How to Turn around a Mobile Home Park

When you buy a Mobile Home Park that needs to be turned around (and most parks need some type of turnaround), the first thing you need to do is disengage the prior ownership/management. Face it, if the park is not running like it should be, you will most likely want to start over with a new management team. Even though the prior owner is usually to blame for the poor operations of the park, it is difficult to keep the prior managers that have been trained poorly or incorrectly. So, in most cases, fire everyone and start over. There are always exceptions to the rule, but they are few and far between. I have found that it is easier to train a new manager than to retrain the existing one.

However, when you are firing or not hiring people, you want to stay on good terms with them. Don't tell the owner that he is clueless or the manager that you are not hiring them because they are incompetent. Keep everyone on good terms because you may need to call on these people later to help with issues that may arise such as locating sewer cleanouts or water turnoffs, who to call for a certain problem or issue, tricks on how to get the lift station pump back on, tenant histories, etc. If you completely alienate these people, they will not be willing to answer simple questions down the road that can save you or your new manager time and money.

Also, either before or after the transition to new management, you need to collect as much information as you can. One important piece of information to find out is a list of who has helped out with the repairs and maintenance of the park in the past. This can be the guy that is 70 years old and has puttered around the park for 30 years doing odd jobs, to the previous owner down the street that built the park and knows it inside and out, to the plumbers and electricians that have worked in the park since its inception. Many of these old-timers have great memories and will be able to help you solve problems as they arise. You can never have too many people on your team that may have advice as you go to turning around and operating a mobile home park.

Once you get as much information as possible, you need to develop a turnaround plan. This turnaround plan will begin during your due diligence and then be updated once you take over and then many times after that. The important thing is to write it down and use it as a reference.

The key in devising your plan on turnaround projects is to come up with a specific written plan and then execute it in small steps. Don't try to take on too much at one time. For example, patch the roads now to save some money and then after you have the increased occupancy, and have higher rents and lower expenses and more equity, then just before you are ready to sell or refinance, put your asphalt overlay in then.

Don't go out and buy 25 homes that need complete rehab. Instead buy a good variety of homes in smaller chunks and then as they are rented or sold then buy some more. You will soon learn whether your demand is for the 2005 16' x 80' three bedrooms you can sell for $20,000 or the 1980 14' x 70' two bedroom homes that you can sell for $5,000. Once you know what the demand is for then you should go about filling that demand rather than just making a guess at it.

This turnaround plan will include such things as:

General Cleanup of the Park:

The goal here is to have the residents see that we care about the park and that we will do our part and clean up the common areas, keep the grass mowed, haul out the piles of trash scattered around in hopes of having the residents start to take pride of ownership of their own homes and lots.

The first cleanup of the park is usually on us and we will do a thorough once over cleanup of the park that will include bringing in dumpsters for not only the common areas but also for the residents to use to get rid of the junk in their yards. We stress to them that this is there one time to straighten up and clean up for free. Because the next time, it will be on their dime. If they don't mow their grass or pick up the trash in their yard then we will do it for a fee and these extra fees will be either an additional profit center or a tool to motivate the residents.

We will also work with the residents on a case-by-case basis to help them buy paint, skirting, steps and other similar items that they can't afford to pay for in one big lump sum but can pay an extra $30 per month for if we buy it and make sure it is installed properly. This system of loaning the residents money is usually only for them to do improvements to the outside of their homes and not the inside. The things that we see or that our bankers and future buyers will see.

The typical scenario for us is to have an initial cleanup weekend or weekends until we are satisfied that the biggest part of the work is done. This is the only time that our residents can dispose of appliances and couches for free.

Infrastructure Items:

What needs to be fixed immediately? You want to prioritize this list as the costs can be huge. For example, water that is leaking everywhere that the park owner is paying for is much more important to fix than some potholes here and there.

You will look at things such as water lines, sewer lines, electrical services, gas services, roads, trees, other park structures, etc and then do an inspection of each.

You will make a list of each item and then decide what needs to be fixed now, next year, in five years, and so on.

If the sewer line backs up 5 or 6 times a year and it costs $300 per time to roto rooter, then that needs to be weighed against the cost of replacing the sewer lines. I would much rather spend about $1,500 per year unclogging lines than spend $150,000 up front running new sewer lines.

The items that usually require immediate attention are those that will reduce your risk of loss of both money and residents. Most of the time it is trimming trees, repairing roads, installing water meters, and a general park cleanup.

Existing Park Owned Homes:

Are the existing park owned homes in reasonable repair?

If not, what needs to be done and who will do it? At what cost?

Are they worth fixing? Most of the time the homes are worth fixing when you consider it will cost you about $2,000 to $3,000 to dispose of an old home and then $3,000 to move a new or used home in without including any of the cost of buying and rehabbing the home that you put in to replace the old one. For $3,000 to $5,000 you can make most older homes presentable and attractive to potential purchasers.

What work will you do to them (ie: repair them to a minimal standard to living up to replacing all the carpet, painting, cabinets, new skirting, siding, etc.

Remember it costs about $2,000 to $3,000 to dispose of an old home. If you put that money into the home in repairs and just give it away, you now have a rented lot. If you pull it out, you have still spent that $2,000 to $3,000 and have a vacant lot.

Buying & Selling or Renting Homes:

Will you buy homes to fill lots - how many - what price range - total budget for homes?

For the homes you buy will you rent them or sell them?

Where will the money come from to buy the homes, set them up, and rehab them?

Who will move the homes, set them up, rehab them, and sell them?

Where can you buy the parts from (skirting, doors, etc) and can you get them wholesale?

Preparing Your Budget

Before you ever bought the park you should have prepared a budget and projections of how you will operate the park, upcoming rent raises, items you will pass through to the residents, how to improve collections, who to evict and so on. Sometimes the park you are buying will need nothing more than an adjustment to the rents and getting them to market. This is an easy one as the residents are aware of the rents in neighboring parks and they will expect a rent raise.

We just took over a park that had rents of $90 per month in a market where the rents were in the $250 to $300 range. Crazy Huh? After purchasing while hanging around the park and training the new management, several of the residents came up and most of them asked about the rent raise. The normal question went something like this… "How much is the rent being raised because I am on a fixed income, on disability, between jobs, or name the excuse". The answer was easy and went something like this… "I am not sure yet but the park down the road charges $275 and then another close by park charges $300 and most other parks in this area are in that range. I don't think the rent will go to $300 per month but we will evaluate the market and come up with a fair amount". Everyone seemed to be ok with this answer and a few people said it would be ok if the rent did not go up above $200 or $250 per month. A few weeks later, the residents received their rent raise letter bringing the rents to $250 per month and offering a $50 discount if the rent was paid by the 5th of the month. The only person that we lost over the rent raise was someone that had an RV on one of the lots and was using it as storage. There are a few other issues to deal with in this park but the rent was the big one. With an extra $110 per month per lot the park's cash flow will support the other improvements to be made without a problem.

When you are buying homes, make sure that you budget enough to cover all of the costs of getting the homes setup and ready to go. If you have $100,000 to buy homes with, you can only pay $10,000 per home installed, rehabbed, and ready to go. If you have 50 vacant lots then you may opt to go for lower priced homes first so you can get more of them rather than buying only a few new homes. After all, the lot rent is going to be the same on a new home versus a decent older home. Turning around parks that need to be in-filled are the most difficult, time consuming and costly types of turnarounds. You cannot count on others bringing homes in to fill your vacant lots. It is something you have to do. Don't get suckered into thinking that the dealers will fill your park up.

I was recently talking with a successful investor (new to the MH Business) that was looking at a community with about 300 vacant lots. He was thinking about spending 3 million for the deal with only 100 occupied lots. He thought he could fill the park up within 3 years. I asked him if he had about 3-4 million in additional funds to buy the homes to fill it up. He said no, but had figured that the local dealers would bring homes in and sell them onsite and it would not be a problem filling it up. I know the market where this park is well and also know that there are probably less than 25 new homes being put into communities per year in this market from dealers (and this is a big market). I told him that if he marketed like crazy, offered big move-in specials, and did everything right, that he would be lucky to get 10 homes per year. At that rate, it would take about 30 years to fill the park. This is reality now and unless you are going to buy the homes and move them in, it is difficult to fill lots.

Additional Random Thoughts:

Also remember that a park that has mostly older and smaller homes (more of a trailer park) will need to be much less appealing than the newer park with big lots and newer homes. An older park will attract a different clientele than a 4-5 star park and there is nothing wrong with that. I have no problems owning the oldest parks in town. With older parks, focus on the cleanliness and safety of the park and not new clubhouses, pools, new asphalt, and replacing all the homes with new ones. Instead focus on trying to get the residents to maintain what they have and try to get them to keep the outside painted nicely, the skirting up, a nice set of steps, and junk piles that are at least stacked up nicely. Safety and Cleanliness! Also, I have found it useful to educate these residents on how to keep the rain from coming into the homes with sealant for their roofs and also around the windows. After all, you want the homes to last a long time and water is the biggest enemy.

As you move up to nicer communities, your focus will not really change but you will want to keep up the common areas and amenities a little more. Focus here on keeping the grass mowed, the streets patched, and the entrance inviting and so on. You will also have to enforce your rules stricter as you don't want someone to bring in a pile of junk and a trash heap next to $30,000 and $50,000 homes. Not that you can't allow older homes into the community, you just need to make sure they are kept up well and have good paint outside and attractive skirting.

Remember in the mobile home or manufactured home business, as a community owner, you will make the same amount of money (if not more) from the older homes and communities than you will for the fancy 4 and 5 star ones. For one, you can usually charge the same amount of rent because your residents on the older home parks don't have mortgages and can actually afford to pay the same lot rent as their counterparts in the 4 and 5 star parks that have big mortgages on their homes. Those big 2004 doublewides sure look nice but in many cases they are ticking time bombs with big mortgages on them. The question for many community owners is not if, but when am I going to have to buy that home from Greentree as a repossession to keep it in my park. After all, if I do not buy it then it will be a sad day when the mover shows up to move it down the road to another park.

Another reason that newer and older parks make about the same amount of money is that in older parks your maintenance expenses are usually lower, there are fewer repo's, higher occupancy levels, and less common areas and amenities to worry about.

Converting from large dumpster pickup to individual receptacles. At most parks that are currently on a centralized collection system (dumpsters), we will tend to go toward individual pickup in a short period of time. Not only is this more desirable for the residents, but it also helps to save all the problems with dumpsters. The biggest one that we have experienced is people overloading them with items that don't belong in them as well as being too lazy to actually get the trash into the dumpster. Also, with dumpsters it tends to be a place that both residents and non-residents like to drop off appliances and couches and tables.

Conclusion

Turning around a mobile home park can be a rewarding project but needs to be well laid out in advance with reasonable budgets and expectations. If the turnaround is management related, and you can solve the management problems, these are relatively easy. If the turnaround is market related and the issue is occupancy then strap yourself in and get ready for a bumpy ride. These can be done, but they take lots of time and money.

About the Author

Dave Reynolds is a successful real estate investor that has specialized in the acquisition of Mobile Home and RV Parks for the past 12 years. He has the keen ability to quickly assess deals, cut through hype, measure upside vs. downside risk, and make sound decisions. He has owned and operated over 60 Mobile Home & RV parks over the past 12 years in 16 different states.

Dave received a B.S. in Accounting from Mesa State College in Colorado in 1992 and attended graduate school majoring in Accounting and Taxation at Colorado State University in 1993-1994.

In addition, he acts as a consultant and educator for other mobile home park investors, has authored 4 books, and developed the largest and most respected websites dedicated to Mobile Home & RV Park Industries. These websites which receive over 10 million hits per year can be found at www.mobilehomeparkstore.com, www.mhbay.com and www.rvparkstore.com. Go to www.mobilehomeparkstore.com or call (800) 950-1364 and learn all about mobile home park investing, and our specialty products for investors.