Common Questions on doing a 1031 Exchange

SHOULD MY CLIENT CONSIDER AN EXCHANGE?

This is an individual decision based on the investor’s overall retirement plan and investment goals. Although they may have a financial or tax advisor, ultimately the taxpayer will be writing the check to the Internal Revenue Service if they decide to sell and pay the capital gains tax.

WHAT IS CAPITAL GAINS TAX?

Capital gains  is the difference between what a property sells for and the ‘adjusted basis’ in the property.  To put it simply, when investment property is purchased, the purchase price becomes the initial cost basis. If your client makes capital improvements to the property, the cost of those improvments will increase the basis in the property, adjusting the basis upwards. Depreciation is a benefit to owning investment property which allows for a yearly deduction of a portion of the value of the property improvements. Depreciation cannot be taken on land. Any depreciation taken is a reduction in the basis of the property.

ISN’T CAPITAL GAINS TAX ONLY 15%?

No. Gain from appreciation (the increase in your client’s property value) is taxable currently at a maximum of 15%. However, the gain from the depreciation is taxed at 25%. In addition, most states will charge state tax as well.

WHAT IS THE DIFFERENCE BETWEEN A SALE AND AN EXCHANGE?

A sale is an exchange of property for cash or other property which is not “like-kind” to real estate and therefore taxable. An exchange is a non-taxable sale because the taxpayer will sell investment property and replace it with property which is like-kind.

WHAT DOES LIKE KIND MEAN?

IRC §1031(a)(1) allows for the exchange of property held for productive use in a trade or business or for investment for like-kind replacement property. A myriad of court cases and IRS rulings have established the definition of “like-kind” real estate to be very broad. Examples of like-kind property include single-family rentals, multi-unit housing, commercial or industrial properties, ranches, and bare land. Provided a property has not been personally used, such as a principal residence or second home, it should qualify for exchange treatment.

WHAT IS A TAX DEFERRED EXCHANGE?

Internal Revenue Code Section 1031 allows taxpayers the opportunity to defer taxes owed upon the sale of investment or income property by exchanging the property for other like-kind property. Certain guidelines must be followed

WILL MY CLIENT BE AUDITED BY DOING AN EXCHANGE?

No more than if they just sold the property. The tax deferred exchange has been a part of the Tax Code in one form or another since 1921. Just like Individual Retirement Accounts (IRA’s), if your client follows the rules and guidlelines, thelaw allows for tax deferral until the property is ultimately sold and your client receives cash..

WHAT’S THE BENEFIT IF MY CLIENT WILL EVENTUALLY HAVE TO PAY THE TAXES ANYWAY?

With proper estate planning, your client may never pay capital gains tax! There are many tax-planning vehicles that allow taxpayers to relinquish their low basis assets (such as real estate) without paying taxes. Gifts to loved ones, charitable contributions, and certain irrevocable trusts are just a few options available to savvy taxpayers.

Even without a complex estate scheme, a client who exchanges instead of sells will benefit their heirs once they pass away. Any property included in a decendant’s gross estate will be transferred to their heirs with a basis “stepped-up” to fair market value. This means that all capital gains in the property will be wiped away provided the estate’s value does not exceed the statutory exclusion limitations.

WHEN AND HOW SHOULD MY CLIENT BEGIN THE EXCHANGE PROCESS?

Your client must first select a Qualified Intermediary (“QI”) to facilitate the exchange. A QI is a professional company that specializes in processing 1031 exchanges. The QI’s services must be retained prior to the closing of the exisiting property. Waiting until after the closing will be too late!

The QI is hired to prepare the exchange documentation and to hold the sale proceeds during the time between the sale of the existing property and the acquisition of the new property. The law requires the proceeds from the sale of the existing property be kept from the control of your client until a suitable replacement property is identified and ultimately transferred to the client by the QI.

HOW SHOULD MY CLIENT SELECT A QI?

Your client should select their QI based on its expertise, experience, integrity, and years in the exchange business. Starker Services, Inc. (“SSI”) is the nation’s largest and oldest independantly owned Qualified Intermediary. SSI facilitates thousands of exchanges each year and has been doing so for almost two decades!

HOW ARE MY CLIENT’S EXCHANGE FUNDS PROTECTED?

With longevity comes stability. SSI offers its clients almost two decades of exchange accommodation experience. In addition, SSI maintains a $5,000,000 fidelity bond to protect its clients from loss. Each exchange account is segregated which adds another layer of security making SSI one of the safest QI’s in the nation.

AFTER THEY’VE CHOSEN A QI, THEN WHAT?

Upon closing the sale of the relinquished property, your client must adhere to two timetables which both begin on the date the existing property is transferred. First, they must identify in writing possible replacement properties within 45 days of the closing. The QI will provide them with a form on which they may list up to three potential replacement properties of any value.

Once they have completed the ID form, they must fax or mail it to the QI by midnight on the 45th day.

Second, your client must acquire at least one of the identified properties prior to the expiration of the 180 day replacement period. Again, this period begins on day the relinquished property was transferred. Your client may buy more than one of the identified properties provided they all close before within the 180 day period.

The inability to acquire any of the identified properties will cause an exchange to fail. There is no mechanism for alternative property selection once the 45 day identification period has elapsed.

CAN MY CLIENT TAKE SOME CASH OUT WHILE STILL DOING AN EXCHANGE?

Yes. Any cash received will be subject to capital gains tax. Your client may take cash out at the closing of the sale property or upon completion of the exchange. Since they will be taxed on any proceeds being removed from the exchange, it will also be necessary to determine what their capital gain would be had they simply sold their property. This is because if they take cash out equal to or more than their capital gain, then they will be paying all the tax owed. An exchange at this point would be a useless exercise.

 A Publication of Starker Services, Inc.

Clients considering the sale of investment or income property should first consult their financial or tax advisor to determine if a tax deferred exchange will benefit their long-term investment goals and retirement plans. Ultimately, your client must decide whether to take advantage of an IRC Section 1031 exchange or write a check to the IRS.

For more information call toll-free: (800) 332-1031. We will forward to you at no charge our informative Tax Deferred Exchanges brochure.

This material is provided for informational purposes only and is not to be construed as tax advice. The reader is strongly advised to speak with a tax consultant before attempting to employ any of the concepts stated herein.

They’re Heeeerrrrrrree: The Wind and Hail Season

The wind and hail months are here. It’s the time of year insurance companies, property owners, and business owners dread. Historically, one half of all wind and hail losses in the U.S. outside the coastal areas occur between April 1st and June 30th. The past three years in a row have been particularly painful across middle America. Oklahoma, Arkansas, Kansas, and Nebraska are on multiple year destructive weather streaks. And the South and Mid Central U.S. have seen some of the worst tornado activity ever in the past three years. In addition to disciplined regular prayer, here are two things business owners should do in preparation for the wind and hail season.

First, reassess your property insurance coverages. Do you have loss of business income insurance with extra expense, as well as extended loss of business income insurance? The latter is particularly important for any community owner in the wind or forest fire states. Are your buildings and contents insured to their true replacement cost? Many people grossly underestimate their true replacement costs. Do you own a utility system, utility poles, fences, signs, or maintenance buildings? If so, add them to your covered property schedule. Losing one or two small items to a fire or wind gust isn’t so devastating. But losing all of them at once is typically a “bankruptcy” event.

Second, if you haven’t already, take time now to prepare your own Disaster Recovery Plan. My company has done this. If we have an emergency, it will be the most valuable asset I own at the time. Here are some of the key elements that should be in your Plan:

  1. Employee contact numbers and a meeting plan. Have a shared list for all employee phone numbers. Remember that in the event of a widespread disaster, land lines will most likely be down, cell towers overloaded, and gas will be scarce. Texting may be the best way to communicate. Assign each employee a buddy they can reach – preferably someone who lives close to them. That way if you can reach one of them, they can hopefully reach the other. And have a pre-described time and place to meet post disaster presuming all communications are down;
  2. Know how to forward calls, faxes, and email communications to an alternative location. You’ll need to know your phone and data carrier’s contact information and the process for doing so. All tasks should be assigned to a particular person;
  3. Have a “Key Contacts” list prepared that includes your insurance company’s(ies’) and agent’s (s’) phone numbers as well as your policy numbers. You also want to include your utility companies (water, sewer, electricity, phone, internet, cable…) and your account numbers for each. Being first in line for repair services due to a quick contact is much better than being 103,434th in line. Fire and Police Department contact information should be included. Key business suppliers need to be added. Finally, include the contact information of key contractors that can help you start with repairs sooner. Your computer and phone system servicers should be at the top of the list; and
  4. Name and plan for a temporary work location. A location some 50 plus miles away is best in the event of a widespread disaster such as a hurricane or nuclear blast.

We learned some of these tricks after our headquarters was hit by Hurricane Ike. Experience is a great teacher, but I promise that learning these things via a business article is a lot better way to do so.

Statistics from the National Association of Small Businesses reveal that absent proper insurance and disaster planning, four out of five small businesses hit by a disaster don’t survive. If your business is worth protecting, now is the time to prepare for any future disasters. Set aside a half a day in the next few weeks and prepare for a disaster that might hit you. It could very well save your business.

 

Kurt D. Kelley
President
Mobile Insurance
Kurt@mobileagency.com

How Mobile Home Insurance Works

The best way to make sure that your mobile home is protected from the perils of Mother Nature and the weirdest of circumstances is by purchasing mobile home insurance. Mobile home insurance acts a little similar to homeowners insurance in the sense that it protects the structure of the mobile home, but its coverage overall is very different. Although the policy covers a brood range of natural phenomenon and protects the nature of needs of mobile home owners, it can be more expensive to purchase compared to homeowners insurance, since mobile homes are more at risk of damage for its simple construction.

What’s In A Mobile Home Insurance Plan?

With mobile home insurance, there are two policy types: peril policy, which covers your mobile home when there’s a fire, tornado, and other natural disasters or strange happenings, and comprehensive policy, which covers risks that are not normally listed and excluded by the peril policy. Usually, mobile home owners can buy the following mobile home insurance packages:

  • Personal property
  • Personal liability
  • Fire and extended coverage
  • Additional living expenses
  • Emergency removal expenses
  • Consent to move
  • Transportation coverage
  • Lien holder’s single interest coverage

Note: Some packages are optional to purchase.

What To Do To Get Mobile Home Insurance

To find a mobile home insurance policy that’s right for you, you should ask your family and friends for recommendations or shop online for a free mobile home insurance quote from an insurance rate generation website or a private insurer you may know of. However, beware; the insurer will ask you some questions about yourself and your mobile home, regarding its age, the amount of finances you have, and if your home meets tie down requirements.

Your mobile home may shelter you from the outside elements now, but the chance of loss will always exist. Shop around for the right mobile home insurance policy that fits your needs. And remember; the more options you have, the more likely you will walk away with awesome coverage and an affordable monthly premium.

Staff contribution: Brandon Clayton

 

About InsuranceAgents.com

InsuranceAgents.com provides consumers with access to insurance information including articles, quotes, and comparisons.

http://www.InsuranceAgents.com/

ONE PRICE SELLING OR WHEEL AND DEAL?

By Carl Davidson of Sales & Management Solutions

One of the questions each of us has to ask ourselves as we approach the new millenium, is – Will your company go with a one price policy or will you stay with the traditional wheel and deal system? Most articles you see today are in favor of one price systems but before you make your final decision, here are some factors you might consider.

One price sounds like a great policy. It sounds more forthright and it sounds like something you can be proud of. But like many utopian concepts such as “all men should work hard and share their wealth” it may lack a little in the execution department. After all, the basic principles of communism and socialism sound good on paper, but the good old capitalist system beats them every time in economic performance and in citizen satisfaction. To prove this, we need only look at North and South Korea or East and West Germany. The free enterprise country has flourished while the more controlled country is an economic disaster.

The first question to consider is, “Do people want a single price?” History and a look at other industries may show they may not. Look at our sister industry – site built homes. That industry is still dominated by the give and take of offer and counter offer. If single pricing worked, realtors would simply post a price on the for-sale sign and wait for a deal. Look also at other large transactions such as art auctions. Why are expensive works of art sold at auction instead of simply placed in a showroom with a big red price tag on it? Why, throughout history, has haggling remained an enjoyable pastime in almost all cultures? Where is the history of one price trading throughout the history of mankind? History seems to show that in large ticket transactions, human nature wants to haggle.

Let’s take an auction for example. A few months ago, my wife and I attended a livestock auction just for fun. We didn’t want livestock and have no use for any but were out for a day in the country. After a while, a small goat came up for auction. The auctioneer asked for an opening bid of $50. When no one replied, he asked for $40, then $30, then $20 but still no bids were made. When he hit $15 a bid rang out and to my horror, my wife made the bid. “Why”, I asked, “would you bid on something we don’t need or want?” She replied that at $15 it was such a bargain she couldn’t pass it up. The bidding then started in earnest and the auctioneer skillfully raised the price. My wife kept bidding because now she viewed the goat as “hers” and wanted to stay in the running. The goat was finally sold under rapid, competitive bidding for $70. Luckily it wasn’t sold to my wife. What does this show about human nature? Why were many people who wouldn’t offer $30 for the goat in the beginning willing to offer $60 and finally $70 to own the very same goat? The answer lies in human nature and the emotional desire to get a special deal.

Every study ever done on selling shows that people decide to purchase based on logic but they decide to do it now based on emotion. Let’s compare the sale to love. When you meet someone in a relationship, hopefully you use logic to determine if you are a match but in the end, it is emotion that makes you decide to go ahead and make a commitment now! Many sales people in our industry have no problem interesting people in homes but they have a bigger struggle in getting them to commit now. One price marketing makes the entire sale logic and removes the emotions that make it worthwhile to go ahead now.

Some people point to the automotive industry as a successful proving ground for one price systems, but there are several differences between that industry and ours. No industry has such a bad reputation for making the purchase experience about as pleasant as a root canal as the automotive industry. Many people will do anything to get out of the normal wheeling and dealing they perceive as stacked against them. However, a closer look reveals key differences between our industry and theirs. Our normal prospect is slower to decide because it’s a bigger decision and a more complex transaction. Many automobile dealers say that 80% of the people who visit their automotive dealership have bought a car within 7 days. Our customers take longer to make up their minds. Also, in the 70’s many automobile dealers tried one price systems but a large number have returned to traditional pricing because it simply did not deliver sales as well as traditional methods.

Many people point to the success of Saturn and the new mega chains of used auto stores as successes, but Saturn is selling to a very specialized market. They represent a very small segment of the total. If it has worked so well, why haven’t more of the big franchises jumped on the band wagon? As for the mega chains, it’s too soon to make a definitive decision but is it the pricing or the perceived value of a huge selection and strong warranties that have made them popular so far? You will know for certain if you see a significant number of traditional dealers switch to one price systems in their used car divisions.

Another question to consider is – which party to the transaction wants to change the price? Most manufactured home sales people start out a sale by listing the home and options and arriving at a “list price”. If the customer didn’t want a lower price, I assume the sales person would stick with the “list price” . That means that the customer is the one who offers something less than list price or normal terms. Even though the say they hate to “wheel and deal”, they are the ones who say things like “That’s a lot of money” “Can you do any better?” “What’s your best deal?” and other phrases that get the negotiating rolling. Bargaining is like scratching yourself. No one says they do it but a lot of it goes on behind closed doors.

Many one price companies pretend they are one price but offer special concessions in financing, set up or options which is the same as negotiating the price. This is because it’s only natural to try to get the sale by sweetening the deal if the customer isn’t buying your original offer. I recently went to an automotive dealer who advertised all over our area “The Price Is The Price”. After taking a test drive and listening to the reasons why they don’t negotiate and why they are too ethical for price changes, I told the sales person that I could buy the same vehicle 15 miles away for $150 less. Did they throw me out for telling them this? No, they offered to match the price, so in the end the price was not the price. It’s basic human nature for a dealer to want to get a sale for $150 less after getting so close to the sale. As far as ethics goes, it looked more unethical for him to change the price after bragging that the price was fixed. Because of this, dealers who go with one price systems should stick to the plan or work out an alternative plan that saves face if they do discount to get the sale.

Possibly the most important reason not to go with a one price system is the huge hole it leaves in the sales process. In a typical presentation, the sales person has found out what the clients are interested in and presented the home as fulfilling their wants and needs. Now, the couple and the sales person return to the office and the sales person works out a “list price”. If that is the final price, this ends the sale. They don’t need to get any more information. They now know what you have to offer and how much it is. What is the normal reaction to this situation? In smaller ticket sales like a pair of socks, they decide to take it or not, immediately. The bigger the price the more they tend to think it over. Since our product represents one of the largest purchases of their life they will want to give it careful consideration. One important factor in every purchase is the price. They can think about how the price affects their budget on their own, but one other normal consideration is the question, “Is this a good price for the home?” The only way for them to solve the question is to contact another dealer and find out. When that happens, you have a very strong chance that your competitor will find out your price and beat it by enough to get the business. The company that uses logic to present the home as the right one and then uses the emotion of getting a great price will always close more sales.

But what about image and ethics? Since customers are the ones who want to negotiate a lower price, it isn’t unethical. Anyone who sells at a one price store will tell you they spend a lot of time explaining the one price policy and the price. If it was natural human behavior, no explanation would be required. The fact that you need to explain shows you are changing what they expect and what is natural. We have noticed however, that one price companies train their sales people to spend a lot more time telling the customer great things about the company, while stores that negotiate often skip this step and focus on the price. We feel that non-one price stores would do well to make sure their entire staff tells the customer great things about the product and company as part of every presentation.

Before you decide which is right for you, make sure you look at both sides of the arguments. It is possible to be ethical no matter which option you choose. If you look at the natural sales process, the history of selling since the dawn of time and human nature, we believe you will find that even though the one price concept sounds great on paper, negotiating is more natural, more efficient and more profitable.

 

Carl Davidson is President of Sales and Management Solutions, a company providing audio and video sales and management training cassettes for the Manufactured Housing Industry as well as live seminars. You can reach Carl Davidson:

LOCKING UP THE MARKET

By Carl Davidson of Sales & Management Solutions

One issue that many dealers feel strongly about is the image they project to customers. That is why the question of whether they should lock the homes on display or leave them open for unattended viewing is so important. We have surveyed our clients and want to report the pros and cons that dealers across the country told us they have found over the years.

There are two main reasons, proponents of open homes site. The first is the laid-back, no pressure image that open homes convey. Many dealers told us that especially their customers who are seniors prefer to walk through the homes on their own. The second benefit several dealers sited was the fact that you can handle a lot more people with a lot fewer sales staff of the homes are open. That way, the people look through and only tie up staff if they are interested or have questions. These are definitely benefits to take into consideration.

I have to confess that I am a strong proponent of locking the homes and controlling the flow of customers. As part of my research for this article, I toured several dealerships disguised as a customer to try to feel what your customer feels. I am now convinced more strongly than ever that locking is the correct approach.

Is there any other industry you can name that allows people to wander through their assets that cost $40,000 to $150,000 unattended? Certainly very few do. The reason is two fold. First, the assets need to be protected. That’s a lot of money to leave open and unattended. Secondly, in an industry with that type of inventory, the sale is large and the inventory complex. The customer represents too much money to allow them to wander unattended and the inventory is so complex that few customers can understand and make a buying decision on their own. Try walking into an expensive jewelry store and tell them you hate pressure, so would they put out a few rings and allow you to browse on your own and watch their reaction. The truth is that most insurance companies would not be happy if they knew that the homes were left unlocked and unattended during the day.

As we travel around the country, we have noticed that the stores who leave their inventory unlocked tend to do less decorating and display in the homes. This is because they know items like dishes, crystal and flowers have a habit of disappearing. Also, sales can be lost when problems like carpet stains, unauthorized toilet use, cigarette burns and more happen and are not caught because the home is not in the care of an employee. There is no doubt that locked homes are usually better displayed and decorated and are usually cleaner and without accidental burn holes, stains or other blemishes.

The fact that most dealers who do not lock their inventory or control their customers say they do it to be less pressuring shows that they consider their sales staff to represent pressure instead of assistance. If you really believe that, you should re-train your staff in the art of consultative selling. Modern home inventories are so extensive and complex, that customers cannot make up their mind on their own. The old adage remains true – after a customer has seen 3 homes, they are so confused as to which model has which features, they will need to “go home and think it over”. Dealers who let customers wander through 8 or 10 models get this reaction far more than they need to and are costing themselves plenty in sales they could be closing NOW! Have you ever wanted to buy something in a crowded store but had a few questions? Have you ever not made a purchase because you couldn’t get a sales person to assist you? At that moment did the sales person represent pressure or much needed help? The same is true for your customers. If they are really interested in purchasing a home, they know they need assistance and appreciate having their questions answered.

An interesting exercise to try is the “customer walk”. To do it, pretend that you are a customer who knows nothing about manufactured homes. Now, walk through your models and see if you would know enough to make an intelligent decision. Most people don’t even know how much they can afford per month without assistance, let alone the fine points of construction, warranty, what is included in pricing, delivery times, other models available, options and hundreds of other points. That fact is, in our industry, customers need assistance to make a reasonable decision.

I also recommend that all the display homes be in one area and that they are only accessible when the customers walk through the sales office and are accompanied by a sales representative. The map shows a typical layout. There are several advantages to this style. The customers should be able to easily identify the sales office or “Welcome Center” through flags, signs and parking area. The couple only has to get in and out of the car once. The fence around the display models means that all customers must come in and out through the Welcome Center. That means even if you do allow customers to walk through the homes on their own, you still get to talk with them in the office before they can leave. Best of all, when the customers are through with their tour, they are back in the office and ready to sit down and ask questions. This type of layout is more convenient for the customer and the sales staff as well as being safer for the company assets.

I think you will find that if it is done in a friendly way, customers understand that the homes have to be controlled. They will especially appreciate your policy if they decide to purchase a floor model. In addition, many customers prefer to not be out in the extremes of weather looking through 10 or 20 homes they have no interest in if a skilled sales person can find out what they like and steer them in the right direction.

The next sentence you are about to read is critically important. You cannot manage what you cannot measure. The number one thing that dealers in our industry need to manage and measure is the number of people coming in to look at homes. Dealers who do not control their traffic flow have no idea how many people are coming in or where there are coming from. That means they do not know their closing rates and they cannot enforce a system where sales people must report the name address and phone number of each person who comes to the store to look at homes. In today’s economy, it costs about $400 in interest, advertising and overhead for each person who comes out to look at product. Our work with clients tells us that less then 5% of sales people record this critical information on their customers. This means that as an industry we are wasting millions of dollars in advertising.

It also means that the company is giving up control. If you do not know how many people come in and closing rates, you cannot know who how many you should be selling and how much you should be making. In addition, stores that do not even know these basic numbers can never follow up on prospects to find out why they did not invest in a new home. This means they have no way of knowing if their display, sales techniques or prices are costing them business. In short, failure to control the traffic means giving up the ability to measure and control the sales department.

As we look through our client lists, it is clear that the companies who do control, manage and measure traffic far out sell the companies who don’t. For all these reasons, we feel that assisting the client to make the right decision isn’t pushy or aggressive, it’s just good service for the customer and good business for the company. Remember that there is no such thing as pressure if a person is interested in your products and you are looking out for their best interests. So if you have been unlocked, think about giving better service and increasing sales by controlling your traffic.

 

Carl Davidson is President of Sales and Management Solutions, a company providing audio and video sales and management training cassettes for the Manufactured Housing Industry as well as live seminars. You can reach Carl Davidson:

ARE YOU REALLY SERIOUS ABOUT DEVELOPING A WINNING SALES TEAM?

By Carl Davidson    of   Sales & Management Solutions

As we travel around the country working with all types of companies in the industry, it seems that the companies with the most stable sales forces are by far the most profitable. That means if you are constantly turning over your sales people, you are losing more than staff, you are losing a lot of money. Now, more than ever, dealers need to look at ways to recruit and keep a winning sales team.

One problem with staffing is that as homes have gotten more complex during the last decade, so have laws relating to personnel. Our clients estimate it cost between $10,000 and $15,000 in invested time, money and lost profit every time you hire a new sales person. In addition, every hiring experience is like unprotected sex. You allow a new, untried person to have access to your staff, your assets and your customers. The new member can bring you a lot of profit or a lot of pain. What can you do to improve your averages?

The first step is to realize that recruiting is a never-ending occupation. As the economy has strengthened and fewer people are looking for sales positions, the chance of finding quality staff members by simply putting an ad in the paper the week you need new sales people is getting smaller and smaller. Most dealers report that their most successful sales people weren’t looking for a job when they were recruited. They had a job and were successful at it! If you are dealing with newspaper respondents only, they are mostly the unemployed and the desperate. To find the winners, you need to recruit or court the winners  that is the people who make good money and get along well at their present job.

Sound tough? It is and that’s why so many companies take the easy route of hiring anyone who answers an advertisement and hoping they will work out. It did work in the ’70s but it’s the road to ruin in the ’90s. In today’s market, you have to see the recruiting process as a sale. The first thing you need is lots of prospects and the realization you will only be closing a small proportion of the people you approach. Write out a simple brochure on why your company is a great place to be employed. Write how it offers security, opportunity for advancement and fringe benefits. You need to offer these things to attract someone who is already successful. Once you have the brochure, pass them out freely to everyone. They only need to cost a few pennies each to be effective. Next, target industries that have delivered great sales people before. If you have done well with people from the insurance industry for example, find ways to meet insurance agents and promote your opportunity until you land some.

Most of all, don’t be afraid to close and overcome objections. I am always amazed that when most of us offer a position to a prospective sales person and they turn it down, we often immediately shake hands and move on. View any recruiting attempt as a sale because that’s exactly what it is. When they say “no” dig in and overcome their objection, don’t fold like a cheap suitcase. The tougher the person is to land the more successful they may be for you. Remember, it’s all a numbers game like sales. You may need to approach a hundred or more prospects and sell them, in order to recruit one or two great sales people. Some people say this is too much work, but the fact is that nothing adds more to the bottom line that recruiting a winning sales person. Because of that, recruiting them should be a top priority and one that you spend enough time on to get all the great sales people you need.

Recruiting them is one thing, but getting them to stay and make a career at your company is another. There are several factors you must offer if you want the best people to stay and grow with your firm.

One factor is security. The days of hiring great sales people on commission only are over. There are just too many companies out there who offer salary plus commission. Actually, it’s a good thing this has evolved. In the old days, you could hire anybody and keep him or her as long as they could stand it. After all, they weren’t costing you anything. But the truth was, they cost you plenty in lost gross profit and lost image. It’s better to be so strict in your hiring standards and expectations so that you can hire with a salary and not be afraid of losing money. As an experiment, try offering different base salaries in several ads and you will see that different salary plans attract different caliber applicants. No one will leave their present job (if they are successful) unless you offer some security against starvation.

Another factor to make sure you offer is opportunity. Why would someone who is successful in sales at their present company want to join your team? The answer is usually perceived opportunity. That means if you are the owner and manager of a single lot operation, there is nowhere for a sales person to advance to unless you die or retire. Successful people want to get ahead. They want to brag about what a great opportunity they have. You have to build in opportunity for advancement to attract them and to keep the winners. Make sure you have a concrete plan of where they can advance to during the next five years.

Another trend in recent years is the trend toward concrete, guaranteed results. In the past, all you needed to recruit was a friendly smile and a way of telling prospective sales people that “you just knew they’d do well.” Now, our clients report guaranteeing results is a better way to recruit and keep the best. To do this, we recommend that you enter into an actual written contract that states what the employee will do and what you will do to guarantee success. Here are some of the things you could agree to do:

We agree to generate an average of 10 prospects for you per week. You agree to generate an additional 10 for a total of 20. To generate your 10 prospects, you will need to approach by phone or letter 100 people per week. If you cannot get 10% of the people you approach to come in to see our products, we agree to assist you in developing your techniques until you can. We agree to train you about our products and company until you can close a minimum of 10% of the people you show homes to. This will result in 2 sales per week on the average and will result in an income of $65,000 your first year.”

That example contains all hypothetical numbers. The numbers you might agree to would be different. But getting that agreement on the table in writing does two wonderful things. First, it gives a potential recruit a strong feeling that they will be successful and that you know what to do to make sure they are. Secondly, it gives the company something to measure from the very first week. It gives the company a way of knowing when the recruit is turning out well and when they need to pull the plug before losses mount. It is shocking to me how many companies have sales people who are not doing well on the payroll for far too long. To be successful, you need to set criteria that must be met for the sales person to keep their job. You also need to communicate these criteria in writing and up front so that the new recruit know exactly what is expected.

Finally, you need respect for your company and for your sales team. Respect for your company means that if you are offering a good opportunity and pay plan, you should expect to recruit successful people who are professionals with a track record of success. Unless you have more money than you need and are really running your company as a charitable institution, you will not be successful rehabilitating or changing people. Respect for the sales people on your team is something you should emphasize in recruiting and in keeping staff. Lack of respect is the factor that makes successful sales people look for a new company to work with. If your company is honestly happy when a sales person makes good money and doesn’t see them as loud-mouthed, over-paid do-nothings, let your staff know that you understand that sales is a tough job that needs to be rewarded well when done properly. Understanding this factor has allowed me to recruit some of the best sales people I ever worked with, so play the “respect card” when ever appropriate if you honestly respect sale people and wan them to succeed.

As we race toward the millennium, our business is evolving. Make sure you evolve along with it and spend the time you need to have the very best in sales staff. Make sure you stay in tune with the changing desire for security, opportunity, guaranteed results and respect. Most of all, set your standards high and keep track of what is being done on a daily basis to help the company, the sales person and the customer to fulfill their dreams.

 

Carl Davidson is President of Sales and Management Solutions, a company providing audio and video sales and management training cassettes for the Manufactured Housing Industry as well as live seminars. You can reach Carl Davidson:

SOLVING THE PROBLEM OF RECRUITING SALESPEOPLE

By Carl Davidson   of   Sales & Management Solutions

Many companies in our industry are under-staffed in the sales department and do not realize it. Not only does this cost the dealer sales and profits, it shifts all the power from the company to the sales people. Many members of your sales staff want you to be understaffed. It gives them several advantages.

First, if you are understaffed, it means they get more customers than they need to make a living. They don’t have to worry about following up or generating lot traffic, there will be another customer for them in a few minutes. The problem is that this situation may help the sales people make as much money as they need while your company could be left earning far less than it’s true potential.

Secondly, discipline is impossible when you are understaffed. What are you going to do, fire them? You can’t even cover the floor now. Not only is discipline impossible, but many understaffed companies fall into the “I’ll hire and keep anyone” syndrome because they are afraid to let anyone go who is covering the floor  even if they are adding very little to profit.

Here are a few tests to see if you are understaffed:

1.  Average Customers Per Sales Person

The most successful dealers around the country seem to do best when they average 2 customers per day per sales person. The number one step in controlling your dealership is to keep track of how many people look at homes each and every day. This is the only way to manage and measure performance. On the average, sales people need about three parties per day to show homes to. That’s about 1,000 per year. If a sales person closes at the national average rate of 7%, they would sell about 70 homes per year. If your sales people are averaging more than 3 per showings day, it indicates that your store is understaffed. This may result in the company performing far below it’s true potential.

2.  Prospecting Activities

Another important measure of performance is the ratio of customers generated by the staff. Our research indicates that your sales people should average 3 prospects per day. However, we maintain that the company should provide them with 2 of these and the sales person should generate 1 per day from prospecting activities. If your staff does not prospect enough to generate 1/3 of their customers, it is an indication that you are over-staffed and that they do not need to prospect to make a living.

3.  Other Opportunities

Another measure of your staff numbers is this. Are you able to staff your store and still put sales people in trade-shows, malls, park displays etc.? If you are not able to take advantage of these opportunities and man your store at the same time, it probably means you are under-staffed.

4.  Customer Friendly Hours

The fact is that in our industry, most sales are made when the public has time to shop. That means evenings, Saturdays and Sundays. If your store tends to be open Mon-Fri 9 to 5, it is an indication that you are understaffed and are not available to serve the public at hours when they are available to buy. Make sure you are not setting your store hours based on how many sales people you have instead of what is best for the company and the customers.

5.  Level Of Performance

If you see your staff just waiting around for customers and under no pressure to generate new business, get referrals, follow up etc. that is an indication that it is too easy for them to make a living off the “walk-ins”. This is usually an indication that the company is under-staffed.

If you determine that you are understaffed, what can you do? Unemployment is at an all time low and recruiting sales good sales people is more difficult than it has been in many years. Newspaper advertisements just do not seem to work for most dealers.

Sales and Management Solutions offers a service to it’s clients where it will recruit and train new sales people so you don’t need to be understaffed. They find great sales people by electronically scanning almost 1 million resumes on the world wide web and selecting prospective sales people based on background and experience. They send clients the 20 best resumes available every month of candidates who live within 30 miles of your location. This allows clients to always have a pool of good sales people to choose from. They not only find great sales people but they do it for less than the cost of newspapers or any other recruiting method.

So, take a good look at your dealership. If you find you are understaffed, make a decision today to start recruiting until you have the right number of great sales people on your team. It is probably the most important thing you can do to improve your bottom line and your level of service to your customers.

 

Carl Davidson is President of Sales and Management Solutions, a company providing audio and video sales and management training cassettes for the Manufactured Housing Industry as well as live seminars. You can reach Carl Davidson:

How to Choose a Property Management Software Program

Keeping track of the complex details involved in property management can be overwhelming. However, a reliable computer software that combines all the different components needed (accounting, spreadsheets, word processing, utilities, management functions) can become a manager’s best friend! Constant repetitive tasks can be reduced to a simple click and you’ll find the volume of information the software provides will help you do your job better.

Over the past decade or so, numerous brands of property management software have appeared in the market, but not all of them are the same. With so many property management software choices out there, one can be confused where to begin. And because the industry of property management covers a multitude of areas (retail, commercial, apartments, condos, manufactured home communities, storage facilities, homeowner associations and student housing) how do you weed through all the choices and information to select the one that best suits your specific business needs?

The best way is to determine this is to ask for a demo or trial version to exercise your daily routine of tasks with the program to see if it will really make your job easier. And if your business objective is to have additional staff use the product, include them in your research and product reviews to determine how user-friendly it is. Many times top managers make decisions on selecting software without including input from the actual employees – whether in the office or field – who will be using it everyday.

Most of the property management software on the market claim to make the job easier, but do they really?

All of them provide a good selection of basic features, but it’s more important to find out how the program will work in everyday “real world” situations. The following is a list of questions and guidelines that may help you:

  1. Will it make your job easier? For instance, is it easy to enter and find customer transactions? How fast can you find it when someone calls? Some programs on the market are heavy on the accounting side, but in the functionality of everyday situations they fall short. Look for the details and the functionality of running multiple features at one time with quick navigation. Be sure everything is connected with screens that allow you to connect to other information so you don’t have to go through several menus to find what you’re looking for.
  2. Does it maximize today’s technology? Basically, this means how compatible is it with the current Windows applications and if it has a modern-looking interface? Microsoft® Windows has come a long way, so look for functions that take advantage of those easy-to-use features such as right-clicking the mouse for added options and a guided set-up wizard for easy installation. Also, the ability to do automatic live updates online will keep you current in the latest available version of your software.
  3. How long has the software program been around? Every year, at least one new property management program appears and one disappears. Don’t be fooled by how long the company says they’ve been around. If a program has been in existence for some time, you can probably be sure it will be around in the future as well. If you’re looking for an on-line software version, be sure to find out how long they have been offering that service. This point can issue how up-to-date they are on the newest software technology.
  4. Ask about end-user support. A company’s support policy speaks volumes about their program and service. If the support plan is timed, limited or overly expensive, it may indicate the program requires a lot of hours in technical support. It also can indicate a lot of high-cost training is required to use it. Training costs can be expensive and extra, so be sure to find out.
  5. What are the program’s features and functionality? Make sure the software has all the features you’re looking for and that they are functional. Don’t be fooled by the advertising “checklist.” Make sure the features are robust and do exactly what you want the easiest way possible. Look for detailed features and user-friendly functions such as the ability to resize windows, correct mistakes easily and a powerful word processor to easily write letters or create templates and leases. Other necessary features would be check writing, work orders, modifying/reoccurring charges, complete transaction histories, tracking security deposits, refunds and customer facts.
  6. What are startup and future costs? Before you purchase, make sure you know all the costs upfront, including training. Some programs may have low monthly fees, but their startup costs can be very high. Also find out if there are annual recurring fees and if so, what will the cost be over the next two, three, four or five years? Ask if upgrades are included in the price. Make sure the software has the capability to grow with your business and what costs are associated with that.

Another important issue to consider is to be sure the software product is going to be compatible with your business. Some software is very industry-specific even though they market themselves otherwise. For instance, the program can focus more on apartment leasing than management or it was designed for the storage industry and lacks in accounting functions. Get references and check them out!

And finally, ask around. Find out what others in the industry are using and compare notes. Go to online forums on the software’s Web site and see how customers rate it and to view its strong or weak points. You’ll also see if issues are resolved or just ignored. That will give you another indication of the company’s attitude about customer service and how they will handle your potential problems.

 

This information was submitted by London Computer Systems Inc.– developer of Rent Manager™ property management software since 1982. Rent Manager™ began in the 1980s when David Hegemann, president of London Computer Systems Inc., decided to utilize emerging computer technology and write the first version of billing software while working for his father’s campground and MHC. Today, Rent Manager™ is used globally in all areas of property management but is still most well-known and used in the manufactured housing industry. More product information can be accessed on their Web site at www.rentmanager.com. Contact info: Julie Savchenko, Marketing & Public Relations

 

Contact info: Julie Savchenko
Marketing & Public Relations
Ph 800-669-0871, x247 ◦ Cell 513-623-3158  
E-mail: julie.savchenko@rentmanager.com

Financing Smaller Mobile Home Parks

By Steve Murden, Star Capital Corporation

Many first-time and experienced commercial real estate investors are turning to mobile home parks for strong returns on their investment.  Parks tend to have higher CAP rates than apartments and have similar stability with lower expense ratios.  There is an endless demand for affordable housing in just about every market in the country and manufactured housing meets the needs of low to moderate income tenants.

For many real estate investors, there is a limited amount of liquid assets available to purchase an income producing property and they must look at properties that are more affordable.  The properties below the $1,000,000 sales price are more reasonable to purchase and manage.  Financing is available for loan amounts starting at $100,000 up to 90% LTV.  This has opened the door for many investors that were purchasing single-family homes and basing the investment on appreciation rather than cash-flow.  Even a smaller park can produce a healthy return without a great deal of capital.

The decision many potential park owners must make is whether to acquire a park where all of the homes are owned by the tenants or one that may have a high density of homes owned and rented by the park.  The “pad-only” parks are much easier to maintain and operate, but do not produce the higher returns that can be achieved by renting out the homes.  The maintenance of the homes can be cumbersome for those without on-site maintenance or experience in repairing mobile homes.  Many parks have a mixture of tenant-owned homes and park-owned homes which can provide good cash-flow without taking on 100% of the maintenance of all of the homes.

Lenders do not consider the value of the mobile homes when appraising these parks which can create a problem with a seller basing the purchase price on the net income from both the pads and the rental homes.  If the homes are not taxed as real estate, they are not collateralized by the lender and their income and value are not included in the underwriting.  This leads to situations where the seller must be willing to carry a note on the trailers to meet the needs of the buyer and the available liquid assets to put into the transaction.  Lenders will finance the park based on the appraised value of the real estate and the notes on the homes do not affect the combined loan-to-value ratio.

We have structured many park acquisitions with a combination of debt on the park and seller-held notes on the mobile homes.  The buyer’s strategy may be to increase pad rents over time and thus increase the value of the park to a point where at the end of the seller’s note, they can refinance the park based on the pad rents and pay off the outstanding balance on both the park and the homes.  In addition, the buyer may create notes with the tenants to purchase the park-owned homes and sell these notes to note-buyers as a portfolio of performing seasoned loans.  The exit strategies for these seller-held notes vary, and we see investors getting more and more creative.

There are many smaller parks available for sale and they must be evaluated closely to determine whether they are a good investment.  Those that are purchased at a fair price with up-side potential can be a great addition to an investor’s portfolio.  Many parks have not raised rents in a number of years and are in improving markets.   The buyer must consider the current cash-flows along with the long-term potential of the investment.  The acquisition financing is crucial to getting into the park and creatively structuring the transaction is necessary to meet the needs of both buyer and seller.  Understanding the available loans for these parks is an important aspect to negotiating the purchase.  With smaller loans available at high loan-to-values, there will be many opportunities for park-investors to acquire multiple parks and spread out the risks.

 

Contact Steve Murden at 540-342-6520 or email stevemortgage@aol.com or visit his  website at www.starcapitalcorporation.com

Risk Management Guidelines

The following list contains recommendations from a number of agencies that are hired by insurance carriers to survey Mobile Home Parks.  By following their recommendations, hazards or potential hazards in a park can be reduced.

  • Distance between homes should be at least 15 feet.  Distance between frame structures in the park should be at least 40 feet.
  • Trash should always be placed in the dumpster and not left to accumulate on the ground.
  • Roofs, wiring and plumbing should be inspected annually and repaired as needed.  All aluminum wiring should be replaced with copper.
  • All buildings should post maximum occupancy and have emergency lighting at each exit.
  • Reflective tape/paint, should be used on areas such as steps, speed bumps, and post to prevent collisions and injuries.
  • All buildings that require more than two steps for entry should have handrails.
  • All buildings should have working smoke detectors.  A replacement program should be in place to test and replace when needed.
  • Ground fault interrupt outlets installed near sinks or tubs.
  • Carbon Monoxide detectors should be installed in all rental units.
  • Fire extinguishers should be visible in all buildings and rental units.
  • All flammable materials should be properly stored.
  • Branches hanging over all buildings and homes should be removed.
  • A maintenance program should be in place to correct problems.  For example, if your road begins to break up, have it repaired before you have potholes.  Areas to observe include:
    • Walkways
    • Parking areas
    • Fences
    • Yards
    • Landscaping
    • Storage areas
    • Furniture
    • Fixtures
    • Interior and exterior lighting
    • Public restrooms
    • Laundry areas
  • All pools should be fenced.  Signs informing people that they are swimming at their own risk should be posted in large type and placed around the pool.  Water should also be tested daily. Owners should have detailed rules posted regarding use of the pool.  Area should also have:
    • Self closing, latching gate
    • Fences should be chain link and at least 6 feet in height
    • Depths marked in and around pool
    • No diving boards or slides
    • Pool chemicals stored properly
    • Proper live saving devices should be on hand
  • All facilities should be inspected regularly, i.e., fitness rooms, game rooms, maintenance shop, golf course
  • A first aid kit should be well stocked and easily available
  • Owners who have managers should make sure that managers have a detailed procedures manual, including the phone numbers for the local police, fire and animal control.
  • All weeds and brush should be cleared from around buildings.
  • Playgrounds should have the following:
    • Adequate protective surfaces, minimum of 12″ of sand, wood chips, or mulch.  Two thirds of all playgroundinjuries are caused by falls. A primary way to lessen this hazard is to install proper fall cushioning material.
    • Play structures more than 30″ high should have at least 9 feet separation between structures.
    • Elevated surfaces such as platforms should have adequate guardrails.
    • Playgrounds should be cleared of all trip and fall hazards i.e., concrete footings, tree stumps, rocks etc.
  • Water quality and pressure should be checked regularly
  • Precautions should be in place when large amounts of cash are on hand
  • Speed limit signs of 10 miles per hour should be posted and speed bumps should be located throughout the park.
  • LP fill station should be checked regularly for cracks or rust around tank(s)
  • Maintain a hardbound complaint log to document all resident concerns.
  • Management should enforce rules and regulations in the park
  • Limit the types of dogs and size that are allowed in the park.  Have a set of rules for dog owners.
  • Trampolines should never be allowed in parks
  • All overhead wires should be at least 24 feet from the ground.
  • Trampolines should never be allowed in a park
  • Access to and from the park should be free of all obstructions

A good risk management program does not have to be expensive or time consuming.  It does need to be reviewed, updated and shared with your staff on a regular basis.  A risk management guide is available through the Small Business Administration.  http://www.sba.gov/library/pubs/mp-28.doc  Another free source of information is the Hartford Small Business Loss ControlDepartment.  http://www.sb.thehartford.com/reduce_risk/loss_library/General_Safety/

Specializing in insurance for Mobile Home Park

Manning & Nozick Insurance Agency * 53 Perimeter Center E. Suite 120 * Atlanta, GA 30346
Phone 800-211-0468 ext 117 * fax 770-393-8302 * e-mail jayz@manning-nozick.com