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

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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.

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