Governance at all levels

[Propboy40]

First off let me make a very clear and concise statement. No two people (Frank and Dave) and group of people (all of you) have helped me more in becoming a successful mobile home park owner. I have learned more from all of you than I can even encapsulate here. I will be forever grateful.

Every week I look forward to Frank’s webinars and news briefings. His commentary on these is always insightful and well thought out- even if I disagree with the overall message from time to time.

We all live and operate our businesses in this country and as such we all have governance at the local, State and Federal levels. With our votes and voices we are all part of that governance. Now we can all argue the differences between red and blue states and the governance thereof, but this is who we are and regardless of where we live it is makes us great and separates us from countries like Somalia (I hear there is great real estate there on the coast for MHP development but the downside is you have to deal with warlords which I hear really sucks.

My parks are in Washington State and this week it appears we fell under Frank’s ever watchful eye with multiple articles in his news brief. Now I am not going to review every article from our great state but will say that there appears to be an underlying issue that is often ignored.

As park owners we have to act responsibly.

The lynch pin of our success in MHP investing has always been that we provide affordable housing with bound tenants in TOH homes that will never be able to afford moving them. They will never leave. We know that and so do the legislative bodies that we operate within.

When one of us acts out and raises rents exponentially or refuses to make reasonable repairs or decides to sell one of our parks to a developer putting countless persons out on the street with often no where to go- you are simply asking for intervening governance. You are asking for it and you are going to get what you asked for. As a park as and as an industry.

Two years ago we had a park out on the Washington peninsula attempt to raise rents from $350 a month to over $1000 per month. It was in a very limited housing, seasonal tourist community. I am not going to opine on why he did it but suffice it to say it brought the wrath of governance down on all of us. State hearings were held and testimony was taken in an attempt to establish rent controls for all MHPs in the State. It eventually died out of committee, but it did bring forth that park residents be given the ‘opportunity’ to purchase a park if it goes up for sale. It was never mandated we had to sell to our residents.

Want to sell your park… OK. I get offers all the time to redevelop one of my parks into a hotel. Big dollars but there is absolutely nowhere my residents will be able to go. For me and in my opinion only there would be a special place in Hell waiting for me if I did that to them. We make plenty of money on that investment I don’t need governance to help me do the right thing.

Bottomline here is to me pretty simple. We have all built our ‘empires’ so to speak on two things. Providing affordable housing with a locked in tenant base that in most cases where they cannot afford to leave.

Because of that simple bottom-line we must act responsibly and remember how we got here.
Just my opinion.

[frankrolfe]

I think there are two big problems going on in Washington State: 1) some park owners need to use more moderation in increases (most park owners try to stick with a $50 to $80 cap per year in rent increases regardless of how far under market their initial rents are) and 2) park owners in Washington have to do a better job of educating bureaucrats on how even seemingly minor revisions in the law actually HARM the residents (for example, laws that restrict rules enforcement, etc.).

The reason I started doing those article reviews every week is that nobody in the industry is standing up and calling out the ridiculous efforts of a woke media to ramrod bad laws that simply pander to their base (which does not live in mobile home parks) at the expense of those that really do live in mobile home parks. There are two sides to every story but the modern media only presents one. And the side that isn’t presented has to stand up for itself.

The park that I think you are talking about in Washington probably failed to show moderation in their increases. The increases, however, were in fact warranted by the market prices, which I remember to be roughly $600,000 on the single family home and around $3,000 per month on the apartments. The lot rents probably should truly be $1,000+ per month, but should get there maybe in annual $80 increases and not in one single lump sum. That was the problem.

At the same time, I take issue with the media claiming that $1,000 per month lot rents in that market are not a fair rent given the current rents on single-family and apartments. Mobile home park owners have to develop a backbone and stop this nonsense of pretending that our product is inherently inferior and not worthy of the same rates as every other housing type in the U.S.

The bottom line is that park owners need to use moderation and lobby bureaucrats better, but the sad part is that none of this should be necessary if mobile home park owners were held to the same standard as every other business in America.

[frankrolfe]

I want to add that the new narrative from the industry needs to be in those cases where the market rents are, for example, twice the current lot rent:

“Our lot rent is 100% too low based on single-family home and apartment rents, which can be verified at Bestplaces.net. However, we are choosing to usher in these higher rents in a sensible manner that our residents can budget for, and hold our increases to around $80 per month annually until we hit the market rent. We will then probably choose to raise rents only in-line with the rate of inflation or whatever the new market rents dictate.”

But we have to start fighting back this false narrative that lot rents are too high. It’s ridiculous and we show our weakness as an industry when we don’t fight back on this topic. All rents are available to every zip code in the U.S. at Bestplaces.net yet most bureaucrats don’t even know the site exists. They need to be educated on the simple math of rents. And when others want to make this a subjective topic remind them it’s just math and needs to be approached as math.

If the media complained about the Costco hotdog and drink meal – priced at $1.50 – as being too high, I imagine that Costco would aggressively say “our hot dog meal is, in fact, over three times cheaper than any other competitive food offering at any restaurant in the U.S.” I doubt they would say nothing and hide. Our industry lot rents are way, way too low and we are not helping ourselves by not being vocal about that fact. That does not mean you have to raise them day one by 100% but people need to know you’re worth it and you are holding back to be nice so they understand and appreciate the benevolence of 99% of park owners. We offer a great product and we need to be more vocal about that fact, in my opinion. That has been the big failing of the industry over the past 30 years.

[Propboy40]

Your points are well taken and you are 100% correct that we have a math problem and certainly we can do a better job educating the media and legislators. Unfortunately right or wrong cities consider us as affordable housing and built our industry on that. As an industry we created this designation and profited by it. 50 years later we may want to change that designation but that will be tough sledding.

When we do foolish things like not repair bathtub size holes in our rentals or raise rents 300% and it gets to the media- we lose the narrative regardless of the math.

[Jane]

I agree wholeheartedly with you that we as landlords should act in moderation when bringing our rents to market.

The conflict arises when people (government, tenants, woke media, ignorant politicians) start to expect and demand that us private property owners start to act like a non-profit and start doing things that don’t make economic sense, simply for the benefit of tenants who can no longer afford the housing they currently live in.

It isn’t the job of private land owners to subsidize their tenants’ housing when the market has grown and housing costs have increased. If a home needs $20k of repairs but the rent is only $100/mo, it will be highly unlikely that a logically and economically sound-minded landlord will spend that money. Choosing not to throw good money after bad is not a decision to be villanized, but the politicians and media today seem to love to make that case.

I agree that rent increases should be phased in with moderation and over time - that benefits landlords also as it keeps your park from losing all of your tenants at once when they all decide they can’t adjust their lifestyles to afford the massive spike.

But as you said, we live in America, where property rights are well established, unlike Russia or North Korea or China where private businesses can be nationalized at the drop of a hat. It shouldn’t be appropriate for politicians to “nationalize” our rights as property owners and implement caps on rent increases because they think that will help tenants. There are tons of studies out there that show that over time, rent control simply leads to degradation of existing housing supply and lack of additional development, leading to further housing shortage and increases of market rents because demand far exceeds supply (thus exacerbating the very issue - providing affordable housing - that the rent controls were trying to solve).

There is no other place where this is more evident than in NYC where there is a massive fight over what happens with rent stabilized units that landlords have mothballed because they require $150k+ of repairs to be brought up to code (NOT because the landlords refused to maintain the unit over time, but because the tenant that was living in that unit for the last 20+ years had the right to refuse to give landlord access to the unit to do work, and DID refuse). Due to rent stabilization, those units have ridiculously low rents (as an example of order of magnitude, there are some 2b/2ba units that can only be leased for ~$800/mo when market is $7000/mo). If you have to spend $150k to get $800/mo, would you do it? Not unless you were a non-profit - but in this case, you wouldn’t even break even, you’d be losing money…so not even sure how a non-profit would make this work…I’ve yet to see the woke politicians justify why landlords should bear this burden, other than that we landlords are villains and shouldn’t be allowed to make any money off of our investments (even though carrying the costs of a vacant unit that can’t be rented is a classic example of NOT making any money….)

As a corollary, as much as politicians have demanded that landlords bear the burden of increased housing costs, rather than tenants, never once have the irrational politicians and tenant advocates acknowledged that real estate taxes, the largest and most non-negotiable, necessary fixed expense in an investment property, are growing at a rate higher than the proposed caps on rent increases that these politicians are touting. Let’s not even talk about cost of utilities, insurance, payroll, etc, all of which have spiked materially in recent years - landlords are still the “bad guys” if we try to increase rent.

Just because the housing we provide in parks is affordable, does not mean that we are required to be “Affordable Housing” (in the subsidized housing or low-income housing sense). So many people conflate the two - being the low cost option in a free market is very different from being a regulated, government-mandated option. The former is a choice and respects the rights of property owners. The latter is effectively a government taking of privately owned property.

This country was built on freedom of opportunity and the ability of someone who works hard to be able to bear the fruits of their labor. This path that housing politics is headed down strikes at the heart of that very concept. I’m with @frankrolfe that this narrative that rent increases are bad and landlords are villains is totally one sided and is one of those situations where the loudest, most obnoxious, most dramatic voice in the room - despite being totally irrational and unsubstantiated - gets all the attention and becomes accepted as fact. We as property owners need to band together and fight to have our voices heard and to protect our rights and investments, because nobody else is going to do it for us.

[Propboy40]

Some very interesting points and well said.

Certainly rent controls as a whole have proven to be ineffective with negative consequences. As much as NY is thrown about as the poster child for the negative effects of rent stabilization it is not as pervasive there as it was in the 40s and is slowly dwindling away as residents living in these units prior to 1971 pass away. Laws enacted in the 20s meant to help WWI vets and ease inflations sometimes don’t age well.

Unfortunately my original point seems to get lost and that may be my fault in that I am not being clear and concise among all the dog whistles and skrees about stupid politicians, government overreach and woke liberal media.

We as an industry have to be mindful of every action we take. Nothing more; nothing less.

When we as park owners act out; let greed overtake common sense and allow boorish stubborn instincts dictate our behavior we invite attention and oversight. Nothing sells papers faster than a picture of Grandma and Gramdpa with his Vietnam Veteran hat and pet labradoodle on his lap bemoaning a 300% rent increase on the front page of the local paper. That gets politicians attention. That has nothing to do with left or right, liberal or woke. It is just what it is.

As a sidenote I was present for the hearings here in Washington State last year that were brought on by some aggregious rent increases here in the state. I submitted testimony. Those politicians weren’t stupid- Republican or Democrat. We as an industry gave them a problem to fix. They were thoughtful and intuitive. There were a couple park investors who said a couple stupid things and got their ears pinned back pretty quick. That didn’t help us at all.

This isn’t Pottersville or Upton Sinclairs “The Jungle”. We have to operate our parks mindfully and professionally. That was all I was trying to say.

[Greg]

Propboy40 in your opening statement you post “As park owners we have to act responsibly”. In reality we need to operate our Businesses responsibly. We need to make decissions that do not jeprodise our business best interests. That is also in the best interests of our tenants.

You further state that the linch pin of our business is providing affordable housing however that beggs the question affordable to whome. Our tenants are not strictly renters they are in fact home owners. This indicates a higher level of affordability and as such some may be living beyond their means.

I personally have never catagorised or viewed my business as providing affordable housing. It is nothing more or less than renting land to those willing to pay my rates.
Clearly none of us wants government interferance however as a business we should all want lot rents at market. Market is market regardless of the economic circumstances of a tenant. Again it comes down to who is it affordable for not whether it is affordable for all.
It is not the responsibility of the private sector to provide affordable housing for all. That would be the responsibility of the public sector.

Bottom line for me is I would choose to operate a business providing a rental rate for home owners that can afford to pay market rents. The cost of living rises equally for all. Regretably for me, being in a rent controled market, the government is slowly killing this market. Long term tenants make it imposible for this market to continue indefinatly.

When the day comes to liquidate my empire I will hopefully sell to the highest bidder. When that day comes will be determined by circumstance not fear due to the encumberment of a imaginary after life.
I respect and empathise with your opinion however I do remember how I got here. It was not easy.

You are definatly right when you say we must operate our parks mindfully and professionally. We must carfully and cautiously raise our rents to market and then maintain market rents to avoid government interdferance. The worst thing for any rental business is not keeping up with market rents.

[SDGuy]

One of my most significant realizations is who the tenant is. It’s not the person living in the unit; it’s the Home. The Home is your tenant. The person living there pays the rent, but the rent is due as long as the home is on your property. The people come and go, but the home usually stays. I know this sounds cold, but in our industry, it’s accurate.

Have you ever done a loan? One of the questions asked is, “How many single-wides vs. double-wides.” The bank realizes the home is the actual tenant, so should we.

If you switch your mindset to how “much I should charge that Home to stay in my space,” you can make a less emotional decision about the rent you charge. If your rents are significantly below market, you and your family are subsidizing the park’s rent. By that rationale, why don’t you sit in front of the supermarket and pay 10-20% of other people’s grocery bills? Sounds crazy, right? Well, with below-market rents, that’s essentially what you are doing.

[Propboy40]

Very well said. I like your analogy home vs tenant. Well stated.

[Propboy40]

Good insights… the problem we face and that Frank has alluded to is we may not consider ourselves affordable housing but everyone else does. Hence the blowback we endure.

[Jane]

@Propboy40

As much as NY is thrown about as the poster child for the negative effects of rent stabilization it is not as pervasive there as it was in the 40s and is slowly dwindling away as residents living in these units prior to 1971 pass away. Laws enacted in the 20s meant to help WWI vets and ease inflations sometimes don’t age well.

I wish this was the case but unfortunately this couldn’t be further from the truth. Rent stabilized units in NYC are not able to be deregulated, even if the original resident dies or moves out. There used to be opportunities to take units that become vacant out of stabilization but with recently passed legislation, all of those loopholes have been closed - rent stabilized units are permanently stabilized, and there’s now risk to some previously de-stabilized units falling back into stabilization.

All that said, I don’t want to turn this into a NYC discussion. I just bring up NYC as the most recent and one of the most extreme examples of the slippery slope that could occur if we as property owners don’t protect our ability to set rents at whatever level we want, sell to whoever we want, and rent to whoever we want (within the bounds of fair housing laws).

While I do agree that we should be cognizant of the current environment and the potential headline risk of our actions, I would be highly reluctant to suggest that we as landlords should feel bad or hesitant about or guilty for bringing the rents in our parks up to market.

As others have commented, if market rent is triple the rent currently being charged, yes, we should phase that increase in, because it is a prudent business decision (!), not because we have some obligation to the tenants in place or because there will be political or media pressure not to do so. We should be pushing back on this type of pressure, not advocating that owners kowtow to it.

Being the most affordable (cheap, low cost) housing option should not obligate us to operate like affordable (subsidized, regulated, below market) housing.