I have a lot to say on this subject and I am sure a lot of you will rain down a lot of hate on me. So be it.
First we have to have a clear vision of what is at stake – what is the value of a home in your park. The obvious way to approach the problem is to take the number of homes in a park and divide the market value of the park by the number of homes and that is the value of a new home in the park.
I think that is wrong.
I believe that the profits of a park are concentrated in the margins – the last lots filled. The first so many filled lots cover the park’s expenses. After that the homes rents go mostly to the bottom line. There may be a few expense that go up as you bring in more homes such as management compensation and insurance, but not by much. So that, say, you have a 50 lot park with a vacant lot and the rent on that lot is $350/month, perhaps $325 makes it down to the bottom line.
So let’s run the numbers on that.
$325/increase in monthly NOI X 12 months = $3,900 increased annual NOI / 9% cap rate = $43,333 capital gain. Got that? Every home new home in our park is worth $43k to say nothing about an almost $4k in income.
Now say our 50 lot park has 10 vacant lots. Fill those lots and you are some $430,000 richer.
OK, now let’s look at that gentleman’s agreement that is standing between you and $430,000.
If we buy a home out of a park, move it into our park, put it in ship shape condition and sell it we are working at a $4000 disadvantage over the park owner who’s park it is in because of the moving costs. If we can do all of that and sell at a profit, which if we buy smart, we can, that means the owner of the park could have done the same only with a $4,000 bigger profit. That he is not it doing means he is not minding his business. Is he too lazy to take on the project? Too uninvolved to know what is going on? Too stupid to understand what is at stake as laid out above?
So what’s that gentleman’s agreement saying – I am supposed to put the interests of park owners who are lazy, uninvolved and stupid over my interests as a businessman? Really? We certainly don’t do that when buying our parks from such owners. There has been a lot of talk in these precincts about how to "bond"with elderly Mom & Pop to get a better deal out of them. That strikes me as being cynically manipulative, but whatever. And how to promise them a good retirement income from the note you will sign with at high rate only to refi after the deal closes. And what about our tenants “chained to their booths”. We jack up the rents on them and bill back the water. Then hit them with billing back the trash. Ha! Poor fools, they are too stupid to know a water bill back is a rent increase. No gentleman’s agreement there.
Well, yeah, we are business men and women. We are in it for the money. I know I am. Sure, I would not poach from a friend’s park. I would not poach from a park in the same general area. But 100 miles away? And some poor guy can’t sell his home and has to keep dropping his price? Are you saying this guy should be cut off from my capital. He can only sell to other people like him who have no money? He can’t can’t have access to the open market where he can sell his property to the highest bidder --perhaps a person who understand the value of a new home in his park? Looks to me the park owner is asleep at the wheel. Looks to me as if he has some attitude about tenants being peons. I’m supposed to pass on $43,000 to respect that attitude?
Let’s look at something else. “Move In Special! We will pay your moving fees!!!” You don’t think that is poaching? Really? Like some farmer is going to see that and go “Whow, Martha, we can move that MH we use for our farm manager into town and start paying lot rent on it.” Yeah right.
Business is competitive. Look at Home Depot and Lowes building next to each other in a most ungentlemanly way. Look at Amazon battling with Walmart. And Walmart sinking Mom & Pop stores. But in our business of owning that 50 lot park with 10 vacant lot we should not be willing to fight and compete for that $430,000 gain? What do you think this is, a game of Frisbee?
I have a lot more to say, but I’ve got to get back to closing out Jan books but I want to touch on one more issue:
Let’s step back, way back and take a look at the big picture and answer the big question: What purpose in the universe do we serve as park owners? The answer from on high: We provide capital to those who have none, save the MH they own.
If they had capital, they could buy some land, pay to improve the land so as to put their home on it. But they have none, so they put it on our land with our improvements to the land which we are able to provide do to our capital (or access to other people’s capital.) I believe that our responsibility to provide capital goes beyond just the land and the pipes in that land. We may have to step forward and provide some capital to get that nasty looking roof on lot 34 fixed and bill the tenant so we get our capital back in a couple of years. Why? Because they are dirt poor and don’t have the capital to do it and if it is not done that home is going to be a goner and we will have lost $43,000 dollars in value.
And if someone is moving out and the home is looking like a plumb, ripe for the picking, we may have to step forward and provide the owner with the capital so they can move on, and we can have control over it. Heck, we can put it in good shape and make a few grand off of it in the process so that our capital will come back to us in greater quantities. This is a capital intensive business. I tell my tenants I will buy their homes if they are moving. I am upfront and tell them I can not pay top dollar, since I need to pay to clean them up pay to resell them. But the money is there if they need it. I tell them come to me and maybe I can help out somehow.
I’ve got to get back to work.