Podcast Episode #15: Issues Eating Companies Alive

 

This past week I attended the 2020 Louisville Manufactured Housing Show. The Louisville show features over 3000 people and represents some fresh ideas for MHP in 2020. It’s a big deal. I love this event because it allows me to catch up with all the other people in the industry, and chat with vendors about MHPs.

This year I contributed to the seminar “Issues Eating Companies Alive.” I discussed some steps to help recoup costs after paying too much for an acquisition. If your debt coverage is thin — and you’re having a hard time with cash flow — these creative solutions can help generate some income.

 

You paid too much for your acquisition. What do you do now?

Overpaying is probably the most common issue I hear from buyers, even on parks that I have sold them, and I knew they weren’t overpaying. There’s a phrase out there: suck it up buttercup. You got yourself into this, let’s talk about how we get you back into a proper position. You paid what it’s worth, and now you have to figure out how to live with the price you paid.

But how can you make good on a bad investment? Should you sit on it and hope that it starts gaining value again? Probably not. Selling it outright seems like a bad idea since even if you sell it for more than you bought it, after closing fees and broker’s fees, you might be out a few bucks.

Here’s some wisdom I’ve gained about recouping the loss.

 

Fill Your Vacant Lots

The obvious solution is to fill your vacant lots. But how? Well, you’re probably going to need to come out of pocket and buy a home. If you aren’t using any of the manufactures programs like the CASH program, expect to shell out 30-40k to get a new home in your park. After that, get a qualified renter, or someone willing to buy the home. That’s the quickest way to overcome how much you paid for the acquisition. If you fill up five lots like that, you’re probably not going to be worried that you overpaid a little at purchase.

 

Install New Meters

If you haven’t started billing utilities back to your tenants, consider coughing up some money and installing new meters. The utility expense can easily be 15% to 20% — and sometimes higher — of your total operating costs. If you can bill that cost back, that’s going to improve your cash flow quickly. And it will make it easier to sell the park in the future. If you are in a state that has rent control, be sure to discuss with the municipality or your legal counsel if this bill-back constitutes a rent increase.

 

Think Outside the Home

One of the more creative ways I have seen people using vacant space is by renting out a vacant trailer or space as a bodega/convenience store for the park. Adding a little shop where people can get some easy household things is a great way to improve park quality of life while adding to your bottom line. Be careful though, depending on where you’re zoned; this may be an illegal solution. Check with your local municipality to make sure everything is above board before starting this project.

 

Avoid Bad Deals Before They Happen

The easiest way to avoid bad deals is not to make a bad deal. Make sure you always do your due diligence before buying a property. It’s harder to feel buyer’s remorse if you check all your boxes before making a sale. Working with a qualified MHP expert will help reign in any impulsive decisions.

 

Podcast Transcript

Jason Sirotin: Hello and welcome to The Mobile Home Park Expert podcast. I’m Jason Sirotin here with Glenn Esterson as always. Glenn, how are you?

Glenn Esterson: I’m excellent. Happy new year.

Jason Sirotin: Happy new year.

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