This podcast marks the 400th installment of the #1 Mobile Home Park discussion in the U.S. With 399 episodes under our belt we’ve covered a wide range of topics over the years, but this week we’re going to revisit our fist ten titles and explore how they may have changed over the nearly eight years since they were first reviewed.
Episode 400: Our 400th Anniversary Special Transcript
This marks our 400th podcast of the Mobile Home Park Mastery Podcast, and in the nearly eight years we've been doing this, we've covered 400 topics. And we've done so in 10-minute installments, which is about 4,000 minutes, which equates to about 67 hours. That's a lot of material. It takes 42 hours to fly around the world, which means if you downloaded all of the episodes, you could listen to them continuously while spending the 42 hours flying in the air, and still have another 24 hours of episodes when you got off the plane. Or if you just like to listen to them continuously 24 hours a day, it will take you nearly three days to complete your mission. But for our 400th anniversary, I thought it would be interesting to go back to our first 10 episodes. Those first 10 that launched the Mobile Home Park Mastery Podcast, and see how things have changed in the nearly decade since we started this project. So the very first episode we ever did, episode one, was called Why Invest in Mobile Home Parks. And nothing has really changed in the ensuing eight years. People still invest in mobile home parks because they are perfectly positioned for all of the American megatrends.
Let's just review what those are real fast. We are a nation that is going down economically, and as a result, people need inexpensive places to live, and we are the true contrarian bet when the nation needs more low-cost places to reside. People like mobile home parks because we have a superior supply and demand function. There's really no new supply of parks. There's fewer parks in America each year. We are depleting. We're an endangered species because cities and states will not allow new mobile home park construction. They control it through zoning and just the realities of life of trying to build things from scratch. So as a result, there's about 44,000 mobile home parks in the US and that number really never increases. And there's really no other sector of real estate that holds such a position where the supply doesn't go up. Look at the apartment industry, self-storage, constantly building way too much product in many markets. But with a mobile home park, if you buy it and own it, one thing you don't have to worry about is someone building another one down the street or across the street. Also, mobile home parks offer other superior things, such as they've got a wonderful position with banking.
Bankers love mobile home parks. We have the lowest default rate of any form of real estate. Fannie Mae and Freddie Mac welcome mobile home park loans with open arms. And you can make more money with mobile home parks than any other asset for the simple reason that mom and pop weren't always the best stewards financially of their property. Often the lot rents are woefully below market. We're talking an average mobile home park lot rent in America of probably between $300 and $400 a month, while the average apartment in America is over $2,000 a month and the average single-family home is over $400,000. So for many buyers, you can buy the asset, sometimes needing some work to bring it back to life, but you have lots of room for upside, typically in filling vacant lots, raising rents to market, and cutting unnecessary costs. Then we had episode number two, titled The History of Mobile Home Parks. Again, not much has changed in nearly the eight years since we did that. The history really is set in stone. The only part of the history we don't know is the future. We know the past. We know that mobile home parks had a very lofty beginning.
They were a luxury product built on the foundation of America's love for trailers. That's what they called them back then. And trailer parks were a complement. They were like private airports. Fancy cities and towns would build a communal spot for you to park your trailer because only wealthy people owned trailers, and therefore they probably would name their city Trailer Park. And if you lived in one, it was kind of like having a private airplane and being at a private airport. The future of the industry, we don't know for sure. We know that renting tiny pieces of land out for people to park a structure on and pay monthly rent, that's never going away. We don't really know what the mobile home of the future will look like, though. One thing we know is it may not always be in that same boat trailer chassis. They're trying to undo that part of the law under HUD. But for all I know, one day there will also be 3D printed out of resin. There may be boxable structures. We don't really know. But the business model itself won't change much. Episode number three was called The Mathematics of Mobile Home Parks.
Again, nothing has changed. People still get into our industry in hopes of hitting a 20% IRR. And it's attainable. We're the only sector of real estate where you can hit a 20% IRR without lying to yourself. And you can do that simply by buying a mobile home park and creating a spread between the interest rate and the cap rate of three points. You can buy something at one point or even less than a point on the front end. And then through regular rent increases, pushing rents to market, filling vacant lots, filling vacant homes, and cost cutting, you can typically get there. It's attainable. It's not possible in other asset sectors. Never going to pull it off in apartments or self-storage or office or retail or anything else. But the lofty goal of a 20% IRR is something you can actually accomplish with a mobile home park. And remember that Warren Buffett's, his IRR was 19% throughout his investment career. So hey, you can be as good as Warren Buffett if you can simply buy a mobile home park and create that three-point spread. Episode number four was called Mobile Home Park Consolidation And Its Impact.
Frank Rolfe:That was a discussion of what was going on at that time regarding some big purchases that had just happened. You had three $2 billion transactions in one year. And what did it mean? It meant private equity groups had finally figured out how good mobile home parks are. Sam Zell had figured it out way earlier in the '90s. He started that what is now largest REIT, ELS, Equity Lifestyle. But a lot of other groups just never thought about mobile home parks. Maybe it was the negative stigma. But suddenly it got on their radar screen after the Great Recession because as many things blew up and evaporated and many fortunes were lost during the Great Recession, mobile home parks, which are truly contrarian, just seemed to be doing better and better and better. And once it hit the radar screen of groups like Apollo and others in New York, suddenly people realized what they'd been missing out on. And in one single year, we had three $2 billion transactions. Now, there have been some other large ones since, things in the hundreds of millions. I think there was a billion-dollar one recently with Crow, which just recently entered the space, a huge industrial builder out of Dallas.
But I think it's a good thing for the industry having these large groups come in. I know some people say, "Oh, private equity groups are evil." No, they're not. Private equity groups are simply well-funded. They have the money to do the capex needed to turn mobile home parks around in a big way. They're not evil. We've worked with them. We've sold properties to them. So I can't think of a single bad thing you can say about a private equity group if you actually know anything about them. But having them in the industry is a great thing. It gives us much more credibility. It gives us much easier access to lending because lenders are impressed by the big names that are now in this industry. So I see it as nothing but a positive. Not a whole lot of news since then to report. We've never had three $2 billion transactions in a single year since. But there's still a lot of time. Episode number five was titled The Future of Mobile Home Parks. And again, the question there, the discussion was on, will mobile home parks look and act like they do today 10, 20, 30, 50 years into the future?
And the answer is yes, in many ways they will. But I don't know if the end product, what you park in the parking space will look the same. I know if we had a parking lot, let's say, in downtown Dallas, and we took a picture of what it looked like today and a picture of what it looked like decades from now, I'm sure the cars would look different. That would be for sure. So I think the product may look different in the years ahead. But the concept of breaking a piece of land up into little sections to rent to people, that model is so basic, so smart, so positive for the consumer, who therefore can actually afford a detached place to live because they don't have to pay for the real estate. That's not really ever going to go away. So I think the future of mobile home parks is, in fact, very bright, simply because we're contrarian at a time when most of the American economy is not faring so well. Episode number six, The Government's Role in The Future of Mobile Home Parks. Now, this is something that has changed over this in the last eight years. Because what's happened is our country has changed. And we have a whole new thing in America today, and we call it woke, right?
I call it often the free rent movement. It's people who think that they should be able to live rent-free and that landlords are somehow evil and don't contribute to society at all, and hey, let's take their properties away from them, is what some of them would think. But that has had some bearing, as we've seen the laws change in some states regarding rent control. Now, will we see more of it going forward? I'm not sure. None of us really know. Rent control has only been passed in states which have the trifecta. You have to have a Democratic governor, House, and Senate to pass rent control based on the way it's been for the last century. But we did see some new entrants since I wrote that podcast. Oregon now has rent control. Washington has rent control. New York has rent control. None of these had it prior to that podcast. And I talked in the podcast about the fact that that was one of the dangers to our industry, was people do not understand it. Bureaucrats don't really see how you can help people and at the same time make money. So there's a lot of misunderstandings in our business. And I think actually it's a call to action for all mobile home park owners to help educate people.
Educate your state representatives. That's who you have to worry about, not the federal. Rent control would be on the state level. Many people, we find, have no idea what a mobile home park actually even looks like. Their frame of reference are TV shows and movies like Eminem's life story called 8 Mile. All completely fictitious, all sound stages. They've never actually been in a modern mobile home park. They don't realize that they're simply high-density subdivisions in appearance. So all of us owe it to the industry to help educate these people going forward because yes, the government's role in our industry could be very damaging in those states which have the trifecta and are too dumb to realize that rent control has been one of the worst things that ever happened to those states that enacted it. Then we had episode seven, The Current State of The Product. Now in that, we were reviewing basically what a mobile home park is all about and new things you can do to make your mobile home park better and there's a lot.
Many things have come on the scene over this last eight years. Much more ACH reliance, different options for people to pay rent other than with a check or money order at the office and of course, all kinds of good things coming from technology, the ability to FaceTime your manager, text to photos and videos to see what's really going on, HD videos of your property condition, software like Rent Manager. So there's been a lot of good things going on in our business and we reached the state of the art. I don't know, there may be a few things left to improve, but really we are pretty high level I think today with the product and it's a product that produces a wonderful end result, which is a detached housing, which is affordable in America, which just doesn't exist anywhere else. Then you had episode eight, Typical Mobile Home Park Economics. In that episode, I talked all about this concept of the three point spread and how simple it is to make a 20% return if you simply follow that very, very basic formula. I also talked about the fact that you don't want to rent mobile homes, you just want to rent the land.
You want to be a parking lot. You do not want to be an apartment complex. Let others own the structure, let them worry about its condition and their private life and you just stick with renting land as the key. And if you stick with renting land, you will be perfectly aligned with all of the lenders and the buyers going forward. And while renting the land, if you can create a three point separation between the interest rate on your loan and the cap rate of the property, you will hit a 20% cash on cash return. And that is really doing very, very well. Episode nine was called The Current Mobile Home Park Investment Climate. And there we just simply talked about what was going on with buyers and lenders and brokers and all of those types of things. Is it different today than it was eight years ago? Well, yes, it is because a lot more people have heard about mobile home parks, a lot more people are now interested in it. We're nowhere near consolidated. There's 44,000 parks in the US and there's only maybe 4,000 in the hands of institutional ownership. So people have not gobbled up all the parks yet, not even close. But as far as the investment climate, as always, those who are persistent and creative always seem to win out.
People have a positive attitude, who use win-win deal making, who use a very inclusive nature in their deal making, they always seem to triumph. But the opportunity is still there. It's not got anywhere. Big groups have not bought it all up. We're not like self-storage where just a few players have acquired almost the entire industry, or at least any of the industry that's worth owning. So as far as the investment climate, yeah, the climate is still good. And then finally, episode 10 was titled Three Action Points of Finding a Mobile Home Park to uy. Now in that episode, I talked about real life ways you can become a mobile home park owner. And there's three key items I want you to remember. Number one, you have to learn enough about the business to sort parks into two categories, opportunity and not an opportunity. So that's step one. You have to get educated. Hopefully I've provided that with this podcast. We also provide the home study course, the master class, other options for you to learn. But you have to be able to look at any mobile home park in America and put it into one of those two stacks. Number two, you have to create a huge volume of deals to look at. The way you get mobile home parks today to look at come from mobile home park brokers.
There's about a hundred of them, many of which carry pocket listings. Then you have cold calling, direct mail, and online listings at places like mobile home park store and loop net. You want to look at as much volume as you can, and you want to dump all that volume into your sorter that can put them into the two stacks of the good deal and the not a good deal. And then item number three, you have to have the guts and the ability to make lots of offers. Once you find deals that go through your sorter and are spit out and say, yes, this is one worth buying, you have to take it to the next level. You have to go and make the offer. You should be trying to make offers all the time on mobile home parks. And if you follow those three steps, good things happen. Parks pop up that fit your budget, that fit what you're looking for geographically, and you can then tie them up under contract and hopefully forge a deal, do the due diligence, get the loan, buy a mobile home park, get the three point spread, live the dream of the 20% IRR.
The bottom line is even though we've been doing these podcasts for eight years now, and it's a really long span of time, eight years is two presidential terms. But despite all that time, so much remains consistent. The basic science of the industry has really not changed enormously. There are little subtle things that go on out there that make the industry obviously different every day. But if you can just follow the basics in our business, you can do very well indeed. This is Frank Rolfe with the Mobile Home Park Mastery Podcast celebrating our 400th episode, and we will talk to you again soon.