When Persistence Turns Into Futility

It’s always hard for deal makers to let go of certain targets, as their inherent wiring tells them to never give up. But there are situations in which deals need to be removed from the “never surrender” list. In this Mobile Home Park Mastery podcast we’re going to explore the fact that, in certain cases, persistence turns into futility.

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!

In America, we love the story of the underdog, the person who we anticipate will never go anywhere, but yet they beat all the odds through endless persistence. You see that in the movie Rudy, the beloved classic about the guy that wanted to play on the Notre Dame football team so bad, he acted as a tackling dummy for his entire college career just to get on the field one time in front of his parents.

I myself have long said the most important attribute of a good mobile home park buyer is endless persistence. People who keep pushing and pushing and pushing, sometimes against all odds, until they get what they desire, which is that mobile home park. But sometimes, that persistence, in fact, just turns into futility. This is Frank Rolfe with the Mobile Home Park Mastery Podcast. We're going to talk about when persistence really becomes a waste of time, and what you need to do to make sure you don't fall into that rut.

Most mobile home parks fall into the category of a good deal or a bad deal based on such items as the market, and the price, and the rate of return, and things like that. And often, when we strive to buy those, it all comes down to price. There's a price at which we'd buy it, and then there's a price at which we wouldn't buy it. And the persistent buyer keeps hammering the seller, "I want to buy it. I want to buy it. What price do you want?" They try and figure out some win-win strategy to get the person to hand over the keys to the car, and that's what they're doing. And of course, that persistence is wonderful. That's how a lot of things get done and happen.

But there are some key items in some mobile home parks that it's just not even about the price. So let's go over those items that make a deal just not really worthy of owning, even maybe if they gave it to you in some cases. The first one is if you come to find out the permit or the license to the mobile home park is not valid.

Think about that for a minute. How would you buy a mobile home park that is, in fact, illegal? Not legal nonconforming, which we call grandfathered, but literally should not be there. The city has the right to shut it down, to turn off the utilities at the drop of a hat. What would you do with that? How would you finance that?

How would you sell that down the road? How would you sleep at night never knowing if the next day the city would shut it down? The first time I ran into a park like that was a park north of Fort Worth, Texas, back in my early career. I thought it was a winner dinner. It was a great location. The park had paved streets. Wasn't bad at all.

So what happens? I tied it up under contract. I go down to the city to check in on the permit, and I am told, "No, I'm sorry, that park is completely illegal. There's no permit for that park to be there at all." I didn't believe the guy. I said, "Nah, you're crazy. Who would build a big park?" This wasn't a tiny one. This was a big one, maybe 100 lots, maybe more. Who would build that without a permit? And they said, "Well, the guy that built that was pretty well-connected in town. He knew all the aldermen, he knew the mayor," and they didn't want to get sideways with their good friend, so they just kind of looked the other way when he built it. But of course, it doesn't have the right zoning, didn't have any permits at all.

So I said, "Well, then when are you going to shut it down?" He goes, "Oh, when it sells. We're going to go ahead. When the thing sells, it's no longer his problem. We'll shut it down on the next guy." Which would have, in fact, been me in that case. A deal like that is futile. You can't do anything with it. Now, if you think you could take the shot of going to the city and trying to get the thing legalized and change the zoning and get a special use permit or a variance, well, then maybe it's not futile. But I would say the odds of you pulling that off are about zero in today's extremely hostile environment towards mobile home parks.

So if you don't have a good permit, you certainly cannot close on it. And could you ever get a permit? I don't know. I would be in doubt. And that would make chasing that kind of a deal probably a bit futile. Then you have if the test ad bombs. We've had this happen before. We had it happen on a park out in Las Vegas. We were shocked. We thought for sure it would work.

But lo and behold, no. We ran the test ad, we had almost no response at all. Then we thought, well, maybe the test ad was wrong. Maybe we put it in wrong. But we didn't. It was all completely correct. This was just an area that no one in Las Vegas apparently had any desire to live in at all. And you can't buy a park when there's no demand, because if you buy a park with no demand, you can't fill any lots. But even worse, you can't even collect money, because to collect money means filing evictions, and you can't evict people when you can't replace people.

So if a park has no demand, once again, you don't really want to own that park. Or what if the park's in a floodplain with very high, what they call BFE, base floodplain elevation, how high the water goes. Say the water goes 10 feet tall when it floods over the tops of the trailers, and even worse, it's in the flow way, so that water isn't just nice, still water that rises and lowers. It's in fact, water which is ripping with the tide at those homes, yanking them out of the ground. I wouldn't want that park. I couldn't sleep at night with that park. Every time I see there's a storm heading that way, which is probably, I don't know, once a week, I'd have a nervous breakdown So once again, you don't really want to chase a park like that to the end of the earth.

And what if there's an easement running right through the park? And I've seen parks where there's easements that run diagonally right through the property, an old road easement or some kind of other easement. You can't buy that park. What would happen if someone came in and built the road? Now, in diligence, you might be able to get that easement vacated. We've done that before, but what if you can't?

What if the city says, "Nope, that's always where we were going to put in Boyle Avenue, and you never know. Yeah, we might build it right through your mobile home park, knock every single lot out." Can't buy that kind of thing. That's not good. What about if it's environmentally polluted? How about that one? How many mobile home parks are environmentally polluted? Well, the top phase one guy that I know tells me he thinks roughly about 1%.

Well, that's quite a few. There's 44,000 mobile home parks in the United States. If he's correct, if it truly is 1%, that's about 400 mobile home parks which have some form of environmental pollution. Now, it might just be a buried gas tank. That's a $10,000 or $15,000 hit to fix. But it might be a landfill situation. Maybe the person buried trash on the property. Who knows what? But you can't buy a deal that's environmentally polluted.

You can if you have a plan to fix it, if you go ahead and get a phase two and figure out how you're going to go ahead and get that thing done. But in most cases, when a park has environmental pollution of a significant order, you can't buy it. Now, big hospitals do. They'll buy a piece of land in the big old city that's got all kinds of pollution issues, and even if it costs two, three, four million to clean it, they don't care. It's a $300 million hospital, so who cares if it's 300 and 4 million? Nobody. But mobile home parks, the cost of cleaning something that's environmentally polluted could theoretically be more than the whole cost of the mobile home park, and that would be a critical chronic catastrophe.

The bottom line to it all is when you have these kinds of issues, things that make the park no longer liquid, no longer something that you can easily get a lender to make a loan on or a buyer to buy from, then you have to ask yourself, why am I chasing after this? Sometimes buyers get in this mindset that it's a conquest, it's a battle, and they must win, and they can never give up. They must continue to attack. But sometimes it's not worth the attack.

Sometimes you're just better off dropping the thing and moving on to something that's a lot more attractive. Remember, we all have a finite amount of time on Earth, and every minute you spend on some deal that isn't really that good anyway is time that's taken away from another deal. Now, I am the first to tell people that the most important attribute you can have as a buyer is, in fact, persistence, to never give up.

Because on a regular park, even if you miss out, even if someone else buys it, it could still go into foreclosure. They could die. They could go into bankruptcy. You never stop. You keep going after the park endlessly because it still might come to you. It's kind of like chasing after someone running in the NFL with the football. You're trying to knock it out of them to create a fumble so you can recover it.

But don't get into situations where you chase after things that you shouldn't even want. Don't waste your time going after parks that have deficiencies such that even if you caught it, even if you recovered the fumble, you wouldn't even want the thing. So just remember that persistence, as wonderful as it is, and it is a great characteristic, don't let it fall into futility simply because the deal you're looking at is not something of the quality that you need to really buy.

This is Frank Rolfe with the "Mobile Home Park Mastery" podcast. Hope you enjoyed this. Talk to you again soon.