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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!
When it comes to housing loans, you have two variety: you have the standard mortgage on a single-family home, which we're all very familiar with, but then on mobile homes, you have a different kind of loan, and that's called chattel property. Chattel property is something that can be moved, and a chattel loan does not include, as collateral, the land itself. But even despite this functional difference between two lending styles, there's further issues in quality of applicants and their approval ratio. Right now, in America, the chattel loan approval ratio is only running about 34.4%, while the single-family home mortgage approval rate is 91.2%. This is Frank Rolfe with Mobile Home Park Mastery Podcast. We're gonna review why chattel loans have such a lower approval rate versus single-family home mortgages, and then what you as a park owner can do to try and improve your ratio of approvals.
Now, it goes without saying that mobile homes definitely deal often to a different demographic group than single-family homes do. That's not to say that everyone who looks at buying a mobile home has lower income, lower savings, lower credit, but it is a fact that if you take, on average, most American mobile home parks, our customer base represents the lower spectrum of income as opposed to the higher. Even though I know some people will say, "But there's mobile home parks in Malibu that have movie stars in them." Yes, it's true. "There's a mobile home park in Montauk that has a couple billionaires in it," and that's also true. But by and large, I think we would all agree, of the 44,000 mobile home parks in America, it's much more common to have customers who are struggling often to pay bills and to qualify than those that don't.
Now, we have long tried to put a science to the concept of home sales. That's how we've sold thousands and thousands of homes over the years. And we found there was a ratio when it comes to selling homes which runs like this: for every three calls you get, you get one showing, and with every three showings you get, you get an application. So it takes about nine calls from customers off your ads to yield one application. But at a 34.4% approval rate, it means you have to have three applications to make a sale. That means you have to have 27 unique people call you saying they're interested in buying that mobile home before you realistically will have a shot of getting it out the door. And that's as opposed to a single-family home mortgage, where you have a 91.2% approval ratio, which means literally under that same formula, you would be able to get a home sold on almost every application. So it takes mobile home park owners three times more calls in and three times more showings to get one mobile home sold to fill their vacant lot. So the fundamental initial observation would be, well then that means we need higher volume. And that's absolutely correct.
When you own a mobile home park and you're trying to fill vacant lots and you've brought in a home to sell, you need to run every avenue possible to create demand, because you are going to have to have the phone ring three times more than the single-family home would. How do you do that? Well, Facebook Marketplace has long proven to be the number one source of leads at this point. But you can't forget all the other options. You can put a banner out on your fence that says "Home For Sale." Obviously, in your yard and window, it should say "Home For Sale." But don't forget such other old-fashioned methods as classified ads in the newspaper. Those can be successful. Putting little flyers on bulletin boards and supermarkets that say "Mobile Home For Sale" with phone numbers vertically on the bottom cut like fringe so people can pull the phone number off. Works good in laundromats too. You can even do direct mail pieces to your Class B and Class C apartment complexes out there, and that should help make the phone ring. And it's not hard to get the phone to ring in our business, 'cause there's so much demand for affordable housing that it's really, really hard not to get sufficient volume to get things sold.
Another thing you can do if you really, really, really wanna get your closing ratio higher on mobile home sales is to bring in only three-bedroom homes, because there's a quantum difference in demand between three-bedroom and two-bedroom. I think the problem is that apartments have too many two-bedrooms floating around out there, but very, very few threes. So when people see ads for three-bedrooms, they always get excited. They always jump over themselves to go out there and look at it and to try and get it. But two-bedrooms don't bring as much glamour, and one-bedrooms make it extremely hard to sell, 'cause you just can't seemingly get enough volume to get the job done. But there's another part of the puzzle that is perhaps even more important, and that is to try and move up the food chain of home buyers so that you can reach a clientele that has, in fact, a higher closing ratio. Because that 34.4% approval rate is pretty much much lower than the single-family 91.2% because those customers in the single-family world looking to buy that real estate mortgage have better credit, better jobs, better income, a cleaner resume when it comes to all types of credit issues. So how can we then move up the spectrum? How can we go from someone who has the lower credit issues into those that have the better? That is the key goal of most park owners today, in fact, is to make that bridge. So how do you do it? Well, the first thing you have to do, obviously, is you have to make your park look much nicer. Most mobile home parks in America suffer from a very poor entry, very poor condition of common areas, really just no attention at all to detail. As J.W. Marriott said, it's the small things that make the big things possible. Yet so many park owners are completely dropping the ball on the small things. A good mobile home park entry would include such items as a very, very nice entry sign. We prefer three-rail white vinyl fencing then behind the sign, feather flags spaced every 50 feet behind that white vinyl fencing, some modicum of landscaping. That's just for starters. Once you enter the park, the road should be free of potholes. If possible, one nice color. If you've got an old asphalt road, let's maybe jet seal that thing to a nice black, freshly striped. Tear out all of Mom and Pop's old rusted metal signage and put a white PVC post with white PVC caps which match your entry fence and your sign. And let's make sure everything that you own as the park owner, whether it's a common area or a vacant lot, is immaculately mowed and kept looking good. But that's not all. Even if we make the physical plant good, also we must offer a better product.
Now, it is true in the world of affordable housing, you can get away with murder often as far as the quality of the units that you import to sell because the demand is so high. But if you wanna get to the next threshold, if you want the customer who has the higher closing ratio, we're gonna have to offer much nicer product. A mobile home, typically three-bedroom, two-bath, that's the most in-demand you can get. At least 14 feet in width, 16 is even better. Vinyl-sided, shingled-roofed helps enormously. A nice 20-by-20 parking pad, solid stairs with a deck, and if even possible, a deck large enough that it's an outdoor seating area. And the home, if you're gonna remodel it, if this is a used home, needs to be very well done: nicely painted, nice flooring, nice appliances, nice countertops, all the things that you yourself as an owner would want. But we can't even just stop at the product. We also have to have a better quality manager. No longer are you gonna be able to attract customers into your mobile home park with high closing ratios if your manager has no sales ability at all, zero people skills, and goes to the appointments wearing a t-shirt that says "Life Sucks." That is not going to be what the higher-level buyer is hoping to see in their home purchase.
Now, if you can make that jump, if you can bring that park up an octave in quality and have a manager who's also higher quality, who looks professional, then you're really going to get somewhere, and you will be rewarded for that by having a higher closing ratio on your chattel loans. And think what that could mean for you. If you can get your homes brought into the park and sold quickly, think of the thousands of dollars you will save as far as having to carry that lot rent of that vacant home, the opportunity cost from that, potential damage to your home by leaving it vacant for longer periods of time, just the opportunity cost of money itself. If I can take a project that was gonna take four years to fill and advance that to two years, that's very, very important to you as the property owner. And think about the other benefits. If you have the higher quality customer, then the park will generally look better, it'll appraise at a lower cap rate, it'll just turn out to be a much more successful experience for you.
But we all need to learn and remember that we are in an industry with a very, very low closing ratio: 34.4% approval rate on chattel versus 91.2% on real property. And as a result, we need to start mimicking what those people are doing. Start looking at the ads that Pulte Homes and others are running. Pull into their subdivisions and see what their manager looks like, and what their properties look like, and what their signage looks like. Because if you wanna be successful going forward, it's going to be more important than ever to look more like a single-family home developer than just a trailer park.
This is Frank Rolfe, the Mobile Home Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.