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!
Back around 2014, I was being interviewed by Bloomberg for an article on the mobile home park industry. And it was a young writer who didn't know a lot about economics or how mobile home parks worked. And when I went over with her why mobile home parks had such stable revenue, I gave her an analogy. I said, "Imagine you owned a Waffle House restaurant and the customers came in every day. You had no control over how many customers were coming in, if any customers would come in, and meanwhile, you're trying to figure out how much food to buy and you have the ongoing cost of labor and utilities. That's a very unstable business model, right? And that's why restaurants go bankrupt so frequently." She said, "Yeah, yeah, that makes sense." I said, "Okay. And then you have a mobile home park, which unlike that Waffle House, imagine the customers are all chained to the booths. So every day when you open the doors, you know precisely how many customers you'll have. So does your bank.
And therefore, you don't go bankrupt very frequently at all, which is why mobile home parks have the lowest default rate of any type of real estate." And the reporter fully understood it, and she loved the analogy, and she put it in the article. And therefore, other media groups now, a decade later, have said, "Aha, well, that's proof that people are chained to their booths in a mobile home park. That's the only reason they don't leave is they physically can't." Well, this is Frank Rolfe, the Mobile Home Park Mastery Podcast. That's not true at all. Mobile home park customers have never been chained to their homes, nor are the homes chained to the lots. In fact, there is a risk in every mobile home park on every lot, you could lose the customer. The home could pull out. The home could burn down. This is a risk that we all have to live with every day. But there are some things you can do as a mobile home park owner to better your position, to reduce your risk, to make it more possible to keep those lots occupied such that when a home comes in, the home, in fact, does never leave.
And let's review what those options are. Let's first notate that any mobile home in a mobile home park that is pre-HUD, in other words, it does not have a HUD seal on the back of the home, that home cannot be moved. And it cannot be moved, not because of anything a mobile home park owner ever did, but because HUD, our federal government's agency, ruled back in 1976 that if a home did not have a HUD seal on it, a city could not approve it for someone to live in it. They wouldn't turn your utilities on. They would tell you to get the home the heck out of the park. And as a result, any home that's 1976 and older that does not have the HUD seal, it can't move, because if it moves out, there's nowhere for it to go. You can take a pre-HUD home out to your farm and you can stack hay in it, but you can't live in it. You can't leave it in a mobile home park.
So those homes truly are not going to move. I think that's just pretty much a given. And beyond that, they probably shouldn't move because a 50-year-old mobile home or older is probably never going to survive transport. So let's just set aside that group, again, not brought forth because of anything mobile home park owners ever did, that's something the federal government mandated back when they brought out their control of the manufacturing of mobile home industry. That no HUD seal, you can't move the home really. So those are off the table. But then you have everything built after the HUD program was instituted, after the HUD label started being slapped on the backs of the homes. So that's roughly about 1976, '77, and on. So why can't those homes move? How can you better stop those homes from leaving your park? Well, some people think, "Well, you know what? I'll put up some physical barrier to moving it. Maybe I'll put in a carport. I'll plant a tree. I'll park a car in front of it." But those don't work.
That simply delays the inevitable. If the customer wants to move the home, then they're going to go ahead and remove the carport, chop down the tree, the car will move. So there really is no way you can physically preclude a home from leaving your park. And of course, you can try and tell the person who lives in the home, "Uh-oh, moving that 1979 home is probably not a good idea. Probably not going to make the transport from point A to point B." And you're probably correct. But again, it's their decision. And they may say, "No, no, I think it's worth the odds." So there's really nothing you can do as a park owner to physically block it. There's probably nothing you can do to argue the point. So, what else can you do? Well, in some mobile home parks, if someone wants to sell their home, the park can get involved in the process. They can run the ads, show the home, and in exchange, they may get what's called a home residency commitment.
You can't do it in every state. Some states allow it. And then you may get some agreement from the homeowner to the park that the home will not be moved for a certain period of months as a result of your labor in getting the home sold. But those don't always hold up. And there's no guarantee that the next person who buys a mobile home will even understand or comply with it. So that's probably not going to get you where you want. So then what can you do to make sure that the mobile homes, after they come into your park, that they never leave? Well, obviously, one thing you can do is make sure you offer a great value for the customer. So the price you charge in lot rent should be commensurate with the quality of what people get. But it's not hard for mobile home park owners to always have a very high value relationship because the average house in America is about 400 grand and the average apartment rent in America is about two grand a month. Yet the average mobile home lot rent is typically around $300 to $400 per month.
And even in markets where it's substantially higher, let's say $600 or $700 a month, most people would say that $700 a month to have a home, which they own, on a lot, with a yard, the ability to park by their front door, no neighbors knocking on their walls or ceilings, and a greater sense of community is probably much more attractive to them than an apartment. And then when you throw in the kicker that's typically, you know, a third of the price, that's not hard to create that value relationship. But the big reason mobile homes leave mobile home parks is simple, because sometimes people want to sell their mobile home. And it makes complete sense. If someone wants to move from a mobile home park in Missouri to a mobile home park in Atlanta, that's a really long move. And the home probably won't survive it if it's really old. And even if it can survive, it's going to be very, very expensive to do. So in those cases, when people want to leave and move somewhere else, then logically they would put the home on the market. And that's what mobile home park owners do to keep the homes on the lots, is they try as hard as they can to be the one to buy those homes.
Now, how do you proactively buy homes that are coming on the market in your mobile home park? Well, the first obvious answer is if you have someone who's not able to pay the lot rent, more than likely, something's not going to hold together. They're probably going to have to either sell the home, or what you don't want to have happen, abandon the home. And either way, it's better for everyone if you initiate the conversation as to, "Hey, you know, you're not having success in paying the lot rent. What would you think about selling the home?" Some people call that cash for keys. That's more of an apartment terminology. In this case, it's a much larger amount of cash, not just for the keys, but for the title to the home. Go ahead and buy the home from them. That is a great win-win opportunity for many park owners because often the amount that they want for the home, which gets them back on their feet with maybe a move to a different locale where there's more available jobs or maybe near family, that's a win-win for everyone.
So focusing on people who haven't paid rent has always been a good idea to see before they might sell that home if they would be interested in selling the home to you, the park owner. The next is the second you see a sign go up in any window of any mobile home in your mobile home park that says "For Sale", you want to jump on that. You want to go to the customer and say, "Hey, we saw your sign. The home's for sale. How much do you want for it? We'd love to buy it." Now your manager hopefully goes around the mobile home park every day and picks up litter and checks on how things are going. They should be observant enough to see a sign pop up in a window that says "For Sale". It also wouldn't hurt to have your manager on a regular basis scour any listings that might go on Facebook or Craigslist of mobile homes for sale that are in your own mobile home park.
So that's another good way to get a head jump on that. Also, managers typically hear gossip that goes on in mobile home parks of homes that are coming up for sale. So it shouldn't be too hard for them to report back to you when they hear said gossip and for them to go to the customer and say, "Hey, I've heard you might be wanting to sell your home; is it true? How much do you want for it?" Now, if you're going to be able to buy homes, particularly more expensive homes, it would also do you a great service to get approved by a floor plan lender, someone like Performance Equity Partner, PEP, out of Chicago, Cash Program, Triad, Zippy, because now you've got not only your own capital, but somebody else's capital you can use to buy those homes. And remember that if you don't buy a home, particularly a newer home, and 1990s is a newer home, another park owner, they may buy it and bring it over to their park.
In fact, I would dare say that mobile home park owners are probably the number-one buyers of those types of homes because in many parts of America, you have an advantage with a used home over a new home as far as different HUD regulations on the way the homes are set. In some states, you have to put a concrete pad, piers, or runners, under a new home, but you don't have to do it under a used home. As a result, many mobile home park owners are always on the lookout for homes that are newer that become available in parks because they want to fill their vacant lots. It's also important that you stress with your manager the importance of them being ever observant, ever vigilant, to watch for any signs of a home coming up for sale. Many times you look at mobile home parks that have lost homes over time, much of the fault ties back to the manager.
If the manager does not alert you to when homes come for sale, then what will happen is other park owners will typically buy them and pull them out or some other buyer will pull it out. And when you then scratch your head and say, "How could this have happened?" Often the answer is because the manager was not really effectively doing their job. The important thing to remember regarding mobile homes, and mobile homes staying in your park, is that in most cases they always do. They don't do it because of any constraint. They're always free to move them. They're always free to do what they want with them. It's their personal property. But they hardly ever move because most people love the value relationship between what they get for their money. Nothing else comes even close. People can't find any other housing option ever that meets the price and the quality of most mobile home parks. But some people do have to move on for whatever reason: Economic, physical, who knows? And if you want to keep those homes in your lots, you have to make sure that you are always the proactive buyer watching for those signs. And when you see it in action, jumping on the opportunity.
This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.