Mobile Home Park Mastery: Episode 203

Mobile Home Parks And Lay's Potato Chips

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Lay’s potato chips has long used the slogan “bet you can’t eat just one”. But is that also true for buying mobile home parks? In this Mobile Home Park Mastery podcast we’re going to discuss what happens after you buy that first property and bring it back to life. Do you buy another? Do you buy a whole portfolio over time? Or do you hold steady with one proven success under your belt? There are a number of considerations and the correct answer is 100% based on your personal goals.

Episode 203: Mobile Home Parks And Lay's Potato Chips Transcript

Lay's Potato Chips has always had the motto bet you can't eat just one. Sure those chips are very tasty. What about mobile home parks? Is it possible to buy just one mobile home park and stop? This is Frank Rolfe, the Mobile Home Park Mastery Podcast series. We want to talk about the necessity or non necessity to grow your portfolio. Can you buy just one single mobile home park and be happy? Or do you have to buy still more in order to ultimately find your happy place?

Let's first start off with some background on buying mobile home parks. I started with just one mobile home park. And then I bought another and then another. And I know many people who follow the same route. They bought a mobile home park, learned what they were doing, went out found another one they liked, they bought that. In some cases, people grow to giant proportions. Dave and I are now roughly the fifth largest owners of mobile home parks in the US. And I know plenty of other people who, not quite as large as we are, still have extremely large portfolios. In modern America, 1,000 lots if you get it all perfected and running properly, could easily be worth $30-, $50-, even $100 million. So clearly, there's big money at stake as you grow larger. But is it a necessity to do so?

Well, let's go over some of the initial considerations you would want to review before you would buy that second park. Number one, what are your financial and lifestyle goals? I'm a huge advocate for the idea known as quality of life. To me, that's the one item that should be the largest meter on everybody's dashboard of how their life is going. Yet, that isn't always their number one focus. They become obsessed with the smaller little gauges like how much money they're making. But that's really not it. Quality of life is key; money is only one component. There are others, relationships have been proven to be one of the most important parts of a high quality of life. And of course, health is way up there too. So based on your quality of life message that you're receiving from everything around you, all those little data sets of how things are going, does it tell you that you need to buy another mobile home park, or is one sufficient? I know people who own just one mobile home park and are extremely happy with that. That mobile home park gives them that extra security blanket of income so they're not worried about their day job. Or it allows them to buy certain luxuries that they really, really wanted. And so they're happy with that. So if you don't want to buy more than one, then I salute you for being honest with yourself if that's what works for your quality of life. So there's no reason you should ever have to go out and feel the need to buy another mobile home park. So if you are happy with one, then stick with one.

Another consideration is the efficiency of adding on to your established systems. What happens traditionally is once you get in the business, once you learn how to do at all, once you're running that mobile home park, you realize you know what, I could throw another mobile home park on here pretty seamlessly. So wouldn't it be more efficient since I already took all the time and trouble to learn how all this stuff works? And in many cases, there's actually benefits to that. As you grow in your number of lots, at some point you can hire additional staff to make your life even more pleasant. One of the most important moments in my career was when I got to 500 lots. Because at 500 lots, I felt I was financially capable of hiring somebody to interact with the managers and the residents other than myself. That freed me up from all those calls I would get at all times of days and nights with all kinds of problems, simple to fix but annoying to receive. So sometimes you'll regain more time if you can grow large enough to add a little additional staff. So there's all kinds of efficiency issues to consider if you're going to grow because it just might be by growing life is happier for you.

Also in the same vein, as would be readily apparent to almost anyone. Typically, the more you buy mobile home parks, the better you get at it. If you ask most people who have owned more than one mobile home park "Gee, what was your best mobile home park purchase?" it's rarely their first one. My first park was Glen Haven mobile home park in Dallas, Texas. Was that the best park I ever bought? No. Was it in the top half? No. I got better at it. I realized from Glen Haven many of the attributes I wanted in the future parks that Glen Haven didn't have. Now Glen Haven had lots of good things going for it. It's in a huge metropolitan area, it's right on the highway. But it had some infrastructure and density issues that really weren't something that I wanted, wasn't what I wanted to emulate in future purchases. So the simple fact that you get better as you go would kind of suggest to you, well, maybe I should buy another park and one after that even because I seem to be getting better at every one that I buy.

Another issue, if you want to grow is going to be capital. Many people in the mobile home park sector, they spend all their capital on that first park. So after the first park, they have no capital, at least none they want to spend on another park. They want to hold it back and reserve, they want a little portfolio balance. There's nothing wrong with that. So if you've got excess capital, more capital, I would suggest what else can you put it in right now that's worth anything? I remember back in the day, when CDs paid 10%. Those back in the Reagan era will know what I'm talking about. You could go to any bank with any amount of savings you had, and you could lock on a nice, safe, secure 10%. Those days are long gone. Today, if I go down to that same bank, I'll be lucky if I get a 10th of a percent. With inflation right now at roughly 5% or 4%, or wherever it will end up for the year, there's no money in that, you're going backwards. Anything that doesn't yield, at least what inflation is making, what's the purpose?

You can't really find many investments right now that can compete with mobile home parks. And that doesn't even include the future what's going on. With inflation, with all of the instability in America right now, it's nice to be in the nice safe place of affordable housing. It's nice to be in an industry where there's no possibility of any more supply. It's nice to be in an industry where you can raise the rents up significantly and still be cheap. Nice to be an industry where you can raise the rents as frequently as you like if inflation would necessitate it. So as a result, if you have excess capital, you may say, "Wow, I should buy another mobile home park for the simple reason that's the best thing I can humanly invest in. And I'm getting better at it and it's more efficient." If you've exhausted your capital, and you still want to grow it, you don't have to stop. You could go out and get a financial partner. At some point, you could do a Reg D 506 through the JOBS Act. So if capital is your only constraint and yet you want to grow, you want to get more than one Lay's potato chip, then there are options for you if that improves your quality of life.

Now, if you decide that you do want to grow, there are a couple more considerations I wanted to discuss. The first is the never ending saga, the conflict between portfolio diversity and efficiency. I'm talking macro efficiency here, efficiency on a higher level. Let's say for example, your first park is in Pittsburgh, Pennsylvania. Should your second park also be in Pittsburgh, Pennsylvania? Well, let's think about that. If you have two parks in Pittsburgh, Pennsylvania, that will be very efficient to operate. You can simply go out and have the same trip look at both parks. Down the road if you can hire an employee, they'll oversee your duties for you. Again, much easier. They live in Pittsburgh, they can drive to either park at any moment, any day of the week. However, you're now putting all your eggs in the basket of Pittsburgh. Now Pittsburgh would be a good market to put all your eggs in the basket in right because it's heavily centered on our favorite industries of health care and education and some government thrown in there. But is that really what you want to do? Do you want to have everything in that one basket?

Now a good stock person would tell you no, you would never want to have all your stocks in the same industry or have all of your money in just one stock. You need portfolio diversity. And that's kind of true here. But at the same time, you'll definitely do better. Your performance will be better if you have a highly efficient way the parks are structured. So there really is no right or wrong answer to it. It's something all park owners as they grow have to ponder is am I better with diversity? Or am I better with efficiency? Now I would say that perhaps another option here would be more of a targeted efficiency, diversity. Maybe you pick not all your parks in the same city, maybe not even in the same state, but perhaps in the same region. I've often said the territory for most people would be about a four to five hour radius around where they live. That being the case, you don't have to put everything in just that one spot within that four to five hour radius. It still gives you a fairly large amount of territory to cover. So maybe if you were to be just in that territory, you'd still have efficiency. But you might have a little more diversity.

Another thing to think about is if you were to grow if you were to buy more than one mobile home park, if you were to buy two or three or four however many, and you found that you hated it. If you found that it hurt your quality of life by growing, well as long as you buy those parts correctly with the correct exit strategy on the front end, well you can shrink back down again. Look at a lot of these chain businesses like McDonald's, for example, or Subway or Arby's. Sometimes I'll be driving down the highway looking at mobile home parks, and I will see that very rare beast: an abandoned McDonald's, a former McDonald's. Why is that not there anymore? Well, McDonald's has culled out there less successful operations. So they have selectively said, "You know, now that we own a whole bunch of McDonald's, this one over here, that's our weakest one, let's get rid of it." Some businesses cull out some percent of all their most poorly performing units annually. And that really is just smart business, right? Why would you not do that?

In some ways, if you grow over time, you may morph and your whole portfolio might change. You might start off with those parks in Pennsylvania. Later buy some parks in Ohio, realize you like Ohio better than Pennsylvania, and sell Pennsylvania off. Or maybe along the way you get some great offers on the parks in Pennsylvania you didn't think you were going to sell them to begin with and then later now you've morphed again and changed the portfolio. All these portfolio parks are like living species. They're like having some kind of living organism constantly changing and morphing both on your customer base. Maybe when you buy the property and you bring it back to life and start bringing in newer homes, the customers change entirely. Price points changed entirely. Rents change entirely. But at the same time, communities are changing entirely. And then finally your life is changing entirely. And again, as long as you keep your vision solely focused on that quality of life meter, then everything should work out just fine in the end. This is Frank Rolfe, the Mobile Home Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.