Meet Mharrio & Mhiki; 25 L-Os & No Defaults!
Blog Column # 277 Copyright 2013 29 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 input. Critical responses & helpful ideas Welcome for future blog coverage here: gfa7156@aol.com & Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764.
An Important Year End Announcement!
When the January 2014 issue of the Allen Letter Professional Journal is mailed later this week and next, it will NOT contain the 25th Anniversary ALLEN REPORT, a.k.a. ‘Who’s Who Among Land-lease-lifestyle Community Portfolio Owners/operators Throughout North America!’, UNLESS recipients have recently (within the past 30 days) affiliated with the Community Owners (7 Part) Business Alliance, or COBA7, by adjusting their paid subscription to said newsletter, to include said ALLEN REPORT, plus a dozen Signature Series Resource Documents or SSRDs (e.g. National Lenders Registry, ‘Who Ya Gonna Call in 2014?’ directory of freelance consultants, & ten additional directories), to be distributed to newsletter subscribers during the next twelve months!
It is not too late for YOU to ensure soon receipt of the Biggest & Best ALLEN REPORT compiled during the past 25 years! Simply phone the Official MHIndustry HOTLINE: (877) MFD-HSNG or 633-4764 and, using a credit card – or corporate check if preferred, indicate your choice of
Option II @ $544.95. If you’re already an Allen Letter subscriber, we’ll adjust the subscription amount to reflect unused credit or lengthen your present subscription accordingly.
Option I? That’s simply a one year subscription to the Allen Letter professional journal, nothing less, nothing more. If already an Allen Letter subscriber, and you’re content with NOT receiving the ALLEN REPORT & 12 SSRDs, there’s nothing more for you to do! If NOT a newsletter subscriber, but would like to become one, then exercise this Option I.
Option III? $944.95. That’s the same as Option II, plus an annual subscription to the Allen CONFIDENTIAL! business newsletter (12 monthly issues) – the only intimate, confidential, ‘insider’ communiqué existent in the manufactured housing industry today! Read by CEOs & presidents!
Bottom line? This year’s 25th ALLEN REPORT is extra special! If YOU own and or operate one or more land-lease-lifestyle communities, you owe it to yourself to affiliate with COBA7, and receive this seminal document, along with the industry’s longest-running monthly newsletter, and 12 SSRDs designed to make your free enterprise adventure easier and more profitable!
I.
Meet Mharrio & Mhiki
II.
25 Lease-Options in Four Years & No Defaults!
Here’s How to ‘Do-It-Yourself’!
III.
Why YOU Should Affiliate with COBA7
(Two Breaking News Stories to Read Now, Only if COBA7 Affiliates!)
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I.
Meet Mharrio & Mhiki
Major Characters in Future Parodies and Political Contretemps, Relating to Manufactured Housing & its Land-lease-lifestyle Community Realty Asset Class…
Never mistaken for twins, they hail from the same family – but rarely invite one another to participate in the other’s politico-social-association gatherings. That’s truly unfortunate, as their respective family loyalists would likely learn valuable business and political lessons from their not-so-distant relatives, given networking opportunities to mix and mingle on a regular basis. Makes one wonder, ‘Why?’ Mhiki & Mharrio don’t arrange for their respective ‘faithful’ to benefit from such social/business opportunities
In any event, Mhiki is the older and bigger of the two siblings. But Mharrio is longer-in-the-tooth politically, and widely viewed as being the more territorial and contentious of the pair. Those characterizations likely have to do with Mhiki’s loyalists being eclectic and heterogeneous, while Mharrio’s faithful are as homogeneous as can be, given their singular manufacturing focus. Those unique intra-family characterizations, as one might expect, lead to Mhiki being the political consensus-builder of the two, while Mharrio’s supporters are loyal to a fault, oft championing the minority view.
So, where do we find Mharrio and Mhiki as we prepare to begin a new (2014) year in manufactured housing, including post-production segments in general, and LLLCommunity contingent in particular?
Well, there’s no denying manufactured housing has come out of the recent political maneuvering in Washington, DC., with ‘less than the short end of the stick’ in hand, where much-needed alterations to Dodd-Frank legislation and CFPB regulations are concerned. For some strange reason, Mhiki appears to have adopted the stance, ‘less communication is more’, so even direct, dues-paying members, like the veteran industry observer penning these lines, have little direct knowledge of ‘What really went wrong?’ for most of us in the MHIndustry – OR, as some now opine, ‘What went right?’ for a politically blessed few? Note. If you read the previous lines in this paragraph, and don’t understand the thinly veiled message, you’ve not been paying attention when, where, and how you should!
Then there’s Mharrio. You’ve gotta feel sorry for the guy. I mean, how many times must one step forward with worthy and timely warnings of impending threats and danger to our industry – even from agents within (Now, that’s another story for another day!), only to have it ignored, even tromped upon by well-meaning but oft naïve sycophants? Thinking here about the Manufactured Housing Improvement Act of 2000, which after 13 years, is not yet fully implemented; about the recent botched attempt to seat a non-career leader on the Manufactured Housing Consensus Committee; even ‘right’ the non-independent operation of said MHCC. And then there’s the ol political football known as Duty to Serve; one day it’s OK, next day it’s off the table! Yet we continue to wonder why we make so little advocacy headway in our nation’s capitol…
So, what does 2014 look like for us? There’re two answers to that question. First; did you notice the previous paragraphs had ‘everything to do’ with manufactured housing and nothing – directly, to do with land-lease-lifestyle communities; or, for that matter, any other segment of the MHIndustry, except perhaps chattel finance? If you did notice, then that’s also ‘the answer’ to the question: Mharrio and Mhiki, each in their own right and unique manner, will, during 2014, continue to look after respective manufactured housing’s interests ‘inside the capitol beltway’, being Washington, DC, and Arlington, VA, and probably not much more.
But there’s a second question here; that having to do with ‘every other segment of the manufactured housing industry’, and the land-lease-lifestyle community asset class in particular! I’d be lying to you if I told you there wasn’t increasing discontent being expressed by ‘family members’, in casual conversation and via emails, regarding the markedly diminished communication (‘Ah, to have Bruce Savage back in place, keeping us informed!’) and political efficaciousness on one side of the house, not to mention failure after failure to head – off harmful legislation and effectively deal with it once arrived. Just look at the stalled house and senate bills, affecting manufactured housing finance regulations, this November and December! They were DOA…Dead on Arrival, despite protestations otherwise. But then, there’s another side to that story….
About the only bright spot on the 2014 horizon is the Community Owners (7 part) Business Alliance, or COBA7, emerging this month, and expected to hit its’ stride during January. NOT a formal non-profit or not-for-profit membership entity, but rather a business alliance of land-lease-lifestyle community owners/operators who insist on, and are now willing to pay for, proven products and services in seven key function areas:
• National Advocacy in a fashion that serves LLLCommunities large and small
• Ongoing statistical Research per operations benchmarks for LLLCommunities
• Distribution of Resources & directories critical to effective property management
• Ongoing (weekly & monthly) print & online Communication to owners/operators
• Superb peer networking via FOCUS Groups and Networking Roundtables
• Deal-making Opportunities for real estate brokerages and property owners
• Professional Property Management training & certification via MHM® program
If reading this, and interested in aligning your firm with CABO7, go back and reread the Announcement beginning this week’s blog posting. Know that CABO7 affiliation is available to any businessman or woman, or firm, in every segment of the HUD-Code manufactured housing industry! If the Official MHIndustry HOTLINE is ‘busy’ when you call, try (317) 346-7156. And frankly, CABO7 doesn’t care if your past loyalty has been with Mharrio or Mhiki; we simply want to serve LLLCommunity owners/operators in the seven function areas just identified!
II.
25 Lease-Options in Four Years & No Defaults!
Here’s How to ‘Do-It-Yourself’!
Once again I’ve reached out to Spencer Roane, MHM®Master, of Pentagon Properties, the manufactured housing industry and land-lease-lifestyle community asset class’ ‘duty expert’ on the effective use of lease-option to put would be homebuyers/site lessees into new manufactured homes in LLLCommunities.
Editor’s Note. In a day when manufactured housing national advocacy bodies have been unable to ameliorate constricting negative effects of onerous financial regulation of chattel capital, where manufactured housing and land-lease-lifestyle communities are concerned (In case you haven’t heard, neither house or senate bill went anywhere in Washington this month!), the lease-option becomes one more practical homeownership-facilitating tool in the property owner’s quiver of self-finance arrows. I know of no one better than Spencer Roane, MHM®Master, to ‘splain’ not only his time-proven technique in this avenue, but ‘How he’s been doing it, where new HUD-Code homes are concerned, the past four years with NO defaults!’
23 years ago, we began selling manufactured home (‘MHs’) via Lease-Option (‘L-O’) in the land-lease-lifestyle communities (‘LLLCs’) we own and manage. Our previous experience with rental MHs told us to avoid the oft self-defeating ‘churn & burn’ routine. It took almost 20 years, however, for us to learn how to effect L-Os while minimizing defaults. In no special order, here’re critical guidelines we use to achieve this end:
• Right home to sell. Today’s resale homes and repos are scarce, older, often in poor condition, and surprisingly expensive. So, new homes make better sales for us! In addition, these homes must be functional, lower cost, have ‘eye candy’, even a Wow! factor, be well-constructed, and with a good warranty. Community Series Homes, with their durability-enhancing features make near ideal L-O homes.
• Right price. Why try to make a killing on the sales price of a new home, when selling said home just $1-2K over cost, creates a ‘home run’ in terms of increasing property cash flow, adding value to the LLLC, cutting common area costs, improving overall curb appeal, and adding to a positive ‘community spirit’? All the while, we try to keep the L-O term to 12-13 years.
• Right community. This includes appearance, resident mix, staff personnel, desired amenities, even appropriate site rent. In the latter instance, it’s important to ensure rental homesite rates are in sync with rents at other multifamily rental properties in the same local housing market.
• Right marketing. Here we’re talking about attractive off and on-site signage, print and online advertising, an inviting sales or information center (not ‘office’), attractive property logo and color scheme, as well as appropriate point-of-purchase sales material, even effective prospect follow-up procedures. For assistance in these areas contact Chris Nicely (print & online advertising) via cnicely929@aol.com or (865) 385-9675, and Don Westphal (signage & curb appeal) via don@dcwestphal.com or (248) 651-5518.
• Right processing/underwriting of applications. (Read on…)
• Right follow-up after the ‘sale’ via Welcome Packages, warranty help, etc.
Now, not suggesting the initial four considerations listed above, are any less important, but experience proves the ‘processing/underwriting’ (step) is VERY important – particularly verification of application information and establishing and applying acceptable limits for front-end and back-end Debt-to-income (DTI) ratios. *1 And the follow-up (step) is vital as a sort of ‘icing on the transaction cake’, helping the new homeowner/site lessee make the adjustment to land-lease-lifestyle community living.
Since we lease homesites when we rent or lease MHs, we thoroughly review all the following when considering an L-O application:
• Verification of rental history (no domestic or police problems, past rental amounts and payment history)
• Verification of employment (sources of income, type work, time on the job, monthly income, likelihood of continued employment)
• Credit report (payment history with creditors, monthly obligations, previous addresses)
• Income tax returns (historical income, dependents)
• Checking and savings account statements (income, expenses, and savings over a three month period, funds available for option payment, insurance, moving costs)
• Budget – income and expenses, before and after entering into L-o contract.
• Criminal report (applicant can get copy from local police or sheriff’s office)
• Debt-to-Income Ratios capitalize income in these deals: Front-end ratio = Housing costs (monthly site rent + monthly L-O payment) divide by total gross monthly income. Target: below 30%
Back-end ratio = Total monthly debt (housing costs, car payments, furniture payment, loan payments, child support, etc.) divided by total gross monthly income. Target: below 40%.
A tool we’ve found particularly helpful is one which we refer to as our Pre-Qualification Worksheet (‘PQW’). Before asking the home sales prospect to complete an application, pay an application fee, or even look at homes, we ask them to provide the following information, which we enter into the PQW spreadsheet:
• How much are you paying in rent now?
• What will your previous landlords say when we contact them about your rental history?
• What will your criminal history show when we contact law enforcement authorities?
• What will your credit report show?
• How much do you have available for a down payment (option payment)
• What monthly debt obligations are you currently responsible for?
• What is your gross monthly income from various sources?
Knowing the monthly site rent at the LLLC, the home buying prospect is interested in, as well as their monthly gross income and current monthly debt obligations, the PQW computes the maximum monthly L-O payment the prospect could make and still satisfy the DTI ratios (our PQW uses a sliding scale, based on an applicant’s gross monthly income, for acceptable DTI ratios)
Alternatively, if we also know the monthly L-O payment on the home a prospect is interested in, the PQW computes the DTI ratios and ‘flags’ acceptable or unacceptable values. If the prospect’s DTI ratios are unacceptably high, our sales personnel can suggest the prospect consider a less expensive home or possibly pay off some recurring debt (e.g. credit cards) before buying their new home. If the prospect’s DTI ratios are exceptionally low, our sales personnel can also tell them they might qualify for a more spacious home.
If our PQW indicates a prospect would be approved, based on the information the prospect provides, we encourage him/her to complete our full application, and pay the application fee. As long as the information provided by the prospect is accurate, he/she will be approved. We ensure the prospect knows the application fee is non-refundable if our processing/underwriting reveals information provided for the PQW was inaccurate.
A copy of our PQW is posted on the Lease Option Documents page of our website: www.leaseoptionmhsales.com
End Note.
1. The initial five guidelines closely parallel the ‘5-RPs of Marketing’ popularized by George Allen, CPM®Emeritus & MHM®Master. For a FREE plastic wallet card containing these 5-RPs (Right Product, Right Place, Right Price, Right Promotion, Right People) – and details pertinent thereto, simply phone the Official MHindustry HOTLINE: (877) MFD-HSNG or 633-4764.
III.
Why YOU Should Affiliate with COBA7
Two Breaking News Stories to Read Now, Only if a COBA7 Affiliate!
RHP Properties, Inc., further expands its’ property portfolio with acquisition of 15 land-lease-lifestyle communities, containing 5,900 rental homesites, located in Colorado and Texas. For the rest of the story, read January 2014 edition of the Allen CONFIDENTIAL! business newsletter or February 2014 issue of the Allen Letter professional journal.
The 50th anniversary issue of Automated Builder magazine debuts online during January 2014. To contact Don Carlson, phone (805) 351-5931. To read his column ‘It’s Virtually Here!’, and review the ezine’s advertising rate card, read the January 2014 edition of the Allen CONFIDENTIAL! business newsletter or February 2014 issue of the Allen Letter professional journal.
These are two examples of why you, as a land-lease-lifestyle community owner/operator, or anyone serving the product/service needs of this realty asset class, need to affiliate with COBA7 now! This new and unique business relationship begins 1 January 2014, ushering in the NEW ERA for LLLCommunities, large and small, nationwide & in CN. Will YOU be aboard & participating? I surely hope so! George Allen, CPM® & MHM®
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George Allen, CPM®Emeritus, MHM®Master
Box # 47024, Indianapolis, IN. 46247
(317) 346-7156