Archive for December 22nd, 2013

Advocacy Misfires; Marketing Paradigm Shifts & More…

Sunday, December 22nd, 2013

Blog Column # 276 Copyright 2013 22 December 2013

George Allen writes about Key MHBusiness Issues, Matters, & Serious Concerns

Perspective. ‘Land-lease-lifestyle communities, a.k.a. manufactured home communities & earlier, ‘mobile home parks’, is the real estate component of manufactured housing.’

Purpose of this blog. ‘To be the national advocacy voice, statistical research reporter, & communication resource for LLLCommunities, of all sizes, throughout North America!’

How to respond? Critical responses & helpful ideas Welcome for future blog coverage: gfa7156@aol.com & Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764

Again; a little help from my friends in the MHBusiness! We continue to reconstitute our email contact list, following hacking of our computers two weeks ago. SO, continue to send us names and email addresses of other ‘friends in the MHBusiness’ who’d likely want to be included in this special brand of communication available nowhere else in the HUD-Code manufactured housing industry & land-lease-lifestyle community asset class!

I.

ADVOCACY MISFIRES BADLY!or ?

II.

MARKETING

III.

HOW ONE FIRM COMPUTES SITE RENT FOR ABANDONED HOMES OWNED BY AN INDEPENDENT CHATTEL LENDER

IV.

Be Aware & Beware!

I.

ADVOCACY MISFIRES BADLY!or ?

“Bi-Partisan Effort Unveils Manufactured Housing Relief Legislation…
to Preserve Access to Affordable Manufactured Housing”

So reads the ‘Housing Alert’ headline on 12/17/13. And, an elected manufactured housing association leader identified in the story, called “…the introduction of S. 1828 a major step forward for the manufactured housing industry.” REALLY? ‘A Major Step Forward’? Perhaps, more accurately put, ‘a Too Late Step Nowhere!’? You decide….

The introduction of this U.S. Senate bill was duly ‘expected & predicted’ in a Blast Email Blog Alert (‘BEBA’) posted here Four Weeks Ago! And Now, with ‘no days left’ in the current session of Congress, does anyone expect action, let alone passage, of this companion bill to H.R. 1779? In a word, ‘NO’!. In another word, ‘WHY – the delay?’ Methinks the answer is twofold, in terms of immediacy and ‘further down the road’: 1) Simply CYA! or ‘political cover’ today; and, 2) ‘Something near nefarious (?) is afoot’, that to understand, you’ll have to read deeper into this blog posting, and more yet to come…

For now though, all that PAC (political action committee) money has been spent (wasted?), once again, on ‘fruitless & failed’ lobbying! When will the manufactured housing industry finally get out in front of business – killing legislation, and STOP playing catch – up, after regulatory bugaboos (e.g. S.A.F.E. Act, Dodd – Frank) have been turned loose on it?

January 2014 is nigh upon us! Are we now doomed as an industry? Maybe, and here’s why….

For more than two years, the manufactured industry has been told repeatedly, by it’s self – appointed champions of strategy, to focus ALL our attention & resources on amending onerous Dodd-Frank legislation – to the exclusion of virtually everything else (e.g. ’Duty to Serve’, etc.) – before this January 2014 deadline arrived! Well they & we failed to amend Dodd-Frank, and now we’re ‘left holding a bag full of other consumer financing matters’ that could & should have been tackled months, if not two years ago! Result? We (will) continue to ship new HUD-Code houses at the dismal rate of but 50,000 – 60,000 per year, with no regulatory relief, and no easily accessible chattel capital, in sight!

Face it friends. If we’re going to (maybe) survive, and even eventually thrive again – assuming we get an even playing field somewhere along the way for our homes and homebuyers – it’s going to be on our own merits! And one of those merits, like it or not, involves a paradigm shift – or two, in way(s) we do business with one another. And there’s one example of a needed shift (e.g. ‘MARKETING’), featured and parsed as next topic in this blog posting….

But before we turn there, here’s a hint about the aforementioned ‘Something near nefarious (?) is afoot’ comment, regarding the broader, interim future manufactured housing industry scene. Simply; it has to do with someone or some thing achieving controlling national market share(s) in areas of 1) home manufacturing; 2) home finance; and, 3) full service real estate brokerage franchising.

II.

MARKETING

Manufactured Housing’s Industry Person of the Year, Ken Rishel of Rishel Consulting, in the December 2013 issue of his online newsletter, Chattel Finance Newsletter opined, ‘…the manufactured housing industry, and especially (land-lease-lifestyle) communities, need access to marketing expertise.” Amen to that! GFA

To buttress his point, Rishel described “A Michigan land-lease-lifestyle community owner (who) bitterly complained about…a self-proclaimed ‘marketing expert’ (to whom) he shelled over considerable money…for help in turning around his infill problems. Six months later the community owner had zero results for the money he’d invested.” Well, ‘shame on him’ if he didn’t ask for and check the quality of past work referrals related to this individual. Did this ‘expert’ possess peer – reviewed professional credentials, like being a Certified Property Manager®, or possess a bona fide real estate salesperson or broker licensee? In related fashion, it’s one of the reasons the Community Owners (7 Part) Business Alliance (‘COBA7) annually updates the ‘WhoYa Gonna Call in 2014?’ list of 40+/- freelance manufactured housing and LLLCommunity consultants. While listing thereon does not constitute endorsement, the list is vetted before publication each year! To obtain a copy, or – as a consultant, request consideration to be added to said list, simply phone the Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764. No other organization or individual, to date, researches and publishes such a useful roster for the MHIndustry and LLLCommunity asset class.

More on MARKETING…

“Marketing means human activity that takes place in relation to markets. Marketing means working with markets, which means attempting to actualize potential exchanges for the purpose of satisfying human needs and wants.” And, “Marketing management is the analysis, planning, implementation, and control of programs designed to create, build, and maintain mutually beneficial exchanges and relationships with target markets for the purpose of achieving organizational objectives.” *1 Well, there you have it, ‘marketing defined’. So, where do we go with that knowledge?

I can think of a few areas, where ‘marketing is spoken but not well practiced’. It’s one of those needed paradigm shifts presaged in the previous segment of this blog posting

HUD-Code home manufacturers. We wrote it here a few weeks ago, ‘Land-lease-lifestyle Communities = The Very Future of the Manufactured Housing Industry!’ And know what? Every verbal and written response from blog floggers (readers) agreed, home manufacturers and LLLCommunity owners/operators alike! WHY? For the most part, given their attrition from 1100+, down to fewer than 400, independent ‘street’ MHRetailers – unless actually owning one or more LLLCommunities, are Done & Gone! I get no joy out of penning that line, none whatsoever. But fact is fact. Yet HUD-Code home manufacturers continue to suffer, and wonder why, annual shipments of new HUD-Code homes have languished between 50,000 & 60,000 for the past five years. Yes, not having easy access to chattel capital continues to be ‘the killer’; BUT, with all the self – financing (i.e. ‘captive finance’ variants) going on these days among property portfolio owners/operators of LLLCommunities, and given an estimated 250,000 vacant rental homesites to fill, there’s No Excuse for not tapping into that market with specially-designed Community Series Homes or CSH Models (Featuring durability-enhancing features)! And know what? One firm effected a mailing, two weeks ago, to every HUD-Code home manufacturer in the U.S., suggesting what you just read! And to date, they’ve had but ONE response – from an East coast home manufacturer, asking how to identify this unique target market. The answer? A Direct Mail campaign to all 500+/- LLLCommunity portfolio owners/operators in North America (i.e. Six Canadian firms own hundreds of LLLCommunities in the U.S.) is easily possible. How so? Again, just contact COBA7 and ask….*2 It is not as easy, however, to contact the majority of LLLCommunities, whose rental homesite count is below 100; but it can be done!

So, paradigm shift # 1 = HUD-Code home manufacturers to aggressively market new, fairly-priced Community Series Homes, or CSH Models, to land-lease-lifestyle community owners/operators, large and small, nationwide, to fill 250,000 vacant rental homesites!

Land-lease-lifestyle communities. I’ve been fighting this battle for 35 years; first as a regional salaried property manager, then as an owner/operator, and for the past two decades, as a freelance property management consultant. And the same challenges persist, year after year after year. Being? Reluctance (or inability?) to identify one’s target market, especially when going into a new local housing market, upon acquisition – or better selling within an existing one. Answers? Demographically, go to zipskinny.com to learn the Area Median Income (‘AMI’), then calculate ‘How much home will sell there?’ using Ah Ha! & Uh Oh! Worksheet methodology; or, in one’s present market, use prospective customer’s (or household’s) Annual Gross Income (‘AGI’) in the exact same manner! Generally, do NOT rely on inventory selection advice from manufacturers’ regional rep – unless they happen to be a Business Development Manger (‘BDM’) named on the Official List of Community Series Homes Manufacturers. And site rent? This is more controversial than need be. How so? The Rule of Thumb Formula is simple: Stabilized rental homesite monthly rate should be roughly 1/3rd what it costs to rent a 3BR2B conventional (nonsubsidized) apartment or townhouse, in the same local housing market as the subject LLLCommunity! Unfortunately, this longtime 1:3 relationship is out of kilter (Yep, that’s an apt word; look it up.), thanks to overly zealous (And some say WS analyst – pressured) site rent increases among some real estate investment trusts, then aped by some privately-owned property portfolio players. Again, COBA7, via the Official MHIndustry HOTLINE, is your solely source for the above – referenced ‘Ah Ha! & Uh Oh! Worksheet (FREE), and the Official List of Community Series Homes Manufacturers and BDMs. *2

So, paradigm shift # 2 = Land-lease-lifestyle communities, with no independent ‘street’ MHRetailers in sight, must learn to use numbers (via zipskinny.com & ‘Ah Ha!& Uh Oh! Worksheet’) to understand what will sell in their present and future local housing markets; then effectively sell new and resale homes on-site and leave vacant rental homesites!

A Relatively New Marketing Critique & Planning Tool for HUD-Code Home Manufacturers and Land-lease-lifestyle Community Owners/operators. Here we’re talking about the ‘5-RPs of Marketing’. In its’ basic form, the 5-RPs include: Right Product, Right Place, Right Price, Right Promotion, & Right People. And there are three interrelated applications of these 5-RPs: 1) ‘Marketing & selling new homes INTO a LLLCommunity’; 2) ‘Marketing & selling new & resale homes WITHIN a LLLCommunity’; & 3) ‘Marketing & leasing rental homesites WITHIN a LLLCommunity’. To date, one or another of the two plastic wallet cards featuring said formulae, have been distributed to more than 200 LLLCommunity owners/operators – at the 22nd annual International Networking Roundtable; and, recently, to every HUD-Code home manufacturing facility still in operation in the U.S.. If YOU do not have a plastic wallet card (one is for home manufacturers & other is for LLLCommunity folk), but would like one, for FREE; again, simply phone COBA7via the aforementioned Official MHIndustry HOTLINE and ask for the appropriate card! *2 And if in need of Mystery Shopping service, anywhere in the U.S. and Canada, ask about that too, when you phone.

So, paradigm shift # 3 = Learn what marketing and sales system(s) work BEST for YOU and on-site staffs; then use them faithfully; and, routinely monitor on-the-job performance of employees via Mystery Shopping!

Sure, there’s much more to be said about marketing in the HUD-Code manufactured housing industry and land-lease-lifestyle community real estate asset class; but surely, by now, you ‘get the idea’ there’s lots yet to be done, to bring us out of the dark ages and into contemporary business marketing reality. In the meantime however, just be careful who you align yourself with: ask for credentials; see a sample of their work (e.g. reports); follow up on referrals; and if they’ve written a book on their specialty subject, read it!

End Notes.

*1. Principles of Marketing, Philip Kotler, Prentice-Hall, Inc., NY. 700 pages
*2 Community Owners (7 Part) Business Alliance resources available via Official
MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.

III.

HOW ONE FIRM COMPUTES SITE RENT FOR ABANDONED HOMES OWNED BY AN INDEPENDENT CHATTEL LENDER

Given a rental homesite rate of $400.00/month, multiply that amount by the composite percentage of 11.5 percent (Comprised of 5% to account for property owner’s recurring PM fee, & 6.5% for real estate taxes *1) to arrive at $46.00/month expected from each home, with that property at that $400/month rent rate, owned by the independent chattel lender holding title to said abandoned manufactured home. The real estate tax percentage, of course, will vary from local housing market to local housing market. Do you clearly know what the appropriate percentage is for each and all of your land-lease-lifestyle communities?

Do YOU have an alternative method of calculating how much rent to charge for abandoned homes owned by independent chattel lenders until they sell their home on – site? If so, ‘inquiring minds would like to know’. Please write and share your methodology with us. See beginning of this blog posting for how to contact us.

End Note.

*1 These are Allen Model ‘Operating Expense Ratio’ (‘OER’) percentages published
as part of the Official Industry Standard Chart of (Operating) Accounts. This
seminal document also available from COBA7 via the Official MHIndustry
HOTLINE: (877) MFD-HSNG or 633-4764. And ‘PM’ = Property Management

IV.

Be Aware & Beware!

How a Useful $ Incentive Can Become an Unintentional Red Herring $

The ‘Be Aware’ portion works this way. Want to collect 90 percent of your site rent before it’s even due, before the first of every month? Then offer a $10.00, or larger, cash discount to land-lease-lifestyle community residents (lessees) who pay their site rent before the first of the month when it’s due! Nothing particularly ‘new’ there, except for those who ‘collect by mail’, then we use the postal cancellation stamp as discount control date.

The ‘Beware’ portion comes into play, if and when the LLLCommunity is marketed ‘for sale’. It’s simply ‘too easy’ to cite one’s rental homesite rate as being $400.00 per month, but neglect to tell the prospective buyer about the 90+/-% pre-due date rent collection effect of the 10 percent discount. For example, in a 500 site property enjoying 100% physical and economic occupancy, that 10% discount can mean a potential maximum difference of slightly less than a quarter million dollars over the course of a year:

100% occupancy & collection: 500 sites X $400/month X 12 months = $2,400,000

100% occupancy & 10% discount for prepaying site rent before the first of the month:
450 sites (90% pre-paying rent) X $360/month (effect of 10% pre-pay discount) X 12 months = $1,944,000 collected before the first of the month when due’ AND, plus.
50 sites (not pre-paying rent) X $400/month (no discount earned) X 12 months = $240,000. Then, $1,944,000 & $240,000 together = $2,184,000, or $216,000 less ‘gross potential income’ over the course of a year.

Differences in ‘income value’, using New Rule of 72. *1

500sites X $400 = $200,000 X 72 = $14,400,000 or $28,800/occupied site

450sites X $360, & 50 sites X 400 together = $182,000/month X 72 = $13,104,000 value; or $1,296,000 less value, but certainly a more efficient rent collection procedure.

Whew! A very good reason to verify a ‘for sale’ property’s bank (rent) deposit amounts over the course of a year, during the due diligence period.

Think I jest that this sort of thing happens from time to time? Well, I don’t jest. Reminds me of another anomaly Susan and I encountered when marketing a 700 site LLLCommunity several years ago. The developer/owner had been managing the property for decades, without keeping formal ledgers and operating statements. To recreate his books, Susan worked with his bank deposit records and checkbook stubs. But she wound up in a quandary, as the property’s ‘gross actual rental income dollar amount’ exceeded what we’d calculated to be his ‘gross potential rental income dollar amount’. How was that possible? Finally figured out, he counseled his immigrant homebuyers – to whom he was selling homes, at the time, on ‘contract’, to pay one month’s rent in advance, from the day of ‘closing’, so they’d never be late with their monthly payments! SO, the number of new home sales each year, times the monthly site rental amount, equaled the dollar amount overage relative to the ‘gross potential rental income dollar amount’. And yes, Susan and I continue to quietly 1) market LLLCommunities for owners/operators planning to retire; and, 2) work as ‘buyers’ consultants’, for a fee, for would-be first time investors and present day portfolio owners/operators in search of LLLCommunities to acquire. Reach Susan via (317) 889-6465 for more information.

End Note.

1. Rule of 72 is used only for ‘average’ (e.g. 10% income capitalization rate) land-lease-lifestyle communities! Run the numbers twice for every LLLCommunity, to estimate ‘gross potential income value’, and ‘present income value’. For example: 500 sites X $400/month rent X 72 = $14,400,000. Or same property, with 90% physical & economic occupancy: 450 sites X $400/month rent X 72 = $12,960,000. Note. This simple formula produces the same $ value as when using the well known IRV formula; in which case Value or ‘V’ = Net Operating Income, NOI, or ‘I’, divided by the income capitalization rate or ‘R’ for example, in the first instance: 500sites X $400/month rent X 12 months, multiplied by .6 (reciprocal of the 40% or .4 national Allen Model average OER, or operating expense rate, for LLLCommunities), divided by .1 (or 10% ‘cap rate’ for an ‘average’ LLLCommunity) = $14,400,000. Same procedure when using 450 sites X $400/month rent…= $12,960,000 (Not considering ‘rent discount’ in this example), or $1,440,000 difference in what the property is worth today, with 10% of sites vacant and not paying rent, versus what property is worth at 100% physical & economic occupancy!

***

George Allen, CPM®Emeritus, MHM®Master
Box # 47024, Indianapolis, IN. 46247
(317) 346-7156