December 2009

This issue of the MobileHomeParkStore.com and MHBay.com Newsletter includes: 

1. The Frank & Dave Christmas Show
2. Article: The 100 Best Ways to Fill a Mobile Home Lot, by Dave Reynolds
3. Article:The Mobile Home / Manufactured Home Community Industry Turnaround Plan, by Dave Reynolds
4. New Years Resolutions, by Dave Reynolds
5. Last Chance in 2010
6. News stories affecting the Mobile Home Park Industry
7. Tell us what you think and send us your articles!

Wishing Everyone a Safe & Prosperous New Year.

The Frank & Dave Christmas Show

Part serious, part fun.  We hope you enjoy.

Click Here for Details

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 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 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 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!

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 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 of the cost and the other three sectors share the other 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.

New Years Resolutions

For those of us that currently own a mobile home park or are planning to buy a mobile home park one of the biggest obstacles we have is to rent our vacant lots. Face it, it is tough to rent lots with the lack of financing for new manufactured homes to be put into parks or communities.

Many people think that the goal is to rent all 25 or 50 vacant lots in their park. For example, I own a park of 100 lots with 50 vacant lots and I want to rent those 50 vacant lots. That should not be the goal. Remember the movie "What about Bob" and the concept of "Baby Steps". That is exactly what we should focus on.

Our goal is much simpler, we need to rent one lot without losing any of the rented lots. Then after that goal is accomplished, we repeat.

How do we accomplish this goal? Of course we can keep on doing what we have always done. Run an ad in the paper, put a sign up at the front of the property, place a listing on the internet, or go out and buy a home and move it in to sell it. However, what we should be doing is looking for additional ways to fill our vacant lots. From the master of No B.S. Marketing, Dan Kennedy, I took away a simple concept that goes something like this:

You should not be doing one thing 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.

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 over the next month I will be compiling all of these ideas into a mass list and share them with whoever participates in the program. As a special bonus, anyone that sends in at least 10 ideas will be entered into a drawing for a copy of our Mobile Home Park Investing Home Study Course. And if you don't win the Home Study Course, you will be given an opportunity to purchase it at a discount. But the best part is that you will hopefully receive a list of at least 100 ideas to immediately implement to get that next vacant lot rented!

Last Chance for 2010

If you have been considering attending one of our bootcamps now would be a great time to sign up.  The price will go up on December 31st so to take advantage of the discounted prices we are offering until then.

Click Here Now to find out more!

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