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!
One of the first things we all learn as mobile home park owners is this line in the sand that lenders have developed an occupancy. On one side of the line, the park is a good quality asset, much in demand. On the other side of that line, people are concerned. They're not sure that there's enough demand to make the park work. They think the park is somehow a little weaker than the ones on the other side. And that magic line in the sand is typically what's called stabilized occupancy, which refers to roughly 80% occupancy. So most banks look at a park that's 80% occupied and better as being far superior to one that's 79% and lower. This is Frank Rolfe for the Mobile Home Park Mastery Podcast. We're gonna talk about not only that line in the sand, but some ways to address that by accurately and correctly labeling vacant lots that truly aren't vacant, plus some ideas to make lots go from vacant to occupied without having to bring in homes.
Let's first talk for a moment further about stabilized occupancy. It's very reasonable of banks which are risk averse to have developed years ago. One of the commonality traits they saw perhaps on loans that had trouble from those that did not. Because there's a lot of mobile home parks out there that have a lot of vacancy, but often they have a lot of vacancy for a reason. Because there really isn't a market there to support affordable housing. There's issues with the local economy population, things like that. So I think they assimilated all those past experiences into this simple rule that they prefer 80%. But, of course, that's not really true or fair. It's not true or fair because in some cases you can have a park that's beautifully located with a huge amount of demand, but mom and pop have elected not to bring in homes to fill the vacant lot.
So therefore it's a false narrative to say, oh, that park's weak. No, actually that park's fantastic, but mom and pop have deliberately done nothing to attempt to fill it. And they didn't do it because they didn't like the capital required the difficulty of bringing in homes, running ads, answering the phone and all those kinds of issues. But the other problem is often when you have a park with some vacant lots, those lots can't be used or those lots have alternative uses other than bringing homes in that might be more important for the macro whole of how the park actually operates. So what are some of those things that vacant lots are or could become that you kind of need in which you may wanna reduce those or eliminate those from your list of vacant lots? Well, the first and a common one is when you wanna combine lots that are too small to be used or lots that are too awkward to be used.
We've had parks in which you have at the... On one street, you got these lots that are very small and then the street behind also has very small lots. Well, those lots need to be combined together, right? To be normal sized lots. It would require you to take at least two of those lots to make a lot large enough that you could put in a modern mobile home based on its modern length. So having those on your rent roll as being usable when they're not usable is bad in every direction. It sends a bad message to the lender. Do you have greater vacancy? It also gives a bad message to you in your budgeting. So you have to look at each lot realistically and say, can I put a modern mobile home on it? A lot of parks were built back in the fifties and the sixties back in the fifties and the sixties, a lot that was only 50 foot in depth would hold just about every trailer made at that time, which normally never exceeded 35 feet.
Today, as we all know, the gold standard of the industry is a three bedroom, two bath, which is typically 76 feet long or 80 foot when you look at the title because it includes the hitch. So look at your lots and decide on the front end if you're buying the park or right now if you're looking at refinancing or selling the park, okay, do I have any lots in here that really are not usable and stop calling them vacant lots. You can often just take those lots and combine them with another. And that's a much more clear narrative when you do that type of thing. Another thing you can do with vacant lots is, and in many parks this is imperative, you've gotta have some overflow parking because the classic American tale of every household having only two cars is over.
Today, I don't know the actual stats from the government, but I know in the mobile home park arena, it's very common to have people who have three cars and four cars and those simply aren't going to fit because you only have a two car pad for every lot. Everyone's got two cars, but now here's a guy with four, where's he gonna put those last two cars? In some mobile home parks, the best thing you could do would be to take and pave over your vacant lots, particularly those very shallow ones like we just discussed, and not make the mobile home park lots anymore, but simply overflow parking. You gotta have a parking plan. If you wanna turn off your lender, then go out to look at the property with having cars parked in every inch of grass throughout the entire park because it's all overflowing from your parking pads.
You've gotta have a parking plan if you have cars parking on the street in desperation 'cause there's no spots and the fire truck can't get down the street when someone calls 911. Now you're gonna get in trouble with the city who's gonna demand you'd make at least one or both sides of the street no parking fire lanes. So sometimes overflow parking is a bigger necessity to the macro hole than that one awkward shaped lot you weren't going to use anyway. Then you had the issue of amenities. We have found that in today's world where we're all trying to get mobile home park lot rents up to market levels and quit being the laughing stock of the housing industry that we also wanna give back when we do it. And a lot of those lots which are small and unusable or sometimes just even larger, but you won't probably need them because you have enough vacancy, you won't get to them for quite a while, is to convert those into amenities.
And when we hear the word amenity, normally what most people think of it's a pool or a clubhouse, but that's not what people want. If you go to any mobile home park in America and you truly look at the amenities that are being used from those which are not being used, the number one one that is being used is picnic tables and outdoor charcoal grills. Don't just listen to me, look at the RV industry, study themselves with their own amenities and they were horrified to find that that was the number one amenity in an RV park where they have so many more amenities than mobile home park owners do where they have miniature golf and jogging trails and fishing lakes, all those picnic tables and charcoal grills beat all of those hands down and they're not hard to find places to put 'em, but you gotta have some places to put them.
And sometimes those not usable, awkwardly shaped lots things in the visibility quadrangle of the entrance to the park, those may be better suited than trying to jam a small home, a one bedroom on there to go ahead and make those into some kind of green space amenity. Also, another option you would have in some parks, particularly ones that have seemingly smaller lots, would be to simply give the vacant lot but have the customer sign up and pay rent on it to those other small lots thereby by combining lots making for larger yards. Now there's a lot of parks out there built back in the fifties and the sixties and okay, that light might be usable. You might be able to get a home with a shoe horn on the lot, but is that really gonna be attractive enough to get a modern customer?
Remember that even the two bedroom, one bath homes today or twice what they were pre COVID. Plus the lot rents are higher. When you add all those together at that kind of a price point, you may not have trouble getting a customer who only has just a few feet of room all the way around their mobile home. So you might wanna double those lots to give yourself enough space to actually make yourself attractive. So sometimes those vacant lots you're looking at are better off just being rented to the neighbor. Now I'm not saying that the current lot rent that you're getting for their lot they live on, but even if you got 25 or $50 a month, don't forget that you also additionally are going to be getting them mowing and maintaining the lot. And once again, that lot would fall out technically of your vacant lots because now it is in fact occupied.
It is in fact rented to the neighbor next door. Finally, you may have in your market some demand for RV and that demand for RV may not be simply for people who wanna live there full-time, but instead wanna live there on shorter spans of time. Let's say you have a mobile home park that's near some major attraction. We used to own a mobile home park. It was down the street from Texas Stadium. When you have situations like that and you look at what lot rents are for RVs on a daily basis, then it might be attractive to you with a mobile home park that is well cited to go ahead and develop some kind of internal RV section. We've run many mobile home parks that have RV sections inside of mobile home parks. And if that option is there, well there's another way that you can reclassify those vacant lots as being a different use in this case, not a green space, not overflow parking, but maybe a sectionalized RV area.
Now, of course, you can't count them in your budget as ever being able to be rented as mobile home lots 'cause they're not. But in some cases the revenue they produce in a limited scale may be more than you would get on the mobile homes themselves in the mobile home park. The bottom line is you can't argue with banks who say that 80% occupancy is superior because I'm sure that is based on the science of what they do and banking is the key to the mobile home park business. I never hear anymore ever of deals that they couldn't get a loan on that was so common back in the nineties today. You never hear about it. And that's because all bankers have come to trust the fact that we have the lowest default rate of any real estate sector and our deals always just seem to turn out good in mobile home park world.
So don't try and argue with the bank over stabilized occupancy. That's a perfectly reasonable trait for them to be concerned at, but be more accurate and reflective when you look at your overall occupancy and vacancy. You may not be doing yourself any good, taking lots that can't truly be used, which are knocking you down to 70% occupancy when being honest and eliminating those from your lot pool is a better way to not only accurately describe what your occupancy is, but put the best light on the park, which it truly should deserve if you really look at each lot realistically. This is Frank Rolfe with the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.