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Ep. 63 | Forecast for The Biden Administration and its Impact on MHP and USA

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On this episode of The Mobile Home Park Lawyer, Ferd talks about what he sees happening in the coming years with the new Biden Administration. Ferd discusses why he feels confident in his asset class, but doesn’t think everything will be rosy in 2021 with the potential changes.

 

HIGHLIGHTS:

0:00 – Intro
1:46 – Coronavirus has lead to all kinds of bad stuff
2:25 – The vaccine will get people out and about which will help the economy
2:56 – The housing market and commercial and industrial real estate will be strong
3:11 – Travel will pick back up
3:26 – People are seeing the volatility in stocks and moving away from it
4:22 – National security is going to be a risk with Trump’s departure
5:45 – Ferd thinks MHP is teed up for 2021
8:10 – The elephant in the room is the collections business as the eviction moratorium continues, and talk of rent control begins
9:39 – The supply chain is going to be challenging this year
10:39 – There’s a lack of skilled labor right now
11:06 – Tax changes are a wildcard right now, but most likely will get worse
11:34 – Capital gains rates could increase
11:55 – Ferd thinks property tax rates will go up
12:57 – There’s still a massive shortage of affordable housing
13:44 – Ferd thinks interest rates won’t move much
14:03 – Minimum wage will go up at a federal level, but it really comes down to a state-by-state decision
14:36 – The wealth income and education gap is pretty wide and it’s only getting wider
17:00 – Ferd fears there will be a pandemic hangover
17:24 – Ferd ponders the loss of industries
19:24 – There are a lot of unknowns right now

 

FULL TRANSCRIPTION:

Welcome back mobile home park nation. Here today I’m, honestly, I’m a little late in getting out my 2021 projections. But as the new Biden Administration takes office, as I’m getting all my tax planning for my 2020 books getting closed, and really finishing up my budget for 2021. I just started thinking about, what’s the year ahead, or what’s the numerous years ahead look like? Macroeconomic, but then also for the mobile home park industry. So I thought I’d share some of my thoughts. Interesting here in other thoughts too, if you want to comment on wherever this post goes, I’ll post it on LinkedIn, because that’s the best medium to start a discussion. But ultimately, you know, a heck of a lot has changed in the last year, right? And this whole Coronavirus thing is really changed our lives. It’s really, really unfortunate, it ruined a lot of people’s lives.

My wife is actually gone right now at a funeral out of state with a friend who committed suicide. I don’t know if it’s COVID-related. I think it’s medically related some other stuff. But reality is, the Coronavirus has led to lots of people losing their jobs, losing their income, drinking too much, child abuse, spousal abuse, divorce, suicide, depression, all kinds of bad stuff. So it’s been kind of a tough year. I know, for us in the mobile home park industry, you know, economically, it’s not been a tough year, it’s been a good time to be in the asset class, but for our country, and for human beings, has been pretty tough.

So what does 2021 look like? Well, I think, you know, the rollout of this vaccine isn’t going to help that, you know, people whether the vaccine is the silver bullet or not at least has you know, perception. And perception is reality. And I think that’s going to get some people out and about again, there’s some pent-up demand, you know, pent up savings even for spending. So I think the economy may look better to some degree because of some pent-up demand.

I think restaurants can open back up more and more, you know, your retail is going to open up more and more. So I think people are going to have more of a, you know, robust attitude for the future and Virginia quote, going back to normal, as opposed as new normal. So I think that’s going to be good things going in 2021. The housing market, you know, there’s still a shortage of affordable housing, there’s really a shortage of housing, housing market is still strong. I think commercial real estate, especially multifamily, and mobile home parks, industrial will remain strong.

So those are all I think, positive things. I think travel will pick back up. I just got back from a little three-day vacation first time I’ve been on a plane in a long time. And yeah, I think people are, you know, getting excited a little bit about, you know, getting back to normal. I think other positive things real estate people are seeing some of the volatility in the stock market. And there’s like this whole thing with GameStop and some of this craziness, it’s, you know, the price to earnings ratios, the ridiculous multiples, that stock markets command, in some respects, I think there’s going to be a trend away from that, trend away from the old 60/40 stocks bond portfolio towards alternative investments, including mobile home parks. So I think it’s good for me, good for you, good for our country.

You know, these private offerings are still hard to get to because the accredited investors gets sophisticated investor status, but I think there’s, you know, some headway to perhaps loosen some of those standards and open up to the common folk. And there’s crowdfunding getting some loosening of restrictions and some of that stuff. So overall, I think 2021 going to have some stuff going forward, especially relative to, you know, the last year. I don’t think everything’s going to be good. I think our national security is going to be more at risk. And President Trump’s the first person to, first president to not get us into a skirmish or a war in decades and decades. You know, I think there’s a little bit of fear that he had controlled the red button. And that was good. And think he, you know, protected our allies. And some of our allies in the Middle East, Israel in particular, made them stronger, stood up to China. He took out the top terrorists in the country or in the world, you know, with eyes wide open. So I think that those sort of things made us safer as a country because he was, you know, pretty strong. He’s a warrior.

He kept North Korea in line. So I think that was good. I don’t think he gets enough credit for national security. Obviously, the whole debacle, the capital at the end of his term that’s been blamed on him has hurt some of his, you know, post-election.
Polling and opinion. But I’m nervous about what the Bidens’ Administration going to do national security-wise, are they going to be loose on China? Are they going to be loose on some other countries that may impact our safety, which impacts everything in our life, in our economy and everything else.

So, overall, 2021 is a lot going for us, but something’s made me nervous, you know, as far as this asset class, how’s it going to perform? I think we’re teed up. You know, I think we’re seeing it already. I keep saying that mobile home parks are the darling of the COVID era and shined a light on them. I think that’s led to more interest from private equity from REITs. And I see it in the marketplace all the time. I see some of my clients, and there’s a frothy attitude, like, let’s get in these deals. And it’s pushed pricings, compressed cap rates, it’s really, I don’t want to say it’s consolidation is here. But if you’d asked me a year ago, I would have said consolidation is five years out or more. I don’t think that’s the case anymore. I think consolidation is going to happen in less than five years, at least as it pertains to any Park over 50 lot. In any legitimate Metro over 25,000 or even with city services. I think people are stretching now, sometimes they may have to, but I’ve got clients saying, hey, I want to go for this Lagoon, I want to go for this town of 1000. I want to go horse town, and that was kind of unheard of, you know, to some degree, you know, two, three years ago.

But I think overall the jobs of our clients, our customers or our workforce housing jobs. You’re not sure you know, typically, your CPAs, your attorney, your doctors, they’re not your even your retail sales jobs a lot of time they are the fast-food type jobs. They’re the nurse assistant jobs. They’re the factory worker. And really the modern factory worker, you know, I say the Amazon fulfillment officer, those jobs are going to be secure in this economy, I think. I think banks are more and more favorable towards mobile home parks. So and then value support, which means bigger loans, frankly, because of bigger values. So banks like that more, I’m in the process of an agency refinance loan on a park that I never thought would be agency refinance. And the homes are in the 70s, it’s dense, it’s not that pretty. It’s in a two-horse town. It’s, you know, it’s just an old, tired Park, that, you know, we’ve done a good job of sprucing it up. But I didn’t think it’s going to make agency grade, I didn’t think the value get there, but values have gone so much that now my loan is going to be over a million bucks. And that puts you in Fannie Freddie land, or at least Fannie right now, it is too small for the current Freddie program.

Anyway, I think overall, it’s a good time in the mobile Park business. Briefly, and what changes do I see in the next year, what changes as it pertains the law in particular? I mean, the elephant in the room is the collections business. I mean, the no pay no stay was the method of collection forever in this industry. And this eviction moratorium, it’s really a lot tougher. And then there’s also talks of rent control, there’s these forms of rent abatement, or rent postponement that is essentially a form of rent control. So that makes me nervous. I don’t foresee that getting better, before it gets worse.

At some point, there has to be either a government help, or they have to, you know, let normal evictions go back to life, all these landlords going to be choking on it. My fears are going to, Biden administration is going to do some form of bailout that actually will include something for landlords, but more of a dependency on government. I am not hearing much on that. I’m just, you know, my tin cap is on tonight, as I think about what’s going to happen with this collection issue. So I don’t see it is getting better for a minute. I can even see the eviction moratorium getting pushed, you know, another 3,6,9 months and the fact that the CDC has already taken the position that they can even impose this, which I think is unconstitutional. The slippery slope has begun. And what federal agency next is going to take x, y, or z power.

Other things that I think are you know, challenging this year, the supply chain I mean, there’s tariffs on things like you know, materials, you know, lumber prices have been through the roof. No OSB, I don’t remember the pricing, but it used to be like three bucks for a sheet of plywood. Now it’s like 18. A single wide has two dozen sheets of plywood in it. So just the pricing just keeps going up. Single wide are up 3000 to 5000 in cost. Some of them are up 5000 or more on the doubles. I tried to order some true homes the other day. It’s kind of an inexpensive product. I liked the 1680 true victory, and I probably bought 15 of them last year, not 100 but you know, I sprinkle them in regularly. And I can’t even get an order right now. And it’s like four months in a row. Come on guys, and I probably bought 15 in this plan of all the different true product and they’re like yeah, not that you’re big enough, we’re just not taking orders.

So the supply chain has really messed up the business in some respects. Also, I think there’s a dearth of skilled labor right now. I think our education system is going in the wrong direction, as far as training people who are able to work and go into work, and that’s going to hurt the trades for a long time. I think what’s happening to oil right now and oil prices going down, and that’s going to have a ripple effect on other economic circles. It’s amazing how many products come from oil, if you ever looked it up, It’s unbelievable. I never knew it growing up.

Tax changes right now, I mean, I think tax changes are, they are a wildcard right now. They definitely are. I don’t foresee them getting better for business owners or for real estate owners, for mobile home park owners. Definitely get worse corporate tax rates should go up. Individual income tax rates go up. I would expect those to be attempted. Will the 1031 exchange go away? As a Delaware statutory trust, I don’t know. I doubt it. I think that’s so ingrained in our business, in our country, that that’d be hard.

Capital Gains rates, I think it’s possible those get increased. My biggest concern is the carried interest tax privilege is going away. And I don’t think people know about it or talk about it. And the big investment banks obviously, so that we got some allies in the financial sector that will help protect us on that.

I feel like property tax increases are going to come. I mean, local government, they’re not going to get the same federal aid. If the federal government had the money, they’re not going to get the same income or sales tax rates or collections as they’d been accustomed to. So at some point, they push their levy rates and push levy rates in a way of increasing real estate taxes. And I don’t really see them doing that with residential and commercial, I see them doing more commercial which are property owners, mobile home parks depending on your state, I live near Missouri, and Missouri the assessment ratio is 12% for AG, 19% for rez and 32% for commercial. Mobile home parks have to be rez, happened to be so, that’s probably going to work out okay for me. If a property is in Missouri, at least. Other states have different assessment ratios, and a lot of states are the same, you know, 100% or 33, and a third, for Illinois, for example, and a lot of cities are straight 100 to 100.

So, anyway, I do foresee property tax increases. A bigger concern for business at large, I think is regulatory stuff, you know, there’s obviously still a massive shortage of affordable housing, are they going to start pumping out more subsidized housing, section eight, tech stuff. And those are, in my opinion, inferior products that we offer, but the government can produce them.

What about the Dodd-Frank Act and the SAFE Act, I mean, those have been kind of dormant. And this has really impacts like seller financing, contract for deed, lease to own on mobile homes. I’ve got several episodes on those at nauseum. So I won’t dig into them here. But essentially, it’s been, those acts have been largely ignored and unenforced. Is the Biden Administration going to beef up the CFPB? And these sort of regulations, I would not doubt it at all.

What about our interest rates? I mean, I don’t think interest rates going to move that much. We’ve got so much federal debt, I feel like it’s hard to increase them because it’s going to choke ourselves. I think that this might be the new norm, and they can’t really go down. Could they go up another 100 basis points? Yeah, is that going to change the world? Probably not too much. I don’t think they’re going up 500 basis points in my lifetime.

Minimum wage, I think it’s definitely going up at a federal level. But it doesn’t mean that that’s like a lot of window dressing frankly, because it’s a state-by-state basis. Now, if enough companies do it, then at some point, it pushes it, I feel a little bit now I’m hiring people that look, if I can go to the Amazon plant and make $15, Okay, you got $9 skillset, I was going to pay you $10 to get you here and I can’t pay $15 the same way they can. But I think that’s going to become more and more pressure on small business owners.

What other macroeconomic factors at play? I mean, the wealth-income and education gap has been talked about a lot, and it’s pretty wide. And I think COVID is going to make it wider. I mean, like, I was at a thing for my kids, my kids go to a private, Christian school. And I was at a seminar there today, and enrollment went up through COVID. And they didn’t miss a beat. The school, there’s only a Monday, Wednesday, Friday school, and then the parents homeschool, in this case my wife on Tuesday, Thursday. So it’s kind of a hybrid model. It’s called a collaborative, classical Christian school. And it’s getting really popular and our kids are learning a ton and they go to live school, three days a week. And then they have intensive other classes, this whole program two days a week, versus the public school, my brother’s teach at a public school. And when COVID happened, they had like one day at work, literally only one day of work and they had to put together a package for parents to pick up and something like 60% of the parents never even picked up the package. And that was in March, the kids were supposed to come back in September, six months zero education for the majority of their school.

And then when September rolled around, turns out the bureaucrats over the summer, didn’t get around to change out the air conditioner. So they couldn’t even open school on time. This year, they had to punt another two weeks to get the air conditioners going. So that’s a pretty impoverished school district in northeast Missouri.

What’s going to happen to those kids? They just missed a year of education, in seventh, eighth, ninth grade, that ain’t never coming back guys. And then our country as a whole, a ton of people just lost a year of education. And they’re in front of Netflix, in front of Angry Birds or video games kids play nowadays. So that really scares me. You know, what’s that going to lead to? The bigger gap going to be more haves and have nots, more hostility. So I guess leveling off all the good things in 2021. But the more I get into details here, I guess I’m not that jazzed about where we’re going at the moment as a country. I feel comfortable and fine where my real estate business is going, where my law business is going. Am I in the right asset class? Yeah. But is that going to help me? Am I going to be a bigger target? We need to take this guy’s ax to give it to the guy with no ax.

So I think there’s a risk of that. I think we might have a little bit of a pandemic hangover. Population changes, people are, you know, I wouldn’t want to live downtown in an apartment right now. You can’t do anything, you’re packed in this place. And you don’t get to use your amenities, you don’t get to go to the restaurants, you don’t get into the bars, or the clubs. People are moving into the suburbs. Well, what’s that going to do to the urban core? Inner-city? I don’t know.

Another thing that I’m a little worried about at some point is, lost industries. I’ve got a lot of residents, tenants who are truck drivers. And Tesla’s makes those nice shiny cars that are great for, you know, the Model S or wherever they call them. But the reality, is the real savings, the real sauce, if you will, on electric vehicles, is on 18 wheelers. Because those things don’t need sleep. The truck driver can only go 10 hours, they used to go 12-16. But now they’ve regulated pretty hard with their logbook. They only going to drive 10 hours a day, well, the robot can drive 24 hours a day. And they’ve even got these trucks now that two and three semi-trucks back-to-back, you know, pulling each other, it is unbelievable. But truck drivers are pretty high skilled, they are high-paid, you know, moderate to low skilled labor. And that’s going to be the lost class I think at some point.

Hospitality is that can never be the same as a lot of lost industries or jobs there. Office industry, I was like, I was seriously considering buying an office building and putting my wall company in there six months ago, and I’m like, I don’t really want to be buying an office building. And there’s so many people working from home like, I don’t know if I want to take that risk right now. I just wouldn’t rented a space and I rented it out of a cruise business. 10,000 square foot space. It was empty. They haven’t sold a cruise in a year. So I’m subleasing a space from the cruise company. Businesses like that, and I feel really bad for them. Obviously out of their hands, their industry, the 25-year company just overnight, poof!

I had an eviction attorney the other day interview with me, 18 years in the eviction business. Very talented at it. Successful two-man firm just poof! No evictions, no income. That’s all they did. So something to be said for diversifying the practice, I guess, but didn’t happen there. So anyway, overall, there’s a lot of stuff going on. A lot of unknowns. I think President Biden, as we speak is signing executive orders left and right, not going through Congress. I think we’re going to have a divided Congress could be a stalemate. We’re not going to make progress I think we need.

So anyway, I’m a little bearish right now on some of the decisions our countries or some of the direction our country’s going. Now I’m bullish in general that people going to be ready to throw some money back in the game as this vaccine, you know, transverses through the country and everybody starts to get cured and all that kind of stuff. I think that’s going to have a big boom. But is it long-lasting? Or is it just a, you know, a shadow espressos tied us over for a minute? I don’t know. We’ll see. I think again, our industry, mobile home parks are in as good a position as any. But we shall see how that helps. It helps hurts us long term as a country.

Thanks for listening to my rambling and my thoughts. Hopefully, I didn’t come up too much as the sky falling, but reality is, you know, there’s serious stuff and it’s good that we can have this discussion and appreciate you listening. Till next time, thanks and God bless.

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