An Interview With Brad Froling, A Mobile Home Park Boot Camp Attendee

Brad Froling is a Boot Camp attendee who has built a sizable portfolio of mobile home parks from scratch. Hear the story of how he came up with the idea of investing in mobile home parks as a better alternative than apartment investing, as well as how he found his first deals and what he found compelling about them. While some people are happy just buying a single mobile home park or two, Brad is building a larger portfolio, and his insights will be extremely valuable if you are considering investment in the affordable housing sector.

If you want to learn skills to succeed with mobile home parks, attend our Mobile Home Park Investor's Boot Camp. You'll learn how to identify, evaluate, negotiate, perform due diligence on, finance, turn-around and operate mobile home parks. The course is taught by Frank Rolfe who, with his partner Dave Reynolds, is one of the largest owners of mobile home parks in the U.S. To learn more Click Here or call (855) 879-2738.

An Interview With Brad Froling, A Mobile Home Park Boot Camp Attendee - Transcript

Frank Rolfe: Welcome everyone to another exciting MHU lecture series event. And we're very excited today. We've got one of my favorite people in the industry. Someone I've been talking to for at least almost a decade now. [Brad Froling 00:00:12]. When I first knew Brad, did you have any properties when we first met?

Brad Froling: None in the mobile parks base. But yeah, some in the apartment sector.

Frank Rolfe: Yeah right, exactly. And then brad is now currently closing on park number 11. He has 4 more under contract. And so, the purpose of the lecture series events are to let people get a different perspective on the industry than just me. And so Brad should be able to shed light on a lot of items, since he started with just one property, and has grown that very well. Done a lot of things right. So, Brad, we're just basically excited to have you here on the lecture series.

Brad Froling: Well, I'm excited to be here too Frank, because you were such an incredible help to me getting started in the business. And so I owe a debt of gratitude towards you.

Frank Rolfe: Well, I appreciate that. And hopefully, I think a lot of people today will get a lot of good information from this to make their own decision, whether to buy a mobile home park or not, or if they already own one, whether to proceed like Brad, and grow much larger. So, let's just start off with the basics Brad. How did you ever get the initial idea of even investing in mobile home parks? What created that spark in the mind of Brad Froling?

Brad Froling: I think it might have come from one of the conferences that you and I attended some time ago. And I also ran into my partner back then as well. And he target a different segment of the mobile home park business back then, which I was not real interested in pursuing. And then a few years later, we decided to buy parks, and that's when we formally became partners, and started acquiring parks. But it was originated from the conference.

Frank Rolfe: Got you. And before you got in the industry, what did you think about mobile home parks? Most people have some kind of stereotype. When someone said mobile home park to a younger Brad Froling, what did Brad Froling think of that?

Brad Froling: Oh sure, I grew up in a rich neighborhood, so I always thought of it as a Billy Bob with a tank top, and missing teeth. And that was the image in my head of mobile home parks. And it's changed dramatically.

Frank Rolfe: Tell us the story on how you found that first property. Give people a little intro as to a little of the background of Brad Froling, and then segue from that into how you found the first property to buy.

Brad Froling: Okay, sure. Well, my father was a real estate developer and investor his entire career, and was extremely successful at it. Primarily in the single-family space, and commercial retail shopping centers. So, I've been in real estate my entire life, number one. And I spent some time in the corporate environment with publicly traded company on the New York Stock Exchange, one of the largest home builders in the country. And then with one of the largest regional apartment firms developer, management, and construction company in the mid-west called village green apartments. And it was about 46,000 apartments. And then I went out on my own in the early 2000s, and began doing apartment deals myself with a partner. Financed with a federal low-income housing tax credits. So, I had a familiarity with the low-income housing demographic, and so the segue over the mobile home parks was rather easy. 'Cause it's the same type of person, and just a different product. And frankly, and more stable product in my estimation. And so that's how we got into the space. We began out first park up in Wisconsin. It was a wonderful deal, because we've kind of gone round trip on it now. We bought the park a couple years ago. I'll give you specifics. But we bought it a couple years ago for $2,230,000, and last fall, 26 months later, we refinanced the park, and the bank went out and did their appraisal, and the appraiser, a big, substantial firm, appraised it for $4,080,000. So, in 26 months, we almost double the value of that park. And that is simply by buying the park, and having the capital available to bring homes in, renovate those homes, and market those homes, and sell them.

Frank Rolfe: What were your, back, back when you were looking for that first property, what were your parameters you were looking for? Were you looking for a certain size? Or certain geography?

Brad Froling: Well, yes. We did not want to buy anything less than 125 sites, because we buy parks that are between 50 and 75% occupied, and so if you've got a park that's at 50 or 75% occupancy, and it's 125 units, that means you're going to be somewhere in the neighborhood of 65 or 70 residents that are there today. And if you get much below that, the property won't cash flow, going in. So, that's why we bought properties at a minimum of 125 sites or more. Secondarily, our exit strategy ultimately is to aggregate these parks, fill them up to stabilization, and then sell them to institutional investors at a compressed cap rate. So, most institutional investors will cherry pick off your properties that are too small, in our estimation. And so, by just not buying properties that are too small initially, we feel that they'll all be suitable for the institutional buyer.

Frank Rolfe: Is there a certain geography, Brad, that you've been following? Or are you looking anywhere in America? Or what areas are you looking for?

Brad Froling: No, deliberately not anywhere in America. We would only buy in what I call the great lakes, or great plains states. And that's because the delta between the cost to own, and the cost to rent is much wider in those states. So, you tend to have true homeowners in those parks, versus in some of the parks in the deep south, or even some of the middle annex states, those communities look and feel, and function more like a rental community. We don't want that. We want home owners. So, in the upper mid-west where we are, we tend to have more home owners in our parks, and not people on a rent to own, or pure rental basis. And to buttress that, when we do a rehab on a home, we do a full rehab head to toe. So, when we're all done, we're at 25, maybe 28,000 a unit, in terms of cost, versus some park owners who are under capitalized, will spend 2, 3, $4,000 on a rehab. And that just really attracts a renter. It doesn't attract a true home owner. So, for those reasons, we want to be in the upper mid-west where that delta is bigger between the cost to rent, and the cost to own. And we put in homes that cater to a true home owner, as opposed to a renter.

Frank Rolfe: Got you. And when you say upper mid-west, just to define that. You're talking Wisconsin, Michigan?

Brad Froling: Yes.

Frank Rolfe: What other states?

Brad Froling: Currently we are in Wisconsin, Ohio, Indiana, Michigan, Pennsylvania. We're not in Illinois yet. So, I call it the great lakes, or great plains states.

Frank Rolfe: Got you. Okay. Do you love the way Wisconsin tenants operate?

Brad Froling: We have a very good experience in Wisconsin. I told you about the very first park. We also have another park in Wisconsin that is in a lovely town, and for the life of us we can't figure out why we can't fill that one as well. It's the only one in the entire portfolio that we're having a difficult time with. WE'll figure it out. But my point is, is every other location that we're in, it seems like as soon as we set a home down, it's occupied within 30 days or less. Every location.

Frank Rolfe: And tell folks how you sourced each deal. Deal one, deal two. Was it a broker, or online, or cold call, or where they came from.

Brad Froling: We do do some cold calling, and we've created lists for parks in states, and we've done some targeting. But most of the deals today have come to us through brokers, and as we grew, not certainly in the beginning, but as we grew, we were able to have a bridge facility that allows us to pay all cash for deals. And that was a big game changer for us, because brokers really started bringing deals to us then. But I would say, primarily, we are dealing with off-market deals, that brokers are bringing to us. I'm certainly not finding a lot of deals.

Frank Rolfe: Oh right. And so, what we call broker pocket listings them but they don't have out the on the internet right? Gotcha.

Brad Froling: That's right.

Frank Rolfe: And again, you guys are currently at roughly 11 deals. How many states are you in? It sounded like you were in a bunch? So you're like in six states.

Brad Froling: We have so far. And we're growing, but currently we're in Wisconsin, Ohio, Indiana, Michigan, Pennsylvania. That's five states, and that's a pretty fair sized geography. There's a lot of opportunity within those states. We try to place ourselves within 45 minutes, maybe an hour of an MSA what's at least 50,000 people as well. And I must tell folks, some of our rural locations perform better than locations that are major metros. They seem to have more stable residents that have been there longer. They don't move around as much. So, don't discount a rural location, as long as you feel like you have sufficient population to help fill the park, if that's your goal is to fill it, like ours is.

Frank Rolfe: When you say rural, define rural. In other words, what population, metro population, is rural?

Brad Froling: Again, it has to be within 45 minutes of an MSA of at least 50,000, but it doesn't take you long to get, for example, you go into Toledo, Ohio, it doesn't take too long to get into a location that feels very rural, even though you're not too far away from the metro. You could be within 20 minutes, and you'll be looking, and driving through farmland and woods.

Frank Rolfe: True. Where do most properties sit, as far as the other metrics? Like median home price, and three bedroom apartment rent? Are you still following out 100,000 plan? Or what are you finding there?

Brad Froling: The rule of thumb for us is, the MSA needs to have a median home price of 100,000 or more. And we rely, frankly, more on our test ad results than we do on what the surrounding apartment communities are charging. Seldom do we come into real competition with the surrounding apartments. Most of our deals, between lot rent and the home payment, you're going to be in the neighborhood of $600 a month or less. And typically, we don't have too many locations, if any, that have the apartments in those sub markets that are that low. There seems to be a nice game.

Frank Rolfe: In most of these markets you've got, most people understand how to manage one property, right? But everyone gets a little more confused as you grow. What is your system on the 11? Do you have district managers? Obviously you have a manager on the property. How do you work it?

Brad Froling: We believe in centralized management, where all of the decision making is done in the main office, with higher-paid employees. And the folks that are on site, who are managers that are generally paid 35 grand a year or so, or 40 grand a year, those folks, they aren't strong sales people. They aren't strong collections people. They're not self-motivated generally. So, we have them enter the rents into the system, we have them plow the streets, and cut the grass, or manage the outside vendors that do that for us. But all of the decision making, in other words the sales of the units, the maintenance of the parks, dealing with the municipalities on issues, all of that is done with higher-paid employees back at the centralized office. And what we do to manage from afar, is we have the site managers every week put a GoPro camera on the side of the truck, and drive up and down each street, both sides, and basically video the entire park, and that video is spread back to our facilities director at the centralized office. And that is the basis for the meetings that he has with the park managers each week. So, we have basically a virtual site visit by means of this video, And then we also have some other checks and balances. We use a drone for certain features, and we also have cameras in the leasing office. And basically any time an employee comes into the office in the morning, that motion sensor sends a text message to our facilities people, so they know that the employees are showing up on time for work. And more importantly, the employees know that we know if they're showing up on time for work, and so they do. So, those kinds of checks and balances. But unlike an apartment community, remember I came from the apartment sector. Unlike apartment communities, where you really need to have your communities in a close geography, and you've got these regionals running around, You don't have that need in the mobile home parks base. Partly because you're really plowing the streets, and cutting the grass, and showing homes. But you're not having to maintain all of these peoples homes. And every time a toilet, or water heater breaks, you have to fix it. In this case, the residents take care of all of that. So, the maintenance at each of these communities is a lot less, and so we can run them from afar.

Frank Rolfe: And Brad, based on the system you put together there, what's a typical day in the life of Brad Froling like? And you might even give people a chronology from when you had the first property, to current, how much time do you spend a week managing the ones you've already bought? Obviously, a lot of time looking at new deals, but on the existing deals, give people a rough idea of what the management requirements are on 1 property, and 3 properties, and 6, and 10. How does it change?

Brad Froling: In the beginning, we would spend more time than we do currently as partners, visiting the properties, because we've been able to add on employees that are good quality employees, that can handle some of those features, and when I'm talking about in particular, the major issues that you have with sites is waste water treatment plan, and well systems, and keeping those in compliance continuously. But, the day to day, and I've heard you say this before Frank, and it's very, very true. Not much goes on in a mobile home park. The main thing that we keep on top of our site managers for is making sure that the rules and regulations are enforced. That people don't have trash in their yards. That people are maintaining the exteriors of their homes. That rent is being collected on time. And so, in the beginning, as partners, we spent more time on that, but as we've grown, we've been able to bring in good people to carry out those functions. And I emphasize that we feel it's better to do that at the corporate office, where you can have higher-paid people doing collections for example, on multiple parks, versus trying to learn on a site manager to go around and do collections. I think it's much more efficient, and you'll have better results, if you can centralize those features. Those functions.

Frank Rolfe: Brad, for those who are listening in, and have a day job, that they're the executive of something, or a doctor, or somebody like that, how much time would you say on the first park you would reasonably spend managing that? 'Cause we get asked that question all the time from people. If I a mobile home park, do I have to spend eight hours a day on it? Or what. What do you think a good weekly allotment of time would be for somebody who has a day job, buying a property.

Brad Froling: I think that in the first month of ownership, you'll spend more time. You'll want to get the residents acquainted, and know that you're going to collect rent, and they got to may in time or you'll evict them. But you really don't have to spend a tremendous amount of time on these parks. The reason why we spend more time on these parks than a person with a day job, is because we're filling them. So, we're constantly bringing in homes, and rehabbing homes, and filling empty sites. But if you are just buying in a mobile home park, and operating it, and you have a good site manager, and a maintenance person that can handle the turnover of the homes, you can probably spend a few hours a week on a telephone with those two employees, and be just fine.

Frank Rolfe: That's what I always tell people. Three or four hours a week si my normal metric for many people managing. It's all right, Let's do a quick pop quick Brad. Trailer park, mobile home park, manufactured home community. What words do you use? Let's solve the argument. I always ask people, every time we have a lecture series event what they use. I've received endless criticism for using the words mobile home park. But yet, everyone uses the same words. Are you also in the mobile home park vein, or what do you use when you talk about the product?

Brad Froling: I always call it what it is. It's a mobile home park. If I'm talking to lenders, or we just spent four days in New York last week talking with folks in the rest of the industry. I might call it a manufactured housing community to them to make it more palatable, to get them more interested, but generally speaking, I call it a mobile home park. I seldom use the word trailer park. I think that, in the old days, you'd hook them up and drag them in, and drag them out. But I don't think that's the case today.

Frank Rolfe: Total agreement. Mobile home park is my daytime casual wording, and the manufactured home community is like putting on a tuxedo. I use it just for lenders, and signs, and letterhead, and things like that. All right, so Brad, tell us now, you've been doing this obviously for a while. Built a good portfolio doing good stuff. What are your biggest lessons learned? You started off from scratch. You had the typical stereotype of it being a rough business. You found it wasn't. What have been your biggest lessons learned, and also, what were your initial biggest shocks? Like, my first park, my biggest shock, was I was not physical danger. What were your first initial shocks?

Brad Froling: Yes, I'm sorry. Clearly the biggest shock I had was how high the rent collections are. Our portfolio-wide rent collections are at 98%, and I will tell you that I have never done that in the apartment sector. Ever. But remember, you have a hook. These folks can't move their home, and to the extent that they've got the home paid off, or nearly paid off, they're going to make sure you get paid before the cable company gets paid. But that's the biggest shock, is how strong the collections are. As long as you deliver to them a clean, safe, crime-free, drug-free community, where you're enforcing the rules and regulations, they will stay there. And our turnover, in addition to having high collections, our turn over is extraordinarily low. I couldn't even put a number on it now, but I'm going to tell you it's definitely south of 10%. And so that's the biggest shock in the positive. The biggest lesson learned, I thought I was an expert at due diligence myself. And once thing that I learned, that we were not good at, was figuring out the condition of waste water treatment plants, and well systems on our own. So, we began engaging a firm that specializes in that, and we send them to every site now. And so it solved that problem. We don't have any surprises any more on the waste water treatment plants, or well systems in the parks that have those. Some of our parks are city sewer and water, but that was probably the biggest lesson learned. The rest of it, we've been very, very happy with. We've not had a lot of surprises. There's one other thing that I think turned into a big lesson for us. And I think this is really important for your listeners, is whenever we buy a park, we look at the move in dates of the residents. And if the seller can't, or won't provide those to you, there's probably a scary reason why. So, if the majority of the folks have been there for a year and a half or more, then we find that that's a pretty stable park. But if you've got a lot of people that moved in in the last 12 months, that seller potentially is filling the park with warm bodies, and those people won't stay. So, we very much scrutinize the tenure of existing residents.

Frank Rolfe: All right. And Brad, if you were to start over again today with 11 properties under your belt, what would you have done differently? Or would you even do something differently? Or would you still run the business model just like you've been doing it?

Brad Froling: I honestly think that we were very fortunate to have started off with a good management company from day one. That we owned. And that's been very, very helpful. I don't think I would have changed much honestly, Frank. But mind you, buying a mobile home park, can be a side business, and if you're just going to buy it and operate it, and run it, you can do that. What we're doing is a little bit different, and a little more labor intensive, but it's not complicated to run. It's certainly not as complicated as buying an apartment community, where you're responsible for maintaining every single thing in every unit. I don't think we would change much.

Frank Rolfe: Brad, let me ask you. You're located in Michigan, correct?

Brad Froling: That's correct.

Frank Rolfe: And tell people about Michigan, because we don't have a lot of people on the lecture series who are based in Michigan. We own properties, as you know, in Michigan. In fact, I just drove through there not too long ago. Give people some insight into Michigan, because I know when you mention the word Michigan to many people, they become riddled with terror that the economy is doomed, and everything is lost, and then of course, when I go there, all I see, most of our properties are more on the western side, but all I see is strong economies, nice looking scenery, nice residents. Can you shed some light, since you're closer to Detroit, correct?

Brad Froling: That's right. And I can understand the reversion. Number one, there's a big stigma about Detroit. I never tell anybody I'm from Detroit, even though I live in a Detroit suburb. I always tell folks I'm from Michigan, because the rest of the state of Michigan, surrounded by the great lakes number one is gorgeous, and number two, has a good base of people. There's not a lot of movement in and out. However, economically, Detroit is, and Michigan is, to a lesser extend, heavily tied to the automobile industry. And currently, the automobile industry is doing extremely well. But it is a cyclical business, so there are times when the Michigan economy is soft. Now, I will tell you, and I think this is very important for the listeners, that two things have happened in Michigan that are, what I consider to be, a real paradigm shift. And that is, number one, the automobile industry went through structured bankruptcies in '08. They achieved things with the unions that they never could have achieved, and haven't achieved for decades, in negotiations with the unions. But they were able to achieve those through the structured bankruptcies when things were that bad. So, the bankruptcy helped them really shed a lot of those legacy costs that were making them uncompetitive with the foreign auto makers. So, the prognosis for the automobile industry going forward, is very strong. It's a big change. It's not just a cycle. Secondarily, the city of Detroit itself went though a municipal bankruptcy. I think it's the largest municipal bankruptcy in the history of the United States. And it too shed a lot of its legacy costs that were holding it down. And now the city of Detroit is having a renaissance. And it seems to be a sustainable renaissance. So, the prognosis for Michigan going forward may not be as bad as people have become aware of it in past years and decades. And I think that their fears were well founded in past years and decades, because when Detroit does get it, it gets hard. And that goes for Michigan as well. But I think two major things happened. The automobile industry bankruptcies, and the city of Detroit bankruptcies. They were real paradigm shifts that allowed them to shed costs that they couldn't ever shed before, and give them a fresh start. And I think the prognosis going forward may not be as bad, or as cyclical as it has been in the past.

Frank Rolfe: If you lived in Phoenix, do you think you would still buy in the markets that you're buying in? In other words, are you buying because you live in that area, and know that area? Or is it because you just like the area.

Brad Froling: Absolutely not. Nope. Absolutely not. In fact, my one partner lives in Beverly Hills, California, and my other partner lives in Scottsdale, Arizona. So, I happen to be located in market, but they are not. Nor is our management company. So no, our selection of this market is based on the delta between the cost to own, versus the cost to rent being strong. And basically the communities here tend to be more homeowners than renters. And in other parts of the country, not all parts, but in other parts of the country, you have a lot of areas where the mobile home parks tend to be rental communities. And it's just not what we want to do.

Frank Rolfe: Do you foresee, Brad, going forward, do you think you may expand that area? Do you think you'll just concentrate continuing on the same states? Or do you see adding more states into the mix? Or what do you think?

Brad Froling: Not for the foreseeable future. Now mind you, we are growing fast, and we're acquiring a lot of parks, and lot of sites. But, we think that that footprint is a pretty big geography for the time being. I mean, that takes up a number of states. And there's certainly plenty of deals to buy within those states before we have to look to other geographies. And certainly, when you're trying to do what we're doing, which is bringing homes in, and filling parks, and running crews, construction crews in those locations, you don't want to be too spread out. So, I think for the foreseeable future, we'll be in the great lakes and great plains. And it will have to be an opportunistic move, or occasion for us to go elsewhere.

Frank Rolfe: Are you using any manufacturer programs to fill lots, like Clayton's cash program, or legacy's program, or any of these manufacturer programs? Or are you doing strictly like, buying repos? Where's your housing stock coming from?

Brad Froling: We think that one of our differentiators is that we have been able to source used homes, and bring them into our parks, and manage these crews that refurbish the homes. And as I mentioned before, we do a thorough rehab. We put real money into the homes. Because that attracts the better demographic resident. But, that being said, I must tell you, one of the differentiators is, by filling with these used homes, we're all in at 25 or 28,000 a site. And if I was to bring in a new home from the factory, depending on how far you're hauling it, you're probably going to be closer to 38, 40 grand by the time you're done with everything. The skirting, the stairs. Shed, features inside. So, that 25% discount is meaningful to this demographic. Remember, we're still in the affordable housing business. And that 25% reduced price means a lot. And I will tell you Frank, surprisingly, we brought in brand new homes into our communities, and you know which homes move the fastest? Are the ones that are used. And I had occasioned to sit down with Jim Clayton himself, and talk about this very issue, and I said, "Jim, I know you want us to buy new homes, but I got to tell, you the used homes that we completely refurbish, always go fastest. Why is that? And he said, it's because this demographic understands that something used is a bargain, and something new, you're going to pay a premium for something brand new." That's the mentality. And so, however Frank, to answer your question fully, we're going to have to start bringing in some new homes now. Because we're having too many parks, and too many sites to fill, and we've got plenty of demand, and we can't possibly continue to grow at the rate that we're growing, and continue to add construction crews, to continue to refurbish homes fast enough, and bring them online. So, we are new experimenting with bringing in homes from the factory, and taking advantage of their floor planning, financing, and whatnot. But I will tell you, that the used homes tend to move faster than the new homes. By the way, I say that even when you drop the price down to the same price as the used home. That's when we finally move a new home. We can't get people to pay, in our communities, we can't get people to pay that premium for the new home. And by the way, we do a lot of capital improvements to the parks too when we take them over, 'cause the sellers have suffered from a lot for years, so we have to fix roads, and do things, and we do. So it's not like we don't have a presentable community. We do. The communities are very presentable, but still, that delta is a big deal for this demographic.

Frank Rolfe: Brad, where do you see yourself 10 years from now? In other words, how big do you guys think you'll grow? Or do you have any goals in that regard?

Brad Froling: We absolutely want to be in the top 10 in the country. As long as we can continue to raise the capital that we've been raising, we think we'll get there. It's a very disaggregated industry, so it doesn't take a lot to get into the top 10, and we certainly see us there, and we will certainly recapitalize these deals once we aggregate them, and fill them up with institutional money. But we see ourselves being in the top 10. And I think our rate of growth has been pretty quick as it is.

Frank Rolfe: Very good. And if you were to go back in time, would you do it all over again? Would you get in the industry to begin with?

Brad Froling: Yes I would, but remember there's a window of opportunity here. And it's important for folks to know that. If you're going to buy parks, and fill them up, take them from 50 or 75% occupancy up to 95 or 100% occupancy, the opportunity to buy is strong right now, while there's still this lack of lending to the home owners. But that's going to eventually correct itself, and eventually the buying opportunity is not going to be as strong. You're going to have cap rate compression. So, I think that we got in at the right time, and certainly, if anyone had a crystal ball, you'd get in a little bit earlier, but I wouldn't wait a long time to get in, because I think it's a great opportunity right now. It's a very strong opportunity right now. And eventually, it's going to diminish. How long? Nobody's got a crystal ball. Five years, seven years, maybe longer. But what works against that a little bit, which is in our favor, is, there's also a widening income gap in this country. And so, I've always told all of our investors and lenders, the problem with this industry is not a demand issue at all, it is purely a supply issue. A lack of liquidity in the industry. And ability to set a home town, no matter which state it's in, whether it's rural, or metro, it's gone within 30 days or less.

Frank Rolfe: Right. And on that note, where do you see the industry? When do you think that mobile home parks, you're from the apartment industry. At what point do you think they'll finally lose the stigma, and become more like apartments? Or will it never happen? Or what do you think in that regard?

Brad Froling: No, I do. I do think it will happen, and I think the reason why it hasn't happened yet, as it has in the apartment space, is purely because of the disaggregation in the industry. Remember, this industry was an easy business. So, you got a lot of mom and pops in the business. All they had to do was collect lot rent. If a home owner had a problem with his bank, that was between him and his bank. And in fact, if the home owner defaulted, generally the bank would step in and continue to pay my lot rent, while the bank brought a new resident in. That's the way the industry operated for years, and it was an easy business. Therefore, it attracted a lot of mom and pop owners that could do this on the side. And the institutions don't want to come into this space today because it's too disaggregated. So people like us who are aggregating these parks, and taking them to stabilization, and then selling them back to the institutions, that's what they want. So I see the industry continuing to get more and more consolidated in the hands of fewer owners. Now there will still be Mom and Pops of course, but I see a lot of aggregation and then the institutions are going to buy up those people that are the aggregators.

Frank Rolfe: Right, and Brad tell people since you have an apartment background a lot of people segue from apartments into mobile home parks. What would be the top three, or top five differences between apartment ownership, and mobile home park ownership?

Brad Froling: Number one is apartments are much more labor-intensive, because you're maintaining everything. Roofs, windows, hallways. Every toilet that breaks inside a unit, you have to have on-site employees to fix. Therefore, apartment folks generally tend to be more localized. If they had multiple communities they're within a certain radius. In the mobile home parks base by contrast, you can have parks further and further apart from each other, because you can manage them from afar. I think that's one of the biggest differences. Secondarily, I think that the operating expense ratio on apartments is significantly higher, and that's obviously good for mobile home parks. Thirdly, I think cap rates in the apartment space are significantly lower, meaning prices are much higher than in the mobile home park space. And that's because the apartment space does have a lot of institutional money in it, and flooding it, and in the mobile home parks space by contrast you have more illiquidity, largely due to the fact that you don't have lenders for the homes. So, pricing is much more favorable among the mobile home parks space. The next thing who would be the turnover. Apartments have a industry-wide average turnover of 40 to 50% a year. That's just the nature of the business. Hotels obviously turn over every night. Apartments turn over 40 to 50% a year. Mobile home parks, by contrast, don't. People build up equity and these homes. In many cases the homes are owned free and clear. Those people are now down to the lot rent payment. If the economy went in the tank, where are those people going to go? I mean, if they're paying a $300 a lot rent, an apartment is going to cost them double that. So they aren't going to move out and go to an apartment. Secondly, it's going to cost them 5 or 8 Grand to move the home, which no one in this demographic has that kind of cash sitting around. So, they can't move the home. So, it's a much more stable income in lower turnover, than the apartment sector. I think those are the major differences.

Frank Rolfe: Alright Brad, I'm sure you read a lot of the same stuff that I read. Emails from MHI and things. Do you see the government taking a more active part in the industry going forward? I mean, obviously the Section 8 thing, which we've still not even seen enacted, but there's discussion. [crosstalk 00:42:14]

Brad Froling: I think they're dragging their heels on it. I think ultimately, they may, but it has been a very slow process. The biggest thing that would help the industry is for them to buy the chattel paper in the secondary market. And even today, they're still reluctantly giving lip service to it, but not really jumping in with both feet. So, whether they ultimately do, I'm not so sure. And certainly, with a republican president, versus a democratic president, it may be less pressure on them to do it. I don't know. But I just don't see the government fixing the industry like they should, or could.

Frank Rolfe: And then, tell people who are on the call here, who are looking at buying a first property. What tips would you give them as far as how to start out, what to look for, how to find the deal. What concrete tips can you give people that would help them out?

Brad Froling: Particularly for someone who is still going to try to maintain their day job, I would look for parks where the residents have been there, by looking at the move-in dates of those residents, seeing that there's not a lot of turnover. I think that's going to be the single most important ingredient to having your ownership of that park not require a tremendous amount of time. Because every time a homeowner moves out of a home, and you somehow become owner of that home, you are probably going to have to have a maintenance guy that can fix it up so you can put that home back on the market. So, turn over by nature is low in mobile home parks, and you want to buy those parks that have low turnover. I think that's the biggest thing if I was advising a new person in the market to look for, is to look for a park where the residents have been there a long time, and there's not a lot of people that have moved in in the last 12 months.

Frank Rolfe: Tell me a little bit about, since you have some properties with private utilities, we also have similar private utilities. Can you give people some encouragement, or some terror as to private utilities in mobile home parks?

Brad Froling: Yeah, actually to tell you the truth, I think private utilities can be better than public utilities in this way. Many times, where you have city sewer and water, yes it's less maintenance, but they charge a lot of money for that city water, and sometimes I find that you can operate these wastewater treatment plants and well systems at a lower cost than what the city would charge you. Now, it's more work. You have to have an operator that comes in there and does testing and whatnot, and you've got to have compliance and whatnot. But these operators are used to that. It doesn't take up a lot of your time. The biggest thing I would encourage you to do if you do buy a park that has a wastewater treatment plan, or well system, is to have an engineering firm that's familiar with treatment plants and well systems, 'cause not all civil engineers are. But have one that's familiar with those types of systems go in there, and inspect them, before you buy the park, so you can quantify what kind of capital those systems are going to need over the next year, or five years, so you can budget for it. But in terms of the day-to-day maintenance or operation on them, yeah, you got an operator that comes in there, and he charges you a fee every month for it, and he sends the reports off to the state. If something falls out of whack he gets in there and fixes it. So, there's a little more oversight, but in the long run it can be less expensive to operate then city sewer and city water parks. I wouldn't be dissuaded from buying a part merely because it has private utilities. However, with that being said, I would be warry to buy a park that has a leach field, or legume system, or private individual lots with septic fields. That's going to be a nightmare, and eventually those things are going to need to be rebuilt, and that's a big ticket price. So, wastewater treatment plants, that's real science. You can absolutely by parks with those. Some legume systems, modern legume systems can be okay, but I would stay away from leach fields, or septics for each individual lot. Those are bad. Those are not going to be long term.

Frank Rolfe: Do you have any packaging plants in the portfolio?

Brad Froling: Oh sure we do. Yes, we have several wastewater treatment plants.

Frank Rolfe: And a very common call I get from people is the correct diligence on that. I told them to basically figure out cost of replacement, years left, the regular stuff. You have any tips on those? Because that's always a wildcard for people.

Brad Froling: Yeah. That's the one part of due diligence that we learned a lesson on, and that is that we shouldn't try to figure that out ourselves. So, we hire a firm that is well-versed in wastewater treatment plants to go into each one and evaluate it, and tell us what needs to be done today, tomorrow, five years, 10 years, and put dollar amounts to that so we can properly budget for it, or in certain cases, go back to the seller and ask them to reduce their price because of it. You are never going to be able to figure it out just looking at it yourself as an owner.

Frank Rolfe: And I totally, totally, totally agree. Well, Brad, again, we really have enjoyed having you on here. Do you have any final thoughts for people who may be looking, folks on this call, we have some that were just looking at the industry initially to see if they might be interested in it. Others who are already sold on it, but looking for a property, and then still others who are here because they wanted to hear what it was like owning more than one. Any other thoughts on the industry, or getting into it, or anything else you like to share with anyone?

Brad Froling: One thing I'll say, and I'm not just saying this because of you Frank, but you were a tremendous help to me in the early years, holding my hand as we went through some of the initial issues of owning an asset in a different asset class, and I think anyone that attends your boot camps, or lecture series, and gets to know you, can trust, as I have, that there's nobody that's going to answer your questions more honestly, and more thoroughly, and probably more thoughtfully than you. And I think they're in good hands if they somehow work together with you on their entry into the business.

Frank Rolfe: Well, I appreciate that Brad. And I've always enjoyed talking with you, and helping you. And I'll show my wife. Still to this day remembers when you sent her a giant flower arrangement. She compares all flower arrangements to the one she received from Brad Froling years ago.

Brad Froling: And I'll tell you, I just felt so grateful to you Frank, because you were, and still have been such a great, great help to me getting in the business. And I'm glad Annette said that, and I wish the best for you and her and Eva. Can't wait to see you guys when you come, next time you do come through Michigan, please stop by. I love to take you to dinner.

Frank Rolfe: We definitely will, 'cause we'll be there again in fact fairly soon. So, we will try to come by and say hi. And Brad, would you, for folks here on the call that have questions, want to talk to you, if we were to email those questions on to you, would you be nice enough to respond to them? For maybe people who want to just ask you general questions about your experiences, and things like that? So, is that okay if we send those onto you?

Brad Froling: Sure.

Frank Rolfe: Okay, so if you're on the call here, Brandon are you there in the background? Don't know where Brandon went. If you'll email those, and any questions you have of Brad onto Brandon, he can forward them on. And I know Brad's a super nice guy who will be happy to respond to any questions you have, whether it's on markets of Michigan, or some of his concepts that he's using. Using technology to manage from a central office. Just any questions in general, feel free to send those on to Brandon, [crosstalk 00:51:27] What's the correct email for them to send the questions in on? Brandon: It's Brandon, [email protected]. And all the notifications, everyone should have received, should have came directly from that email address. So, feel free to just reply to any of his notifications.

Frank Rolfe: Okay, super. So again, if you have any questions, just email them directly to Brandon. Brandon will send them onto Brad, and brad will try and respond to those, and give you all the answers that you need. Again, he's a super nice guy, and very open with his time, and that's why we like him so much, because he kind of shares the same vision that Dave and I share, which is, giving back. Education is not harmful to you, once you own properties, it actually is beneficial, because the way to achieve Brad's long term goal, and David and I's long term goal of making the industry more mainstream, is for everyone to understand it, and understand the key drivers, and do it properly. So we totally support that mission. So again, Brad, we really appreciate your time being here. I know you're super busy. I know you travel a lot as well, so we really appreciate you taking the hour or so to be on here with us. Again, I know there'll be a lot of questions probably for Brad out there if you've got any, by all means send them onto Brandon, and we'll try to get those answered. And again, we think it's been a great lectures series. And again, Brad, we can't thank you enough for being here, and we appreciate everyone for you all tuning in. We know you have other things to do with your time, so we really appreciate you being here, and we'll talk to everybody again real soon. So, thanks a lot everyone, thanks a lot Brad.

Brad Froling: Thank you Frank. Couldn't have done it without you.

Frank Rolfe: Thanks a lot Brad.