park resident manager - necessary? And at what cost?

Question

Is there a size level where a MH Park investor should hire a resident manager?

If I still work a full time job, one where I can't really just leave anytime someone's water line breaks, or complains about a loud neighbor, I think I need some "boots on the ground" if I end up investing in a park or two.

Questions:

1.  From a legal/compliance standpoint, how much do I pay them, and, can free lot rent go towards that?

2.  I don't want to pay too little, but I also don't want to pay a guy $30,000 a year plus FICA if I own a smaller park that's only at $1500/mo positive cash flow to start with.

3. I imagine for most parks, except those that are very large (250 spaces or more) would be served fine with a part-time guy that works 10 hrs a week at most on actual duties, since about the only things most parks need that aren't the responsibility of the owner are leaking/nonfunctional/disprepair of roads, infrastructure, water and sewer, tenant disputes, and people that don't pay their rent...

Any info/advice?

How far do people usually take it?  Do the managers usually do bank runs for rent deposits, or, stick to only "problem tenants" and let others mail in or set up auto-debit for their payments?

I keep thinkinng the best option would be to see if one already exists in a park I am considering, and go from there...or, ask the current owner how intensive of a job managing the park is/can be...and maybe it turns out that I pay the guy in free lot rent plus 10 hrs a week at $10/hr, and have him let me know if he works more...

Dale Osborn · Answer

Joe Smith from the 2 threads I have seen you posting on - it looks like you are trying to psych yourself into a MHP. Some advantages to consider:

1. There is very low turnover - I have one in my 55+ MHP that moved in in 1981 and he says someone else still there had moved in before he did.

2. 30-40% of gross income goes back to maintain the MHP - with APTs you need to put back 50-60% of gross income & have a much higher turnover.

3. Once you come in and get things organized there really is not much for a manager to do. Some MHPs were utilizing what they called a greeter to act like an assistant manager and did not even have a manager's position. It is a vacation to manage versus managing an APT complex. Collect the rents and pay the bills and wait for next month to repeat!

4. If you are taking over from a management company that managed it while owner was out of state - it may take the first year to clean out all the druggies, prostitutes, garbage and old junker homes that have been abandoned and nothing was done with them.

5. If you take over a MHP with an occupancy of 60-70% it may take 2-3 years to fill up the vacant lots and homes. Basically your profits are put back into the MHP and then in years 3-4+ you just sit back and rake in the profits. With a three year history of high income and low expenses - it is time to market it. When you see the profit from the sale - it will make you feel glad you put the first few years profit back into filling up the MHP. Use this to do a 1031 into a much larger or much better quality MHP and repeat the process again.

Jim Johnson · Answer

We compensate our managers all in about the same way- 
Space rent comped- just because people knock and they deal with issues.
$10 / month for each occupied home
$15 / month for each vacant home
In some markets we will also bonus for homes sold

Joe Smith · Answer

Well, since sales and marketing is "my thing" (and what I do in my "day job") I can handle the lion's share of that with my wife's help...she is a stay at home mom and now that the kids are in school during the day, she gets antsy once the kids are off and the housework is done.  She offered to help me with this...she's more gung ho than me in fact...

Here's some more questions/observations:

1.  It's rare, but I have seen on loopnet where sellers have a portfolio of a couple or three parks that are geographically close to one another, in some cases just a few miles between them.  Would it be possible to hire a single manager for 2 or 3 parks?  I'm sure I'd have to pay him/her more than to manage one, but since its generally a rather low-level type of management (when compared to an apartment anyway), it might be possible, and for my wife and I, having a single manager to deal with on multiple parks seems cheaper and easier than two or three managers in two or three parks, for example.  While technically not a "resident" manager in all parks (just the one they actually live in), they could be at any problem site within a few minutes...

2.  When looking at expense ratios, I've found that low isn't always good and high isn't always bad...if it's low, it *might* be that the park is running smoothly and profitably, or, it might just mean current owners/managers don't do a damn thing, so it's cheap, but has $100,000 in deferred maintenance!  High could mean either it's overmanaged, poorly managed (not rebilling water, etc), or just at too low of an occupancy.  In fact, I'd think a 100 space park at 60% occupancy, all else being equal, would have higher expense ratios than the same park at 95% occupancy, since, you have the same infrastructre and same plot of acreage to take care of no matter who lives there...am I on the right track here?

3.  One day I look at it seems that MH Parks are a good, profitable, if not glamorous, investment...the next day, it looks like that once I pay someone to manage it, I'm flat broke in the end...aargh!!  In all honestly, I could see taking a poorly maintained park with a 40% expense ratio and 60% occupancy over a 5 to 10 year period (buying to hold not resell) to a well maintained park with 95% occupancy and a 35% expense ratio, and make a nice windfall eventually...but in the meantime, with marketing expense and repairs, I'll have a very high expense ratio/low NOI for some time to make that happen...

4.  As far as paying managers, here was one idea I came up with...set a smallish base (15k - 30k/yr plus free lot rent depending on size of park) then a $1000 bonus for any new resident they bring in to the park...as a sales commission type thing...is that way off base or does it make sense?

Joe Smith · Answer

I'd definitely prefer to set up an automatic withdrawal for rent...maybe even offer $5/mo off rent as an incentive to set it up...has anyone else done that?

My preferred method of collecting rent would be:

1.  Auto-draft either from checking or maybe a credit card?

2.  Mail directly to my PO Box

3.  If they insist on giving to manager, I can have the manager instructed to just stick in an envelope and mail to me (I will provide postage)

4.  MAYBE for collections/delinquencies only, the manager could get involved, or, my wife and myself can handle those ones if they are within local travelling distance.

By the way, how does one set up the ability to autodraft a rent payment?  Should I just ask my bank about it?

Joe Smith · Answer

Ideally, I would like to find one with a manager in place that is included in current cap rate calculations...but thats probably asking too much, esp.if I want a park with good upside potential.

Ken Rishel · Answer

I think you will get a wide variety of answers and you will need to sort out what works for you.

From my perspective, it doesn't make sense to hire the people you have to settle for if you aren't paying enough money, because it usually costs you more in the end. That said, "enough" depends on what you need them to do.

If they are going to handle advertising, marketing, and sales as well as other duties, "enough" is a LOT, especially if occupancy is below 85%. In most parks below 140 sites and lot rents below $275, the owner better be able to handle this function, because you can't afford the help you need unless you have plenty of capital set aside for a major push to sell 50 homes in under a year.

While opinions vary, most experienced operators believe you can't afford full-time (non sales) professional park managers until you have 100-150 pads occupied and paying. Exceptions for "sort of" full time non-trade blue collar help to do the grunt labor abound in communities of 50+ paying and occupied pads.

While I was mostly involved in very large communities, I did a couple of small community turnarounds - both about 50 pads each. When I bought the parks, there were more sites as they had been designed for 12 wides (12x60) and we refitted for 16x45 (one bedroom) pads, and replaced all of the old typical pier sets with new homes that were ground set. Despite of all of the ground work involved, I hired all of the manual and trade labor done and still made money, but those were atypical situations. I personally handled the advertising, marketing, and sales of the new homes, and I was able to put the sales profits into paying for most of the ground improvements and wages for the blue collar workers. The immediate increase in lot rent from $75.00 to $175.00 (this was in the 80s) more than covered the loss of pads in the reconfiguration. Of course, the real payoff was from capturing the financing on the homes and the change in cap rate.

Never let a manager collect rent!!! Especially if you aren't willing to pay them top dollar. Do yourself a favor and require your tenants to have a bank account you can electronically capture the rents from. You will end up with more performing tenants and lots more money.

I hope this helps and I'm sure you will get other opinions to sort through.