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Wishing Everyone a Safe & Prosperous
New Year.
The Frank & Dave
Christmas Show
Part serious, part fun.
We hope you enjoy.
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The 100 Best Ways to Fill a Mobile Home Lot
By Dave Reynolds, MobileHomeParkStore.com
We are heading into a new year and are still struggling to
increase our occupancy level on our vacant lots. The homes that
are there seem to stay there and can be sold or rented but most
of the lots that are getting rented are when we buy the homes
and bring them in ourselves. If we can't afford to buy the homes
do we just sit around and wait for the economy to turn around
and the banks to start financing new homes to go into parks
again? Of course not, unless you don't care. So for us that do
care lets come up with a plan to rent those vacant lots. After
all, they are costing us money to sit vacant.
Key to Remember: Don't focus on renting all of your vacant lots
at one time but rather focus on renting 1 lot at a time without
losing any of those that are rented. After you get 1 rented,
then focus on rening one more and so on.
A Logical Approach to Seeing What Vacant and Occupied Lots Look
Like on Paper:
Look at each lot separately and figure out how much that is
costs you to own that lot and keep it maintained and functional
(utilities protected, grass mowed, permit paid up, trash cleaned
up, etc.). Let's say that it costs you $300 per year to keep it
maintained. For you to breakeven, you will need to bring in at
least $300 or more per year on this lot. At a 10% capitalization
rate, an extra expense of $300 per year equals a $3,000 decrease
in the valuation based on the income approach.
Next figure out what this same lot will cost you if you have
it rented for the full year. In this case, let's say that the
additional expense to rent this lot would be $50 per month and
this additional expense is due to water, sewer, trash and
management of the resident. Note, this extra expense is a
variable cost. By renting this lot, your other costs are not
really going to increase in most cases (taxes, insurance,
repairs, management, etc.). In many cases your management cost
may go down especially if the manager is mowing the vacant lots
and does not have to mow the rented lots. So this additional
cost of $50 per month equated to $600 per year and as long as
you bring in at least $600 per year in income from this lot you
are over breakeven.
Next figure out what the net effect would be if you had that
lot rented at your normal rates. In this case we will assume
that the normal lot rent is $200 per month.
Variable Cost of Renting one more Vacant Lot $600.00 per year
Normal Lot Rent of $2,400 per year
Net Income of renting an additional lot is $2,400 = $600 =
$1,800 per year
Increase in equity by renting that extra lot at a 10% cap =
$1,800 / .10 = $18,000
Now that we know this number, we can look at our options.
Random Thoughts:
With these numbers, you could realistically pay someone $1,800
to rent that lot and get that $1,800 back within one year. You
could pay someone $3,600 to get that lot rented and get your
$3,600 back within two years.
Also, you could reduce the lot rent as a move in special all the
way down to $50 per month to breakeven and if you reduced it to
$100 per month you would have a $50 per month profit.
You could pay the dealer or mover or mobile home broker or your
resident that refers someone to your park as well. People like
to receive money for helping you out and you don't mind paying
it if it gets you closer to your goals.
So here is a short list of ideas:
You can offer to pay the move and setup costs for people to
move in
Offer incentives to dealers or movers or their customers as
long as you abide with the laws
Maybe you become the mover and buy a truck if you have several
lots to fill and by doing so you can save 50% of the moving and
setup costs in some cases
Buy a big screen TV as a move in special
Give the resident money to make a down payment on a car
Set up a college savings account for the resident's children
Provide a nice storage shed or carport as a move-in special
And the list goes on…
You should not be doing one think 100 times but rather you
should be doing 100 things one time. And for those 100 things
that are working keep on doing them as often as possible. So to
accomplish our goal, we should think outside the box and start
trying some unconventional marketing strategies.
Going back to the increase in value of $18,000 each time you
fill a lot. This opens up other opportunities. Using a simple
concept that as long as you can buy a home, set it up, and rehab
it for less than $18,000 and even if you sell it for only ONE
DOLLAR, you are one dollar ahead. Of course, we do not want to
trade dollars in this manner. However, as the park owner, you
should not care about making money on buying and selling homes
but rather on increasing occupancy and cutting costs. As long as
you don't overpay for the homes and setup and rehab costs, you
should have no problem getting those homes sold for a breakeven
or small profit. And if you lose 25% of what it costs you to
fill that lot(in this case $18,000 x 25% = $4,500), you are
still way ahead because you now have another rented lot and a
net increase in equity of $13,500.
Back to reality… In my experience I will eventually get
somewhere between 90-100% back over the long run on homes that I
buy, setup and rehab. So, if I spend $10,000 I will get about
$9,000 to $10,000 back plus the increased equity by renting that
lot. I usually buy the home and sell it for about a 10% profit
but when you account for people that do not follow through and
for the cost to rehab and evict non-payers, that will cost me
somewhere in the 10-20% range over time and this wipes out that
10% profit.
This small loss on buying and selling homes is acceptable as
long as that loss is a small fraction of the ultimate value that
I get when I sell the park (adjusted for the time value of money
and the hassle and headaches that go along with finding, buying,
selling and rehabbing the homes).
Here is a simple formula that I use when I am out there trying
to figure out the maximum price that I would buy a new or used
home for:
I use a factor of 7.5 in this formula and this is a factor that
measures values, costs, and risks. It is an arbitrary number but
is how I evaluate the maximum cost of the homes I buy to put in
my parks. I multiply this factor by the sum of 10% as a loss
factor (the amount I anticipate losing on the sale of the home)
and 10% (the amount I figure for hassles of doing all this). So:
(7.5) x (20% of the value of a newly rented lot) = Maximum Price
I will pay for a home to put on that lot.
So, in this case with the value of a newly rented lot of $18,000
10% Built in Loss: $ 1,800
10% Hassle Factor: $ 1,800
Total $3,600
7.5 x $3,600 = $27,000 where $27,000 is the most I would pay for
a new or used home to fill a lot.
Based on this formula, I would not buy any new $45,000
doublewides, but I could buy new singlewide homes that cost less
than $27,000 installed. In fact, I just purchased 7 new homes
that came in around the $27,000 mark to put in my parks.
What about other options?
Back to the variable costs of a vacant lot and in this case we
will assume that you have a huge number of vacant lots like 100
vacant lots out of 200 total lots. Using our number of $300 as
the cost to maintain each of these vacant lots, we are paying
about $30,000 per year just to keep them maintained. At a 10%
cap rate, these vacant lots are bringing down the value of the
park by $300,000!
In this case we will also assume that there is no way in your
wildest dreams that you will ever rent more than ½ of these
vacant lots in this century or the next and you also know that
unless you hit the lottery you will not have enough money to buy
homes to fill these lots. What options do you have in this case?
Do Nothing - but remember you are spending $30,000 per year to
maintain your nothing attitude
Alternate Uses - what about sticking some small storage units
in these lots or renting them to RV's, or providing them for
parking of oversize vehicles, or RV and Boat Storage, or… you
name it?
Maybe you could move all the current units to one portion of
the park and then try to sell the frontage or a certain parcel
of the park off for alternate uses?
How about increasing the size of the current lots. Maybe you
could offer the lot that is next door to an occupied lot for
rent for a reduced rate? Assuming you can get $25 per month for
this extra lot per month you just wiped out that $300 per year
cost on that lot. However, you may be able to rent that lot for
½ of the normal rate to the resident that wants a bigger yard,
or wants to build a garage, or have extra parking, plant a
garden, and so on. If you do choose to combine lots in this
manner, you might want to consider preserving the utilities
though in case the demand ever does turn around.
The key is to get the park stabilized and running at the best
profit margins you can and at the same time provide your
residents with an affordable place to live that they can call
home. You want your residents to plant trees and flowers, build
nice decks and carports and sheds and demonstrate a pride of
ownership.
If you take a 400 space park that has 200 vacant lots with an
average lot rent of $200 per month and combine those 400 lots
into 200 lots and get just $50 more for those bigger combined
lots, you have just increased your net income by $50 x 200 - 12
months = $120,000 per year. At a 10% cap rate, you have
increased the value by $1,200,000. In addition, you now have
100% occupancy and it is much easier to get a loan on a park
with 100% occupancy as compared to one with 50% occupancy.
I am not suggesting that you do this without considering other
options but if you are able to pull this off and preserve the
other 200 vacant lots for future use without losing the permit
and right to use those lots, this can be a great solution.
At MobileHomeParkStore.com we are going to be holding a contest
in which we are looking for you to submit your 10 best ideas to
us at
dave@mhps.com and we will compile that into 1 massive list
to send out to all those that participate. Also, anyone that
participates and submits 10 ideas to us, we will enter you into
our monthly drawing for a copy of our
Mobile Home Park Home
Study Course as well as into our drawing for a ½ price Mobile
Home Park
Bootcamp Ticket. But the best part is that you will
receive a list of at least 100 ideas to immediately implement to
get that next vacant lot rented! |
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The Mobile Home / Manufactured Home Community Industry Turnaround Plan
Our industry continues to be plagued by declining sales of new manufactured
homes going into mobile home parks and communities nationwide. With only around
50,000 new home shipments in 2009 we need to figure out how to get those numbers
back up to 100,000 for 2010 and steadily grow back to 200,000 plus home sales
per year. How do we do that?
Before I answer that question consider why someone would want to live in a
mobile home park or manufactured home community in the first place. This is
relatively simple… mobile home parks are (or should be) the most affordable
detached form of housing there is. In most cases, they are still the most
affordable detached form of housing, but in some markets this has changed due to
high monthly lot rents and mortgages on the homes themselves. At a lot rent of
$500.00 per month and a mortgage also of $500.00 per month, our customers have a
lot of options especially with low interest rates. They can buy single family
homes, townhomes, condos, or rent nice apartments.
In many of the markets with these higher lot rents, many of the newer
communities are struggling while the older mobile home and trailer parks are
still doing quite well. The difference here is due to the "package" of" lot rent
plus home mortgage". This has become apparent at our mobile home park investing
boot camps that we have held in Denver, CO over the past couple of years. You
will see a nice 4 star community with 30% vacancy near an older 1 ½ star park
with only 5% vacancy and in many cases the monthly lot rent is about the same!
The big difference between the two is that the older park has homes that are
paid off and the newer community has homes that are upside down on their
mortgages and continue to get repossessed as the homeowners get frustrated with
the monthly rent hikes and the time it is taking to pay down their mortgages.
This repossession problem has been plaguing community owners for the past 10
years and it has forced many of us to either "buy our occupancy" or see the park
owner across town go to Greentree or 21st Mortgage and buy the home to move to
their community. There are many park owners out there that have just given up
and stopped buying all these repossessed homes as they were tired of seeing
their cash flow go to buying homes or they just ran out of money to buy the
homes. The newer communities that have kept high occupancy are those that either
had deep pockets or else were able to keep their rents lower in order to push
the value of the homes up. In most cases, the value of the home is indirectly
proportionate to the lot rent. Higher lot rents = lower home values. As an
example, I have been able to purchase many late model singlewide homes in the
Denver market where rents approach $600.00 per month for under $10,000 each. I
can buy these homes and move them 200 miles east and sell them for $18,000 to
$20,000 all day long in parks where my lot rents are under $200.00 per month.
Back in the late 1990's and early 2000's we all got real greedy and started to
put into action the problems we face today. Park owners started raising rents
like crazy and in the meantime played hardball with all finance companies trying
to force them to pay all the back lot rent and move the homes out of the
community so they could fill the lot with another new home. This caused a lot of
bad feelings between the finance companies and dealers. The dealers were greedy
because they could get just about anyone financed for a new home at whatever
price they were asking for the home. And the lenders made a too large a
percentage of their loans to those that were unqualified. The manufacturers
started building more doublewide homes and homes that were more upscale and
pricey that would net them a better profit per home. We all messed up to varying
degrees.
The smart park owner would have forged a relationship with the reps of Greentree,
Conseco, 21st, Chase, and all the other lenders out there. They should have
forgiven the back rent and offered some type of incentive to forgive the back
rent and try to keep the home in the park. The park owner could have helped in
securing the home, cleaning it up, showing it to prospective buyers in order to
help offset the losses the banks were carrying around. However, just like
anything that involves dealing with the government or large companies, trying to
cut through the red tape was a hassle and who knew that new homes would no
longer show up in our communities every month.
This business was built around the affordability concept and we need to get back
to our roots of being affordable especially with the recession in full swing
right now. People need affordable homes to live in. As long as the homes are
affordable we then need to focus on financing. We need lenders that will do
chattel loans for homes that go into parks.
Fast forward to 2010 and beyond. Park owners are tired of having to buy
occupancy, retailers are tired of losing money or closing shop because they
can't sell homes and get them financed, and manufacturers didn't really want to
go bankrupt due to the same problems the retailers have, and the prior lenders
are really tired of getting burned on a home that they repossess and end up
selling for 30% of the remaining loan amount plus getting stuck paying back
taxes and lot rent.
So how do the manufacturers get back to shipping 200,000 homes per year with
25-50% of those ending up in communities to fill those vacant spaces? I think
that we all need to band together and come up with some type of program that is
a win-win for all parties. I have given this a lot of thought and have come up
with an idea that I think would work but it will take action from Manufacturers,
Retailers, Lenders, and Community Owners.
First of all, manufacturers, let's focus on building affordable homes. I would
define an affordable home as a 16' x 80' three bedroom and two bath home in the
$25,000.00 to $30,000.00 range setup and ready to be lived in. This will include
the markup for the retailer.
Next, park owners will need to play a huge role in all of this. Why? Because we
as park owners are going to have the long term benefit of the homes coming into
our parks in the form of lot rent and increased value by renting those extra
lots.
So the park owners, manufacturers, and retailers are going to have to work
together and create a package that will attract lenders that will make loans
with reasonable terms. How about 10% down with an amortization of 12 years at
8.5% interest for a total loan of $27,000? That would equate to a mortgage
payment of $300.00 per month. With a short term and good interest rate, the
consumer will be getting a good deal and will be building equity instead of
losing it.
The next step will be to create an insurance policy or fund for the lender so
they do not repeat the process of getting burned on repossessed homes. This
insurance policy will be paid for by each sector of the industry with the
majority of it being paid by the manufacturers, retailers, lenders, and park
owners.
Using our new pricing model of $25,000 to $30,000 homes with the previously
mentioned loan terms, we come up with an estimate of the default ratio. In this
case, let's estimate that 1 out of every 10 homes will end up being repossessed
and for the sake of simplicity estimate that each repossessed home will cost the
lender $20,000 by the time they pay attorney fees and resell the home for a
loss. So, in this sample scenario, we have a loss of $20,000 for every 10 homes
or $2,000 per home. If we come up with a way to insure against this loss of
$2,000 per home with all sectors still making a reasonable profit then we have
solved the entire problem.
Going back to the insurance policy or fund, as a park owner I would gladly
contribute $2,000 to the fund for a brand new home that is moved into any one of
my parks all day long as long as the home is in this price range with the loan
terms previously discussed. I believe that just about every park owner out there
would do the same. However, on a home priced in the $50,000 to $75,000 range I
would not want to contribute one penny to the fund because I don't think that
home will ever be paid off in greater than 95% of the communities out there.
However, we have to hold everyone accountable. So, manufacturers, retailers, and
lenders should also contribute something as well. I would propose that the park
owners pay ½ of the cost and the other three sectors share the other ½ of the
cost.
I would also propose that park owners work closely with the lender when a home
is repossessed to help get that home ready to be sold again as quickly as
possible. First off, the park owner cannot charge the lender the back rent or
any rent until the home is sold again. So it will be in the best interest for
the park owner to get that home ready as soon as possible. There are several
potential solutions to minimize the loss to the lender as well as the park owner
on lost rent. Remember, we allocated $20,000 in losses for every home that is
repossessed. So, if we can minimize this loss, then we are a step ahead already.
Solution 1: Lenders can sell the home to the park owner for somewhere in the
50-100% of the outstanding balance due on the loan depending on the home
condition and remaining balance due on the loan. The lender will finance this
amount to the park owner who will in turn either rent the home out to cover the
payments or sell the home with owner financing so that it covers their loan
payments to the lender. In this scenario, if the park owner pays $15,000 for the
home, the lender will probably cut their losses from $20,000 to $10,000.
Solution 2: Park owners will work with the lender to get the home ready to sell
and then will bring potential buyers to the lender for approval. Once again, the
lender will sell the home for 50-100% of the outstanding balance due on the loan
depending on the home condition and remaining balance due on the loan. The new
buyer will step in and make payments to the lender and once again the lender
should be able to cut their losses down to $10,000 or less by offering financing
on these repossessed homes.
Other Solutions: There are several variations of how this may or may not work so
let's get creative. We can enlist the help of the local retailers to help sell
these homes located in parks as well. We just have to get away from the model of
park owners requiring lenders to pay back lot rent and then pulling the homes
out of the park to be placed on a retailer or storage lot. The smart park owners
want to keep good homes in the park and will work with the other sectors to
accomplish this goal.
Once we come up with a plan that works to get new homes coming to our
communities again, we can't stop there and the park owners need to avoid getting
greedy again. To enact this plan successfully, we may need to reduce our monthly
space rent on those lots that are being filled by the new homes. If our new
customers are going to have a $300.00 per month mortgage for 12 years, we can't
price them out of the market. On a park that has lot rent of $600.00 per month,
the rent may have to drop to $400.00 per month with a limit to how much it can
increase per year while the home loan is being paid down. Remember, that you
would never have rented that lot in the first place had that new home not come
in under this new program so it is time to face reality. And the same goes for
those park owners that have rent at $200.00 per month. Don't think that once you
hit that 100% occupancy mark that you can double your rent over 2 years. It
didn't work the last time so it is time to learn from our mistakes.
I am tired of hearing about a decrease in shipments to all time lows and a
manufactured housing corporate stock prices falling, and manufacturers filing
for bankruptcy, and seeing many beautiful communities seeing a net loss in
occupancy year after year. Mobile Home Parks and Manufactured Home Communities
should be offering the BEST VALUE to the consumer for AFFORDABLE HOUSING. We are
in a recession and what better time to go back to our roots and glory days and
not gouge the consumer and lenders and make reasonable returns on our
investments.
If you have any thoughts or suggestions on this article feel free to email Dave
Reynolds at dave@mhps.com or call 1-800-950-1364.
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. 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
www.rvparkstore.com.
It is estimated that 5,000 mobile home park transactions have been completed
through the use of the website alone and Dave was able to observe and learn the
business, markets, values, and the entire industry. In June of 2008, Dave
Reynolds and his partner, Frank Rolfe, another experienced mobile home park
investor, started conducting Mobile Home Park
Bootcamps held 4 times per year.
These bootcamps have been well received and sold out each time.
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