Memo From the Manager
A recent article highlighted that three out of four applicants for the Section 8 program are turned away due to budgetary constraints. Clearly, the whole concept of subsidized housing is not working. And the real problem is that there is no accountability under the program as far as keeping housing costs affordable is concerned. Under Section 8, the apartment owner simply gets whatever rent they want via the American taxpayer. On a $800 per month subsidized apartment, the Section 8 customer pays maybe $200 per month, and the Federal Government (basically the American taxpayer) pays maybe $600 per month. So you’re not really getting anywhere. Neither the apartment owner nor the tenant have any “skin in the game”. That’s the big difference between apartments and mobile home parks when it comes to affordable housing. Our industry is “non-subsidized” which means that we have to actually provide a product the resident can afford, without any assistance from the U.S. government. When we say that we can put a customer in a home for $500 per month, that does not mean $500 to the customer and another $700 to Uncle Sam (which is what low-income apartments do). That’s why the government passed H.R. 3700 last year, which will soon allow Section 8 tenants to use their vouchers to buy mobile homes. The government has finally realized that non-subsidized housing is clearly superior financially, as well as more attractive to the resident, who receives privacy, a yard, and a greater sense of community. We expect more programs to come to aid first-time homebuyers buy new mobile homes, and we are already seeing Fannie and Freddie financing mobile home parks with a new product called “agency” debt. Although it’s taken about 50 years for the government to realize the benefits of our business model, we welcome their further participation going forward.
The Many Roles Played By New Homes
This is a photo of our property in Decatur, where we placed a new mobile home on either side of both entrances. These new homes are not only highly desirable by potential customers, but also serve to increase the appearance and drive-up appeal of the property. Indeed, new homes play many roles in the communities that we serve.
Improve the first impression at the entry
We like to place new homes in the most visible portions of the property – basically either side of the entrance, corner lots, and any lot with a direct curve-in-the road visibility. We do this for the basic fact that our newest home stock is our most attractive, featuring vinyl siding, shingled roofs, and the latest color schemes. It is amazing how a few well-placed new homes can fundamentally change the first impression of the property and this gets high points with both consumers as well as appraisers.
Offer a great marketing draw
Without question, our highest in-demand homes are our new homes. Everyone prefers new product to used. This does not mean, however, that every customer can pass the credit and down-payment requirements to buy them. But they are very successful and bringing potential residents in the door, and those that fail to qualify can purchase used homes that better suit their needs.
Attract a higher demographic clientele
The introduction of new, more expensive homes into the community typically attracts a higher demographic clientele that may not have considered living in a mobile home park in the past. We have actually had people drive by the property, see the new homes, and go straight to the manager to inquire about them – and these are customers that typically would never have had an interest.
Offer a pricing contrast with older inventory
One of the most successful ways to sell used home inventory is to contrast the lower cost used homes with that of new homes. A used mobile home that we are trying to sell for $15,000 seems a whole lot more enticing with the new home next door is $30,000. And a payment of $595 for home and lot rent is much more compelling when the new home is priced at $795 per month.
Fill vacant lots
One great thing about new homes is that you can fill vacant lots at a faster pace than used homes, as new inventory does not require any renovations before you can start showing selling them. We can fill ten lots with new homes in the same time it would take to bring in and renovate two or three used homes. This is a huge advantage in those properties where filling vacant lots is our number one turn-around priority.
New homes are more than just a fresh housing unit. They are also an important sales tool, park value enhancer, and decorative object.
We Made The News In A Good Way
Our management company, RV Horizons, was recently featured in the news for providing housing assistance to a veteran in need. Here’s a link to the article. We believe strongly in giving aid where we can, and felt this individual needed a helping hand. These type of projects are both a good source of publicity in their market, as well as a source of pride for our employees.
A Mobile Home Park History Lesson Circa 1950
The owner of a property in Pittsburgh recently found this photo in the file cabinet of the office, and shared it with us. The park was built in 1941, and this photo is probably circa 1950. It was taken during the era in which mobile home park residents had higher demographics than those in stick-built homes – mostly returning WWII servicemen on the GI Bill. At that time, mobile homes were typically around 8’ wide and between 30’ and 40’ long. They made no attempt to look like stick-built dwellings, being proud to be completely different. The resident of this home probably later moved to suburbia once they got their career established, and the home was probably replaced in the park in the 1970s, which mobile homes became significantly larger and more spacious in the interior. You can also see from the photo the necessity of having clubhouses in mobile home parks, as there was very little room in the mobile home other than to read or sleep. Many of these older models can now be found in the MH/RV Museum in Elkhart, Indiana.
What Makes One Mobile Home Park Worth More Than Another?
What makes one mobile home park a precious commodity and the other something from the dime store? The answer is a combination of factors, each with their own contribution.
There’s no question that location is the key ingredient in all sectors of real estate. In the case of mobile home parks, what’s important is being in a desirable section of town (typically epitomized by a top school district) and an attractive market which has strong housing prices (median home price around $100,000 and average three-bedroom apartment rent of $1,000 per month or more).
Most valuable mobile home parks have city water and sewer, paved streets, and paved parking pads. These properties also have well-maintained water and sewer lines, an attractive entry, and non-master metered electric and gas. This is what makes these mobile home parks seem safe to lenders who know what can be the source of operational problems. Since bankers prefer to see solid fundamentals, this allows for greater access to better debt sources, like conduit and agency, as well as higher appraisal values.
While many of the best located mobile home parks were built in the 1950s and 1960s – at a time when the largest mobile home was only about 36’ long – the most valuable mobile home parks have a density that allows for peaceful operation without intervention of the Fire Marshal due to safety concerns. The most common density that allows for large homes and yards is 10 to 12 units per acre, although you can still find properties that exhibit good floorplans as high as 15 units per acre.
The best mobile home parks have “stabilized” occupancy, which is defined by lenders as 75% to 80% occupancy. This not only allows for ease of management and top-flight loans, but also offers occupancy upside. While there are exceptions to this rule, having a high-occupancy park suggests that the property demonstrates a high level of demand and customer retention, and it often takes years to groom a solid tenant base that pays rent monthly and abides by the park rules.
The best properties have solid economics that have been consistent for years. The expense ratio is a range of 30% to 40% — in line with industry norms – and the revenue grows annually with rent increases. Occupancy is stable or growing, and there are very predictable patterns of repair and other variable costs.
Pride of ownership
Successful mobile home parks have a high level of pride of ownership on the part of the residents. These customers are stakeholders in the property – they own their homes and the park owner owns the land – and good residents take care of their homes and yards. Their pride of ownership also manifests itself in landscaping and even keeping their cars washed. The general thought is that residents who care will make the property perpetually better, and challenge each other to develop a sense of pride.
Mobile home parks are just like works of art. Some end up in garage sales, and others hang in the finest museums. But, unlike art, the manner in which they are rated is objective and not subjective.
Why We Moved The Corporate Office To Denver
This is a photo of our new office space in the Denver Technology Center. In December of 2016, we moved much of our corporate office from Cedaredge, Colorado to Denver. However, there were some very important reasons that we made this move from a small town to a large city. And they are paying huge dividends in our operations.
Better for attracting higher-caliber employees
For years we were unable to attract many top hires simply because they did not want to relocate to Cedaredge. With a population of only 2,183 – including the metro area – Cedaredge is limited on housing and amenities, and this resulted in many people we were trying to hire refusing to take the job. Denver, on the other hand, offers a wide range of housing and things to do, commensurate with a metro population of 2,814,330. Many of the top industry talent that has joined our team this year came aboard as a result of our move to Denver.
Superior transportation hub for reaching our properties
The most important work that goes on in our company happens in the field. So it’s important for our home office to be able to access, monitor and support our field staff. Roughly 90% of our employees are inside our properties, as is 100% of our revenue. Denver’s airport is one of the largest in the U.S., and is a central hub for flights to every city we serve. Cedaredge, on the other hand, requires either a four-hour drive to the Denver airport, or roughly as much time getting to, waiting, and flying on a small regional turboprop carrier. With the office in Denver, we can now reach every property in the portfolio in one day – many in just a matter of hours.
Easier access for our vendors
One of the benefits of being 5th largest in the U.S. is our ability to test new products ahead of other operators, as well as to get volume discounts. But maintaining our office in Cedaredge literally built a wall between us and our vendors, who had so much difficulty in getting there that they elected not to go. Since the best deals are cut face-to-face, moving to Denver has allowed us to proactively work with these same venders for bigger discounts and quicker action.
The correct base for our future growth
Whether it’s one of our exit options down the road, or simply growing the business to its full potential, Denver is the right location for our future growth. In fact, more mobile home park portfolio owners are based in Denver than in any other U.S. city, with the exception of Chicago. While Cedaredge caused roadblocks, Denver leaves every option open for us to succeed.
While we started in Dave’s garage, we have grown to nearly a $1 billion company. Along the way, it became obvious that we needed to move the corporate office to Denver. We have made great strides this year because of taking action on that move, and all the benefits it derives.
In A World Of Escalating Home Prices, Mobile Homes Get Cheaper Still
This is a photo of a price proudly hung on the side of a new mobile home at the Tunica mobile home show recently. In a world where the median home costs around $200,000, and new home construction runs around $100 per square foot, how can you build a 3/2 mobile home for $19,555 – a price of around $18 per square foot?
The efficiency of assembly-line construction in a controlled environment
A tour of the Clayton plant is like going to a ballet. Each worker has mastered one specific task and the entire plant is built around getting those tasks done as efficiently as possible. The factory in Elkhart, Indiana, for example, produces exactly eleven “floors” per day – which means either eleven singlewides or five doublewides and one single-wide. And that’s in one 8-hour shift and with zero overtime. At roughly 1,000 square feet per “floor”, that means they can produce roughly 11,000 square feet of finished housing each and every day. Absolutely no stick-built builder can even come close to that level of production with a similarly sized workforce. Assembly line methods and the absence of weather, coupled with careful placement of all materials and task specialization, has taken mobile home construction to an incredibly high level.
The eradication of waste
One of the striking features of the construction of new mobile homes is the incredibly small amount of waste that is achieved. The total amount of scraps from the entire process of welding the steel chassis, building the floor platform, building the walls, roof and cabinets, cutting the carpet and linoleum, and installing the vinyl and shingles is required to fit in one standard metal barrel. How is this accomplished? The manufacturing process has been so perfected that there is no virtually no waste byproduct from the process. This can only be achieved in an enclosed, orchestrated process and would be impossible out in the field, which is where traditional stick-built homes come from.
The benefits of eliminating the middle-man
One of the key factors why new mobile home prices keep going down is the simple elimination of mark-up by an intermediary. Today, mobile home park owners are able to buy these homes “factory direct” and without the use of the traditional dealer who would mark them up by as much as 50%. This did not become possible until recent times, in which the dealer network collapsed under the weight of difficult financing and the desire of manufacturers to sell more homes than they could achieve. We literally buy the homes straight off the factory floor, and they are shipped directly to our properties. It’s important to note that mobile home parks are collectively the largest buyers of mobile homes in the U.S.
In a world of escalating prices, it’s amazing how low mobile home prices continue to go. Through a combination of manufacturing efficiency, smart design, and the elimination of dealer mark-up, mobile homes continue to build the dominant role in affordable housing.
Elvis Lived Here
This a scene from the 1963 film “It Happened at the World’s Fair” starring Elvis Presley. In the film, Elvis lives in a mobile home park – filled with nicely dressed customers driving sports cars. The “King” lived in a mobile home park in two different movies during the 1960s; both this film and “Speedway” from 1968. But that was not Hollywood’s first love affair with the mobile home park. These films followed the 1951 classic “The Long, Long Trailer” starring Lucille Ball and Desi Arnaz.
The Future Of Mobile Home Dealerships
New mobile home sales from dealers have plummeted from around 400,000 units in 1998 to around 100,000 units today. Just as American car dealers were hit hard by a shift of tastes to foreign products, mobile home dealers have been equally ravished by excessive mark-up and “factory direct” selling by manufacturers, who see their model as somewhat of a dinosaur. So what will happen to those mobile home dealers that you see along the highway in many cities?
Attrition is inevitable
Just as the current closing of thousands of retail stores in the U.S. – from Sears to The Gap – the continued attrition of mobile home dealers is a given. They simply cannot compete with factory direct pricing or the information efficiency of the internet. In addition, they are notorious for poor sales practices and unprofessional marketing. We expect to see many more closures of these brick-and-mortar dealers going forward.
The importance of being able to walk the home before buying it
Most consumers are uncomfortable buying something without walking it first and seeing first-hand what they are using their hard-earned dollars for. As a result, there will always need to be mobile home retailers to allow for these viewings and walk-through tours. We have long said that each market in the U.S should contain one “superstore” that sells all models and is a regional hub for all consumers to view them and, in a certain percentage, buy from the dealer.
The impact of endless laws such as the SAFE Act
Another factor that has contributed to the demise of many new mobile home dealers are the endless laws and regulations tied to the SAFE Act from 2007 and Dodd-Frank in 2010. Based on a false premise that all mortgages were “evil” prior to the 2007 Great Recession, these laws make unfair requests of those who create mortgages, such as the Failure to Repay Act, which allows a defaulting consumer to sue the mortgage company under the argument “you should not have given me a mortgage because you should have known I was unfit”. The concept of a foreclosure coming with an automatic lawsuit makes most mortgage companies not interested in working with the bottom third of Americans who are most at risk of default – and that’s the mobile home customer base. While there is some hope for repeal of many of these regulations with the new administration, it is too little too late for many dealers.
A valuable source of marketing for the industry
Retail mobile home dealers are a valuable source of marketing for the industry – kind of like giant billboards that remind the consuming public constantly of the existence of affordable housing options. As a result, we are always respectful of dealers and work with them whenever possible on bringing their homes into our communities. Many are only continuing in business through the sale of the most expensive mobile home models (such as double and triplewide) to farmers and others who place them on their own land. We think that they are an important tool, and hope that they continue on.
America is changing daily in regards to retail selling to the consumer. The mobile home dealer network is under fire for the same reasons that are destroying the U.S. retailing industry. While we do not see any comeback to this segment of the industry in the future, we believe – just the same as shopping malls – that there will be survivors who manage their dealerships effectively, and the closure of many dealerships will give these survivors the market share they need to finally prosper.
Understanding My “Waffle House” Quote
In the recent favorable Time Magazine article on the mobile home park industry – that said that “mobile home parks are like gated communities for the less affluent” – they once again used my Waffle House quote that said that “a mobile home park is like a Waffle House where the customers are chained to the booths”, which they borrowed from a Bloomberg magazine article years ago. This always drives me crazy as the quote is not correct, nor is it even taken in context.
The original quote
When the Bloomberg writer asked me why mobile home parks have such a low loan default rate (the lowest in all of commercial real estate) I answered that “restaurants have the highest loan default rate because they never know each day, when they open the doors, if anyone will even come in, while a mobile home park has very predictable revenues because it’s like a Waffle House where they customers are chained to the booths.” I had tried to make the concept of stability in revenue easy to understand for the writer.
The media’s adaptation
When the Bloomberg article came out, they had taken out the preamble, and simply put in the last part of my statement. This completely changed the way it sounded, and made it sound like our business model was somehow unnatural and that our customers have no choices. This is clearly not true, as our residents, if unhappy, can always sell their homes or, worst case, abandon them. I think it was also unfair that they kept the “Waffle House” in the quote as most people hate that chain. If you changed the “Waffle House” to the “Ruth’s Chris” you would have people contacting me to see how they could sign up.
But there is no escaping the fact that it’s true
But going back to the theme of the original quote, there’s no escaping the fact that we do have an unusually attractive business model. While our customers are not held without their will, the simple fact that it costs $5,000 to move a mobile home from Point A to Point B does keep our lot occupancy unusually stable. While the quote is taken out of context, the basic meaning is correct. But what is also always left out is the fact that our rents are often $1,000 per month less than surrounding apartments, and that our product offers the consumer the ability to have privacy, a yard, the ability to park by their front door, a sense of community, and the ability to be a homeowner.
I have appeared in numerous publications over time, and the one quote that always bothers me is the “Waffle House” one, because it was taken completely out of context. While the concept of strong customer retention is certainly accurate, the media uses it in a derogatory manner that makes it sound like we literally “chain” our customers to their lots and this is certainly not true. Freedom of choice prevails in mobile home parks, but we have such high-levels of retention due to the “chains” of offering an insanely great deal for our customers. That’s what precludes them from moving.
A Different Take On The Concept Of Mobile Home
Perhaps the oldest form of simple, inexpensive detached dwelling is the Eskimo “snowhouse”. They meet the definition of a mobile home, as they are not attached to the earth, are a very efficient use of space, and are a detached dwelling. But they certainly would not meet HUD guidelines. It’s interesting to note that Americans are incorrect in assuming that this form of Eskimo structure is called an “igloo”. The Eskimo term “igloo” refers to any type of dwelling, which includes the sod houses of western Alaska, whereas those that are specifically made of ice and snow are called “snowhouses”.
The properties shown, or referenced above, represent properties purchased prior to MHPI VII, LLC (“Fund 7”). Properties shown are owned and or operated by Affiliates of the Manager. The current portfolio shown is effective as of 3/31/17 and will likely change over time. Black circles on the map indicate a Storage Facilities, while red circles indicate Manufactured Housing Communities.
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