Now there is nothing revolutionary about this idea. Private companies do this all the time and I think it can be very effective when the incentives are aligned with business needs. Let’s take a look at some ways to structure these.

• If you have lots of park owned homes for sale offer commissions for each home the manager sells
• If you have had poor collections incent them on a monthly/quarterly basis for hitting a collections target by X day of the month
• If there had been rules or other visual issues set a discretionary bonus for maintaining a well run park (Note: this is a much harder rule to evaluate and can be subjective)
• If you had prior expense issues with contractors, etc incent them based on overall P&L. You may grant some bonus for end of year targets; profit sharing is a way to think about it.

The key is to assess what are the key facets of your business that needs to be monitored and incent your manager to do a killer job on those areas. As our park goals change each quarter or year, we may adjust the incentives as needed to best fit with our park goals. In my opinion this structure has several benefits:

1. Keeps your manager more motivated and on their toes – they will want to make as much money as they can
2. Keeps your manager aligned with your best interests, not their own or other tenants’
3. Engenders more loyalty with your manager – if you make money, they make money and we want them to make money!

PS:

• I recommend a base salary along with these incentives. You cannot have an incentive only structure (ie commission only sales jobs). Most of your managers still need the security of a steady income
• Before you create all these incentives, set the maximum total salary and work backwards. If your business model allows for a total annual manager’s salary of $28,000 then give them a $20k salary and incentives to earn an extra $8k.

Wesley

In our weekly call with my manager, she brought up an issue with a resident. Let’s call him Wesley (not a real name). Wesley was a construction worker who lived with his wife and two kids. He bought a home from us and move into our park. Paying lot rent and home payment that is close to renting an apartment, he would own the home free and clear in 4 years. He was excited about the opportunity.

He was a decent guy, but he had a tendency to get behind on his lot rent and home payment. When he had trouble making payments on  time, we worked out a reasonable payment plan to get him caught up. We sometimes needed pressure him a little, but he eventually paid, along with a late fee.

He approached us again last month because his work slowed down. We set up another payment plan. He would have half of his payment on the 15th and rest at the end of the month. When the 15th came, however, he was nowhere to be seen. Our manager made numerous attempts to find out his situation – through phone calls and visits. She saw people in the home but no one answered. Wesley was obviously avoiding her. With no other options, we filed an eviction and got a court date in about two weeks.

The Phone Call

The evening before the court date , I received a call from our manager. Wesley had come to her with half of the rent (he was now two months behind) asking her to withdraw the eviction – promising to catch up for real this time. My manager called to see what I wanted to do. Usually I don’t do this, but I asked her to put him on the phone.

Me: Wesley, where have you been? We contacted you several times about your rent. We were forced to file eviction because we have not heard from you for weeks.

Wesley: Well, I came by to talk to your manager, but she wasn’t home.

Me: It is your responsibility to find her if something happens. You know where she lives and her phone number.

Wesley: … I know. I am sorry. It’s just that things have been slow at work

Me: We understand that things can get tough sometimes. That is why we set up the payment plan for you. You know we work with you on it.

Wesley: I know… Anyway, I have $700 (half) with me right now. I can pay this right now and pay rest later. I don’t want to lose the home. Can you just accept this now and not evict us?

Me: I am sorry Wesley, but I am very disturbed right now for two reasons. First, as a business person, I am disturbed that you did not honor your commitment, even when you know we were willing to work with you.  Secondly, I am surprised by your irresponsibility to your family. Your are the  head of your family. You have two kids and a wife to care for. It is your responsibility to make sure that they have a place to live. You had all this time to contact us. But now you show up a day before the eviction to see if we can work something out? This kind of behavior is unacceptable to your family and yourself.

Wesley: So what do you want to do? You are going to evict me?

Me: You know what, if I let this slip, it is not good for me and it is not good for you. I would be saying that it’s OK to act this way.

Wesley: So you are going to evict me?

Me: You do your best to bring more tomorrow to the court. Then we will decide.

Wesley: How much more do I have to bring? If I bring more and you still evict me, I lose a day’s pay. So you are telling me that if I miss the work and show up at the court, I can still be kicked out?

Me: I am sorry. You will have to take that chance if you want to stay in your home.

We hung up on that note. Obviously I did not want him to lose his home. He had a wife and two kids. Winter was also just around the corner. Evicting him and flipping the home to someone else would make us more money. That, however, was not what our business was about. On the other hand, if I just accepted his money there, I would be telling him that such irresponsibility to himself and his family is an acceptable behavior. Furthermore, I would also be undermining our collection policy.Wesley had to make an effort.

Court Date

Next day, I anxiously waited for my manager’s call. She called and told me that fortunately, Wesley showed up with $100 more, with total of $800. He also signed a statement saying when he will pay rest of the balance. We withdrew the eviction. It was a beneficial to everyone, Wesley included.

Why This Is The Hardest Thing

Fortunately, the kind of behavior is not common. Most of our residents are responsible and respectable. Once in a while, however, we see a low-quality behavior like this that doesn’t benefit anyone – even the person who’s doing it. When it affects people near and dear to that person, it is difficult to look at.

We are in this business to improve quality of life and help people attain home ownership. We set up the business so that we can provide benefit to people. They sign up because they see that benefit. When some people throw away the benefits, however, it is hard to understand. We cannot force people to make a right choice. You guide them as much as you can, but it is ultimately up to them.

This phone call was difficult for me. At the end, I was very happy that Wesley made the right choice.

My friend, Rick, says that golf is a game of life. He’s right. So much about who we are and what we need to be successful in life can be described through the game of golf.

Find Your Unique Style

Golf is the ultimate individual sport.  Like each of us, our golf swings are unique to our personalities, temperament and physical qualities.  The basic golf swing has identical core components (backswing, impact, follow through), but how we best accomplish those components should fit to our unique qualities. Compare the swings of Chi Chi Rodriguez, Ray Floyd and Ben Hogan. Three totally distinct swings, but all were great golfers.

What does this mean to me? First, I don’t believe those ‘gurus’ who tell aspiring golfers that there is only one correct way to be a successful golfer. Great golfers evolve the core components of golf to fit their strengths.  Go to any course you will see accomplished golfers of all shapes, sizes, ages and gender. Their swings are equally as distinct.

Such as in life, we cannot expect to achieve success by believing there is only one ‘swing’ to model ourselves after. Don’t ever let anyone tell you that you cannot achieve success because of who you are or what your limitations are. Just the opposite – we can only be successful by knowing ourselves and patterning a swing which leverages our strengths.

I am an athletically built 5’3″ guy. Can you imagine me trying to swing like a lanky 6’3″ golfer? It would not be pretty. Likewise, in life, I have always been a non-conformist who does not like authoritarian behavior. Perhaps that is why never liked working in the corporate world….hmmm.

Focus – One Shot at a Time

Perhaps the best part of golf is that it does not play favorites. Every single golfer has experienced the joy of making a great shot, only to find their next shot sail into the woods or water. But it’s the great golfer who can forget the last shot and focus on the next shot. The best golfers can put aside a bad shot into the trees and come back to make par.

Likewise, in business we all go through ups and downs. Each time something does not go our way, do we quickly assess where we are and the best steps to still get us to our goal? Or do we just give up and walk away from the game? I think it’s so much more rewarding to bounce back from a bad situation and recover to meet our goals!

It’s You vs. You

Golf is a game where you compete against yourself. It’s about playing your best and making progress each time you head out to the course. Comparing your game against someone else’s is simply irrelevant.  In the same vain, how many of us measure our lives or success against someone else’s? The bottom line is that you can only be the best YOU, not someone else. Stop worrying what other people are doing and focus on your game.

The Practice-Range Pro

Enjoy the Game

Recently I watched John Daly drop 5 or 6 balls into the lake (ala Tin Cup) at one tournament and then storm off the course because he ran out of balls. He didn’t look too happy.  Is it any surprise that he isn’t finding much success in the game. His attitude is all wrong and he doesn’t look like he is enjoying the game. Even when I have a bad golf day I just love being out on the course and enjoying my surroundings.

In life, we all experience bad times. In our business, my partner and I have encountered absolutely frustrating issues and roadblocks. It would have been easy to get pissy and give up. However, once we stop to reflect, we remember just how much we love what we do. In fact, each time we hit one of these temporary roadblocks we seem to come back even stronger and with more zest.

While its technically true that vacancy fills can provide upside I like to use this analogy.If you were to were to acquire an apartment with 60% vacancy you would think it has great upside potential. However, what if those vacant units were not even built out, just unbuilt floors. You would need to build the rooms, electrical, plumbing, etc.  Different story eh?

So when looking at upside potential realize there are different levels of upside. Some types of upside are better than others. When I look at a value added park, here is how I prioritize them:

1. Below market rents: This is obvious. Having the ability to raise rents on Day one to market rates is the easiest way to improve the value on your park.
   Caveat: Be aware of market conditions and how much you can raise at one time. Too large of a raise at one time can backfire on you. Look at what’s happening to Netflix.
2. High Expenses: This can be good and bad. There may be issues with the park that requires high expenses and therefore not a good park. Usually, I look at high expenses as a result of inefficient management and see this as a big plus. Being very comfortable with management I love seeing parks with expenses at 60% and above.
3. Many rental POHs:  Converting rental homes to tenant owned homes is not as difficult as one would imagine. While you may encounter some turnover it is quite straightforward getting current renters(good ones) to become home owners. You will end up with a more stable resident while reducing operating costs.
4. Vacant POHs:  Unless you inherit TOTAL junkers most mobile homes are quite easy to rehab and worth it. With the limited supply of good used mobile homes, it is often worth the cost to rehab your vacant POHs to sell. Alternatively you can partner with MH investors who want to Lonnie Deal in your park. With the proper alignment of business goals this can be a win/win situation.
5. Vacant lots: Do they have value? Not from a cash flow perspective. I end up having to pay someone to mow the lawns and keeping the lots clean. This is NOT upside folks!
6. Vacant land: Unless you have oil underneath your vacant land this is worse than having improved vacant lots.

Do you want to know what both of us were thinking after these exercises?

It was SO much easier to inspect the parks. Jae and I were able to drive through the park at 5 mph, with periodic stops and have a very clear evaluation of the park, its issues and the turnaround plan needed if we acquired it. Just sitting in the car we were able to assess:

• Road: Its conditions and repairs needed
• Landscaping/Trees: Trimming and landscaping needed
• Electric Pedstals: You may need to get out of the car but we can see them from the car if they are visible
• Vacancy – You can drive by and count. Its pretty easy to spot vacant homes
• General appearance: Appearance of the homes, yards, cars, etc are obvious. Its easy to identify a park’s ‘pride of ownership’ factor and make precise judgments about the people and the management.
• [Note - If a park has park owned homes you will want to be able to see them if possible.]

It took Jae and I 15-25 min to drive through a normal sized park. Of course it took just 30 seconds to get out of an absolutely scary park

This deal was a lot of things to us. First, it was a great investment opportunity. The mobile home park was left untouched by others investors. We, however saw a potential to generate significant return on investment through both cash flow and appreciation. Second, it was a chance for us to fully utilize our experience and knowledge to benefit everyone involved – residents, seller, bank, community, and investors. Thirdly, this property was another validation that our business model can be both profitable and meaningful. For the full report, click on the link below:

Click Here for the full report on St Paul Group’s web site.

We have become so accustomed to throwing away disposable goods as a society. While throwing away a single pen makes a little difference, collectively, they have an significant impact. According to Green Seal’s report, Americans throw away 1.6 million disposable pens every year. They end up in landfills, taking decades if not centuries to decompose. The chemicals can seep into soil, waterways, etc. If everyone started using products like this, our consumption can have reduced impact on the environment.

The pen made economical sense as well. The pen was around 7 dollars. If I didn’t lose it, that is just $1 a year. It was an example of a company providing a great solution that provides economical solution as well as helping the environment.

After just two weeks, however, the ink dried up. I was really disappointed – I had really wanted this to work. Curious about the quality of the product, I did a little research online. I found that most of people had no problem at all. There were, however, a couple of reviews mentioning the ink drying up prematurely. I guess I was one of the unlucky few. I wanted to give this pen another shot, so I sent an email . Within 30 minutes, I got a response from Jeanie from Seltzer Goods. She asked for my address so that she can send me a replacement cartridge. A week later, this is what I got in the mail:

• Two replacement cartridges
• A bunch of little badges
• A hand written thank-you card
• Blank card

Now that is customer service. These guys didn’t stop at providing a good and responsible product. They went the extra mile to make me feel good about making the right choice and being their customer.

What does all this have to do with what we do, investing mobile home parks? The contribution we want to make is to provide affordable housing to people who are overlooked by society. This experience was a reminder that we cannot be happy with just achieving the goal. We also need to look at how we do it. The way provide the benefit – the process we use, customer service we provide,  relationships we build, can all be as important as the benefit itself.

If all goes well with these replacement cartridges, expect an update in 2025.

Better Affordable Housing

We saw that mobile home parks provided higher quality housing than the alternatives.

According to US Census, about 20% of households makes below $20,000 a year ⁽¹⁾. It is generally accepted that affordable housing cost is about 30% of household income ⁽²⁾.  If you do the math, that comes to be about $500 a month ⁽³⁾.

Where can you live for $500 a month? Well, you could rent a low-rent apartment. There, you will find lack of privacy and low quality of housing. Tenants in these low-income apartments move in and out all the time. Because they do not have ownership of the apartment, they have no vested interest in the building nor the community. Sense of community comes from pride of ownership and sense of belonging. There is no such thing here.

With the same $500, you can live in a mobile home park instead. In a mobile home park, you get all the amenities of a single family house – no shared walls, a driveway, a deck, and a yard. There is also a sense of community in a mobile home park. People can own their mobile homes instead of renting. It is not a place where people move in and out every 6 months. It is where they decided to live for years, often for decades. In mobile home parks, you will see that people know their neighbors. People take care of their homes and their community.

Affordable Home Ownership

We also saw an opportunity to help the working families become homeowners.

Home ownership is very difficult for the working families. After the sub-prime mortgage melt-down, banks are no longer lending to them. Without financing, working families are stuck being renters. When you rent, there is no ownership. With no ownership, there is no sense of community.

We could provide affordable rent-to-own programs where families could own the homes after renting for 4 to 6 years. Because of the newly vested interest in the homes,  they were now invested in the community. Community improves with the new-found sense of ownership. It gets better. After the homes becomes theirs, they only pay the rent on the land. Now, living in the park has become even more affordable.

Providing home ownership makes business sense as well. When we give the homes to the residents, we don’t have to maintain the homes. It cuts our expenses and it makes our operation easier. On top of that, we now have more stable community with stronger sense of ownership and lower turn-over rate. It benefits the residents, communities, and us.

Turning Around Mismanaged Parks

We could also benefit communities by turning around mismanaged mobile home parks. Just like any business, there are mobile home parks that are not run right. Through mismanagement and bad business practice, they help create stigmas that are associated with mobile home parks – low standard of living, low quality tenants, high crime rate, etc.

We could acquire parks that are not running well, and turn them around. That improve the quality of living for the residents. There are many things we can do. Here are some examples of improvements we could make:

• Enforce rules and regulations that restores order in the community
• Improve the management through training and setting up more efficient management system
• Remove tenants who insist on causing problem for the community and the residents
• Make physical improvements – improve road, landscaping, etc

What We Are Doing Now

Now we have formed a company called St Paul Group. We are now working with private investors to acquire and turn around distressed/mismanaged mobile home parks throughout the country. We are seeing a lot of opportunities in the market where we can create value for our investors and our residents. I will continue sharing our experience in acquiring, running, managing mobile home parks in this blog.

If you any question/comment/suggestion on anything in this blog, please let me know.

Sources

1. US Census 2006 Economic Survey, income data

2. Housing and Urban Development – Affordable Housing

3. Why Investors Like Warren Buffett Are Bullish on Mobile Home Parks

Pros

At first, the park looked like a kind of deal that we look for – a park in a good location with a lot of upside potential. We would of course conduct thorough due-diligence, but we saw a lot of potential in this park.

Demography – The demography looked pretty good.  Firstly, it was located in a suburb near a major city with population of 340,000. We liked that. The median household income in the area was around $77,000, while the state average was around $45,000. Being in an affluent neighborhood was another plus. It was also located near a commercial area, which meant jobs are closeby. The unemployment in the area was around 8%, which was also good.

Price – It was an REO property. That meant that we would have to raise money for an all-cash purchase, but we could be aggressive in our offer price.

Park Condition – From the pictures and information form the broker, the park seemed to be in a decent condition.

Expense – The water and sewer were paid by the park and it had high utility expenses. If we installed individual water meters and charged back the tenants for their usage, that would cut the expenses significantly. It would help conserve water. Furthermore, we won’t have to raise rent when water usage and cost increase in the future.

Vacancy – The park had a significant vacancy – over 30%. That also meant a significant upside if we are able to increase the occupancy. The surrounding parks seems to have high occupancy (around 85%)

This deal was very interesting. We created a turn-around plan and projections based on the data. It included aggressive marketing to increase occupancy, installing individual water meters for homes and billing back. We projected double digit cash-on-cash returns for our investors.

Cons

We, however, decided to not to invest in this property after getting more information.

Empty Lots – It turned out that there were about 80 lots that did not have homes. At a right price, the property will still cash flow at the current vacancy. The vacant lots, however, meant a very limited exit strategy. Banks only finance parks at about 80-90% occupancy. Without filling most of the 80 empty lots, a future buyer couldn’t get a loan. We couldn’t refinance the park to return the investors’ money either. We could only sell to a cash buyer, who will want significant discount (like us).

Filling that many homes is also very problematic. Filling 80 lots with homes in 3-4 years is tough. We would need significant capital for buying, moving, and installing homes.

We are in the Park Business – It would also consume a lot of our time. Finding a right mobile home at the right price can be tough. Try finding 20 of them in a year! It could be done.  We, however, are not in the business of selling mobile homes. We know our focus – it is acquisition and management of mobile home parks, not mobile homes.

Pass!

The deal is interesting. It may be good for a cash buyer who is able to hold the property without worrying about existing in 3-4 years. That is not us.

Now, on to next deal!

For my partner and I, the task of identifying the best fit niche was one of our first goals. The key is to find the niche that is best suited for you investment objectives and takes into consideration your strengths and weaknesses.

This may sound difficult, but the exercise was rather straightforward.  The following videos show how Jae and I identified mobile home parks are our primary investment niche. After you watch the two videos, it will seem like our choice was obvious.

If you find yourself lacking focus at this time with your REI career you may find it useful to go through a similar exercise. Remember, the key is to find what best fits YOU, not what anyone else does or tells you is cool!

Video 1 of 2:

Video 2 of 2: