How to Turn Around a Mobile Home Park Part I

When you buy a Mobile Home Park that needs to be turned around (and most parks need some type of turnaround), the first thing you need to do is disengage the prior ownership/management. Face it, if the park is not running like it should be, you will most likely want to start over with a new management team. Even though the prior owner is usually to blame for the poor operations of the park, it is difficult to keep the prior managers that have been trained poorly or incorrectly. So, in most cases, fire everyone and start over. There are always exceptions to the rule, but they are few and far between. I have found that it is easier to train a new manager than to retrain the existing one.

However, when you are firing or not hiring people, you want to stay on good terms with them. Don't tell the owner that he is clueless or the manager that you are not hiring them because they are incompetent. Keep everyone on good terms because you may need to call on these people later to help with issues that may arise such as locating sewer cleanouts or water turnoffs, who to call for a certain problem or issue, tricks on how to get the lift station pump back on, tenant histories, etc. If you completely alienate these people, they will not be willing to answer simple questions down the road that can save you or your new manager time and money.

Also, either before or after the transition to new management, you need to collect as much information as you can. One important piece of information to find out is a list of who has helped out with the repairs and maintenance of the park in the past. This can be the guy that is 70 years old and has puttered around the park for 30 years doing odd jobs, to the previous owner down the street that built the park and knows it inside and out, to the plumbers and electricians that have worked in the park since its inception. Many of these old-timers have great memories and will be able to help you solve problems as they arise. You can never have too many people on your team that may have advice as you go to turning around and operating a mobile home park.

Once you get as much information as possible, you need to develop a turnaround plan. This turnaround plan will begin during your due diligence and then be updated once you take over and then many times after that. The important thing is to write it down and use it as a reference.

The key in devising your plan on turnaround projects is to come up with a specific written plan and then execute it in small steps. Don't try to take on too much at one time. For example, patch the roads now to save some money and then after you have the increased occupancy, and have higher rents and lower expenses and more equity, and then just before you are ready to sell or refinance, put your asphalt overlay in then.

Don't go out and buy 25 homes that need complete rehab. Instead buy a good variety of homes in smaller chunks and then as they are rented or sold then buy some more. You will soon learn whether your demand is for the 2005 16 x 80 three bedrooms that you can sell for $20,000 or the 1990 14 x 70 two bedroom homes that you can sell for $5,000. Once you know what the demand is for then you should go about filling that demand rather than just making a guess at it.

Turn Around Plan Snapshot

General Cleanup of the Park: The goal here is to have the residents see that we care about the park and that we will do our part and clean up the common areas, keep the grass mowed, haul out the piles of trash scattered around in hopes of having the residents start to take pride of ownership of their own homes and lots.

The first cleanup of the park is usually on us and we will do a thorough once over cleanup of the park that will include bringing in dumpsters for not only the common areas but also for the residents to use to get rid of the junk in their yards. We stress to them that this is there one time to straighten up and clean up for free. Because the next time, it will be on their dime. If they don't mow their grass or pick up the trash in their yard then we will do it for a fee and these extra fees will be either an additional profit center or a tool to motivate the residents.

We will also work with the residents on a case-by-case basis to help them buy paint, skirting, steps and other similar items that they can't afford to pay for in one big lump sum but can pay an extra $30 per month for if we buy it and make sure it is installed properly. This system of loaning the residents money is usually only for them to do improvements to the outside of their homes and not the inside. The things that we see or that our bankers and future buyers will see.

The typical scenario for us is to have an initial cleanup weekend or weekends until we are satisfied that the biggest part of the work is done. This is the only time that our residents can dispose of appliances and couches for free.

Infrastructure Items: What needs to be fixed immediately? You want to prioritize this list as the costs can be huge. For example, water that is leaking everywhere that the park owner is paying for is much more important to fix than some potholes here and there.

You will look at things such as water lines, sewer lines, electrical services, gas services, roads, trees, other park structures, etc and then do an inspection of each. You will make a list of each item and then decide what needs to be fixed now, next year, in five years, and so on.

If the sewer line backs up 5 or 6 times a year and it costs $300 per time to roto rooter, then that needs to be weighed against the cost of replacing the sewer lines. I would much rather spend about $1,500 per year unclogging lines than spend $150,000 up front running new sewer lines.

The items that usually require immediate attention are those that will reduce your risk of loss of both money and residents. Most of the time it is trimming trees, repairing roads, installing water meters, and a general park cleanup.

Existing Park Owned Homes: Are the existing park owned homes in reasonable repair? If not, what needs to be done and who will do it? At what cost? Are they worth fixing? Most of the time the homes are worth fixing when you consider it will cost you about $2,000 to $3,000 to dispose of an old home and then $3,000 to move a new or used home in without including any of the cost of buying and rehabbing the home that you put in to replace the old one. For $3,000 to $5,000 you can make most older homes presentable and attractive to potential purchasers.

What work will you do to them (ie: repair them to a minimal standard to living up to replacing all the carpet, painting, cabinets, new skirting, siding, etc.

Remember it costs about $2,000 to $3,000 to dispose of an old home. If you put that money into the home in repairs and just give it away, you now have a rented lot. If you pull it out, you have still spent that $2,000 to $3,000 and have a vacant lot.

Buying & Selling or Renting Homes: Will you buy homes to fill lots How many? What price range? Total budget for homes? For the homes you buy will you rent them or sell them? Where will the money come from to buy the homes, set them up, and rehab them? Who will move the homes, set them up, rehab them, and sell them? Where can you buy the parts from (skirting, doors, etc) and can you get them wholesale?

Preparing Your Budget: Before you bought the park you should have prepared a budget and projections of how you will operate the park, upcoming rent raises, items you will pass through to the residents, how to improve collections, who to evict and so on. Sometimes the park you are buying will need nothing more than an adjustment to the rents and getting them to market level. This is an easy one as the residents are aware of the rents in neighboring parks and they will expect a rent raise.

I will share with you my own recent personal experience with buying an existing Mobile Home Park recently in which part of my turnaround plan was to double the lot rents, in Part II of this series. In the next installment, I will conclude the remainder of the Turn Around Plan Snapshot by listing they last few key components needed for a successfull turnaround of a park in, How to Turn Around a Mobile Home Park Part II.