Monday, May 11, 2015

Trailer Trash - Does Living In A Trailer Park Make Sense?

Trailer Parks are an odd phenomenon.  You own the trailer, but rent the lot, with no guarantee of what the rent will be.

I live in a State Park, and we kiddingly call our house "the brick trailer" as it is an unimaginative ranch home.  We rent the land from the State of Georgia.  It is not a big deal, the lot lease goes for 80 years at this point, and our annual lot rent is less than $500.

(Before you cry outrage, I do have to pay a $640 fire fee, $2500 in property taxes, a parking fee of $90 a year, sewer, water, and trash fees of about $250 a quarter, flood insurance, wind insurance, fire insurance, and of course utilities. It comes out to about $850 a month, without a mortgage).

Others are not so lucky.   Many people live in trailer parks - buying trailer homes and then renting a "space" in a park to live in, paying a monthly lot rent and sometimes utilities on top of that.   If you watch COPS often enough, you know what a trailer park looks like.   And sadly, this cost-effective form of living is often marred by the fact that such parks attract marginal characters.

This is not always the case, however, and a well-managed and disciplined park, particularly an over-55 park, can be clean, neat, and drug and crime-free.  Of course, the rent in such parks isn't free, and utilities are extra.

Recently, a fellow in Texas made the news as he bought yet another park (he owns a bunch of them) and then raised the rents, raising the ire of the residents.  He is pretty famous, I guess, for putting on seminars on how to make big money owning trailer parks.   And according to some sources, he is the 10th largest owner of trailer parks in the country.

Remember what I said about the poor taking crappy deals all the time?  The kind of deals that look cheap at the get-go, but are actually more expensive than what the middle-class pays.   The poor are poor because they bite on shitty deals all the time, which is what keeps them poor, if in fact makes them poor.

The trailer park buyer guy got a lot of bad press as he comes across as a greedy landlord in some of his seminar presentations (at $2000 a pop, I bet he makes more in these seminars than anything!).   But is this guy any worse that the payday loan place?  Or the buy-here-pay-here used car guy?   Or the check cashing store or the rent-to-own furniture dude?   Of course not.  He's just one in a string of people who exploit the poor.

Now of course, you may say that there is no need to go to a check-cashing store or a payday loan joint or all these other bad bargains - but that everyone needs a place to live.   And you're right about that.   But living in a trailer park is often a bad bargain disguised as a good one.  Since lot rents can be very low - sometimes only a few hundred a month, it seems "cheaper" than renting an apartment, in terms of monthly costs.  But you usually have to buy the trailer, too, and that can make the cost far higher than renting an apartment.   And trailers, unfortunately, depreciate over time, so by the time you make the last payment on your trailer, well, you have to buy a new one.

And many folks do just that, thinking it is a smart choice, going from trailer to trailer, convinced they are doing well as each trailer is "newer" and "better" than the last.   But at the end of the day, all you have is a bunch of cancelled checks for lot rent and trailer payments and no equity in anything whatsoever.  The guy selling you the trailer and the guy renting you the lot, on the other hand, made out like bandits.

The trailer park dude said a lot of things in his seminars that come across as hard-hearted and downright mean - particularly when taken out of context.  Being a landlord is no easy deal, to be sure, and you can't be a "softie" as people will walk all over you.   But then again, you don't have to come across as a dick, either.

But his strategy is valid.   He buys older trailer parks from "Mom and Pop" owners who built the parks years ago, and are now elderly and ready to retire.  These are the "greatest generation ever" (and later) folks, and they are retiring in droves and want to sell out.   And usually, toward the end, they haven't done a lot of work to the park - or raised the rents in years.   Living in the park itself, they may have become too personal with their tenants and feel sorry for them and thus have kept rents far below market values.

And the tenants, of course, like this.   And no, none of them took the money they should have been paying in higher lot rents and put it into a money market fund or paid off the loan on their trailer.   They bought a new Camaro, which is now up on blocks in the trailer park.   Some of the lot rents quoted in the article were startlingly low - on the order of $165 or so, in some circumstances - including utilities.

It is easy to blame trailer park dude for jacking the rents and charging for utilities.  However, he has paid off Mom and Pop, who owned the park and are now in Florida retired.   So he has to make a return on his investment, and likely even pay a mortgage on the place (perhaps to Mom and Pop who took back a note).  You could blame trailer park dude, or blame Mom and Pop who were so nice to everyone and all, but in the end, wanted to cash out on the deal.

Not charging for utilities, of course, is insane in this day and age.  Trailer homes are notoriously poorly insulated and can be real energy hogs.  And if electricity and air conditioning is free, why not just leave all the doors and windows open?  Maybe that explains why, when you drive through a trailer park, there is always some sketchy-looking guy leaning in the open doorway of a trailer with a three-day beard and wearing a dirty wife-beater (with a beer and ciggy, natch) - or the door is just left wide open.

If you are paying below-market rents in an apartment or trailer park, you can't expect that trend to continue forever.   Eventually, the market wins out and rents will go higher.   The smart thing to do would be to realize this, bank that difference and be prepared to pay higher rents when they come, or move to another place at that time, where rents are lower.   People who live in trailer parks, of course, aren't very smart, which is why they bit on this bad deal in the first place.

One of the interesting things trailer park dude did was charge a parking fee for cars.   At first, this just seems like outright greed.   However, there may be a method to the madness.  You see, one problem with a trailer park, is that people tend to collect old and run-down cars and park them next to, behind, or in front of, their trailer.  "I'm going to fix that someday" is a phrase commonly heard.  And Mom and Pop, being nice and sharing a beer with Cletus now and then, tend to forget about the Camaro on blocks, and if you mention it to them, they say, "what car?"

The parking fee is a neat way to limit how many cars are on the lot, and get rid of them (by having them towed for not having a permit) and also keep track of who is on the property.   One problem with trailer parks is drug dealing - and drug dealers do not bring up property values or make life better for the tenants.   So a parking sticker is a neat way to police the property and discourage those 15-minute visitors.

But what about the pee-pul?   The folks in these parks are indeed mostly working poor, working at low-wage (but not minimum wage) jobs.   They have money, but they spend it often as fast as they make it, often on very shitty deals like payday loans, rent-to-own furniture, and trailers and trailer parks.

The article cited above claims that the tenants "can't afford the $3000 to $5000 it would cost to move the trailer" and thus are stuck.   Why it would cost $5000 to move a trailer worth maybe $5000 is beyond me.   Commercial haulers aren't cheap, to be sure, but $5000?   That seems a bit specious to me.  Of course, the tenant always has the option of selling the trailer, but that is another problem with the trailer park - used trailers are hard to sell, and not many people want to live in your trailer in your park.   But that illustrates why living in a trailer park is a raw deal - you can't pick up and leave, if you want to, even if your home is on wheels.

But these people have rights!  They should sue and win!   Well, I hate to see anyone get their hopes up on that.  Because they will lose, in the short run or the long run.  The landlord (trailer park dude) claims they are all on a month-to-month basis, and if so, he can evict them if they don't pay their lot rents.   If they do indeed have a lease, they may win in court, in the short-term, but at the end of that lease, which is not more than a year, well, guess what happens?   Yea, you have to pay the increased rent or leave.

This is why I say living in a trailer park is a shitty deal - the kind of shitty deal the poor bite on.   You own this trailer, which maybe costs tens of thousands of dollars new, but is now worth nearly nothing, and expensive to move.   Worse, it is parked on someone else's land, and unlike me, you don't have an 80-year guarantee of what the rent will be like.  You are at the mercy of the park owner - or the new park owner, if the current park owner decides to sell, which he will eventually do someday.

With an apartment, you have to pay rent, to be sure, but the rents are based on what others are willing to pay.  And since you don't have some enormous trailer to move, you can pick up and leave at the end of your lease, if the landlord raises the rent.  This is why as a landlord, I charged slightly less than market value for rent, and did not raise rents every year - vacancy kills, and I would rather have a long-term tenant paying a little less, than tenant "churn".  You actually make less money when you charge more, sometimes.

Of course, the guy I sell the  building to, at a profit, will have to charge more money for rent, to pay for the mortgage he has to service, which is why it is common that rents go up (to market values) when a new owner buys a property.  This isn't rocket science.

So, are there no checks and balances at all?   Unlike an apartment renter, these folks will find it much harder to pick up and move on.  However, over time, if the landlord is charging over-market values for rent, the tenants will leave - and no new ones will replace them.   On the other hand, if he is charging what others are charging - fair market values - well, he really isn't "gouging" anyone, is he?  The tenants were being undercharged and now are paying market values.

And certainly, it is not "outrageous" to pay for your own utilities in this day and age.  And if you read the article closely, you'll see some of the instances of "doubling the rent" (which by my math, isn't doubled.  Twice of $370 isn't $610, it's $740) are actually a slight increase in lot rent plus the utility bills the tenants are now required to pay.  $450 a month plus utilities is about what most parks charge, across the country.  If are paying less than that and getting free utilities don't expect that to last long.

But of course, that is not as good a "capture the eyeballs" story as "greedy landlord (nearly) doubles the rent on poor working immigrants!" which is what generates click-through revenue and sells newspapers and raises ratings.  Oh, and it sells newspapers in the UK, where citizens will "bite on" any story that makes greedy old capitalist USA look bad and makes socialist UK look like heaven-on-earth.   Right?

If you are thinking of living in a trailer park because it is cheap, think about what you are doing.   It is akin to the families who live 10 or 12 to a house in the ghetto, with bars on the windows and lots of expensive electronics, new cars, and fancy clothes, as many of the GS-2 clerks at the Patent Office did.  They traded real wealth for the appearance of wealth as many rural poor do in trailer parks.  They may be living in a trailer, but they have a fine ride and a new smart phone!   Well, some of them do this, anyway.

A better bet is to live in a better neighborhood, even if it means you have no flat-screen TV, no fancy car, and no smart phone - and even if it means that you spend a huge chunk of your take-home pay on rent or mortgage payments.   The middle-class does this which is what separates them from the poor, in many instances.

The poor choose differently, or become poor by making poor choices.   The very poor will live in a trailer in the country and spend hours driving to work, on the premise that being able to hunt deer makes it all worthwhile.

Choices?  Yes.  Poor choices?  Yes also.  Often the choice which has a lower monthly cost (or allows you to buy "more stuff") is a worse choice than the choice involving a higher monthly cost, but a lower overall transactional cost over time.

This is not to say that living in a trailer park is always a bad choice in every circumstance.  My late sister started out renting a trailer in a trailer park.  As a result, they were able to live cheaply and save up some money to buy a real home.    Since they rented the trailer, they had a lease with the trailer owner, and were not tied to the trailer, if they should decide to move.  The trailer park was a transitional place for them - like renting an apartment, a means to an end.  But as a lifestyle choice, well, you are trading low monthly cost for security in the long run.

As for trailer park dude?   Well, he will likely make a lot of money, if he fixes up these older parks and can thus justify higher rents.  That, of course, requires investment and risk.   If not, well, the competition will clean his clock.   Just because it doesn't happen instantaneously, doesn't mean it won't.   These things may take weeks, months, and years.

(And given property values in Austin, Texas, I would not be surprised if someday, the entire place is bulldozed and made into a housing development or condos, or some other better use of the land.   When you rent in a trailer park, you have no guarantee of perpetual ownership, unless the trailer park is a co-op, and that's another nightmare entirely!)

But quite frankly, I don't think these tenants have a legal leg to stand on.   A Judge is not going to decide sua sponte that he has the power to set rents and whether or not utilities are charged.   And wishing it were so, is just an exercise in futility.

A reader provided this link to a video about "Trailer Park University."  Even if you don't plan on becoming a "Trailer Park Millionaire" think hard before you buy a trailer and plop it down on a rented space in a trailer park.   You are over a barrel if the owner decides to double the rent!