On this episode of The Mobile home Park Lawyer, Ferd tells us 12 simple ways to make your existing mobile home parks more profitable. Enjoy!
“We constantly have to focus on profitability. The more profit you have, the more money you’ll have to reinvest in your community, capital expenditures, reserves or to find the next deal.”
HIGHLIGHTS:
0:00 – Intro
0:42 – It can be challenging to find opportunities to buy new parks
1:05 – Ferd explains the formula for profit as a mobile home park owner
1:42 – 1. Increase rent
1:54 – 2. Water sewer bill back
2:14 – 3. Screen your tenants better
2:52 – 4. Advertise better than the opposition
3:15 – 5. Fill vacant lots
4:37 – 6. Collect late fees
4:18 – 7. Charge pet fees
4:48 – 8. Add sheds
5:47 – 9. Tax protest
6:12 – 10. Sell the tires and the axels on homes
7:15 – 11. Mow tenants grass for a fee
7:47 – 12. Charge fees for not keeping up with yard work, and other fees
FULL TRANSCRIPTION:
Welcome back mobile home park nation. I’m here today to teach you how to make more money with your existing mobile home park. Obviously, if you can buy more and more parks, there’s opportunities to make more money, but sometimes it’s challenging to find the new park, and regardless of that is better to just start with improving the operations and improving the profitability at your existing park. And my company, we obsess on the profit. We don’t really care as much about what’s the top line of gross revenue looks like, we care about the bottom-line profitability and the top line grows indirectly when you focus on profit. So really, real quick, I want to jump into the formula if you will, for profit.
First, you start with your prospects or your leads, and you multiply that times your conversion rate, that gives you your customers and customers times price, times frequency, times your profitability margin that equals your profit. That’s how much money you put in your pocket. That’s how much money you can use to put your kids through school. Buy that new car, invest in that next asset. Got to keep a continual focus on profit. So today I’m going to tell you 12 ways to make your mobile home park more profitable.
Number one, increase the rent. That’s pretty obvious, part of the game you got to do that within reason to be reasonable to your tenants, but also just strategically to not scare people away, but do a regular annual rent increase.
Number two is water-sewer bill back. If you’re currently paying the water and sewer, you need to find a way to build a water back, generally, it’s done by sub-metering and measuring it on a monthly basis and billing it back to the tenants. You got to be careful here to follow all your local and state laws, but it’s a great way to increase profitability.
Number three, screen your tenants better. I know some people out there that they just say, Oh, I do the eyeball test. I’m a real good judge of character. That’s a bad idea. We use a company called Landlord Tenant Services. It takes a little longer than the automatic, you know, credit check, but they do a great job. They call not just the current landlord, but the prior two and three landlords, they call the employer, verify income, etc. Because it’s a lot better to not let in the bad tenant than miss out on security deposit or miss out on a first month’s rent than to let in the wrong tenant and later have to deal with collection issues in eviction issues.
Number four, advertise better, not necessarily more expensively, but advertise better than the competition. Facebook marketplace is a great resource for this. Have a Facebook page, have a website, get stuff on Craigslist, MH Bay, other sources out there, but be aggressive on your ads and be responsive. Tenants love responsiveness. Most people don’t call anymore. They text or they Facebook message.
Number five fill vacant lots. This is one of the best ways to increase profitability. A vacant lot is worth zero. It is actually worth less than zero because you got to mow the grass, filling that lot is an easy way. It’s not easy, but it’s an easy way to increase profitability from a formulaic standpoint. There is a lot of work involved, but filling vacant lots is one of my main strategies in any mobile home park project I tackle.
Number six collect late fees. I see lots of people that they have late fees, provisions or lease, and they don’t collect them. They train their tenants to not pay on time. I don’t want to make money in late fees frankly. I tell my tenants, I hope I make $0 in late fees, but if you’re late, it’s going to hurt. We typically, you got to check their state maximums. We typically have something like, you know, free through the fifth of the month. There’s a grace period on the sixth it’s 50 bucks. And then every day it’s another $10 that could, you know, in one month that’s $300 in late fees. That’s more than a lot rent in some of my parks. It’s designed to get people to pay on time, train them to pay on time. It’s also not fair to not charge late fees and let people pay, you know, two and three and five weeks late. When somebody next door is paying on time, that’s not fair to them.
Number seven, charge pet fees. You want to verify with your insurance company, that you can actually have pets and certain breeds of pets, but you can charge pet fees. Nobody’s getting rid of Fido for $20 a month. We have a non-refundable security deposit on the park owned homes and we charge a pet rent anywhere from $20 to $40 a month. And if you have amenities like a dog park, it’s easier to do that. But pet fees are pretty common in the apartment world. So, you can also put it on, put those into the formula year for the MHP world.
Number eight, this is one of my favorites, it is add sheds. I love having sheds in my park for a couple reasons. One, it makes an extra $25 to $35 a month. Two, it gets the junk out of the yard into the shed. If someone’s got a shed, there’s no reason to have nine bicycles land up against the trailer. And the third reason I love sheds is your lenders will generally count that as land rent, which means you can capitalize it when you do your cash-out refinance when you do your ultimate sale, it’s going to add real value. $25 shed, I mean, just doing basic math here, $25 times, 12 months times 0.7, 210 divided by an eight cap. It’s another $2,600. You buy a shed, it is $750, you immediately increase your valuation 2,600. That’s if I used a 30% expense ratio, which is how I got the 0.7, realistically, that doesn’t cost any more to have sheds. So, it should be 25 times, 25 times, 12 months divided by an eight cap, $3,780. Put a shed on every lot.
Number nine, tax protests, and this one’s can be a gamble. So sometimes you don’t want to, you know, you want to keep your head down and not piss off the tax assessor, but there’s an opportunity to appeal your taxes. Another portion of tax, it’s not really park-specific, but income taxes, you can do things like cost segregation studies, bonus depreciation. You can be a real estate professional. I’ll cover these items in another episode but pay as little taxes as you’re legally required to do.
Number ten, this was a new one for me in the last couple of years. Sell the tires and the axles underneath your mobile homes. Once you bring a new home in, you don’t want that home to ever go away anyway. You have no need typically to have the tires, have the axles. Well, the guys that moved mobile homes for a living, they love getting those, especially if they’re brand new. You may be able to get, you know, $20, $25 a tire. And there’s different either a brake axle or a regular axle anyway, it depends on your region and who you go with, but you could get $35 to $60 per axle. Sometimes even more than that actually. I had a deal here in Missouri, where I brought in a lot of homes in one year. I had about $15,000. None of it was my budget, because they didn’t know about this at the time. One of these guys called me, I got about $15,000 of tires and axles sitting underneath the homes. Took one day, crew guys came, pulled them out. They even pulled them out themselves, pull them out, put them in the truck, gave me $15,000 cash. That’s good for your budget. Your investors, if you’re a syndicator will love you. You can bring some short-term cash like that as well.
Number eleven, mow people’s grass for a fee. Typically, in our parks, we require each resident to mow their own lot. Some of them, you know, if they’re like an elderly lady or they’re handicap we will just, we’ll mow it. We’ll just say it’s part of the deal, we will mow your grass for free. But for the most part, if you don’t want us to mow the grass, we charge. Hey, it’s $20 bucks a mow. And say I don’t really want to mow your grass. But if you want me to, I’ll do it. So, some of them will charge you for it. You know, frankly, they could get a neighbor kid to do it for cheaper, but then I get to have more control as well, and I can make the park look better.
And then number twelve kind of dovetails with mowing is you can give people fines or fees. So, when I’m talking to number eleven about mowing, I’m talking to people who voluntarily in advance ask us to mow every week or 10 days. Whenever we mow the rest of park, more of the common area. But number twelve is actually forced mow. I put a notice on your door. We put notice violations out on Fridays with red paper, kind of like the pink slip. And we say mow, $50 bucks If you don’t do it in 48 hours, which is allowed in our lease. And then if they don’t mow in 48 hours, we force mow it and we charge them $50, which is steep. And I say, I don’t want to mow your grass. I want the park to look nice. So you got to be somewhat reasonable on these things and you got to make sure you’re following all your local laws, but my template lease says, I don’t even know how many 50 different fines, you know, if you fart, I fine you $50. I mean, you know, your skirtings cracked, you got holes in your skirting. You got paint chips, you got trash in your yard. Now I’ll tell you from a business owner perspective, practically, I don’t actually want to collect any fines. I just use it as more of a muscle. Look, I’m trying to make this a better community for you, for your neighbors, for all of us. So, let’s just follow the rules. Let’s just keep this place cleaned up. But you know, there are fines, every month there are actual fines because people, some people need to learn the hard way. So, I might as well, you know get some money for putting up with the brain damage and putting up with having to you know, detrimental aesthetics in my park for the moment.
So anyway, those are the 12 ways to make your park more profitable. And again, we constantly have to focus on profitability. The more profit you have, the more money you’ll have also to reinvest in your community, capital expenditures, reserves, you know, find the next deal, etc. If you’re driving right now or you didn’t take notes, you can go find these 12 ways to make more money in the show notes for this episode.