How to Prepare Your Mobile Home Park for the Coming U.S. Recession

Unless you're George Bush, you probably already realize that we are heading into a national recession. And if you agree that we are heading into economic trouble, then it is worth your while to make preparations to survive  and prosper  during this cycle. It's important to remember that it takes time to make adjustments in your business plan, so you should start making these changes immediately.

Focus on Affordable Housing

The universal desire during a recession is to keep costs low. Consumers are looking to find the cheapest housing they can. Instead of focusing on bringing in newer homes that look nicer in your park, instead concentrate on older, uglier ones that can be sold or rented cheaply. Remember that old, ugly houses have no monthly mortgage payments and that means that your customer only has to pay lot rent to survive. You will have a more solid, bill-paying tenant base with older, paid-for homes.

Be Tougher Than Ever on Collections

When money is tight, your tenants have to pick and choose which bills to pay. You must never let them think that the rent can be delayed or missed. You must keep the big club of eviction dangling over their heads at all times. Never miss a beat on getting out your demand notices and filing evictions. And keep pressing with writs of execution don't delay because you are worried about losing tenants during a recession. These folks are not going anywhere. They can't afford to move their homes but they can afford to pay your lot rent. At minimum wage, you can still afford the average mobile home lot rent of $200 per month or so. So be relentless and keep your tenants' priorities straight.

Keep Raising Rent Annually

Some park owners make the mistake of delaying or eliminating the annual lot rent increase during recessions. The problem is that you still need that annual increase to cover the increased costs of running the park, plus ever greater cash flow to meet your budget and reward you for taking the risk of buying a park. There is no way that a tenant is going to be pushed over the edge by a rent increase of $10 to $20 per month. However, if you do not keep the rent escalating, you may soon find that you are losing your battle and having reduced net income annually. If you do not raise the rent a little every year, you will have to make a huge jump down the road, and that will be much more offensive to your tenants.

Cut Costs

Question every bill you pay. Do you really need that extra phone line? Can you mow the grass every two weeks instead of weekly? Never write a check without thinking of at least three different methods to cut that cost. Often , such as the power bill, there is not much you can do to about it. However, a lot of times, you do have some discretionary control over what you spend, especially in repair and park maintenance categories, as well as administrative and office costs. Although you do not want to live you life that way, it does not hurt to role-play the penny-pinching miser out of a Dickens novel. By focusing on cost control, you will spread that gospel throughout your organization.

Approach Loan Renewals Well In Advance

One of the big hurdles of a recession is the sudden disappearance of the usual banks and other lenders. In a world in which Indymac can fail, why not your lender, too? In that type of environment, you need to allow yourself extra time to line up a loan. If your current loan expires in two years, you might want to attack that problem starting now. It might take you two months to get our loan package perfected, another two months to find the right lender, and four to six months to put the deal together. So what's the other year for? Just in case that lender falls apart right before closing, and you have to start all over again. I would much rather pay a slight pre-payment penalty on my existing loan from starting early, rather than be unable to find a replacement loan and end up in foreclosure.

Never Pre-pay For Anything

You have to look at all other businesses that you do business with very cautiously. In a recession, anything can happen. Businesses that have been around for decades can suddenly disappear overnight. So never pay for any project until it has been completed. I have actually had cases, during recessions, where the contractor disappeared in the middle, or even the end, of a job. One time, I had a guy build a brick and stone entry to a park really fancy and he disappeared when the project was 95% complete. We never saw him again. Prior to running off, he had wanted me to pre-pay him for the project, but I had refused to pay him until it was done. By refusing to pay until completion, I ended up with a virtually free, fancy entry. So where did the guy go? I have no idea. Maybe he ran off because he owed so many people money.

Be More Aggressive on the Acquisitions Side

Some of the best mobile home park buys in history have been made during recessions. That is the exact time when all of the planets come into alignment to make the ideal buy. So start watching and listening for real distress mobile home park deals. You may see pricing that you never dreamed you would see. And that is why it is more important than ever to keep yourself out of trouble, so that you can reap the rewards that only a recession can bring.

Conclusion

Recessions are terrible things. However, once you get used to them, they are like a big rain storm. You want to make sure that you have a big umbrella when they hit, and make sure you don't step in a big puddle. But when they're over, everything is cleaner and smells better, and if you have put yourself in the proper position, you may end up with some great parks you bought for a penny on the dollar.