In the last 5 months I lost 4 good-paying tenants in my highest priced units when they were laid off of their jobs. I didn’t know the circumstances at the time they gave their notice, and didn’t bother to ask. I chalked it up to typical turnover. I also lost 4 not-so great payors at the same time. My current vacancy rate is 25%. My experience prior to fall 2008 is 8%.
I did my usual fix-up and put them back on the market at the previous tenant’s rental rate. I didn’t understand my error until mid-November.
All these units continue to sit empty, and I’ve lost $12k to vacancy so far (small potatoes, really, but straight out of MY pocket) and spent another $4k in fix-up because I didn’t ask my exiting tenants the right questions: “Why are we losing you?” and “What can we do to help you stay in your home? It’s expensive to move!” I’m sure there are a few more good ones for an exit survey, but those are the obvious two.
I’ve never had such dialog with my tenants before, but I can see the need is there.
I need to be the best option at a very attractive price because the rental market has changed drastically in a very short period of time. People are highly price sensitive right now, for good reason!
In response, I’ve now reduced the advertised rents $50-100/mo and I’ve quadrupled the number of calls I’m getting. And this is in December, a notoriously slow time. I expect to get them rented fairly quickly after the holidays. I’ve been a landlord for 14 years and have never reduced rent. I guess there’s a first time for everything.
Some of the obvious lessons I’ve learned from this recent experience (certainly not comprehensive):
track your marketing response & keep a pulse on your market
when you see a change in conditions (and you’ll know because you’re tracking your marketing and listening to your tenants!), be prepared to change the way you do business
keep your ear to the ground and know your tenants’ financial business so you can jump in before it’s too late
don’t be afraid to reduce payments and rework notes/rents in order to salvage a good relationship. (Maybe Jeff Bennett can elaborate on this one)
5)Stay on top of collections/evictions. If you’re going to lose someone anyway, better do it sooner rather than later, on YOUR schedule.
Get notes and liens (i.e. car titles) for back rent or deposits. Ryan Needler opened my eyes to this strategy.
Hopefully this post can get the ball rolling with others’ good ideas about how they’ve adapted their business or the changes they’re seeing and how they’re preparing to cope.
I recently compiled onto excel info on move-in/move-outs in my MHP during the past 8 years; I got the info from QuickBooks. Unfortunately, I have not conducted exit interviews, and had to rely on my recollection. Be that as it may, the longer view of this business has really increased my awareness of just how often people move and how I should view selling 8-12 houses per year as just treading water. The bright side is that there are lots of ongoing opportunities to sell, create notes, sell/lease storage buildings, and sell insurance products, ect.ect.
As for the price reductions, I recall Greg posting about his taking similar measures about 1 year ago; I would be interested to hear from him if his initial price reductions sufficiently raised occupancy levels or if further cuts were necessary, and how it has impacted the P&L.
You are fortunate to have such a long period of rather low vacancy. We have been battling a poor economy and turnovers since November, 2002. When will it ever end?
Before that we were always 100% full and had mostly 100% collection and life was a beach. Run an ad for a lot in the throw away and zip it was rented within days. Now if we get one move in per year if we are lucky. We are dropping rents all the time. Average 2 bedroom 1 bath apartment rents for our area is $568 for about 800 square feet. We rented a 14X66, (924 sq. ft) 2bed 1 ba, 1977 average condition for $425. They already had to be evicted in less than a year and so this time we sold it for $1500 cash this month and put them on a one year lease at lot space rent of $375. We hope to never see that home again. We are holding the title for them.
We have three vacant homes all in various degrees of disrepair and we just bought two and moved them in. Paid $3000 for a 1996 Schult 16X76 and so far $450 to move it to our lot. It’s just sitting there as we are trying to deal with the three above first. The other home we paid too much $4750 for a 1980 Embassy 14X67 (938 sq ft) and had to pay $150 for mover to weld on tongue and $450 to move to our park. On top of that we were stuck cleaning up the lot adding another $250 to the bill, not a good deal at all. I got too anxious to buy and got talked into the deal.
We are treading water trying to keep from drowning until the economy supposedly turns around in summer 2009.
We have not raised the rents on the long term space tenants for two years and wonder your thoughts on a $20 or $25 raise from $330? Would that be a real bad move in this economy? We have a lot of newer space rent tenants paying $375.
Lin, we try to offer the best deal in town in the rental because we are really trying to get everyone to own their own home thru our lease option program with a lower than average rent. We can do that because we own the park and really are happy with just getting our $375 per month.
I don’t hear the grand kids yet coming over for Christmas Eve but I think I rambled long enough as they are to be here any moment.
Mike, It sounds to me as if your lot fee is overpriced for your market. Take that $568 divide by 3, that is what the typical value of lot fee is in relation to apartment rents. You are currently proping this lot fee up artificially by selling your MH’s below replacement cost- with terms.
I think it is a mistake to not raise your lot rents every year. IMHO, they should always be raised for everyone at least $5 per year. In good times you raise them more and in bad times you raise them only $5. This avoids the sort of quandary you are now in. Residents expect lot rent increases and they won’t think anymore kindly toward you if you forego increases for a couple of years and then hit them hard all at once.
The economy in abysmal in my neck of the woods (auto manufacturing) yet I let everyone know they will always get at least a $5 increase each year. No-one complains because they all know it is coming.
Thanks for posting this link. I read a bunch of his writings and they are pretty scary. They are also, I believe, much closer to reality than what most people on the forums post and those with something to sell constantly push. The systemic problems of this industry are so huge that I wonder what I can do as an individual park owner to combat them.
on the business model of nationwide lenders feeding street dealers wholesale and retail financing, and these street dealers in turn feeding land/lease operators.
In my view, that train left the station about 8 years ago. The business model of selling homes /creating notes / selling notes/ buying houses/ selling houses/creating notes/selling notes that is touted here seems to be very viable and effective. Not easy, not simple, but effective.
I reference Marty’s writings in hopes avoiding the same bad lending practices that blew up on Greenseco and others…I can finance a good credit customer with a large or small D/P and they will probably pay, I can finance a poor credit customer with a large D/P and will probably pay, but when I finance a poor credit customer with a small D/P they probably won’t pay.
Or if I raise my Lot fees to the point of them being out of line with other types of housing costs-then the value of the housing units are devalued to the point that the business model colapses.
Mike, calculate the housing budget using lot fee + house payment use that total for housing cost budgeting purposes. You have been posting about how much tougher the business is now as opposed to 10-15 years ago, now I know firsthand about the loss of Greenseco model of lending through street dealers and how that was a boon to MHP
A very well thought out post and full of good stuff. We have done “Exit interviews” for about 1 year. Like you, price was number 1, change in circumstances 2. Location 3. Moving out of state 4. outgrew home 5 bought home 6.
When you break this down a bit, we realized we can actually change results some IF WE HAVE THE LEAD TIME. When a tenant comes in with keys or written notice it is almost too late to affect outcome, typically they are boxing stuff and have signed another lease. What we did is have our pest control person keep an eye out for these things by asking questions. Like “everything still good since the last time out?”, “Everyone still working?”, “things still tight?”. We have our PM do the same thing as she collects rents in the Park. Both are inside rental homes each month so asking these questions seems real normal.
This gives us a chance to retain good tenants. It also allowed us to get Note payors out of Note (deed in lieu) and into more affordable rentals. We still have reduced rental raes slightly but what we have done on a major scale is make it more affordable to move in. we will carry lights in our name for up to 3 months, deposits split into three monthly installments, foregone last months rent altogether. risky, but it has worked for us. We are at 89% occupancy and we hope to be full at 95% in january
NC is not immune to what is happening in Florida and the rest of this country it seems.
The most disheartening thing we hear is, “We can’t afford to pay rent AND feed the kids”. For these poor souls there is nothing we can do…and we hear this way too often.
Interestingly, the shifts that have been hurting me as a landlord are actually helping the self storage business. The people who can’t afford to pay rent AND feed the kids are moving in with relatives and their stuff ends up in storage, probably until they get back on their feet again.
It’s heartening to know that you’ve got those kind of occupancy numbers heading into the new year. It keeps me believing that I’m doing the right things and I’ll get it turned around eventually.
I’ve got one tenant in a MH who told me he couldn’t pay his rent this month because he had to pay his self-storage bill in FL where all his furniture is.
Interesting that folks think having a “reasonable” explanation of why they don’t pay their rent will buy them some time. When I served this guy he ramped up the excuses (wife’s kidney meds cost $800), but he also came up with $400 that day.
I’ve come to see that quick service is the only way to go.
I guess there is a balance somewhere between the market demand and the formulas. I tend to let the market tell me what space rent to charge, payments on lease options and sales prices of homes.
I believe this formula serves its purpose as an indicator as to the point at which market resistance will be felt. It helps me to see how my MHP is positioned price-wise with other housing alternatives. I definitely would use this type evaluation when considering investing in an unfamiliar market. What I have found to be difficult is trying to determine the baseline midrange apartment rents. Not substandard, not the luxury type, but true mid-range