There are many types of mobile home parks in the U.S. but only one of these is probably right for you. So how do you select the type of park that will fit your goals? That’s the topic of this event. Frank Rolfe – who along with his partner Dave Reynolds, is one of the largest mobile home park owner in the U.S. and has appeared as an industry expert in such publications as the New York Times, National Geographic, Bloomberg and Time Magazine -- will tackle the idea of how to choose the correct type of park to buy.
As you’ll see, there are many different types of parks out there – each with their own traits, strengths and weaknesses. The important item is how to make the right decision on which works for you, and that’s the focus of this event. We will also held an open Q&A following the lecture.
If you want to learn more about mobile home park investing, take the 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 us at (855) 879-2738.
Mobile Home Park Matchmaker: Choosing the Right Type of Park to Fit Your Goals - Transcript
Welcome to the lecture series event, Mobile Home Park Matchmaker: Choosing the Right Type of Park to Fit Your Goals, brought to you by MHU.com. This is Frank Rolfe. I think the keyword in that title is, your, because it's all about what you're trying to do. I am simply here tonight to give you all the different facts, all the different stories of all the different types of mobile home parks out there. But it's your job to decide which of these fits for you. I can't predetermine that. There's a lot of different business models in the industry, as you'll find out, and as result, there's people who feel very enthusiastically on all kinds of these models. And I can't tell you which is right, which is wrong because I know people who have succeeded in all of them. But what's important is, is to give you the wide depth of knowledge so you can best choose which one might work for you.
Let's start off with some basic items to cover before we even go into the different types of mobile home parks and their performance. Let's start off with lifestyle choice versus affordable housing. Now, what is that? There are basically two schools to the mobile home park product. There are those who believe that mobile home parks can go neck in neck with stick built homes and those who believe instead that mobile home parks are not equivalent to stick built homes as far as demand or the product, but are more in the realm of apartments. And more, our job is to provide affordable housing. Now, the lifestyle choice advocates, their properties are typically amenity-rich, normally coastal. They are kind of like Dell-Webb communities, only instead of stick built construction, it's mobile home construction. What they try to sell you on is, sell your stick-built home, your brick house, and move to our mobile home park and enjoy our lifestyle, our quality of living, which is amenity-rich with warm weather, et cetera.
And although that sounds all kinds of interesting, I don't really buy it, personally. I'm not really an advocate for lifestyle choice because I'm very, very concerned about the future of the model. The reason I'm concerned is, I'm not sure the baby boomers and future generations and Generation X'ers and millennials are going to share that same desire to move from a traditional detached dwelling into a mobile home park because it's got a lot of shuffle board and swimming pool and other activities like that. That's my problem with it. I have no problem with affordable housing because I know that that is our greatest strength. We provide a product at a lower cost than an apartment, but one that features the key items Americans want, and particularly in a post-COVID world of a detached dwelling with a yard and parking by your front door and the sense of community.
The affordable housing model is the one we've always done because we feel strongly that that is our best sales pitch is the fact that we provide a really great product at a really low cost. I'm not totally sold, to be honest with you, on lifestyle so therefore I can't invest in lifestyle because I don't feel 100% confident in the model. I just don't. I don't know anyone in my circle of people I know, my age group, I'm a baby boomer, who are telling me, "Yeah, I can't wait to retire so I can move into a mobile home park in California." That doesn't mean that there aren't plenty of people out there who may want to be doing that. But you're either in one camp or you're in the other. It's really hard to fake. Now, one thing about the lifestyle choice product line is to have a community, you would have a hope of displacing someone out of a stick-built home, you've got to have one heck of a location. You've got to have one heck of an arsenal of amenities and there's not that many properties like that.
Another problem you're going to have is simply the supply of lifestyle choice properties going forward. Out of the 44,000 mobile home parks in the US, I would estimate that, I'm not even sure there's even 3000 of those lifestyle choice properties. Case in point, you probably saw the recent headline, The Sun Communities has made another acquisition, but it's not a mobile home operator. Even though they are a mobile home park ret, they just bought the operator of some boat marinas. Now, what that tells me is, not that boat marinas are the next hot thing, because I don't think they are, but that they've run out of lifestyle choice product so they are getting desperate and buying things like boat marinas. It's the second time it's happened because the first time they went off on this adventure, they bought into the RV industry. And I don't think they are doing that because they feel RV or marinas are equivalent to mobile home parks, particularly not for a ret that's built on mobile home parks as their basic business model. The problem is, they just run out of stuff. On the affordable housing side, probably at least 40, 41,000 even 42,000 of the 44,000 mobile home parks in the United States. Those are all affordable housing property.
Next you have senior versus all age communities. Again, this is going to harken back to a choice you have to make as to what you believe in. Now, what our senior parks, also known as 55 plus communities, this is the only time that HUD ever allowed you to discriminate and they just chose age. It could have been something else. It could have been I don't know what, what sports teams you like or something, but no, they chose age and they selected that age. I don't know why it's 55. Why is it 54? It seems kind of odd to me because you can't retire at 55. Social security starts at 62, but that's the date they chose. When you have a senior community, your community basically caters to those who are 55 years of age and older and that's very separate from what are called all-age communities which take people of any age.
What would make me want one over the other? The big observation between the two, and we've owned both, and we still own both today, the big issue is, are you going to have enough seniors, enough senior demand, to keep that property full for the next 100 years, and that, we don't know. Kind of going back to the deal on lifestyle choices and affordable housing. I don't know what seniors are going to do going forward because the seniors of the past, let's define that for a moment, since the industry began. The first round of seniors that would go into a mobile home park in retirement were the greatest generation. These are the folks that built America. Many of them served in World War II and possibly once again in Korea. And they were very familiar with mobile homes because they lived in them during the war, they lived in them on the GI Bill, and they watched their heroes, people like Elvis Presley living in a mobile home park not once, but twice in two separate movies. They had nothing but positive thoughts when you brought up the word of mobile home park. Harkened back to their youth, seemed perfectly acceptable, if not down right upscale and therefore they had no stigma attached to it.
Behind them you had the silent generation. These were the people born during the Depression and they had not been in mobile home parks in the same manner. They were not in World War II, although some of them served in the military and then on the GI Bill. But the big issue with the silent generation is they are enormously thrifty. If you know anyone from that generation, you'll see that they are very, very conscious at any given moment of what things cost and how they could do things cheaper and that's kind of always been a focus. They like small spaces. So what's happening now is, you have these folks who are living perhaps in a stick-built home and say, you know, I'm going to retire into that mobile home park and I'm going to do it because that mobile home park is more economical. I have less amount of square footage to heat and to cool and less of a yard to maintain and I can sell my house and pocket a tidy sum after buying the mobile home. That makes complete sense to me, I can see that.
But the problem is, what about the boomers? That's the next group that's aging. I'm a member of the boomers. Anyone born between 1946 and 1964 is a boomer. Now the problem with boomers are, boomers are the folks who brought the world big houses. Boomers like things big when it comes to residential. Boomers like to have bathrooms as big as perhaps entire homes back a few decades earlier. I don't know that they are going to want to retire into mobile homes. That, to me, remains a mystery. And I don't know if the generations after that are going to want to either. And the problem you have with a senior community is, you're banking, 100%, you're rolling the dice, because you can't bring in anyone else whose not a senior. So that's the problem with senior versus all-age.
If you say, I believe strongly in senior, I believe strongly in senior demand going forward, well then you might be perfect as an investor in the senior arena. And the ones that we own, performed extremely well. We don't have any concerns, but at the very same time, we acknowledge on a wide scale portfolio, if you were to buy a lot of parks, you wouldn't want to go all in, I don't think, into senior because we just don't know what the future holds.
Now let's move onto geography. Many people buy within a four to five hour radius of where they live. That's how Dave began, that's how I began, and it makes total sense to do that because nothing gives you the feeling of control more than being able to jump in your car at any given moment and drive out to your property. Maybe on a Saturday, you leave your property at eight in the morning, drive along, listen to podcasts, listen to music, arrive at the property say noon, do whatever you wanted to do, see whatever you wanted to see. Leave the property at say, two and you're home by 6:00 for dinner. That makes you feel like you're in control of what's going on. However, some people, when they drive that four or five hour radius around where they live, half of that area is in the ocean and the other half doesn't get them very far inland. In those cases, they may need to fly. And if you're going to fly, it doesn't really matter how far you fly, to be honest with you. Unless you're going from coast to coast in America, flying is pretty speedy. The cost of actually getting to the airport and getting a rental car, that can be often more time than you spend in the air.
If you're going to fly, if you're going to break outside the boundaries of that four to five hour radius rule, then your choice would be geographically where do I want to be. Dave and I have long advocated the great plains in the midwest. Why, because we live there, but also because we really believe in the strength of that area. One area we like about the great plains in the midwest, other than the fact it doesn't typically have any peaks and valleys, because things don't get enormously overheated followed by massive over-construction. What we also like is the fact that it's based on food production. We found that food production is a very calming influence when you have economic recessions. If you look at the Great Recession back in 2007 and its aftermath, you saw an unemployment rate actually of over 10%, but in some states, like Iowa, it was around three to four percent. What's the difference? Iowa has a lot of food production. In fact, if you look at maps of what happened during the Great Recession, you'll see the unemployment rate tended to be lower in America's bread basket and that's because it was making bread, it was making food.
It's an instrument we don't often think about or talk a lot about, but it's theoretically the number one or number two largest industry in the US. Number one it would be argued is oil and gas production. Number two, however, is agricultural production. But it doesn't just have to be the great plains in the midwest, any region you feel strongly in, then that's where you should invest your money. If you say, I like the future of the southeast, well then by all means, vote with your pocketbook and invest in the southeast. Southwest, same story. Northeast, that's fine. Northwest, okay. It doesn't really matter because there are mobile home parks all over the US. If you look at the official stats, Texas has the most, followed by California, followed by Florida and then Kentucky. So that's a pretty wide diversity. You have the middle of America with Texas, the farthest American point with California, the farthest eastern point with Florida and then right back to quasi the middle again, with Kentucky. Basically there are parks all over the US, but you need to select the geography that you feel strongly about. It can either be because you live there or because you believe the future in that area is bright.
Next you have the investment grade parks versus non-investment grade parks. Now what do I mean by that? What makes something investment grade and not investment grade, to me, the key driver between those two is the ability to obtain bank debt, good bank debt, real bank debt. Not just you lucked out because you knew the banker at the small town bank who said, okay, I'll give you a loan even though he really didn't want to do it, but the kind of a park that can pass muster of an appraisal, a bank committee and get you a real loan at a low interest rate under good terms. To me, that's the difference.
Why would people buy properties that are not investment grade? They do them because sometimes that non-investment grade park can have a really high yield because it scares most people off. There's nothing wrong with a non-investment grade park if you acknowledge on the front end that that's what you have and still, because of the price, because we're typically seller carry, you say, it will be very, very hard for me to ever resell it, almost impossible to ever get a loan on it, but nevertheless I'm doing really good in the interim making money with it, so what the heck, I'll keep it forever.
Next, real property versus detached property, detached apartments and basically personal property. In every mobile home park, you have the land. All mobile home parks start with land. Land is real property. When you rent land from the mobile home park owner, the tenant pays a monthly amount for that rent, for that little piece of land, that's real property income because it's basically someone paying rent for real property. And in a mobile home park, you often have not just the land. Frequently you'll also have mom and pop's original dwelling, which you can rent or you might have a duplex or a small apartment building or a commercial building, self-storage maybe. Those are all real property and all that rent is real property rent. However, often you'll have moms and pops trying to sell you one more item and they'll be trying to tell you that the mobile homes that they rent out are real property, but yet they are not, they are personal property.
In the model in which people rent the mobile homes out as part of their business model, that's what we call a detached apartment investment. What they are doing is, they are looking at those mobile homes not as a conduit to real property land rent, but that those mobile homes are in fact the product itself and its land just basically serves as the spot you park the rental mobile home. If they rent that mobile home for $800 a month, they consider all $800 real property income, which they then cap. The land-only type of operator only counts the land rent portion. You see, the people who like to do the land rent model, they want nothing to do with the homes. They don't want to own any of the homes. They don't want to be renting any of the homes. They just want land rent. But those who do the detached apartment model, they like renting the homes. They are aware that they have to do the repairs and the tax and the insurance, but that's all part of their model.
I know people who have done very well with the detached apartment model. We've got somebody who went to the bootcamp and went out and bought a more than 100 space mobile home park in the southeast. Over time, brought in the homes to fill every lot and you can't knock the model. He rents those homes for say, $700 a month per home. He has 100 of them. $70,000 a month in revenue. $840,000 a year in revenue. Take out the expense ratio, let's say you take out half of expense ratio, he's still making $400,000 plus a year off that mobile home park that he bought for not a whole lot of money. However, as a model it's very, very hard to finance, if not impossible. Very, very hard to find another owner because this person self-manages that rental detached apartment mobile home complex and as a result, it's very hard to find a new person who wants to do that. Most people want to invest more passively than that. But it's another model you have to consider.
Let's go now into the different types of mobile home parks. I'm going to break it up for today's lecture into three general styles of parks. Remember there is 44,000 parks in the US and you can't just put everyone in a very finite box, but I think most people would agree these are the general category. Category one, the heavy lift turn around. This is the type of mobile home park that you're going to be doing a lot of stuff with. It's typically got occupancy issues, infrastructure issues. Clearly it's got a lot of aesthetic issues. And you've got to stabilize with upside property. That's one that's got most of the big stuff out of the way, but still has upside. Fill in the remaining lots, raising rents, sometimes cutting cost. And then you have what I'm going to call the autopilot park. This is the park that doesn't really need any additional work. In fact, what it needs is just to make sure you don't screw it up and let it go backwards.
Lets now examine these three as investment models so you can help decide which of these works for you. Let's start with the heavy lift turnaround style of park. What is the model? The model is, you're buying something that's broken and you're going to fix it. Sometimes it's really, really broken. So this would be comparable, for example, if you watch shows like Counting Cars or some show regarding cars. This would be someone who brings in the old Mustang Fastback model from '65 that's completely rusted and needs everything done. The engine doesn't work, the transmission is missing, there's just all kinds of missing components, rot, rust, rodents have eaten the dashboard kind of stuff, but yet you see the inherent value in it and you say, you know what, I'm going to get this thing insanely cheap and I am going to try and bring this thing back to life. That's the general business model itself.
Deal size on those things, they're all over the map, but I would say the most common heavy lift turnarounds I see are probably going to be in the range of normally 30 something lots up to under 100, would be the most common. There is certainly heavy lift turnarounds even on bigger parks, but the really, really, really screwed up ones that we typically see, they are not the largest properties and dollar price point, they are even rarely at a million dollars. They are normally in the hundreds of thousands of dollars price point. A good example for me is the first park I bought, Glen Haven. I bought it for $400,000. It had 83 lots, it was half empty. The lot rents were terrible and the aesthetics were abominable. It was $400,000 with $10,000 down. Mom and Pop carried $390,000 for 30 years. It was a two and half percent down payment. But why? Why so cheap?
Number one, it needed massive work. In fact, more work than I even knew about when I got involved in it and additionally it was losing money on day one. That's another feature often of this heavy lift turnaround properties. Glen Haven was losing $2000 a month. Right out of the shoot the first thing I had to do was find a way to get Glen Haven to break even. I was lucky on Glen Haven because even as a rookie, novice, amateur I could spot one way to make a quick two grand a month. Because Glen Haven was providing free cable television to the entire park, it was costing almost exactly $2000 a month. Now, when I looked at the homes that my cable was serving, I noticed they all had little satellite dishes on the roof. I assumed they were on Dish or Direct TV. I went to the cable company and said, "How long does this contract last?" "You're already on month to month." "Okay, I want to cancel it." "You can't cancel it. If you cancel it, they won't have any cable TV." I said, "I don't think they are using your cable TV."
Turned out I was correct. When we shut the cable off, I only had about three people call to say, what happened to the cable. I said, "We aren't providing you free cable anymore, so go get Dish TV or Direct TV." And they were like, "Okay." That was the end of it. That saved the two grand. Often when you buy these heavy turnaround parks, job number one is you've got to right the ship because it's sinking, it's listing. It's taking on water and you've got to fix it. The amount you're putting down on your down payment isn't often the entire amount that you'll have to use in the end. The number of lots we typically see, again, we typically are seeing about 30 lots to under 100, I would say is the most normal heavy lift turnaround property, but we've seen bigger than that.
The amount of capital required, again, you have the money for the down payment, but you also have to be very careful what you need in capX. When I bought Glen Haven, $10,000 down, that wasn't the end of the story. I still had capital I had to pay to rehab homes. I had to fix the laundry buildings. I had to do potholes. I had to do some tree work. So it wasn't like I just wrote a check for $10,000 and that was the end of the movie. You have to be very, very careful on those that you've accounted for all of that. How does the debt work on those turnarounds? Because they look awful typically and they're suffering from all kinds of deferred maintenance and occupancy issues. Typically the debt on these is mom and pop. If you're looking for seller carry, seller carry is the solid foundation of lending for heavy lift turnarounds.
If you're wanting to not use bank debt, well, heavy lift turnarounds are the place for you because it's pretty much assumed by mom and pop it's not possible to get a loan on the park in its current condition. And they actually see carry the debt as an additional tool to make you want to buy it. Where do you find heavy lift turnaround deals? You typically are going to find those through cold call and direct mail because most brokers aren't going to want to mess with them. You may also see them on mobile home park store or loop net. They are the ones that sit on there and have not sold for long periods of time. If you see a park that's been sitting around for a year or two, it's probably got some kind of heavy lift turnaround business model that goes with it.
The risk factor, this is an interesting point. You've got, in life, you've got this thing called risk and reward. If you read Sam Zell's book, am I being too subtle, which I highly recommend, you'll see that Sam Zell, which is the largest park owner in the US, but also he's been the largest apartment owner and the largest office building owner. He is a very studious person on the theory of risk and reward. His theory is, if it's got low risk and high reward, you should always do it. If it's high risk and low reward, you should never do it. Typically on these heavy lift turnarounds, the model is it's high risk, high reward. You're going to take a lot of risk, but yet if you price it appropriately, the reward is going to be huge. If you're looking at what style of park can make, theoretically, the largest return, if you hit it right, it's probably the heavy lift turnaround because people are assuming that it's virtually dead and if you can bring it back to life, then there's big profit in that.
What are the good things about the heavy lift turnaround? The good things are that you can often get in for the very small amount of capital compared to the other models we're going to be talking about. Yes, it is possible to do zero down on them. Dave and I have done 12 of those to date. That option is there on the table. And you can buy them really, really cheap. How cheap? Astoundingly cheap in some cases. There's a guy we know named Sean, we call him Sean of the Dead, he buys mobile home parks and brings them back to life. All heavy turnarounds. But he's only paying on those parks, often 50 grand, 100 grand, for fairly decent size property because he buys stuff that's in such bad repair to bring them around. So if you're trying to boot strap your way into the industry with not a lot of capital, then that heavy lift turnaround model, that's probably where you want to be, because that's where you're going to find things that you can afford.
Also, heavy lift turnarounds, you can't things any worse. It's like Glen Haven. When I bought Glen Haven, Glen Haven couldn't be any worse. The occupancy, dreadful. The rent, ridiculous. The rent was like 150, 170 a month within the loop of Dallas. Everybody else's rents were up to like three and $400 back then and here's Glen Haven languishing with a one on the front. So when you buy those heavy lift turnarounds, you can do some insanely huge improvements in the [NOI 00:27:33], extremely rapidly. That comes with the territory. So when you're doing those heavy lift turnarounds, and if you buy that right, you've done all your due diligence, and you've got a good strategy and you enact it, you'll be able to pump that NOI faster to a higher level than any other model. And that's what creates the reward from the risk and reward.
But there are also some things you have to know about them on the bad side. They virtually have zero liquidity. What I mean by that is, once you buy that thing, until you fix it, you're kind of stuck with it because there are very few people out there who have the vision that you had in buying that thing. And on top of that, banks won't finance it. Doesn't have stabilized occupancy, looks terrible. So you're stuck with it. When it comes to liquidity on those heavy lift turnarounds, you have virtually none. Another item is, you have to be extremely careful not to get involved with parks that are deceiving, where they have a very low amount of down, but they need a whole lot of capX. What good will that do you?
Often when you buy those heavy lift turnarounds, you're always trying to bootstrap and overcome things. You're always trying to triage basically. As you get into fixing it, you find I've got a water leak here, a giant pothole. You say, I can't afford to do both so let me think here. I guess I'll do the water line because that's costing me money. The pothole is not costing me money at this point. So all the time on those heavy lifts, you're always doing triaging because you don't want to make up for your lack of a huge down payment by pouring all the capital in repairs.
Also, sometimes when you get into turning those types of parks around, you find out things are actually much worse than they originally appeared. Have you ever tried to remodel maybe something in your house? Maybe you bought a stick-built house or something and you've got some wood that appears like it's rotted and as you pull it back, it exposes that there's much more rotted than you thought. In fact, termites have eaten up the entire wall. That's what happens time and time again with those heavy lift turnarounds. You've got to make sure that you've done phenomenal due diligence because the very park that's been fallen into wreck and ruin by mom and pop, that same issue often can propel it to have all kinds of items just beyond the obvious, beyond the things that you can see. And again, you don't want to buy something really cheap and then have to pour money out of your pocket into capX to turn it around.
Let's go to the next style of park and we call that the stabilized with upside. What does that park look like? What's that business model? It's like the heavy lift only you're not lifting heavy weights. You're not lifting 50 and 100 pound barbells. Now you're lifting like five and ten pounders. These are typically parks that are not full, might be at 80% occupancy, so they are already at stabilized occupancy. Aesthetically, they could be better but they are not terrible. Normally you're going to be doing the entrance and the sign and street-scaping and items, but they are not that bad.
The infrastructure, it could use a little work, but it's not failing. So what do you do with one? What you do is you buy it in pretty good condition and then you make it into really good condition. You fill the vacant lots, you raise the rents to market, you cut the cost. Perhaps replace the manager. Maybe the manager wasn't any good anyway, but on top of that, typically much more expensive than you can replace them with a new manager with. And you bill back water and sewer. You just generally make it nicer and as you make it nicer, the cap rate declines and the value goes up.
Where do you find those stabilized with upside deals? The stabilized with upside deals, cold calling and direct mail is good. But now you can also find them very, very frequently with brokers. Stabilized with upside is really one of the mainstays of what we've been buying the last 25 years, although we've also done a whole lot of heavy lift turnarounds as well. Unlike the heavy lift turnaround where most brokers will list them because they don't think most people will every buy them, stabilized with upside, a lot of people will buy that so you'll get a lot of deals with brokers. In fact, over half of all the parks we have have come from brokers. There's certainly nothing wrong with hitting the broker community for those kinds of deals.
Deal size, typically the stabilized with upside parks, although they come in all kinds of different price points, they are typically around a million and up. Maybe a little less. As far as the capital required on them, you're looking probably 20, 30% down, couple hundred grand to 300 grand to buy a million dollar stabilized with upside park would probably be kind of the norm. On the debt side, unlike the heavy lift turnaround, you actually have different styles of bank financing, pretty immediately available. That's why we call them stabilized with upside because they are actually bankable from the beginning. You can get definitely bank debt. You can probably get conduit debt if the loan amount is at least a million or more. You can even theoretically get agency debt if the loan amount is closer to two million or more. Debt is much, much better on these stabilized with upside than it was on the heavy lift turnaround.
On the risk factor, the big risk you have with those stabilized with upside, most of that risk is manageable in your diligence because unlike the heavy lift turnaround, you can actually quantify what's going on. And you'll see most of the things are in pretty good condition. This, again, is not the big, old rusted car you find in a farm field that you want to bring back to life. This is a car that's already running, engine's running, transmission's good, body's pretty good, but you're just trying to take it to the next level. The risk factor is much reduced. If you're Sam Zell metric, this would be a lower risk, but this is where it's interesting. You've got this anomaly in the stabilized with upside that you can often find a deal that has lower risk, but still has extremely high reward. That's why we really like those deals. Some people, they just don't appreciate them or they don't the vision of what could be done with the asset with a little extra work.
Let's in fact, focus on the good and the bad attributes of the stabilized with upside park. Number one, it's got the best mix to us of risk and reward because it just seems like people don't really appreciate what they have entirely. We've bought many parks over the years where mom and pop's rent, even though the park wasn't half bad, the rent was $100 a month under market or $200 a month under market, which just doesn't make any sense. We bought a park once from a guy in Fenton, Missouri. Fenton is one of the better suburbs of St. Louis. The guy had 80 vacant lots even though the property had a magnificent location and magnificent infrastructure. And we asked him, why so many vacant lots? He said, people come by here all the time wanting to buy a home, rent a home, but I don't want to jack with the homes, we own this free and clear. When you try and sell homes, it's a pain. You've got to run ads and show them. So they made a conscious decision not to use the lots. However, there was huge value in those lots.
If you'd seen each of those 80 lots occupied, it was worth 40 or $50,000. There was about $4 million of value sitting in those vacant lots, which they could easily fill, they just didn't want to do it. The risk/reward scenario, again, when you really look at the metrics of how much risk you have and how much reward you can make, it's normally very attractive. Another thing you have with the stabilized with upside park is, you have a chance for a cash-out refi. Let's explain what a cash-out refi means. If you were to buy a stabilized with upside park for a million dollars and then you groom it by raising rents, cutting costs, filling lots, making it nicer, and now it's worth a million five, a conduit lender will look at that and do a 70% loan to value. 70% of a million five, right around a million dollars. That means you pay off not only your loan, but you can pay yourself back on all your capital you put in. That's an excellent business model, however it's normally only possible with the stabilized with upside or potentially the heavy lift turnaround far, far down the road because to make it happen, you've got to increase the value of that property by about 50%.
If you've got a million dollar park and I have to get to a million five to do a cash-out refi, that's a pretty big jump. The stabilized with upside, I can do it because I have the ability to push rents, I have the ability to fill lots, cut costs. I can do some major things to it to make that possible. But that's a pretty high hurdle, but it is there, that potential is there.
Next thing on the good side of the stabilized with upside is the ability to get really, really good debt day one. Now, in the heavy lift turnaround, you'll never get good debt day one. What I mean by really good debt, I'm talking typically long-term, fixed rate, non-recourse debt, which is the world of conduit and Fanny Mae, Freddy Mac agency debt. Mom and Pop debt is also great debt. We love mom and pop debt, but mom and pop often don't want to carry it for really long periods of time. Mom and pop said, "I'll carry the note, but I only want to go five years." Conduit loans are 10 and agency debt can be up to 12. I kind of like that length better. On the stabilized with upside, you can often, on day one, buy in the property, you can get it in the really good debt models. And that's really an important item so we like that part of stabilized with upside.
Now, what are the downsides to stabilized with upside? The first one is, you've got to make sure that the property, when you buy it, that it has necessary bones to ultimately be able to be the conduit or agency deal because they like parks that are a little more special than your average park. They are going to want to see parking pads for example. They are going to want to see a park that just looks like a better community. How can see whether it has it or not? You can go to a loan broker and say, "Can you get me a loan on this?" Even though it doesn't qualify right now, could you at some point get me that conduit or agency debt and send some pictures and video, make sure that it meets the profile. Also, you've got to make sure that the stabilized with upside is in a nice, strong market.
You've definitely got to run a test ad, you've got to make sure the demand is there. You want to make sure you're choosing a market the future is bright because most of the things you're going to do to improve that property will give you some risk of losing tenants. You may lose them because you, for example, raise the rent and some say, well, if you're going to raise the rent, I'm going to leave because I was kind of marginal to begin with living here and so I'm just going to move back in with my mom. Now that you've lost that person, you've got to go in and replace them or you're going to fill those vacant lots. If you're going to fill the vacant lots, you've got to make sure the demand is there to do that. If you're going to bring in homes and run the ads, you've got to get calls. You've got to get showings. You've got to have things to make it happen so you've got to make sure you're in a good market where things are happening because you've got a lot of work to do, potentially, to churn customers in that property and that's part of your business model as far as improving it.
Now let's move on to the autopilot kind of park. What is an autopilot style of park? An autopilot is a park that pretty much everything is already completely done so there's not a whole lot of work, not a whole lot that you are going to import into the deal. As a result, they tend to be a little pricier. The cap rates tend to be a little lower. What is the general model? The model is you're buying a property that's pretty much complete, but still has a reasonably decent yield and then you have the fact that you can continue to raise the rents annually so the yield always gets a little better. It's kind of a model, typically, for more of the institutional investor that doesn't want to have a whole lot of risk in the deal.
Now, as we already discussed, when you don't have a lot of risk, you typically do have a correspondingly not as good reward, and they accept that because they want to have lower risk property. These autopilot properties are basically full or near full, rents are pretty much at market. It's running perfectly. It looks fantastic and your whole goal is just not to mess it up. That's part of your business model. Deal size on the autopilot parks is clearly larger because they now, most of the value has been tapped out in them. So they tend to be fairly large in size. How large? I'd say they always start at at least a million dollars and go up and sometimes many, many, many times that.
Capital required, typically those properties, since they are pricier, they would definitely require more capital. You always figure on, those deals, at least 30% down. Kinds of debt, you're going to be using mostly conduit and Fanny Mae/Freddy Mac agency debt. Those are the hallmarks of those autopilot deals. And additionally, because of that, you're going to have to have minimum standards of, as a borrower, credit and net worth and liquidity because, again, these deals are kind of the sanctuary of the larger institutional investors and that's what those banks are anticipating you need to do to do it. Where do find these deals? Those are almost always found by brokers. Those are rarely found off cold calling or direct mail because these things are very professionally run.
What are the good things about the autopilot style of park? Number one, clearly you can get the best debt products day one. You go straight into agency debt or straight into conduit debt, maybe bank debt, but typically not any seller carry and normally, you're wanting to be in the realm of agency debt particularly because of the low interest rate. They have no risk so the autopilot parks, there's nothing you need to do to them. They have great looking entries, great looking common areas, great looking pride of ownership, great looking everything. No aesthetic issues whatsoever. Operationally, infrastructure is mint. There's really almost no risk on those things at all. But the good news on the autopilot park, even for the institutional investors is, you can still get really good returns and you still have the ability to raise the rents. In none of the mobile home park models is there one that is not attractively performing.
Why is that? You'll see these postcards you'll get in the mail from [inaudible 00:42:34] occasionally and they'll talk about a park being sold at a five cap or something. Well, let's diagnose that for a minute. The interest rate and the cap rate, they tie together and most people are trying to get a spread above the interest rate, because with leverage, that's where real estate makes money. No one buys anything for cash. They use leverage. They use the leverage as a tool. And if your cap rate is higher than your interest rate, then you'll have a higher cash on cash return on your down payment. So as a result, right now agency debt is about 2.8%. You could have a fairly attractive yield if you bought something there at four point something percent and some of the larger players would even pay three point something because they are still getting at least a point spread over the cap before they do their annual rent increase. Even though there's no risk in the things, the return still isn't bad. That's one of the unique features of our industry instead of apartments and some of the others.
What are the bad things with them? One bad thing is, you have no room for error. You have to do terrific due diligence. The whole point is, it's supposed to be a 100% perfect park. Is it? That's your goal as the buyer, is you've got to do diligence sufficient enough to prove to yourself that everything is perfect. Now the good news is, that you can do that. The roadmap to that due diligence exists and you can definitely do that. Now the other item is, once you've bought the park, you've got to make sure that you maintain extremely strong management systems and management because on those autopilot parks, just like a plane on autopilot, the biggest danger is human error. The thing is flying along just fine, no problems, 100% collections. Everything is perfect unless you inject human error into it. Unless you inject into it a manager whose no good, who lets it start to go backwards or management systems which are no good, which don't even catch on to the fact that it's going backwards.
Now what do you do if you don't have the capital or the desire to do the heavy lift turnaround, the stabilized with upside property or the autopilot park? There is still one more option and that's not to own any park at all, but to simply do deal assignments. It's an entirely different business model, which is not really about investing per se, but instead being your own type of match maker between people who want to buy a park and people who want to sell a park. Not in a broker capacity, but it's someone who negotiates deals that are attractive and then sells assignments of those deals to others.
In our industry, there is many, many people who have capital, but they don't have the time or the energy to go out and try and find deals all the time. What they do is, they will rely on people who do that for them effectively and then sell assignments. Selling assignments is a very lucrative business. I know people who have made a half a million dollars a year just selling assignments. Now, to do assignment selling, you still have to go through the regular steps you would to buy a mobile home park, you have to know what you're doing. You have to know all the right strategies. You have to tie things up for less than they are actually worth because that differential is what you [inaudible 00:45:58] your fee on assignment. But it is possible to be in the mobile home park business and never physically own a mobile home park and there's certainly nothing wrong with that. It's just one of the by-products of the industry itself. That's an option that people have that's not in any way capital intensive.
There is one other business model I wanted to throw out, which is called master lease with option. Master lease with option would allow you, for example, on the heavy lift turnaround, or even on that stabilized with upside park to not actually take possession of the park, but to enact your plan and then once you've created the increase in value, then to close on it or then to flip it. What a master lease with option deal is, is you basically take over the management of the park, you pay a set amount to the owner and then you have the right to buy it at any time during typically a three to five year window at a pre-established price. What this does is, it allows you, without a lot of capital, with no bank scrutiny, to go in and take any property and improve it and make it more valuable before you actually have to pull the trigger and buy it. You might say, why would a seller do that? Why would someone enter into that deal?
Typically master lease with option deals come from situations where a novice investor bought and overpaid for a mobile home park because they just didn't know what they were doing. They didn't do any attempt to learn the industry at all. They just kind of bought one on a whim, on a lark because they thought it was a good idea and they overpaid for it. They can't sell it because the amount it will sell for is lower than their mortgage so they are stuck. The master lease with option is then a win/win. It allows you to come in with a strategy, an active strategy. Typically it's raising rents, cutting costs, and then at some point in the future, buying the mobile home park at a good price, what is now a great price because you've increased the value a whole lot more than what the person paid for it. And at that moment you have two choices. You can either buy it and keep it with financing, or you could see basically that deal to somebody else. But it's, again, another business model that I thought was worthy of discussion.
So you can see there is a whole lot of business models out there for mobile home parks. There's not just one, there's not just two. You've got the heavy lift turnaround, the stabilized with upside. You've got the autopilot park and you have that in several categories. Lifestyle choice variant versus the affordable housing variant. The senior property versus the all-age community. There is really quite a bit of different models, but the key item is you have to pick the right one for you because only you know what you want. Only you know how much capital you have, how much debt you're willing to take on, how much management time and trouble you're willing to take. It's really important in the industry is to match your needs, your desires to the kind of product. The good news is, there's a product out there for almost every person's goals. The key item is you've got to figure it out for yourself at what fits what you're trying to do with a mobile home park.