mastery?

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!

The media is always trying to advance the narrative that mobile home park owners have no greater desire than to run our tenants off so that somehow we can take their homes and sell them at wild profits. And if they'd done any research, they would know that's absolute lunacy. Smart mobile home park owners have absolutely no interest in ever losing a tenant. Our profits come strictly from continuity of rent.

This is Frank Rolfe, the Mobile Home Park Mastery Podcast. We're gonna talk about not only the importance of continuity of rent, but how to achieve that in your mobile home park. Now, why do we wanna have rent without any break in it? Well, the reason is simple. We're a parking lot business model. We simply wanna rent parking spaces for people to park mobile homes, that they then pay us the lot rent, and we are perfectly happy. And the worst thing that can happen to you as a park owner is when there's an aberration or break in that beautiful continuity of rent. Because when that happens, here's what is typically involved. If a tenant runs off and abandons their mobile home, first you have to somehow obtain title to that home. And that means an abandonment of property action through an attorney. So that alone will cost you probably a couple of thousand dollars.

And then the home will probably sit empty during that entire time where you're trying to get title to the abandoned mobile home. And based on your state, that could easily take three or four months. Assuming your lot rent is $400 a month, there's another $1600 there, we're at $3600. And now, once you obtain possession of the home, you now have to go in and fully remodel it. That's gonna cost you probably another $4000. And then you have your marketing cost to try and get it refilled. And by the time you add all of that together, you're nearly at $10,000. That's the punishment that you have if you have someone abandoned a mobile home. So clearly the goal as a park owner is to never let that happen. We wanna have the people either in the home or we wanna know well ahead of when they're going to leave and help usher them through a process, an orderly process, to make sure that that home never goes vacant.

So why would someone leave a mobile home? We all know that there's no more inexpensive place you could live in America in a detached housing form than a mobile home in a mobile home park. It's not rocket science. The average house, single family brick house in America today, is somewhere between $300,000 and $400,000. And the average apartment rent in America today is over $2000 a month. Indeed, there's nothing you can possibly live in besides your car that is inexpensive as a mobile home park lot rent. And contrary to what the media may say, where they would say, well, but the mortgage on the mobile home is so crushing. Well, the fact is about 80% of every mobile home in America in a mobile home park is owned free and clear. So no, sorry, the lot rent truly is all that the customer has to pay.

So if we're the least expensive form of housing on Earth, why would anyone wanna leave us? Well, typically it falls down to just a few factors. Let's start with the first one; inability to pay the rent. So in this scenario, what happens is, even though the rent is very low, the customer, for whatever reason, seems unable to pay it. Now, we all know that in most states in America, the minimum wage alone, which would take you between $10 and $15 an hour, would still mean that if you take 30% of your income as housing, anyone, anyone on this earth can readily afford to pay a mobile home park lot rent of $500 or $600 a month. You can't say, oh, I couldn't afford that. No, I'm sorry. That doesn't cut it. And as I've written many articles on, Mobile Home Park lot rent is not to those customers. Even their most expensive bill, in fact, it comes down fifth on the food chain. Go to your own government websites, put in any form of income, and it shows you what your budget should be for your household. And you'll see that your rent is not number one, not number two, not number three, not number four. But yet number five. Transportation is higher, health insurance is higher, childcare is higher, and your tax is higher.

So it's very disingenuous when media outlets try and claim that, oh yeah, well people can't afford to buy food because of their rent. No, they can't afford to buy food because all those other items are crushing them and have been crushing them now for the past three years. Costs across the board are up about 20%. But for whatever reason, someone feels they can't pay the rent, they've lost their job, perhaps it's a marriage and one spouse has run off. Then what we don't wanna have them do is walk off and abandon the home. So at the very first glimmer of a sign of someone not being able to pay the rent, which you namely will know 'cause you don't get the rent, you need to go to that person or have the manager go to the person and say, look, what's going on? We'd like to help you here. What is the plan? And if they say, well, I can't afford to live here anymore. I've lost my job, then you need to see if there's something you can do in an orderly fashion to basically do a cash for keys or to buy the home so they can move on down the highway to something different that they can't afford, which I assume would be moving in with a relative.

Now, we all learned during COVID the importance of cash for keys. Because during that period where there was no evictions allowed in America, that very strange period, which seems so far in the past today, but yet we all experienced, what of the ways you could get someone who wouldn't pay the rent, couldn't pay the rent, would be to pay them to leave. And if it costs you $10,000 typically when you turn over a home, then pretty much anything you can score less than that would be a winner. But most of the time, if you wanna do cash for keys with someone who can't afford to live there anymore, it's probably gonna cost you probably somewhere between $500 and $2000. And what that gets you is it gets you hopefully the title to the home, and if not the title, then a bill of sale. And yes, you will then have to go forth and get the title, but it takes you far farther ahead than you would under the abandoned property action you would have to do otherwise.

So, whenever you have someone who's not paying, don't let the clock start ticking on the eviction. I mean, you must give them the demand letter and get ready where you can evict them. But you need to have the manager go over and say, look, let's forge a pact here in which we can give you some money to move on down the road to wherever you're going. And in that way, you'll have greater continuity of someone in that home. And in the perfect condition, they go ahead and sign a bill of sale, sign the title to you, and you make whatever repairs are needed to the home and then resell it again. That would be working it perfectly.

But now another thing pops up often with somebody, and that's where they live in the mobile home and they just decide they wanna sell it. Perhaps they want to go and buy a stick-built house. Maybe they wanna move to another location. And once again, we have a problem because if they don't get that accomplished and then walk off and abandon the home, you'll once again lose that continuity of rent. So when a sign goes up in a window saying home for sale or in the yard saying home for sale, or if the manager even hears the rumor of somebody wanting to move, they need to immediately go to them and say, look, what can we do to get this done in an orderly fashion? How can we help you? Now, if the home is gonna be reasonably priced, then the park should just probably go ahead and buy it, because once again, if they can't sell it and they walk off and abandon it, then you're back to having a big price point that you'll have to pay to go ahead and get ultimately titled to the home and renovate it and sell it off again.

So hopefully that's what you can do. You can just go to them and say, look, I'll buy your home. How much is it? $4000? No problem. Here, let's go ahead and have a closing and gimme a bill of sale and the title. And here's $4000. Now you have possession of the home. You can make whatever needed repairs and sell it all over again. But let's assume somebody instead has a mortgage on the home, which you feel is too high. You feel like they overpaid for the home and they bought it from the dealer, and now you can't afford to pay what the mortgage is 'cause you could replace that home with another home that's similar for less money. Well, in that case, what you might want to do is to see if there's some way you could help them advertise and show the home to get the job done.

Now, why do people abandon homes? Well, they often abandon homes because they don't proactively start far enough ahead to get them sold. A lot of residents who walk off and abandon their home, the whole problem is they could have had it sold if they started three or four months early, but they try to sell the home maybe a week before they go ahead and just have elected to move. And that's what causes that lack of continuity, is this, their own poor planning. So you need to help them with that planning. There's various steps to getting a home sold. You have to run ads, you have to answer the phone, you have to show the home, and you need to get it sold. In some states, if you provide those services, you might be able to trade them what's called a home residency commitment in which they agree that if you help them sell the home, the home will remain in the park. But in some states, sadly, you cannot do that because the state laws preclude that. Regardless, anything you can do is going to benefit you because it will help give you that continuity, and the continuity of rent is absolutely the key.

Now, the duties have changed with managers over time. Today the modern manager doesn't have as much importance as they used to. Often rent is paid using ACH, they're not in the loop on getting the rent. You probably have a software like Rent Manager, you've got all kinds of tools and aids and technology that make the role of the manager different. So the key to the manager today is to have great people skills, to be your eyes and ears in the field. And one big part of their goal should be to see these situations that may create lack of continuity and try and get those sold.

So the bottom line to it all is, as an industry, as a park owner, the worst thing that could happen to you is to have someone walk off and abandon their home. Your number one goal today, so that you can maximize your profits, maximize your net income, and it's in the best interest of all parties, is to help make sure there's always that continuity to help that resident who needs to leave for whatever reason, get that successfully completed without abandoning the home. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.