Frank?

As I go through the home study course, you clearly communicate no money to be made in rentals. However I recall reading last year that you may have change your mind on rentals as a result of the SAFE act.

Can you summarize your thought on the sunbelt. Of course, all comments are welcomed.

Thanks

There still is no money made in rentals. The money is in lot rent. But to fill a lot, you have to bring in a home yourself – there is no other way it’s going to happen normally. So we bring in homes and do rent/credits on them, or sell them for cash. The SAFE Act ended the era of seller financing for most operators, but it was already on the way out due to the courts’ inability to grant reasonable foreclosures (it’s taking 6 months+ in many states to get a foreclosure today). The new Dodd-Frank rules like “Ability to Repay Law” will probably be the end of mortgages eventually for not only trailers but everything else.In my first portfolio of parks, they were hardscrabble dumps (most of them) that I bought only because they were cheap. These days, we buy much better quality parks (although still cheap). As a result, the home renters stick much better and do much less vandalism. But even in a complete dump, you can still make money with homes all day long, as long as you have decent lot rents. For example, in a $300 per month lot rent park (which is most of the Midwest and Great Plains) you have $3,600 revenue less 40% (just as an example) which yields a net income of $2,160 which, at a 10% cap rate = $21,600. So if I bring in a home, I create $21,600 of additional park value. So the whole challenge is getting back the amount I spend on the home, right? Well, if that home rents for $600 per month, I make it back in 3 1/2 years (assuming a $25,000 house). Of course, you can argue that I would need to subtract $300 per month in lot rent, but there’s no lot rent if I don’t bring in the home, so it’s really just a matter of internal semantics of how you allocate the $600 of home rent. Once I get back the money on the home, the customer may eventually elect to use their rent credits to buy it, or I might just keep on renting it, or I might give it away – it doesn’t matter.When we wrote “no money made in rentals” it was diffuse three common misconceptions: 1) that you can cap home rents 2) that Lonnie deals are wildly profitable and 3) that mobile home parks are successful detached apartment complexes. Even in the SAFE Act era, that point needs to be made.

So I understand the money making need, and know rentals are part the game (in the beginning at least), but the real money is in lot rents.

Do you use a rental agreement that regulates maintenance to the tenant from the get go? can that strategy be used
In most all states ?

Thanks in advance

I would definitely advise against making maintenance the responsibility of the tenant.  It seems to me that even an above average tenant wouldn’t be willing to take on repair costs on a home that isn’t theirs.  Personally, I would constantly be worried that homes were falling into disrepair.  Just from my experience with single families and duplexes, the longer a small maintenance problem goes with out being taken care of, the bigger the damage will ultimately be.  

Charles D is exactly correct.Under our current rentals, we pay for all repairs over $100. It’s worked great, as we get better tenant retention and get a chance to fix simple items that could fester into complete disasters. For example, a small leak in a pipe can be repaired for $200, or you can let it go for months and then you get the home back and the entire floor is rotted out and needs thousands in work. The tenants will not do any repairs typically, so if you put the burden on them, they will ignore the problems until the trailer’s condition becomes impossible to live in. You are the one that gets screwed. The kinds of repairs we don’t do, however, are 1) small cosmetic items under $100, like the closet door falling off the track and 2) appliances. We do not give the tenants appliances – that’s what Rental Center is  for. If there are appliances already in the home, we do not cover those if they break. These are the two R&M areas that will drive you insane if you try to fix.