The Adventures Of Eddie And David

Eddie Biller and David Joreteg have purchased several communities since they attended our Mobile Home Park Investor’s Boot Camp a few years ago -- and they’re still buying more. We’re going to discuss how they got into the industry, how they found each of the parks they own, the basic economics behind these acquisitions, the turn-around plans, and their lessons learned. It’s going to be a huge amount of facts in a short period of time and will then be followed by bottomless Q&A until all questions are answered.

If you want to learn skills Eddie & David used to succeed with mobile home parks, you should consider attending 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 us at (855) 879-2738.


The Adventures Of Eddie And David - Transcript

Frank Rolfe: Welcome to another lecture series event. This is Frank Rolfe. We titled tonight's lecture The Adventures of Eddie and David. It's just a fascinating story. We had Eddie and David on before and we thought we would revisit with them. It's been a few years now, we've known them for about a decade. It's Eddie Biller and David Joreteg. They got a very fascinating story of how they got in the business, what they've done in the business and they've been nice enough to be with us tonight. Following our lecture, we will have Q&A so that'll be coming up later. Eddie and David, are you with us?

Eddie Biller: Hey, Frank. This is Eddie. You got me on.

David Joreteg: Hey, too.

Frank Rolfe: Hey, guys. How are you all doing?

Eddie Biller: It's been good. How's it going, Frank?

Frank Rolfe: Good. Well, glad to have you here. We'll just jump right in since we have so many items to go over. Let's start off with a quick background on each of you prior to even thinking about buying a mobile home park so what are your rough backgrounds and so on and so forth, real backwards and then stop at before you buy your first park so what should we know about Eddie and David.

Eddie Biller: Sure, I'll go first. This is Eddie. My background, Frank, is really in finance. I worked at a boutique investment bank, I worked at a corporate finance firm, I kind of did the whole corporate finance thing. The way that I met David before getting into this business is I bought his small business. He had a medical alarm distributorship in the Inland Empire. I just lost my job because it was during the Great Recession and I was an underwriter in finance and so our department got completely cut off and so I have some money saved up and I didn't want to work for someone else so I started looking around for small businesses and David's business looks like one that was really good.

Frank Rolfe: Okay. David, how did you get into it? What was your background?

David Joreteg: Yeah. It was less glamorous than Eddie's. I went to high school like everyone does and I went to college, I went to a state school. I knew that I wanted to own a business, I knew that I wanted to be in business for myself and not have a job and not have a boss. I really wanted to buy a franchise business but, of course, I didn't have any money. I wanted to buy your fancier franchises that you see, you know, restaurants and those types of things along the freeways but I ended up buying a small, tiny, little distributorship/franchise for $10,000 that I paid for with a credit card on the franchisee. I did that straight out of college for four years.

David Joreteg: Running a business was great, I learned a lot but I was also working 60, 70, 80 hours a week and I got real tired and real sick of it real quick. Towards the end of my time where I owned my medical alarm distributorship business, I started looking around and found the website and learned about the boot camp and I attended the boot camp. Because I attended the boot camp, that's what gave me the courage to sell my business and kind of jump ship with the goal of trying to buy a park.

Frank Rolfe: Okay. Then, Eddie, how did you come up with the idea on your part to even think about buying a trailer park, how did that happen?

Eddie Biller: Really, this was David's idea. Like I said, I was looking for a small business, I came across his medical alarm distributorship, we met, we're both the same age and we both kind of looked at a lot of things similarly, both have a business mind and so I thought it was a great small business, I bought it from him. David use that money to buy his first mobile home park in Wichita and so David bought a park.

Eddie Biller: He and I would meet all the time because I didn't have any friends in the Inland Empire, I was still living in Los Angeles and so we'd have dinner once a week and I would tell him about my struggles and tribulations running his former business and ask him for some pointers and he'd show up in a Hawaiian shirt and tell me how great his mobile home park was doing. I did pretty well with his business, I was growing it rapidly and he knew firsthand how difficult that is and so we came up with the idea of partnering up and getting into the mobile home park business together. I sold the business to a national provider and made a nice gain on the sales so I had some money aside to jump into this business.

Eddie Biller: The very first thing that we did together, our first step into getting into this business is we took your boot camp, this was back in 2010 in Columbus, Ohio. With the knowledge that I learn over that long weekend, David and I went to work. We started doing everything we could to find another deal.

Frank Rolfe: How many parks are you up to now? How many parks did you bought?

Eddie Biller: We purchased 16 parks and we sold four of them so right now we have 12 parks and right around 1,200 lots.

Frank Rolfe: Got it, okay. I guess the first thing that people would like to know probably is could you go over quickly how you found each one of those, was it through online or a broker or direct mail, cold-calling, how did each of those 16 parks come to pass, how did those come on your radar screen?

David Joreteg: Well, I'll start with the first one. The first one was just cold-calling. I didn't have anything going on, anything to do after selling the other business so I just hit the phones and made a bunch of phone calls. I found the first park that I bought in Wichita just by calling the owner directly off of a Google Maps phone number.

Frank Rolfe: Okay. Then how about park number two?

Eddie Biller: Park number two so this was the first park that David and I bought together. It was in Longview, Texas. Longview is a great market for affordable housing, it's in East Texas and it's got good market dynamics. That one was through a broker and a very exciting opportunity for us because it was 142 lots, we're getting it at a really great price, this was back in 2011. There was upside in sub-metering, the water and sewer. The current lot rent was $200 monthly lot rent, we're buying it at per occupied lot, zero park-owned homes so that was one that we're very excited about.

Frank Rolfe: Okay. Then park number three.

David Joreteg: Park number three was the park in Kansas, that was a referral from a friend. Park number four was in Ohio, Columbus, that was actually two parks and that was a broker. Park number five, I guess we're on six or seven here ... Which one was that, Eddie? Was that Indiana?

Eddie Biller: Yeah, the next deal would have been another park that was in Longview, Texas. The first deal that we got, it was a two-park deal, the one that I was just talking about. The deal after the Columbus parks would have been the third park that we bought in Longview and that one was also through a broker.

Eddie Biller: Just going down the list here, the next park that we bought, it was in Southern Indiana, just really part of Evansville, just north of Evansville and that one was a broker as well. We got another park in Indiana and that was also a broker. It's been a mixture of broker and direct calling and I'd say probably most of it was through a broker.

Frank Rolfe: Got you, okay. Similar to how we've been, I think half of everything we own came through brokers so kind of in the same zone there. You don't have to go over each one of how it happened but in general, how did you finance most of these, was it seller financing, bank financing, conduit, just in general, what were the loan products you were obtaining to buy these 16 parks?

Eddie Biller: Really, with the exception of the first one that we bought together in Longview, they've all been through regional and sort of local banks. What we've always done is we get on Google Maps and we just type in bank and we get a long list of banks. We learn pretty early on that if we call the larger and national banks, the Wells Fargos and the Chases, they would just throw up all over us so what we did is we focus on banks that were in that geographic footprint that we're familiar with, you know, Terre Haute or Olney, Illinois, towns that most folks are just unaware of but small communities, smaller regional banks would be familiar with that and they'd be comfortable with these smaller towns.

Eddie Biller: Then it's just a matter of calling enough of them because 80% of the time, I'd say maybe even 90% of the time the bank isn't familiar with that asset class. Just like Utah, we've learned that there's no point in trying to teach them how mobile home parks work, they're going to say something right along the lines of, "So, basically, I'm financing land, right? Land values," you kind of give up on that. There are plenty of banks out there that do finance mobile home parks. They get it, they understand that they're going to be looking at cap rates and debt-service coverage ratio and so on and so forth. What we would do is we put together a loan proposal, nothing flashy but something that's maybe a few pages that just kind of gives the general overview of the opportunity, you know, the park, the lots, the purchase price, the amenities, what the historical financials are like, what we believe the financials will be in a few years and just get them comfortable with the loan size. We've had a lot of success approaching local banks.

Frank Rolfe: Okay, and then-

David Joreteg: By the way, Frank, financing, the first two parks that we bought, they were both seller financing and that really helped us get into the business. When I got my first park, I hadn't even bought a house for myself, I had never borrowed money to get a mortgage on a single family residence and so for me to get a commercial mortgage on a commercial property, that would have just been way over my head. I'm not a finance guy, at least I wasn't at the time. Getting those seller financing notes on the first two deals made a huge difference just because I don't think I would have the capacity or the courage or anything else to actually go to a bank and get a real mortgage before I got some momentum.

Frank Rolfe: Got it. I know everyone has their own methodology and it's reflected in every part they have at the portfolio, in general, what were the typical deal points of the parks that you purchased and that you still look at purchase? I know you guys have an unusual ... You don't focus predominantly on cap rates, you have your own formula, methodology, how does that work?

Eddie Biller: Yeah. I wouldn't say it's our own. We don't really care so much about the going-in-cap rate because a lot of times we're buying from mom-and-pops and they're kind of behind the curve on lot rents and so there's a lot of upside in the lot rents and so the going-in-cap rate isn't as important to us a lot of the time.

Eddie Biller: We take a look at what the per lot valuation is where we think we can get lot rents to kind of initially with the first bump when we buy it and then 12 months out and 24 months after that. Really, where I think we pay a lot of attention to is are we going to be able to service that debt that occurs 12 months. If it's something where we're buying a deal where there's a lot of upside in rents but it takes a while to get there, you know, you buy a park with lot rents that are 250 and a market that's 450, you can't just jump right away to that, you kind of have to come up with a plan so that the folks can digest those increases over the next few years. Like I said, just really getting down into the weeds and making sure that we're going to be able to service that debt for those first 12 months or after that first lot rent increase.

Eddie Biller: The other thing that, I think, we look at really closely is just what our cash-on-cash return is. I think that three to five years down the line ... Time solves a lot of issues when it comes to asset classes like mobile home parks because you're just going to increase the rents and five years down the line you're going to be really happy but it's that first 12-month period that you want to make sure that you're covered especially in these overheated market where we find that a lot of people are paying really crazy prices and even we are paying higher prices than we ever had or ever thought we would pay.

Frank Rolfe: Give people an idea just from a cap rate perspective since most people are familiar with cap rates and it kind of reflects the concept, for example, if you were to work backwards from the purchase on some of these, what will be, for example, the lowest cap rate you purchased? You bought like a four or five cap, what would you say your lowest cap rates were, obviously, based on the fact that you were going into the purchase rates in the rents, water, sewer, et cetera.

Eddie Biller: Right. We haven't gotten too crazy. We've seen parks out there that have traded at very low cap rates, again, under the notion that there's plenty of upside in rents. Sometimes you see stuff in really strong markets where it kind of is at market and it's still at that five cap rate which I think is really dangerous, I think a lot of people are playing with fire when they do that, there's no such thing as a completely recession-resistant asset. With us, I'd say the lowest we've ever gotten was probably around a six cap rate. Even after that first initial bump which was a pretty aggressive one, we're able to get right around 7% so we felt pretty good about that.

David Joreteg: ... Let me because if you're borrowing money at 5%, then, obviously, you have to invest the money at better than 5% to be able to even break even. Nevermind actually paying principal and servicing your notes, if you borrow money at 5% interest only, then you invest your money at a 5% cap rate deal, then you're going to break even. If you also have to pay back principal on your note, then, well, you at least got to be at 6% cap rate in order to service the debt on a 5% note assuming that you have 25 or 30 length on the loan. Going in, we definitely got to be at least 6%, maybe 6 and a half percent and there has to be a pretty clear path of getting above that so that we feel that we have a comfortable margin between the loan and the returns of the park.

Eddie Biller: Right. The thing is we're not clipping coupons here. The whole point of this is to find mobile home parks where there's real upside and so we understand that going in we probably are going to be paying really low caps, I mean, the secret is out and sometimes it kind of feels like brokers are our enemy because they're out there calling everybody and telling them about crazy prices. What our bread and butter is is we try to find deals from mom-and-pops who are kind of mismanaging the deal and so there's upside, a lot of times it's from the lot rents, other times it could be that the cost structure is just really bloated because they just let it get away from them and they're just far away from the operations of the park.

Eddie Biller: For us, we understand that going in there maybe there's a six cap, what David just explained is something that is really smart and it's something that we look at, you know, what's our margin of error here going in. The point is not, well, here's the market and the lot rents are at 400, we bought it at 400 but if you take a look at the past 20 years lot rents have gone up by $20 every year, we don't know what the future is going to hold, we don't know how bad things could get with another recession and household constriction and all that. Where we are interested in is, sure, we'll buy it at six cap but if the market rent is 400, maybe this park is at 285 and we know that whatever happens with future market lot rent increases, we have a huge catch-up period here that we can get to.

Eddie Biller: That's really where you want to really pay attention to that because market rents traditionally, you look historically, they've been great for mobile home parks right through recession. I mean, you take a look at the Great Recession 10 years ago, you look at really good markets, lot rents have just gone right through, they continue to increase through that. That's great but nobody knows what tomorrow will bring, you know, you don't want to rely on just that. Will it slow down in the future? I don't think so, Frank, I know you don't think so but I can't hold my hat on just that. Where we really want to make sure is that there's a catch-up period here for us to get the market runs.

Frank Rolfe: Got it. Let's talk about sizes for a minute, is there a minimum size that you won't buy under or what are your opinions on the size of the deal itself? I may have lost you. Eddie and David, are you there?

David Joreteg: Sorry, it's a hard question to answer because, obviously, when you're first getting started, almost anything is okay and so you're willing to buy something at 25 spaces or 50 spaces or 30 spaces or something like that and then as you grow and as you get busier, your minimum threshold becomes higher and higher. Today, I'd say that we prefer to buy something that's 75 spaces or 100 spaces or more but it also has so much to do with the valuation on the per lot basis. I mean, I'd be happy to buy a 50-lot park in Denver because the market is so crazy hot and the lot rents are so high but I'd never want to buy a 50-lot park in a small rural town in Kentucky or something and so it really depends on almost more the total purchase price of the park rather than just the number of lots.

Frank Rolfe: Is there a-

Eddie Biller: If I could add some-

Frank Rolfe: I'm sorry, go ahead, go ahead.

Eddie Biller: If I could add some thoughts to that, I think that's exactly right. When you talk about folks that are listening and don't own any mobile home parks and are thinking about jumping in, I think what David is saying is absolutely right, even 25 lots is not too small just to get your foot in the door and learn how to operate parks. Certainly, you can find a much better deal if you're looking at 25-lot parks than you are at 100. You know, 100, you're competing with a lot of folks including us, 25, we're probably not looking too closely at those, maybe if we're already in the market it will be just nice a little add-on acquisition for us and we have really strong management and so on and so forth. Generally, David and I, we're looking at ... like he said, if it's in Denver, we look at 50 lots but all else equal we probably want to get at least 75 and, really, what makes us salivate is if it's a 200-lot park.

Eddie Biller: When it comes to the size of the park, there are a few factors that you have to consider. One of them is the smaller the number of lots, the less likely you are to find a great manager. I mean, it's just numbers, if you got 100 lots, then you got 100 opportunities to find someone who's really great. If there's 12 lots, well, you get the idea. When it comes to finding a good manager, obviously, quality has lots to do with that too, the nicer the park, the easier time you're going to have but that's another consideration. I would say that anything that's 20 lots or more, if it's your first time, I think it's worth looking at.

Frank Rolfe: Are there any certain regions that you're focusing on?

Eddie Biller: ... Go ahead, David. Go ahead.

David Joreteg: I would say the strength of the market. We've owned some parks in some really weak markets and we've owned some parks in really strong markets and it's amazing how spoiled you get if you own a park in a strong market just because it seems like every problem that you have in a weak market or in a small market goes away when you're in a big market. For example, if you're in a really small town and you have a vacant park-owned home, well, it might be harder to sell that vacant park-owned home, you got to dump a bunch of money into it and try to fix it yourself whereas if you're in a huge market with strong demand, then 10 people are going to pop out of the woodwork and say, "Hey, I'll buy that home. I'll spend my money, I'll rehab it, I'll start paying you lot rents on it right away."

David Joreteg: I don't think we have a specific geographic footprint or region that we feel like we have to buy in but, really, the strength of the market is on the list of important things. The strength of the market is number one and number two and number three, it's everything.

Eddie Biller: Yeah. We do want to cluster just because it makes it easier. It'll be great to have a bunch of parks all in one region, just things start happening organically that grow your business in a nice way. For instance, if you got on-site managers at each one of those parks, one of them is going to emerge as a star and that one can be your district manager and so now you have an extra layer between yourself and the on-site managers and so it just makes it easier for evaluation purposes. If you got 1,000 lots all in one tight region, then, obviously, potential buyers are just going to put a higher value on that so it's great from that standpoint too.

Eddie Biller: Good mobile home park deals are few and far between, it's just really difficult to do that. Just like David said, we'll look at the local market and we definitely want to buy parks that are in strong markets, it's just the stronger the market, the easier you can be. We've also bought parks in more mediocre markets just because we got them for a really great price and we thought that the asset quality of the park was really high and we felt that it'll be a nice thing to get into it at a low cost and build some equity.

Eddie Biller: Certainly, when you're starting out and you can spend more time in a park, you can kind of work a park more, I would almost say that it's probably a good thing to focus more on markets that are not sort of your primary or even your secondary markets that everyone knows about but ones that are maybe ... you know, they're nice small towns and they have good market dynamics in them. You can spend a little bit more time on them, you can make sure that anytime a home comes up that you get it rehab and you get it back on the market and you find someone good at them and just put that extra time into it. As we've discovered, as you continue to grow your portfolio, just from an efficiency standpoint, it makes more sense just to look at parks that are in stronger markets.

Frank Rolfe: Let's talk for a minute, I guess, that infrastructure so on the 16 parks you purchased, have you purchased any that had, for example, private utilities?

David Joreteg: Yes.

Eddie Biller: Yeah. The second park that we bought together, it was in Topeka, Kansas. That one had a treatment plant, actually, a newer treatment plant that did really well. I know that there were a few times where we're going over certain limits and so we had to come up with some plans. David, I think you know more about that.

David Joreteg: Yeah. Frank, we've only bought one park that has a treatment plant and that's when we try to stay away from any kind of private utilities as much as we can. Really owning the one sewer treatment plant that we did, it was definitely a headache.

David Joreteg: The park that we had in Topeka had both the treatment plant and it had a lagoon so it had kind of a two-stage treatment process there for the water. Without getting into too much details, we had the certified operator that ran the thing for us and he was licensed by the state and every month he would take a sample of the water, both the water going in and the water going out and he would send this sample of water over to the lab and the lab would test the water for us. Then we get an email report showing if the E. coli was above or below the limits or if the total dissolved solids were above or below the limits and depending on what the report said, we had to take corrective action. We got all kinds of recommendations of things to do to fix it and run it better and we had to spend money to comply with the stricter and stricter laws that the state send it to enforce upon us.

David Joreteg: It was okay to run it but it's one of those things where if you have private utilities, you got to be prepared to, number one, spend money on it because the thing is not going to operate perfectly all the time and, number two, it's also pretty time intensive and time consuming to actually make sure that you're following the rules and staying in compliance and making sure that your operator is doing what he's suppose to be doing and making sure that the permits are renewed and all those kind of things. Thankfully, we've only had one. I think we'll probably buy another one in the future should the right deal come along but, definitely, we try to steer very heavily away towards anything private.

Eddie Biller: Yeah. We're looking at a park right now that has well water but city utilities are actually not that far away and so I think the owner is just doing that to save on the cost of having to pay for city water. To David's point, we do sometimes find that there are parks in really strong markets and maybe they're just a little bit outside of the city and city utilities haven't quite gotten there yet but we take a look at that and if it's a really strong deal, we'll consider it. Obviously, there's a whole lot more diligence that goes into private utilities just to get comfortable with them. The other thing we look at is how far away are the current city systems to see what the possibility is of connecting unto the city systems is.

Frank Rolfe: What about roads? Do you have any gravel roads or is everything you have paved?

David Joreteg: I think that everything we have is paved. The very first park that I bought in Wichita was gravel roads and it was a lower tier park. It just kind of looked dirty and dusty and those kind of things all the time because cars would drive along and all the dust would fly in people's homes and people's cars will get dirty and then it would rain and you had kind of a big mud puddles. I think those are the only one, I don't believe that we ever bought anything with asphalt or concrete roads.

Eddie Biller: Well, we had dirt roads in Longview.

David Joreteg: Yeah, but we paved those. We installed so many roads there before. The first couple of years, they were dirt roads but they were in really poor shape.

Eddie Biller: Right. Yeah, that's true. I wish we had dirt roads there, they had just monster potholes, I mean, huge monster potholes all throughout the park. As part of the turnaround for that park, what we did is we put some money aside every single month and after a couple of years we saved up enough to have new chip seal roads throughout that park. I'm just thinking through our portfolio, David, we do have that one backroad at the smaller park in Columbus as well. Most of the park is paved and then we do have that one gravel road in the back. For the most part, it is all either asphalt or concrete.

Frank Rolfe: Got you. Do you have any master meter gas or electric?

Eddie Biller: Yes. In one of our parks in Salt Lake City, it is master meter gas. We never had master meter electric but we have master meter gas there. We got comfortable with it, it's a good system. You take a look at the annual inspections and it never had a leak in it and the meters were top-notch meters that you find just like the same ones that most municipalities use so have not had any issues with that.

Frank Rolfe: It sounds like in general, you're following the template of city water, city sewer, not master meter electric, normally not master meter gas and then, locationally, your parks are in nice suburbs. You have some stuff that's in the hardcore, downtown, the gritty urban part of the city or is it all more kind of a suburban neighborhood kind of feel?

David Joreteg: Yeah. Just going back to the utilities to finish that, I would say that we definitely stay away from private utilities and those kind of things except sometimes you break your own rules because you find a deal that's too good to pass up. If you factor in even installing a new gas system or something like that, the deal still makes sense and so sometimes we broke in our own rules just because the purchase price going in was compelling enough for us to look the other way on some of those infrastructure items.

Frank Rolfe: Sure, we also do the same thing. Tell everyone what has been your easiest deal of the 16 like which one that just goes so smooth it was scary and then, of course, why was that one so easy.

Eddie Biller: I can tell you mine, David might have a different opinion. We recently bought a park in Billings, Montana. Billings is just a red hot market. It's the largest city in Montana which isn't saying much, I don't think there's even 100,000 people in the market but it's booming. We've got great tenants in the park, the park is a higher quality park, the manager that was in place was a really good manager so we didn't have to go through a whole training program. Normally, when we buy a park, I'd say 80% of the time, let's say, we have to switch out a new manager, right? We're buying a park from a mom-and-pop because things just haven't been going in the right direction and so they want to sell and we come in and there's always a bit of a repositioning, it might not be a full on turnaround but there's definitely things that you got to rightsize.

Eddie Biller: Here, we just got kind of lucky. The owners were in their 80s, they wanted to retire, we go there at the perfect time and we did a nice sale, it wasn't a deal of the century from a price standpoint but it's just a really nice asset. All the homes have nice car ports, the roads are asphalt and they're wide and it's got sidewalks on each of the streets. It's just a nice tenant base, everything is nice and quiet there. You don't spend very much time on that park so it's nice and easy. It's smack dab in the middle of the city so folks are always wanting to move in anytime anyone puts a for sale sign for the homes. We know that there's no way it's going to turn into park-owned home because there's a long list of people that are wanting to buy it. We get a bunch of applications in and we just kind of feel like we get to choose which really strong applicant that's been at their job for 10-plus years, we get to choose. It's a real easy one.

David Joreteg: Yeah. The most difficult park is not as fun to talk about.

Frank Rolfe: What's most difficult one and why? It can be very generic like what the roughest one is that has driven you the most notes?

David Joreteg: The most difficult one, it actually kind of fooled us and I don't want to mention the name of this park. When we did our diligence on this park, we looked at it and said, "Man, this place looks great." There's virtually no park-owned homes and all the utilities are direct billed and the roads are concrete and so the roads are just beautiful, the infrastructure of the park is just ideal, it's a nice city and you just think, "Man, you got yourself a heck of a deal here."

David Joreteg: The one thing that we did not put enough weight on when we did our diligence was the quality of tenant base and the collections and the type of people that lived in this park because previously when we bought it, we bought it from an individual who had hired a property management company to run the park. They were used to running single family homes and they were used to managing apartment complexes but they had never operated a park and so ... I don't know why for some reason they didn't process background checks and for some reason they didn't enforce cleanliness standards of people installing skirting and all those kind of things.

David Joreteg: When we were doing our on-site diligence, Eddie and I like to take a video of every single home so that we can have those videos saved in our computers and we can reference those videos later on so that when the manager tells us, "Hey, there's a problem with lot number 147," you can pull up the video of lot number 147 and remind ourselves of what it looks like and make decisions based on that. While we were shooting those videos, people were approaching us and saying, "Why are you taking videos of my home? Are you guys going to come and case the joint? You're taking videos of my kids," or whatever it is and people were just getting aggressive with us and we back off and just left.

David Joreteg: We really should have paid a lot more attention to the collections and the quality of the tenant base. Without saying exactly what type of people that we saw there, that was a lesson learned from my perspective on that one. It's been really annoying to manage that park because we've had to go through so many evictions and turnover so many people and take over title to homes and resell those homes and those types of things. That was the biggest headache, I think, that we've taken on.

Frank Rolfe: Okay. For my lessons learned perspective, if you can write a book to yourself, if you go back in time and when you were buying the first park, give yourself a pamphlet of your key sauce, what will be your key lessons you've learned so far in buying 16 parks that you would want to educate yourself with before you had started?

Eddie Biller: Yeah. I would say that it's hard to answer that question. If I'm answering it to myself, it kind of depends to me at one point in my sort of career in this business I'll be talking to because even this part that David is mentioning where we didn't give enough weight to how past due the collections were and the tenant base, as a first park I think that it still would have been a good experience for us. For all the bumps and bruises that we've taken on that park, we still added value in it, it's definitely worth more than it is today, it's just when you own 11 other parks, that's not the one that you want to add on.

Eddie Biller: If I'm talking to myself today, the advice that I give myself will be to focus on stronger markets. I still, to this day, will be okay going after a lower quality park in a really strong market. When I compare going after that versus a really high quality park in a weaker market, I'd probably still go after the lower tier park in the higher quality market even though I know statistically I'm probably not going to have the strongest manager so we're going to spend a little bit more time on the property management side of things.

Eddie Biller: As an off-site property manager which is a good chunk of what David and I do, I mean, let's say at least half of what we do is property management, I kind of think about, really, where we spend our time is on the cost, right? We manage the cost and that's a very important thing and there's a learning curve to that, you got to be smart on making sure a plumber isn't taking advantage of you, understanding your electric pedestals and your roads and how to manage on-site managers and all that stuff so you can add real value there.

Eddie Biller: When it comes to the top line, to revenues, I'd argue that there's a whole lot less that you can do even as a strong manager. If you're in a really strong market, the revenue just take care of themselves. Separate infills and all that but just from the standpoint of collecting rent, it's going to happen. There's an affordable housing crisis in that market if it's a good market for the most part and folks that are in there are going to do whatever they can to stay and so the revenues are very stable. It's nice especially once you start buying more and more parks, not having to focus on collections, park-owned homes, all that stuff, it just takes a lot of stress off your shoulders. That's one thing that I think is important.

Eddie Biller: I hesitate saying that to the folks that are listening because we bought a lot of parks that were in not the strongest markets and we've done very well with those and there's less competition for those. It's a good way to get into those, you know, to buy that for, let's say, half a million bucks and turn into a million-dollar park and build that equity, to be able to take that next step in your process. I do think that if you got a park that's in a really strong market, that's great, you should go after that but understand that there are a lot of different ways that you can get ahead in this business. If you want to roll up your sleeves, I mean, it's still easier than having a day job, believe me. There's something to be said about parks that might have 25% or even 50% park-owned homes and if you're getting it at the right price and you see that you get plenty of responses to your test asset to take that project on, it's just not something you want to do with your own 10 or 20 parks.

Frank Rolfe: Okay.

David Joreteg: The advice that I would give to myself if I should like to do it over again will be to buy the biggest park in the biggest market that you could possibly afford. I mean, we all have a certain amount of money and we can only buy what we can afford but if you have $100,000 or if you have a million dollars or if you have $10 million, I would say buy the biggest, nicest, cleanest park that you possibly can in the best location possible.

Eddie Biller: Just make sure that you can service the debt though because in this market you might find yourself paying a price that's going to make that really difficult.

Frank Rolfe: Okay. In talking about rolling up your sleeves, let's talk a bit about management systems, what software system do you guys use?

David Joreteg: We use a software called Rent Manager. I would imagine that a lot of people listening to this call have heard about it but for those who haven't, Rent Manager is really similar to QuickBooks except that it's specialized and tailored fit towards real estate property management. The software will spit out a rental, then the software will automatically calculates utility billing and it'll track all kinds of other information that you needed to, for example, keeping track of your vendor, insurance policies can be tracked in Rent Manager. It's really just like QuickBooks except it's designed for property management.

Eddie Biller: Even tracking water ... Sorry, Frank. Just to hop on what David is saying, even tracking water meter readings and creating invoices that marry that and putting in the right formulas that you're passing through the cost of that, I mean, it's a pretty robust system. We know that there are finance and accounting systems out there that are even better than Rent Manager, more expensive than it but for our money, you know, we've been using Rent Manager almost from the very start and it's served us really well. I personally really like the top one.

Frank Rolfe: Yup. Again, we would agree, we also use Rent Manager. I assume every property has a manager, do you have any district managers or how is the organizational chart flow with the way you manage the properties?

Eddie Biller: Yeah. Every single property does have its own on-site manager, that's correct. When we think about on-site managers, in almost all the cases except for maybe one that I can think of, the on-site manager actually lives at the park and that's something that we really prefer. We find that if it's someone that lives in the park, then they really know that park, they know a lot of the tenants.

Eddie Biller: A lot of times when we first get into a deal, when we know that we have to switch out the manager or the manager was the previous owner so we got to find someone, we really ask around and try to find who's the mayor of this park, who's the person that everyone knows, is it Joe in lot 16 that's been living there for 30 years and you got a problem and you have a hard time getting a hold of the on-site manager, Joe is your guy. In a perfect world, sometimes we find that person or ... As you taught us, Frank, we'll walk around and we'll see which home looks the nicest, which lot shows the highest pride of ownership and we knock on those doors and usually we're able to find a good person that way.

Eddie Biller: Like I said, every park has its own on-site manager and we have one regional manager that's above the on-site managers and she's just been ... She started as an on-site manager in our park in Topeka and she just, from the very start, just stuck out as a real star. She was on top of every little thing. She was constantly asking for playing a larger role in our company and it's just became a natural fit, she's perfect. Whenever we buy a park and we hire a new on-site manager, she's on the phone with them a lot. She'll hop in her car, she loves to travel and she'll visit the park and really get the manager up and running. She's been really great for us, we definitely value her as our employee and in some ways we kind of see her as a colleague.

Frank Rolfe: I'm sorry. Go ahead, David. I'm sorry.

David Joreteg: Yeah. We also have a second corporate employee who's more of an office manager, someone who pays the bills and someone who keeps track of insurance policies and somebody who keeps our advertisements and stuff for the homes that we're selling and those kind of things. We really have two corporate employees and we have the on-site managers in addition to that.

Eddie Biller: Yeah. By the way, that second corporate employee was also an on-site manager that was able to play this larger role in our company. We have a couple of other on-site managers that we're sort of looking at right now who we think can grow within our company to play a larger role. That's sort of been the way that we've done it and it served us well, you know, having an on-site manager, first getting comfortable with them as an on-site manager, seeing how good they are there and then if we feel good about them and they're easier to work with and our regional manager has good things to say about them because she's really good at spotting talent and sizing people up ... As we continue to grow and as you grow you need to build that corporate side of things up, we really look at folks that start out as on-site managers.

David Joreteg: Let me add something here too because if I was listening to this and I didn't own any parks, the question that I'll be asking myself is how in the world can you operate 12 parks with 1,200 tenants with only two corporate employees like that doesn't makes sense, doesn't it seem like you would need a team of six people or eight people to do that. I think the answer is when you first buy something, when you first buy a park, you're really busy training the on-site manager, making sure that you know that that on-site manager knows how you want things to be done and you're really busy finding the right vendors, you're really busy finding the right plumber that's not going to gouge you, finding the right home rehab where it's not going to gouge you and, generally, that can take a year or two.

David Joreteg: Then once you've owned a park for two years or longer, the on-site manager already knows how you want a certain problem to be handled without calling you and so the on-site manager becomes very autonomous and becomes almost like their own business owner and that they're running the business and they're making decisions at the park level. Then when they have questions, they can reach out to the regional manager if there's something that they need help with. Then if the regional manager needs help with something, then she'll reach out to Eddie and myself. We really try to invest a lot of time to educating the on-site managers. Once that on-site manager gains experience, then owning the park becomes really easy from the owner's perspective.

Eddie Biller: Yeah. That's something that David and I talk about quite a bit. When we take a look at when are we really busy, when do we feel the most stressed out, a bit of it is during diligence-ing a park, you want to make sure to dig in to every single, little, tiny thing so that there are no surprises. Really, even after you acquire the park, given the fact that usually there isn't a manager, it's really us getting smart on the local and state laws and us getting the on-site manager to the point where they can stand on their own two legs and that's a process.

Eddie Biller: What we've learned is even sometimes when we find a good person who we think could be a really strong on-site manager, the period of time when they're most vulnerable are those first six months because it's all completely new to them, everything is uncharted territory, you know, there's a sewer leak and they freak out and they don't know what to do and we don't know which plumber we want to use, we can use the guy that the last person use but a lot of times we find that that guy was gouging them so we have to call other plumbers. We have these items pop up from time to time and the on-site manager is just new, they just don't know what to do.

Eddie Biller: It's so important to spend a lot of time with them and to tell them that, to say if they're doing a good job, "Look, you're doing great but I got to tell you, if I'm going to lose you, it's going to be during those first six months. After these six months, you're going to feel a whole lot more comfortable with things that pop up, dealing with tenants, whatever other items might pop up. People are going to start recognizing that you're the manager and respect you and all that stuff. You're going to love your job, it's going to be great. You're going to be working less because you're going to know what you're doing and that's fine with us. We're happy with you working less as long as they're doing the things that you need to do."

Eddie Biller: It's important that David and I and our regional manager too, she plays a big role in this, really invest the time into that on-site manager, get them properly trained, make sure that they know that they have that support when things pop up so that the next time there's something wrong with electrical outage, all that, they just send us an email saying, "Hey, here's what I did, called Bobby the electrician, he came over and got it fixed," it's just business as usual.

Eddie Biller: That's an important aspect of it because David is right, once we own the park for even a year, certainly two, the property management side of things as it falls on our shoulders goes way down. The different rhythms of the park, your vendor list, all the different things that popped up during those first two years, we've gone through them, we know what to do, we know the eviction court system, we know every little nook and cranny and then it becomes just business as usual. It's really important for us during that initial period of time that we're really doing everything that we need to do to get the manager to that point where they feel like they're properly trained.

Frank Rolfe: Okay. Here's a pop quiz question for you, trailer park, mobile home park, manufactured home community, how do you describe your properties when you talk to banks and customers or just in conversation with each other, what is the descriptive term you use?

Eddie Biller: I always use mobile home parks. I kind of feel like manufactured home community is like calling mustard Grey Poupon.

David Joreteg: Yeah. We say mobile home park mostly.

Frank Rolfe: Yeah, I agree. As people know, years ago, I was highly criticized for using those dreaded words but I think we're all grown up enough now to acknowledge that is how our customers know the product, how our lenders know the product and it's a whole lot easier to say. Tell people what your future plans are, 16 parks, you sold off four, you got 12 so where do you go from here, what's the goal, what's the plan?

Eddie Biller: Talk at the same time. So far, the way that we've grown is we've really used our own capital to buy parks. I mention that I got into the business, I sold that small business that I bought from David and so I had some money from that to get into our first few deals. I know David was in a similar situation and even borrowed some money here and there. Then we sold some parks and we finance some parks and parlay that equity into future deals. Now we have a really nice portfolio of 12 parks, they've been rightsize, we got good on-site managers, we have a good system in place, we know what we're doing. We also see really good deals still out there, we're under contract for a really great one right now and pretty close from a few others.

Eddie Biller: What we've done at this point is we've created an investment fund and that's going to be sort of the next step in our journey. We feel like we have, at this point, the technical expertise to take investor funds and invest those into good parks. For as long as I've been in this business, my friends would always tell me, "Hey, are you taking on investors? I've got some money saved up." I always said no to them and they kind of felt like I was brushing them off and I wasn't, I didn't feel like it was right for me to take their capital because I felt like I was still taking my lumps in this business. After doing this for as long as we have, I do feel like we have a really great team in place, we know how to manage parks and, like I said, we're still seeing really good deals out there even in this market.

David Joreteg: You know, we don't want to grow really fast, we don't want to go crazy, we don't want to try to become huge in the business. We just bought one deal or two deals a year and we'll continue to do that because that's a pace that we're comfortable with and that way we can take a bite of the apple and then we can digest it and make sure that it's good and then we can take another bite and just go at that pace. We don't want to go crazy and do too much and try to grow too fast or something like that because I think you could do that, if you have a goal of buying 500 lots a year or 1,000 lots a year or whatever it is, then you're just going to overpay for stuff and you're going to get yourself in trouble. You stay disciplined, you go slow, you just buy the stuff that makes sense, then that's our goal, that's our intention.

Frank Rolfe: What single thing would you tell somebody who's considering entering the industry? You met someone at a cocktail party or some event and they said, "Hey, you guys in the mobile home park business, what's that like," what would you tell people, what's the big takeaway or big shocking thing you found about the industry like what's the truth of the industry?

David Joreteg: Go ahead, Eddie.

Eddie Biller: What I'd tell them is that the hardest part of this business is not to operate mobile home parks, there is a learning curve for that and you do get better at that with time but that's not rocket science, it's mostly just paying attention and blocking and tackling, the really difficult part of this business is finding a decent deal. I tell that person to understand that you will work really hard to find a deal, you will work that hard to operate the park, that's the beauty of the business and that's why it is so tough to find a deal. To be patient, it's not going to happen overnight especially your first one, you're going to have to kiss a lot of frogs until you finally find a decent deal that's going to work for you.

David Joreteg: Yeah. To add to that, I would say, number one, go to the boot camp so you can get some basic nuts and bolt knowledge of what it takes to run a park. To second Eddie's point in terms of investing the time to find a deal, I would say that take your schedule and mark a certain amount of time that you're going to spend looking for deals every week, be it five hours a week or 10 hours a week or even more, the more hours a week, the better. Then just plan on doing the five hours a week for the next six months and I bet that after putting in those hours consistently, then you'll have something that you can do your diligence on and buy and hold for a long time and enjoy the cash flows from and maybe even give to your kids at some point in the future.

Eddie Biller: It's going to be a very long six months and there's no guarantee that you'll find something after those six months, I mean, that's the thing is you really have to approach it with patience. I would definitely reiterate what David said about the boot camp. I don't want to make this sound like a commercial but I haven't been to too many real estate seminars but I've been to a few and a lot of times they're kind of evangelical, so to speak, and Frank does an amazing job, I mean, he will tell you the good, the bad and the ugly and he doesn't sugarcoat it and it really is a very informative thing. I'm imagining most people have already been to the boot camp but that is the very first thing that I tell anybody who's truly interested in entering the space is the first step is take the boot camp and then you'll probably have a general idea of what to do next.

David Joreteg: I would also say that if you want to enter the business, finding a partner is pretty important because, naturally, you're going to run into stumbling blocks and not fun things that you have to work through in the business and if you're doing it by yourself, it can kind of get tiresome and frustrating but if you have someone that you can kind of joke and laugh with along the way even if you're dealing with tough situations, then at least you can go at it together and it's a lot more fun that way.

Eddie Biller: For sure. It's a lot more fun and also just problem solving, two heads are so much better than one. I mean, I couldn't have gotten to where I am right now without David, that's for sure.

David Joreteg: Yeah, likewise.

Frank Rolfe: Guys, just to give people the idea of the possibilities of the industry, if you take your all-time best deal that you had over the 16 that you purchase and the four that you sold, from a profitability index of perhaps cap rate based on current NOI over what you paid for originally, approximately what is possible with the park? You've been buying now for almost a decade, what is the best park you have as far as financial return?

Eddie Biller: Well, I can tell you that before we refinanced, I think it was two times what we initially put into it. If we put in the dollar into the deal, we already got $2 back from it. Before we did that, we were getting upwards of 60% annual cash-on-cash returns on our initial investment. Even now, I would say we're getting at least 30%, that's 30% annualized cash-on-cash on the original investment after taking two X of that original investment out on one of our parks. We have another park that's worth at least three times what we paid for it just three years ago, I mean, it will be a feeding frenzy if we listed it at three times what we paid for it.

David Joreteg: Yeah. Just to be clear, when Eddie says that we put a dollar into the down payment and we got paid back $2, that was just in terms of cash flow, nevermind refinancing or depreciation of the asset itself, that's just cash flow within the first, let's say, five, six years. It's pretty amazing how you can get your down payment back and then some with, again, just cash flow.

Frank Rolfe: Eddie, I know you have a private equity banking background, what other financial product can someone invest going to get yields that high?

Eddie Biller: I always wanted to get into commercial real estate and I started looking at apartment buildings and I found that I just didn't have enough money to get into apartment buildings and you kind of have to be someone that's got a couple of million bucks in the bank to really get started there. The thing about mobile home parks is you can do it with $25,000, $50,000, $100,000, you can buy that first park with that amount of money. Then you take those next steps to grow into a portfolio, I mean, that's what David and I did. To do that with other businesses, I mean, what would you do? David mentioned buying a franchised restaurant, you got to have a lot of money to even take that first step. Here, we're talking about it's still commercial real estate, it's still relatively a very passive investment and you don't need that tremendous amount of capital to get started. This is a really unique business and it's one that we still feel really highly about.

David Joreteg: I think on Wall Street or private equity, if you try to get those kind of returns, I mean, you can get lucky, maybe you bought Amazon or Microsoft at the right time and you got some killer returns but in terms of being able to do it predictably time and again, it's not something that's possible unless you get lucky. I think it is possible in a number of different real estate spaces whether it's mobile home parks, whether it's land development or buying and selling assisted living facilities or storage units or something like that, there's lots of spaces within the real estate industry that are niche segments where if you become an expert and you specialize in something in one of those areas, you can get some pretty cooler returns. Just in terms of buying a stock or buying annuity or buying, then, obviously, those types of returns are not available.

Frank Rolfe: Okay, great. Because I know we have a lot of people on here who have lots of questions, let me go ahead and turn it over to Q&A format so let me change the phone system here for a moment.