Christmas Eve - thoughts on poverty


#1

“…the life of man, solitary, poor, nasty brutish and short.” - Hobbes

The thread title says it all - I have never seen as much poverty in all my life as I have in the five weeks since we closed on a 95 lot park in Wisconsin. Not everyone here is poor - but most are - a few depressingly so. Yes the numbers look good, collections are good - but my spirits are down.

Tonight I got a text from a resident who has no car - he asked if he could give me $50 to buy some toys for another resident - a young man raising two small boys all by himself - perhaps the poorest resident in the entire park, living in a trailer he owns that looks like it will blow down in the next stiff breeze. I was told that the young man bought his children no toys at all because he has set aside the money for January’s rent and is afraid to spend anything (my iron fist no-pay-no-stay letter worked - we got 100% collections in month one on a park with a 50% delinquency rate before).

Was I being manipulated? Perhaps, but it isn’t the point. I went to Target and spent another $300 on toys for these boys.

I have so much - my residents have so little. Yes, it is true that many (most) of them are in the situations they are in because of repeated bad decisions in their lives. But what of the children? It isn’t the children’s fault.

I see why mom and pop never raised the rents - they had a heart.

You cannot be around these people on the front lines of property management and avoid feeling their pain - if you can, you aren’t human.

There is clearly a lot of mental illness in the resident base, low IQ’s, disabilities, former and current drug use. Over the years I’ve done well in multifamily - I made the leap to manufactured housing to test the waters. So far everything Frank has preached to us has been true - from demographic macro research, to the ROI of doing “amazing diligence” on individual properties, to deal-sourcing and to property management.

But I was not prepared to handle the poverty.

Yes, people make choices - but to paraphrase - “The sins of the fathers are visited on the sons…” So many of these people - my clients - came out of horrific backgrounds. I, on the other hand, did not. I’m here on the ground transition-managing what was supposed to be a pure investment, nothing more. But being here it is difficult if not impossible to avoid feeling for the residents. We eliminated the prior managers (huge problem - stealing from the residents, the prior owner, cooking meth, terrorizing the park, etc.) and now I have people beating my door down wanting to move into this park - and I’m not even advertising, nor do I have any empty units rehabbed yet. These people look to me like a savior figure - I do not mean to sound grandiose, but they literally have no alternative. Frank was not kidding - these folks are like Waffle House clients chained to the booths. I do not want to be anyone’s savior - it isn’t a good feeling - having customers who can’t leave you. I thought it would be coming from apartments where people will leave at the drop of a hat - but it isn’t.

It doesn’t feel like I’ve earned their business - it feels like I’ve been a shrewd investor who recognized a great opportunity - a mismanaged out-of-favor oligopoly with high switching costs, purchased at an insane cap from a clueless, lazy rich absentee owner.

They can’t move their homes - they can’t qualify for mortgages to buy homes. They are at my mercy - if I raised rents to $425 from $325 I believe most of them would swallow the pill and pay - even though market is $300 and many are living on minimum wage.

The park is surrounded by luxury SFR and is in a fantastic area economically - all the macro signals are in place to relentlessly raise rents over the next four years. But should I? I’m agnostic but maybe someday I will have to answer for what I did in this world.

What answer could I give if my God asks me “Why did you raise the rents on those working mothers when your cup was already overflowing? I blessed you with everything, my son - but you wanted to take more from those who had the least.”

When I leave this property in a couple months after implementing systems, cleaning it up physically and hiring a permanent on-site - it will be easy to look at my spreadsheets on my Macbook, sitting by the beach, staring at the ocean. I’ll punch a couple numbers, realize that $50 a month is viable and will push my IRR to a great number. I’ll look at upgrading my 70D to a P100D - maybe get those 21" wheels on it also.

Meanwhile back at my cash cow a single dad will wonder where he gets that extra $50 from. Yes I too studied econ - spare me the free market, highest and best use, must-raise-rents-or-parks-disappear lectures. Tonight I’m not in the mood. I agree with those positions, in theory. But it’s hard to believe in them when looking into the hollow, vacant eyes of the poverty-stricken faces of my residents.

Sorry for the ramble - be grateful for what we have. There is no solution - no answer but one: “There but for the grace of God go I…”

Merry Christmas


#2

I fully understand what you are talking about. I personally officed out of my first park for a year, so I have been on the front lines more than a normal owner.

But here are some things for you to consider:

  1. You need to look at value and not price point. I recently went on a trip and had to choose a hotel. I had three choices. I could stay at the Super 8 for $50. Or I could stay at new, clean Holiday Inn Express for $100. Or I could stay at the Hyatt Regency for $200. I stayed at the Holiday Inn because I deemed it the best value. Not the cheapest. The best value. You should try to make your park a great value for the residents. It should be clean, safe and well-managed. It should enforce collections and rules and have a nice entry and well-maintained common areas. And to offer those things the rent has to be at market levels. Some people won’t want to stay at the Holiday Inn – they want the Super 8, and they should go there. But don’t get confused about the fact that 80% of residents WANT to live in a clean, safe, nice place and are willing to pay more to do so. Focus on value and you will feel good about what you do.

  2. You are 100% correct that kids often don’t deserve their parents. That’s true in SF and apartments, too. If you want to help kids, then make them proud of where they live, by managing the park properly. If you want to get involved in the community – like sponsoring the local school football team – then that’s great as it again elevates the public perception of the park. Do your best to make everyone proud to live in the park.

  3. If you want to give gifts to kids in your park, then do it fairly, and not just for the few people who contact you. We choose one park per year to give gifts for our annual Frank & Dave Christmas Show. This year we gave $50 to every kid in our park in Arnold, Missouri. That’s the only fair way to do it. We have 40 kids in that park and it cost us $2,000. If you want to do that every year – and can afford to do so – then why not?

If you provide a great product and a great value – and you focus on that fanatically – then you will feel good every night when you go to bed, because you know that you have improved the community and improved lives.


#3

I also want to point out that the “Waffle House” quote was an edit from the actual story I told the reporter. I told them that mobile home parks have very reliable revenue compared to something like a restaurant – that a mobile home park would be like a Waffle House where the customers are chained to the booths as opposed to a normal Waffle House where you never know if anyone will walk in the door each day. Since the reporter wanted to minimize space, they left the rest of the quote out. Clearly, nobody is chained to the mobile home park, and they have the same right to move as someone in any other form of housing. While the homes are expensive to move, they can be sold where they sit, just like a regular house. The reason customers don’t move is that mobile home parks are a terrific value, compared to all other forms of housing. Most of our rents are less than 50% those of Class-B and Class-C apartments.


#4

I have always believed every adult is in full control of their own destiny. I choose to manage my investment properties and my life in general without being encumbered by personal emotions. What is best for my business and there for best for all my tenants is to not allow compassion to effect business decisions.
There will always be poverty due to individual choices,unfortunately it will continue to grow as long as society enables it through charity and welfare.


#5

Good points Ivan and Frank. We are humans after all. I am in the process of acquiring my first park and worry about similar human issues because I tend to feel sympathy for the downtrodden when the situation warrants to feel that way. Of course it is not always easy to distinguish when someone is really unfortunate vs someone who continues to make bad choices in life. But Frank makes some great points. We should give them the best opportunity, whenever possible, to see that there is more to life if they really wish to improve. Else it is goodbye… Greg, we are not homogenic! One of the biggest traits of humanity is that we are all different and thus affected by emotions differently. I for one do not believe that everyone is poor because they are not in full control of their destiny. There maybe many different reasons why they maybe poor. It is difficult at least for me to paint them all with the same brush. Granted we are not running a charity but when presented with a situation where I am able to make a small difference in someone’s life I believe that I will do my best to see if I can somehow give back and perhaps make a small dent in helping that person. All in all I just hope that we continue to find ways to make ourselves happy and spread some cheer in the process.


#6

One more point Ivan, you have already made a difference in their lives by improving the park and they seem to appreciate it. You are well on your way towards making a big difference in their lives. Anything to top that is a bonus.

Merry Christmas, Happy Holidays/New Year.


#7

Sorry bout the name error!


#8

Ivan,

I agree with your last sentence. So many people are so busy breaking their arms by patting themselves on the back that they lose sight of the fact that very little separates most people from a life like our residents. Often it is just pure luck and nothing else. If you are already getting a good return, is it really necessary to get a better one? Or can that additional return be shared in a way that benefits all the residents? I have no answers - only musings. Just glad to see that ideas other than how to push rents to the maximum are being discussed. My biggest fear for this nation is that our country will increasingly reflect what exists around your park - the great wealth side by side with great poverty and little or nothing in the middle.


#9

@Ivan_ilych , as per your post:
“Christmas Eve - Thoughts On Poverty”

Wow, your post brought tears to my eyes…especially:
“I have so much - my residents have so little.”
“But what of the children? It isn’t the children’s fault.”
“You cannot be around these people on the front lines of the property management and avoid feeling their pain - if you can, you aren’t human.”

My Husband and I own 2 MHPs.

One is a Stable MHP and the other is a Turn-Around MHP.

My Husband and I are Christians and we believe that everything we have belongs to God…we are just the stewards of God’s resources.

We do not desire to make a “killing” on our MHPs.

Our business plan is two fold:
1). Our Family: Provide a living for our family
2.) Our Tenants: Provide nice, affordable housing that is a bit under-market for our Tenants

When we first purchased our Turn-Around MHP, we inherited older MHs.

Initially, instead of renovating the MHs we made the decision to partner with a Lonnie Dealer. Unfortunately, this Lonnie Dealer experience was very negative.

Thus going forward, we selected to personally oversee the renovations of the older MHs and then rent them out.

Recently, we purchased an older MH from a Tenant who lived in their MH. This Tenant worked hard, saved his money and ended up purchasing his own land along with a newer MH (which is awesome).

This older MH was livable, but needed renovations to come up to the level of our other renovated MHs.

We had started the renovation with new sub-floors, but we were waiting on our Contractor to go forward with the other renovations.

While we were waiting on our Contractor, we had a young couple contact us about the possibility of purchasing this MH in its current state (which was livable). This young couple had seen the inside of the MH and dreamed of transforming it.

My Husband and I were a bit reluctant to sell the MH in its current state as it was a different business model from what we had previously implemented.

For us it was not a money issue…as we were only going to sell it for what we had in it (which was very little).

For us it was more of a control issue as we were not familiar with these Tenants and their behavior.

While we were contemplating this decision, the weekend before Thanksgiving came rolling around and our family went to a state park cabin for a little vacation.

While we were on vacation, the Potential New Owner texted that cold weather was coming and they really wanted a warm home of their own.

The Potential New Owner confessed that they were living in the Storage Shed of her Aunt and they had no heat.

Wow…living in a Storage Shed…no heat…we are in the South…but it does get cold here…especially if you are living in a Storage Shed.

The "living in a Storage Shed’ just broke my heart.

Our family is so blessed. Not only do we have a warm home to live in we also were on vacation at a warm cabin.

Meanwhile, this MH they wanted so badly just sat there empty…empty and warm.

Could this Potential New Owner have been a con artist or manipulating our emotions? Sure.

But really what it came down to…was this MH doing us any good sitting there empty? No…not at all.

Did we sell the MH to them? Yes…just for the amount that we had in it.

Actually, the day our vacation was over we drove to our house; we prepared all the documents to sell the MH; we packed up the whole family; we drove to the MH and we sold the MH to this young couple.

We took our entire family (3 young boys) to do this transaction so that they could understand how “much” they have.

As @Ivan_ilych stated:
“I have so much - my residents have so little.”

Are there con artists out there? Yes

Do people make bad choices? Yes

However, as per the Bible Verse Luke 12:48:
"…From everyone who has been given much, much will be demanded;
and from the one who has been entrusted with much, much more will be asked."

Money comes…and money goes…and we most certainly cannot take it with us when we die (we just watched “Mickey’s Christmas Carol” with our 3 boys…Scrooge can provide a great life lesson!).

However, we are held responsible for what we have been blessed with. We are expected to use our gifts (wealth, knowledge, time, talents) to help others and glorify God.

May everyone have a very blessed 2017!


#11

Global poverty is a social and economic and political issue. Whereas, Christmas is the ideal time of celebration, meeting the family members and enjoying the time with friends. But you can spend your Christmas differently like providing humanitarian aid to the less fortunate people and help them to reduce the poverty. One can see more here to spend your Christmas with the less fortunate people and help them.