Buying a mobile home park is an attainable strategy even in a depressed America. It is, perhaps, the last such opportunity left in U.S. real estate. But how big is that opportunity and how do you approach it? That’s the topic of this Lecture Series Event.
While most Americans invest in the old standards of apartments and single-family homes, these markets are completely saturated and the only way you can do a deal today is to leave all common sense at the door and basically gamble that everything will work out ok. Warren Buffett recently declared the stock market to be nothing more than a “gambling establishment” that is not rooted in actual fundamentals.
In this Lecture Series Event we define what “attainable” is, why mobile home parks still have opportunities, how to approach that opportunity, what the risks are, and related topics. And then we’re going to have unlimited Q&A with no subject taboo – so bring as many questions as you like.
The speaker, of course, is Frank Rolfe, the guy the New York Times calls the “human encyclopedia of all things mobile home park” as well as one of the largest – with his partner Dave Reynolds – mobile home park owners in the U.S.
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.
The Land of Opportunity - Transcript
Frank Rolfe:
Hello and welcome to our MHU lecture series event titled, "The Land of Opportunity." It's very apropos we would be holding this lecture on the very day in which the stock market had one of its worst performances of all time. The Dow, in fact, fell over 1000 points. Nasdaq also plummeted, as is the S&P 500. Basically, what you're seeing right now is the economic reality of many, many bad initiatives that have all caught up with America. And you're seeing the very undoing of all of the typical investments people have been making for years now and feeling so good about, because they're not that good anymore. In fact, just for fun, I won on the S&P 500, which is in fact the very item that Warren Buffet tells people, implores people to invest in, because it gives you kind of the overall weight and direction and inertia of the market spread out over 500 different of the larger companies. And if you click the little buttons on the top of the chart, you'll see that if you go to this year, the return is in fact negative. If you go back to the last 12 months, the return is negative. You gotta go fish a lot of buttons. You have to get to three to five years out to get in the positive territory. And even then you're only getting that because of COVID. That would be assuming you bought it when COVID hit bottom and then bouncing back.
01:21
Then you look at things such as rental houses. My neighbor came to me recently. He was toying with the idea of doing a rental house and looking at the house, and I said, "Aha! Well, what do you think you can buy, then?" And he gave me a price. I said, "What do you think the mortgage on that would be?" And he said, "Well, I don't know. Mortgage rates, I think they're like a two or three." I said, "No, they're a fraction of closer to five. They're twice what you were thinking." When I ran the numbers with him, it then appeared that very clearly that rental house would lose $400-$500 a month. And that did not even include repair and maintenance. So clearly the world of rental houses has been destroyed. And then we all are aware in a post-COVID world that pretty much people don't need office buildings anymore. They don't really need hotels anymore. There's many things that people in the modern world don't need. The most obvious of which are shopping centers. Every time I go to shopping centers these days in giant indoor mall, I'm just blown away at how much vacancy I see. I feel like if I see any tenants at all. And when I see tenants often they're little just pop-up shops of someone doing a garage sale inside the mall. Tennyson Mall would have never ever allowed in the doors before, now virtually become their anchor tenants.
02:34
So the question is, in this apocalyptic investment atmosphere we are in right now as a nation, what can you possibly do that's worth a darn? And that's how we titled this lecture, "The Land of Opportunity." We're gonna talk about mobile home parks, what the opportunity is in mobile home parks, how to do it properly, how to avoid doing it improperly, and then what the future risks are. So let's just jump right into it. So what is the size of the opportunity in the mobile home park industry? Well, let's just go through a few facts. The first one is, there are roughly 44,000 mobile home parks in the US. Where did I get that fact? Well, because we have the list. We built the list. We're the only ones that ever build the list. It took two people two years to build the list using every available resource, even looking and coming through aerials to see if every mobile home park had in fact been found. And we are very confident that other than those situations where Farmer Joe and his daughter both live in mobile homes on one track, because two or more homes on a track of land is in fact defined as a mobile home park. So we know exactly how many there are, and here I rant 44,000.
03:41
So then the question is, where are they? Where are you gonna find these mobile home parks? Well, let me just give you the math on that. I'm gonna give you the state and how many parks there are. Texas, there's 5176. California, 4004 to 3785. Kentucky has 2099, which was always a shocker to me. You would never imagine Kentucky to be the fourth largest location of mobile home parks. Washington State, 2074. Ohio, 1940. Georgia, 1757. Pennsylvania, 1505. Oregon, 1417. Indiana, 1193. New York, 1099. You may say, "No, wait a minute. How can New York has so few parks?" Well, that's because the bulk of the New York population lives in Manhattan, and Manhattan is really, really old. In fact, so old that they didn't even have proper trash disposal when they built the thing. They don't have alleyways normally. And clearly it predated mobile home parks by a lot. That's why you don't see a lot of New York mobile home parks. North Carolina has 1099. Michigan, 1069. South Carolina, 1067. Bit of trivia: There are more people living in mobile homes in South Carolina than any other state. 8% of the US population lives in 'em, but in Carolina, 16% do. Minnesota, 1049. Illinois, 1041. Nevada, 1040. Arizona, 1026. Missouri, my home state, 951. Colorado, 942. Tennessee, 800. Oklahoma, 704. Louisiana, 694. Virginia, 667. Kansas, 642. Maine has 604.
05:17
Alabama, 597. Wisconsin, 551. Nebraska, one of our favorite states, has 512. Arkansas, 478. Mississippi, 470. Iowa, 457. Idaho, 400. Wyoming, 347. South Dakota, 343. New Mexico, 267. Delaware, 260. Vermont, 239. Maryland, 234. West Virginia, 220. Montana, 200. New Jersey, 179. Utah, 165. North Dakota, 163. New Hampshire, 104. Then you end up with the four states that only have double-digit parks: Massachusetts with 85, Alaska at 70, Rhode Island at 48 and the Connecticut comes in a whopping 44. But there's one state that was not on the list. And that's because it doesn't have any mobile home parks that are privately owned, and that's the state of Hawaii. There is one mobile home park in Hawaii owned by the State of Hawaii. It was a horrible failed experiment. They had a bunch of bureaucrats to build the mobile home park. When they got done with it, they had spent $300,000 per space to build it. That's what happens when you use bureaucrats apparently to build a mobile home park. So they decided the experiment was a total failure, they would never do it again. So I don't think you'll ever see any more mobile home parks in Hawaii.
06:35
Bottom line, so it is, that there are mobile home parks in every state. So if someone who is listening in the lecture, yes, there are many, many, many parks in your state. And if you draw a typical five to six hour radius, which I hardly recommend you do as an initial territory, you're gonna probably cross into other states. So there's plenty of supply of these things out there. The next question is, how many mobile home parks are owned institutionally? So it's one thing to say, well, there's X number of self-storage facilities in America, 'cause there's about 40,000 of those too, but then when you take away the ones that are institutionally owned, there's not many left, because most of the self-storage were built and/or purchased by a giant operators like public storage. Mobile home parks are a little different. We do have our giant operators, people like Sam Zell, he's the largest, Sun Communities, those are both public REITs, but they don't have that many properties, they have a number of properties that are pretty big, but it's not a giant count. I think the ELS portfolio is about 360 mobile home parks, I think. I think Sun Communities is roughly about equivalent.
07:45
And if you take that list and you can get it right off the website at MHU, the top 100 list, now that list is only provided by people who volunteer their own details, so they are afraid to go in and adjust their counts or maybe some people who don't volunteer and aren't on the radar screen. Not me, that I know. In fact, none that I know. But what you end up with is, if you add together all the parks they own, it comes out to less than 4000 parks total, and what it then means is that we are a very fragmented industry. We do not have anywhere near the number of amount of consolidation as other forms of real estate. So the first thing about the opportunity is there's a lot of parks, and by far the majority, about 90% are still up for grabs owned by moms and pops. So then what does the opportunity look like? So if there are parks out there and parks that could be bought, could you buy them? Should you buy them? Well, there's the signs to buying parks, and we call it IDEAL, it stands for infrastructure, density, economics, age of home and location, and when you break down any mobile home park into those five categories, and you exclude those who have problems of such a nature, you could not successfully own the park, you will learn that there are some parks that should just not be purchased, either locationally, they don't have enough demand.
09:15
Most people like to see mobile home parks in metro areas, or at least 100,000 people or greater. Let's assume you have a mobile home park in a small kind of 900 people with no metro and maybe a tiny county of 4000, more than likely that park should not be purchased. If it doesn't have a live permit to operate, don't buy it. If it's got a private water, a private sewer system that's completely failing and you can't put in the capital to bring it back to life, don't do it. So not all parks, of all the parks I've just mentioned, should you buy. However, if you look at the ball, 'cause the sampling of all those parks that are available, by far the majority, you should, and you can, but not all of them should be. Now, let's talk about the sample deal of economics, most people in the park business, here's how they work. They're trying to find a mobile home park at a reasonable price that they can finance day one with a bank and typically put down 20% or 30% and have a gap, a change, a delta between the cap rate and the interest rate of typically about two to three points. Now, why is that important? Well, if you do the math, you'll see, if you have a three-point spread between the cap rate and the interest rate on your loan, and you use leverage of about 70% or 80% loan to value, you end up with about a 20% cash on cash return. And that's what most buyers are looking for.
10:50
Now, once you've established that baseline, once you can find a park to buy that's reasonably priced that can cover the mortgage, have a decent spread, then the game plan is very, very simple. We have the most simple playbook in the world, we're not like the NFL where there's thousands and thousands and thousands of pages of potential plays to memorize. Basically all you have to work with is raising rents, filling homes and lots, so increasing occupancy, sub-metering water and sewer, and billing it back to residents and any other kinds of cost cutting, in which the other cost cutting is typically fixing main water leaks or replacing overly expensive managers. We've actually bought mobile home parks with the on-site manager. I remember one that we bought, where the on-site manager were only 80 lots, and the other was paying them 120,000 a year, where you could find a manager who was just as capable for probably 30,000 a year. So that's the playbook. So we're gonna try and buy things at good prices, but not incredible prices, you don't have to have a one in a million luck out shot, but just buy something that can cover the mortgage with a decent enough spread to give you a reasonable out of cash on cash return, and then immediately get to work with that playbook, raising rents, filling homes, filling vacant lots, sub-metering water and sewerage, any other cost cutting.
12:19
Also, you're gonna try and stick within a territory of about a five to six-hour radius of your house originally, there's plenty of parks in that radius, unless you live in places like California where half of it maybe out in the ocean. In that case, yes, you may have to drive farther, you might even have to fly, but in most of the rest of America, you're going to find, if you take or you live and drive, draw a circle about five to six hours of Drive Time out. You'll have a very large territory indeed. Where I am here, roughly in St. Louis, my five-hour radius, I have 10 major metro cities of the US. I have everything from Chicago to Indianapolis, to Memphis, to Kansas City to Nashville. Got it all here, but we don't all live in areas that have that kind of population, opportunities in that radius, but you will find a lot, and you will find in those markets, if they have a reasonable sized metro, you're going to find typically a lot of mobile home parks. So why are our mobile home parks attainable, and why have you not missed out? I talked earlier about the neighbor who wants to do the rent house, well, he missed the window. I mean, his rent house dream might have worked if you could turn the clock back, not that far back. Maybe maybe six months, a year, something like that.
13:43
He could have got a house, locked on a long-term mortgage, done little TLC, rented it out, it'd had a profit of a couple hundred bucks a month, and then on top of that, perhaps some home appreciation, but he was late in the cycle, because everything in the world runs in cycles. When people forget about the concept of the cycle, that's when people really get themselves in trouble, much of what you're seeing right now. I, and anyone on this call who was in their 60s have seen this exact movie before, it was the Jimmy Carter Stagflation Era, I remember it incredibly well. I had a summer job at an ad agency, I had a very simple job. My job was to keep the owner of the ad agency guy named Stan Richards car filled with gasoline, that was it. Richard's Group, I think is the largest ad agency in Dallas today, back then, it was only about 20 people in Stan Richards, and me the summer intern guy. And all I did was stand in line to fill up Richard's car, that was my life in a nutshell. And that's how bleak things were back during the time of Carter. So none of us at that time knew in America, what the future would hold, we had the Iranian hostage crisis, we had the inability to get gasoline, people who had jobs were terror of that if they would have enough gas to get to work, 'cause you surely couldn't get any gas, if you were running low and you ran out, I don't even know how you would've gotten gas back then.
15:13
So we've all seen these movies before, we've all seen these cycles before, younger people haven't, we haven't had a major recession since 2007, so for those of you who are in millennials, you probably have never seen bad times ever. But for those older, yeah, we all have seen this and we all know how every asset, every economy in the world, in the globe basically runs in a cyclical formation, and there's a time to get in, and there's also very clearly a time to get out. Going back to the red house example, if you're not gonna make any money with the red house on a monthly basis, then you only would make money in the end, if it appreciates in value, but what if it depreciates in value? It's my prognosis that basically, if mortgage rates double, as they have, and the amount of mortgages goes up twice, which it has, and it requires you to qualify for a mortgage to have income that's at least three times at amount, which it is, then that makes all houses in America worth half of what they were. It's kind of the math. So what does it mean? I don't think you can count on residential appreciation any longer.
16:24
I know people will say "No, you're wrong. I've seen it right now. I've seen it on realtor.com, the house on the corner, it's selling for X." Yeah, it's a one off sale, it's true. But you're using as your value guide these one off transactions that are not truly a reflection of the macro hole, so give it a little time. But why are mobile home parks in the right part of the cycle? Well, the first thing is, most people have zero interest in trailer parks, regardless of yield. They're just afraid of them and they're afraid of them, and I was among them, there's so much negative stigma and bad thoughts about mobile home parks that the average investor is just far, far too worried to ever even consider buying one. When I bought Glenhaven, my first park, 400,000 with 10,000 down, the very first thing that I did before I closed on it, was I went out and got a concealed handgun license. Went to the gun store, I bought bought a nine millimeter pistol, went to the concealed handgun class, did the shooting test and I had that pistol loaded it in my pocket, the very first day I ever arrived at Glenhaven to self-manage it, because I knew from television that I would surely have a moment, even on that first day where I would need that pistol. That's how negative my stigma was.
17:53
I never knew anyone growing up who lived in a mobile home park, not a classmate, not a relative, and all I heard from all my contemporaries and parents, my entire life growing up was that people who lived in mobile home parks, they were scary, they were dangerous, and many other investors share this same stigma. Now, it's a no way factual, even at Glenhaven, which is a pretty rough and tumble park, I realized after about a month into Glenhaven, that my risk of keeping that loaded pistol in my pocket was greater of shooting myself in the leg than it was me needing it for self-defense. So I got rid of carrying the pistol because to me it was more risk than it was reward, but it takes a while to get over the stigma and many people just don't. If you really wanna start breaking off the stigma that you have against mobile home parks, the best thing you can do is go to Google in whatever community you live in and write down where all the mobile home parks are. And then look at 'em on Google Maps or Zillow, whatever you wanna do and pick the ones that are in the residential, the decent residential neighborhoods. Don't pick the ones next to the industrial area down by the bridge, down by the river, no, not the ones with the dirt road, yeah, we all know those are horrible.
19:14
But go look at the ones that are more like just high density subdivisions, drive over into a couple of those, pull over on the side, turn your car off, get out and just walk about a hundred feet in the thing and see how scary it is. The answer is, it's not scary at all, no scary than your own neighborhood. Look at the mobile homes themselves. Look at the residents, that water in the yard, kids on bikes, people washing cars, and you'll quickly realize that your negative stigma was wrong, but for most Americans let 'em have the negative stigma because that is what creates the opportunity right now, mobile home parks since the average person won't touch it. Now, what ruins single family probably all these HGTV shows, flip and flop, Flipping Las Vegas, they are endless. So all day long, all you see are people buying old beat up houses, they all do the same renovation, just knock all the walls out, paint the thing a neutral color, put a sign on the front yard and bingo cost of the home plus renovation, less the purchase price, and you just made $50 grand. If it was only that simple to do. But when people see those shows, they find that to be the sexy thing, the thing they want to invest in, and you won't find any sexy trailer park shows out there for sure. So the big reason that this is an attainable industry is that negative stigma.
20:33
Another one is that mobile home parks do really well for people, and the average buyer who buys mobile home park often only buys one, why? Because that's all they wanted was one, it's all they needed was one. So they have the capital, they buy one and they don't need to buy a second one. If you talk to people who own mobile home parks, "Hey, hey, how did it go?" "Well, I bought this mobile home park and I raised the rent and I retired." You don't get a lot of people out there who say, "Yeah, well, I'm on my 14th park." There are a few, those are the ones who are the true zealots, who are trying to build a giant portfolio for their family. For most people, they just buy one or two and they're pretty much done. Also the mobile home park industry is still enormously fragmented. It is not consolidated, much to the wonder of many people who thought that it would have by now, myself included. Of course, Elizabeth Warren did a lot to cause that. There were three, $2 billion transactions back in 2000 and '16, '17, somewhere in there. You had a large sale to Sun Communities, you had the sale of RHP to Brookfield Asset, a Canadian REIT, and you had the sale of Yes Communities to the country of Singapore all in one year. Each transaction almost exactly $2 billion.
21:51
And private equity groups then became extremely interested in the space, and then Elizabeth Warren sent them all letters saying, "If you buy a mobile home park, I will hunt you down and ruin your life." And that kind of scared people off, they thought, "Wait a minute, I just wanna be in the real estate business. I don't wanna have to screw with something so politically charged." So as a result, you haven't seen as much activity with private equity groups as you would imagine. Now, they're almost all in the space in some way, even if it's a small way, you have Carlyle, biggest private equity group in the world, they own mobile home parks. You have Apollo, you have Blackstone, so all the big names you can name. Yeah, they're in the business, but they haven't grown much, they haven't bought that much project, product so far. Also mobile home parks come in a wide range of price points, that's one thing that's held back, probably a lot of private equity groups. They only wanna buy the giant parks, big dollar parks, but the bulk of those 44,000 parks they don't come in denominations of the millions, they come in the denominations of the thousands. So there are still plenty of parks out there, park deals out there that you can find that are in the $100,000, $200,000, $300,000, $400,000, and $500,000 range.
23:00
And for those who want something bigger, there's plenty that are in $1 million, $2 million, $3 million and up, but the key is there's a large variety, there's not that kind of variety in a lot of other sectors, you're not gonna be able to go say, "I wanna own a high-rise office building," and say, "Well, there's one of my budget of $225,000." But our industry does have those options. So that's what also makes it attainable is you've got a lot of things to choose from on the menu. Another item that makes our industry attainable is the very, very plentiful attractive financing. So I've never seen an industry where there's so much financing available, and the reason is simple, 'cause mobile home park loans are a no-brainer, they have the lowest default rate of any form of lending, banks love them for that reason, why? Because mobile home people don't move. Here's my famous Waffle House quote, people chained to the booze. Well, they're not chained to the mobile home park, but our customers are, without question very, what they call sticky, they don't move much. The average mobile home park resident they find has a 14-year tenure, that's extremely high for any form of real estate. As a result, banks know when they make the loans it's gonna be a safe loan, they're gonna get some money back with interest, and they're not stressed about it and as a result, there's a whole lot of lenders out there who wanna make the loans.
24:21
One of the biggest of which are the sellers themselves, all of my early deals were seller financed, all of Dave's early deals were seller financed. We've done 12 between the two of us, 12 zero down deals from seller financing, so there's a lot of seller financing, there's a lot of regular bank financing. And then you have two other options. You have what's called conduit or CMBS, commercial mortgage back security lending, and then you have the ultimate, which is Fanny Mae and Freddie Mac also known as Agency Desk. So there's a lot of financing options. And if you don't have great credit, you don't have a lot of track record, you can still get seller financing, and you can probably even still get regular bank financing 'cause people like the assets that much. So then how do you approach this opportunity, if you say, "Okay, well, it sounds like there's probably an opportunity here." So then what do you do with it? Well, the first thing you have to do is, you gotta find a mobile home park that passes that ideal test, that it has the correct infrastructure, density, economics, age of home and location, so it's got to meet those initial precursors. And don't forget that mobile home parks are strange animals, because the ones that are the oldest and have the best location, because they're the oldest, they have the weakest infrastructure and density, so you'll never find a perfect park.
25:42
All the time you're looking at things and saying, "Well, this is kinda good, but this is kinda bad," and see which where the good outweighs the bad. But you gotta find parks that pass that initial test. And then you gotta buy them at any price that will cover the mortgage, assuming that their rents are currently below market, and there's some other things you improve on such as a little bit of vacancy, maybe the park paid water sewer, maybe some water leaks, maybe an expensive manager. You try to get a three-point spread on the front end, and if you can that gives you 20% cash on cash return. Would you buy something less than a three-point spread? Sure you would, if you can push the rents a lot, fill a lot of lots, cut some costs, yeah, you absolutely, definitely would. And then what you do is you buy that park that can cover itself, and then you go about enacting the plan. And again, the plan is super simple, raise the rents to market, fill the vacant homes a lot, sub-meter the water and sewer, fix the leaks, replace the manager if they're too expensive. And then you just keep on going. Even once you've got the park to a 100% occupancy and all those leaks fixed, and the water sewer being billed to the customer, then you just keep on raising the rent because as we all know, rents just keep going up nationwide. And our rents as an industry are ridiculously too low.
26:55
Now, before I get lots of emails and calls from people who say, "What an evil, evil mantra. What a terrible business model. How dare you say let's raise the rents on mobile home parks," look, it's just an absolute fact of economics that people are going to gravitate to the use of a land that which creates the most value and mom's and pops right now are not operating mobile home parks in a manner that this mobile home park should stay as parks, and everyone knows that. When you own the number of some of these mobile home parks, some of the ones we purchased day one, mom and pop were basically running that thing for free. They weren't making any money at all, and that's not gonna work because a mobile home park is not a very high use of land. It's a parking lot. I can build any type of structure on a mobile home park and it might be worth a little more, or it might be worth a little less, but it's right on the cutting edge. If you do not push those rents up, what happens is all of these mobile home parks over time get redeveloped into a better use. It just makes complete sense. The average apartment rent in the us is 1600 a month. The average mobile home park lot rent is about 300 a month. I can stack three apartments in that same spot as a couple of the mobile home park lots.
28:11
So my mobile home park lots, let's say it takes three mobile home park lots to make where one apartment unit could be three stories high, 4800 a month rent on the apartments, 900 a month rent on the mobile home parks. Doesn't take rocket science to see that's not going to work. And if you're gonna put capital in to bring these things back to life, you have to have higher rent or you're just not going to do it. So let's just turn the trash can into this concept. This mantra of free rent, which I know is a very popular woke-ish idea that landlords across America will suddenly let people live everywhere for free. Sounds interesting and all, but it doesn't actually work. If that was their plan, well, then their heirs or even they when they came to their senses would tear the whole thing down and put apartments up or something else that wasn't free. So you will always be able to push your rents up annually, normally not huge amounts, 30 bucks a month, 50 bucks a month, not like apartments do. Last year apartments went up $400 a month. So let's not criticize mobile home park owners for going up 30, 40, 50, particularly since our rents are so low to begin with and mostly because we're so far below where mobile home park lot rent should be.
29:19
Now, here's what you got. If you wanna figure out, "Well, how much can I make with a mobile home park?" Here's the simple, just assume that the park is just going to cover its own way, pay its mortgage, and then look at what additional things you can do. Raise the rent, fill lots, fill homes, push back water sewer, some cost cutting. That will all pretty much go to the bottom line immediately about a lot of costs involved in those things. If I raise the rent in a 50 space mobile home park by $20, I'm gonna pick up a thousand dollars a month of cashflow with really no cost. That's gonna go straight in my pocket. And best of all, would you do that to value of that park assuming at 10 cap, you would increase the value of the park by 120 grand. So the bottom line is that if you wanna know, if you say, "Well, I don't know if I should buy this park or not," well, don't even worry about calculating what your return is on your down, the whole cash on cash. Just table all of that and just say, "Well, I'm gonna save that for a rainy day, just cover my mortgage." Then say, "What else can I do to it?" If you say, "Well, let's see. It's way below market. It's a 100 bucks below market and it's 40 lots." Well, that's 4000 a month in your pocket, 50 grand a year roughly.
30:37
Or you say, "Well, I'm gonna go ahead and get rid of the manager and get one that's cheaper." Well, that saves you 40 grand there. Well, there's another 40 grand a year in your pocket. Plus, a corresponding value up of $400,000 just for that one item. But if you look at parks in that manner, you can start to see the attraction because you can't do that with other forms of real estate. You can't do that with apartment building. Those things are so high on rent. There's no way to push it, can't do it on the shopping mall. There's no one who even wants the space. Can't do it in the office building, there's such a glut of vacant office space out there. Every tenant out there rather than raising the rent they are lowering it. The most common question I get with people about mobile home parks is "How can you make a $100,000 a year with one mobile home park?" And I tell them, "Well, it's pretty simple, go find an 80 space, occupied mobile home park, anywhere in America that has the right ideal system traits and just can cover its own mortgage and nothing more, but that has the ability to push the rents up a $100 a month over a span of two to three years, and you had just made 8000 a month, 96,000 a year." That's a whole business model.
31:48
Or I'll say, "Or you could go find a 40 space occupied park. That's $200 below market and raise your rent there." That is how you quickly within a span it's not overnight within a span of not to that long a timeframe boost yourself up to a $100,000 a year cash flow. So if the model is that simple, then what are the risks to making money with the opportunity of mobile home parks? Well, the first one is not knowing what you're doing. So not being able to assess the infrastructure, density, economics, age of home and location. If that is your problem, then I would recommend you go to our boot camp. The next one's coming up on the 13th to the 15th of this month, but you gotta know the knowledge of how the park business works. It's a lot more complicated than you think. When I bought my first park Glenhaven, I went on a quest to try to figure out how to make Glenhaven a better community, how to operate it more professionally, and there was no resources at all. The only book I could find back then was a book written in 1955, which I still had the copy of, called How to build and manage mobile home parks. And it is so archaic, so nostalgic, perhaps in its glimmer of what mobile home park business is about, that it dwells on and on and on about things that don't even exist anymore.
33:08
Like the laundromats, mobile homes today had their own washers and dryers, you wouldn't even have a laundromat. So I found there was no resources at all. I tried to educate myself by talking to all these old moms and pops. And I would pick up parks that looked nice, that were more full than Glenhaven, more professional than Glenhaven. I would call people up and say, "Hey, I own Glenhaven." And they typically would be like, "Oh God, I'm sorry." I'd say, "how does your park work? What do you do differently than Glenhaven?" And that's how I kind of educated myself. The problem was a lot of those moms and pops, they themselves didn't know what they were doing. One of my best moms and pops that I talked to, very nice people they ultimately died. And then we ultimately bought that park from their son. And we bought it from the son because they actually had not really known what they were doing yet. That was my entire resource library. So, either one, if you wanna make money with this, you gotta know what you're doing. You gotta put the time to educate yourself on what you're doing. Number two, you probably need to stay out of, for the most part, any blue state that threatens rent control.
34:11
Because if we say that, probably the biggest value add you can have with mobile home parks is raising rents. Well, then rent control is obviously your enemy. Now, some states have enacted rent control, Oregon specifically. That's not even really rent control. Their rent control gives every landlord the right to raise the rents seven points plus inflation. That means this year you'd be able to go roughly 15%. Well, that's not rent control. Most park owners, most landlords of any variety are not going to raise the rent up 15% each year. So why do Oregon do it? Well, because the people who really rule Oregon, which are wealthy people, they wanted to give this kind of narrative of rent control, but they didn't want it to actually impact their own pocket books. So they invented fake rent control. They would call it rent control, but it's rent control light. It's rent control that doesn't actually control anything. But then you have other states like New York. New York has a terrible rent control. They basically went with 3% or inflation, which this year will be probably 8%, 9%. Who knows how high, but it was assumed when they did the rent control act, it would be typically 2-3% a year.
35:24
Well, you can't buy a mobile home park then in New York, if that's what they've enacted and raise your rent up substantially, I can only go up 3% on a $300 rent. Well, that's only $9. So look at the state that you're going into and ask yourself, am I comfortable with this state is not going to enact rent control? Now, in a lot of states, you've seen them try and you've seen the true ending. Colorado recently, they were gonna do a rent control just for mobile home parks, until the governor said, if you do it, I'll beat you to it. And it got thrown to the trash can. So it's high stake to say at this point, there won't be any rent control coming in Colorado. Other states have also tried it, Illinois, they rattle the sword of rent control. I don't know. I think in one year, maybe seven times, never went anywhere. Why would it? Governor's JB Pritzker, he's a real estate guy, but everyone who controls Illinois is in the real estate business. So they're not gonna do rent control. But if you're looking at a kind of a freedom state that isn't built with that structure, that's very blue in nature, that would be one big risk to the business model. If someone does rent control. Well, there goes that. Now, of course, what they will soon to find out is, if you enact rent control, just all the parks get redeveloped.
36:37
So I call rent control the mobile home park redevelopment act because that's what it is. It's just basically, giving the blessing to tear them all down because that's the natural result. Another issue you have is a risk with mobile home parks and the opportunity, weather events that are not insured, weather events that aren't insured is a different matter. But if you are looking to buy the mobile home park in a hurricane zone in Florida that has flooding, here's what's gonna happen. Those mobile homes are all gonna get destroyed potentially in the hurricane and yet your land won't be. So you'll still be in business, but your customers will be gone. So you wanna be in situations where you are not going to have susceptibility to big flooding, macro events. Hurricanes are the only example I can give you. Tornadoes don't end up the same. We've had tornado strike several of our parks over the years. No ill effect, because what happens in tornadoes is that the entire surrounding community has insurance for wind on their own homes. So at the end, the fee when the red cross, come in to mop up the damage and spare the few people who did not have the right insurance. And they basically give them $30,000 and tell them to buy a mobile home, to stick it at the mobile home park. So typically in tornadoes, sometimes mobile home park accuracy actually increases.
37:53
But nevertheless, you gotta make sure that you understand what the risks are and that you stay out of harm's way. Another one is a market catastrophe from a main employer leaving town. We've all seen that over and over. You've seen an entire city, one of the largest cities in America, Detroit, go from complete riches to rags almost overnight as the auto industry just basically left town. That's why we always advocate you try to buy parks, what we call diversified markets that are recession resistant. That means you want a lot of employment from government, education and healthcare. The three things that can't lay people off and they can't close down no matter how bad the economy gets. The government's just gonna get in there and subsidize 'em till the end of time, get 'em through the crisis, get 'em through the recession. You would never wanna buy a mobile home park in an area that has this one giant, single private sector employer. I can give you a million examples of people who bought parks in markets like that, and then got massively burned. So it's just not a good idea. And you never know the direction of these private companies and what they're going to do.
39:00
Anyone who's been to Bentonville, Arkansas knows that with the land of Walmart, Sam Walton like to have everything in one spot. So everyone who sold things to Walmart, they had to have office space in Bentonville. They had to have all their sales reps live there and meet with Walmart executives every day to handle every concern they had. And then Sam Walton died and they decided no, they would diversify. They would no longer hold everything just in Bentonville. And it all just blew away. You saw the same thing happen in Oklahoma with Phillips petroleum, they were down there and they had a virtual city that they owned. And then what happened? They pulled out. Or you'll see manufacturing that moves to another country, or you'll see consumer products that just aren't desirable anymore and they completely shut down. But once again, you don't wanna be in those kind of markets. If you're looking at a market for a mobile home park, there's only one single main employer that employs 4000 people. And the next one only employs 200 people. Then you might as well just invest in the stock of the guy that has 4000 people. If he does well, well, the stock will go up and your park will do fine, but If he goes bad, well, then your park is ruined, even though you thought you were doing a good job.
40:15
Another risk could be the interest rates rising faster than your ability to raise your net income and having a major cap rate adjustment, you're seeing that moment right now potentially. We don't know the direction of the world, but you saw today they raised their interest rates up at half a point and market fell by over 1000 points. None of us really know where this crazy economy's going, but we know it's not anywhere good, that's certainly a given. So if you buy a mobile home park, assuming a super low interest rate on your debt, and then interest rates go up and you can't, well that's gonna hurt a whole lot. That's why you typically want to get debt that's at least 5-10 years in length so you don't get caught in the middle. And the minute you buy that park, you start raising rents and cutting costs and making that thing more profitable. That's the only defense you have. If you look at a typical 10-year mobile home park note, and you model where the park is at, at the 10th year, typically, it's about 50% loan to value. So you are golden, you are in great shape, you can survive any possible change in the economy, in banking, and in interest rates. And even better yet, let's really get in there and really push those rents and do good things.
41:24
Another item is, not being able to get a loan or renew a loan, when the loan comes due. And here's the most common issue with that, that I see. And I get calls on this frequently. People go out there and buy mobile home parks, and they do their valuations, including not only the lot rent, but park-owned mobile home rental income. And typically find a seller finance note and everything seems to be going good, and then the seller finance note comes to an end, maybe three years in the future, five years in the future. So they go out probably to the bank and they say, "Hi, I've got this mobile home park, I want to go to refinance it." And the bank says, "Okay, let's do the appraisal," and it comes in lower than their net balance. What happened? Well, mom and pop convinced you that you could use the rental income, which is not real property, but personal property income. But your real banks, they only use real property income. If you get no big takeaway from tonight's lecture, then this one item, it totally paid for all the time you spent. Because the banks, real banks only count lot rent, and rent from real property income, apartments, self-storage, maybe mom and pop single family home, but they do not allow you to include rental from personal property.
42:43
And remember that mobile homes are personal property, they are just like a car. They typically flow right through the titling department like a car. As a result, that's how you have to look at them. They basically are not real property income but personal property. And if you don't know this, and you go ahead and buy the park, so when mom and pop says, you say what's your rent, "Oh, I'm getting $800 a month for all them lots and that, and them homes on there," that's not what you use to calculate. You say, "What is the lot rent in this park?" And if you say, "Oh, well the lot rent is 400 a month," well, then that's how much rent you actually have to work with, not 800, only 400. Then you might say, "What about the other 400 on the home? Where did that go?" Well, I don't care, you can have it go anywhere you want. You're probably never gonna see it. Mobile homes typically have huge repair and maintenance issues, $100 a month, $200 a month is really common. You add in the tax and the insurance, you're not going to be making any money on the home. And the bad part is you can't cap any of the money that you did make on them. So best thing to do is just, totally stay away from using anything but the lot rent with value in this park-owned homes.
43:54
You stay out of that, I rarely get a call ever from someone who cannot get or renew a loan on a park. But if you look at the calls I get from people who say, "Hey, I've got this mobile home park I bought five years ago and the banks told me it's worth less than what I paid." Well, that's because you probably valued in the park-owned home income. Final, big risk to the opportunity with mobile home parks is simply mass prosperity. And if you have mass prosperity, you don't need mobile home parks anymore. You don't need mobile homes anymore. Everyone will be living in a big old brick mansion. And there's nothing wrong with that. It'd be pretty cool if everyone lived in a giant brick mansion. Every household in the United States, of course it's not realistic. But that's what happened with the industry before. If you say, "Why did mobile home parks go from being so lofty and classy and cool in the '50s and the '60s? Why was Elvis featured living in a mobile home park in two movies? Speedway and it happened at the World's Fair. Why were Lucy and Ricky from the Lucy Show wearing tuxedos and living in a mobile home in the long, long trailer?" Well, that's because that's how it was back then. But then suddenly America just got rich.
45:06
After the war, American industry took off, particularly the automobile, manufacturing industries, and suddenly Americans had more money than they had ever seen in their entire lives. So what they did, they all went out there and started buying houses and subdivisions and new cars and boats and stuff. And people didn't need trailer parks anymore. It just literally fell off a cliff. No one needed it anymore at all. You know, Elvis Presley he had two homes. He had Graceland down in Memphis. Cool tour if you haven't done it, really neat. But he also had a mobile home park that he built for himself and his friends, and he had another mobile home in that park. Now, Graceland is the main attraction today. But back in his day, Elvis really liked living in his mobile home park. In fact, Priscilla Presley in her book, said that her happiest memories of Elvis all came in the trailer park, didn't come from Graceland. Yet Graceland is worth, God knows how much. People pay $50, $75, $100 a ticket, just to tour Graceland. But that mobile home that Elvis lived in, it sold at auction here a few years ago, I think for 60 grand. So basically, there's a dichotomy in the United States, when times are good, when you can have the classy home, you're gonna go for it.
46:17
And if we have rising incomes, if we have greater disposable income, then you don't need mobile home parks anymore, you might as well just tear them all down. Maybe put in nothing but top golf ranges, that'd be kind of cool. But truth is, I don't think you can see mass prosperity. In fact, I'm not sure you gonna see mass prosperity at all the way the nation is going. And in the absence of prosperity, you have its counterpart which is the need for affordable housing. So it's up to you, what you bet on. If you really believe that we're about to enter this boom period, and I talk to people all the time, and they're the 100th person that tells me that right now we are poised for the biggest bull market in history, that things are gonna be amazing, discretionary income is gonna be incredible. If you really believe in that, well, then just don't buy a mobile home park. Don't even think about buying anything regarding affordable housing, because you'll be instantly disappointed, no one will need it. If however, you share my feeling that America is going down the drain, economically, which is obviously been very well supported here last month or so, then there's every reason in the world you would want to invest in affordable housing, because it is a contrarian investment. When things go bad, it gets better.
47:31
Ask anyone who owned mobile home parks what happened in the last great recession 2007, 2008, and you'll all hear this, "That's the best time of my life. That was the best period I've ever seen." Why was that? Well, because when the nation fell flat on its face from all of that crazy abundant lending they had for single family, and all these people were just located and lost their homes. They couldn't buy any homes. Well, then everyone needed a mobile home park space. So everyone's demand went through the roof, rents went to the roof, everything did phenomenal. I remember going around the MHI Show, Manufactured Housing Institute, the national lobby. It was like 2007, eight-ish and someone telling me, "Oh my God, we all have to work as a group. We gotta keep Obama elected, man. This is the greatest thing we've ever seen. We gotta keep things going down the drain like they are." So if you imagine bad times are ahead, then mobile home parks are definitely where you should be. If however, you think that only good times are on the horizon, and things are only gonna get better, then this is probably about the worst industry in the world. Alright, now we're going to go ahead and open up the phones for Q&A.