No calls on test ad, otherwise good deal?

Here’s another opinion on the value and ethics of a test ad before / after you have a park under contract.

Think of the following scenario. You have a park in an metro area (of size X, whatever is appropriate). Now you are looking at a second park in the same metro area. Typically you won’t be the only park in town. You want to place the same ad you already placed, right? Because the draw to your potential second park has the same radius of “seek” as your current park. So you look at the results of your ads for your current park. Is that legitimate? Ethical? Your competitors are likely advertising. Take a look at what’s already out there. What is the “market?”

You would probably be wise to run a new test ad, just in case. Still ethical? What if you don’t bother to tabulate and categorize the responses? What if you don’t call anyone back? What if you never intend to call anyone back but just see how many times the phone rings? Still ethical?

Now, what if you’re buying the second park without the first park? The test ad is not just a sample of the demand, it is the demand. Or at least your last-resort source of leads.

If the phone isn’t ringing when you want it to, you have to know what the problem is. That’s not something you want to be diagnosing after-the-fact. You want to start collecting a wait list during the first month of operating your park. How are you going to know how fast/many & what type of homes you are going to bring in, at what price points, without this wait list?

In practice, for us, the large expense comes during DD when we visit the park. We picked a geographic area, then a state, then got a feeling for a few regions of the state during our various DD trips. We looked at a lot of parks before purchasing one in a town where we are comfortable looking to buy another.

A corollary is that you ought to keep your ad as generic as possible – your ad could be for any mobile home park in the entire area, because, essentially, it is. The ad measures demand in the area; how much of that demand you can tap into is all about management – not basic economic factors over which you have no control.

For non-urban metro areas, I have found that the county seat is generally the largest metro area in a given county, and for a given group of counties there are only a few county seats that are thriving. So outside of (for example) Indianapolis there is a ring of counties (say, 6) with a county seat and a few other metro areas, and maybe a couple of county seats have their own well-read newspaper. But you should be advertising in the Indianapolis paper and that would be the same ad for anyone willing to commute to Indianapolis, therefore valid for hundreds of potential parks in the Indy metroplex.

By the time you get “two counties out”: The county seat is the only metro area in each county, the commuters are commuting one or two counties away but not to Indianapolis, and you are “on the way” between Indy and the next metroplex or along an interstate or major highway. Now your draw is going to be whatever economic base depends on land that is along the corridor between two major metroplexes. Good luck figuring out where to advertise. Once you figure it out, if you aren’t getting the demand response you like (see title of this thread) it’s time to pass. How are you going to maintain a wait list? You will want one because there will always be at least some turnover.


Thanks CharlesD.

It seems like your real data answers the questions of efficiency.

The very specific things pertaining to the park - that’s an important point and I was under the assumption that with ‘test ads’, the ad would mention the park, etc. which is why I was wondering about the whole “Can you really do that?” aspect of running test ads.

Great community out here and I appreciate all the feedback.

I know a lot of the big pictures about MHP investing (demand, etc) and the due diligence process, but taking the theory to practice is where I’m at now.

Thanks again.

Okay… I see what you mean.

Thanks for taking the time to clarify!

We always run our ads with actual pictures of the park and the location. In addition, we usually try to advertise the actual homes we’ll be looking to sell/rent when we take ownership. A lot of people probably don’t do this, but it’s what makes sense to us.

To be clear, I never ran a test ad without doing some basic background diligence. That would be pointless. There is no way you can say there is NEVER a situation where running a test ad without having the property tied up is a waste of time. I did not give all of the reasons, but I did have my reasons. I don’t feel I need to justify myself, but there are some circumstances where it can make sense.

There was twice I believe that I did run a test ad on CL without making an offer first. In both cases, like I said, there were reasons.

For one example, if you’re a 1031 buyer, as I was, you only have 45 days to find a replacement property which is NOT a very long time. You have to evaluate many, many properties quickly and can’t just randomly tie up 10 properties knowing you’re only going to buy one - MAYBE, possibly none of them.

Want to talk about an ethics problem? How about tying up properties, taking them off the market when you know it’s unlikely you’re going to buy it. To me, that’s far more unethical than running a few test ads.

Just my opinion. I may be new to MHP investing, but I’ve been RE investing since the 1980’s and have successfully turned around a few apartment complexes and several multifamily buildings.

Words like never and always are pretty overused.

Frank - Thanks for jumping in and replying. I read an article about your recently in either the Journal or the NY Times. But you mentioned how you missed the office on the weekend, I believe. Something about missing being around the energy and buzz? I can relate… Beaches are nice, but I love being around motivated and focused people who are taking action. I hope to find others in these forums. I’m sure I will.

Coach62 - Thanks for the greater perspective. 45 days on the 1031 - that’s some time pressure to find a like investment. I haven’t been doing this for quite as long but I’ve been learning quickly. So far I just have an SFR, but I know if I can find the right MHP, that will be my next investment.

Brandon - That case study hypothetical on Indy was really helpful and informative. I’m talking to a potential partner right now and we were looking at a park in a rural area, trying to determine where its economic base will come from . The population is really tiny - less than 1,000. But the owner says he’s rarely been under 100% occupancy (30 park space). It’s about 30 mins to the nearest MSA and there are a few other cities nearby. Anyways, I’ll be looking more into the county seat info as you mention. Very helpful. The temptation for us was to consider the MSA the employment base but we should probably dig a little further into that.

Thanks to everyone on this thread. Sorry if I’m a bit off-topic, but these posts have definitely been very educational.

In 35 years with buying parks that are full and no rentals in rural areas have NEVER used test ads and just completed a 1031 and had already had backup properties to choose from, before completing the sale. Once you have identified PROPERTIES you have 180 days to close. Filling empty spaces is not part of our business model anymore than having rentals. Most properties we buy have room for expansion and in the last 2 months tenant have brought in 6 units where we have developed 15 new sites.To each his own but when a park has been in existence over 30 years and has an occupancy rate of less than 90% and more than 10% rentals, WHY, WHY, WHY??? If that is the case and the seller seems to have some business sense there could be some daunting problems that even ads will not indicate and you as a new owner can not fix. We buy fully functioning properties for a reasonable cap rate and when we sell we like the results without spending our time finding homes or fixing questionable homes. Everyone is still FREE to choose the model they like to follow in the park business.

Hi Carl,
So you are buying parks that are full, but have room for expansion.
That means parks that have lots that can be developed?
And because they’re 90% full, the assumption is that the demand will be there, as evidenced by the 6 units that recently came in on the 15 you developed.
Just making sure I understand things correctly.

What about the cost of developing the 15 lots?
With programs like Clayton’s CASH program, isn’t likely that buying a underoccupied park and bringing in Homes through Clayton will be a lot less money out of pocket?

I’m not disagreeing with the strategy… just looking to learn more about the analysis.

If I’m in a situation where the phone is ringing regularly on the test ad (say 20 in 10 days) in an underoccupied park, your analysis is that - well, if it’s that easy, why didn’t the former owner fill the lots? Which does make some sense…

And you’re saying that there’s some underlying market defect.

One last question - what do you think is going on in that type of situation, assuming it’s not mismanagement - lots of calls, but also lots of vacancies in a park?

Mobile Park Man, good questions and train of thought. Generally the parks are plus 95% full or we keep looking but we are normally in niche markets such as waterfront, retirement, or destination locations since we like the fact they keep rolling and are able to raise rents every year whereas when the 08-09 bust happened to most family parks vacancies occurred. We have never owned parks with city utilities and presently have no county zoning to contend with. and thus our cost per site is around $2,000 to satisfy our DEQ requirements. We have found that it is easier for us to GIVE NEW residents $2,000-$3000 for a deposit on a new or newer home then to mess with MR. Buffett program since he will never get the worst end of a deal or give a bonus to present residents if they have friends to bring a newer home in. One problem with the ads is trying to go from saying yes we are needing housing to qualifying the tenant as to their quality and ability to pay in difficult times. If you are starting new family parks are a good start or if you want to own numerous properties but with time we found we love owning properties that we would gladly live in and get a great return on investment. Trying not to be to specific but looked recently at a park in Iowa that has a history of over 30 years with a plus 35% vacant rate. Since it is near a good size town took a look and within 20 minutes knew most of the problems the last 3 owners experienced but they tried to fix but could not nor would I… Yes, most owners want full parks so WHY??? are their vacancies. We have never developed a park from the ground floor nor try to redo a park–we want cash flow from day ONE!!! As per your last question–will make no assumptions, money is to valuable to go into any deal with questions unanswered…

While I agree with Carl’s line of thinking here, you have to decide what you’re investing requirements are. Carl is in a niche within the park niche. It’s a great niche to be in if you can get in to it at the right price. We are currently looking at a park that fits almost completely what Carl describes and it is a wonderful property. In the case of the park we are looking at, the pricing is great but the upside is minimal. It is a very nice long-term investment and it is a park that I would be more than happy to own.

What we normally focus the majority of our attention on is parks that Carl seems to hate. These are mismanaged properties with big upside potential. One of the things I really don’t like about Carl’s explanation here is there seems to be an assumption that these don’t cash flow on day one. I would argue the opposite. We buy these at prices where they do cash flow and they typically are doing so at roughly 16%-20% on day one. In addition, the upside generally gets the CoC up over 30% within a year or two with a ton of forced appreciation on top. One of our parks is at 56% CoC for the last 12 months. Yes, it has a ton of POHs and yes, it was very management intensive starting out. However, it was very much worth doing and it runs very efficiently now (after 14 months of ownership).

Additionally, most Moms & Pops aren’t marketing their property. When you come into a deal where you know it’s not being marketed, you need to run an add to see if there is a demand. You should honestly do this on every property. Marketing is the conduit through which you make sales. If you aren’t doing it (or are doing it poorly) then what expectation of selling your product should you really have? We’ve filled enough vacancies on mismanaged properties to know that “if it’s that easy, why didn’t the former owner fill the lots?” is not a valid assumption. We sold 29 homes to qualified tenants in 11 months in the park I talked about above. The previous owner was foreclosed on by the bank who sold us the property.

Hate is never a word in the park business I use but choose carefully what we own so we can earn plus 35% cash on cash. from day one. I was raised on a dairy farm and sometimes what stinks is pure gold presently dairy farmer are generating electricity from the smelly stuff. For our business model we want to KNOW why he has vacancies if can be a device used to show WHY his price of his property is questionable and see the hurdles he has tried that fail. I watch very carefully other operators do to learn to not repeat their failures and to see their success. So what was your means for filling the 29 homes in 11 months–we would all like to hear your story and learn!!!

It was done through a combination of craigslist, bandit signs, and direct mail. Most of our direct mail went to C class apartment complexes. We did some other marketing here and there, but that was the big 3 that got the best results.

As usual, great write up Charles. If you know what you’re doing properties with problems due to poor management can provide the best return. Take my duplexes I just sold. Made great cash flow for 5 years and well over doubled my purchase price when I sold is 5 years. They were a short sale when I bought.

I had a perfectly safe park under contract with a decent cap but passed on it for the park I actually just bought. I should nearly double the value of it in the same amount of time.

That just doesn’t happen with well- oiled, smooth running operations.