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HOW TO PREPARE YOUR MOBILE HOME PARK FOR THE COMING U.S.
RECESSION
Unless you’re George Bush, you probably already realize that we are heading into
a national recession. And if you agree that we are heading into economic
trouble, then it is worth your while to make preparations to survive – and
prosper – during this cycle. It’s important to remember that it takes time to
make adjustments in your business plan, so you should start making these changes
immediately.
Focus on Affordable Housing
The universal desire during a recession is to keep costs low. Consumers are
looking to find the cheapest housing they can. Instead of focusing on bringing
in newer homes that look nicer in your park, instead concentrate on older,
uglier ones that can be sold or rented cheaply. Remember that old, ugly houses
have no monthly mortgage payments – and that means that your customer only has
to pay lot rent to survive. You will have a more solid, bill-paying tenant base
with older, paid-for homes.
Be Tougher Than Ever on Collections
When money is tight, your tenants have to pick and choose which bills to pay.
You must never let them think that the rent can be delayed or missed. You must
keep the big club of eviction dangling over their heads at all times. Never miss
a beat on getting out your demand notices and filing evictions. And keep
pressing with writs of execution – don’t delay because you are worried about
losing tenants during a recession. These folks are not going anywhere. They
can’t afford to move their homes but they can afford to pay your lot rent. At
minimum wage, you can still afford the average mobile home lot rent of $200 per
month or so. So be relentless and keep your tenants’ priorities straight.
Keep Raising Rent Annually
Some park owners make the mistake of delaying or eliminating the annual lot rent
increase during recessions. The problem is that you still need that annual
increase to cover the increased costs of running the park, plus ever greater
cash flow to meet your budget and reward you for taking the risk of buying a
park. There is no way that a tenant is going to be pushed over the edge by a
rent increase of $10 to $20 per month. However, if you do not keep the rent
escalating, you may soon find that you are losing your battle and having reduced
net income annually. If you do not raise the rent a little every year, you will
have to make a huge jump down the road, and that will be much more offensive to
your tenants.
Cut Costs
Question every bill you pay. Do you really need that extra phone line? Can you
mow the grass every two weeks instead of weekly? Never write a check without
thinking of at least three different methods to cut that cost. Often , such as
the power bill, there is not much you can do to about it. However, a lot of
times, you do have some discretionary control over what you spend, especially in
repair and park maintenance categories, as well as administrative and office
costs. Although you do not want to live you life that way, it does not hurt to
role-play the penny-pinching miser out of a Dickens novel. By focusing on cost
control, you will spread that gospel throughout your organization.
Approach Loan Renewals Well In Advance
One of the big hurdles of a recession is the sudden disappearance of the usual
banks and other lenders. In a world in which Indymac can fail, why not your
lender, too? In that type of environment, you need to allow yourself extra time
to line up a loan. If your current loan expires in two years, you might want to
attack that problem starting now. It might take you two months to get our loan
package perfected, another two months to find the right lender, and four to six
months to put the deal together. So what’s the other year for? Just in case that
lender falls apart right before closing, and you have to start all over again. I
would much rather pay a slight pre-payment penalty on my existing loan from
starting early, rather than be unable to find a replacement loan and end up in
foreclosure.
Never Pre-pay For Anything
You have to look at all other businesses that you do business with very
cautiously. In a recession, anything can happen. Businesses that have been
around for decades can suddenly disappear overnight. So never pay for any
project until it has been completed. I have actually had cases, during
recessions, where the contractor disappeared in the middle, or even the end, of
a job. One time, I had a guy build a brick and stone entry to a park – really
fancy – and he disappeared when the project was 95% complete. We never saw him
again. Prior to running off, he had wanted me to pre-pay him for the project,
but I had refused to pay him until it was done. By refusing to pay until
completion, I ended up with a virtually free, fancy entry. So where did the guy
go? I have no idea. Maybe he ran off because he owed so many people money.
Be More Aggressive on the Acquisitions Side
Some of the best mobile home park buys in history have been made during
recessions. That is the exact time when all of the planets come into alignment
to make the ideal buy. So start watching and listening for real distress mobile
home park deals. You may see pricing that you never dreamed you would see. And
that is why it is more important than ever to keep yourself out of trouble, so
that you can reap the rewards that only a recession can bring.
Conclusion
Recessions are terrible things. However, once you get used to them, they are
like a big rain storm. You want to make sure that you have a big umbrella when
they hit, and make sure you don’t step in a big puddle. But when they’re over,
everything is cleaner and smells better, and if you have put yourself in the
proper position, you may end up with some great parks you bought for a penny on
the dollar.
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