Massive Cash Flow Through Mobile Home Investments

0:00How do you evaluate a deal to know yeah there's there's a ton of potential here and then are there certain like red flags that you watch out for that sort of thing there's a ton in every deal you know we started out with a 50 item due diligence checklist and that was geez about nine years ago and now today our due diligence checklist is over 350 long 350 checkpoints long wow because we've learned something from every deal and utility infrastructure is really important when you're looking at a mobile home park I think above everything else I mean it's probably the market like where you're buying right is really important because you don't want to buy in a a one horse town you know in my early days we bought a park where there was

0:48One employer and that one employer was a Smithfield farms Smithfield like meat manufacturing plant and during Co that plant shut down so all of our tenants were just like they had no income they were completely shut down because it was just that one Horse Town it was a small town in in Northwest Iowa so long story short markets really important don't buy in a ghost town and then the other piece would be hey look at the utility infrastructure because that's really what you're buying all of our tenants and our Parks own their own homes so they maintain them they're they're responsible for repairs and maintenance and you know what we're buying is the land and the infrastructure the roads the fencing the signage the utility infrastructure and the utility infrastructure is the most expensive part you know to replace all

1:36The sewer lines or replace all the water lines you know is really expensive so that's you know what I would look at if you're interested in looking at this and then you know all of our Parks are over 50 Lots that's what we're looking for is to get enough scale now you know partner together with a group of people and and everybody puts in say 100,000 and then we'll co-own the mobile home park as a group so that we have more scale so if we lose you know one tenant you know we're still cash flow positive we have 49 others to help us you know make our mortgage payments so I think it just that scale really helps you know build the build the cash flow and the consistency and reliability of it got it okay yeah and and when you think about mobile home parks typically you kind of think you know more affordable housing lower income typically how do you ensure that

2:26You're you still get paid the lot rent like what happens like do you screen people who are buying these units and then what happens if they decide not to pay the lot rent how does that work yeah so that's a really important aspect of it so we definitely screen them looking at income looking at criminal you know background checks credit checks as well so we are screening them if someone does not pay us which I think a lot of people think oh geez you're probably chasing 50% of your tenants every month for rent they'd be surprised to hear that across our 3,000 mobile home park lots we 5% we we collect 95% you know by the tenth of the month but then that other 5% is where the extra work has to come in we're we're following up with them we're you know we're we're pursuing them but again

3:14It's only for 5% it's not like 50% of our tenants need to be chased around every month and it upon non-payment there is a lot of Leverage to the landlord now every State's a little bit different you know in the red States the more landlord friendly States like Indiana you typically takes you know about 30 days to evict the tenant right and then after that you know if they owned the home it takes about another 30 days to file for abandonment on the home and to get the title to that home so about a 60-day process then we'll get title to the home we'll own the home we can come in and renovate it and get it you know sold again or do what we want with the home but it it does take a little while to file for abandonment and get the title in our name and a lot of times we're cutting deals with the tenants we're doing cash for keys

4:03And trying to just say hey you know you're getting evicted you've been evicted hey we'll pay you $1,000 for this home and just give us the title and at that point you know they're happy to have that,000 to use as you know a deposit for the next apartment they go rent or whatnot got it okay so so the eviction process works pretty similarly it sounds like to owning you know like an apartment unit or something like that other than you know the abandonment portion where you have to take over the the actual home itself but but to get somebody evicted after not paying the lot rent it's it's pretty similar very similar yep exactly cool y interesting and we just had somebody recently on who buys RV parks is

4:53Does it work similar to that or do you own some of those as well or is it kind of synonymous or is it a very different model it's very it's very similar right because it's personal property it's like a like a vehicle right that's on your your land there's a title like you have a title for your car for RVs and for mobile homes now the big difference is is the the reliability of the income right in RV parks you know obviously it's it's a Destination type of thing but in the middle of the night you know they can get those RVs you know and just pull them out right like it's a very it's a very quick easy process to pull an RV out of a park well for a mobile home it's not such a quick easy process right these things are block leveled tied down utility are are hard hard hooked in you

5:41Know it's not like they're they're just a plug you unplug like in an RV these are like you know hardwired into the manufactured home so to move a mobile home even just down the street you know just a couple miles May cost five to $110,000 depending on the home and the age of it and it's not just a very quicky easy process so I think another differential from RV parks is the financing available right there's better financing available for mobile home parks manufactured housing communities for the fancier way to say it because it's a more sticky tenant base you know the turnover rate is only around 5% annually because the tenants own their homes they stay longer where RV tenants are less sticky there's more turnover it's more of an operational intensive business than it is you know

6:29Longterm real estate but both can be very successful they're just you know it's important to notice the differences yeah that's a great point and I was going to ask you about financing because I mean do banks do typical like commercial investing loans or commercial real estate loans on RV parks I mean on mobile home parks on mobile home parks they do yeah so we'll go in our model is we'll go with a local you know Regional Bank typically to buy the mobile home Community from a mom and popop owner we're cold calling you know building relationships with the owners and buying these direct from the owners and we'll buy with you know 75% loan to value interest rates right now around 7% 25y year amortization and you know typically a five

7:18To sevene balloon you know where it's a fixed rate for that period and then it will balloon so that's a that's a typical commercial deal then what our our model is is hey we're going to go in we're going to raise rents we're going to fix it up and and fix the roads and and infill fill the vacant lots and then we're going to go and refinance into the best financing offered to mobile home parks and that is through the agency lenders Fanny May Freddy Mack and so we're going to refinance into a longer term 10 or 12E debt facility that you know is the best financing available non-recourse 75% LTV rates are the lowest you're going to find and you know these are longer you loans that are more you know permanent financing and then it's basically the government is is promoting investment

8:06Into a affordable housing you know and this is one way that they're doing that is offering good financing now it comes with with requirements right like the park has to be 90% occupied or more you have to make sure that there's no deferred maintenance you know they they send an engineer through and do an inspection of your property and require certain repairs be done the roads need to be you know paved and in good shape so you know there's there's strings that that come with those those loans but that's our whole model is buy you know one that's been kind of mismanaged fix it up and then get it into the agency financing long term and and then hold it long term for the cash flow that makes sense so it's like the Burr model for mobile home parks really exactly can you share maybe an example of an ideal

8:55Deal like how much value do you add by fixing up you know the infrastructure filling in some of the vacant Lots what's maybe what's an example of one that you've recently done totally yeah so let's say you have a an 80 lot park and there's only 65 occupied right so there's 15 vacant lots and you know let's say lot rents are $450 a month which is very similar to a deal we're looking at buying right now outside of Atlanta Georgia so to get the value of an occupied lot you take $450 which is the monthly lot rent times it by 12 which gives us $5,400 in Gross now the expenses typically on a mobile home park are

9:43Around 35% and that's if it has Public Utilities you know City Water City sore there's some mobile home parks that have you know well water and wastewater treatment systems and Lagoon systems we stay away from those because you know there's there's additional expenses and require ir ments and testing and so forth but 35% for a a public water sewer system is very normal so we take that that 5400 time 65 to reduce it by the 35% for expenses to cover taxes Insurance management you know maintenance things like that and we get an noi of $3,510 right so take that divide that by a 7 cap divided by 007 that means the value of an occupied lot is worth $50,400 and some

10:31Change so the value of an occupied lot is worth $50,000 so we're talking about a park that has 80 Lots there's 65 occupied and 15 vacant on average it costs us around $25,000 to buy a used mobile home and bring it in get it set up install the skirting install the steps get the utilities hooked up and you know all of that so $25,000 times 15 vacant Lots we're going to you know we're going to spend $375,000 to fill those 15 vacant lots and then what we've just done to spend $375,000 now we're doubling our money in terms of the value because the value of an occupied lot is $50,000 so we've just added $750,000

11:21Worth of value to this mobile home park by buying this community this ad lot Community filling up you know affordable housing is desperately needed in in most markets so those 15 vacant Lots were not providing housing right so now we've we've added 15 affordable housing units to the the market and we've doubled our money we spent 25 Grand to make 50 Grand per lot on those 15 lots and then you know the other side of this is you know with inflation we're we're able to increase our rents typically every year around you know 5 to six per.

11:54So as 80 Lots if you just raise rents you know $30 per year for three years years the the value of 80 Lots time $30 * 3 divided by 007 for a s cap is over a million dollar wow so if you own an 80 lot mobile home park and you just keep it full and you raise rents $30 per year for three years and do nothing else the value of that mobile home park will go up by a million dollars wow and then you can go you know you can sell it and and you know pay taxes on it or you can refinance where you don't have to pay taxes on it and you can capture some of that Equity you've created pull out the money you put in and go do it again and that's pretty much that's what we do yeah that's

12:43Incredible and I appreciate that breakdown and and that's in addition so you've added that million dollars in value in addition to collecting cash flow sounds like it's pretty high cash flow on a monthly basis as well correct exactly exactly yeah so if you you know the 65 Lots you know obviously it's there's 35% expenses but you know it's there is some very good cash flow because there's there's less repairs and maintenance I think from yeah you know when I owned some single family properties it was you know I would I would put my 25% down I'd buy a single family home and rent it out and once a year I'd have this big you know Capital expense right something would break and I would need to come fix it whether it was a roof repair that would be needed or

13:32I mean you name it right plumbing repairs you know other other various things the gutters would fall off the back of the house and I'd have to invest you know money back in that capex money back into that property and and eat up a lot of the cash flow where you know in a mobile home park you're spread out across so many more tenants it's not just one home that you know could kind of take you to zero really quick you're Diversified across several tenants and I think that that aspect you know makes it a little bit more attractive yeah and and I think you know like you mentioned in the beginning a lot of people have have seen examples of mobile homes that are in or mobile home parks that are in rough shape or you know I think with just more affordable housing in general it has a tendency to be more higher management

14:21How do you keep them from degrading over time like having a tenant who just starts parking vehicles and you know front of their their mobile home and you know it just starts to become more worn down what's your process around that yeah so we do monthly inspections you know and we have rules and regulations that every tenant signs along with a lot lease agreement that they're they're buying into to you know living here long term and being an owner right so they need to take care of their home otherwise they'll be given violations and they can actually get fined if they don't follow suit and that's something you got to stay on top of because you know a lot of people just you know get lazy and they they put the the appliance that stops working just out in their front yard and if you just don't you know tell them hey you need to take this to the

15:09Dump you know this can't stay here then it's just trick it's just then somebody else sees that and then they do it and then it just kind of it spreads right so you have to stay on it you have to hold the community you know responsible hold them accountable to make sure that it's taken care of and it it passes the the drive-through test right and it it doesn't look like the ratty trailer park that you're thinking of and if you keep it you know you'll be able to attract better tenants if you keep it at that that higher level you'll be able to attract better tenants that want to live in a a community and you know keep it keep it maintained and that's what you want and then eventually the culture will change and people will just naturally start to to keep the place clean got it that makes sense so you don't actually have an on-site person that works there every day but they come

15:58By on a periodic basis to do inspections and that sort of thing we do actually have an on-site manager yeah so it's like a a part-time onsite manager that'll basically help us issue violations do the drive-through videos and basically be our eyes and ears on site that all the tenants have direct access to if they need to make a phone call to kind of you know let them know about something and then offsite we have a whole management company with 36 employees that helps us you know manage all the ons sites and keep track of all the communities and we get on site once every 3 months to each of our communities doing an inspection report checking occupancy you know confirming Collections and so forth as well wow and that's across 10 states it is yeah so it's a it's a pretty big operation at this point yeah that's interesting and so how do you find new

16:47Opportunities and New Deals mostly cold calling you know we we've built a CRM gez 9 10 years ago where we said hey we want to buy Parks 50 Lots or more within an hour of an MSA that has at least 50,000 population and we only want to buy in an area that has a median home price above $200,000 so we we scrubbed all the mobile home parks in the country there's about 50,000 of them and we got down to 8,000 so we have our list of 8,000 leads is in our CRM we have a full-time salesperson that just calls and cultivates relationships with mostly Mom and Pops that own these you know one or two of these communities and they're using it as a retirement vehicle but as they you know want to retire a lot of baby boomers want to retire pretty soon here you know they're going to trade hands and we want to be

17:36There to save them the commission of paying a broker and then also you know provide us that first look so that we can get in at a great basis on on some of these new properties and a lot of them like you said are they have deferred maintenance they kind of look ugly you know at first glance but the problem is is they just haven't had money invested back into them in a long time you know they haven't had the fencing repaired because the mom and pops are using these as Retirement Vehicles they need that money to pay their expenses where when we acquire a new property we have a healthy budget to reinvest trim the trees get the trees removed that are you know beyond where they should be and just make the community safer right fix the roads improve the fencing and then again we want to refinance into agency debt which is the best financing available and they require they're not going to loan on a dirty old trailer park the

18:24The agency lenders require you to you know make sure this property has no deferred maintenance and that it's being managed at a high level or they won't they won't Finance you