This is more of a straight informational exchange question. Some community owners relate well to “Lonnie Dealers” and count them as part of the success of their community, and others hate the ground they walk on. How do you, as a community owner, view them and why?
Personally, I have no issue with them. Certain parks work OK for lonnie dealers and others don’t. I think you;ll find that parks with $300+ of spread over lot rent tend to work for Lonnie… anything under that gets a little on the hairy side of things.
We have a win/win relationship with all Lonnie dealers in our parks. The only time that we have an issue is when the Lonnie dealer fails to properly screen the tenant.
With the advent of the SAFE Act and Dodd-Frank, one of the hardest parts of doing Lonnie deals is having the ability to sell the home in accordance with the law. Ken, do you have some concepts for Lonnie dealers in this regard?
Frank - The primary reason I introduced this post is to “take the temperature” of community owners that use this forum regarding their feelings about Lonnie Dealers. I have community owner friends that despise Lonnie Dealers and know some others that really like Lonnie Dealers. I am trying to get a sense of the overall view of community owners, and perhaps get a dialogue going that will be informational to all who read and post here.
I think, but have no factual data to support, that community owners who dislike Lonnie Dealers have strong marketing and sales operations of their own. If a community owner has a strong marketing and sales operation, my experience tells me that they are also selling those homes for a substantial profit. They may also be upgrading the homes in their community and have planned for the removal of homes that do not fit their vision of what their community should be. Lonnie Dealers can interfere with all of those things.
On the other hand, many community owners would prefer that someone else solve their infill problems. Given the continuing collapse of street dealers selling HUD Codes, the Lonnie Dealer presents a resource to them.
I have also heard stories (I have no personal experience with this) of Lonnie Dealers buying desirable homes in one community and moving them to another community for resale. Along the same line, I have also heard of Lonnie Dealers selling and financing homes in communities they have no valid title for, which can create a real problem for the community owner.
You are absolutely correct that the SAFE Act and the Dodd Frank Act has created real problems for the original model of operation that Lonnie Skruggs created. This creates an additional problem for community owners if the Lonnie Dealer is selling and financing homes illegally in the community. While it is somewhat of a stretch to believe that regulators or courts would label a community owner a “co-conspiritor”, there are legally plausible grounds to attempt that. While I, as a community owner, would not forget that, I would be more worried that I would lose residents and end up with bad publicity because of a Lonnie Dealer selling and financing into my community without complying with the applicable laws, rules, and regulations required of them.
Our company was brought into this about 16 months ago by the heirs to Lonnie Skruggs when they approached us for help in modernizing their program to conform with all of the laws that now make any lender’s life more difficult. The challenges of doing so were pretty overwhelming at first.
- The first challenge is that Lonnie Dealers come in all sizes when it comes to volume. Many Lonnie Dealers may only finance 3-4 homes a year and then the loans are often low dollar loans. That does not leave much income to justify the costs of licensing and compliance.
- The second challenge is most Lonnie Dealers are basically one man operations and the Lonnie Dealer doesn’t have a lot of extra time to devote to complying with all of the lending laws that now exist. Worse, many Lonnie Dealers are part-time and work out of their home rather than a office which many states require of a lender - or even a dealer in homes.
The problem took us six months to solve and a year of testing and implementing to make sure we had something that would work for them. That created a new problem.
The solution had enough complexity in it that publishing it in a book like the original Lonnie system was not a very good answer. As we were testing this, we went one on one with some of the larger Lonnie Dealers. This worked, but from the Lonnie Dealer’s perspective, was fairly expensive, and from Rishel Consulting Group’s perspective was not worth doing. (We were tying up two people for 3 days including travel for every Lonnie Dealer we worked with which given how busy we are was a terrible use of resources.)
We are going to try a one day workshop in Chicago in August to see if we can solve the problem for the Lonnie Dealers and for Rishel Consulting Group. If we get enough attendees we will continue to use this method of delivery.
To begin I will state that we do not have Lonnie dealers in our area but I have done a considerable amount of reading regarding the business principal in the past.
The issue I would have regarding them would be the quality of tenant they cater to and the fact that they would be the park owners tenant not the persons living in the home. The Lonnie Dealer would want to be completely hands off where as I would want to hold them 100% responsible for paying the rent to me and in improving and maintaining the exterior appearance of the home and lot to my standards.
The park owner has full authority to screen every potential Lonnie tenant but again the majority of their clients, based on their business practices. would be bottom end.
I believe they would work in a “trailer park” situation where the park owner simply skims off the profits and completely ignores the quality of the community but in any community where the owner is trying to upgrade or turn around the community Lonnie Dealers would likely not fit that business plan.
I think a great solution to Greg’s stated scenario is to bring tenants to the Lonnie dealer. In my mind, if a Lonnie dealer wants to front $40-$50k to bring 3 or 4 rental units into my community, I have no problem helping them fill them with pre-approved tenants. Every owner here is going to ask this question to themselves and evaluate it based on the park they have in their mind. The park I have in my mind is one we have under contract. This park has a home rent over lot rent spread of $400 and it also has 50+ vacant pads. This park is perfect for a Lonnie Dealer. There is enough money in the spread for their business plan to marginally succeed. This park has enough demand (200+ calls on a 10 day run) that I can effortlessly help them put the right tenants in the homes. This is a win-win park in my mind. I am going out to visit an owner of park on Friday who owns a park where the home over lot spread is about $100… this would not be a good park for a Lonnie dealer in my opinion and we probably wouldn’t allow one to operate here because they would fail miserably.
Have the Lonnie Dealer pay the park owner directly for all lot fees. Their tenant is considered a sub lease tenant in the park meaning you do not sign a actual lease with them until they conclude the purchase of the home from the Lonnie Dealer. ultimately you will be evicting the Lonnie Dealer when their tenant does not maintain the lot to the standards you demand as the park owner.
The key is in setting up the proper business relationship with the Lonnie’s and not allowing any dealer to have so many homes in the community as to allow them any leverage.
You could call me a Lonnie dealer. I got into it to learn the park business, and build up some cash to buy a park. The park owner and I work closely together, and have had a great relationship for the 3 years that I’ve been investing in his park.