JF2061: What to Look For in Mobile Home Parks With Jimmy Johnson

Listen to the Episode Below (00:23:04)
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Jimmy is the founder of Sanddollar Communities, a mobile-home park acquisition firm. Jimmy shares how he was able to wholesale 14 mobile home parks in less than 12 months so if you’re interested in getting into the mobile home park scene, this is an episode you will want to listen to since Jimmy gives his way of finding the right mobile home parks to invest in.

 

Jimmy Johnson Real Estate Background:

  • Founder of Sanddollar Communities, a mobile-home park acquisition firm
  • Has wholesaled 14 mobile home parks in less than 12 months for a total of 471 sites in 7 states
  • He has also partnered on 149 sites across 4 parks where he helps run daily operations
  • Based in Tampa, FL
  • Say hi to him at: jimmy@jimmyjohnson.co 
  • Best Ever Book: Four Hour Work Week by Tim Ferriss 

 

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Best Ever Tweet:

“Anyone can pick up the phone and call but offering to meet in person is very influential.” – Jimmy Johnson


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Jimmy Johnson. How are you doing, Jimmy?

Jimmy Johnson: Great, Joe. How are you doing?

Joe Fairless: I’m doing great as well, and looking forward to our conversation. A little bit about Jimmy – he’s the founder of Sanddollar Communities, a mobile home park acquisition firm. Jimmy has wholesaled 14 mobile home parks in less than 12 months, for a total of 471 sites in seven states. He’s also partners on 149 sites across four parks, where he helped run the daily operations of those parks. He’s based in Tampa, Florida. With that being said, Jimmy, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Jimmy Johnson: Yeah, definitely. Thanks for the intro. As Joe said, about a year ago I got started in mobile home parks, and wanted to figure out how I could provide the most value to the industry. Everybody needs deals, so I thought the best route to go would be in wholesaling parks and providing those off-market deals. So I kind of jumped right in, and started full-time doing it, working 24/7, just trying to get the parks.

It took a couple months to get the first one, but since then it’s kind of snowballed, and now I’m just 100% focused on just growing the business and continuing to do more and more deals, and just marketing, and trying to find the best ones as things get more and more competitive.

Joe Fairless: What were you doing before this?

Jimmy Johnson: Before this I was working for a multifamily company, and that was kind of my first experience in real estate. Then once I left there, I had a virtual assistant agency where I was connecting entrepreneurs with VAs in the Philippines. I sold that, and then got started in mobile home parks. I went looking for something new to do.

Joe Fairless: What were you doing for the multifamily company?

Jimmy Johnson: Just acquisitions, so helping with the marketing, looking at database building, working with brokers… The whole nine yards, from start to finish, from selecting the areas that we wanted to target, up into naturally closing on the deals.

Joe Fairless: I knew there had to be a competitive advantage you were bringing to the table, because I don’t know of anyone who has started looking for mobile home parks and has gotten as many deals as you did, within the time period that you did, having just started out. So that makes sense; your background was in acquisitions on multifamily, plus you have had a virtual assistant agency… So my guess is – and I’d love for you to elaborate – that you used some of your experience in acquisitions for multifamily and combined that with virtual assistant help, and that’s how you got up and running so quickly… But please, tell us about it.

Jimmy Johnson: You hit the nail on the head. I pooled some of the experience from both. I have done [unintelligible [00:03:41].04] obviously not alone; I have some full-time VAs that work for me and help. They do a lot of the admin stuff, especially the database building, and just helping with transaction management. So I definitely piggybacked off of the experience of both, and it’s been great to just kind of bring that knowledge to the table. O couldn’t imagine having started without either one of those… So it’s been very influential and very helpful.

Joe Fairless: If I want a VA, what’s the best way to find one and bring them on board?

Jimmy Johnson: There’s a lot of agencies out there now. It’s one of the reasons why I got out of that business. You can go with the more boutique companies, or you could obviously go to Fiverr or Upwork. I think still the best way is to go to Upwork and post some ads there, and you’re gonna probably go through a couple dozen before you find that one good person. It’s all about just — you have to have them through task to task. So you wanna give them a couple hours of what a day in the life of working for you would be. If you give that to 100 people, maybe ten will actually do it, and out of the ten, two or three will do it right.

So it’s [unintelligible [00:04:50].04] but once you have the right person — I’ve had a couple who have been working for me for years and years now, and they really know all the ins and outs of the business… So it’s very helpful working with them, and it’s fun. They know so much about mobile home parks, and they don’t even have mobile home parks, obviously, in the Philippines.

Joe Fairless: [laughs] And what’s their compensation?

Jimmy Johnson: Between $2 and $4/hour as the base. I hire people that are more in the rural provinces, not right in the city, and then I give them a bonus for every deal closed that’s pretty substantial, so they make a good living there.

Joe Fairless: And what’s a bonus for a closed deal about?

Jimmy Johnson: $500. Over a month’s salary for them.

Joe Fairless: With your background in acquisitions for multifamily and with having owned a virtual assistant agency, talk to us about your specific approach that you take — or let’s talk about when you first started. What did you do exactly to get your first deal and get those leads coming in?

Jimmy Johnson: Nothing too fancy… It’s just the cold-calling, direct mail, meeting with sellers… You have to kind of put yourself in the shoes of who you’re reaching out to. I knew I wanted to target mom and pops, and out of the 14 last year, the average age was over 70, of the sellers that I worked with. So you’ve gotta think what does your seller — what kind of marketing are they gonna respond to. They’re not gonna probably respond to ringless voicemail, or texting. These are people who want cold-calls, and they want you to see them in person.

Joe Fairless: Okay. Well, in order to cold-call and direct mail and meet with them and know who they are – average age over 70 – you’ve got to be able to find them. What did you do exactly to put together your database?

Jimmy Johnson: I kind of picked the states and the areas that I wanted to do after doing some research on BestPlaces.net. It’s one of the good websites for metro research. After deciding, then I would figure out how many counties comprised that area, and then I would go county to county, go to their website… And some of them were easier than others, where you could search a list of mobile home parks, others you have to call them…  So kind of just getting a base list of what are the 100 mobile home parks in the area, just what’s their address. Then a lot of them, just due to these mom-and-pops, if you just google the name of the park and the address, it’s their cell phone number that’s often associated with the Google listing, because they don’t have a lot of technology and systems in place. It’s often them who is answering everything, from leasing calls, to maintenance… So just kind of calling that way is how I got started quick. And then since then, I’ve developed some systems with the VAs for different paid softwares and whatnot, for doing skip-tracing… One of the easiest, quickest ways in how I got started was just county research and then googling parks.

Joe Fairless: What was the easiest experience finding the mobile home parks in the county, and then can you describe the hardest experience?

Jimmy Johnson: The easiest, depending on state and the county, was just going on their website, and you could just search “multifamily, 2-5 units, or 5-10 units” etc. So they  had a listing that was just mobile home parks. So that was perfect, because —

Joe Fairless: It distinguishes between apartments and mobile home parks?

Jimmy Johnson: Yeah, as well as commercial and retail and industrial. They just had everything broken out, and all you had to do was download a list.

Joe Fairless: Okay.

Jimmy Johnson: So a lot of the more tech-savvy counties have that. That’s maybe 30 minutes total to get to that, and get the data downloaded. So that’s the easiest.

Then the hardest was counties that don’t have anything at all, and kind of having to call them and see what they could provide. And even harder on top of that is the counties that won’t provide the data at all, and then having to actually go on Google Maps and just search street-by-street to pick the parks, and then google. That’s a couple-day to a week task to get that done.

Joe Fairless: And when you create your database, what are the fields that you input for information?

Jimmy Johnson: The basics are obviously address, and then city/state ZIP, the whole nine years; always parcel ID number, because that’s the easiest way to look it up, especially when you’re digging deeper into the data. A lot of people will forget to put that.

In addition to that, you want as much info about the owner as possible. So whatever corporation they own it in, or if it’s in their personal name, the husband or wife’s name, any partners… And a lot of this you could find on the county’s site when you’re looking up ownership.

I wanna know where they live, because that can always be a talking point. I live down in Florida; a lot of sellers often do, even if it’s a park that’s in Georgia – I could say “Oh, it looks like you live in Orlando”, and then that can get the ball rolling for communication and whatnot. So just as much info… Google the park and see what’s near it; if it looks like there’s any new development, or if there’s something prominent that’s right around the corner… Just anything that you can kind of stand out with a talking point, compared to just “Hey, I wanna buy your park” and that’s it; so it looks like you don’t even have any info.

Joe Fairless: Besides mentioning that the area code is Orlando, so it’s “Oh, you live in Orlando”, is there any other way of saying “I see you live in Florida” without acting creepy to them, because you’ve been internet-stalking them to get all this information?

Jimmy Johnson: It kind of depends on the person. A lot of times they’re like “How did you  get my number? How do you know who I am? How do you know I own the park?” They’re like “I thought it was hidden.” And you’re like “No, you could look it up in two minutes online.” So there’s always that kind of creepy right off the bat feel if it’s the first time somebody’s calling them… But I always just say “Oh, we just get it all from county records. It’s all public data.” You just notice that “You live in Florida. I do, too. Are you down here now?” I try and segue it into an in-person meeting.

Then they kind of open up more and they’re like “No, I’m only down there in the winter. I love fishing”, and then we start talking about that… So it’s really just “Hey, it’s public records data, that anybody can look up.”

Joe Fairless: Okay. So that is building the database and putting together the team… But then you’ve got to actually close on the deal, and I introduced you earlier as having wholesaled 14 parks in less than 14 months for a total of 471 sites across seven states… So what are some tips you have for taking it from initial conversation to actually closing on it, or in your case wholesaling it?

Jimmy Johnson: Great question. Right off the bat, like I said, you wanna have some conversation points ready about the area… Especially if you’re not super-familiar with it, you wanna do research, even if it’s a new major employer is coming to town… Just anything to talk about. Or if you have friends or family or partners in the area. So just getting started with those talking points. And then one of my biggest tips is you wanna try and meet these sellers, with any type of wholesaling, I think, as soon as possible… Because anybody can pick up the phone and call, but offering to meet is very influential.  So I kind of start planting the seed right away. You know, “Hey, if you wanna get together in person”, and you kind of talk through the details. Because with a park, there’s a lot of info that you need, from how many park-owned homes, how many tenant-owned homes, if it’s private or public utilities… So it is a bare minimum 30 minutes to an hour of just exchanging information.

Once I have those basics, I then start to come up with my offer, where we have to be, and make sure we’re in the same ballpark, and then just start pushing for that in-person meeting.

Joe Fairless: Okay, so you mention what your initial offer is on that first call?

Jimmy Johnson: A lot of times they want to know, but I try not to. I think with anything, you want the other person to name the price first, just because you never know what’s gonna be said… But I’ve been most successful with one that doesn’t come up until actually in-person; because they see you have some skin in the game, you’ve taken the time to meet with them, where maybe 9 out of 10 other people haven’t.

Then once maybe walking the properties or sitting over lunch or coffee, then towards the end it’s “Alright, let’s talk numbers”, and that’s when I most address bringing up the actual final offer.

Joe Fairless: You wholesales properties in seven states over a period of first 12 months… How do you determine which people to go fly to meet with or drive to meet with, versus not?

Jimmy Johnson: Another great question. You lose some of them, because you get there and they want quadruple of maybe what it’s worth, and that’s why a lot of people wanna just shoot off that offer right off the bat. But the ones where I know I’m definitely going is — I had one where I was working them for 6-9 months, and we were talking every week or two, and it was “I’ll sell them next month” or “I’ll sell in a couple months. I’m not ready yet”, and then finally something just clicked after six months of talking. I had the rapport built up… And he goes “Yeah, I’ve had a rough couple weeks health-wise, I’m getting older… I’m done. Can you meet this week?” And I’m like “Okay, this park is across the country. I’m down in Florida. How about next weekend?” And he’s like “No, Friday is good for me”, and it’s Thursday. And I’m like, “Um, how about Saturday?”, and he’s like “No, it’s tomorrow. I have Bingo on Saturday.”

So I went online as we were on the phone and looked up tickets to Kansas City, booked the flight, and met him there the next day. So when they’re ready, they’re ready, and time [unintelligible [00:14:49].17] so you’ve gotta jump on it.

Joe Fairless: Yeah, I would hope most people would find the way to get themselves to Kansas City in that scenario. Earlier on — and you answered this, so I guess we won’t talk about it much more, but how do you determine who do you got meet with and go fly with… But certainly, that was a hot lead, to say the least.

Jimmy Johnson: Yeah. They’re not all ones, though… I drove eight hours two weeks ago, up to Northern Alabama, to meet with an owner, and it was one I was working for a while; I thought I had it in the bag, and he ended up selling it to a  college friend of his, so… A lot of times the time is wasted, but I stop at other parks on the way and kill a couple birds with one stone, or get lunch with some investor… So I try and make it where it’s 4-5 things happening, and not just a one-stop sort of thing.

Joe Fairless: Let’s talk about the four parks that you help run daily operations… What is your role?

Jimmy Johnson: Two of them are with one partner, two of them are with another. One group is much more out there, looking to grow. They have six parks total, so I’ve kind of assigned one to them, and we enjoyed doing business together and wanted to keep working together… So we ended up doing two more I partnered on with them. With that, there were more turnarounds, heavy lifts, and we all play our role. One person’s in charge of leasing the property up, another person is in charge of dealing with contractors… So for that one, I kind of just have my one lane, and I’m helping with just infill, bringing homes in, leasing homes, selling homes.

The other two, it’s more with a passive investor, so I’m kind of running 100% of things. They’re more stabilized. Still value-add deals, but not needed for a five-person team. So with that I’m taking everything from tenant calls, down to taking visits to the property, and moving in homes, and really everything, A to Z.

Joe Fairless: What’s your least favorite part of managing the operations?

Jimmy Johnson: I wish they were all closer. I wish I could basically be there more often. I have one park that’s only five minutes away from my house, so that’s great, and it’s the one that’s running the bust, because I can be there. And then I have another one that’s in Oklahoma, and that one – I just wish I could be there more. It’s tough to fly out there for a day just to do something that’s maybe not a high priority… So I think when you’re not there as often, obviously things kind of fall behind. So really, the least favorite part is missing out on some of the more day-to-day stuff by being remote.

Joe Fairless: And what do you think is the monetary benefit to the park for you being closer? You mentioned some of the smaller day-to-day stuff that’s not as much of a priority, but you said it is operating the best when it’s closest to you… So what exactly is it that you’re doing that is helping with operations?

Jimmy Johnson: I meet with my manager there once a week. It’s just walking through — I park the car, and then I kind of walk. The tenants see me there, and it’s kind of — not that fear of “The owner is here”, but more of like it’s more active, and there’s a presence… So just kind of less problems, less complaints; they all know me. So it’s that, and then… We’ve just had somebody move out last week and we had a tenant moving in there the next morning. So it’s just quicker turnovers. We’re doing a small expansion there, and it’s just easier to manage that. We’re adding eight homes in… So it’s just a lot easier to pop into the county and do what needs to be done.

The on-site managers do this at the out-of-state properties, but just being able to oversee this one — I think it’s running more efficiently, and I work a lot closer with the manager there. He does other kind of side-projects at the other parks, and he actually travels to them… So it’s just kind of better relationships, and more smoother communication, just being on-site more often, and doing that  weekly walk.

Joe Fairless: Do you have weekly phone conversations with the Oklahoma manager?

Jimmy Johnson: Yeah, with all of them. It’s a minimum of once a week. So we typically do Friday afternoon, and it works well. I think it’s good for both sides. They like to kind of update and share what’s cookin’, both good and bad, and then of course, I like to stay on top of it equally. So it might be overkill to some, we could probably do it twice a month, but I think a quick 15-minute call is worth its weight in gold.

Joe Fairless: Based on your experience, what is your best real estate investing advice ever?

Jimmy Johnson: Definitely trying to meet sellers in person. I think it’s one of the biggest reasons why I’ve done 14 parks in the first year… Because I’ve gone the extra mile and I meet these people when nobody else is.

Joe Fairless: And I’m guessing at the beginning you chose to wholesale just to build up some cash reserves. Is that something that you are continuing to do? And if so, why? …compared to just buying them with a partner and doing it yourself?

Jimmy Johnson: Yeah, definitely, this year the number one focus is still wholesaling parks. About double the number that I did last year. And with wholesaling, everybody wants the deals… So just for like being the guy with the deals, then you’re able to partner. A lot of times people will say “Hey, instead of the fee, how about I give you a piece of equity in the deal?” So I’m building up ownership in multiple parks, as well as building up the cash with the assignment fees. I’m learning a ton and getting to know everything, from people buying their first park, to the institutional groups who are [unintelligible [00:20:19].16] ten or twenty. So it’s a great way to meet just so many people, in really any market that you want.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Jimmy Johnson: I’m ready.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:20:39].16] to [00:21:23].24]

Joe Fairless: Best ever resource that you use to stay sharp in business?

Jimmy Johnson: I really like BestPlaces.net for staying on top of what’s cooking in areas, and metros, and cities, and just the demographic.

Joe Fairless: What’s some mistake you’ve made on a transaction?

Jimmy Johnson: Time kills deals. Dragging my feet on a couple things and kind of letting things fall behind. You’ve gotta just stay on top of it and just put in the hours to get them done quick.

Joe Fairless: Best ever book you’ve recently read?

Jimmy Johnson: Pretty generic, but 4-Hour Workweek. I always revisit that one. I think it’s good for anybody in business.

Joe Fairless: Best ever way you like to give back to the community?

Jimmy Johnson: Super-simple, but once in a while just buy something for somebody behind you in the line at Starbucks. I do it about once a month, and it’s always just such a feel-good moment.

Joe Fairless: And how can the Best Ever listeners learn more about what you’re doing?

Jimmy Johnson: You can email me, jimmy [at] jimmyjohnson.co, or you can also go to my website, sanddollarcommunities.com. You could reach out that way. I’m on top of both of those every day.

Joe Fairless: You came into this business just ready and raring, hitting the ground running. It’s impressive how you got 14 mobile home parks in less than 12 months wholesaled.

Jimmy Johnson: Thank you.

Joe Fairless: It really is. They’re tough to find, as you might know… I don’t know if you agree with that or not. I know some people in the industry and they have a hard time finding them. Bravo to you. And thank you for going through your process in detail for how you did it. So any mobile home park investors listening, they can learn. And I’m sure everyone has an abundance mentality, so thank you for sharing that.

Jimmy Johnson: Yeah, I appreciate it. Thank you.

Joe Fairless: I really appreciate you being on the show. I enjoyed our conversation. I hope you have a best ever day, and we’ll talk to you again soon.

Jimmy Johnson: Right back at you. Thanks, Joe.

 

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JF2038: Mobile Home Parks With Ian Tudor

Listen to the Episode Below (00:24:39)
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Ian is the Co-Founder of Archimedes Group, they have sourced, participated, and closed over $20,000,000 deals since 2016. In a previous position, Ian has underwritten over $1 billion in acquisitions and dispositions. He is a mobile home park investor and has been doing it for the past 3 years, and part of his learning how mobile houses work, both him and his partner decided to live in a mobile home park, living in a double-wide sleeping on a blow-up mattress for 14 months alternating weeks with his business partner.

 

Ian Tudor Real Estate Background:

  • Co-founder of Archimedes Group, they have sourced, participated, and closed over $20,000,000 in deals since 2016 
  • In his previous position, he underwrote over $1B in acquisitions and dispositions
  • Based in Charlotte, NC
  • Say hi to him at http://www.archimedesgrp.com/  

 

Best Ever Tweet:

“Treat your boss nicely, you never know where that relationship will go.” – Ian Tudor


TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Ian Tudor. How are you doing, Ian?

Ian Tudor: Right, thanks for having me.

Joe Fairless: Well, I’m glad to hear that. My pleasure. A little bit about Ian – he’s the co-founder of Archimedes Group. They have sourced, participated and closed over 20 million dollars in deals since 2016. In his previous position he underwrote over a billion in acquisitions and dispositions. Based in Charlotte, North Carolina. With that being said, Ian, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ian Tudor: Absolutely. I appreciate you having me on. I’m a mobile home park investor; I’ve been doing it for about three years. In my prior life I was working on the institutional side at a publicly-traded REIT – of formerly publicly-traded REIT – underwriting office buildings, skyscrapers across the South-East. I was on the investments team, and I decided I wanted to make a little change and invest on my own. That’s when I stumbled on mobile home parks, and Ryan Narus, my business partner and I decided to go into business in 2015, and we purchased our first park in 2016.

Over the past three years we’ve been a part of about 12 transactions, 1,300 lots, with various partners. Part of our learning of how mobile home parks work was in 2017; we partnered with a big operator, and that was a  way for us to get our apprenticeship in mobile home parks. We lived in a mobile home park, slept in double lot, on a blow-up mattress for 14 months, alternating weeks; Ryan was there for a week, I was there for a week… And that really gave us the foundation of who our company is today and where we’re looking to go forward now.

Joe Fairless: Why didn’t you get into office buildings? That’s where your experience was.

Ian Tudor: Great question. Coming into real estate, my family is from the medical world, and for me, I just didn’t have a huge amount of capital behind me… So I found mobile home parks as — this kind of started off just like a side hustle; I bought my first house when I was 23 years old, and I guess what they call house-hacking now… And lived there while my roommates paid my rent. That was in Richmond, in the  job before I got into real estate.

So I continued that path in Orland, and I just found mobile home parks was a lower capital requirement, and it seemed like there’s greater opportunity than other forms of real estate at the time, which was around 2014-2015, when I was looking.

Joe Fairless: Okay. So doing quick math, over 20 million in deals, you did 12 deals – that averages to be 1.6 million, which I know varies greatly… Probably you’ve got a couple of really big ones and some small ones in there. What was your first one?

Ian Tudor: The first deal we did was with a now formally-owned company – that was 1.525 million – in Hillsborough, North Carolina, which is right outside of Durham, which is in the Raleigh MSA, a great town. I live in Charlotte, and that was the first deal that we did. Then we did a small $500,000 deal in Asheville, which is in [unintelligible [00:04:05].27] which is about ten miles outside of Asheville. We still own that; that was 33 lots. Then we did a 10.5 million dollar deal that we sourced; that was 450 lots. Then we brought that to a regional operator… And that’s where we went to move in, to that community, for 14 months.

Joe Fairless: Okay. Let’s talk about those first three. 1.5 – how did you fund it?

Ian Tudor: That one they put up a lot of capital.

Joe Fairless: Who’s “they”?

Ian Tudor: That was Parkstreet Partners–

Joe Fairless: Another operating partner?

Ian Tudor: Correct.

Joe Fairless: Okay, cool.

Ian Tudor: So they used to own 25 mobile home parks, and they’ve kind of  just gone a different direction… But starting off, we had no money. I couldn’t really bring these deals to my boss, because I didn’t want them to know that I was side-hustling on the side, trying to find things to make happen… So for us, we did finger’s fees. For the first deal we got a 5% finder’s fee, which was about 75 Gs, for the 1.525 deal. We kept some of that in and we cashed out the rest, to allow us to invest in more deals.

Ryan and I put a little of our own capital into Archimedes Group, which then allowed us to invest in other deals. So that $500,000 deal, Ryan and I were able to put a little money in, and we had another capital partner, which turns out to be my former boss after I left that company…

Joe Fairless: [laughs] Nice.

Ian Tudor: So treat your boss nicely. You never know where that relationship could go.

Joe Fairless: Ain’t that the truth… The 5% finder’s fee, you got 75k on the first one… How did you find that deal?

Ian Tudor: So another reason we like mobile home parks a lot was just how fragmented it is. And it’s still relatively fragmented, but the secret’s kind of out on the asset class… But we built a database of about 1,400 in the South-East that we wanted to target, and then we mined those owners’ information. So a lot of what we did was kind of direct mail cold-calling. This particular one was just an up and coming broker who I guess I told a good enough story and we connected, and had rapport – actually, I just spoke to her today – and that allowed us to get into the first deal. So that first one was a broker, and then the second one and third one were cold-calls.

Joe Fairless: Nice. How do you go about building a database of 1,400 parks?

Ian Tudor: It’s various types of methods. There’s several parks on some of the larger sites that list a few of the parks, but the best way to do it is to get on Google Earth and just scan Google Earth and click parks… So it’s very time-intensive, and it took me quite a few hours. Now I’m working with a VA out of the Philippines and they update it yearly. So we’re in our yearly update, so we know what parks have traded for what amount, what’s the new owners, and then we mine those owners to then contact them.

Usually, the trades happen with the owner that’s owned for a while, not the one who just bought; they’re not looking to sell the second they bought.

Joe Fairless: Right. So two questions… When you do Google Earth and you scan for parks, you go into Maps, and then do you type in “mobile home park” and then just zoom around, or do you have another approach?

Ian Tudor: Yeah, we do Google Earth, not Google Maps. You can do Google Maps, it’s not bad; there are several places of Maps for mobile home parks. But a lot of parks aren’t mapped, or they’re not Google Places. So the owners haven’t set that up for those parks, and you’ll miss a lot of parks that way. So you go into Google Earth and then you get this application called Parlay 2.0. That allows you to pull parcel numbers. Once you have the parcel numbers, then you can go to the county GIS, and you can find the LLC, the owner, what they paid for it, and some other information. Sometimes they tell you the log count, the type of utilities, XYZ.

Then you have to go find who’s behind that LLC. Then you find that person, then you have to go find their number. So it’s wildly time-consuming. There’s people out there now that are selling these datasets, which makes life easier. It depends on what path you wanna take, but for us, that’s the one we took, and so far it’s been lucrative.

Joe Fairless: That’s pretty cool. And how does the virtual assistant know which parks have traded hands?

Ian Tudor: That’s all updated on the county GIS, the county’s property record search. So that all depends on when the deed was recorded and how quickly they update their database. Sometimes parks trade and three months have passed and we call the owner, they’re like “Yeah, I sold it three months ago and the county GIS still has not updated”, so it’s county-specific. But for the most part, counties will update their informations so it reflects online, at which point  you can see who the note owner is, what they paid for it, and the date in which the deal closed.

Joe Fairless: The third deal, the big one, the big kahuna – I imagine a price point that was the largest deal you’ve done. I know it is, because if you’re at 20 million, then that was 10.5. Is that correct?

Ian Tudor: Yeah, that one was interesting. That was June 30th, 2017; it’s funny how you remember some of these moments in life… [laughter] I cold-called him in July of ’16; I was at my friend’s house, cold-calling, when I lived in Orlando, Florida.

Joe Fairless: How does that call go?

Ian Tudor: It was surprising… I called a few of his numbers and he’s like “Hello?” and I said “Hey, my name’s Ian”, and I forgot the exact pitch I had, but it was like “I’m interested in buying mobile home parks” and he was like “Well, who are you?”, so he was starting to qualify me quickly. I had to think quickly on my feet, and I basically told the story that the company that I was currently working for, that was in office buildings; I said some vague things about how they may be considering mobile home parks, and that we purchased four billion dollars’ worth of office buildings… Just trying to give myself some credibility. Luckily, he bought it, and we had some great rapport, and we continued to talk. He’s like “Yeah, my dad’s an old, senile man, and he doesn’t wanna let go of it, but we’re trying to work as a family to get him to let go of it.” So I followed up with him over the year and we continued to chat, and talk, and I went down there several times, and had to meet the family… Seven of them were surrounding Ryan and I and asking us questions… It was really nerve-wracking.

Joe Fairless: And this was a 10.5 million dollar transaction, compared to the 1.5-ers and the 500k one that you did… So it was a massive opportunity for you all.

Ian Tudor: Right. In hindsight, we had a partner who we thought had a lot of interest. So Ryan connected, and is still very good friends with a larger operator who has about 6,000 pads in the South-East…

Joe Fairless: How many pads was this one?

Ian Tudor: This one was 450, which is surprising, this is now their flagship asset… Because we partnered together — since we’d had no capital to bring into it, it was another large finder’s fee where we kept some in the deal, helped operate it, and then we refinanced to obviously improve the value of that park, and increase our money, putting no money down… So we put no money down on a 10 million dollar deal and walked away with over half a million dollars. So that’s one way to make things–

Joe Fairless: You and your partner, you and Ryan did? Nice!

Ian Tudor: So over about a year we had to give a lot up to make that happen, but now we’re able to make a lot more money for ourselves on deals because we’ve got the know-how. So what I tell people early on in the game, and something I struggled with a lot, is the way you make this game work is you’ve gotta make rich people richer. It’s hard to wrap your head around that, but a lot of times for investors, when you don’t have money and you’re just trying to learn, you find the opportunity, you make it happen, and then  you can start demanding better terms and structures as you have more experience. But getting started, you might have to give up some upside, but just know that that’s not your only deal. If you’re gonna do 600 deals in your lifetime, it’s worth it getting your experience so that you can really get started.

I think some people look at the dollars too much for not enough of their ability to just get started… So that has helped to now catapult us into so many other deals, because now we have credibility.

Joe Fairless: What a necessary philosophy… I’ve never heard it put that way, “Make rich people richer”, which is another way of saying what you said – find the opportunity, make it happen; you have to give up the upside. It’s not gonna be  your only deal… So you just continue to build that momentum and then eventually — in this case, you and your partner made in total a little over 500k, so that’s a wonderful chunk of change to then go start doing your own deals, and not having to rely on partners… So thank you for sharing that philosophy.

Ian Tudor: Yeah, early on I’ve found myself at times… It’s easy to put in hours — I remember us putting in a large amount of hours, and it’s easy to forget both sides have to come together for that to work… And we would have never had that deal, we would have never had that opportunity if the gentlemen who we partnered with came to that table. So it was a great exchange of value for both of us, and we both walked away happy. We stayed in contact and we’ve done a few more deals since then. So that has turned out to be a wildly successful relationship, and it’s just some slight mental shift that you have to make, and I personally had to make it… Because there were times where I was like “Man, I feel like I’m doing all this work and I’m not getting paid enough for what I’m actually putting in.”

Joe Fairless: Which is true. You weren’t. But it was a long-term play.

Ian Tudor: Yeah, in hindsight a lot of people say I got ripped off, and that’s okay. I don’t care, because long-term we’re in the game now that we’re doing deals, and our structures are way better. So get started and find ways to just get into the game. Things are just gonna start playing your way.

Joe Fairless: What about the fourth deal? What was that one?

Ian Tudor: That was a little small deal. That was probably one of our return deal for our partner, and as well as ourselves… But it was a $465,000 purchase price, it was 42 lots right outside of Greenville, in a town called [unintelligible [00:14:16].16] We still own that today, and that was a textbook deal. We came into the industry thinking that all the deals were gonna pay like this, but we learned very quickly that mobile home parks is a lot of work. That was a cold call that the owners were absentee, in Ohio, and it was just time for him to 1031 into some farmland close to his house, because they couldn’t manage the tenants. They’d master leased the community to a bunch of attorneys, and then they didn’t pay property taxes, so it was just a giant mess.

Joe Fairless: Oh, man… That sounds like not quite textbook, with a master lease contract in place, with attorneys on the other side… What were some things that you had to do to eventually close on it that  you wanna share?

Ian Tudor: A lot of it just seemed like the owner’s lack of putting in the correct energy to monitor his assets… So I guess this deal was struck between the attorneys, and the owner — ten years passed and he got a monthly stipend, where the attorneys didn’t show him financials for ten years, which I think most people can come to the conclusion that that’s just not an ideal place to be… But these attorneys were very hands-off as well, and they wouldn’t talk to us much.

A lot of it was working through the daughter-in-law, because the old man was senile and he couldn’t hear very well… So she was the advocate to help him move to the next step, and she was the bridge between everyone.

That transaction went well, in hindsight. We could have paid a lot more for it and still been alright, but they released the appraisal to us. We were at 600k, they released the appraisal to us, which again, questionable to do… And it was at 450k, and we’re like “Listen, we’ll give you 465k and you guys are coming out ahead, but if it just appraised for 450k, it’s unlikely we’re gonna get to 600k.” They were desperate enough, they took that deal, and now that park’s worth over a million bucks.

Joe Fairless: And why would the numbers have still worked at around 600k, if they were appraising at 450k?

Ian Tudor: Because the appraiser had no information. When the appraiser has no information, you go conservative. So at that moment we didn’t know what the real market rents were; they were at 170 when we took over in August of 2017. We’re at 275 today. So we were underwriting it at 230, thinking that that was being aggressive. 230 to 250. But I think the market there is really like 325. So it’s just a matter of time for us to get there.

And these are lots, these aren’t rentals. There’s two different models in mobile home parks – one where you own the home and rent it out like an apartment, and the other one is where they own the home and they rent the lot from you. So this is all rentals of the lots, and for market price we’ve still got another $50 to go, and this park will be worth over 1.3 million, probably in the next year-and-a-half, two years.

Joe Fairless: Taking a step back, from your experience as a mobile home park investor, what’s your best real estate investing advice ever?

Ian Tudor: I should have probably prepared a little better for this one, because I knew this question was coming… I would say it’s easy to overthink this entire business. My best thing – I think my former boss probably has helped me more than anything else – is find mentors and be willing to make mistakes or sacrifices that other people aren’t gonna make to get the life that you want. Those are the two things that we’ve done, and now we personally own over 300 lots ourselves, without unattractive structures.

So step one would be get mentors; people are very helpful and they wanna help. Step two, I would say just be willing to sacrifice for your work. It took us 13 months to close our first deal.

Joe Fairless: What sacrifices have you personally made?

Ian Tudor: I’d say driving to Atlanta to sleep on a blowup mattress in a double [unintelligible [00:18:16].25] for over a year would be a sacrifice most people wouldn’t be willing to make.

Joe Fairless: I thought that was a week. Okay, I misheard you.

Ian Tudor: That was for 14 months. Then I moved into Ryan’s family’s home and made $4,500 when I first jumped off full-time into this business. I lived in his childhood bedroom, with his parents and two yappy dogs for ten months, in the suburbs of Charlotte, when I was making no money… So those two things we’ve done, and then Ryan helped another park owner and lived in a mobile home park in Tallahassee, where his life got threatened, and he was dealing with very, very violent tenants.

I’m not suggesting that people put themselves in harm’s way, that’s not what I’m getting at, but certain opportunities require you to give up a lifestyle that you may be comfortable with.

Joe Fairless: What are a couple takeaways that you got from living at the parks?

Ian Tudor: Well, I’m much more empathetic to these people probably than just putting in keystrokes in an underwriting model. Two, I feel like I can train my managers much better, because I’ve gone through everything that they’ve gone through… So I can speak to them in a way that I understand, because I’ve sat in eviction court; I’ve been to the DMV and changed titles. I dealt with exploding sewer pipes and tenants screaming in my face. I’ve had to bring in new homes and I know the issues with having to stare someone in the face and tell them they have to get rid of their beloved dog because it’s a pit-bull and our insurance company doesn’t allow it.

So I’ve been in all these situations, I can empathize with these people, and that allows me to be a better manager with my managers, because I’ve been in their shoes.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Ian Tudor: Let’s do it.

Break: [00:20:01].19] to [00:20:46].12]

Joe Fairless: Alright, what’s the worst piece of advice that you’ve received?

Ian Tudor: The worst piece of advice I have ever received… That’s a good question. I would say a piece of advice that I haven’t listened to is just because it worked in the past doesn’t necessarily mean it’s gonna work in the future. And real quick, the reason I say that is certain people told me that brokers was the only way to get deals in this industry. 9 of 12 deals we’ve done off-market.

Joe Fairless: What’s the best ever way you like to give back to the community?

Ian Tudor: The mobile home park community or just the community in general?

Joe Fairless: Just people, however you wanna think about it.

Ian Tudor: Ryan and I are trying to be more charitable within our organization, so recently one of our residents whose on a very fixed income — I guess the previous landlord had bed bugs, and she lost all our furniture… So now she’s renting a lot of our furniture, so we paid off the balance, so then she didn’t have to pay for that and her rent.

So now we’re offering scholarships and looking to be more within the community we have, because we have a very good target audience.

Joe Fairless: What’s the deal you’ve lost the most amount of money on?

Ian Tudor: Luckily, we haven’t lost money on any deal. I’d say my single-family home that I bought – I bought it and I sold it to my partner for breakeven, so I didn’t really make much money there. The biggest due diligence mistake I’ve made was on our second deal I didn’t check the water bills close enough, and we had $120,000 of additional capital that I did not account for… And that was a painful experience to have with our investor.

Joe Fairless: [laughs] I bet. How did you approach that conversation?

Ian Tudor: I’m extremely fortunate in the regards that my business partners are very understanding of the process. Our saving grace here was we have a [unintelligible [00:22:25].03] so we bought it for 500k and it’s appraised for 950k, so we’ve got some cushion there… Ideally, they’re understanding of my mistake that I’ve made, but it just leads me to believe that some of these things you just can’t read in books, unfortunately. You will have your own mistakes in some form or fashion, it’s just when those happen… And not to say that it’s good to make mistakes, I guess; what I’m getting at is that I’ve come to peace with it. My investors are very understanding of it, but I would say just fess up to it, be fully transparent, and be really totally honest with yourself when these things happen, and take full blame.

Joe Fairless: How can the best ever listeners learn more about what you’re doing and get in touch with you?

Ian Tudor: Absolutely. I post quite frequently on LinkedIn, so you can follow me on Ian Tudor. It says “mobile home park investor” on that. Feel free to follow me there. We also have a Facebook group called Mobile Home Park Mastermind. Feel free to engage with us on there. Also, Ryan has a podcast, Mobile Home Parks in Real Life (MHP IRL), where we speak about that. So we’re very active on all those platforms. I would love to connect with you; we set up calls with newcomers all the time, if we can help you in any way.

Joe Fairless: Even if a listener is not interested in mobile home parks, there’s a lot of value from this conversation. Rolling up your sleeves, doing things that others aren’t willing to do to get things that others won’t have, as a result of you doing that. Then two is, as you put it in a way I hadn’t heard, “Make rich people richer”; in other words, find the opportunities, make it happen. Know that you’re not gonna make as much proportionately on the first deal as you would on future deals for the same thing, but it’s part of the process. Believe in the process. It’s not the only deal. The momentum and the foundation of experience is much more important than any incremental dollars that you would have earned on the first deal that you didn’t.

Thank you for being on the show, talking about how you’re also finding off-market deals. I now have Google Earth on my computer, which I didn’t before… I thought it was the same thing as Maps; that’s a very ignorant thing of me, I know… But now I have Google Earth because of you.

Thanks for being on the show. I hope  you have a best ever day, and we’ll talk to you again soon.

Ian Tudor: Thanks a lot.

JF1973: Value-Add Mobile Home Parks and Commercial Ground-Floor Apartments with Gabriel Hamel

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Gabriel Hamel has amassed a multi-million dollar real estate portfolio consisting of single-family homes, multi-family apartments, commercial real estate, and mobile home parks. His 43-unit mobile home park had some value-add opportunities and Gabriel took advantage. Listen to this episode to find out how Gabriel purchased his mobile home park and other multi-family properties.

 

Best Ever Tweet:

“Do the math, know your market, and trust your intuition. Intuition goes a long way in this game.” – Gabriel Hamel, Hamel Investments

Gabriel Hamel Real Estate Background:

  • Real Estate investor, experience with Seller Financing and other creative purchasing structures
  • Currently owns 140 units
  • Based in Eugene, OR
  • Say hi to him at https://hamelinvestments.com/ 
  • Best Ever Book: The Big Leap 

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless. This is the world’s longest-running daily real estate investing podcast where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Gabriel Hamel. How are you doing, Gabriel?

Gabriel Hamel: Hey, I’m doing great. Great to be here with you and your Best Ever listeners.

Joe Fairless: Yeah. Well, I’m looking forward to it and grateful that you’re on the show. A little bit about Gabriel – he’s a real estate investor, he has experience with seller financing and other creative purchasing structures; currently own 140 units and has another 60 under contract. Based in Duck Country, Eugene, Oregon. So with that being said, Gabriel, do you want to give the Best Ever listeners a little bit more about your background, and your current focus?

Gabriel Hamel: Yes. I started buying real estate in 2005. Shortly before that, I picked up Rich Dad, Poor Dad. Before that I didn’t have a lot of direction on what I wanted to do with my life. Read Rich Dad, Poor Dad, I got deployed to Iraq shortly after that, but constantly thought about the lessons I learned in Rich Dad Poor Dad. I came back, started buying property in 2005 when banks were giving loans to just about anybody. A couple of years into that, now it’s 2008, I own a couple of houses and banks are not giving loans out to people that don’t have jobs or money. So that’s when I really turned my focus into getting creative with seller financing deals.

Joe Fairless: You’ve got 140 units.

Gabriel Hamel: 140 units, yup.

Joe Fairless: Wow. What is the largest property that you have within the 140?

Gabriel Hamel: The largest property as far as the unit count, I have a 43-unit mobile home park.

Joe Fairless: Okay. So a 43-unit mobile home park. So of the remaining 97, what’s that?

Gabriel Hamel: It’s a big mix. I started off with single family and then smaller multifamily, a lot of duplexes, triplexes, 4-unit, 6-unit stuff. I have a couple of apartments that are 20-unit, 15-unit, but I still hold quite a bit of smaller multifamily as well.

Joe Fairless: Which one’s your favorite?

Gabriel Hamel: I am really liking the mobile home park.

Joe Fairless: Really?

Gabriel Hamel: I really am. Yeah, it had a lot of value-add opportunity. The 60-unit that you mentioned that I had in contract actually pulled out of that deal. And the one I purchased, the more I dug into it and the more I dug into the numbers, the better it got. The 60-unit I had in contract, the more I dug into it, the worse it looked. So I had to trust my instinct and trust the numbers and pull out of that one.

Joe Fairless: We’ll talk about the 60-unit in a bit. 43-unit mobile home park, you said that’s your favorite. You really like it. There’s a lot of value that you added. Will you elaborate?

Gabriel Hamel: Yeah, it was something I was looking for. I took it on similar to some of the multifamily stuff. I like to buy property that has that value-add opportunity, so I’m looking at properties that are poorly managed, under-rented, deferred maintenance. This park, it was running okay. The previous owners were great people and they ran the park okay, but there was some value-add opportunity with– the rents hadn’t been increased in four and a half years, the utilities weren’t being billed back to the tenants… So that was costing close to $15,000 a year, just there. Then some of the mobile homes themselves, a lot of the maintenance costs were on the park-owned properties. So right now, I’m in the process of selling the park-owned units back to the tenants on contract. In that way, they’ll be responsible for some of that ongoing maintenance and they’ll have that pride of ownership in the home.

Joe Fairless: Is that the name of the game with mobile home parks, to not own the mobile homes?

Gabriel Hamel: I’ve seen it done both ways. But I want to own the land and not the mobile homes.

Joe Fairless: You mentioned the reason why – maintenance costs, and then there’s more private ownership. What would someone who has the opposite philosophy say for why he or she wants to own the mobile homes?

Gabriel Hamel: I’ve seen the higher end parks where the homes are newer and in great shape. So they’re able to rent them out at a lot higher of amount and there’s not a lot of that maintenance cost. So the part that I purchased, they’re older units, so almost all the maintenance for the last several years have been when I was digging into the numbers were on the park owned homes. So I think the newer parks and the newer homes – there’s gonna be less maintenance and they’re going to be able to charge a premium for renting it, and they’re owning the unit as well.

Joe Fairless: How much did you buy the 43-unit mobile home park for?

Gabriel Hamel: I paid a little over 1.3.

Joe Fairless: Is that your money, you and partners, or what?

Gabriel Hamel: This one, I didn’t have a partner on. I used to some private money and put about 20% down, and an interest only loan that I will be able to refi out of that. I think next 18 months I’ll be able to add a lot value and refi out and recoup probably most of the money that I put into it.

Joe Fairless: So private money and with 20% down. So is that you borrowed the 1.3 from someone and you paid 20%?

Gabriel Hamel: No, I put down about $240,000 and I had private money to finance the rest of the deal.

Joe Fairless: Okay, private money meaning just investors?

Gabriel Hamel: Yeah, hard money.

Joe Fairless: Hard money. Okay, so hard money lender, got it. So you got a hard money loan on it, and then you put out of your pocket the 20% down, and the goal is to get the heck out of that loan as quickly as possible and to refinance out.

Gabriel Hamel: Exactly. And it cash-flows with that hard money. But I think with making some of these changes it should appraise out based on [unintelligible [00:06:48].26] cap rates. I think it’ll appraise out close to that 2 million mark, and so I’ll be able to get something long-term fixed financing on the park.

Joe Fairless: And your 200K-ish back?

Gabriel Hamel: Yep. Correct.

Joe Fairless: That would be nice. That’s called infinite returns.

Gabriel Hamel: That’s what I’m always looking for, is infinite returns.

Joe Fairless: Yeah. How’d you find the 43-unit?

Gabriel Hamel: This one was actually– a commercial broker had been sending me a lot of multifamily stuff up in Portland. A lot of it was really nice, A and B class stuff. I just said, “Hey, if you see any value-add multifamily or mobile home park, let me know.” They had someone in their office with this park, so I had the opportunity to look at it. I actually drove down there, and the owners of the park were there. So I was able to spend some time with them and really getting to know them and the park a lot better, which made a big difference.

There was actually an offer that came in higher than mine. But I think building that relationship with those sellers really made a big difference. And I’ve done a lot of seller financing deals where it’s been really relationship based and I’m working directly with the seller on unlisted properties. It’s rare to able to build that relationship directly with the seller and in this case, they happened to be there when I showed up at the park. It worked out really well.

Joe Fairless: It’s just a coincidence.

Gabriel Hamel: Yeah, absolutely.

Joe Fairless: Have you since tried to manufacture that coincidence moving forward, since it worked out so well?

Gabriel Hamel: Showing up to a park with a seller there?

Joe Fairless: Yeah.

Gabriel Hamel: Not exactly. I’ve looked at several other parks… The 60-unit park that I backed out of– the previous owner, she didn’t own it anymore, but was actually acting as the property manager. So I was able to look at that property and get a lot information from this property manager whose parents had owned it, and her grandparents had actually built the park. So that was interesting as well.

Joe Fairless: So you’ve got that 43-unit… It sounds like that’s a fairly recent purchase.

Gabriel Hamel: Yeah, I closed on that in June of this year.

Joe Fairless: Okay. Alright. So recent-ish purchase. You got the 43-unit mobile home park, and then you also said you have a 15-unit and a 20-unit apartment building. Do you self-manage all this stuff?

Gabriel Hamel: I don’t manage any of my rentals. So right when I hit the 17-unit mark, I was managing it myself. I had young kids at home. But at 17-units– one night, I was fixing a toilet or attempting to fix a toilet, and I had already considered and factored in property management. I’m kind of handy but not that handy, so I ended up spending my time… And then I had to call a plumber anyway; it’s late at night. So I’m spending my time and money, and then that was really the time I turned everything over to property management. And once I did that, I had a lot more of my time to put deals together. That was one of the best decisions I ever made.

I know a lot of people self-manage and some don’t, and I’m definitely one that sees the value in not managing my own properties. I don’t love it, I’m not great at it. I’m better at putting deals together. And I don’t like being that guy that has to take a security deposit or kick a tenant out for non-payment.

Joe Fairless: The 15-unit and the 20-unit… How are those people performing?

Gabriel Hamel: The 15-unit was a value-add. It was an old building, I partnered on that one. It was a commercial ground floor with two commercial spaces and 13 apartments. That was quite a bit different than many other projects I had done. My partner on it had a crew of guys that did a lot of the work. I put the deal together. He’d been working on it prior, and handed it over to me to negotiate the purchase. That was a big value-add. So all the apartments had to get gutted and restructured because of some egress things that were going on.

Joe Fairless: What was going on with the egress?

Gabriel Hamel: So it was a single-room occupancy originally. So before we bought it, the city came and every code violation you can imagine was going on.

Joe Fairless: Before you bought it?

Gabriel Hamel: Before I bought it.

Joe Fairless: Thank goodness.

Gabriel Hamel: Yep, yep. So we were trying to purchase this prior to that, when people were still living in it. Then a small fire happened, also previous to us owning it. That’s when the fire marshal came in and saw all these violations, kicked all the tenants out. So we’re still trying to negotiate. So now here’s a building that the sellers are trying to sell and there’s nobody. All the commercial is vacant, the residential is vacant… And we went to the city and just said, “Hey, we want to do this. We want to make this work.” We had some ideas and some plans, and they were great to work with. We just sat down and said, “Hey, what can we do? What can’t we do?” So this particular building, instead of keeping it a single-room occupancy, we essentially put a hallway down on the side that we couldn’t put windows into, made that a long hallway, and made a bunch of just neat and oddly-shaped — one two-bedroom in there, but one-bedroom units. It was a great play.

Our focus was the residential. The residential would fully support our financing. So that’s where the majority of our time went. As soon as that was done, we focused on the commercial and got some great tenants on the ground floor there.

Joe Fairless: What type of businesses do you get?

Gabriel Hamel: We have a bicycle shop that had been in another location previously, that wanted to be in this part of town. Then we had a restaurant come in on the larger side of the ground floor, and they’ve done really well.

Joe Fairless: A local mom-and-pop restaurant or a chain?

Gabriel Hamel: Yep. Local restaurant and local bike shop.

Joe Fairless: Okay, cool. What kind of area is this in?

Gabriel Hamel: I live in Eugene, Oregon, and this was in downtown Springfield. So growing up, it was, “Hey, why would you go to Springfield?” There wasn’t a lot going on downtown, and this building was the eyesore. It was the bigger– you see the building on your way into town when you cross the river, and on your way out when you cross the river, because it takes up that whole block. It was an attractive building, but it needed a lot of work. But also, it was in the path of progress. A lot of restaurants and stores from Eugene and local folks were coming into Springfield and opening up restaurants and stores and different things. So part of it was timing. Now, downtown Springfield is a very neat place. People actually want to go down there and hang out and grab a meal. So it’s neat to see.

Joe Fairless: What did you buy it for? How much did you put into it? What’s it worth now?

Gabriel Hamel: Oh, gosh. This was a little while ago.

Joe Fairless: Wait, when was it? When did you buy it?

Gabriel Hamel: So we bought this about three years ago.

Joe Fairless: Oh that’s not too long ago.

Gabriel Hamel: Not too long ago, not too long ago. We had close to a year of renovation, like all said and done. So we bought this in–

Joe Fairless: To the best of your memory. To the best of your memory.

Gabriel Hamel: We were in the 400-range and we put another close to that into it. The renovations were close to what we paid for it.

Joe Fairless: Okay, and what’s it worth now?

Gabriel Hamel: It would appraise out probably close to two million, maybe more.

Joe Fairless: There you go. Do you plan on doing a refi on that?

Gabriel Hamel: Yeah, we actually did. So we refinanced it. My partner and I had some 1031 money so we exchanged a little bit into that. We used hard money for the purchase and most of the renovation. Then we actually did refinance out of it and did a 25 year amortization commercial style loan.

Joe Fairless: I’ve noticed on the two projects we’ve talked about in detail, you’ve used hard money. What are the terms that you’re getting?

Gabriel Hamel: I typically borrow in the low 8% interest only, and a couple of points.

Joe Fairless: Are you making payments on the interest only throughout, or at the very end or?

Gabriel Hamel: It really depends on the deal. On the mobile home park, yeah, right away. On this other project, we actually deferred some of the payments during that construction time. So we actually kept an account aside that would cover that, so that we had some money to focus just on the renovation. Hard money is not something I used starting off for quite a while. I didn’t use any hard money for the first 10+ years of investing.

Joe Fairless: Was that your own money and that was it?

Gabriel Hamel: I was doing a lot of seller financing deals. I started with almost no money. So my first three deals were two no money down and a 5% down deal. I didn’t have a lot of money, but banks were giving loans then. Then in 2008 and ’09, ’10, ’11, ’12, I did a lot of low and no money down seller financing deals. That’s where I really built up the majority of my portfolio. These other two deals were a little bit different than what my focus up until then had been.

Joe Fairless: I forgot how I introduced you with the first thing. I mentioned that you have experience with seller financing and other creative purchase structures. So let’s talk about that in a moment… But on a related note, these last couple that we’ve talked about, they weren’t seller financing or creative structures, although I guess you could argue getting a hard money lender and doing what you did is cvasi-creative. Do you see yourself doing more of the structure that we’ve talked about in the future? Or do you see yourself reverting back to the seller financing?

Gabriel Hamel: I do both. So I try to take a real holistic approach to any deal, and I look at the deal individually and see what makes the most sense for that property. How am I going to get the biggest return on my money, how much money am I bringing into the deal… So it just really depends on the property, what financing would best fit.

Joe Fairless: Okay. So let’s talk about a deal that you’ve done with seller financing and why you chose that versus hard money and your own money with a down payment.

Gabriel Hamel: So my very first seller financing deal was the deal I found on Craigslist, and they were offering seller financing. I had been looking for seller financing. The reason I did that without bank loan or hard money is because I did not have the funds or a job to get conventional financing.

Joe Fairless: Were you in the military?

Gabriel Hamel: I was, yeah.

Joe Fairless: Okay. So I guess this is post-military.

Gabriel Hamel: It is. I was deployed to Iraq in 2003 and 2004. I came back, bought my first house in 2005, another one in 2006, and another one in 2007. That was all with bank financing. But a bank would approve anyone then. So I still bought smart, even though it was a hot market, and not great loans. I still have those houses today and they’ve done well. But I realized quickly a couple hundred dollars a month of cash flow per house would take a lot of single family houses to build up enough cash flow to live on. So my first seller financing deal was two duplexes side by side, four units. I put twelve and a half thousand down, and I got a lot of that back with deposits and prorated rents at closing, so it ended up being less than that… And the thing cash-flowed. So like all the things that I said before – poorly managed, under-rented, deferred maintenance, and it had all those things. The sellers were great people that were just tired of managing property, and so they were happy to sell or finance the deal. It was terms that were favorable to them and favorable to me. It was a true win-win scenario.

Joe Fairless: Out of all your deals, which deal have you lost the most amount of money on?

Gabriel Hamel: I have never lost money on a deal.

Joe Fairless: Props to you. Which one’s been the least profitable?

Gabriel Hamel: The least profitable – I partnered on another single room occupancy property about an hour South of me. I partnered with the same person I partnered on this other partner with, and I partnered with the lender. Long-term, it’s going to be fine. It’s a property that had a bad reputation and we ended up having to do a lot more work up front. It’s taken a while to really change the image of this building. Long-term, it’ll be fine if we keep it. If we sell it, I think we would make some money and do okay there. But it has not been as profitable as we anticipated. The expenses with the earlier renovation than we anticipated has costed not to perform as well.

Joe Fairless: What aspects of the expenses creeped up on you?

Gabriel Hamel: We had early vacancy. By the time we closed on it, some tenants had moved out. We had a commercial tenant that wasn’t paying. All the rents were low, being that it was single-room occupancy, but it also was really hard to get because it had a bad reputation previously for drugs and transient traffic coming through there to just really change the image of the property. So interior painting every time a tenant moved out, exterior painting we’ve done recently, and just some upgrades that we plan to do, but not as quickly as we did.

Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?

Gabriel Hamel: My best real estate investing advice ever, I’d say network, build relationships and let people know what you’re looking for. If people don’t know what you’re looking for, how are they going to find you? How are they going to bring you a deal? Lastly, I’d say do the math, know your market and trust your intuition. I think math and intuition goes a long way in this game.

Joe Fairless: We’re gonna do the lightning round. Are you ready for the best ever lightning round?

Gabriel Hamel: I’m ready.

Joe Fairless: Alright, let’s do it. First, quick word from our Best Ever partners.

Break: [00:19:32]:00] to [00:20:08]:03]

Joe Fairless: Best ever book you’ve recently read.

Gabriel Hamel: I have two of them. The Big Leap by Gay Hendricks and Can’t Hurt Me by David Goggins.

Joe Fairless: What’s a mistake you’ve made on a transaction that we haven’t talked about?

Gabriel Hamel: A mistake on a transaction we haven’t talked about… Not digging deeper into my due diligence.

Joe Fairless: Will you elaborate?

Gabriel Hamel: I think when you get a proforma from, say a broker, and those numbers don’t always add up. Now, I’ve been okay with– now I’ve had enough experience to really dig into those, but I think a lot of properties look great on paper, and once you really spend some time and dig into those numbers, they don’t always add up to what you’re really being sold by the broker.

Joe Fairless: Best ever way you’d like to give back to the community.

Gabriel Hamel: I like going to lunch and meeting up with people who are excited about building financial freedom through real estate or already started on their journey. I really enjoy just that natural coaching and mentorship.

Joe Fairless: How can the Best Ever listeners learn more about what you’re doing?

Gabriel Hamel: The best way to get a hold of me would be either through Instagram or on my website at hamelinvestments.com.

Joe Fairless: Thank you so much for being on the show. Well, we talked about in detail the 43-unit mobile home park, the value that you added and the business plan. We didn’t even talk about the 60-unit. Shoot! Real quick, I want to learn more about the 60-unit. What were some specific things that made you want to pull out of the deal?

Gabriel Hamel: On the 60-unit, the biggest reason I pulled out of the deal– and it’s going back to that proforma… They’ve built a beautiful proforma based on their highest month rent and their lowest expenses. The more I dug into the numbers, and the more documentation I got from the seller and the property manager, things just really didn’t add up. There was just too many questions, and the numbers – their rent amounts didn’t add up, the expenses didn’t add up. There were just so many red flags. I tried hard to make it work, and it’s not something that was going to force. It wasn’t a good purchase.

Joe Fairless: They weren’t flexible on the purchase price or terms?

Gabriel Hamel: By this point, no, they weren’t.

Joe Fairless: Well, thank you for sharing the reason why you pulled out of the deal, as well as the deals that have gone well. We touched on a little bit of seller financing, but really the focus was on the larger deals. Thank you for going to Iraq, serving our country and keeping us all safe. Really appreciate you sharing some time with us. I hope you have a best ever day and we’ll talk to you again soon.

Gabriel Hamel: You too. Thank you very much. I appreciate it.

JF1942: Building & Operating Mobile Home Parks with Skyler Liechty

Listen to the Episode Below (00:24:56)
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Skyler is a third generation Mobile Home Park investor, we’ll hear about his story and what he has learned as he’s built and operated an investing business. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“Listen to everything that people say” – Skyler Liechty

 

Skyler Liechty Real Estate Background:

  • Founding member of American Dream Communities, MH Park Advisors, and MHC Leads
  • Has been investing in and operating mobile home parks and manufactured housing communities for 20 years and is a 3rd generation MHC owner and operator
  • Based in Dallas, TX
  • Say hi to him at http://www.americandreamcommunities.com/
  • Best Ever Book: Extreme Ownership

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Skyler Liechty. How are you doing, Skyler?

Skyler Liechty: Hey, I’m doing great, Joe. Thanks for having me on the show.

Joe Fairless: My pleasure, and I’m glad you’re doing great. A little bit about Skyler – he is a founding member of American Dream Communities, MH Park Advisors, and MHC Leads. He has been investing in and operating mobile home parks and manufactured housing communities for 20 years, and is a third-generation MHC owner and operator. Based in Dallas, Texas. With that being said, Skyler, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Skyler Liechty: Absolutely. That’s a great introduction for me. Remind me to pay you after the show for that… So like you said, I’m a third-generation mobile home park owner and operator. It’s interesting, we get to talk to a lot of new people coming into this space, and when I tell them I’m third generation, they’re like “Oh man, you’ve seen it all, haven’t you?” And what always surprises me is every day we find that we’re learning something new in this space.

Currently, we’re focused on properties in Texas, in Oklahoma, Missouri and Kansas. That’s our sweet spot right now.

A little bit about my background… When I got into this industry, I focused on the operations side of things, so that’s really what’s near and dear to my heart – how these communities operate, the best practices, how we take them from where they are to where we think they should be.

Currently, we launched a couple of new business segments, so to speak. One of them, which I’m really excited about, is called MHC Leads. The focus there really is — it came out of a need that we found for our own business, which was “Hey, we’re getting a  lot of people to the site to look at new homes, or pre-owned homes… How do we separate the guys and the gals that are wasting our on-site manager’s time?” And that’s really what we built that platform to do. It’s been a real big benefit for us and it’s helped us tremendously.

But yeah, it continuously amazes me to see that we’re constantly learning new things, challenges at you. You don’t think about it until  you get in the thick of it.

Joe Fairless: Well, let’s talk about the operations side of the business, since that’s what you gravitate towards… Let’s talk specifics about a recent transaction.

Skyler Liechty: Sure.

Joe Fairless: Tell us about the transaction and what operational enhancements did you do in that transaction.

Skyler Liechty: Sure. Earlier this year we bought a couple of communities up in the Tulsa, Oklahoma market… And most of the deals that we’re buying are off market, so it’s working with owners. What we’ve found with those deals was when we got into it, a lot of our best practices such as extensive background checks on residents, knowing the people who are there, putting in those policies to do things like if there’s a problem with the streets, maybe you need to go in and fix the streets, or… Some of those general things that for us in the industry – we just take as “Well, of course everyone’s gonna do that, because that’s what you do.” And a lot of times what we find is people who are in this asset class come from different real estate investments. Maybe it’s single-family homes… A lot of guys come out of the apartment industry, and operationally they just run differently.

On those two communities – we’ve purchased them; one of them was a pretty heavy lift, a big value-add component… So we went in, we did about $400,000 of street work, repaved the streets, repaved the [unintelligible [00:05:04].12] So we got the bones back to where they should look. Simple things like now the residents don’t have to go get their alignment checked on their car everytime they drive down the streets. Those things we take for granted, right?

Joe Fairless: Mm-hm.

Skyler Liechty: So we did that piece of it. One of the things we learned early on in doing this is it’s really good to rebrand a community when you buy it. So you go in, and maybe it’s called Tulsa Mobile Home Park. Right away we’re gonna go in and we’re gonna rebrand it, we’re gonna reestablish it in the community, so any of the negativity with prior ownership – we kind of shut that off. And not all the time is there [unintelligible [00:05:41].23] but it gives really a fresh look at the community. So we started our rebranding —

Joe Fairless: How do you pick  a name?

Skyler Liechty: That’s a great question. Me and one of my partners – we just sit with a yellow pad and go through some names that we think sound really good. This last one we rebranded from a name of Mobile Haven, we rebranded it to El Dorado Village. So to us it just really felt like it feet; that’s how we rebranded it.

And then one of the things in our asset class that’s very distinctive and different is we have huge barriers to entry, meaning you can’t just go build a new mobile home park. Most cities that we deal with do not like mobile home parks. They have this stigma with them. So we kind of had that barrier to entry with new parks being developed, which we find very good.

The other component that’s interesting about this asset class is we have the availability to essentially buy our occupancy. That’s a very interesting concept. What that means is — this particular community, we did the street work; there were 40 physically vacant home sites. So we paid zero dollars for those home sites, we go out and we’re buying brand new manufactured homes, straight from the manufacturer, we install them, and then we are either leasing them, or selling them… We’re occupying them.

So essentially, what we’ve been doing on this project is we’ve been increasing the value through purchasing new homes, moving them in, taking advantage of that vacant lot. And actually, what’s interesting about that is if you have a community with a bunch of vacant spaces, it’s actually costing you more money to have them vacant than occupied. And what I mean by that is someone’s gotta cut the grass, someone’s gotta pick up the trash, those types of things. So when we get a home there and a resident in, then some of our costs actually go down, so we have more efficient operations at the on-site level.

So on that particular property, the biggest takeaway we got after closing is residents are happy with what we’re doing, but we find that we’ve had to communicate a lot more with people, I believe, because the ownership that owned it for so long didn’t communicate with the residents. They just kind of let the asset go, so to speak. So when we came in, we had to really do a good job explaining, “It’s gonna inconvenience you, you’ve gotta move your cars, we’re gonna have street works, we’re gonna be moving in homes”, all those things. But at the end of the day, we’ve taken maybe a C+ asset, and when we’re done with it, we’re gonna end up with an A- type manufactured home community. So it’s gonna be a great place for all those people to live.

Joe Fairless: How much did you it for?

Skyler Liechty: I have an NDA with the seller, so I would put it this way – we bought it for substantially less than it would cost us to develop it ground-up.

Joe Fairless: Got it. And you said you put in $400,000 worth of street work. Will you talk a little bit more about where that cost goes, and what are the big chunks of that 400k? Because most people haven’t put in 400k worth of street work.

Skyler Liechty: The other difference about manufactured housing is when we buy a mobile home park, 9 times out of 10 the park actually owns all of the infrastructure. So we own the wastewater lines, the power meter boxes, we own the street. So in this case, all those streets are owned and maintained by the community. So that’s why when we say we put in 400k, it was overlaying all of the streets, we redid most of the off-street parking…

Again, just to get into that a little bit – typically, when we look at a community, we wanna make sure that it has paved streets. And if it does not have paved off-street parking, we’ll actually go in and add that… Because to us, that’s how a community normally looks. So that’s what was so costly about it – we overlaid all of the streets, we redid probably 35 concrete off-street parking pads; so that’s a two-car parking pad… So that’s really where most of the money went to.

Obviously, there was stuff like prepping the base, and doing those things, but visually, the biggest bang we got for that is when you drive into it, people are like “Oh, this is a community that’s being turned around.” This is a place people wanna live.

So for us, if you bring in a brand new home, and let’s say we’re gonna sell it, if someone’s gotta drive through streets that are all busted up, and they’ve got people on both sides that are just living in a way that’s not conducive to maybe what we would want the community to look like, it’s very hard to occupy that home.

So on the front-end we go in, we rebrand, we do the street works… Some communities we buy – perfect streets, and we do no street works. Sometimes there’s a lot of street work, like in this case. And then we start filling it in with the homes. And like I said, at the end of the day the curb appeal is completely changed, and most of our residents are really happy with the change. And some of them aren’t, and that’s okay, too. There’s other mobile home community parks and markets they can move to if they don’t like rules and regulations such as “You’ve gotta mow your yard, you’ve gotta pick up your trash…” Those type of simple things.

Joe Fairless: Switching gears a little bit, tell us about a mobile home park deal where you lost money.

Skyler Liechty: Okay, so everyone’s got those stories, right…? The first deal that we acquired through our equity raise arm was a deal in Missouri. We got into the deal; the deal of closing, we signed all the documents. The on-site manager said “Hey guys, I own a couple of the homes in the community.” We said “Okay, that’s fine. If you’re gonna rent them out and you’re gonna pay the site rent, no problem.” And she said “Well, actually I own about 50% of the homes in this community.” We essentially had a partner that we didn’t know about.

So in that deal we ended up buying all of those homes, so we ended up with a lot more community-owned homes than we originally thought… Which is okay, but really what hurt us in that situation – or complicated it, should I say – is whenever we are making a home ready to release (someone’s there, they moved out), what our objective is is to try and make it as close to a new-ish home as possible. Not everyone has that philosophy. So when we got into these homes, we ended up spending a lot more equity than we had planned on. So we were spending the equity, and it got to the point where as we were filling them up, we weren’t making enough progress.

Also, one of the other things that we did which was unusual is when we closed on this, occasionally again — I’m getting into the weeds a little bit, so bear with me on it…

Joe Fairless: Please do. That’s good.

Skyler Liechty: …but usually mobile home parks – their water and the wastewater is city services. Just like your house you live at – you’re gonna have water from the city, and your sewer is gonna be through the city as well.

Joe Fairless: Yup.

Skyler Liechty: Occasionally, you’ll have communities that will have well water, they may have a lagoon system to treat the wastewater, or you’ll have a treatment plant. So in this particular deal, it had a commercial-grade treatment plant, and it had a commercial-grade well. The well was actually drilled down about 1,200, so it was a pretty big operation. So when we bought it – that’s fine, we’d dealt with similar types of things. But what we found out in the due diligence, which we didn’t realize how big of an issue it was gonna be, is a prior owner had converted that into a public utility system. What that means is we became subject to the same restrictions that the local municipality is subject to. So we had to do EPA, we had this and that… And it’s very unusual to have that.

So when you have that home thing that we didn’t plan on, and you have the treatment plant that we were subject to the same restrictions that the city was, that was a deal we ended up selling the utility company and selling the park, and we took a loss on the park. We did fine on the treatment plant, but that was a deal we took a loss on. And again, we learned a lot from that experience.

One of the big things we learned is in our contract and our due diligence now we don’t just ask “Hey, how many community-owned homes do you have?”, it’s “How many people in your community own more than one home?” So we’ve kind of climbed that, so we’re ahead of it on a move-forward basis.

Joe Fairless: Is that deal the one you’ve lost the most money on?

Skyler Liechty: That is the only deal we’ve lost money on.

Joe Fairless: Oh, wow. Well, that’s awesome. That’s great.

Skyler Liechty: Yeah. It’s good, and like I said, it was our first deal. We got a lot smarter about our structure. What I mean by that is we had investors who that was the asset they were investing in, and they said “Look, we know you guys own parks, but since this is the first equity raise park (so to speak), we’re gonna put in our money; no capital calls. If there’s a problem, you guys gotta take care of it.” That was the way we did it… Which created some of those problems with “Hey, if we need more equity to go out and buy new homes, how do we get that?” Well, our investors arent’ participating with it.

So again, our structure has changed quite a bit, and I would say our biggest structural change happened November of last year. We shifted to more of an equity fund model, so investors get a lot more diversification with our dollars. So rather than having one mobile home park, they’re gonna end up with 5-6 parks in that partnership. So you always end up with a big home run, maybe one that’s just chugging along, doing about what it should, and then in between.

Joe Fairless: In that scenario, do you pay back the limited partners, or is that just risk of doing business?

Skyler Liechty: Any equity deal, all of your equity is at risk all the time. But with that said, we ended up with (in our first deal) a lot of friends and family and things like that… So we took the lion’s share of the loss on it.

Joe Fairless: Let’s talk about the fund. With the fund – what’s the fee structure that you have on the fund?

Skyler Liechty: The way that we do is pretty standard to what most people see if they go out to a private equity group, or to a family office. We do a 70/30 split with our investors. So we take 30% of the upside, and investors get 70%. And then as far as fees, it’s just normal fees. What I mean by normal is if we buy a deal, there’s an acquisition fee tied to it. We’re doing all of the management…

Joe Fairless: A percentage of–

Skyler Liechty: It varies. It’s between 1% to 3%.

Joe Fairless: What’s it depend on?

Skyler Liechty: A lot of that depends on the deal itself. What I mean by that is our fund one – we pegged it 3%. Some of the deals we are looking at require a lower fee structure, just to get that IRR number to work.

Joe Fairless: Got it, okay.

Skyler Liechty: So that’s really what on the front-end drives some of the fees. Like I said, we get a pretty standard management fee. What I would call a standard management fee – there are companies that charge as high as 10% of gross revenue of a management fee. Our fees, of all the deals we’ve done, were 5%-6% of the gross revenue.

Joe Fairless: That’s asset management or property management?

Skyler Liechty: That’s both.

Joe Fairless: Both, combined.

Skyler Liechty: Yeah, we lump them together.

Joe Fairless: Right, because you’re self-managing.

Skyler Liechty: Yeah, that’s right.

Joe Fairless: Cool. So before, you were doing individual deals that you were syndicating, correct?

Skyler Liechty: Correct.

Joe Fairless: And now you have a fund. And the challenge that I’ve thought about – which is why we have not done a fund, but I’d love to get your thoughts, because you are – is the challenge of “Okay, yes, investors, this is the type of deal that we’re buying, but can’t tell you exactly which one. Please invest in this fund.” Compared to if it’s an individual one – here’s all the details of this specific deal. Was that a challenge as you all went from individual investments to “Here’s a fund to invest in”?

Skyler Liechty: We didn’t find that to be much of a challenge, and part of it was – when we made the decision to move to a fund, we had a few deals under  contract, so it made a lot of sense for a launch point, so we could kind of show “Here’s the first couple of deals that are gonna go into the fund”, so we could have that piece of the conversation. But as I’m sure you’ve experienced, we have investors that are happy with what’s happened, so they’ve moved to the next deal, and they’ve moved to the next deal. So part of it also is a level of confidence in what we can do.

To give you the other side of the deal… I can’t disclose everything about this, but generally speaking, our second deal — so I told you the first deal where we lost money; the only deal where we lost money. The second deal that we bought and sold – we took the asset from four million to a little over 14 million in about a five-year period.

Joe Fairless: Wow! How much did you put into it?

Skyler Liechty: We find in mobile home parks you’ve got the same debt opportunities that you have in the other commercial real estate… So typically, we’re looking at 70% to 80% loan-to-value on the acquisition. So our equity position is gonna be 20%-30%. As far as an IRR equity multiplier, it was about 30% each year. Again, we felt that was a home run deal.

Joe Fairless: But how much in terms of capital improvements? So you bought it for four, it appraised for 14…? You sold it for 14?

Skyler Liechty: Yeah, we sold it about six years later.

Joe Fairless: Okay. How much money did you put into it to improve it?

Skyler Liechty: Over the life of that we bought about a 1,2 million of new homes. So we brought in new homes; like I said, we bought our occupancy, so to speak. We did maybe $150,000 worth of tree work… Because again, you own all the land, you own all the trees that are on it… So we had major tree work that we had to do a couple times through the project. That was a big expense we put it.

We did a lot of street work to that deal as well, probably in the $250,000 range. We also had some additional land in the project. So we developed out about 12%, so we increased total number of home sites about 12%. So we spent money on that development cost as well. Again, that was a big value generator for us as well.

Joe Fairless: Did you get any pushback from local community members when you were developing the new home sites?

Skyler Liechty: Cities hate mobile home parks.

Joe Fairless: Yeah, that’s why I asked.

Skyler Liechty: They really, really hate it. So what we find is every city is a little bit different… And a little bit different means that the way they regulate mobile home parks isn’t standard from city to city. So some of the communities we own, the city says “Okay, you have 60 approved lots” or “You have 105 approved lots.” And even if you had 15 extra acres, the most you can have is 105. Then we have some cities that go strictly by setback requirements, meaning “How much space do you have between the homes? How much space do you have between homes if they’re back-to-back?” And in that situation they say “Hey, as long as you’re meeting setbacks, you can develop out the extra piece of it. As long as you meet the density requirement”, meaning some cities say you can have seven home sites per acre, some cities say “Well, this park’s been here since 1952, and you can have 12 home sites per acre.” Again, those are different variables in each deal.

And again, when we’re acquiring deals, something we’d like to keep an eye on, because if you have a seven-per-acre requirement, that’s typical of newer communities, and not a lot of communities get built in today’s market… So communities that were built in the ’90s plus or newer, usually are gonna have seven per acre, and you can get a full-sized home, and you can get a single section, you can get a multi-section… So if we’re doing that, we know any type of home we buy fits there.

If we’re going to a community that has 12 per acre, then you’re really restricted on the sizing of homes you can buy (new homes).

Joe Fairless: Real quick, what’s  your best real estate investing advice ever?

Skyler Liechty: It pays dividends to be patient and spend your time in the due diligence, to go through all the material you’re given.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Skyler Liechty: Ready!

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:22:41].21] to [00:23:17].17]

Joe Fairless: What’s one due diligence item that you pay particular attention to now?

Skyler Liechty: Environmental issues.

Joe Fairless: Best ever book you’ve recently read?

Skyler Liechty: Extreme Ownership.

Joe Fairless: Best ever deal  you’ve done?

Skyler Liechty: Probably the deal I was referencing, our home run deal.

Joe Fairless: Best ever way you like to give back to the community?

Skyler Liechty: We spend a lot of money doing community events.

Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on?

Skyler Liechty: They can go to our website, mhparkadvisors.com, or mchleads.com. All my contact information is there.

Joe Fairless: Skyler, thank you for being on the show and talking about your experience in mobile home parks, talking about buying occupancy – basically forcing appreciation –  through your own means, which is such a great tool to have, in any business, and you’re able to do it with what you all are focused on… And then how the different components of the operations that you look to enhance whenever you go into a community. So thank you for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Skyler Liechty: Thanks, Joe. I appreciate it.

JF1914: From House Flipping To Mobile Buying To Mobile Home Park Investing with Andrew Keel

Listen to the Episode Below (00:25:24)
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Andrew is here to add some value that we don’t get a lot of on this show. We cover a lot of investing areas, but mobile home parks are not a common subject. That changes today and Joe and Andrew dive into his investing story and then get into specifics on a couple of mobile home park deals. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“When buying a mobile home park, due diligence is very, very important” – Andrew Keel

 

Andrew Keel Real Estate Background:

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Andrew Keel. How are you doing, Andrew?

Andrew Keel: Good, thanks for having me on the show.

Joe Fairless: My pleasure, and looking forward to our conversation. A little bit about Andrew – he’s a mobile home park investor and has been one since 2015. He owns and operates 971 lots in 16 parks across seven states. He’s based in Orlando, Florida. With that being said, Andrew, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Andrew Keel: Yeah, definitely. I started out actually rehabbing and flipping houses down in the Orlando Florida area. I also was wholesaling… Eventually, through my marketing efforts, I came across a couple of mobile homes that were very cheap, and I didn’t really know what to do with them, because they didn’t have a deed. They were a lot different, because they were personal property, kind of like a vehicle; they have a title. So I ended up doing some research and on YouTube I found a guy by the name of Lonnie Scruggs, who wrote this book called Deals on Wheels, which I highly  recommend, and I ended up reading. It just talks about buying mobile homes, and selling them on contract, and creating mailbox money.

I ended up buying about 19 of those individual mobile homes, selling them on contract, and then through the process I met a couple park owners. One of them told me the real wealth is built through owning the land, not the individual mobile homes. That was like a game-changer for myself, and I instantly just dove in — I went to Frank and Dave’s bootcamp, I went to another mobile home park specific investing bootcamp, and dove in. I was fortunate enough to have the wholesaling background, so I was cold-calling and sending letters at the same time to find motivated sellers. I ended up at the Frank and Dave bootcamp actually meeting some passive investors that wanted to invest in deals. We put some deals together; since then we’ve done five deals together with the guy that I actually met at the bootcamp, and I’ve brought on other JV partners since then, and other private equity partners from doing syndications and so forth.

So it’s been an awesome ride. We’re looking to continue buying properties, larger properties. We just closed a few months ago a five-part portfolio, and we have a couple under contract now, so… Just continuing to grow and acquire more affordable housing units.

Joe Fairless: Where is the five-park portfolio located?

Andrew Keel: That is in LaSalle County, Illinois. It’s about an hour and a half west of Chicago.

Joe Fairless: Tell us about that deal.

Andrew Keel: So that deal – it was a pocket listing through a broker. We ended up doing quite a lot of due diligence on it, and negotiations were very slow. From when we actually went under contract it was March or April, and then it ended up closing in December of 2018… So it was just a long, drawn-out process. The sellers really wanted to go through and vet everything through their attorney, so… It kind of dragged on a little bit, but thank goodness we did. We were able to get a decent concession from the seller after due diligence and doing some research.

I actually moved on-site February, March and April of this year, and through that process we bought and brought in 23 used mobile homes, along with 17 brand new mobile homes. Just a massive infill project, value-add to the max… And now our property is worth about double, so I’m really excited about that property.

Joe Fairless: You’ve given me so many things to ask questions about. Thank you for that. [laughs] Okay, a lot of due diligence you said was done on that… Will you elaborate?

Andrew Keel: Yes. When you’re looking at five parks versus just one, it’s very intensive, because you have to look at the utility infrastructure of each… When buying a mobile home park, due diligence is very, very important. Utility infrastructure specifically can make or break a deal. So some of the properties had private utilities, which means that they would have a well, or a septic that we would be required to maintain… So we did specific inspections through experts in plumbing and electrical in those private utilities to make sure that the infrastructure was intact and was going to last in the future… And if it did need repairs, what was the number that we needed, either as a concession from the seller, or that we would need to budget for to improve it moving forward.

Joe Fairless: Is it ideal to have public infrastructure?

Andrew Keel: 100%. If you can get city water, city sewer, that is the best type of park to buy.

Joe Fairless: Okay.

Andrew Keel: Some of our parks — just because they’re city water, city sewer doesn’t mean that that’s the end-all, because most of the parks are master-metered, meaning there’s just one bill that comes in from the local utility company that charges the park for all of their usage, usually for water and sewer… So then what a lot of park owners should do – if they haven’t already – is sub-meter; put individual meters on all of the homes, and then read those meters on a monthly basis and bill the tenants based off of their usage.

A lot of the mobile home park owners today are mom and pop owners, and they don’t have it sub-metered, and they just include the utilities with lot rent, so that’s a value-add component that we can add immediately when we buy these properties to increase the asset value.

Joe Fairless: So utility infrastructure was one thing that you did… And you said there five different parks. How far away are they?

Andrew Keel: They’re about 20 minutes apart from each other. Two of them are very close together… But they were a good distance apart, so when we would set out — when I was on location, I’d literally be hopping from park to park every day, and it made for long days.

Joe Fairless: What’s the smallest lot and what’s the biggest lot of the five?

Andrew Keel: The smallest one had 31 lots, and the largest had 78.

Joe Fairless: So what were some unique things that you came across from a due diligence standpoint that you wouldn’t normally come across if they were just all in one location?

Andrew Keel: That’s a great question. One of the items is — we’ll go back to the private utilities, because that’s where most of our headaches come from…

Joe Fairless: Okay.

Andrew Keel: One of the properties that was probably in the best city in terms of demand and size and employers – it had both private utilities; it had well and septic. So that just – for a lack of better terms – opens up a can of worms… Because you’re now charging people — we go in and sub-meter that park, because it wasn’t metered… So now we’re charging people for their water usage to basically cover our costs to run both the well and the septic… And the septic system was an aging system (we knew that going in), and we had three different excavations/septic expert companies come out and inspect this system… And one of them told us we had a 50/50 chance at surviving and lasting another 5-10 years, and then the other two said it was completely fine.

So with that information we had to make an educated decision on negotiating with the seller as to that septic system. We basically got the seller to guarantee the system for a period of 12 months, and if it failed during that 12 months, they agreed to pay a certain amount of money to help with either a new septic system we would have to install, or connecting the city sewer, which is by far the best bet.

Unfortunately enough, the septic system went bad in the spring, when we have the high water table… Luckily, we did have that guarantee–

Joe Fairless: Unfortunate for them, but really fortunate for you, I imagine…

Andrew Keel: It is, and we’re in process now, working with engineers to get it hooked up to city sewer, which is by far gonna be a way better situation… But yeah, that’s just the kind of stuff that we have to deal with. Actually, all of the other parks have public water and sewer, so that right there makes it a good deal. That was the only one that was kind of a headache.

Joe Fairless: How much does it cost to get it hooked up to public?

Andrew Keel: It really depends on the distance away from where the current main line is. In this situation it’s gonna cost roughly $200,000.

Joe Fairless: My eyes got really big. You can’t see me, but… [laughter]

Andrew Keel: Yeah, it’s a big ticket item.

Joe Fairless: How much did you buy the portfolio for?

Andrew Keel: We bought the portfolio for 3.2.

Joe Fairless: Okay.

Andrew Keel: It makes sense. Even if we would have paid that extra 200k, the purchase price made sense. We’re purchasing these at a 10%-11% cap, so the returns were there, it was just — mainly the project management of now having to oversee that is the painstaking process… But on the other end of this, the property will be worth maybe 8% or 9% because now it has that connection.

Joe Fairless: Right. And you mentioned earlier that you got concessions from the seller, so clearly that was one thing where you had that contingency… Anything else?

Andrew Keel: Some of the electrical… We always inspect the electrical in these parks, and a lot of these parks were built in the ’70s, so they have older electrical infrastructure… And a couple of the parks actually had electrical issues, that weren’t immediate — it wasn’t like “Oh my goodness, they don’t have power”, but they were rusted meterbanks and things like that, that needed to be addressed to help us out. So they agreed, they had an electrician that was going to take care of all of that before closing… And that unfortunately didn’t happen, so we had to put some money in escrow at closing and oversee that project to make sure that it got finished… Which it did, it just took a little bit longer than we would have liked.

Joe Fairless: And you moved on-site for three months… Tell us about that.

Andrew Keel: Yeah, my wife is by far — she’s fantastic.

Joe Fairless: Very understanding.

Andrew Keel: Very understanding, very flexible, and she gets what we’re building, so I’m so thankful to have her in my life. Her and my two-year-old daughter moved up to Ottawa, Illinois, and we rented a little Airbnb up there, a nice little spot… And they moved up with me, and I was working on the parks day in and day out.

The main thing – when we purchased the property, there was poor management in place. There was one manager overseeing all five parks, and it was kind of like chaos. Every day you would talk to her there was some new fire that she was putting out… So we ended up putting a new on-site manager at every property. That instantly gave us eyes and ears in each of the five properties, and helped with our communication of what was going on inside of those locations. That helped tremendously.

Joe Fairless: What are some benefits from a bottom line P&L standpoint that you saw as a result of being there for those three months?

Andrew Keel: Yeah, the toughest part in this business in terms of creating value is gonna be bringing in new homes and used homes, and also renovating existing homes that for whatever reason are not occupied, and in some sort of disrepair. Because unlike traditional multifamily and other asset classes, you can hire a general contractor that’s licensed, insured, and has been doing this and has a track record of doing these construction projects… However, when you’re renovating mobile homes and doing work on mobile homes  you get a different quality contractor, and they require more babysitting, quite frankly. And with that, if you’re on site, you can save yourself money, compared to being a thousand miles away and trying to make a decision off of photos or walkthrough videos.

So we’ve been burned and learned from that experience, and found out that it’s just so important to be on-site. We saved thousands of dollars being able to point out, “Hey, you did replace the glass in this window, and you can send me a picture showing me you did that, but if I didn’t walk through after you did that, I wouldn’t have noticed all of the broken glass that’s now laying on the ground… Just laying there. You sent me a picture of the window and it looks good”, right? Normally, people would just send out a check. But since I can go now to that property, I can see the glass laying on the ground and making the property look worse. A little kid can come and cut themselves. So that’s the kind of stuff that we’ve found being on-site really helps us out with.

Joe Fairless: You’ve mentioned bringing in used homes and new homes are one of the hardest parts… Will you elaborate on what you’re talking about?

Andrew Keel: Sure. When you’re bringing in used homes – I’ll start there, because I started out, my background as a [unintelligible [00:13:54].22] helps me where I can access used homes very quickly. If you talk to anybody in the mobile home park space, they’ll tell you that used home inventory is very small, and they have trouble finding used homes to fill vacant lots. So with that, I actually find several used homes in a given week through different avenues, and I used technology to do so, and have different marketing  tactics to be able to do that… So that’s a process in and of itself, to find the used homes.

Then you have to hire a transporter to go tear it down, put axles on it, put the hitch on it, get it moved into the park… And then you have to hire an installer to then block-level, tie down, put skirting on it, steps… And then you also have to get all the utilities hooked up – electrical, plumbing, gas if there is that… So it’s a multi-stage process, and as with any project management, there’s gonna be some time involved with that, and being on site is very helpful in that aspect.

Bringing in new homes – there’s HUD laws per each state with new homes, of how the site prep needs to be set up, meaning the lot… If we need to pour concrete down below the frost line – that’s something that needs to be done prior to the home even being brought in… There’s just different regulations that HUD requires for brand new homes, so making sure you have an experienced transporter and installer to install the homes is very important, otherwise you can have brand new homes just sitting there, not occupied because they haven’t passed inspection… And obviously, that’s just a waste of time and money.

So having all  those things happen at once, in a period of three months, was a little ambitious, I’ll be honest. We’re still working on some of those projects, but overall occupancy and demand for these mobile homes is so off the chart that we’re definitely profitable, so that’s great.

Joe Fairless: What are some common reasons why homes don’t pass inspection?

Andrew Keel: Number one – this is for new homes – the grading of the ground has to be so that water doesn’t sit underneath of the homes. Even though there’s skirting around it, if water can sit under there, that’s a reason the inspector doesn’t like it. It can attract mosquitoes, attract moisture, which then would rot out the sub-floor… So you have to have proper grading, and you also have to have the concrete runners that meet the local code, which would depend on the depth of the frost line. In Illinois we had to go 48 inches deep with concrete runners, so that when it does freeze and thaw it’s not going to adjust the level of the home. So those are just a couple reasons…

Joe Fairless: What’s a project you’ve lost money on?

Andrew Keel: Projects I’ve lost money on…

Joe Fairless: Or maybe the most money. Let’s go with that – which ones have you lost the most money on.

Andrew Keel: Lost the most money on… We’ve been very fortunate in the mobile home park space where we’ve bought some off-market properties, so thank God we haven’t lost money in the mobile home park space… However, when I was a home flipper in Central Florida here I bought into a property, I paid too much for it, and I was able to sell and not make all of my money back. I think I lost about 4k-5k on that property… I paid too much for it going in, took a chance, and ended up losing a bit of money there. And you don’t account for the time that you lost as well, of getting that property ready.

So yeah, it was 4k, but really that was 3-4 months of work that also went into that, so it was quite a bit more than that.

Joe Fairless: How are you finding off-market mobile home parks?

Andrew Keel: We start out cold-calling…

Joe Fairless: How do you know who to cold-call?

Andrew Keel: Cold-calling – it’s pretty simple; you can type in “mobile home parks” into Google, into a certain search criteria, based on a certain area, and then you just basically call off of the Google Places numbers. A lot of the times you’ll reach managers, and you have to somehow strategically get them to present your information to the seller…

Joe Fairless: How do you do that?

Andrew Keel: I try to just build rapport with them, and kind of get them to like me, kind of prove that I’m not just joking around, or a joker-broker kind of thing… I try to build rapport, and then if they don’t wanna give out the owner’s information – which is ideal if they will – then I will sometimes mail a letter to the tax assessor address on file for the owner, after I talk to the manager. I mail them a letter to where they get their tax bill and say “Hey, I’m interested in buying the property. If you’re interested in selling, please give me a call. If not now, sometime in the future.” We’ve had success with that.

Joe Fairless: How do you transition the conversation when you call the mobile home park, from “Hi, my name is Andrew” to “What is the owner’s contact information, so I can reach out to him/her?”

Andrew Keel: Yeah, that’s a great question. Usually, when I call I try to downplay it and just say “Hey, this is Andrew. My wife Katie and I are interested in buying this mobile home park. We’re looking to get into the business and we like this area, and we like the size of this property. Would you be interested in selling?” And I ask the manager. I assume that they’re the owner.

Joe Fairless: Right, yeah.

Andrew Keel: And then they say “Oh, no, I’m not the owner. I’m the manager.” I say, “Oh, I apologize.” And then I just kind of talk in and say “Oh, well, how long have you been managing the park? What do you think about the business?” I just try to get them talking… And after a little while, they kind of elaborate and tell me about the owner a little bit, about how long they’ve owned it, if they own any other properties, what other business avenues they own, if local – because a lot of these parks are owned by local mom and pops that have other business ventures… One time they said “Oh yeah, he owns a car dealership, and this and that, but I can’t give you his phone number.” So I ended up calling the only car dealership and I got a hold of him… So there’s just ways to kind of get around.

Joe Fairless: Yeah, very resourceful. Your wholesaling days served you well, I imagine, in that regard.

Andrew Keel: They definitely did, yeah. You’ve gotta keep going deeper. The deeper you go, the more you’ll find.

Joe Fairless: Huh. Taking a step back, based on your experience, what’s your best real estate investing advice ever?

Andrew Keel: My best real estate investing advice would be to go bigger faster, and to raise money faster. A lot of investors start out with their own money, and when they run out of money, they stop and they don’t look at continuing to acquire real estate. A good friend of mine – he has a nice little savings account, but he won’t put any of his money in deals… And he only raises money for all of the real estate that he purchases. There’s many different operators and ways of doing it, but I would just encourage people that your friends, family, potential investors out there – you’re doing  them a disservice by not allowing them  to invest with you, because the rate of return that they’re gonna get with you potentially could be a lot higher than any other program, or annuity, or CD that they could ever invest in.

Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Andrew Keel: Let’s do it.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:20:42].11] to [00:21:40].00]

Joe Fairless: Best ever way you manage properties in seven different states, in terms of a process? What’s a best ever process that you use?

Andrew Keel: I would say we use a software called Slack; it’s our messaging software. Every single on-site manager is in their own channel, based on that property… And instead of phone calls, we make the managers communicate with us through Slack. That way, everything is in a nice, concise, little blurb, instead of talking with managers. Sometimes you’ll find that you’ll be on the phone for an hour when you only needed 30 seconds to get an answer… So that’s one process that I’ve implemented that has worked tremendously for us.

Joe Fairless: What about the reverse of that, where if you just jump on a phone call and you can get through it in five minutes, versus going back and forth on chat for 15?

Andrew Keel: To be honest, usually what happens when we hop on the phone is we end up talking about her sister’s brother who got in a motorcycle accident, and broke his leg… You’d be surprised, man. The conversations go on and on and on. So in Slack, there’s nothing really very complex that we discuss. It’s “Hey, did lot 29 pay?” It’s more like a yes and no type of thing, so… We don’t really have a lot of back-and-forth, I guess is what I’m saying.

Joe Fairless: Fair enough. What’s the best ever deal you’ve done?

Andrew Keel: The best ever deal I’ve done… I was able to secure seller financing on a property that I won in Ohio, and was able to secure 75% loan-to-value, 5% fixed. We have a 20-year note… And the property, when we purchased it, had like 40 tenants. We’ve been able to increase that just by implementing some marketing and some other strategies. Now we have 64 tenants… So that’s my best ever deal.

Joe Fairless: Best ever way you like to give back to the community?

Andrew Keel: Best ever way to give back to the community… I’m pretty active in church, so I give back through that. We also have an angel program my wife and I donate to for kids in the Dominican Republic.

Joe Fairless: Best ever way the listeners can learn more about what you’ve got going on?

Andrew Keel: Check out KeelTeam.com, my website. Always looking for new investors and partners. Even if you’re interested in the mobile home park business and you’d just like more information, I’d be happy to chat with you. You can go on my website and set up a free consult.

Joe Fairless: I enjoyed our conversation, I learned a lot… From ways new mobile homes wouldn’t pass inspections, or common things for why they don’t pass inspection – you talked about the grading of the ground – to getting your hands dirty and living in the area of something you closed on, and what you were doing to help the P&L statement… And then also the private versus public utilities and how much that could cost to actually connect into public… So – lots of stuff we talked about; I’m grateful that you were on the show. I hope you have a best ever day, and we’ll talk to you again soon.

Andrew Keel: Awesome.  Thank you so much for having me, Joe.

JF1834: From The Corporate World To Mobile Home Parks with Ryan Narus

Listen to the Episode Below (00:30:06)
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Ryan had a job in the banking world, didn’t like it, looked for a way out, found his way out with real estate investing. We’ll hear how he was able to take the leap to being a full time investor, and how he closed his first deal. We’ll also hear how he has scaled his business to owning over 500 mobile home pads. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“We are obsessed with getting people on the phone” – Ryan Narus

 

Ryan Narus Real Estate Background:

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Ryan Narus. How are you doing, Ryan?

Ryan Narus: Great, I’m honored to be here. Thanks for having me.

Joe Fairless: Well, I’m glad that you’re on the show, and looking forward to our conversation. A little bit about Ryan – he is a real estate investor and has been one for the past four years. He’s closed on 20 million dollars in mobile home parks. Currently owns eight parks and about 535 pads. Based in Charlotte, North Carolina. With that being said, Ryan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ryan Narus: Absolutely. So I woke up one day with a corporate job, and realized I hated it, and realized I needed to find an escape because I was stuck. And I refused to take what the world gave me, so I picked up books, I read everything I could, I picked up the phone, I called anyone I could… I looked at about 100 or more different possible business to buy, because I realized I needed to be an owner. And it was Rich Dad, Poor Dad and 4-Hour Workweek…

Joe Fairless: What was your job?

Ryan Narus: I started off as a car salesman, because I graduated in ’09, which was the worst year ever to graduate, other than the great depression, for jobs. I was sold this idea of “Hey, go to college. You’ll get a good job, you work at a good company for a long, long time…” That might have been true for my parents, but that’s definitely not true for us millennials today… So I just refused to take what the world gave me, and I went out and I just for years met people, learned, tried to figure out who I was and what I wanted to be, and eventually I buddied up with a childhood friend,  Ian Tudor, and he turned me on to mobile home parks, and I said “Hey man, if it’s anything like the show Trailer Park Boys on Netflix, sign me up, because that show is hilarious.” And I found that it matched my skillset extraordinarily well.

Flash-forward – no money, no experience, no network, four years later I found my way into over eight deals, because we’ve sold out of a few… I hope that your listener base  hears my story and goes “You know what – why am I making excuses? If this guy can do it, I can do it.”

Joe Fairless: Well, let’s dig in there… So I had asked “What was your corporate job?” and you said you started out as a car salesman, but what was that last job that you were hating? That’s what I was wondering.

Ryan Narus: Banking.

Joe Fairless: Banking. So what were you doing exactly?

Ryan Narus: I was in THE leadership program… [laughs] Which turned out to just be a lot of hype and not a lot of substance, and it was probably everything that you would guess. “Hey, come on in. You’ve got an MBA… This is  a big bank. We want you to be a future leader”, and then you get there and you’re ignored, and you find you’re doing copying and pasting more than actually providing a ton of value; and then you go and you do something no one else has done, and provide a bunch of value, and you get a pat on the back and that’s it. And then it’s “What have you done for me lately?”

I’ll put it to you this way – a friend of mine, my best friend just started a business, and he was a former banker as well. We were having lunch the other day and I told him “At your bank, in the next five or ten years, were you in any danger of basically having your job removed and being  able to walk away with a couple million bucks?” Because that’s his exit. He wants to in 5-10 years sell his company for a couple million bucks and ride off into the sunset, maybe start another business, maybe do something else…

And we both were laughing because we were like, there’s literally no way that a bank would ever be like “Oh, you’ve done such a great job scaling this, that and the other thing. Here’s a couple million bucks. Go retire, go do something else that you wanna do.” The United States of America is about the ability to go and start your own business and chase wealth, and I’m just so glad I did that.

Joe Fairless: When you were in banking, noted on being in the leadership program, but that isn’t what it was cracked up to be, or at least positioned to you… But what were you doing? You weren’t a teller, it doesn’t sound like. What was your role within banking?

Ryan Narus: I was in operations. Anytime something like a credit default swap trades, I was the guy behind the scenes, making sure the trade is made properly.

Joe Fairless: Got it. Sounds riveting.

Ryan Narus: [laughs] That’s why I’m gently trying to steer the conversation away from —

Joe Fairless: No, I get it, I get it, but it’s important to know where you came from and what types of skillsets you were using then, and what you’re using now. Okay, so that was four years ago… So I’m decent at math, I can subtract; that was around 2015, correct?

Ryan Narus: Correct.

Joe Fairless: Okay, around 2015 you had your corporate job in THE leadership program for a bank, and you were in operations… Then what?

Ryan Narus: I’ll unwind this… [unintelligible [00:07:03].13] wanted to be a salesman. Went and sold cars for four years, loved it, until I didn’t anymore… Because I realized — I sprained my ankle once playing basketball, showed up the next day in crutches, trying to sell cars, because I realized I wasn’t getting paid sitting at home with ice on it.

Joe Fairless: That’s gotta help you sell cars, when you’re out there in crutches…

Ryan Narus: Believe it or not, it got a lot of attention.

Joe Fairless: Of course.

Ryan Narus: I can’t remember… It’d be funny if I sold a car that day, but I don’t think I did. I don’t remember… But I just remember that day; I don’t wanna get a promotion to the finance office, because that sounds miserable. And then the sales desk sounds miserable, and then 20 years goes by, I’m a general manager, and the best advice my general manager had for me was “Go start your own business. You know why?  Because I never see my kids!”

So then I went and got my MBA, because I figured “Alright, maybe my MBA will show me what business I wanna start, and give me that toolkit to go start a business”, and it did, because in 2015 I met back up with Ian Tudor during my internship between my first year and second year of MBA, and then my second half of my MBA I spent starting the mobile home park business, and then I was a year in banking, working on my mobile home park business while working full-time, and then I quit to go full-time in mobile home parks in June of 2017. So as of today, we’re almost two years into it full-time.

Joe Fairless: What was the first deal you did, mobile home park, and what was your role in that deal?

Ryan Narus: Our first deal was an 89-lot park, 1.525 mil acquisition. We wanted to use that as a training wheels deal. So we grabbed that deal and we went out to try to get debt financing, and we reached out to 40 banks, and I am proud, Joe, to tell you that I got 40 no’s. Every single bank rejected me. And here’s the sad part about it – that deal has been an absolute home run in terms of debt  coverage ratios and anything a bank would be looking at… And we still just got nothing but rejections, which… I think it’s important for folks listening in that have never started a business before – you can’t let no stop you. Because eventually what we did is we brought in some investors who were outstanding, and we decided we wanted to be a fly on the wall, and learn.

So our first deal was more about “Okay, how can we monetize this and how can we educate ourselves?” And our second deal was really our first deal, because that was our first deal without training wheels, if that makes sense.

Joe Fairless: You mentioned the person’s name… Who is “we”?

Ryan Narus: Ian Tudor is my business partner, and I have not asked my investors if I have permission to talk about them, so I’d prefer to leave them out.

Joe Fairless: Yeah, I would have never asked for your investors’ names, but your business partner is Ian Tudor – okay. How did you meet Ian?

Ryan Narus: Believe it or not, we grew up in the same neighborhood, and if you asked him, he would say he absolutely hated me growing up. [laughs] But we kept in touch, and we bumped up when I was doing my MBA internship in Miami, and he was in Orlando. We hung out a bunch of times, discovered we’d be great business partners, and four years later talking almost every single day. We’ve grown a business, and were able to quit corporate America, and have done pretty cool things that we probably had no business doing, just because we refused to stop when we were told no.

Joe Fairless: On that first deal, what did he bring to the deal in terms of value, and what did you bring to the deal in terms of value?

Ryan Narus: Sure. Ian is an underwriter, so that’s what his background is in. And he found a new up-and-comer broker, who was weak in underwriting. So what she was doing was funneling him off market deals, so he could help her underwrite, and also teach her. So he provided value to this broker, and she provided value to us. Because what ended up happening there was we got a look at a great deal before it ever went to market. So that’s where he brought the value to that first deal.

Where I brought value to the first deal was my networking, because eventually we ended up finding the right bank, and we ended up finding the right investors… But I don’t think it’s fair to necessarily put that in those buckets, because we were both wearing many hats during that process… But if I was to just say “Boom, this is what Ian did. Boom, this is what I did”, that’s probably — with a little blurry in the lines, that’s probably how I’d put it.

Joe Fairless: Of course. Even after many deals, the lines are still blurred on, and responsibilities.

Ryan Narus: Yes.

Joe Fairless: But that’s helpful to categorize them, at least for this conversation’s purpose. The up-and-coming broker that Ian met – how did he meet her?

Ryan Narus: Straight networking. Ian and I are obsessed with getting people on the phone. It doesn’t matter if you’ve never bought real estate before, or if you own billions of dollars of real estate – we wanna get you on the phone. I’ve gotta say, Joe, that most of the times when I reach out to someone, especially when I started, they were not interested in taking my call… So I’ve gotta say, of the 100 people that both of us reached out to, probably less than half actually took our call, and she was one of them. Probably because she too was just starting out.

Joe Fairless: And do you remember how Ian found her, to initially reach out?

Ryan Narus: Man, that was four years ago… That’s tough. But I will put it to you this way – we hit any avenue we can. We ask people “Hey, do you think there’s anyone that would be cool for you to introduce us to, and vice-versa?” We do LinkedIn, we do Facebook, we look people up online… There’s so many avenues. Any stone that we can unturn, we try to unturn. So that would be a great question for Ian, but those two just hit it off. They’re still buds to this day, really close friends. You’ve just gotta turn up the rocks and see what’s under them.

Joe Fairless: And was there a particular focus on mobile home parks at the time, so that’s the type of people you were connecting with? Or is it just more general?

Ryan Narus: Absolutely. The primary goal at that time – and really still – is anyone who has any interest in mobile home parks, I wanna talk to you. Whether you bought them or not, you own them or you don’t, I would love to get on the phone with you. That was our focus at the time, and we really decided mobile home parks fit our skillsets extraordinarily well; this was going to be it.

We’ve looked at marinas, we’ve looked at RV’s, but we keep coming back to our skillsets are set for mobile home parks, so it’s almost exclusively been mobile home parks.

Joe Fairless: Okay. And how do your skillsets fit mobile home parks?

Ryan Narus: Straight car dealership. When I graduated in 2009, undergrad with a degree in psychology and a big dream of being a salesperson, business-to-business, and no one was hiring… And I went “Alright, well I guess I’ve gotta settle with car sales”, it taught me everything I needed. It was probably the best job I could have ever not realized that I needed to have… Because it was rejection every day you show up.

So it’s learning how to get basically punched in the face, and then when that next customer walks through the door, if you’re not smiling, you may cost yourself a sale, so you have to learn how to pick up your own emotions rather quickly… Because that next person walking through the door – it’s not fair to them that your boss just yelled at you, or you just blew a sale because X, Y or Z, or someone was calling you a scummy car salesman, even though they’ve never met you before. That plus persuasion, overcoming objections, negotiating, organization, learning how to use business analytics, statistics – all of that was perfect for mobile home parks, because it is a lot of learning how to deal with confrontational situations, be it [unintelligible [00:14:44].09]  yourself and your business… Because people don’t just flock to you. You have to put yourself out there to get them to come to you, and have to have word of mouth.

So it’s a lot of sales, it’s a lot of marketing, it’s a lot of organization, it’s a lot of things you would not expect you need if you just listen to the hype stories about mobile home parks, which are “Wow, it’s a great investment. They’re ten-caps everywhere. Buy it from mom and pops, and you set it and forget it.” It’s quite the opposite. And mom and pops in and of itself are a sale; you have to convince them that you are not like everyone else who’s calling them… So I’ve gotta say selling cars was probably one of the best things for me in terms of enjoyment, yet it fits this industry like a glove.

Joe Fairless: How do you differentiate yourself when you’re having those conversations, to position yourself not like everybody else who’s calling them?

Ryan Narus: With the mom and pops? Well, one big thing is I speak Spanish, I’m on my properties, I do not have a fund, I do not have pressure to acquire. I go for the long game. I like to show up at folks’ houses – obviously, if I’m invited – and shake their hand.

Joe Fairless: I have a feeling you’d show up even if you weren’t invited.

Ryan Narus: True story, I have done that before. I showed up at a woman’s house and we ended up watching Wheel of Fortune, and we had such a great conversation. It pulled over into The Price is Right, so we ended up spending a couple hours. And I’ve got a baby boy on the way, and she texts me every now and then and asks me how my wife is doing with the pregnancy, so… Look, you have to be different, and the way that I want to be different and I have been successful being different is I’m doing things no one else wants to do.

Who wants to go and knock on someone’s front door? Who wants to pick up the phone every morning and get yelled at and hung up on? Who wants to do anything other than call someone and say “Will you sell me a property right now? No? Okay.” Hang up.

I constantly am looking to put myself in situations that differentiate myself, and one big thing I’m not afraid of is being embarrassed. If you ask my wife, she hates it. She’s like “You’ll literally walk the dog in dress shoes, dress socks, athletic shorts and a tank, because you just don’t care what people think about you, but I care what people think about you… And it’s weird, dude.”

Joe Fairless: You’re doing mobile homes… Why are you knocking on front doors?

Ryan Narus: No one else is doing it.

Joe Fairless: Whose front door are you knocking on?

Ryan Narus: Sellers. Potential sellers.

Joe Fairless: Sellers. So their residence, where they live, you’re knocking on their front door, or…? Help me understand the situation.

Ryan Narus: Absolutely. I’ll give you a good for-example. There was an elderly woman who we called a bunch of times, had wonderful conversations with, but every now and then she’d just disappear for 30 days… And one time she kind of casually was like “Oh yeah, sure, come on over.” And long story short, she set up a time for us to go over, and we went over and she was in the hospital. We met her whole family, and long story short, we ended up knocking on her door several weeks later when we figured that she was probably back… And yeah, literally we showed up at her residence.

Now, it wasn’t completely cold, out of the blue, “Who are you? Go away. This is trespassing.” This was more of a warm knock on her front door… But we have done that several times. I’ve also done the cold knock on the front door as well. I’ve showed up to mobile home parks and just walked into the office… But all of the above because what’s happening in our industry now is you have wholesalers coming in with Boiler Room types of telemarketers, just trying to find the low hanging fruit. You have tons of brokers and you have tons of folks sending mailers, and the competition has just exploded.

I do anything in my power to be different, because otherwise I’m no different than anybody else who’s calling and sending mailers, and doing all that stuff.

Joe Fairless: Has walking into the office cold resulted in a completed transaction for you?

Ryan Narus: It has not. We are getting very close with one, but I will say that one that we did close here in Gastonia, North Carolina, right outside of Charlotte – it wasn’t knocking on her front door; we showed up at the property with an LOI, and a contract, after months of talking with them. And the reason why we showed up is because the seller said “You know what – we like you guys, we wanna do business with you guys, it sounds like the price is right, but we just wanna wait until January 2019 for tax reasons.” I remember Ian did this, and I’ve gotta give him all the praise in the world for doing this, because he walked me through the objections that the seller threw out, and I said “Show up at the property when we know she’s there and we’re at least somewhat warmly invited.”

Joe Fairless: Yup.

Ryan Narus: So in other words, “Hey, Ms. or Mr. Owner, are you around then?” “Yeah, we’re in our home right now.” “Great, do you mind if I stop by?” “Yeah, sure.” So he shows up with the contract and the LOI, and I told Ian, “This is what we did in car sales, this is what you’re gonna do when you get there. You show up, you give them the pitch…” You say “Hey look, it takes 60-90 days to close, period.” Because it was August. “Why don’t we go ahead and sign this contract, just in case the economy takes a dip. We know the price, the economy takes a dip, this price is locked in; we will do literally everything we have to do with the bank, and the appraisals, and the surveys, and everything, so that way on January 1st, 2019, all you have to do is sign it and it’s done.” And then just sit there and don’t leave. [laughter]

It took over an hour… This is a hysterical story, because he showed up, he walked them through it, same objection, and then he said “Well, why don’t we go through the contract?” and she said “We’ll just leave it here.” He said “Okay.” And he left it there, and he just sat there. Created an awkward silence. Didn’t say anything, which was by design… And that awkward silence unearthed another objection, and then–

Joe Fairless: What was that?

Ryan Narus: It was just that “Well, I’ve gotta go through the  contract.”

Joe Fairless: Which is legit.

Ryan Narus: Legit, right. But it’s also a dodge, too. Because “Oh yeah, leave it here”, and then you leave, and then they got you out of there. So then it was “Great, I’ll wait right here while you go through it.” Well, I’ve gotta finish this sub-floor job.” “Okay, I will wait in my car then.” Then he went out and waited in his car.

Joe Fairless: I’m surprised he didn’t offer to help with the sub-floor job.

Ryan Narus: I hate to say it, but neither of us are very good handy folks, so…

Joe Fairless: Still… He could do something. Move some materials around, or play some Spotify, play their favorite playlist, at least from your phone, while they work…

Ryan Narus: That’s actually a great idea. I might try to offer that. Like “Hey, you’re doing some tiling work. You definitely need an extra hand here. Let me help out.” But here’s my favorite part of the story – he went out and he sat in his 2006 Honda CRV, with very limited, questionable air conditioning, in the hot North Carolina sun, in the middle of August… And waited for her to walk back out, which she did. And then he sat in his car, with the window rolled down, for what he described to be forever, and they went through every single line of that contract, and he left with a signed contract that day.

So when I say my skillset — and our skillset really, Ian’s too, because he doesn’t have sales experience, but he is a natural salesperson… It fits like a glove, and that’s just the only way you can compete when it is a hot market right now. Because it is a seller’s market right now.

Joe Fairless: Thinking about one other mobile home park that you’ve closed on, what’s one other way that you found the deal?

Ryan Narus: Networking has been phenomenal. I’ll give you a good for-example. If an outfit is selling their way up; in other words, they maybe built a giant portfolio on two and three-star, and now they’re selling while the market is good up to four-star properties, a lot of times you can snag something off market, because someone knows you can perform… Eight mobile home parks, 20 million dollars, plus you’ve heard of me, and we’ve talked several times, and maybe we’ve had a beer, maybe we’ve had a lunch, maybe we joke about the NBA together… I’ve had several looks at several properties, a lot of which I’ve passed on, but several which we’ve closed, from bigger name folks, who were like “Look, I don’t wanna put this to market, because I don’t wanna see a bunch of knuckleheads who’ve never bought stuff before. I’d rather just sell it at a fair price, get it off my books. This is less than 10% of my company’s overall revenue, it’s a liability to me at this stage. You guys are growing, you’re comfortable with two and three-star assets – here’s a fair price.” Boom. That’s one way to do it.

Then another off market way — obviously, networking is huge, and then also I know a ton of folks through my podcast who anytime I see a deal, I pitch it off to them, and I’m happy to do that, so… Literally not even an hour ago a broker brought me a deal off market, that I had already looked at, and I immediately connected her with someone else. So there’s plenty of folks within my network  who have reached out to me, who I am happy to pitch something off to you. So networking is huge.

If you’re listening in right now, reach out to me, reach out to folks like Joe, because you never know. If you’re like “Hey, I’m looking for something in Greensboro, North Carolina, about this many units”, if you’re in the back of our minds and we have good deal flow, we see a lot of deals, we’ll think of you. And if you’re like me and you like helping other people out, you get something off market from a broker; you make a cold call and the deal doesn’t make sense for you – we’ll call you. And that comes right back to me, I’ve done several deals just like that.

Joe Fairless: Taking a giant step back, based on your experience, what’s your best real estate investing advice ever?

Ryan Narus: Bet big on yourself. I don’t know if you’ve ever watched the Austin Powers series – they’re totally silly movies, with Mike Myers in it, but there’s–

Joe Fairless: I’m not a fan, but I know it.

Ryan Narus: [laughs]

Joe Fairless: I hate those movies, but go ahead… [laughs]

Ryan Narus: I don’t blame you… There is one line which I was sitting down with a single-family home flipper, just as “Here, let me help you out, man” kind of thing, because I don’t do single-family home flips… But it was one of the best meetings I have ever had, with a newbie home flipper, not interested in mobile home parks, I’m not interested in his – we sat down and he hit me with a line from Austin Power, from the fat, bad guy who says “I’m unhappy because I eat, and I eat because I am unhappy.” And he hit me with the real estate equivalent of that line, which is “I can’t go full-time, because I don’t have deals, and I don’t have deals because I’m not full-time.”

And when I pressed him on that, I said “What’s stopping you from quitting your job, going and living in one of your flips to cut expenses…? What is the one thing holding you back right now from increasing your deal flow?” And he’s like “Man, if I could just go full-time…” and I was like “Can you get a job, in 12 months?” If you just said “In 12 months, if I can’t make my business happen by giving it full-time effort…” and he looked so uncomfortable, Joe; he was so uncomfortable, but he was like “You know what, you’re right.” And I’m proud to say that he’s not gonna just quit his job tomorrow; he’s gonna take the next 3-6 months to plan for it, but he is gonna do it. He’s gonna bet big on himself. Obviously, plan because he’s got kids etc, but it’s gonna take some prep, because it took me a lot of prep too, to go full-time; even without kids it took me a lot of time to prep.

So don’t just blindly jump into it. But here’s the thing – if the one thing stopping you is deal flow, and you are confident you can get that deal flow if you devoted your full-time to it, what are you gonna say when you’re 80 years old, looking back on this, when you’re in your early thirties or twenties, or even in your forties or fifties? What are you gonna say? Are you gonna say “Boy, I’m glad I stuck with the job that I hated?” or are you gonna say “When I was a young lad, I had the courage to bet big on myself. And if it fails, even though it failed, I learned so much and I’m glad I took a chance on myself.”

Because if that’s the worst you’re gonna say when you’re 80… The flip of that is “Boy, I quit corporate America, I literally work from my couch now, and I get to do what I want, when I want, and I live my career dream.” If that’s the upside there, why wouldn’t you bet big on yourself? So that’s probably bar none my best advice to anyone looking to break into the industry.

Joe Fairless: Amen to that. We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?

Ryan Narus: Let’s do it!

Joe Fairless: Alright. First, a quick word from our Best Ever partners.

Break: [00:27:25].14] to [00:28:14].22]

Joe Fairless: Okay, real quick – best ever book you’ve recently read?

Ryan Narus: Oh man, that is just so tough, because there’s so many I wanna talk about… Probably Chris Voss, and I’m gonna forget the name of–

Joe Fairless: Never Split the Difference.

Ryan Narus: Never Split the Difference, bar none best negotiation book I’ve ever read.

Joe Fairless: A mistake you’ve made on a transaction?

Ryan Narus: Not checking the water bills.

Joe Fairless: Best ever deal you’ve done? Which one?

Ryan Narus: Probably a countryside mobile home park, because it was a huge win for the residents, huge win for us, huge win for the investors. Everybody won.

Joe Fairless: Best ever way you like to give back?

Ryan Narus: My time. Call me, email me. It doesn’t matter what type of real estate you’re getting in, I want to help you and I want to talk to you.

Joe Fairless: And how can the Best Ever listeners learn more about what you’re doing?

Ryan Narus: Ryan Narus, just literally google me, shoot me a line. All my contact information is there, my podcast is there, all  my YouTube videos are there. I have nothing to sell, I have everything to give, give, give.

Joe Fairless: Ryan, I enjoyed our conversation thoroughly. I love your never-quit, very resourceful, gonna-make-things-happen approach, a do-whatever-it-takes type of attitude, and I loved hearing the story about Ian and the sale that took place in August, when perhaps it for most people would have taken place in January or not at all taken place without that perseverance.

Thank you for being on the show. I enjoyed our conversation. I hope you have a best ever day, and we’ll talk to you again soon.

Ryan Narus: I loved it, Joe. Thank you so much for having me.

JF1778: Gettin’ That Trailer Cash with Jay & Samera Harvey

Listen to the Episode Below (00:23:39)
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Best Real Estate Investing Crash Course Ever!

Jay and Samera are both entrepreneurs at heart. They had a couple of different businesses, and also worked full time for others throughout the years before finding real estate investing. Today we’ll hear about their investing journey and investing niche, which is investing in mobile homes. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“If they can’t give you proof or referrals, that’s a red flag” – Jay and Samera Harvey

 

Jay & Samera Harvey Real Estate Backgrounds:

 


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JF1686: Finding Partners & Buying The First Mobile Home Park with Ryan Groene

Listen to the Episode Below (00:26:49)
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Best Real Estate Investing Crash Course Ever!

Ryan recently partnered up with some people and bought their first mobile home park. We’ll hear all about how he found the partners, how they structure the agreement, and how they defined the roles. Beyond the partnership, Ryan and Joe will dive into the deal itself so we can hear about an asset class that we don’t typically hear about on this podcast. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

Best Ever Tweet:

“In the mobile home business, you have to bring in the homes” – Ryan Groene

 

Ryan Groene Real Estate Background:

  • Now a full time Mobile Home Park Owner and Operator that has honed his skills over the last 3 years while working full time in Finance
  • Oversees 8 parks spread across 500 spaces
  • Based in Cleveland, OH
  • Say hi to him at ryan.groene55ATgmail.com
  • Best Ever Book: Capital Gains by Chip Gaines

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Ryan Groene. How are you doing, Ryan?

Ryan Groene: I’m doing great, Joe. How are you?

Joe Fairless: I am doing great as well, nice to have you on the show. A little bit about Ryan – he owns a 75-space community in North Carolina; when I say “space”, I guess I should clarity – a mobile home park space… Is that correct, mobile home park space? Did I say that right?

Ryan Groene: Yeah. Lot, space…

Joe Fairless: Lot, space – got it, okay. He is also a full-time mobile home park owner and operator. He’s honed his skills over the last three years while working full-time in finance. He also, in addition to owning a 75-space community, he oversees eight parks spread across 500 spaces. He is currently based in Cleveland, Ohio. With that being said, Ryan, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Ryan Groene: Yes. A little bit about my background – I started in finance about six years ago; I was working at a corporate finance in Cincinnati, where you are, and I actually started going to the Best Ever Real Estate Meeting in Cincinnati, and I am now focused on mobile home parks, full-time. I’m looking to grow my portfolio. I own one personally, and then I actually work for Buckeye Communities, which as the director of operations, like Joe mentioned, I am overseeing eight parks spread across about 500 lots in Ohio.

Joe Fairless: Let’s talk about the one personally, and then let’s talk about your role as the manager for the 500. How long ago did you buy the 75-space community?

Ryan Groene: Me and a couple other partners purchased that community; the close date was December of 2018. The process was relatively drawn out and long. We had that thing under contract since May of last year, so it was a very drawn out process. Then I have a few other deals in the pipeline as well that are set to close actually next month.

Joe Fairless: So it took six months to close the deal after you had it under contract?

Ryan Groene: Yes. It was a number of issues during due diligence that we discovered, that we’re now addressing; we got some contract negotiations done to meet our needs in order for the seller — we actually got seller financing on it as well; that was one of the needs. It was a good opportunity, even though it was a drawn out process, for sure.

Joe Fairless: How did you meet your business partners in the deal?

Ryan Groene: I met my business partners through a loose network of people. We’re all part of an online group, and there’s other affiliations out there, like the Best Ever Group on Facebook; we’re actually all part of that. And then we’re a part of a few other groups. I’ve known them over the years, and we were both kind of chasing the same deals, so we were like “Hey, why don’t we partner up?” It’s our first mobile home park together, and some of them it was their first park… They all have real estate experience, whether it be from apartments, hotels or other asset classes. It’s a good team, and we’re now 40 days into ownership and everything’s running smoothly.

Joe Fairless: And what’s your role compared to their role?

Ryan Groene: My role in the group is the asset manager. I am in charge of our on-site manager, and that is the same kind of role that I play on a daily basis as my role of director of operations. We have on-site managers that oversee the day-to-day for our community, and they sometimes live on-site, or they live about 5-10 minutes away. Their job is to do anything from collections, basically making sure that the community is running smoothly, there’s no [unintelligible [00:05:08].13] and just daily stuff that a property management company would do on the multifamily side.

Joe Fairless: Okay. So your role is the asset manager. Did I hear you correctly, you have two other partners in that deal?

Ryan Groene: We have four other partners on the deal. There’s five total; not necessarily ideal at times, but we all work together pretty well, and we’re looking to buy some other communities together as well.

Joe Fairless: Okay. So your role is asset manager. What are the other roles that the individuals have?

Ryan Groene: We have somebody that’s the CEO, and then we have the person that’s a CFO, and then we have our sales and leasing person… So we have about 4-5 different roles, and sometimes somebody – it’s not as clear what their role is, because in real estate sometimes you’re doing multiple things… So we distinguish what those roles are and we actually have it all in our operating agreement. We stick to that, but sometimes things happen and people step in when they need to. The operating agreement is really just there in case anybody wants to get out, or if something goes wrong. Everything has worked out great, and we haven’t needed to refer back to the operating agreement. We just have that in case something goes bad.

Joe Fairless: And with that type of structure, when you’ve got five total people…

Ryan Groene: Yeah, five total people, including myself.

Joe Fairless: Okay, got it, cool. With that, is it structured so that everyone gets 20%, or how do you structure that type of agreement.

Ryan Groene: We structured it — basically, whatever capital you brought to the deal was your equity share. Let’s say for example if we needed $100,000 and I brought in $25,000, I would get 25% of the deal. Then at the end of the day, any cashflow that comes from the property, I’m then gonna get 25%. Then at exit, whatever the sale price is, I’m getting 25%. So it’s just a straight joint venture, and then we have our separate entities as well, from a legal standpoint… But that is the basic high-level structure view of how we did that.

Joe Fairless: Okay. So for example if you brought $10,000 and the equity raise was 100k, then you get 10% of the entity… So the assumption on that structure is that everyone has an equal responsibility after you close, so there’s not one responsibility that’s more important than another.

Ryan Groene: Correct.

Joe Fairless: Okay, I’m with you. You mentioned sales and leasing as one responsibility… Educate me on why sales and leasing is a responsibility of a general partner and not the on-site team.

Ryan Groene: We have about 20 vacant spaces, and most of the time in this business the on-site manager is not necessarily as well-versed in sales and leasing, and there’s a lot of leads that come in that need to be handled, and most of the time they’re not always the best leads… So we have a team that is working with other individuals — because in the mobile home business you have to bring in the homes. So unlike owning an apartment, where the structure is already there, we have to bring in the homes from whether we buy new ones, buy outside ones… We then have to bring them in, and then we have to fill them with new prospective tenants. So our sales and leasing team, it’s mainly sales, and finding… I guess I should clarify it – it’s more of the new homes and used homes; so they’re responsible for finding used homes to bring into the community, and then they are also screening new tenants, screening new applicants, and making sure all of them have their leases, and stuff like that.

So we do utilize the on-site manager to show the homes, schedule the showings, and stuff like that… But our team pre-qualifies people, and then we send them to the property when the manager is there… So therefore they can show the home and they can still experience the home, but then we handle all the stuff off-site in regards to sales and leasing and working out different terms, whether it be we can accept this much, or this much… The mobile home business is not necessarily always the cleanest sometimes when it comes to selling homes, because at the end of the day we don’t want a renter in there, we want a homeowner…

Joe Fairless: And why is that?

Ryan Groene: Because the advantage of the mobile home park business versus owning apartments is that having a homeowner is more invested in the community, therefore the turnover is lower, and then therefore also the home, most of the time they’re not gonna be able to actually move it, just because of the fact that it costs between 4k and 7k to actually move the home… And most of the tenants, since we are in affordable housing, normally don’t have that. So what ends up actually happening is they either sell it to another qualified applicant that wants to move into the community, or they sell it back to us, and then we go on and sell it to a new tenant, or we may rent it for a little bit… But as we say, “Today’s renter, tomorrow’s buyer”, and that’s really the motto that we like to stick by, and that’s the model that we like. We like for people to own their own home, and then we own the dirt, and they rent the dirt from us. Essentially, a parking lot with utilities, but a little bit more complicated than that once you get into it.

Joe Fairless: Putting aside the administrative work, would it be more profitable just purely numbers and cents to have all the mobile homes owned by you all, but they’re renting the space and they have some sort of contract to purchase that mobile home from you, that way you’re double dipping, whereas in the other scenario if they own the home, then you’re not getting income from the actual home itself, you’re just getting lot rent?

Ryan Groene: Yes, it’s kind of like a lease option to purchase, or a rent to own – is that what you’re hinting at?

Joe Fairless: Yeah.

Ryan Groene: Yeah… So this business there is with the SAFE Act from the 2008-2009 Dodd-Frank Bill… Now, I’m not a legal expert, so don’t quote me on this, but Ohio was really strict on not allowing disguised mortgages per se, so therefore rent to own in the mobile home park business – some people still do it, some people don’t… There’s a thing called a rent credit. Essentially, what it is – in essence it’s kind of like a lease option, but it’s not the same thing. It’s like if you have a rewards program with [unintelligible [00:11:18].24] all these rewards… Yeah, they’re kind of imaginary… So the renter still rents from us, but there’s three different documents – renting the space, and then there’s an agreement that their lot rents will then go towards a purchase of any home in the community. They don’t have to purchase a home in the community at the end, whether it be five years, three years, or whatever the agreement is; it’s just the fact that they can then use those credits because they’ve earned them up over a period of time, and then purchase the home.

We still own the home and own the title, so they’re technically still renters in the bank’s eyes and in the investors’ eyes, but they’re on their progress towards home ownership. That is kind of the industry standard in terms of how to do that type of thing after the 2008 SAFE Act law, where you have to be SAFE Act licensed and have a mortgage license and all that good stuff, and it costs a lot of money to do that, and we don’t think it’s beneficial to go that route… One, because it costs a ton of money and there’s a ton of paperwork, and the rent credit program works perfectly fine… And you’re always gonna have rentals in this business, and that’s okay; as long as you’re okay with that, this business is still a great business to be in.

Joe Fairless: As an asset manager of eight parks that spread across 500 spaces, what are some things that you’ve learned since you’ve been doing the asset management of that many parks?

Ryan Groene: One thing I’ve learned is really time management, and a lot more people skills… Because I’m basically managing the manager. Then obviously there’s other budget-related stuff that I’m overseeing, because we have to hit our [unintelligible [00:13:00].13] goals from renters, and we have all kinds of different stuff… But the most important thing that I’ve really learned is people skills – how to handle people  in different situations, what actually motivates people from a managerial standpoint… Because I have never managed that many people, even in my corporate career. I was in charge of nobody there.

So I had to really learn that quickly, and your podcast has definitely helped over the years, helping me learn different ways and different tactics on how to manage people… Because at the end of the day, those managers are the biggest key in this business, and they are your biggest friend of your biggest enemy, because they’re gonna make your life easy or not… Because they help with questions, they help with everything from a community standpoint; if we have a good manager in there, my life is easier; if we don’t, I have some heartburn, so therefore we may have to change our manager. [unintelligible [00:13:53].02] we had to change the managers, and the transition period is a little hard, but sometimes you can find somebody within the community and hire them.

Joe Fairless: What’s a challenging circumstance that’s come up as it relates to handling people on-site and your work with them?

Ryan Groene: When the managers are friends with people that haven’t paid. That’s the hard conversation sometimes. Or if they even have relatives, like a daughter, a son, a cousin, a brother that lives in the community, that hasn’t paid rent. We understand we’re in the affordable housing business, but most of the time we give people the benefit of the doubt… But if they take advantage of us, or if they’re not communicative, we really enforce the “No pay, no stay”, mentality.

For a manager to have to post a three-day and then an eviction notice, that becomes really surreal to them, and they try and do what they can to work with those people. That’s probably been the biggest hurdle and trouble that I’ve dealt with in dealing with the managers sometimes – sometimes they don’t wanna do it because they have family members, and stuff like that. It makes you very real, and becomes a behind-the-computer-screen type of business very quickly. When you go sit in a lot of these parks, you understand – people really do live paycheck to paycheck, and we’re trying to work with them as much as possible… And we are the last place really for people to live that’s non-subsidized housing.

Joe Fairless: How do you walk that line? Do you have a firm “If you don’t pay by this day, then we’re gonna do the eviction process, or is there something else that you go off of?

Ryan Groene: Ohio is like anybody – rent’s due on the first, late on the sixth, so we enforce late fees as much as possible. Then we post three-day notices, and then after the three days they have whatever the County dictates. If they reach out to us and say “Hey, I’ve lost the job, or an expense came up. Here’s my payment plan. I’m gonna get back on track and I’m gonna make these payments.” Most of the times we’re willing to work with people, and if they stay by their payment plan and they show an effort and a communication that they’re willing to pay, then we won’t evict them.

We really try to not evict people, just because it ruins their rental history, and it makes our life harder too, because of court costs and all that stuff that goes with that… So a lot of times we will just approach them ahead of time and be like “Hey, what will it take for you to leave the home in good shape”, kind of like a cash for keys type of thing.

Joe Fairless: When you’re looking at eight properties, 500 spaces, you don’t have to necessarily name names of the community, but which community is the most challenging, or maybe not even say which one, because I don’t want you to get in trouble, but what are some things that make a certain community more challenging than others?

Ryan Groene: I think it really all starts with the manager. Every market is different, and that really determines your tenant base as well. We have some Hispanic communities that are different than the other communities that we have ten miles down the road. Every market is different and every community is different… And then the manager really is the key. If the manager does not want to do a good job, you’ll know very quickly, and therefore things could get out of hand at the property, and then therefore people may not pay, people may not take care of their yards, they may not do the number of things that you need to do to run a good community.

Some of the biggest problems I’ve had is with the manager. But once you get the right manager in there, the community definitely goes in the right place, because they’re the voice that is coming from you to them, and they’re transitioning a lot of the messages that we are either maybe e-mailing, or sending out via newsletters or whatever else to the  residents, and the manager really is the person telling the story.

If the manager wants the community to be a great place, it’ll become a great place. If they don’t, it won’t be. It’s also the asset manager’s (my) responsibility to step in at times and handle those situations if we need to.

Joe Fairless: What are some ways you add value to the community to increase your profitability?

Ryan Groene: Some ways aesthetically, or just from a pure numbers level?

Joe Fairless: Both, I guess.

Ryan Groene: Both. One, we normally improve the actual home. Sometimes we’ll buy properties that have really bad homes, bad roads, bad infrastructure, so we go in and we fix all that. Of course, we’ve gotta stay on budget, so we’ll pave the roads, fix the homes, bring in used homes, fix those up… If somebody can’t afford to do something – maybe to paint their house, or fix their siding, or fix their skirting, we’ll do that for them. Obviously, we will bill them back. So over time, the aesthetics that enhances the lives of the tenants, and it makes it a little bit more profitable, because people actually wanna live there…

Then we also go in, if there’s water and sewer issues, we fix the leaks and then we submeter the water and sewer. We will then bill back the tenants for their usage, which not only helps the environment out, because then we’re able to track usage, from both a property level and then an individual level, and then we bill them every month, so therefore we roughly hit about anywhere from 70% to 90% of our overall water bill that we get by submetering. That’s how we increase profitability, because we reduce our expenses from the water and sewer, which is probably the number one biggest expense when it comes to running a property.

Joe Fairless: Is that usually not done when you take over  a community?

Ryan Groene: Sometimes it is, sometimes it isn’t. The city may have one master meter at the front of the park or somewhere in the park, and then the park owner gets the bill. So we’ll go in and we’ll submeter all the homes; we’ll put a meter right where the water enters the home, and then we’ll be able to track that usage based on what goes in and what goes out… And then we have all the different calculations that goes into it, based on whatever the county bills us. That’s a little bit above me in terms of how that calculation is; I just know there’s mass stuff that goes into it. Even though I have a finance background, it’s a little bit complicated because it depends on the property and the billing.

Joe Fairless: Based on your experience, what’s your best real estate investing advice ever?

Ryan Groene: Based on my experience, my best ever advice is really just position yourself for an opportunity, even if that opportunity isn’t there yet… Because I think I placed myself in that kind of opportunity, just based on the fact that I have been educated, been looking at properties, and been doing all these separate things, and that’s how I got into the position of being the director of operations for Buckeye, and also purchasing my own community – because of the self-education and just talking with other investors.

Joe Fairless: That is a perfect piece of advice based on what I know about you… Because as you mentioned, you attended the meetup in Cincinnati when you lived in Cincinnati, and you attended for two years, right? Every month, or almost every month; you were there regularly… And we all go around the room and you say “Well, I’m looking for a mobile home park. I’m looking for a mobile home park.” And there were a couple months after I heard that, after 12 times in a row, I was like “Did you ever think of branching out into something else?” Like, “Nope. Looking for a mobile home park, and here’s what I’m doing…” You’re hitting the pavement and you’re getting after it, but you hadn’t found anything… And it took you how long to getting that first deal?

Ryan Groene: To actually purchase and close the contract – it took me three years, basically. A year of self-education, and I think that’s when I started coming to the meetup there in Cincinnati, which is a great meetup, by the way; anybody, if they’re in Cincinnati, reach out to Joe or look at his website… It’s the Best Ever Meetup, I think…? Is that what it’s called?

Joe Fairless: Yeah… Don’t reach out to me asking for it. Go to BestEverCincy.com.

Ryan Groene: Okay, got it. Yeah, so it’s been a long road. I always used to tell all the people I was a mobile home park investor before I actually even owned anything.

Joe Fairless: I was so happy to hear that, and now you’re off and running and there’s so much momentum behind what you’re doing… Because you were living and breathing that advice by placing yourself in a position leading up to that, and now you’re even doing that ten times more, since you’re working at a company and doing asset management; so you went all in, and I love seeing that.

We’re gonna do a lightning round. Are you ready for the best ever lightning round?

Ryan Groene: I am.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:22:28].08] to [00:23:50].03]

Joe Fairless: Best ever book you’ve recently read?

Ryan Groene: Capital Gaines, by  Chip Gaines.

Joe Fairless: Is that the TV show person?

Ryan Groene: Yeah, it was actually better than I thought. Somebody got it for me for Christmas… It was a really light and funny read. He kind of dove into his background and how they got to where they are… Better than I anticipated. If you need a light read or you’re at Target, pick it up.

Joe Fairless: Best ever deal you’ve done?

Ryan Groene: Probably the ones I didn’t buy… Because like you said, I was doing it for a long time without actually ever buying anything, and I was looking at two properties that were a little bit too small and too far away from me, and they probably would have been a time-suck and would not have made me any money… Or they would have kept me smaller, not being able to scale, kind of like I have gone all-in, like I am.

Joe Fairless: What’s a mistake you’ve made on a transaction?

Ryan Groene: Well, since I’ve only really done one transaction, I guess the mistake was not buying more sooner. Because the way that mobile home parks are — it’s becoming (I guess you could say) institutionalized, and there’s a lot of competition out for not a lot of inventory… So I should have started sooner.

Joe Fairless: What’s the best ever way you like to give back?

Ryan Groene: I’m active on Bigger Pockets and other forums. People reach out to me from time to time and I’ll take an hour or more talking with them and helping them learn the business, learn how to analyze the deal, just given my background, help them pick it apart… And then I also like to volunteer at animal shelters. I used to be on the board of directors at Animal Adoption Foundation in Ross, Ohio. Now that I have moved, I am no longer in that.

I enjoy just talking to people whenever I can about mobile home parks, and also helping cats and dogs that are in need.

Joe Fairless: How can the Best Ever listeners learn more about what you’ve got going on?

Ryan Groene: You can find me at themobilehomeparkinvestor.com, and you can also check out my company’s website at BuckeyeCommunities.com, and you can also e-mail me at ryan.groene55@gmail.com.

Joe Fairless: Ryan, I enjoyed our conversation. Nice work on that 75-space community, and thank you for sharing the lessons that you’ve learned; how important it is to have the right manager, and some ways that you add value to the communities. You help improve each of the mobile homes, and the utility bill-back is a big piece of the puzzle, too.

Thanks again for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Ryan Groene: I appreciate it, Joe. Have a good day.

Scott Lewis and Joe Fairless on a flyer for the Best Ever Show episode 1565

JF1565: How To Execute On A RV Park In The Middle Of Nowhere #SituationSaturday with Scott Lewis

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Scott is back on the show for a special segment today. We’re going to be talking about a deal he has going on. He found an RV park in the middle of nowhere, bought it, and is now telling us his business plan for the park. If you ever buy an odd property, you know you have to get creative sometimes, let’s learn from Scott’s experience and apply it to our own businesses. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluffy stuff.

First off, I hope you’re having a best ever weekend. Because today is Saturday, we’ve got a special segment called Situation Saturday. This is a fun one… You come across an RV park in the middle of nowhere, and there’s a lot of challenges involved with that… What do you do? How do you take it down? How do you execute the business plan?

Well, fortunately, we have a guest on the show today who has acquired an RV park in the middle of nowhere, and has implemented a business plan at that property, and we’re gonna talk about the challenges and the individual disciplines within the team members that are required in order to do this type of deal.

With us today, again, how are you doing, Scott Lewis?

Scott Lewis: Hey, Joe, and Best Ever listeners, and happy Saturday out there! Great to be back on the podcast. I’m doing outstanding, I just got back from a couple of days in Las Vegas, at a mastermind out there that was fantastic, and I’m happy to be on this show.

Joe Fairless: What mastermind did you go to?

Scott Lewis: It was a self-storage mastermind.

Joe Fairless: Okay. Who put it on?

Scott Lewis: Scott Meyers.

Joe Fairless: Cool. Good stuff. What was the takeaway that you got from it?

Scott Lewis: I don’t know that there was any one thing that I was taking away from it, other than as a company we’re doing all the right things to be able to acquire self-storages.

Joe Fairless: Well, it makes sense, and we will transition into the RV park… But first, I want to give a brief overview of Scott’s background — and you might recognize Scott from our previous interview, which was episode 965. It is titled “Why he sold all he had, went to war, then returned to develop land and syndicate big deals.”

A little bit about Scott – he’s the co-founder and chief executive officer of Spartan Investment Group. Spartan Investment Group has completed six million dollars in development projects and has 30 million more underway; has raised over 10 million in private equity. Those numbers might even be higher… I’m not sure what the latest is on those numbers. Also based in Denver, Colorado. With that being said, Scott, do you wanna give the Best Ever listeners just a brief refresher of your background, and then roll right into this RV park?

Scott Lewis: Thanks, Joe, and Best Ever listeners. I came to real estate by way of the military and the Federal Government. I’m still an active reservist, out here in Colorado, which is fantastic; I do a lot of good training that helps me be successful in my role as the CEO for Spartan Investment Group.

I started in real estate when I was in high school, building houses, and that’s kind of how I put myself through college as well, as a framer. I became a — I’ll say a “reluctant investor” in 2007 when I joined the military, because I bought a condo in 2005, and everybody’s aware of the history… I still own that condo. I won’t say it’s the bane of my existence, but it’s definitely a third leg that’s not all that helpful.

And then really just kind of got started in DC, bought a really crappy rowhouse, and flipped it, and that’s really what started our company, and we’ve just been growing ever since.

Joe Fairless: And one part of the growth was an RV park that you all came across. Tell us the story about that.

Scott Lewis: Yeah, it’s really an interesting story. It’s a story of — maybe we can call it an epic adventure, so we need some really cool instrumental music in the background right now…

Joe Fairless: You’re setting the expectations really high…

Scott Lewis: [laughs] It came kind of on a tangent to a two-property portfolio in self-storage that we were looking at taking down. Our primary mission right now is to purchase self-storages… However, that particular deal fell apart, and the agent was really impressed with our acquisitions process and how we handled that, and he was like “Hey, you guys gotta take a look at this… I’ve got a deal for you. It’s an RV park.” We were like, “Um, what?” He’s like, “It’s an RV park.” We’re like, “Okay, where?” “In Gardendale, Texas.” “Say again?” “You know, Gardendale…” “No,  we don’t know it.”

Joe Fairless: Everyone knows Gardendale…

Scott Lewis: Yeah, so we’re like “Alright, can you orient us to where we need to look?” He’s like “Oh, it’s just North of Odessa, Texas.” So for Best Ever listeners that aren’t geographically sound with Texas, Odessa and Midland are approximately about five hours South-West of Dallas, maybe about 4,5-5 hours… Pretty much do West of Austin, kind of in West Texas.

For the listeners that aren’t familiar with what West Texas is, it’s oil… And it’s actually called the Permian Basin, and it’s the second-largest oil shale outside of Saudi Arabia; it’s one of the main reason why–

Joe Fairless: Friday Night Lights?

Scott Lewis: Absolutely. Midland and Odessa were featured in a movie Friday Night Lights. That’s where it was. And it’s everything that you would think it would be – there’s tumbleweeds, lots of cowboy boots… A Prius could fit in the cab of every single pick-up truck that’s driving around down there…

Joe Fairless: Yeah, I was gonna say, there are no Priuses in Gardendale, Midland or Odessa, Texas.

Scott Lewis: Yeah. For any listeners that are down there, if you rent a Prius, a Dodge Ram or a big Ford  F-150 will eat your car.

Joe Fairless: Yeah, yeah… [laughs] If you’re driving a Prius in Odessa or Midland, your safety is in danger, I believe.

Scott Lewis: You are incredibly in danger if you’re driving a Prius down there, so do not do that. But just a quintessential, solid Texas town. Good community, good, solid, hardworking Americans that are working in the oil fields down there. So when the agent first proposed this, our director of acquisitions brought it to us, and we said no. No way in hell. And he started running the numbers on it, and they were offering it at a 16-cap, which for an RV park is a little high, but it’s not outrageous.

Our acquisitions director started running the numbers and that cap rate started creeping up. So by the time he was done running his analysis, it was right around a 20 or 21-cap. So that started to pique our attention. That’s when we really started to dig into “Well, what is this about?”, so that we understood the underlying reasons for the sale. It was a group of cousins and friends and brothers that had formed to buy and build the park, but they just weren’t really getting along, and it was just time for them to part ways and get rid of the park.

They didn’t have great management systems just because it was kind of a fractured relationship, and that’s not really what [unintelligible [00:09:07].16] We’ve actually become good friends with them, and they’re just good, solid, hardworking Americans. They do dirt work and paving. That’s what they specialize in, not operating real estate assets. So the park had kind of been run down a little bit, it wasn’t being operated very well, and it had just kind of become a thorn in the side for some of the partners, and they decided that they wanted to sell. So it was a really good situation.

So right out at the beginning, once our director of acquisitions convinced us to do this deal, we’re up against a cash offer, and the cash offer was offering to close really quick. This was in November of 2017. Well, we went back with an innovative strategy to say “Listen, you actually don’t wanna do that. You wanna take our offer, which will be private equity and debt, and we’ll close on January 5th, so that you can delay your taxes an extra 18 months, versus having to pay the taxes in 10 months if you close in 2017, since we’re so close to the end of 2017.” And they were all over that. So that’s a potential strategy, Best Ever listeners; if you are trying to close a deal in the end of the year, you may be able to add value by just waiting a couple of weeks, because it’ll allow the seller to basically have a tax-free loan for up to 20 months, or 18 months, whatever it is, if they extend their taxes. So it’s a tactic that you can use to potentially win deals with not being the highest price offer.

But anyway, so we went under contract with that, and it was heavily contingent on financing. It was going to be a very, very tough deal to finance, because it’s an RV park in Odessa, Texas. However, when we did the feasibility work, it had fantastic fundamentals from a feasibility standpoint, and the Permian Basin when compared to other oil producing areas, had the most resiliency through boom and bust cycles. They’ve been doing it for 80 years.

The people of the Permian are resilient, they’re tough, understand how to ride those waves out. So even in the worst times, when oil was in the $25/barrel area, unemployment was still 5% to 7%, versus up in North Dakota or Wyoming, where unemployment reached double digits.

So we decided to go forward, and we decided to go out and raise private equity and take down the park. The price of the park was 1.71. We had negotiated a $40,000 credit to fix some [unintelligible [00:11:37].21] stuff, so we were gonna raise about a million dollars to do some repairs and maintenance, and then we were gonna take down a loan for a million bucks. We called EVERYBODY. Everybody and their mother, and we couldn’t get it financed at all. The financials were a mess, the record-keeping wasn’t good… It was very, very hard for us in our due diligence to even understand what we were gonna be getting into, and it was even harder for banks to understand.

So at the last minute we found a hard money lender that agreed to lend us money, and we were able to raise the private equity. It’s a pretty good return; our investors are earning 26% cash-on-cash on that particular deal, and it’s supposed to be a four-year deal, so it’s about 100% return over four years… Pretty darn good return, and really good cashflows along the way, but it was the debt financing that was really tough,

Here’s where we really kind of shined as a team – our director of business intelligence had put together a phenomenal feasibility study. Just really good, really easy to follow, and our investors loved it. The debt lender loved it, as well. It was all juiced up, ready to rock, and then about a week or so before we were ready to close, they just up and decided not to fund us, at all.

Joe Fairless: Why?

Scott Lewis: That was really interesting. They told us that the financial part didn’t make sense; we weren’t strong enough as a buyer, and they didn’t like the fact that we didn’t live there. What was really annoying about this is they had everything, all of that information, for a month before they decided just to pull out at the last minute. So what we think is that those buyers failed on their side and they couldn’t get it done, and instead of acting with integrity, they blamed it on us.

I’m not gonna say their name, because I just don’t wanna deal with the legal ramifications of it, but when we have an opportunity to give a recommendation for these folks, it will not be positive. We do not believe they were good people, and they did not act with integrity at all.

Joe Fairless: Imagine coming across that in commercial real estate. Shocking.

Scott Lewis: I know… It was really irritating, because they could have told us no a month before. There was absolutely nothing new that they discovered.

Joe Fairless: So that was two weeks before the scheduled close?

Scott Lewis: About a week or so… A week and some change.

Joe Fairless: About a week before scheduled close. How much money and time did you have into this deal at that point?

Scott Lewis: We had gone hard on our earnest money, and we had pulled some studies, and this and that… So it was about 50k.

Joe Fairless: Okay. What was the earnest money?

Scott Lewis: 30k-35k, somewhere in there.

Joe Fairless: Okay. And then how much time would you estimate that you all had put towards it in total number of team hours?

Scott Lewis: Oh, in total number of team hours? Between trips, acquisitions, capital, finance… Maybe 100.

Joe Fairless: Wow. Alright, so you’ve put a lot of time and money into this deal, a week before closing financing falls through from the debt side. Equity side is still strong, right?

Scott Lewis: It is. Fully raised.

Joe Fairless: Okay… So now what do you do?

Scott Lewis: Well, as we mentioned at the beginning of the podcast, I’m a military guy, so I am fanatical about planning, and I’m fanatical about planning worst-case contingencies. In the military, in a planning process you have the most dangerous course of action and the most probable course of action. Now, from a military perspective, that’s based on what the enemy is gonna do. So when we look at our deals, we have a couple of different enemies, and one of them is always the lender. The lender in our deals is always one of our enemies… Another one being government bureaucrats, or something along those lines. Not a quintessential enemy, but someone that could act in such a way that it would damage our ability to execute our mission.

So for this particular one, our acquisitions director had gone through and analyzed the most dangerous course of action and the most probably course of action for the lender. The most dangerous course of action that we had built out two months earlier was that they would pull out a week before closing.

Joe Fairless: [laughs] Wow…

Scott Lewis: It was already in our system… And then with each one of these most dangerous and most probable courses of action, we have mitigation strategies to take care of it if those come to pass. So the plan was already written.

We basically just did nothing for 24 hours, reviewed our plan, and the plan that we had written was that banks were going to fail, so we would have no choice but to raise our own private debt instrument from our investors. That’s the only thing that we could do. We had never done it before, we didn’t know how to do it, but that was our plan.

96 hours later we  had a promissory note written, a deed of trust written, and a million dollars raised at the same terms that the hard money lender was gonna give us, and we closed the deal.

Joe Fairless: Wow… What are those terms?

Scott Lewis: They were miserable. 12,5% interest-only loan.

Joe Fairless: What was it, 12,5%?

Scott Lewis: It was.

Joe Fairless: 12,5% interest-only loan… For how long?

Scott Lewis: It had a three-year payback, but if we went to years two and three, we got hit with an additional point each year, plus we had to give up equity positions to the debt guys if we went there. So it was basically 12 months to get our act together and get different financing on  it.

Joe Fairless: Okay. How long ago did you purchase this property?

Scott Lewis: We closed March 1st.

Joe Fairless: Okay, so we’re still in the 12-month period; I’m very excited to hear how it’s going… But I don’t wanna fast-forward too much. Alright, you all found the person for the hard money… And how did you know this person?

Scott Lewis: It was actually 12 of our investors. They were our normal equity investors that just took a debt position on the property. We actually had maybe two or three investors that actually took a straddle position to where they had equity and debt. They did both.

Joe Fairless: And the original lender backs out… A little shock, but you have that in the worst-case scenario for your contingency plan… What did you do to communicate, or rather how did you communicate to your investors the fall-out and what you needed in order to close?

Scott Lewis: It’s a good question. For the equity side we really didn’t even have time to communicate. We sent out an e-mail basically saying “Hey, this is what’s happened. Here’s our course of action going forward. Anybody that’s in on the equity side, are they interested on the debt side?” So we had a couple of people raise their hand right away. We had very, very little time and we executed the strategy in four days or so. 96 hours I think it was when we had closed the million bucks on the debt side.

Then we just opened it up to our regular list. We put it out to our list of our personal investors that know us; we had personal relationships with all of them… And we just put it out to our list, and we had an overwhelming coming back to  say “Yeah, we’re gonna do this with you guys.” Everybody loves 12,5% interest for the first lien position on an asset.

Joe Fairless: And why did you go with those terms, instead of a little bit less than that?

Scott Lewis: Good question. We had very, very little time, and we really didn’t have time to struggle with the raise. We wanted to make sure we could take this down, because it was a good deal, as I’ll get into here in a minute, for the operation side of the house here. It was a really good deal, and we wanted absolutely zero probability that we wouldn’t be able to execute.

So we kind of took it on the chin a little bit upfront, knowing that we were gonna be successful in our business plan and that we would be able to take it out later.

Joe Fairless: So you’re about 7-8 months into it… What’s been the result?

Scott Lewis: The operations have been fantastic. Our business plan was to do a number of different upgrades to the park, stemming from cap-ex, like improving electrical, to just vanity upgrades, by putting in a fence around it and just really making it a much better environment, to operational upgrades such as digital management software, better marketing, a call center, you can pay by credit card… All the barely standard improvements that you would do to a particular asset to take it from a class C to a class A asset, as much as an RV park can be a class A asset.

We plan to add additional spaces. The park started out with 102 spaces, and we are in the process of finishing up 14 more, so we’ll have 116. We actually installed a propane dispensing station on-site and got our managers trained, so people can stop by and buy propane at our facility now. We’ve just done a number of different upgrades, which has allowed us to raise rents… I’m not sure what the percentage is, but it’s over $100/month per spot, and that’s really driven the NOI up a lot, by a factor of probably double or triple.

Joe Fairless: You’ve still got the loan on it?

Scott Lewis: We’ve just executed the refinance on the loan…

Joe Fairless: Oh, bravo! What a relief…!

Scott Lewis: It was. And we were able to do it in a fantastic way, as well. We went out and we engaged some lenders, and we actually got a really good bank down in the Midland area. They were really awesome to work with, and they gave us a term sheet, and it was our plan all along to go down and see what we could get from financing. When we have an opportunity to pay people, we wanna pay our own people.

The bank gave us good terms. They were a great fit for us. The terms we cut was 5.5% interest, amortized over 15 years with personal guarantees. So the interest rate – fantastic; the personal guarantees we were really kind of ambivalent to. We didn’t really care. But the amortization over 15 years – it really didn’t do the greatest for the cashflow for the park.

Joe Fairless: Right.

Scott Lewis: So what we did is we went back to the investors that had done the loan with us in March, and we had told them all along that our primary objective here is to refinance this loan out as fast as we can, because we have a fiduciary responsibility to our equity investors to make the park produce as best as possible, and one of it is to get rid of a very high-interest loan.

So we went together and we put together a new terms sheet for them, and we offered 8% interest-only, because that’s what we felt was good for our investors, we liked the interest-only, we wanted to take care of our people, it reduced the burden of debt on the park by $3,800/month in debt service, and it allowed us to take care of our internal people.

100% of the investors said “Fine, modify the loan and we’re good to go.” So now we are at 8% interest-only, versus 12,5%, and we did that in about six months.

Joe Fairless: That’s beautiful. And it’s amortized over 30 years?

Scott Lewis: It’s just an interest-only loan–

Joe Fairless: Yeah, it’s interest-only so it doesn’t matter.

Scott Lewis: Yeah. It’s really been good that — you know, people are still getting a solid 8% return, and the equity investors are getting a lot more as well.

Joe Fairless: What’s the term of the loan?

Scott Lewis: It has a balloon at five years, with extension periods to six and seven years with one point. At seven years, if something has happened and we can’t refinance it, then in addition to continuing to receive that higher interest, the debt investors get equity positions that comes out of Spartan’s stake on the deal. So not only will they have a debt position, but they will also get equity positions as well, if we can’t refinance them out.

Joe Fairless: Wow. I love this story, this epic adventure, and I love this case study. How can the Best Ever listeners learn more about what you all are doing?

Scott Lewis: They can find us on Facebook, Spartan Investment Group on Facebook. You can go to our website at www.spartan-investors.com, or you can reach out to me at scott@spartan-investors.com.

Joe Fairless: Or they can meet you…

Scott Lewis: Oh, absolutely. We’re gonna be speaking at the Best Ever Conference. I believe it’s February 23rd and 24th, 2019. We’ll have a booth there. Best Ever listeners, and those of you that are new to the Best Ever podcast, I wanna say from a participant in every single Best Ever Conference that it is by far the best ever conference that I’ve ever been to, and I do not like conference at all. Joe puts on a fantastic conference.

So don’t worry about the cold in Denver… A little secret here – sometimes it’s 50 degrees, 60 degrees in February. Anybody that comes to that conference will have an absolutely amazing time, and I don’t care how long you’ve been in the business, you will learn a ton.

Joe Fairless: So meet Scott at the Best Ever Conference, February 22nd-23rd. You can go to besteverconference.com.

I enjoyed our conversation today and loved learning about this case study on the RV park. Then also I enjoyed your presentation last year at the conference… In your presentation last year you talked about the planning for how you look at worst-case scenarios, and lo and behold, here you go, now you put it in action.

Thanks for talking about this case study, thanks for being on the show. I hope you have a best ever weekend, and we’ll talk to you soon.

Scott Lewis: Thank you, Joe. I appreciate it, as always, being on the show.

Mobile home syndication

JF1220: He Took His Money Out Of The Stock Market To Syndicate Self Storage & Mobile Home Parks with Hunter Thompson

Listen to the Episode Below (29:20)
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Hunter was always an entrepreneur. He started as a high schooler selling parking spots out of his backyard when there was an event going on. His first venture into investing was in the stock market. Hunter didn’t like that some many variables that were out of his control, could determine how much money he made or lost. Enter real estate. Now Hunter and his team syndicate opportunities, most notably self storage and mobile home parks. Today we’ll hear higher level tips and suggestions for investing in those two asset classes. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

 

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Hunter Thompson Real Estate Background:

Founder of Cash Flow Connections, a real estate syndication company

– Has helped investors allocate capital to over 100 properties, which have a combined asset value of $350MM.  

– Host of the Cash Flow Connections podcast, which helps investors learn from intricacies of commercial real estate

– Based in Los Angeles, California

– Say hi to him at: https://cashflowconnections.com/

– Best Ever Book: 4 Hour Work Week

 


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TRANSCRIPTION

Joe Fairless: Best Ever listeners, how are you doing? Welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any of that fluff.

With us today, Hunter Thompson. How are you doing, Hunter?

Hunter Thompson: Joe, it’s an absolute honor to be on here. Thanks again.

Joe Fairless: My pleasure, and nice to hear that, that’s for sure. A little bit about Hunter – he is the founder of Cashflow Connections, which is a real estate syndication company. They have helped allocate investor capital to over 100 properties, which have a combined asset value of over 350 million dollars. He’s also the host of Cashflow Connections Podcast, and he is based in Los Angeles, California. Their website, where you can learn more about Hunter and his team, and their company and what they’ve got going on is CashflowConnections.com. There’s a link to that in the show notes page. With that being said, Hunter, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?

Hunter Thompson: Absolutely. My grandfather was a successful businessman in the ’70s and ’80s, and I learned a lot from him growing up, really from the legacy of just owning a business, investing in hard assets, and allowing compounding interest to create wealth. I was very much an entrepreneur at a young age.

I remember my parents lived next to a popular concert venue, and when I was about five or so these events were taking place, football games or concerts; parking the area would be just a complete nightmare and was really challenging, so I remember selling parking spaces out of the backyard for $10 or $20 and splitting the profits with my mom. That’ll kind of give you an idea of how I was growing up.

Then 2008 happened, obviously a paradigm shift for a lot of people. I knew that there was going to be an opportunity in financial assets just because price deflation had been taking place over all the sectors of the economy, but particularly financial assets. So my original interest was in stocks, but that later changed just because of the lack of predictable cashflow and the volatility in the market, and I remember — it wasn’t really until 2010 or so, that’s when the European debt crisis was taking place, and I remember watching CNBC, and the anchor was talking about the Greece bond yields; they were saying that if the Greece bond yields remained below 7%, that the S&P 500 was gonna be fine. But if the Greece bond yields went above 7%, the S&P 500 was gonna collapse.

I just remember watching the Dow Jones take 600 point intraday swings and thinking, “How is it the case that something completely complicated, unmitigatable that I just could never conduct due diligence on or control is playing a significant role in my financial well-being or my financial future?” and that’s what really led me into real estate.

In California in particular the market had been completely decimated, so when I started jumping in with two feet and going to 3-4 networking events a week, I was building relationships with probably 5-10 people at each networking event. But when the market recovered, I came to find out that because these were the people that had been able to weather the storm, they ended up being some of the most successful and influential real estate entrepreneurs in the state of California, and this is kind of unknowingly at the time, but that’s really what led me to start Cashflow Connections and leverage those relationships from my business and from my clients, and those relationships still play a huge role in my business today.

Joe Fairless: What is your business model?

Hunter Thompson: We syndicate opportunities for accredited investors. We identify asset classes that are poised to perform in either economic standpoint or demographic standpoint or something similar to that, and identify sponsors who are best in class in those particular asset classes.

Then we syndicate opportunities for our investors to invest alongside of us, and I invest in each opportunity, and basically provide a passive investment on a vetted passive opportunity in a vast amount of asset classes, particularly recession-resistant asset classes, most notably self-storage and mobile home parks.

Joe Fairless: I see on your website you’ve got properties across the country, and I’m looking at Recently Closed, and one’s in Fayetteville, North Carolina – I was thinking Arkansas – and you’ve got things across the country… How do you qualify these deals in all these different markets across the country?

Hunter Thompson: That’s a good question… A couple different things. First of all, from a geographical location standpoint, a market identification standpoint, we’re consistently seeing opportunities in the South-East in self-storage, and the reason for this is the two driving factors of really what makes a good market  – the economics and demographics.

The economics is such that in the South-East the cost of living is low enough to substantiate — if you’re making $50,000/year you have a relatively comfortable life and have the capacity to do the two things you need for self-storage, which is things to store and money to pay for the service. And you kind of compound that with the demographic shifts that are taking place, particularly in markets like Florida, where a lot of baby boomers are retiring and moving to that market. Baby boomers present an interesting data point with self-storage because social security checks are probably around the $1,300/month range, the average two-bedroom apartment is about $1,200/month, so a lot of these baby boomers that are retiring (10,000/day or so), they’re being forced to downsize. And when they’re downsizing, they’re very likely to keep their stuff. When you’re put in that position, you’re very much more likely to be a tenant of self-storage, so it presents an investment opportunity.

In terms of going and doing due diligence across the country, going on-site is probably the last stage of due diligence. We’re very heavily reliant on upfront due diligence in terms of not only markets and demographics and economic third-party verification in terms of verifying those data points, but when you go on-site you learn a lot… Not only in terms of the market – you can get a feel for things that can’t really come across on the spreadsheet, but also in terms of the previous property manager, which kind of paints the picture for where the value-add is gonna be in that particular opportunity.

Joe Fairless: Let’s dig in there. You said you do third-party verification prior to going on-site… What are those data points that you’re specifically looking for?

Hunter Thompson: I’d say with self-storage there’s a couple things you wanna look at. First of all, it’s really good to have 50,000 people within a five-mile radius; that is gonna provide you with a substantial economy, with a diverse employment group. Now, this is typically, right? Some things change, but that’s just a good data point to look at.

We wanna see 20-25 daily traveled vehicles per day, and something else to keep in mind is–

Joe Fairless: Wait, 20 to 25 thousand…?

Hunter Thompson: Thousand, yeah. That’s important. 20 is not gonna cut it. What’s equally as important as that extra times 1,000 there is that the vehicles have visibility to the facility. You can get caught up in that data point and inappropriately assess the value and the visibility by just looking at how many vehicles pass by.

In self-storage in particular, a lot of properties may be tucked away behind something like a Walmart, which makes it completely invisible. That needs to be taken into consideration. A medium household income is also very important, and that’s something you wanna look at in the three and five mile ranges. I like to see 50,000.

One of the things you hear a lot with self-storage is that the asset class is still relatively new, and it experienced a tremendous increase in its overall scale over the last 20 years or so. From about 1993 to about 2010 or so, the number of facilities more than doubled, from about 20,000 to 53,000. So right now there are more self-storage facilities in the U.S. than there are Subways, Starbucks and McDonald’s combined, which is just unbelievable.

Now, that paints an important data point in terms of the desirability of the asset class from an investor’s perspective, but more importantly, they’re easy to build. So you have to identify markets that are under-supplied, and one of the ways to do is to look at the national average, find the number of square foot per person in particular markets on a national basis, and find where that market sits in that space. So we underwrite deals typically to seven square foot per person, and multiply it by the population size and you get a good idea of the supply/demand equilibrium in that market.

Joe Fairless: Seven square feet of self-storage per person?

Hunter Thompson: Correct.

Joe Fairless: Okay. Because I’m slow, will you run that formula by us one more time?

Hunter Thompson: Basically, the number of people times seven in the market, and that will give you a good idea of the demand for square footage in the market. For example, when you create that calculation you will find a number of square feet, and if the number of square feet that’s already available in the market is above that number, the market is over-supplied. If it’s below that number, it’s under-supplied.

And just to add to that, one of the things you wanna look at is a typical self-storage facility is somewhere between 50,000 to 100,000 square feet. Those are the ones we look at, at least. So if you have a market that is 200,000 square feet under-supplied – which is possible – within a five-mile radius, that means that even if one was built next door to your facility that you’re considering buying, you’re still gonna be in an under-supplied situation. That’ll kind of give you an idea of some of the metrics that we look at.

Joe Fairless: And why seven?

Hunter Thompson: That’s just basically what the national average is. The national average is about 7.8, so to be conservative we use 7.

Joe Fairless: 7.8 square feet per person of storage facilities in that market?

Hunter Thompson: Exactly. And you wanna look within, let’s say, a five-mile radius.

Joe Fairless: Okay. That was my next question.

Hunter Thompson: Exactly. So  you wanna look at it on a radius-basis, and you can do this in particular markets, and it’s important to keep in mind that some markets, that supply/demand — that doesn’t paint the entire picture. So there are some markets – lakes, for example, where people are gonna be really likely to use self-storage because they’re using boats and jet skis and stuff like that, or they are more affluent markets etc.  There may not be a lot of population, but there’s gonna be a lot of demand for self-storage.

So it’s something to keep in mind, but it’ll give you a good idea on initial due diligence in terms of that [unintelligible [00:12:48].01]

Joe Fairless: Is it possible to search publicly how many self-storage units there are within a five-mile radius?

Hunter Thompson: To get accurate data you have to use a paid program. It’s possible to estimate it based on looking on Google and estimating the square footage of each property, but to get accurate data you have to use something like Costar or something in that range, $2,500 or $5,000 a month.

Joe Fairless: Is that what you use?

Hunter Thompson: Yeah, and this is in conjunction with our sponsors, as well.

Joe Fairless: Okay. That’s how you identify the opportunity with self-storage. Now, you mentioned — the other thing I’d like to learn more about is you said “going on-site is the last part in the process.” You do a lot of preliminary upfront work… What are some of the things when you attend that walkthrough for the first time that you’re looking for?

Hunter Thompson: There’s a couple of things to take note of. First of all, the real opportunity — and this is just my opinion; people have different opinions about this, but in my opinion, the real opportunity in self-storage is in value-add. The way that value-add is created is two-fold. You have a very sticky tenant base. These facilities are usually highly occupied, but there can be a significant discrepancy between the physical occupancy and the economic occupancy. This is a term that is used in other asset classes, but I’ve never found an asset class where it’s more important in self-storage.

For example, you can have a property that’s 90% occupied, going along, cashflowing, that’s 67% physically occupied. The discrepancy there, the delta is due to things like low rents, mismanagement, or management being overpaid, concessions being too high, prepaid rental rates etc. And you can also look at things like U-Haul. U-Haul is a strategy that we implement in conjunction with our sponsors where we have a relationship with U-Haul, we allow U-Haul to park their trucks on the facility; they park 15-40 trucks, depending on the site of the facility. We rent those trucks out to the tenant base and get compensated from U-Haul for facilitating the transaction.

The reason this is key is that on a risk-adjusted basis this is really favorable because there’s no capital expenditure there. We’re not maintaining the trucks, we’re not buying the trucks; they’re just simply parking the trucks there, and I have personally invested in facilities where this one line item has gone from $0/month to $3,500/month, directly to the bottom line, just from those commissions. So if you’re looking at $3,500/month times 12 divided by 7-cap or so, you’re talking about $600,000 worth of equity, and on a risk-adjusted basis, again, very favorable.

There’s several other strategies similar to that, but that’s the one that’s very simply implemented, and very favorable.

Joe Fairless: What’s number two?

Hunter Thompson: In terms of those strategies?

Joe Fairless: Yeah.

Hunter Thompson: Mandatory tenant insurance is another good one. So you can advertise rates by saying “$120/month for climate-controlled units.” Then when the tenants get on the site, you say “By the way, we have to have mandatory tenant insurance for all of your items, so that in the event that something goes wrong, all of your items are insured, you get paid out.” Very similarly, you facilitate that transaction and get a commission for facilitating it, and this again can add something close to $1,500/month directly to the bottom line, which is $200,000 or $300,000 in equity.

I think the key there is you’re just really padding your equity position so that in the event of a capital market correction, or something like we saw in 2008, your equity position is better solidified and your loan-to-value is more stabilized and secure.

Joe Fairless: That’s the value-add component, and that can help some Best Ever listeners make a whole lot of money in self-storage. I appreciate you sharing that. I wanna go back to the question of what you look for when you’re on-site at the property… So what are some of the things you look for?

Hunter Thompson: First of all, we’re looking for the lack of the implementation of those strategies that I just mentioned. One of the things that we wanna find is signs that it’s run by a mom-and-pop operator. You can see little things — for example, we were on-site a few years ago and the manager was renting scissors. They had one pair of scissors that he was renting out, because people use boxes when they’re moving etc., so he was just renting out these scissors to the tenants, for free. Now, that isn’t really gonna affect the bottom line, right? We’re talking about $7 worth of margin, of maybe 50% or so – it’s not really gonna make a huge deal on the spreadsheet, but the key there is the mindset that this person was going about his business with. It’s thinking of it as a business, as opposed to just thinking of it as a way to make some cashflow, and that’s the key. The business operates much more like a fully-functioning business than a cash-flowing passive investment vehicle… Though it can be profitable both ways.

Joe Fairless: So when you arrive on-site, you’re looking for signs that it’s run by a mom-and-pop operator… But wouldn’t you already know that it is or isn’t run by a mom-and-pop operator, since you’ve done all this due diligence before you get there?

Hunter Thompson: Yeah, absolutely. That would be in late stages, but those things can paint a very good picture, but it’s hard to look [unintelligible [00:18:22].08] So the reason I’ve mentioned that is that when you’re looking on a spreadsheet, people may pass on opportunities that are absolute goldmines.

I mentioned earlier that a facility may be 90% occupied; most investors that are listening to this podcast for sure will probably say, “My money’s better spent in other places, where there can be significant value-add”, but because of that and the combination of the tenant base, which is very sticky – it’s definitely something I should touch on – because there are monthly lease renewals and the gross dollars is relatively low… So if you raise rents by, let’s say, 6%, that may be something like $6 or $9/month to the tenant base. So the question really becomes “Is this tenant gonna take the time off work, move down the street where they’re probably going to do the same thing, just for the $6/month or so?” Overwhelmingly, the answer is no. So those value-add strategies can be implemented very quickly because of the sticky tenant base and the monthly lease renewals and the low gross dollars amount.

Joe Fairless: Now taking a step back, looking at your business, when you put together a deal, how do you make money?

Hunter Thompson: We’re compensated based on performance above a pref. So our sponsors get compensated and we create an LLC, and our accredited investors invest into that LLC, and we get compensated based on the performance above a pref… A share in the proceeds above a preferred return.

Joe Fairless: Okay, and what are the typically fees that are charged?

Hunter Thompson: We kind of looked at a couple different structures out there, and I’m very much aligned with — incentive alignment is like a driving factor in my perspective on investing, as well as a business owner… So the 2 plus 20 is the typical private equity firm… They’re incentivized to raise money, and that’s how they make money; that 2% assets under management fee is gonna be paid regardless of performance. Now, the reason they do this is because it’s scalable and predictable etc., but we have foregone that and will continue to do so as long as possible.

So in replace of an 80/20 plus 2 or something like that, we usually implement something close to a 7% preferred return with a 70/30 split thereafter. This results in something that’s very competitive with the other platforms or private equity groups out there, but the key is that 90% to 100% of the compensation is based on performance. So when you compound that with the fact that I personally invest in each opportunity… We’re not doing a lot of deals; we’re doing deals that I’m personally confident will perform, for my own portfolio, and that’s really the way that I like to set everything up.

If something goes sideways and someone says “Hey, this is going sideways”, trust me, I know; I’m gonna be on top of it more than anyone else… And I like that. So that will give you a good idea of the fee structure there.

Joe Fairless: Okay, great. And do you also have an acquisition fee?

Hunter Thompson: To this day, we have not been paid cash for any acquisition fee. We can be compensated and typically are compensated in shares, again. So it’s performance above a preferred return. That’s something that can be deal-dependent, obviously, but I wanna have as much exposure to these opportunities as possible, so that’s the way that I prefer it.

Joe Fairless: Got it, okay. So there’s something like that, but instead of dollars, it’s additional ownership shares in the deal.

Hunter Thompson: Exactly, and I think that’s important, and it’s a really important question to ask how is the compensation being presented, because earlier I mentioned there’s a co-invest. Well, if I said there was a $100,000 co-invest and I have a $200,000 acquisition fee, there is no co-invest, to say the least, and I’m incentivized to just do deals. So I don’t like that. I like being very picky, and I’d be happy to do four deals a year for the rest of my life. So that’s what I look for.

Joe Fairless: Based on your experience, what is your best real estate investing advice ever?

Hunter Thompson: I’d say focus on education. Programs like yours – you’ve had hundreds of millions of dollars or billions of dollars of information from your guests come on your program and talk to your audience for free, and it’s crazy the amount of content which is available, that was not available when I was going to those networking events I mentioned is unbelievable.

When you build relationships with people  that focus on education, they’re always in it for the long-term. That’s why they’re focusing on helping educate their clients, and that is totally the game in real estate. Building relationships for the long-term, building life-long relationships based on aligned incentives is really the key.

I offer a  free podcast as well, I had some very sophisticated individuals… I very well could turn that podcast into a course and charge $1,000 for it, but I just like helping people, so that’s kind of been my motto.

Joe Fairless: How do you qualify deals across multiple asset classes? Because I see on your website that you’re in multifamily… We’ve spent most of our time or all of our time on self-storage, but I see also mobile home parks, performing real estate notes, office space etc.

Hunter Thompson: Yeah, sure, it’s a good question. I’d say that a lot of people that are successful in business say that you have to be laser-focused, and if you try to be too diversified in your focus, you’re not gonna accomplish anything; you certainly won’t be an expert in anything… And people may look at the portfolio, and look at my own personal investment portfolio and say “How do you have an edge?” Well, the reality is I’m hyper-focused in the passive syndication space, and my value-add is identifying asset classes and identifying sponsors that can be complete experts in their particular field.

My expertise is by really conducting a significant amount of due diligence on sponsors, and going through those underwriting assumptions on a line-by-line basis, trying to figure out who I’m dealing with, going on-site (like we mentioned earlier), and that’s really the value-add there.

When you’re able to leverage other people’s expertise, time, access to credit, liability etc., you can build a diverse portfolio without doing what a lot of people may do when they try to spread themselves too thin.

Joe Fairless: Are you ready for the Best Ever Lightning Round?

Hunter Thompson: Let’s do it!

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:24:30].25] to [00:25:19].24]

Joe Fairless: Best ever book you’ve read?

Hunter Thompson: The 4-Hour Workweek.

Joe Fairless: Best ever deal you’ve done?

Hunter Thompson: You know, we mentioned it earlier… That Fayetteville, North Carolina deal is definitely up there. Bought for 6, it’s gonna be sold for 9,6 very soon.

Joe Fairless: Over what period of time and how much did you put into it?

Hunter Thompson: It’s been about three years… As I said that, another one came up – there was another mobile home park deal we bought for 9 and sold for 20, and I think it’s probably gonna outshine that one. That was taking place about four years.

Joe Fairless: On that one example, the Fayetteville one – bought at 6, selling at 9,6, right? Did I hear you correctly?

Hunter Thompson: Yeah, something very close to that.

Joe Fairless: Something close to that. Three years… How much did you all put into it?

Hunter Thompson: We put in a total of about 200k on that one. We obviously partnered with other capital partners to take down the entire equity stack.

Joe Fairless: You mean for improvements — not your equity into it, but in order to get it from six to nine I imagine there was some cap-ex money that was put into it. How much of that was put into it?

Hunter Thompson: About 800k.

Joe Fairless: Okay, so you’re all-in around seven, and you’re selling it at about 2.5 more than that… What would you attribute that to primarily?

Hunter Thompson: Well, it’s not exactly about the return there, it’s about the risk-adjusted basis. So all those strategies I was mentioning earlier – none of them were being implemented. So the way that that was able to happen was just implementing those strategies. Not building a new facility, not expanding units etc., but just implementing those strategies.

Joe Fairless: Cool. And you went through those value-add strategies earlier. I appreciate that. What’s a mistake you’ve made on a transaction?

Hunter Thompson: Well, I made a bet on an operator that didn’t have a lot of experience, in an asset class I don’t think is very scalable, which is single-family houses. Fortunately, the operator was me, so it didn’t cost me very much money, but I learned my lesson.

That was one of the first things I think a lot of people do – invest in houses that are $30,000 or $50,000, thinking that they’re gonna perform as they do on paper. I made that mistake early on in my career.

Joe Fairless: How much did you lose?

Hunter Thompson: About 30k.

Joe Fairless: What’s the best ever way you like to give back?

Hunter Thompson: I am very much a fan and a proponent of capitalism and free markets, so this is an important question, because it’s challenging to answer without tampering with markets… But I think that disaster relief is one of those instances where you can make a significant difference without tampering with the market. Team Rubicon is someone that specializes in those particular situations.

Joe Fairless: How can the Best Ever listeners get in touch with you?

Hunter Thompson: Feel free to e-mail me at any time – HunterThompson@cashflowconnections.com. I also have the website, CashflowConnections.com, and we have a podcast — if your podcast listeners out there love to get your perspective on the show, it’s The Cashflow Connections Real Estate Podcast.

Joe Fairless: I think we have a lot of podcast listeners, and I am very grateful, Hunter, that you spent some time with us. You got very specific, which we always love to hear, about how to evaluate the demand for a self-storage facility, talking about the number of people times that by seven, and that gives you the demand, and it’s the number of people within a five-mile radius.

Obviously, there are variables in play, like with any generalization like that, but that is a good rule of thumb for us to get started, and how to evaluate demand. If it’s over that amount, then it might be over-saturated or over-supplied; if it’s under, then it might be under-supplied… That’s the seven mark.

Then also the way that your company makes money, as well as ways to add value for self-storage facilities, and you gave a couple tips there.

Thanks so much for being on the show, really grateful. I hope you have a best ever day, and we’ll talk to you soon.

Hunter Thompson: Awesome, Joe. I really appreciate it.

Best Real Estate Investing Advice Ever Show Podcast

JF1053: Pros and Cons of Mobile Home Park Investing #FollowAlongFriday

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Time for an update on Theo’s deals, and hear about Joe’s recent hit and run incident in Dallas. We’re answering a few listener questions today. And of course, as the title says, we’re talking mobile home park investing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

To learn more about mobile park investing, visit the following:
-JF161: How to DOUBLE the Value of a Mobile Home Park: https://joefairless.com/podcast/jf161-
-JF956: Why He Traded Billboards for MOBILE HOMES!: https://joefairless.com/podcast/jf956-
-Why Mobile Home Parks Are The Best Real Estate Investment In The U.S. Right Now: https://joefairless.com/mobile-home-pa…

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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.

We’re doing Follow Along Friday today… Happy Friday, Theo.

Theo Hicks: Happy Friday to you too, Joe. Every Thursday, technically…

Joe Fairless: Yeah, I guess technically it’s Thursday, but when it releases on the podcast it will be Friday, so we can pretend…

We’ve got a lot going on today, and we have a really educational episode based on our experiences today. Normally, this show is all about interviewing guest, but on Fridays we talk about our entrepreneurial endeavors, and we’ve got a lot going on…

Theo Hicks: We have a lot going on…

Joe Fairless: You’re closing…

Theo Hicks: I’m closing in exactly two hours and four minutes.

Joe Fairless: You’re closing in two hours and four minutes. We’re gonna talk about that. We’ve got a question on investing in mobile home parks, and the differences with that and apartment investing; that was a question from someone last Follow Along Friday, so we promised we’d answer it.

Then I just came back from Dallas, on a trip looking at the property we’re purchasing, and doing secret shopping… Shopping with sales comps — or the rents comps rather, so we’ll be talking about that. How do we wanna kick it off?

Theo Hicks: Well, do you wanna talk about your updates first and we can then transition into mine?

Joe Fairless: You’re the one closing in two hours and three minutes now… What’s going on with that?

Theo Hicks: Yeah, so we’re closing. Just as a refresher – three four-unit properties, and the total purchase price is $660,000. I saw as the banker was wiring that money today, so that was fun.

I’m actually gonna go to Marcella’s office to do the close [unintelligible [00:04:03].11]

Joe Fairless: Your girlfriend…?

Theo Hicks: My girlfriend. We didn’t know if we would be closing today. I didn’t know we were closing today or tomorrow until about [10:30] last night, for, again, as I’ve been saying multiple times on this podcast, mostly for seller side related reasons… But we’re officially scheduled to close, we’re excited, and we’ve got our [unintelligible [00:04:21].25] and we’ll see how it goes.

Joe Fairless: I think you told us the last week – you got into all the units?

Theo Hicks: We’ve seen all the units, finally

Joe Fairless: You’ve seen all the units.

Theo Hicks: Actually, it was interesting, because the one that we didn’t see was the nicest unit there was; it was beautiful. They redid the hard wood floors – all the units have hard wood floors; some of them are kind of beat up, and [unintelligible [00:04:39].16] hardwood underneath them, and I was like “I wonder what it looks like when it’s redone”, and in one of the units the floor was redone, and I was like “Wow! This is gonna look really good if we redo these floors.”

It also had the original wood paneling in the kitchen, which is kind of old school, but… When I’d originally seen it, I was like [unintelligible [00:04:56].16] we’re gonna paint over this”, but I don’t know why — the contract between the paneling and the floors just made that room look bigger and it just made it look a lot more nicer, so we’re gonna keep that [unintelligible [00:05:06].01] all the keys. I’m really looking forward to it, it’s exciting.

Joe Fairless: One thing that I’ve done since last time we talked is I’ve read a John Grisham book called The Whistler. At the end of the book there is the lead-in to the next book that he has written – it’s a genius marketing play – and that book is I think Canary Island or Camaro Island (something like that). In the first part of it they do a heist… Bare with me, this is relevant to what you’ve just said. They do a heist, they steal Scott Fitzgerald’s (author of The Great Gatsby) original manuscript from Princeton University.

Some of the members of the crew who stole it are sophisticated, and what John Grisham writes about with these characters is that a lot of people think about the plan to commit the crime, in this case – I’m not likening this to your real estate transaction – but not a lot of criminals… And one of the criminals in the gang, he escaped out of prison. Not a lot of them think about what do they do afterwards? And they’re talking about how one of the gang members and the people who stole this stuff escaped out of prison, but he had a plan for what to do afterwards.

As real estate investors, that can be the case with us too, where we focus so much on the acquisition, and then it’s like “Okay, whew! Now what…?” and we don’t put as much focus on “Okay, what do we do now that we have it?” So my question to you with that long lead-in is you’re closing in two hours and two minutes – what do you do immediately after?

Theo Hicks: The next steps — I’ve got a little note that I’ve typed up that we’re gonna tape on all the residents’ doors, to essentially just notify them that I’m the new property manager… Again, we talked about that – I’m not the owner…

Joe Fairless: You?

Theo Hicks: Me, I’m the property manager, for the owner, Marcella. [laughs]

Joe Fairless: With your phone number, your e-mail?

Theo Hicks: So we won’t do my phone number, we’re gonna do my e-mail, because we set up – thanks to your podcast, the interview with the founders of Cozy.co… We’re gonna use that as our portal essentially, and instruct them on how their rent is going to be collected. So that will be through e-mail.

We’re kind of concerned just because some of the residents are on the older end, and they might not have an e-mail, so we’ll have an option… I’m not sure how we’ll do it exactly, because we don’t want to give them a second option, as everyone just takes that option instead of doing the e-mail. I’m gonna figure out how to word that. But essentially, just lining up how the rent is gonna work, and then also our plan for increasing the rents, since all the units are month-to-month and they’re all way below market rent. We’re gonna explain how that process is gonna work.

Joe Fairless: Oh… [laughs] On the initial message you’re gonna —

Theo Hicks: Yeah, we’re coming in hot!

Joe Fairless: Oh, my god…! What are you gonna say?

Theo Hicks: We’re going to say that — depending on which building… We’re doing one in one month and the second one in the third month, and then the next one at the fifth month, so that we’re scattered —

Joe Fairless: Are they next to each other?

Theo Hicks: Yeah, they’re all next to each other.

Joe Fairless: So one building – the people there are gonna be talking to other people in the buildings, you realize that…

Theo Hicks: I don’t.

Joe Fairless: They will. 1000%. You’re not isolating one building by messaging it. They’ll all know.

Theo Hicks: I plan on telling all of them that we’re planning on raising their rents, so they’re all gonna know; it’s just I’m not gonna do them all at the exact time. I guess if you think there’s a potential for there to be a mass exodus, then I’ll probably not do that…

Joe Fairless: Well, I don’t know about a mass exodus, but I know they’ll all know. One message to one building – just assume that all three buildings will receive the same message, and in distorted form. It won’t be the message that you convey, it will be something more sensationalized…

Theo Hicks: Seriously… Well, the plan as of now is to start with — because actually one of the buildings has a vacant unit, so we’ll go in there and take pictures of that and list it online… But the goal is to start with that building, raise the rents of that building, and then do the same with the second and the third building… But I wanna let everyone know upfront that it’s going to be coming, so there are gonna be repairs, and if they wanna leave, they can leave.

We don’t necessarily have an issue with them leaving, because we have enough to cover the mortgages regardless, and our goal is to just break even the first year, while we’re kind of transitioning people out, and then start cash-flowing afterwards. So our expectations are breaking even this year; if we make a little bit of money – great, but if we don’t (which is what we expect), then it will be perfectly fine.

So I guess in a non-linear fashion, that’s my plan for now. And then there’s a lot of other smaller things that we’re gonna do too, like buy certain things for landscaping… Some of the people are storing stuff in the basement, so we’re gonna tell them in a note that they can’t do that… So a lot of small things you wouldn’t necessarily think about.

Basically, whenever I went there for viewing, I took notes of what I needed to say these people based off of the unit and based off of the building, and that’s what we’re gonna put in the note. The only thing I’m worried about is, again, getting everyone’s e-mail for Cozy, and making sure that we can collect rents that way, just because I was doing some research and as far as I can tell if you want to have a direct deposit set up, you have to give them your account information and your [unintelligible [00:10:04].04] and I’m not sure if I’m comfortable doing that.

Joe Fairless: Well, it should be an LLC…

Theo Hicks: The business account, yeah.

Joe Fairless: Yeah, if you have an LLC, right?

Theo Hicks: Mm-hm.

Joe Fairless: If they don’t have an e-mail, they might not have a checking account too, that’s the other thing… You might have to work around that.

Theo Hicks: The backup plan – because my friend owns a similar property in Pleasant Ridge, and as new tenants come in, he uses Cozy… But for the existing tenants he has them slip a check under — I’m not sure exactly where he has them put the checks, but I know that in one of the buildings there’s like a storage in the basement that I can use for storage, storing lawn mowers, and stuff… So I’ll have them put — people that cannot pay via Cozy…

Joe Fairless: They’ll have to reach out to you.

Theo Hicks: They’ll have to reach out and we’ll set up something for the time being. But for the plan is for most of the tenants to be gone, and put new ones in there. Hopefully, when we get the new ones, they have checking accounts. Just because the rents are so low, I don’t know if people are gonna be willing to–

Joe Fairless: So just to speak clearly though – it’s not necessarily the people who are there, it’s the rents that are currently being paid, right? So you don’t have anything against the people…

Theo Hicks: Oh, no, not at all. I’ve seen all of them, they’re all nice people.

Joe Fairless: Okay, I just wanted to make sure that’s coming across correctly. So it’s not necessarily the people, it’s just you need to raise the rents, therefore it’s likely they’re not gonna be staying – you don’t think, but we don’t know, based on what the rents will be raised to.

Theo Hicks: It’s all speculation, but assuming the rents are so low and they’re gonna be raised like $150… They’ve been there since like 2003; I don’t know why the guy didn’t raise the rents before. But I looked at the comps, and based off of the only units that have one-year leases – based off of those rents, which I still think are below market rents, we can get a lot more for those units.

If everyone leaves — I think overall the mortgages are $3,600/month for all three properties… The bank to make sure we can cover that with our salaries, but worst-case scenario we’ll be able to cover that, and obviously it would suck, but the plan is not to have everyone leave; the plan is to have the people that are close to market rents take that $50-$100 bump, and then the ones that are like $200 below market rent, I’m assuming they’re going to leave. It’d be awesome if they paid the increase in rent, because I wouldn’t have to worry about cleaning it up or anything like that, but… So that’s the plan, but obviously it’s gonna change.

Joe Fairless: Are you doing anything to enhance – it’s okay if you’re not, but I’m just asking… Anything to enhance the living experience for current residents?

Theo Hicks: Yes and no. The only “renovation” we plan on doing is in the common areas in one of the buildings the carpet isn’t replaced and is running old, so we’re gonna have to replace that. I guess that’s something that might enhance the experience of some of the people that are living in some of those units. There’s a couple units that people are for sure 100% smoking in there, because the entire common area smells like smoke; in the lease it says explicitly you cannot smoke. At one point as we were looking at the units, we walk into one of them and a dude was just sitting on the couch with a cigarette lit, he’s like smoking [unintelligible [00:13:07].17]

I’m like, “Alright, well obviously you can’t do that”, so we’re gonna have to very strictly enforce the no-smoking policy. If they smoke, Marcella wants to evict them straight up, but I’m think I’m gonna tell them not to smoke anymore first, and if they break the rules, then we’ll evict them. But definitely I’ll give them the benefit of the doubt, I’m not just kicking people out on a whim. We’re also gonna do landscaping.

Joe Fairless: Got it, okay. I would highlight that you plan on doing some improvements within the buildings, and then working on the landscaping too, in that note that you write. That way it’s not a complete punch in the gut, it’s more “This is what we’re doing, and because we’re enhancing the landscaping, and just the normal cost of doing business, we will have to increase… We’d love for you to stay, but this is what it’s gonna be.”

Theo Hicks: That’s a really good idea. I definitely don’t wanna just word it with “Hey, we’re taking over the properties and we’re going to raise your rents because of reasons…” That’s a very good point, to say what we plan on doing to the property to enhance their experience, and then also explain the fact that “Hey, market rents are increasing, so we’re gonna go ahead and bump these rents up.”

I think I should mention that they’re actually not gonna be at full market rent right away [unintelligible [00:14:19].12] I’m actually kind of giving you the benefit of not increasing it all the way, because you’ve been there for so long.”

Joe Fairless: And one other thing you can do is you can mention the average cost of moving… Because storage, truck, deposit for your new place, taking things from place to another – all sorts of costs, and if that’s $1,000, then does it make more sense to pay $100 extra, which is $1,200 over the course of the year, versus $1,000 right now, and then be in another place that might be in a similar situation.

Theo Hicks: Yeah, and probably paying similar or higher rents, too. That’s a really good idea. I didn’t think about that, so I’m glad you brought that up… And mentioning why I’m raising the rents, besides just me wanting to do that, or just because the market says so, because they’re not really gonna understand that.

Joe Fairless: Yeah, think about it from their perspective, for sure.

Theo Hicks: Yeah.

Joe Fairless: Cool. Alright, let’s see… I went to DFW, visited the property we’re purchasing and visited the rent comps. I was involved in a hit and run at one of the rent comps I was seeing…

Theo Hicks: You were?!

Joe Fairless: Yeah, they hit me and they ran.

Theo Hicks: Was it your car, or…?

Joe Fairless: I had a rental car.

Theo Hicks: You didn’t tell me about this…

Joe Fairless: Yeah, I didn’t tell you about this… I just visited one of the rent comps and was not impressed at all, and I was in the parking lot of the rent comp, on my laptop, taking notes, and I was literally writing “This was very unimpressi–” and right before I finished writing “unimpressive” my car jolts and I’m like “What the heck is going on?” I look behind me and there’s a a gentleman in a four-door white vehicle, and he looks at me, I look at him… I’m like, “What’s going on?” so I’m moving my laptop off my lap, and I look at him, he’s just backing up slowly, backing up slowly… “Okay, I guess he’s parking over there…” [unintelligible [00:16:14].16] just takes off! [laughter]

Theo Hicks: Seriously…

Joe Fairless: But it was indicative of one of the experience I had at one of the rent comps, and guess what?! This rent comp is $200 more in rent than what we are currently charging, and [unintelligible [00:16:27].21] less in rent than what we are projecting to charge. The reason why it was a terrible experience – and I’m glad it was, because that helps us, if they’re charging more – is as soon as I got to the leasing office, the leasing agent was fun, the staff was fun, but the walk from the leasing office to the model unit, you have to pass by three pit bulls.
And again, I’m not against pit bulls. If they’re well-trained, just like any dog — you get bit by more smaller dogs than larger dogs, just the larger dogs hurt and they get in the news… But nonetheless, they’re intimidating, and especially when they’re attempting to climb over the fence to eat you. That’s what they were doing, and you have everyone who’s looking at this apartment community, you have to literally walk by three pit bulls, and it’s not a fence with boards that cover up the dogs, there’s like slots in between, like little iron bars, and they’re right there, and they’re probably three arm swings away from you… So it’s really tight quarters. And plus, there’s like pounds of poop; it was terrible, because it smelled so bad.

It’s 100 degrees in Texas, and after you pass the three pit bulls that try and eat your face off, then you go into the model unit where there’s a toilet seat that’s missing. They have a little backyard area, the grass is up high. There is a bag of trash in the backyard area, and the level of renovations aren’t nearly what we’re gonna do… And it was a great sign.

Theo Hicks: That’s an amazing sign, yeah.

Joe Fairless: If they’re charging $200 more than we are right now and we’re projecting to be underneath them, I think we’re in a good spot. So I went there and I went to our other rent comps in [unintelligible [00:18:10].05]. There’s one rent comp very close to us that is doing the same level of renovations that we’re planning on doing, and they’re getting a little bit more than what we’re planning on getting, so I anticipate us being about third in terms of total rent cost in the market… Which is great; that’s where I wanna be. I don’t wanna be first; second – okay, maybe, but third is best.

Theo Hicks: And is the first the pit bull place?

Joe Fairless: Yeah.

Theo Hicks: That’s strange.

Joe Fairless: It is strange. And by the way, after the pit bull place I asked where the pool was. They were like, “Oh, it’s right outside.” I said “Okay.” I go outside, it’s literally [unintelligible [00:18:46].20] and they’re literally like chomping at your arm. I didn’t even go in the pool area because I was afraid of them. And again, I’m not against pit bulls or rottweilers… I had a rottweiler in college, too; sweetest dogs ever. These were very protective, and it’s not a good sign. So that’s that…

One thing that I did hear regarding the pit bull thing was this owner intentionally allows aggressive breed dogs because no other apartment community in the submarket – or not that many – have them, therefore he’s able to bring people in who have it.

Theo Hicks: Interesting.

Joe Fairless: I have mixed feelings about that. That was the trip. It went well. I visited the property multiple days, visited the rent comps… Everything checked out. You don’t want anything to surprise you on those trips, and what I do is I focus on stuff that I can’t google or accomplish with a phone call. I can see maybe pictures of the renovations that the comps are doing, but I wanna go see it myself and experience it myself, and that’s what I did.

Then other than that, we have just been focused on starting due diligence… One lesson I learned from the tour of the property we’re buying – I was talking to the property manager and he said that our property is 70% or so one-bedrooms, and usually that’s in my mind a downside, but he said where rents are at two-bedrooms, if you can qualify for a bedroom, then you’re also looking at buying a house… Whereas the one-bedroom rents are at a place where you’re not at the level of a mortgage for a house, and it’s right in the sweet spot, plus the resident profile that we’re in within our submarket is primarily singles, 25-40 single moms, single dads, that sort of thing, so it works out pretty well. So yeah, that was the trip.

Theo Hicks: I think it’s pretty simple, but how do you determine the demographics – single mom, single dad, 25-40…? Is it based off of market research, or based off of your secret shopping and asking who lives there?

Joe Fairless: It’s just based off of knowing the area. I bet you could tell me who’s the typical person who lives in your neighborhood, what’s their background, how old are they, do they have kids or not…? I can tell you the same thing about my neighborhood, and I can tell you the same thing about all of our properties’ neighborhoods. Yeah, we look at data, but…

Theo Hicks: You get a feeling for it walking around…

Joe Fairless: Yeah, you know your area… We have a property that is a mile and a half away, it’s 90% one-bedrooms and it’s over 300 units, and we’re 96% occupied, and we’re doing incredibly well… So that’s an indicating factor of the demand for one-bedrooms. Then we also have three other properties – not including the one we’re buying – within the same area, and all of them have someone one-bedrooms (just not that heavy) and the one-bedrooms lease really well.

Theo Hicks: Cool. That was an interesting point about the two-bedroom being someone who could potentially qualify for a loan [unintelligible [00:21:53].26] whereas the one-bedroom, they’re probably not there yet, so they need to rent a property [unintelligible [00:21:58].05] “I might rent, I might buy…” I think that’s interesting, I didn’t think about that.

Joe Fairless: For developers that’s what you have to be careful about, because you’re building stuff brand new, therefore you’re gonna have to charge more, and the rents that you’re charging – you really have to have a convenience factor for living at your community versus buying a house, otherwise why would you live in the community versus buying a house? That’s why I’m not a fan of developments, and people have tried to talk to me about doing development…

I did a test run three years ago or something; we didn’t even get it under contract, but I spent nine months of my life trying to learn the process, and risk versus reward I’m not a fan of it, but hey, people make bunches of money on it, but they also could lose bunches of money, as with anything. It’s just more risk, and I don’t like it.

Theo Hicks: Okay, so those are our updates. Do you wanna transition into talking about the difference between…?

Joe Fairless: Yeah, did we hear the question? Was there a question?

Theo Hicks: Yeah, so it was based off of our video last week; his name is Zach, and he wants your opinion on mobile park investing versus apartment investing. We kind of wanted to make it more educational, listing the pros and cons of mobile park investing, as opposed to apartment investing…

Joe Fairless: Alright. Well, let’s see… You can make money in any type of real estate investing; I know that, I’ve interviewed people who have made it in distressed notes, apartments, mobile homes, office retail, parking lots… I interviewed that one guy with parking lots – that was fascinating. So really, it’s not a matter of — and I know you didn’t ask this specifically, but I just wanna set the stage… It’s not a matter of “Can you make money in it?”, it’s a matter of “Do you want to be in this business?” That’s really the question, because someone has made millions and perhaps billions of dollars in every single type of real estate asset class.

So that’s the first question – do you want to make money in this business, versus other types of business? I personally have not gotten into mobile home parks. The reason why is because I wasn’t as familiar with them as I was apartments. When my parents divorced when I was in fifth grade I lived in an apartment with my mom, my brother and my sister. Then when I moved to New York City, I lived in an apartment for ten years, so I was more familiar with apartments. I had never lived in a mobile home, therefore it just comes more naturally to me to invest in something that I know.

When I went to a Rich Dad, Poor Dad seminar, when I had the a-ha moment of going larger, they said that you’re not gonna get rich on single-families, you need to do something larger, like mobile homes or apartments. They said this in (I don’t know) 2006 or 2007. They were on it, they knew what they were talking about, and that’s when I decided to focus more on apartments. Actually, that was in 2010, because I already had one house that I bought in 2009. Now, as objectively as I can look at it, I will tell you the pros and cons as I see them, and then I’m gonna give you some resources to listen to experts and read more content on it, because I am not an expert on mobile home and park investing, because I’ve never bought a mobile home park, I’ve never lived in a mobile home, and I have never analyzed a deal, but I have interviewed guests who have experience; a couple of my buddies do very well in the business.

So three pros – and there are more pros and there are more cons, but here are the three I came up with. A pro is low competition among other investors. Not that many people are investing in mobile homes, and there’s a reason why, and I’ll get to that on the con side… But not that many people are investing in mobile homes or manufactured homes, therefore there’s less investors chasing those deals, and it’s likely that you’re gonna come across a less amount of people. Now, you might come across the same investors on every deal that you’re competing against, but there’s gonna be less of them.

Two is they cash-flow really well if they’re operating successfully. I think you can say that about a triple net lease for sure, and some other types of asset classes, but that’s a second thing from what I’ve heard – not [unintelligible [00:26:33].18] from what I’ve heard they’re cash cows. And three – and this is key – they’re a favorable asset class in an economic downturn.

Theo Hicks: Yeah, kind of like storage units a little bit, too…

Joe Fairless: Kind of like what?

Theo Hicks: Storage units.

Joe Fairless: Yeah, exactly. You get evicted from a house, you got to a nice apartment; you can’t afford the rent on the nice apartment, you go from a class A to a class B to a class C… And before you go to a class D apartment, you’re gonna be considering the mobile home. I would prefer to live in a mobile home versus a class D apartment. After mobile homes, you’re hitting the streets, or you’re doing extended stay living at a motel, or something. So it is the last line of defense for living situations, and I believe in an economic downturn all the mobile home investors are throwing a party.

Theo Hicks: And there’s a fourth one – I wonder how the maintenance compares to apartments or single-family homes… I could imagine that the person who occupies the mobile home is taking care of everything. I can remember from listening to one of those interviews them saying something along those lines of “Once they sign the lease, it’s not necessarily a set-it-and-forget-it, but you don’t have as much going on as you do with a lot of other properties.” I’m not sure how the plumbing works or how [unintelligible [00:27:59].29] but I can imagine it being a little bit lower maintenance costs for the investor than an apartment. That’s just a thought.

Joe Fairless: Yeah, the goal for all my mobile home park investor friends is to have the resident buy their mobile home. That way you’re owning the lot and they’re leasing the lot from you.

Theo Hicks: I remember that.

Joe Fairless: That way it’s getting closer to a triple net lease. I wouldn’t say it is that by any means, because of one of the cons I’m about to mention, but yes, agreed… That would be in the pro section.
The cons – well, you have lower competition, so that’s good, but then the reason you have lower competition is there’s limited supply, and it’s decreasing. You name five cities that have a meeting on how to increase the amount of mobile homes parks in their city, and I’ll give you 100 bucks. You can’t name five cities that are intentionally looking to increase the amount of mobile homes they have. They might be looking for affordable housing, maybe apartment communities or something, but I don’t think you’ll find that. There’s a limited supply, therefore they’re tough to find.

Second is that the collections are going to be very challenging because of the resident profile, just in general. Resident profile is paycheck-to-paycheck. If they get a flat tire and they have to call someone to help them out or pay for a tire — I mean, just paying for a tire could be $50 or $100, or whatever they are… That might not allow them to pay the rent for that month. They’re living paycheck-to-paycheck, so the collections are gonna be tough, and I don’t think you get the same tax advantages with investing in an apartment community that you would compared to mobile homes. I think they’re treated differently.

I tried to call my accountant right before, and I didn’t get a hold of him; I just missed a call, so I think he called me back, but I’m pretty sure you don’t get the depreciation pass-through that you would on an apartment community. So those are the three.

Theo Hicks: You know, I’m pretty sure this kind of goes under 1) limited supply… You kind of said that they don’t build mobile home parks anymore.

Joe Fairless: Yeah.

Theo Hicks: That’s the reason why there’s no increase, because they just don’t build them anymore, so… I know some of the mobile home park investors were using that as a pro, and saying that the supply is never going to change, so the only thing that can change is the demand, and the guy that was talking said that works in his favor; you’re all competing for a limited supply of mobile home parks, because they’re not making any more mobile home parks. If you make more apartments, then the limited amount will go down, but if you don’t, the demand will stay the same for the mobile parks. That’s kind of how he explained it to me.

I’m like, “I guess that makes sense, because they’re not building any” and that’s kind of one of the main reasons why. I think it was — I don’t know why, but I always forget his name [unintelligible [00:30:54].16] I think he mentioned that when he was presenting at the Best Ever Conference, about “The supply is staying the same, or is actually decreasing, so that helps with the demand and the rents and things like that.”

Joe Fairless: Yeah. On that note, in terms of people and episodes I recommend checking out – one is Jefferson Lilly; I interviewed him on episode 161… Way back. That was PT (pre-Theo). [laughter] Episode 161, titled “How to double the value of a mobile home park.” Then another episode with Frank Rolfe, episode 956, titled “He traded billboards for mobile homes.” These two episodes will be linked in the show notes.

Lastly, we’ll link to an article Frank Rolfe wrote after he did the interview with us, and it’s “Mobile Home Parks – Best Real Estate Investment In The US Right Now.” Clearly, his is one side of the story… There’s is cons to everything; it doesn’t address the cons, but if you wanna see more pros about investing, then there is that article that you can check out. These will all be linked in the show notes.

Theo Hicks: Cool. Alright, so we have a listener question from [unintelligible [00:32:06].24] here quickly. The question is “In your syndications do you have passive investors invest directly as limited partners of a holding LLC, or are they investing as members of an LLC that is in turn investing in the holding LLC?”

Joe Fairless: They have ownership shares in the LLC, which owns the property. Then we do have another layer of protection above and beyond that – we have a limited partnership above and beyond that. But the LLC, the entity that they’re investing in, they have ownership shares in that, and that’s the entity that owns the property.

Theo Hicks: Okay, so you’ve got an entity that owns a property and they own shares in that entity, and that’s all they’re investing.

Joe Fairless: Yeah.

Theo Hicks: Okay.

Joe Fairless: And I just wanna clarify… They are limited partners – the way our attorneys have structured it is they have zero liability, other than they do risk the money they put into the deal, obviously; that’s always gonna be at risk. But other than the funds they put into the deal, they have no liability. If someone trips, falls, dies, drowns or whatever, or sues us because it’s a cloudy day and they thought it’d always be sunshiny over the property, then they have no liability. It would go to the insurance. But if anyone’s liable, it’s the general partnership.

Theo Hicks: Okay. I think the second question goes with what you were mentioning beforehand. He says “Likewise, is your asset management LLC a direct managing member of the holding LLC, or is there a layer in-between?”

Joe Fairless: It is a direct managing member. The asset management LLC that we have is different for every property, because that isolates every property so there’s domino effect. Every investment is unique, and our LLC – that is the general partner within the larger LLC.

Theo Hicks: So is there an asset LLC and a holding LLC for each property, or is there a holding LLC, but over all the different asset LLCs for each individual property?

Joe Fairless: There is one LLC — there’s an LP… We really need a diagram…

Theo Hicks: I was thinking the same thing, we need a white board…

Joe Fairless: Yeah, and maybe we’ll do that some time, but… There’s a limited partnership, and then there’s an LLC that owns the property; investors have shares in that LLC, and then we, the general partners, have our LLC that is in the general partnership, and that’s where the asset management is.

Theo Hicks: Okay, that makes sense. Is that like your Ashcroft Capital, is that what that is, the asset management LLC?

Joe Fairless: It’s unique to the property, because everything needs to be unique to that property.

Theo Hicks: Okay, so you have multiple LLCs for each individual property, and you have another holding LLC, another asset management LLC.

Joe Fairless: Yeah.

Theo Hicks: Okay.

Joe Fairless: Because it’s important that every investment stands alone, and they’re not connected together. Otherwise, if Armageddon happens, they’re all connected.

Theo Hicks: Okay, so there’s the answer to your question, Sam. There’s a couple of miscellaneous things to end with… We have our basketball results… No one guessed it correctly this week.

Joe Fairless: No… 13 to 8, Theo won, so… Congrats, Theo. I’m kind of pissed. [laughter] My moves haven’t been — whatever. I’m working on my threes, I think that’s where I need to go.

Theo Hicks: If anybody has any tips for how Joe can beat me —

Joe Fairless: No, I don’t [unintelligible [00:35:29].16] Yeah, if anyone has any tips on how to grow taller, then please let me know. [laughter] But you wouldn’t beat Muggsy Bogues…

Theo Hicks: No, no…

Joe Fairless: So clearly there’s some things… It’s not about being tall, it’s about figuring out the other ways around it. Although Muggsy can slam and I can’t… I can’t dunk.

Theo Hicks: Yeah, he can dunk.

Joe Fairless: I can’t dunk. Yeah, that’s true.

Theo Hicks: I can’t really dunk either, but anyways… As always, subscribe on iTunes to the podcast, and leave a review so you can be that feature review of the Follow Along Friday. This week the review of the week is from Jerry. He said:

“Very good information. I took away a start because the background music is very distracting, which makes the audio poor and is not used appropriately. It is just random and makes it difficult to hear what the speakers are saying.”

Joe Fairless: Good to know, I’ll look into it. I wish I knew which episode he was referring to… And perhaps it’s all of them, but…

Theo Hicks: I think I know what he’s referring to. I think in some of the episodes you’ve got the introduction music where you have it playing when you’re talking, but in some of the episodes it goes longer, when you say “Can you tell the Best Ever listeners a little bit more about your background and what you’re focused on?” – it still goes in some of the episodes, and it’s very difficult to hear what the person is saying.

Joe Fairless: Yeah, we’ll get that addressed.

Theo Hicks: I think that’s what it is.

Joe Fairless: That’s why we do this, baby. A focus group, I love this. Thank you, Jerry, I really appreciate it. I’ll take your four out of five stars and I will implement this feedback so that future episodes are even better. Always looking to improve. I sincerely appreciate it.

Alright, I enjoyed it… Best Ever listeners, I hope you have a best ever weekend, and we’ll talk to you tomorrow.

 

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JF956: Why He Traded Billboards for MOBILE HOMES!

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Frank Rolfe Real Estate Background:

– Co-founder of Mobilehomeuniversity.com
– Ranked, with his partner Dave Reynolds, as 5th largest mobile home park owner in the U.S.
– Over 250 communities spread out over 28 states worth over $8,000,000
– Commercial real estate investor for over 30 years
– Based in Denver, Colorado
– Say hi to him at http://www.mobilehomeuniversity.com/
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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluffy stuff.

With us today, Frank Rolfe. How are you doing, Frank?

Frank Rolfe: Hey, Joe. I’m doing great, how are you doing?

Joe Fairless: I’m doing well, nice to have you on the show. We’re gonna be talking about mobile homes, because Frank is the co-founder of MobileHomeUniversity.com. He is ranked with his partner Dave Reynolds as the fifth largest mobile home park owner in the U.S. They’ve got over 250 communities spread out over 28 states.

His company is based in Denver, Colorado. He’s been a commercial real estate investor for over 30 years. Frank, do you wanna give the Best Ever listeners a little bit more about your background and your focus?

Frank Rolfe: Absolutely, Joe. Basically, I went to Stanford University and got a degree in Economics; I got out a year early. Back in that day, if you were going to go to a good business school, you wanted to start a business and write about that as your essay on your application. So I had to start a business that I could start, build and shut down within one year. The business I came upon was a billboard business.

I started a billboard company. In the first year I had [unintelligible [00:03:27].12] signs, but I had seven more pending, so I decided to go one extra year to get those closed out. You can guess what happened – I never went to graduate school, I kept building the billboard business. Then 14 years later I was the largest private owner of billboards in Dallas-Fort Worth, and I sold to a public company in 1996. A few months later I started buying mobile home parks, and I’ve been buying those for the last 20 years.

I teamed up with my partner, Dave Reynolds about a decade ago, and we’re now together the fifth largest owners in the U.S., which we built just one property at a time. We were the only people to ever build something as large as we’ve got just one property at a time.

That’s basically the background, Joe. I’m just basically very heavily invested, both monetarily and personally and time-wise in the whole affordable housing industry.

Joe Fairless: I know looking back on it, you can identify why mobile homes make sense… But if you can, if it’s possible, I’d love for you to think about when you sold your billboard company to when you bought your first mobile home or mobile home park – why did you go to mobile homes at that point in time, instead of other types of real estate?

Frank Rolfe: Well, I’ve always liked stuff that the rest of the world’s not doing… That’s why I liked billboards, because when I was doing billboards, there was only a handful of people that had any interest in it. I guess being an Economics major, I’ve been a big believer in supply and demand. I like to go where nobody else goes. That’s kind of been my life theme.

When I had had the billboard company, I built two billboards on a mobile home park, and I check on the signs, and the guy that owned the park would often call me up and ask me to do weird things like could I knock on the manager’s door and ask him why he won’t ever call him back, things like that…

I thought, “Man, what a weird business.” I’d never heard of it, I’d never knew anyone growing up who lived in a mobile home park or in a mobile home, so it was kind of like “Well, this is kind of different.” Then I also noticed when I was doing the billboards that billboards – people don’t realize, it’s a federally regulated industry. You can only build billboards in certain zonings and certain spacings from other signs, so you get very familiar with zoning maps; you’re looking at zoning maps all the time.

The MH zoning class in Dallas was the smallest zoning category I ever saw. I saw more zoning for lead smelters than I did for mobile home parks. So again, thinking supply and demand, I thought we’ll always be in the rarest zoning that exists, and this has gotta have some value in it. That’s really what got me into it. I was just kind of fascinated a) with how weird it was, and the fact that nobody else was in it, and then b) how scarce it was.

Joe Fairless: Now let’s fast-forward to today… You’ve got 250 communities across 28 states; what do you focus your time on now?

Frank Rolfe: That’s a good question, Joe. I basically probably go wherever the weak spot is and try to fix it. Basically, I kind of float around. Right now I’m very much focused on trying to fix occupancy issues and our most lagging 20% of the properties. I work on collections issues… I work on just about anything. Property condition… Just about any role. The size that we are — it’s kind of like being the [unintelligible [00:06:49].14] on an assembly line, you’re just trying to find which parts of the assembly line are not working efficiently and fix those.

Joe Fairless: That’s great. That’s very helpful, and it gives us a lot of stuff to talk about. Let’s go with the occupancy issues and the most lagging 20% of the properties. What does an occupancy issue look like, and then how do you solve it?

Frank Rolfe: We have a lot of demand because affordable housing right now is the hot topic. Basically, it’s very simple math when you have a mobile home park. Every three calls typically leads to a showing; every three showings lead to a sale or a rental. So you’ve gotta have the phone ring about nine times to make something happen. Our goal is to find all the properties that have the phone ring at least nine times every week.

The first problem you have is if a property is not hitting nine; if it’s hitting three or four, you’re trying to figure out, “Okay, how can we fine-tune the marketing?” In some cases what happens is managers get dependent on Craigslist, because it’s free and it’s easy, but the problem is Craigslist is only really effective in the larger urban markets; it’s not that great a tool in some of your medium and smaller-sized markets. Although it does work well in some of them, it doesn’t work in all of them, so you then have to expand your horizons on the marketing channels of how you’re trying to reach people. So that’s problem number one.

Joe Fairless: For example…? How do you expand?

Frank Rolfe: Lots of ways. Ads [unintelligible [00:08:09].21] are by far the best. You can do such items as apartment direct mail, it’s very effective; you can do such items as more signage on the front edge to your property, more referral letters to tenants, what we call tear sheets, which are eight-and-a-half by eleven sheets of paper with your phone number vertically  in the bottom that you cut with scissors, and put those in Laundromats and grocery stores.

There’s all kinds of different avenues you can do; you just try to figure out what works in that market. So that’s problem one.

Problem two is… Another reason you can have problems selling or renting is that people just don’t like your product. That can be because you’re not rehabbing it to a high enough level, or it can be that you are missing such basics as just having it smell good and be clean. So it’s the same issues that come up with single-family, so that’s another thing that can block you.

Third is if the manager is any good at sales. Are they even showing up for showings, and when they show up, do they care and seem enthusiastic, or do they just give you a look like “Why are you even here?” and hate everyone? So that could also do it.

Another issue can be pricing. You may be priced out of the market. You may say, “Well, our deposit on this home is $1,000”, and let’s say the home market can only afford $500; you’ll never sell much.

So those are typically the occupancy issues we have; they are falling into one of those categories, so I try to go out to the property and meet with the manager and figure out which the problem is, and then fix it. It’s no more exciting and complicated than that.

Joe Fairless: And just so I’m clear on the nine times a week… It takes nine phone calls to get one sale or rental, so if you have multiple mobile homes, then you’d multiply nine by the amount of mobile homes that you have vacant or needing to be purchased, right?

Frank Rolfe: Yeah, exactly. Most of these properties fall into a rhythm just based on the size of the market. In other words, if you are in Des Moines, Iowa, you could score 50-100 calls a week there; the homes fly out the door and you really don’t have any vacancy.

If you’re in a market that, let’s say, gets nine a week, that means you can do a home a week. So there’s some properties we have that can do a home a day, we have some that do a home a week, some that would do basically a home a month… This kind of gives you an idea of what the velocity should be. We don’t have any that would need more than one a month. We try to only buy stuff that can do one a week.

Joe Fairless: So you said another weak spot that you identify and then you dig into are collection issues…

Frank Rolfe: Collection issues are huge in the affordable housing business, because the very nature of customers that need affordable housing – they don’t have a lot of money. You probably have read, Joe, that 70% of all Americans don’t even have $1,000 total. What that means is when you’re living in a world without any savings at all, you’re flying an airplane at about a thousand miles an hour about two feet off the growth, and the slightest little thing will crash the plane. All that has to happen is the brakes go out on your car, and to get the brakes fixed it’s $700, and now you can’t pay your rent. Or you have a medical emergency, you go to the hospital, you could break your arm… There’s a million options.

So what happens is when you’re in an environment like that, it’s always hard to get everyone to pay. Now, our prices are very low, so they typically can always afford to pay; it’s sometimes a priority issue, and sometimes a timing issue. But you won’t get paid unless you have a pretty firm program, which most community owners call “No pay, no stay.” That’s true pretty much throughout the affordable housing industry. What it means is if you don’t pay, you can’t live there, so people have to make that choice – do they want to have a roof over their heads, or do they want to buy the big screen TV?

A lot of times you’re having to retrain people into doing what they need to do and not what they want to do. Sometimes what happens is the community managers loses sight of that, because often they live in the community, it’s often some of these people are their friends, and they’ll basically start relaxing the program to make friends, and what ends up happening is it screws the whole property up, and you have to go in and fix it.

It’s something you have to stay vigilant on every month, because even if you get everyone perfectly trained to pay the rent like clockwork, if you for one month stop pushing it, they all go backward again. It’s kind of like pushing a ball up a mountain, or something; if you don’t keep pushing, at some point it’s gonna roll all the way down the mountain again.

Joe Fairless: I know that you all train the on-site person initially – “Hey, it’s no pay, no stay. Here’s the process”, and it sounds like that needs to be continually reiterated, just because of the nature of the business. Do you have a process that you implement on an ongoing basis for those on-the-ground people to reinforce that “No pay, no stay”?

Frank Rolfe: Yeah, we even built an online — like a defensive driving course that we give all the managers on the frontend, and then we back that up, we’re talking to them constantly. Despite all of that, you still have to — typically, when you have as many properties as we have, you have to stay on top of everything, because there are certain people in there who will forget their training or just start doing things they shouldn’t do, which they know they shouldn’t do, but they do out of convenience or to make friends, or whatever.

It’s the greatest training program in the world; our program is about as good as you can get on the training side, but it still won’t solve all your problems.

Joe Fairless: Speaking about the on-site people – how many people do you need to oversee mobile home park? It’s a fairly broad question because I didn’t tell you how many spots there are or whatever, so take it however you want.

Frank Rolfe: Most of our properties have just one manager, and then some of the properties have what’s called a maintenance man, and that’s about all you need.

Joe Fairless: Regardless of the size?

Frank Rolfe: Well, no… In other words, until about 100 to 150 lots, typically your entire staff is potentially two people or one person. When you get beyond that, say you have a 250-space community, then you might have a manager and an assistant manager and a maintenance man. But our industry is relatively low maintenance, because the nature of the business on the park side – you’re just renting land, so it’s very low maintenance. The home side – not that much breaks in the stuff, because most people have in their agreements… The customers do all the small stuff, and we do the large stuff; large stuff doesn’t break that often. So I guess we’re like the Maytag repairman – we still don’t have a lot to do, and that’s why we can staff things without as many people as you might have to have for example in multi-family. It’s just not that much that goes on.

Joe Fairless: The last thing you mentioned earlier when you said you’re looking to find the weak spot and fixing it was the property condition. If you haven’t implemented the whatever renovations you’ve already budgeted for, then how do you approach that if you don’t have the money allocated already, because it sounds like that would be a surprise in this scenario, that the property condition is deteriorating?

Frank Rolfe: Well, in property condition, most of that is free. In other words, what it is is enforcing the rules; the whole community has rules, guidelines that people have to live under, and those items include you can’t have junk in your yard, not running vehicles, home has to be kept up to a certain standard, the grass has to be mowed. Those items are free to the park owner; those are things that the residents are supposed to be doing.

The park owner is in charge of the common areas. We’re in charge of the entry signage, mowing the common areas, things like playgrounds if we have them, and then roads, which typically we do a pothole repair once a year. So the biggest part of property condition is just making sure that the manager is staying on top of the rules violations, and that we’re mowing the property effectively. Those are kind of the keys.

The way we do it these days, Joe, which is different than the old days (20 years ago) to stay on top of property condition, you have to drive the property yourself. Today we do everything based on HD videos. Each manager has a Polaroid Cube camera and a suction cup mount. Monthly you put that on the roof of your car, and you push the button and you start about a thousand feet away from the property, so you can see even the front entry, and they drive the entire property; then they take the card out of the camera and they send the card in, and then we download the video, and we watch the video.

Now, the only problem is as large as we are, to watch the videos it’s 16 hours, so it’s a lot of video watching…

Joe Fairless: …for all the properties.

Frank Rolfe: Exactly, correct. But it’s an extremely effective tool, because while it’s not identical to what you see if you go drive, and it is only that one day in time, it looks pretty darn similar, and you can spot problems quickly and easily. You can view all your properties every time you do that. If you wanna take it to the next level, you can actually put that in a GoTo Meeting webinar and you can drive the property with the manager, like you’re in the car with them, and discuss it as you go, and stop and rewind… It’s a super effective tool. That has improved our lives by a trillion percent, because now we can just go out and physically go to the ones that are really of concern, which rarely on property condition there’s enough concern that you’re really freaking out.
The number one issue you have with them traditionally is gonna be in, say, a hundred-space community you might have a couple non-running cars, which means the manager failed to recognize running from non-running, or was trying to maybe help a friend, or something. Then THE most common is that the grass is not getting mowed. So basically, through the entire winter season, life is bliss because there are relatively no problems. But right now we’re entering into our hardest time of the year, which requires mowing.

Joe Fairless: Other than those two things – and maybe there aren’t any, but I bet there are – other than non-running cars — how do you know if a car is non-running by looking at it on a video?

Frank Rolfe: Well, a non-running car – when we talk a true non-running car – will be sitting there on flats, for starters. One item we’ve seen more and more in the industry is that people to either save money or to make it more convenient, wanna create their own self-storage sometimes in the mobile home park, so what they do is they buy a van or a pickup truck and they park it there, and they use that as their own self-storage. The car doesn’t even run. But you can always spot them, because they’re always on all flats, with trees growing up between axels, or something.

We try not to be too picky on stuff that’s just minus the tags. A non-running vehicle, by definition, based on towing regulations, is something that does not have all its tags up to date. So if your inspection sticker is off by a month, you could theoretically have it towed for being non-running. But that’s crazy, because there’s people in McMansion subdivisions that forgot to get their tags renewed, right? So that’s a crazily high bar to set.

Basically, as long as the car is being driven, even if the tags are out of date, we do not call that a non-running vehicle. In fact, if you were to tow that, what’s gonna happen is then the resident — you’ve just created the three-foot-off-the-ground plane crash; now they can’t get to work and they can’t pay the rent. So we try to be very user-friendly, particularly in automobiles, because they’re very expensive to upgrade. We don’t wanna give people more problems than it’s worth, but we can’t afford to have people pulling in a van and letting it sit there rusted on all flats because they like to use that as a mini-storage vehicle.

Joe Fairless: My last follow-up question on this particular topic – when you watch the video with the property manager and they’re not as experienced, besides non-running cars and grass isn’t getting mowed, what’s something else that you might point out to them?

Frank Rolfe: We actually have a whole thing for them – it’s an 11-step process, and it ranges from all signage (we own all the signage on every property)… You want all the signage to look good. That means that — obviously, your entry sign is the key one that kind of sets your first impression, but we do not allow any signs that are bent or rusted or weathered or have graffiti on them. For example, if you’ve got a Stop sign and somebody spray-painted something on the stop sign, you’ve gotta replace the stop sign, or you’ve gotta get it off. But you can’t get i off, so you’re gonna replace the Stop sign. So signage is one of their items.

Mowing is one of their items, non-running vehicles is one of their items, the general condition of the residence, homes and yards is one of the items. You’ve got trash dumpster areas – you don’t want any mattresses and junks sitting in those, that’s one of the items. You’ve got the common area appearance of like club houses or any structure – make sure that it’s painted and looking attractive. If you have playgrounds or basketball courts – those are all painted and in good condition. The basketball court has nets on it… It’s those kinds of items.

It’s not rocket science, but the problem is if you let it slide, it hurts the overall community feel, and it irritates people and there’s no purpose. And the worst part you have with property condition is what you sometimes have is you’ll have all these people that keep everything immaculate, and then you’ll just have this one person that just ruins it for everyone. You can see them in most any mobile home park. If you go to any mobile home park, you’ll see that of every 20-30 houses, there’s that one person. That’s not fair to the other people; they have their property looking fantastic, and then here’s this one person who’s home is beat to death, the cars are atrocious and there’s junk everywhere… When we first buy the properties, often they’ve got three pit bulls on ropes in the yard… That’s what we’re really striving to eliminate.

That person either has to move on to another property that says living like that is okay, or they have to clean up their act. That’s one of the key items.

Joe Fairless: Frank, what’s your best real estate investing advice ever?

Frank Rolfe: Are we talking on a macro level or just in my industry?

Joe Fairless: Let’s talk about your industry, let’s keep it focused.

Frank Rolfe: On the industry there are five key things that you have to know about a mobile home park purchase, or you’re gonna get in trouble. We call it the IDEAL system. The I is for infrastructure – you have to make sure the thing has solid infrastructure; typically city water, city sewer, good working water and sewer lines, power system is in good shape, roads are good… That’s the first step

Second one is called density – that’s the D. Density means you have to have lots that are large enough that you can bring new homes into, because the industry has changed dramatically over time. In 1954 the biggest mobile home was 8 by 40, and today it is 18 by 100, so that’s changed hugely. So you have to make sure that your lots — as soon as they can’t hold the largest homes now made… They have to hold at least about 14 by 46, which is a two-bedroom, one bath.

The E is for economics. Clearly, obviously, you have to have a handle on what kind of net income the property produces, what it can produce going forward, and make sure you’re buying it at a price that makes sense based on its net income.

A is for the age of home. We’re probably the only industry in America that tends to favor the older stuff more than the newer stuff, and that’s because an older home is paid for. It really just depends not so much on the age of the home, but whether it’s paid for or has a mortgage on it. When you have customers where the home is paid for, you typically have a customer for life, because there’s no place that they can possibly live cheaper than the mobile home park. So if they own the home and we own the land, they’re like stakeholders in the business. We like our residents to own their own homes free and clear.

The L is for location. There’s two locations that work in the mobile home park world. One is a nice suburban area in a good school district; that comes as no shocker. But the other style which many people find a shocker is that kind of gritty urban living that millennials now choose in their own apartments. People wanna live downtown, and there’s a certain number of people in the mobile home park world that like to live where the action is, in downtown. Those are those mobile home parks you sometimes drive by just outside of downtown or in downtown, and you think, “Oh my god, who would live there?” But shockingly, if you look at a market like Denver, the highest rents in Denver are those gritty urban parks; those get like $700/month lot  rent. The rural areas, even the nice school districts get like $300-$400.

I’d say that those five items are key. If you flunk any of the five items… For example, if density is too high to fit new homes on… The only way you can buy a park if one of those five is bad is if one of the other five is good enough to offset that. So it’s kind of like the scales of justice. You can only really buy a property where they’re all balancing, and if they don’t balance, you shouldn’t buy it. If they’re beyond balance on the good side, you should definitely buy it.

Joe Fairless: Wonderful practical information, and thank you for sharing that. Are you ready for the Best Ever Lightning round?

Frank Rolfe: Sure, absolutely. Go ahead.

Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.

Break: [00:26:11].11] to [00:26:53].15]

Joe Fairless: Okay, Frank, what’s the best ever book you’ve read?

Frank Rolfe: The Man Who Bought The Waldorf, the story of Conrad Hilton.

Joe Fairless: What’s the best ever deal you’ve done?

Frank Rolfe: A park in Iowa, we paid nine million for it, sold it for 19.

Joe Fairless: Over what period of time and how much did you put into it?

Frank Rolfe: Three years; additional capital put in – probably about 1-2 million.

Joe Fairless: What’s the best ever way you like to give back?

Frank Rolfe: Basically, I am all the time talking to people getting in the industry on how to do it properly. I’ve got a design to it that works and it’s a win/win. What I do is I drive a lot between properties, and when I’m on the road I just turn my phone on speakerphone and I return the gazillion calls I get from people and try and tell them my constructive ideas on parks they’re buying, or valuations on parks they’re doing. It keeps me awake and lively while I’m driving, and it’s a good way to give back to them to help them get their mobile home park thing going.

Joe Fairless: What’s the best ever way for someone who wants to get started in mobile home investing to find a deal?

Frank Rolfe: The best way… There’s probably four ways to find them, and it varies. They’re all fairly effective. First one is online. Go to mobilehomeparkstore.com. There’s about 800 parks for sale on there. When you do that, you have to understand that only probably 25% of those are deals you would wanna buy. That’s the first place most people go.

Broker pocket listings are big… That’s where half of all of the properties we buy these days come from – pocket listings. These are listings that brokers have that they don’t publicly discuss, because the seller typically won’t let them, because he’s afraid of scaring the residents or the manager, or it’s because the broker could talk about them publicly, but he doesn’t want to because he doesn’t want to talk to other brokers, only to buyers who are not represented, so that he gets the entire commission.

Third level is direct mail. We do that all the time. You basically send postcards or letters to people who own mobile home parks, saying “Hey, I wanna buy a mobile home park. Are you interested?” Like any direct mail, we get typically a 1% response rate.

The fourth is cold calling. You basically just call people up and say, “Hi, I’m interested in buying a mobile home park. Is yours for sale? If so, at what price?” Those are the four most standard ways. There’s a fifth way which is called “drive and talk”, where you pull into a mobile home park and just try and strike up a conversation with the owner, but it’s very time-consuming and half the time it’s of no value, because all that’s there is the manager.

Joe Fairless: What would be a mistake you’ve made on a particular deal, thinking back through the deals you’ve done?

Frank Rolfe: The biggest mistake I ever made was not understanding what makes the business work. In my early, early career I bought some properties in Shreveport, Louisiana that I should not have bought. Fortunately I came out of all of them whole, so I didn’t lose any money on it; I learned a lot. The problem you have is to create affordable housing you have to have expensive housing. Today I call that contrast.

If you’re looking at a market where the median home price is $40,000, nobody needs a mobile home, or a mobile home park. And I didn’t know that. Early on I just thought, “Oh, there’s a mobile home park… Why would it be any different that another one?” I’ve learned over time that there’s huge issues in the market that make some markets desirable and some not. The desirable markets to us are basically 100,000+ population, median home price of about 100,000 and up, a three-bedroom apartment rent of about $1,000 and up… We also like to see market vacancy – the U.S. average of 12.5% or lower… All these stats you can get off BestPlaces.net (that’s where we get them all).

Beyond that, we like to buy what we call recession-resistant economies. That means that they have the bulk of the jobs based on either healthcare, or education, or in government. Markets that are heavy in that – an example would be Kansas City. Kansas City has more federal jobs than any city outside of Washington DC. It also has a huge amount of healthcare, and it also has a huge number of colleges. St. Louis has the same…

If you look at the U.S. economy based simply on how safe is the employment, you’ll find entire regions that are very risky… For example, when you go way out, far East Texas it’s all about oil and gas, right? West Texas is also all about oil and gas… A lot of your Midwestern, Great Plains markets are pretty much well diversified in healthcare and colleges and government, and that’s what we like.

We like the cities where you can have the 2007 Great Recession and nothing changes.

Joe Fairless: Where can the Best Ever listeners get in touch with you?

Frank Rolfe: You can always reach me at my e-mail, which is frank.rolfe@gmail.com. That’s typically the best starting spot. I am very accessible, because again, I’ve got it now where I’m basically talking to people, and typically everywhere I go in life today I take my laptop with me… Whether it’s to any event, or watching TV, or whatever. So anyone who’d like to contact me, always feel welcome to do so.

Joe Fairless: Outstanding. Frank, I have literally a page and a half of notes from our conversation. This has been just a great crash course on mobile home investing, from ways to solve the occupancy issue – you broke it down very tactically, which was helpful… Then how to find deals, and then overall how to look for it using the IDEAL acronym (Infrastructure, Density, Economics, Age of homes and Location).

Thanks so much for being on the show. I hope you have a best ever day, and we’ll talk to you soon.

Frank Rolfe: Sounds great!

 

 

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JF804: Ex NFL Jets Player Shares How Lucrative Mobile Home Park Investing Really Is

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Mobile home parks are a different animal…yet do is our guest! Ex NFL athlete Bob Crable shares his successes and failures in his niche, and how he increased the occupancies of many of the parks. Hear how he is doing it and start your mobile home investing venture.

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Bob Crable Real Estate Background:

– Sales Agent at Capital Real Estate Partners LLC

– Owned and been involved in managing personal investments for 20-plus years

– Responsible for developing sales of commercial real estate in Cincinnati

– Drafted by New York Jets in the first round of 1982 NFL draft and played seven seasons in the NFL

– Based in Cincinnati, Ohio

– Say hi to him at http://www.capitalrealestate.org

– Best Ever Book: The 7 Habits of Highly Effective People

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JF 734: How He Bought a Money Maker Mobile Home Park Working 75 Hours a Week in Construction

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Today’s guest is like any average Joe, but this Joe is not average, he took massive action and ignored the noise. He purchased a mobile home park which is now making money and allowing him to eventually leave his full-time job and invest in more real estate. Hear how he did it.

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Paul Stout Real Estate Background:

– Owner of KP Assets
– $100,000 down on the mobile home park
– Based in Chicago, Illinois
– Say hi at paul@kpassets.com
– Best Ever Book: Outliers by Malcolm Gladwell

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JF609: What Mobile Home Parks Can Yield in Cash Flow

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Mobile home parks are very lucrative investments as they don’trequire as much maintenance as an apartment community. Our guesthas the experience in putting together mobile home park deals andhe is going to share how he closed on three worth approximately$1.5 million. Hear his advice and consider mobile homeinvesting!

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Robert San Luis real estate background:

  • Been an investor and entrepreneur for over 25 years
  • Focused on mobile home syndications and has owned 3 mobile homeparks in Texas worth roughly $1.5M
  • Author of Wealth Without WallStreet
  • Based in Newport Beach, California
  • Say hi to him at robertsanluis.com
  • His Best Ever book: PitchAnything by Oren Klaff

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Click tolearn more or, better yet, reach out to Cortney Newmans at LimaOne Capital. His cell is 404.824.6121.

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JF529: Lessons Learned after Losing $50,000 #situationsaturday

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Popular podcast show host Justin Williams is our guest today! He shares how he lost a large sum of cash for a speculative value add feature, you got to hear what he did to not make the same mistake!

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Justin Williams real estate background:

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Listen to all episodes and get a FREE crash course on real estate investing at:http://www.joefairless.com

Are you committed to transforming your life through Real Estate this year? If so, then go to http://www.CoachWithTrevor.Com and claim your FREE Coaching Session.  Trevor is my personal real estate coach and I’ve been working with him for years. Spots are limited, so be sure to do it now before all the spots are gone.

Have you tried REFM’s Valuate software yet? It makes investment analyses a breeze, and makes you look like you spent all week on them. Go to app.getrefm.com to sign up today.

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JF403: $500 Cash to Begin Your Millionaire Mobile Home Empire #situationsaturday

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Low on funds? No problem! Most areas of suburban cities provide mobile homes…double wide manufactured cash cows! Our Best Ever guest shares a skill that will put your five Benjamins to the test…and here’s the kicker, he’s sure that you will pay off the mobile home in a matter of months…100% ROI!

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John Fedro’s background:

 

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JF403: $500 Cash to Begin Your Millionaire Mobile Home Empire #situationsaturday

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Low on funds? No problem! Most areas of suburban cities provide mobile homes…double wide manufactured cash cows! Our Best Ever guest shares a skill that will put your five Benjamins to the test…and here’s the kicker, he’s sure that you will pay off the mobile home in a matter of months…100% ROI!
 
Best Ever Tweet:
 
Make offers to EVERYONE that you can!
 
John Fedro’s background:
 

Full time real estate investor for 12 years focused on mobile homes
Say hi to him at http://www.mobilehomeinvesting.net
Based in Austin, Texas
Listen to his Best Advice Ever here: https://joefairless.com/blog/podcast/jf357-wanna-invest-in-mobile-homes-heres-everything-ya-gotta-know/  

 
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You find the deals. We’ll fund them. Yes, it’s that simple. Fund That Flip is an online lender that provides fast and affordable capital to real estate investors. We make funding your projects easy so you can focus on what you do best…rehabilitating homes. Learn more at www.fundthatflip.com/bestever.

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JF357: Wanna Invest In Mobile Homes? Here’s Everything Ya Gotta Know

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The Forrest Gump of mobile home investing shares with us everything there is that we need to know. We cover mobile investing of every facet you can think of.

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Remember that you are buying a business.

John Fedro’s real estate background:

–           Full time real estate investor for 12 years focused on mobile homes

–           Say hi to him at http://www.mobilehomeinvesting.net

–           Based in Austin, Texas

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JF311: Why A Mobile Home Isn’t Exactly Mobile and Why YOU Should Be Investing in Them

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Today’s Best Ever guest uses her knowledge about mobile home investing and all she has done to make build her fortune. We discuss what to do in the event of a mobile home disaster, and why you should NEVER stop being yourself and letting your personality shine in your business.

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Rachel Hernandez’s real estate background:

–          Author of “Adventures in Mobile Homes: How I got Started in Mobile Home Investing and How You Can Too!”

–          Has been investing in mobile homes since 2002

–          Started out bird dogging and wholesaling then switched to mobile homes

–          Based in San Antonio, Texas

–          She used to work at Disney Land and was her hardest job interview ever!

–          Say hi to her at http://www.adventuresinmobilehomes.com

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JF161: How to DOUBLE the Value of a Mobile Home Park

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Buying mobile home parks can be a profitable business but, of course, you also need to know how to make it profitable. Today’s Best Ever guest shares with you how to the perks of mobile home investing and a success story of how he doubled the value of a park.

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Jefferson Lilly’s real estate background:

–        Co-founder of Park Street Partners based in San Francisco, California

–        Focused on the mobile home park investing in select markets in the US

–        Owns 5 mobile home parks with an aggregate value of $4,500,000

–        Say hi to him at http://www.parkstreetpartners.net/

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JF 16: How to Amass a Large Portfolio, Lose Most of It, and Come Back Stronger

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By 2008 Kevin Bupp had amassed an impressive portfolio of over 100 properties including single and multifamily properties. He owned a mortgage company, a printing company and had streams of cash flow coming in on a monthly basis. Then the crash it and he lost 90% of his portfolio. Fast forward today and he’s successfully investing in multifamily properties with an emphasis on mobile home parks. Think he’s got some valuable lessons to share? You’re right – he does!

Listen to the show to hear his Best Real Estate Investing Advice Ever!

Kevin Bupp’s background:

  • Personally done more than $40,000,000 worth of real estate transactions
  • Investing for over 14 years in real estate
  • Serial entrepreneur – has owned a mortgage company, event company and printing company
  • Host of very popular podcast called Real Estate Investing for Cash Flow
  • Website is www.kevinbupp.com and is based in Clearwater, Florida

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