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APRIL 2016 14 THE JOURNAL My Favorite Quotes And Why They're Important BY FRANK ROLFE COMMUNITY CONSULTANT My office is full of framed quotes. In fact, it's got stacks of biographies everywhere, and his- torical memorabilia. You see, I like to surround myself with important thoughts from business leaders of the past to help keep me aware of the risks and opportunities out there. Here are some of my favorite quotes and thoughts. "Before you can have return on principal, you have to have return of principal" The thought behind this quote is that you should never be blinded by a big potential re- turn on your investment if the gamble is losing your entire principal. Every time you buy a manufactured home community, you need to carefully examine your potential exit strategy. Stay away from communities that have risky economic profiles, or failing infrastructure. A big CAP rate is great, but not if it means losing your entire investment. You are often far bet- ter off buying the lower-performing – but safe – community that has rock-solid fundamentals and a great exit strategy down the road. This is the same theory behind blue-chip stocks vs. OTC flyers that might go bankrupt in six months. The best manufactured home commu- nity example would be those properties built during the shale exploration boom in North Dakota. Investors went wild hoping for 30% re- turns, and instead are now saddled with unpaid debts and assets that have no value. Would they have been better off with a nice stable community in Minnesota at a 9% cap rate? Ab- solutely. "Nobody ever went broke taking a profit" Back in 1996, I sold my billboard business to a public company called Universal Outdoor of Chicago. This saying hung on the wall above the desk of the guy that bought me out, Dan Simon. What it meant was that it's OK to sell something now, even if you might be able to squeeze out a slightly higher profit down the road. Simon was true to this thought because, contrary to what was expected, he sold his company almost immediately after going pub- lic, and without instituting any of the growth plans he had discussed when his stock was listed. We've done the same thing with vari- ous manufactured home communities when we get a good offer years ahead of our intention to sell. While you might be able to hold the asset longer and get a slight bit more, the risk is that the market will turn and you might get less. Every time you get a good offer, you should consider it wisely and respond. Often, the best course of action is to take that profit and move on to the next deal. Warren Buffett described this exact concept in his letter to his sharehold- ers a couple years ago, in which he described his thoughts on a strip center he owns across from NYU that receives frequent offers for a buyout. "Time Kills Deals" Somebody gave me this saying on a plaque back in the 1980s. I interpret it to mean that any deal you are working on is a race against time – that time is never your ally. If you can put a manufactured home community under contract on Friday, then don't wait until Mon- day as another offer might come in over the weekend. Or if you have a loan ready to be funded, get that done ASAP before interest rates suddenly jump and the bank wants to renegotiate. During the civil war, the success- ful generals had the same basic message to their troops: "our best chance in any battle is to run at the enemy screaming". Same with manufac- tured home communities (bayonets optional). "Problems are only opportunities in work clothes" This quote is from Henry J. Kaiser, the American industrialist, steel magnate and the father of modern ship building. Kaiser had a knack for buying failed businesses and turning them around. From this concept he built every- thing from Kaiser Steel to Kaiser Aluminum to Kaiser Permanente. We are devoted followers of this same mantra. We are continually searching for "problem" manufactured home communities that we can turn around using professional management. We take a great lo- cation and good infrastructure that is currently a total mess, and introduce a nice entry, im- maculate common areas, collections and rules enforcement, and bring in new homes to fill the vacant lots. At the same time, we typically raise rents to market levels and often change the utility system to one in which the tenants pay directly for what they use. This is probably the most profitable formula in buying communities. But it's also important to note that you have to know your limitations. Kaiser was famous for quickly abandoning or terminating companies or concept that did not seem to have much future. He did a prototype for a new car in the 1950s and, after viewing it for a few seconds, scrapped the entire project because he thought it was ugly. With manufactured home communities, it's always important to think about what you can turn around as opposed to what you can't. Small lots, bad neighborhoods, lagoons – these are all things that should probably be avoided. Conclusion As you can probably tell, I'm a huge history buff. I've always felt that history unlocks the future: that you can simply look at what has happened in the past to predict what's going to work going forward. I choose to surround my- self with historic quotes and items to keep my- self grounded. You might try it. Frank Rolfe has been a manufactured home com- munity owner for almost two decades, and currently ranks as part of the 6th largest community owner in the United States, with more than 17,000 lots in 23 states in the Great Plains and Midwest. His books and courses on community acquisitions and man- agement are the top-selling ones in the industry. To learn more about Frank's views on the manufac- tured home community industry visit www.Mobile- HomeUniversity.com. T J