Mobile Home Park Mastery: Episode 10

Three Action Points On Finding A Mobile Home Park To Buy

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Finding the correct mobile home park to acquire … it’s one of the most important steps in mobile home park investing. In this week’s Mobile Home Park Mastery series, we’re going to review the top three action steps in finding a park that meets your investment criteria. You’ll hear what these three steps are, and stories of how they became a part of our personal action plan that has amassed over 300 properties.

Episode Transcript

Finding the correct mobile home park to buy. This is one of the most important elements, obviously, in the mobile home park investing. This is Frank Rolfe with Mobile Home Park Mastery Series. Today we're going to go over the three action steps to finding that right mobile home park.

The first one we're going to go over is knowing what you want. It sounds so very simple, yet so many buyers fail on the front end to truly analyze where they stand and what kind of property would be right for them. It would be kind of like trying to go out dating without knowing what characteristics you're looking for in a potential partner. How do you do this? How do you find out what you want in a mobile home park? Let's go over some of the basic items you just have to know on the front end.

The first is where. What part of America are you looking for a mobile home park in? Are you looking for something in the Midwest? Are you looking for something in the Northeast? What region of America suits your investment goals? For example, we know, on the front end, that a purchase of a property in California is probably going to be subject to a lower CAP rate simply because Californians are more into real estate than in other areas, and therefore, with supply and demand, the excess demand to buy real estate forces those prices to be a little higher than in other markets. You may say, "Well, you know what? I live in California, but California really does not suit my investment goals, so I want to go to a different region." Let's say you say, "Well, I don't really want to bet my investment money in the Southeast. I like visiting there, but I don't believe in the economy, so I don't think I want to invest there." These are all the things you have to consider.

Now, Dave and I are big investors in what we call the Great Plains in the Midwest, the vertical stack of states from Texas to Canada, and then those to the right starting up about midway up the American map. Why do we invest there? Well, we live there. These are areas that we understand because we grew up there. We also believe very strongly they're very solid markets. We've been in them for over 20 years, so we feel like we have a pretty good idea of how things will perform both in good times and bad.

You may or may not want to invest where you live. Just think about it. Think about what regions. Real estate's all about location, location, location. You're always banking on the future of the location, of that market. If there's some regions you feel have a better chance of success going forward, then that's where you would want to focus, but you have to know what region. You can't just go out and look for mobile home parks using the entire U.S. map as your template. You've got to narrow that down, if not into a certain state, at least into a certain region of the map.

The good news is they're almost all good. The only one out there that is sometimes fraught with a little more risk is the Southeast, states such as Louisiana, Mississippi, Alabama, and Georgia. There's not as much institutional ownership in those states, much more fragmented. As a result, there's not as much lending available. Additionally, the lot rents are lower because, again, it's all mostly still owned by moms and pops. Again, think about where you want to be. That's the first action step is know what you want.

Another part of that same action step is know what kind of park you can afford to buy. Many people figure out their abilities to buy based on their capital they have to invest and then multiplying that capital, typically, times five. That seems to be a good way to start off. Now, the problem is, when you do that, you sometimes limit yourself that you don't have to be quite so limited. For example, if you're going to go out there and do zero-down deals, well, it doesn't really matter how much capital you have. If you want to do master lease with option, same story. Give yourself at least a ballpark idea of where you stand. If you say to yourself, "I've got $100,000 to invest in mobile home parks," then you know the range of what you're looking for is somewhere around a half-a-million dollars, maybe up to $1 million, but it's certainly not probably $10 million. Start thinking about, price-wise, where would you stand?

Then also think about the characteristics of the kind of park that would be successful for you. Many people getting into the industry do not feel comfortable enough to buy private water and private sewer. I don't blame them. I would not have, either. If my first property had private water or private sewer, I probably would not have bought it. Again, know your limitations. Know what you're comfortable with, what you're not comfortable with. That's the first action step is create that sorter. Understand what you want in a property such that, when you see them, you can immediately make a decision as to whether or not it would be successful for you.

The second action step is the concept of sheer volume. There cannot nearly be enough written or said about the fact that those who look through the biggest stack of properties are typically the ones who are the most successful. Why is that? Well, of course, it's simply the fact of the law of volume, that if you look at enough stuff, you're ultimately going to find what you want. If I go out and look at a giant field eight acres in size for a four-leaf clover, I'll find one. If I want to expand my search to 100 acres, I know I'll find one. If I only limit myself to a two-by-two-foot patch of my yard, I may not find one at all. Volume is absolutely key. The way to really get traction in finding the right mobile home park is when you combine knowing what you want, which is your sorter, your filter, with high degrees of volume. That's where the most scary buyers come from as far as their ability to, time and time again, find what they want.

It ties all the way back to the 1800s and gold mining. Think how the gold miners did it. They took a little pan. They took earth out of the streams, and they put it in the pan. What would happen is is they washed and washed the water in. They kept sifting in around. The gold, which is heavier, would fall to the bottom of the pan. They would then discard the muddy water and then get another pan full of dirt and start again. However, the miners quickly realized they could do a much more efficient job of finding gold if they could actually filter more dirt, that in fact, what really made the gold possible was the more dirt they had, the more gold they found, so they found new ways to get even more dirt into the filter. Meanwhile, they figured out ways to even make the filter more efficient and larger. By the end of the gold mining in the 1800s, they were blasting mountainsides with water jets and having all that mud flowing through filters, a far cry from where they started with just that simple pan, and they were far more successful in finding gold.

The bottom line is not only do you have to know what you want, you've got to attach to that sorter, that filter, as much sheer volume of parks as you could humanly find. Now, the good news is there's a lot of parks out there to sift through. There's about 44,000 of them in the U.S., so it's not like you can't find that many properties. This is not such a rare asset class that it's just impossible to find any potential suitors to even look at. If we were, instead of investing in mobile home parks, investing in something that is so esoterically rare ... I mean, for example, have you ever tired to find cemetery land in most cities? It's some of the rarest land that exists. Most cities set aside just one single tract for a cemetery. Or landfill sites. In the entire United States, the number of applicable landfill sites is infinitesimally small. Even where I live in Missouri, where we have such large mineral deposits of lime, there's only a few spots in America where you find solid concentrations of lime. Finding those kind of real estate assets are nearly impossible. However, with mobile home parks, if you really keep your eyes open, you will find them lurking behind every bank of trees. You'll find, in every town, there's not one, but there's typically like four or five. Even in my small town in Missouri, there are roughly six.

What does it mean? It means you need to harness the volume and jam as much of that as you can through your sorter. Now, how do you do it? There's lots of different ways. There's lots of different tricks. There's brokers. There's online listings, cold-calling, direct mail, stopping by individual parks. There's a million ways to create that volume, but the key is you have to think volume at all times. When someone tells me, "I'm not having any luck finding a mobile home park," I always say, "Well, give me your methodology. How do you go about trying to find the ideal park for you?" Then I'm amazed when they tell me, "Well, I, I ... You know, I called a broker." That's not going to work. Calling a single broker has noting to do with volume. Yes, you might get lucky. Maybe you call one broker, and they say, "Oh, yes. I do, in fact, have this perfect park for you," but the odds of that are very remote. Instead, the key to finding a good property is, once you have your sorter, to pour as much volume of deals as you can. The more, the merrier. I would much rather look at 1,000 deals than 100. I would much look at 100 deals than 10. Think volume. Volume is the key.

The third action step I want to talk about is the simple fact that the harder the park is to find the owner, the better the deal. It's a strange relationship, but it's completely true, in my experience, that the owner of the park who tends to hide from the world, that is the most important person you can find because if they hide from the world, that means they have absolutely no statistical evidence of values to go by. It means, additionally, probably no one has ever contacted them before to see if they would like to sell or at what price.

Imagine, after World War II, where you had enemy troops that were still stationed on Pacific islands who did not even know the war was over. They were so cut off from society, they had no idea what was going on, who was the president, that the war had ended, just nothing. They were still just subsiding on the islands, gathering their own food, purifying their own water, waiting for a signal that the war was over when, in fact, they never got the signal.

You find the same thing, sometimes, with mobile home park owners. They are unaware of what CAP rates are, what interest rates are, what park values are. They just have, simply, absolutely no idea. When you finally make contact with them on their distant island that they've created by cutting themselves off from the world, you never know what they're going to throw out as a price. It may be insanely good, and it typically is insanely good. When you're out there looking for mobile home parks to buy, and you find that one owner who you just can't find, he won't respond to a call, he won't respond to a direct mail piece, nothing you can do will get you this owner, that should go on a very special list of the most desirable owners that there are, because if you can make contact with them, an amazing thing may occur.

I'll give you an example. There was a mobile home park on Highway 75 north of Dallas. I used to drive by it all the time. In fact, I had driven by that park all they way back into the 1960s. I didn't know anything about mobile home parks back then, so I never paid attention to it, but I always thought, "Wow, look, there's a mobile home park." Well, once I got into the mobile home park business, I realized driving by, "There's that park again, but now I am interested in mobile home parks, and man, it looks terrible." It looked worse than it ever had before. It never really looked that good to begin with, but you could definitely tell it was on its last legs. How do you reach the owner? Well, I tried to call the number that they had in the yellow pages for the park in the phone book, but there was never an answer. All I got was an answering machine, and that wasn't getting me anywhere.

One day, I decided to just find the owner. I knew, from the tax assessor's office, that the owner lived in the mobile home park and that he lived in a double-wide inside the mobile home park. I even had the lot number. One day, I decided just to go in there and see what would happen. I mean, what could happen? He could say, "Get off my property." Okay, that's fine. I would get in my car and drive off. I figured I didn't have a lot to lose and everything to gain by finding them. One day, I pulled into the mobile home park, and I saw in the old office ... and this was very nicely built, what's called a HUD park, from the 1960s with a clubhouse and a pool, although the pool had been poorly filled in and actually had dog houses and some Chow dogs living on it. It was a very hard, scrabbly-presented park.

I saw the door the the office was open, not the front door, but a door on the side, standing wide open. I thought, "Well, you know what? I'll start there. Rather than go knock on the guy's door, I'll go over to that little door and see what happens." I went in and, lo and behold, here was an individual, an older gentleman, and I thought, "You know what? I bet this is the owner." I said, "Are you the owner?" He said, "Yes, I am," and that started the conversation off. We then proceeded to walk around the property. Unit by unit, he would show me all the things he'd been working on. The quality of the what he was working on, frankly, not that good, but nevertheless, we went around and around and around, looking and looking and looking, talking, and talking about life.

In the end, he gave me price he would want for the property, thinking it was insanely high. In fact, it was crazy low, because he really had no ideas what values were. He had bought this property decades earlier. His wife had left him, and he kind of lost interest in, not only in the park, but in life in general. He was just kind of going through the motions, and didn't really care, and had no passion about it at all anymore and, most importantly, didn't know what anything was selling for. When I came on the scene, he was A, willing to sell, because he really was not enjoying himself, and B, he had a price in mind, and although he had no debt on it, so it was all profit anyway, it was far, far lower than what it actually should bring. When you're out there trying to build your volume to put through your sorter, and you find those unique times when you have a seller who's impossible to find, those should be on your special list, because when you can find someone who's cut off from the world, often, their information flow is also cut off from the world, and that's a great opportunity.

Again, this is Frank Rolfe with the Mobile Home Mastery Series. I wanted to give you three action steps to, hopefully, get you on the road to finding the right property. I know it exists out there. Again, there's 44,000 properties in America that are mobile home parks. Only roughly 4,000 of those are institutionally owned, so you still have roughly 40,000 mom and pop owners of these mobile home parks, many of which are reaching retirement age and ready to let it pass on to the next generation. The key to finding the one that matches up with what you want is to create that sorter. Know what you want on the front end. Attach to that sorter a giant volume of mobile home parks. Stay alert for situations where you see a seller who's very hard to reach, because you then know that they are a perfect candidate for what you want to do. Then just put as much effort in as you humanly can because, akin, effort is very rewarding. For those who put in the effort, they typically succeed, and it's very, very important.

This completes out first part of this five-part series. Up to bat next, we'll be talking about action steps to negotiating deals. We'll also go over actions steps to due diligence, to turning a mobile home park around, and operating a mobile home park around. I think you're really going to enjoy the next four of this five-part series. Again, this is Frank Rolfe with Mobile Home Park Mastery. Thanks for being here, and we'll talk to you again soon.