A Pessimist's Guide To Mobile Home Park Investing

Before you invest in anything, you need to carefully consider the good and bad aspects and see if it honestly meets your goals. That’s the purpose of this event titled “A Pessimist’s Guide to Mobile Home Park Investing.” We look at the negative points just as vigorously as the positive ones since those thoughts are just as important. It’s even going to expand into what the biggest threats to the mobile home park business model are on both a macro and micro scale.

The event was hosted by the world’s biggest pessimist: Frank Rolfe. He’s been in the industry for 25 years and currently ranks, with his partner Dave Reynolds, as roughly the 5th largest owner of mobile home parks in the U.S. He’s seen all the industry cycles and learned from hard knocks what works and what’s a failure. And he’s not afraid to talk about it.

Frank plans to show you how he turned his pessimistic views into one of the largest organically grown portfolios in the country, starting with just a single park, at the upcoming Mobile Home Park Investor’s Boot Camp. You will learn from the culmination of Frank and his partner, Dave Reynolds, experiences in the industry covering the A-Z of the business including how to identify, evaluate, negotiate, perform due diligence on, finance, turn-around and operate the strange business of mobile home parks. Together, they built one of the largest organically grown portfolios in the country starting with just a single park each.

A Pessimist's Guide To Mobile Home Park Investing - Transcript

Welcome to our lecture series event. It's a very easy one for me to do called "A Pessimist's Guide to Mobile Home Park Investing". Why is it so easy? Because I am in fact, a pessimist. I look at everything in a negative light. I always have. I always will. When I drive a car, I always imagined at any given moment a car will veer into me, I will blow my tire, that my engine will blow. That's how I view life. Always from a very negative posture. And there's some benefits to being a pessimist. Number one, you are rarely disappointed because if you think the worst of everything and everyone, well, then no matter what they do, they still can't really meet your negative expectations. You also tend to mitigate risk better because you see everything is having risk. So as a result, you're constantly thinking, oh, when that terrible thing happens, I fully imagine will, what will I do next?

So when I'm driving the automobile, I'm always thinking, okay, if a car crosses over the median head on, what do I do? I know I go real quick. I yank the wheel to the right and go off on the shoulder and I hit the brakes. And if I have a blowout, what do I do? Well, I slowly decelerate and pull over to the side. So whenever you are a negative person by nature, you tend to think about risk all the time and therefore you avoid it better. Also, you're just generally more skeptical. If someone wants to sell you a deal and the deal just sounds too good to be true, you know it's too good to be true because you look at everything in a negative light. Also, you decide without emotion because you never get emotionally involved in anything because you always assume everything is terrible. You're going to blow up and go nowhere anyway, so as a result, you never get excited. You never say to yourself, oh, I'm going to do this, I'm going to do that and it's going to be great because you don't think in terms of great.

And you do better due diligence because since you are constantly imagining terrible things all the time, you are thinking outside the box, what could really happen? What could go wrong? Water system, sewer system, permit doesn't matter. Pessimists are more prone to really push the envelope in due diligence. Now there's some negatives to being a pessimist also, which you can't go discuss pessimism without noting. Number one, if you get too pessimistic, then the fear will basically result in inaction. So if you are so pessimist of driving the car, then you may not be able to drive a car because you refuse to put yourself at risk or you won't get in the car and you won't turn over the engine because the engine could explode and then you would burn or you'll put it in the gear, it'll get stuck in gear, you can't get it out of gear and you crash into another car or a person. And then you just soon find you have no energy at all. So that's the negative of pessimism. I imagine there's many, many people out there who have been institutionalized because they had too much pessimism.

Also, you can become a deal killer. I've written many articles on the fact that if you want to succeed in the mobile home parks, you have to be a deal maker and not a deal killer. Deal killers by definition kill deals. They never buy anything. They spend their entire life kicking tires, looking at stuff, but they won't ever buy anything. And if that's the case than why even bother looking? You're really just wasting your energy. So if your mission is to be a deal killer, I can tell you right now, I've never seen a mobile home park you could not kill because as I've said many a time, the great locations parks are really old, being old they have weaker infrastructure and density. So you'll never find the perfect park and if you sit out on a mission to find only the perfect park and won't buy any other you will never buy a park because there in fact is no perfect park.

Also, you can miss out in a lot of opportunities because you are a deal killer. You see deals all the time, perhaps that really should have been purchased, but no, you are not going to purchase that deal, no way, because it's on, fill in the blank. It's on a water well, it's on septic, lots are slightly small, you name it. And as a result, you miss out a lot of stuff. Also, you can just destroy the enthusiasm and morale of your staff. Warren Buffet once said, without enthusiasm there's no energy, without energy you have nothing. Well hanging around with pessimists you soon find you have no energy because everything is a downer. And finally, being a pessimist has one really bad side effect, which is it can make your life completely unfun.

If you look at everything poorly, then it kind of makes life just an adventure in unhappiness. So being a pessimist isn't all a bed of roses. It does some good things as a park buyer, it also does some bad things. Perhaps the key to it all as a pessimist is moderation. You can't go too far in your pessimism. You got to let your foot off the gas a bit. So going back to the car example, not being able to drive a car would probably in most cities in America eradicate your ability to hold a job and to function as a regular person. So I have to drive the car. I have to accept the risk of driving the car. I can be pessimistic and I can say, okay, I better check my tires, check my oil, make sure everything's really good and up to date.

That's okay. That's fine. But you got to have a little moderation out there. You can't just be so negative that everything is the worst case scenario. Now that then begs the question, since I have a pessimist, you also be a pessimist, then what are the negative things about mobile home park investing. Pessimists, they always assume the good things can take care of themselves. So the question is, what's bad about mobile home parks? Well, let's go over that. Let's start with some macro issues that are bad about mobile home parks. Basically the federal government hates you. They will do everything they can humanly do to ruin you, screw you over, the sky is the limit. Case and point, two recent examples. Number one, the eviction moratorium. Now, what is that? Well, anyone who owned property knows that starting in about March of 2020, when we suddenly had this thing called COVID and I won't even render any decisions on COVID and whether it was overblown, under blown, I don't know, I'm talking just regarding mobile home parks.

But anyway you cut it with COVID, it was completely wrong to allow people to live in housing and not pay rent. And the reason I say it was completely wrong is we were the only industry that the government chose to declare that we had to provide a surface for that payment. Nobody else did. Grocery stores, gas stations, federal government. They still collected taxes in 2020. They delayed it a little, but they didn't give you a penny of a discount. So the bottom line is the federal government supported the theory they don't like you with the eviction moratorium. And then earlier than the eviction's moratorium, you had an even wackier maneuver by Elizabeth Warren, where she sent a letter to all of the large private equity groups, or really anyone who'd ever even thought of the word mobile home park, letting them know that if they happened to buy a mobile home park, she would personally come after them to destroy them.

Why? I have no idea why. She somehow thought it was a great political stunt, but it clearly once again proved that the government has no positive support for you at all. So if you want to be a pessimism on the federal government, go ahead. I don't think you can think poorly enough of the federal government at this point. So there's one time in which pessimism really doesn't need moderation. And then some states also hate you. Now it depends on the state. America has become very polarized now, you have basically what they call red states and blue states, red states being Republican, blue states being Democratic and the laws regarding landlords pretty much are paired along these exact same lines. So in those blue states, they want to give the tenants way too many rights, rights that they don't deserve, rights they do not warrant, but they want to give them to them anyway because they just want to pander to those tenants till the end of time, because those tenants are what elect those people.

And they'll do anything to prove that they are the wokest, bluest bureaucrats that anyone has ever seen. And then in those same states, they will discuss, but not enact, on a continual basis rent control. Now, most of your rent control at this point, you would imagine has already been enacted, since rent control began during World War I. So it's about 104 years since rent control began and at all that time there are only a handful of people dumb enough to enact it. Yet, those politicians who want to pander to everyone, they keep bringing it up over and over and over and over and over. Why? Well, they're never going to enact it, however, it makes them look to their constituency like saints. So they always have to bring it up.

So if you own a mobile hub park in a blue state, you can pretty much imagine you will see a discussion of, but not enactment, of rent control and you will see discussion of and enactment often of tenant rights. Now, the good thing is the people in those states have no idea how mobile home parks function and as a result, although they think they're really harming park owners, they're really not. If you give the tenant an extra 30 days to have an advanced notice of a park shutting down, for example, that extra 30 days isn't going to really harm most park owners. And you might say, why doesn't the rent control ever get passed? Well, because the people who control the government and the states, they all own stuff. They're rich people. I don't think you'll find anyone who's the governor of a state who isn't fairly wealthy. Look at Jay Pritzker in Illinois. I don't know how much he's worth, people always like throwing out huge numbers because it sells media time. I don't know, any idea.

I've never seen his tax return. I don't know anything about Jay Pritzker, but I do know Jay Pritzker, whatever money he has is in real estate. And if you look at most of the folks in the Illinois Senate or whatever in the world they call it, most of those are also businessmen who own real estate. So they're probably not going to want enact rent control because that hurts them personally. However, they can talk about it to the end of time and it only benefits them personally. So again, blue states you're in trouble. Red states, no, not at all, red states they give tenets of the appropriate amount of the rights and they would never even gain to say something as stupid as the words rent control. They have city leaders and they also hate you. At least they hate you most the time. So what does the city leader hate about a park owner?

Well, they don't like you being there at all because you don't really help the city. You cost them a lot of money, probably about eight to 9,000 per kid for tuition and they don't collect a fraction of that back in property tax. So city leaders don't like parks for money reasons, appearance reasons. I don't know any city manager or zoning head or mayor who ever said to the board, oh my God, we need more mobile home parks in here. That is the first stair strap to giant fame and fortune for our city. So basically city leaders don't like you. And it's really true of both red and blue states, unfortunately. And then they're also very, very negative if you want to expand, sometimes you'll have a park, you're full, there's land right next door. You could buy the land and expand into it, but no, the city won't let you do it.

Why? They don't want more mobile home parks. They don't want more mobile home park people in their town. And you just have this general hostility when you go to City Hall, actually I don't recall ever going to a City Hall ever and being treated appropriately with respect, with empathy, with anything, they just don't like you. So again, if you're a pessimist, you won't be disappointed with the way cities look at you. And of course, mobile home park owners know that your residents hate you. Not all of them, a fraction do. 80, 90% of most parks think that you do a good job, did a great job of bringing the park back to life if it was a turnaround and they feel like you operate it fairly, your manager's fair and they don't really have any objections, but you always have those few people that no matter what you do, it's not good enough.

You could give them all $1 million and they'd wine and say, why didn't you give us $2 million? And there's simply no way to make these people happy. That little, few people that 100 space park could number as small as two or three people. There's no way you can appease them. The park we owned in Austin called North Lamar, where we had all those problems for all those years, sold it at a gigantic profit. City of Austin chipped in $2 million for the down payment for the people to buy it as a resident owned community. But all the negativity over all those years only tied back to one individual out of 62 different families. So although I won't say that all residents hate you, the majority don't hate you, but from a pessimist perspective, it's a good bet in every mobile home park in the United States, at least one person doesn't like you.

This one's a given, the media hates you because right now in the media, landlords are evil. It doesn't matter what you did. You could go out and take an old rundown apartment where people had no plumbing and no heat and totally redo it and make it spectacular and change their life, and they still hate you because in this new bizarre era of America, which I don't know how long it lasts, I can't wait for it to end. Basically entrepreneurship, capitalism, success is an [inaudible 00:14:02] behavior. They don't want anyone to be successful because to be successful means that you're somehow, I don't know, maybe a capitalist and they don't like that part of America. They want to eradicate that. And many of these journalists support openly or behind closed doors, the free rent movement. They believe that everyone should live anywhere they want for free because they don't own anything. So why would they not? Most of your media folks live in apartments often in Manhattan, they own nothing.

And as a result, they don't care what happens. One quick story on that, the guy from the New York Times that came and wrote the story on Dave and I back in 2014. Bit of an unusual encounter, we went into one of the mobile homes with our manager and to try and get, I guess, an interesting quote from him, the writer tried to shock the manager. He said, "So what's it like to be the lowest of the low?" The manager was like, "What?" He's like, "Yeah, you're just the bottom of society." Well, my manager said, "So really? We're where do you live?" The writer said, "I live in Manhattan." He goes, "Oh, okay. So you own a house there?" "No, no." "Do you own a condo?" "No." "Do you rent?" "Yeah, I rent." "So do you own a car?" "No, I don't own a car but you don't need a car in Manhattan."

So the manager said, "Okay, so let me get this straight. You don't own a car and you don't own a house. Well, I own two cars and I own this mobile home. And that makes me richer than you. You're the low life." Which I thought was very clever on their part. Bottom line to it all is that most journalists are what I call woke and broke. They just hate capitalism and as a result, if you in a mobile home park, they're not going to like you much at all. Also you have...

Also, you have inherent risk in working with lower-income people. Now, mobile home parks are not where you find true lower-income residents. That's in apartments. Apartment industry doesn't want you to know that or say that they embarrass system. So they would love to tell everyone in the media that mobile home parks, that's where the really poor people are. And that's not true. If you look at the average income in most mobile home parks today is a hassled income, but probably somewhere around 30 to 50,000 or more. So, that's not what I'm saying in the slide. The problem, however, is when you drop to that lower half of America in income, you definitely go up the scale as far as litigiousness because people tend to what they see all around them in the media. Lawsuit after lawsuit, which apparently equals riches.

And they see billboards going down the road of law firm after law firm saying, I can get you big money from basically anything. I can get you a million dollars for you faking to fall on the pavement. So, this kind of litigation has become almost like a lottery for many residents. They all look forward to the day when something bad will happen to them if they can sue over. So, you have to say pessimistically, that's just part of the industry. Also, you can just get generally burned out with all of the negativity I just talked about. The fact that you do not have a federal government or a perhaps state government, city government, the media, anyone watching your back. Everyone collectively does not like you. And because of that, it can make self-managing difficult just from a culture shock perspective because everyone's such a downer.

It just has to fall off on you a little bit. And then you have entire groups that are devoted to trying to cause you problems such as MHAction, which is a national lobby for mobile home park residents. I would say it's been fairly ineffective. They've been around for a long time. And the membership is still very, very tiny. If you ever want to get a laugh, go on an MHAction, call and just listen in. They cannot even make the calls work very effectively. However, when you have organized groups that want to cause trouble to responsible landlords, it's kind of depressing, I would say. And the bottom line to all this is you have to make big money with mobile home parks or you must be nuts to own one. Why would you want to own one when there's so much negativity all the way around you? Also, you have a stigma when you own mobile home parks. People think you're crazy.

Why would you want to own a trailer park? Oh my gosh, you must be nuts. And since they're so negative about it, you then don't want to talk about it in public. When people ask you, what do you do? Oh, I'm in real estate. Very few people say, oh, I own mobile home parks. Now that landscape is changing. It's becoming okay to say mobile home parks in public, cocktail parties, places like that, only because so many private equity groups have recently entered the space. But then again, most people don't even know what the words private equity group mean. So still most park owners don't want to talk about it. You probably have seen articles about the guy they call America's biggest sports fan out there in Los Angeles. He's in every Lakers and Clippers game with seats right on the court. He also owns the house; he filmed the big Lebowski in up there in the Hills of Hollywood, but no one ever knew what the guy did.

And then one day he got sued by a tenant, fancy that, and it all hit the fan that he owned a bunch of mobile home parks but he never wanted to talk about it. People would ask him, what do you do? He didn't want to talk about it because he was embarrassed to say it. Oops, skip the slide. Sorry about that. So the biggest problem for a macro-level regarding the mobile home park industry is, in fact, just negative karma. Everything seems to be a downer. Everyone seems to be a downer. So, that's something you have to think about if you're going to get into the space because you've got a lot of people out there who just are going to try and weigh you down. So how do you fix these things? Well, first off, as a [inaudible 00:20:22], I have adopted over time a thick skin. I don't really care what people say. It doesn't bother me in the least. When I was on the John Oliver show as the biggest a-hole in America, on his ridiculously stupid juvenile episode on mobile home parks, I could absolutely care less.

I know nothing about John Oliver. I would never watch his show. Anyone who watches a show to me is an idiot, so I don't mind. And when those few residents call with endless complaints, I just think to myself, wow, it's a shame. They can't find something better to do it. Doesn't really bother me. So you have to have a thick skin if you're going to be a mobile park owner. And you have to understand the difference between real threats and savor rattly because people all the time will make threats at you, but they actually can't go through with them because the threat doesn't exist. For example, if you have a resident who says you can't evict me because I declared bankruptcy two months ago. Well, no, that's not true. The bankruptcy does not protect him from the rent going forward for the data bankruptcy only going prior. Or if a city official says, well, we're going to enact rent control.

Well, you can't because if you're in a red state, you can't. And even if you're in a blue state, you can because it's a statewide issue. So, all the time all these negative people who hate your guts because you're an entrepreneur and you're successful and they're not. You have to really listen to what they say because 99% of the time, they can't do anything. Anyway, once you realize this, it tends to make you less stressed out. When you realize they don't really have any teeth to their unhappiness. And you want to insulate yourself if possible via your manager. Because if you have to listen to nameless negativity, it's not good for you personally. So, most people have an onsite manager in their mobile home park and you only work with the manager; you don't work with the residents like any other business. Someone who owns a chain of McDonald's, they don't out there talking to the customers in the McDonald's, they talk to the manager on a recurring basis.

But in that way, the manager, part of their job is to deal with some of the negativity of all those folks in the mobile home park. Now that does not mean your manager takes care of issues with cities and people like that. No, that would fall back on you, but you can reduce your level of stress, your level of negativity simply by having your manager who's well-trained and good at what they do.

Another thing to do is to be in a hundred percent conformance with all federal state local laws because that is the weak spot for most park owners. When you see a problem or something in the newspaper, typically it always turns out to be a mom and pop while good-natured and hoping to do the right thing, it turned out they didn't have a correct lease or rules or they were creating mortgages totally in non-compliance with the Safe Act or not having someone monitor the [inaudible 00:23:20] whatever the case may be. Don't let that happen to you. Since we know that federal government and the blue states and city managers and some degree of residents, and the media all hate you. The only ammunition they have in most of America is simply if you get out of conformance with the law and I don't just mean a little bit, a little bit you can correct, a little bit no one can do much about, but if you did something in a big, big way.

And I think most park owners who get in trouble, the problem is they never took the time to learn what the laws were. And that's because they're often the older original moms and pops and they just kind of read it their way because they didn't realize America had shifted. They still think it's 1940s, '50s America. Man, wouldn't that be refreshing? But instead, they come to find out it's this sad, traumatic 2022 America that we live in. Also, you have to make everything worthwhile by having strong economic performance. When you're out there buying a mobile home park and if you buy a mobile home park at a 4% cap rate with no upside, well, then you are a certified idiot because why would you even do it? So when you look at mobile home parks, it is absolutely incumbent on you to make money with it.

If you can't lay out a budget that is profitable from if not the get-go, then perhaps the first rent increase or whatever you're going to are due to increase NOI, then don't buy that mobile home park. This is not a glamor business. Now there are people out there who put money into such things and making movies, and they lose money on every movie they try and make, but they do it; it's a glamor business. They want to go to the film shows. They want to meet the starlets, whatever they want to do. This is not that industry. So, I would rather not buy a mobile home park than buy one that does not have a strong return on investment. Some other macro-level problems. Private utilities. Now private utilities are not all created equal. There are some that are very manageable, such as water well. A water well in a mobile home park is something that doesn't fail very frequently.

Not that expected to fix. It's not as good as municipal water but you can live with it. But then there are other private utilities such as a packaging plant that's coming to the end of its useful life or [inaudible 00:25:43] or a master-metered gas system. And that could end your career if that were to go bad. So, you have to understand private utilities. You have to understand what works and what does not work. And there may be some private utilities that you say, well, I think I better not touch that. Master-metered electric and gas are a terrifying thing in many mobile home parks. Now master-metered electric is where the park owner owns all the power lives through that whole mobile home park. They all belong to mom and pop. And therefore they are a power company. Who wants to be a power company?

Even the power company doesn't want to be a power company anymore. They should have diversified out probably. In your case, you want to be a park owner. So I want the power company to be the power company. It was not uncommon construction in the '50s and the '60s by some park owners to have the park own all the lines, all the outlets, everything. And they did that deliberately because if they did that, then it allowed anyone to come in to simply hook up their power and not do any inspections. So it gave them instant gratification. The problem is when they created instant gratification, they created a lifetime of worry because if the lines break, if they blow out, if your balance goes out, you got to replace it. And it's not cheap, it is scary stuff. The good news about master-metered electric, however, is it's just science.

You can figure out how many amps that the system is allowed to pull versus how many amps you're pulling. And if it's balanced, well, then you might be able to survive that. But then you have master-metered gas. This one's worse. Master-metered gas's big problem is not in the delivery of the gas, but what happens when the delivery is interrupted. If you have a leak of any type if anyone even calls it and says, you have a leak and you didn't, the gas company will shut your gas system down, which means your entire park now has no gas, no heat, no hot water, no way to cook. And they won't turn it back on until you do what's called a pressure test. You have to pressure up the system with air. And if it can't hold the air pressure, they will not turn you back on.

And they don't care if they ever turn you back on. It doesn't bother them one iota. Master-metered electric never fails like that. Master-metered electric, you don't have such a thing but in the gas sector all the time you run any given moment, the terror of the gas cutting themselves, just turning your gas off because there was a leak down in the street. And once again require air pressure test. You've got thousands of feet of gas line in that mobile home park. What is to say, what are the odds you won't have at least trace leak? So, master-metered gas, particularly, that's a real pessimist dream. Orangeburg sewer pipe is the worst product. What are the worst products ever invented in America? It's unfortunate that it ended up being in mobile home parks, wish it didn't. All the other types of sewer are pretty much fine.

Clay tile, cast iron, even early PVC, and of course, modern PVC is fantastic. Orangeburg, which originated, I think in Orangeburg, New York or Orangeburg, New Jersey, was a product that when they built it new, it only had a shelf life. Oh, maybe a decade or so. Why would you lay a line that's to be permanent that you know will dissolve in a decade or so? And that's exactly what it did. Most of your Orangeburg systems, the line was dissolved. And the only thing making the sewage go through the ground is the hole that was left when that pipe is no longer there. Typically, an Orangeburg sewer pipe park means you'll have to do a complete retrofit. Dirt roads in mobile home parks.

Another pessimist nightmare. When you have dirt roads in a park and let's define what a dirt road is. You have concrete roads, you have paved roads. You have caliche road-based roads, which still are professional road system although not nearly as admired by banks as asphalt and concrete. But then you have dirt road, which is basically where cars over the years drove over the grass so much all the grass died and you just have dirt. You have the very same thing as your road as you have in the yards or the yards have grass in them. Lenders hate dirt roads. Cities hate dirt roads. If you have dirt roads, it's a pretty good bet you'll have to put real roads in before you can get a loan or sell that park. So as a result, dirt roads, not good. High density/ small lots. What happens is a lot of these parks are building in an era where the biggest RV/mobile home in existence was eight feet wide and about 35-feet long.

In fact, you'll see one of those if you go to the MH/RV hall of fame museum in Elkhart, Indiana, and it's not worth the drive. If you're going down the highway, then maybe you could stop by. What you're going to find then is it's a density issue in many of these parks and you cannot put modern-sized homes on these tiny lots, and its all time worst. The fire marshal will not even let you maintain the lots you already have because they believe them to be a fire hazard. Really old homes and really new homes. These are some other negative things.

Really old homes would be homes to me that are pretty bad, 1960s, 1970s, and not 14-feet in width. Because you see, mobile homes have had this genesis from eight-foot width to 10 to 12 to 14 to 16, and even to 18. But the problem is homes that are less than 14-feet wide do not have satisfactory three-floor plans. Now you can maybe get away with it. They still make some 12-foot homes, which are called HUD homes, made by HUD to take care of people when they have emergencies. And those have been constructed to make the most of the only 12-foot width. But when you look at these old mobile homes from the '60s and the '70s, you're going to find them typically in anywhere from eight to 12-foot width dynamic and people don't like to live in those.

And when you have those kinds of homes, what happens is if someone runs off and abandons it and you have to rehab it and get somebody else in it, well, you're pouring money into something that no one really wants to live in. They only want to live in that home until they can find something better. So no one likes a park with a ton of really old homes. And really new homes have their own problem. A really new home will probably have a mortgage on it of 30 or $40,000, perhaps more. Now you have a customer who saddled...

$40,000, perhaps more. Now, you have a customer who's saddled with this mortgage and as you try and raise your lot rents, they have more trouble paying. Because they already have this really big obligation, which is the note. On top of that, if they stop making their note payment, well, their home will be repossessed, maybe yanked out of your park. So, we want homes that fall somewhere in between those categories.

Our favorite homes to see in our parks are the 1980s homes. Unsealed, 14 feet in width, good floor plans. Eighties homes, nineties homes and up, those are the decades that you want. A lot of park-owned homes that are in very poor quality that cannot be sold for cash or the total all-in home and lot rent is lower than the actual market lot rent. These, again, are items that any pessimist will smile, because these are terrible things.

If you have a lot of park-owned homes that are going to be money pits, where you're going to have to pour a ton of money into them, and even then no one wants to live in them. That's not a very good business model. When the market lot rent is actually lower than your current all-in home and lot rent, well, that means you can't really give the home away and make any sense of it all.

Hard to fill lots right now, yes. This is a pessimist's dream when it comes to filling lots. Simply because it's so hard to find homes that are properly priced. Now, I know everyone blames that on COVID, we blamed everything as a nation, now, on COVID. It's absolutely endless.

I had a problem with my alarm system. I called up ADT and said, "Hey, I have problem with my alarm." I got a recording saying, "Oh, we're sorry, but due to COVID, you're going to experience incredibly long waits." How in the world is that possible? We've lifted all the mask mandates, no one's even wearing masks in the city. Yet, ADT can't answer the phone, because of, supposedly, COVID? It didn't register with me.

I think what you're seeing there's a lot of businesses are using COVID as the blanket excuse for poor customer service and for large rent increases and large price increase. Right now, new homes are the highest they've ever been. It's not uncommon to have a park where you can buy homes for 30,000 a home and now you're going to pay 60,000 a home. That makes it hard on parks that have lots of vacancy to fill those lots.

New home prices are not only high, but used home prices are also equally high. The highest they have ever been. Why not? You see the same thing in the car industry. Used car prices right now are nationally, what? 10,000, 15,000 over what they were pre-COVID? Is that because of COVID? Nah. That's just people saying, "Hey, let's make 10 or 15,000 more profitability on those cars."

Home moving and setup costs. Once again, is it COVID related? No. There's people opportunistically saying, "Ah, well, you know what? I had a lot of the business before with my mobile home moving company, so I was going to jack the price up until people don't call me anymore." In so doing, many have doubled where they were at.

Then don't forget HUD's insane installation requirements and states that allow it, where you have to put down a concrete pad or piers or runners underneath the home. That's another way to drive prices up. There's weak markets out there that any pessimist is just going to never, ever want to buy in, because you won't ever be able to get over the fact that the market ain't going to work.

Why won't it work? Your population is too low. I'm talking areas where you do not even have a metro, but yet a county population that is sometimes not even in the thousands in size. Low housing costs has always been the kryptonite to our industry, so if you see low single-family prices and low apartment rents, well, who needs a mobile home park anyway, right?

If I can go buy a single home, like you can in some parts of some parts of Southern Illinois for 30 grand, why in the world would I need a mobile home? I could buy a house under mortgage, a two-story house for $50,000 and my payments on that home will be lower than just the lot rent in the mobile home park.

Also, if you have a market that has one big private industry, you probably already learned the lesson during COVID that you're in trouble. We prefer markets that are based on healthcare, education, government. Industries that are pretty much recession proof. Finally, no test ad demand. If you have a mobile home park, you're looking to buy it and you run the test ad and it doesn't pull any calls, well then, it won't pull any calls after you buy it either.

Unattractive markets, right? These are more and more things at any pessimist is going to unlock rapidly and say, "I'm not buying that park." An unattractive market, it could have cap rates too low, markets like California, particularly. It's hard to make sense in California of buying anything because how do you make any money with it? Parks have no upside the numbers, where the park is completely full of full-market rent.

Parks that are hard to finance, because they don't really meet any of the attractions that lenders like. Low cash-on-cash returns, has to make you wonder why would you even buy the mobile home park? Then, some parks, after you buy them, they have endless CapEx to pay, which means your return doesn't actually go up, but your return instead goes down.

How do you solve all these negative issues? How do you solve all these things that pessimists relish in? Number one, you're going to have to do great due diligence. Benjamin Franklin said diligence is the mother of good luck and it's true. People who do great due diligence rarely get saddled with big disasters.

Now, even the best due diligence isn't going to guarantee every deal will be just a dream. You may not hit your goals on occupancy, you may not hit your goals on revenue. Whatever the case should be, but you'll be close. In our industry, because the numbers are so strong, being close is still a good performance. But, you can't let yourself get stuck with some of these diligence issues that non-pessimists get into all the time.

Many of them find my number online and call me. I'll get calls from people who say, "Hey, my sewage, isn't working." "Why is your sewage not working?" "Well, I don't know, because I don't understand how it works." "Well, can you give me a clue, what kind of system it is?" "Well, I don't know. I called the city and they said, 'Well, we're not your sewer company.'"

"Well, do you see anything in an aerial?" "Yeah, I see this rectangular water thing." "Okay, well you're a packaging plant then." How could you buy something and not even know how the sewer works? You have many people who are foreign to the industry, they don't even bother.

You got to acknowledge what you can and cannot fix about mobile home parks. Some things can't be fixed. Some parks were not meant to be brought back to life, but they were meant to leave them to die. They will find a happier use someday, even if it's simply as a raw piece of land. Not everything in mobile home park land can be fixed.

You can't fix location, you can't fix density. There's just certain things you can't fix. Don't get emotionally involved with any deal. That's the great thing about pessimists, is they don't get emotionally involved. May not be good from a relationship perspective, but when you all the time think the worst about everything, then you never really that get that attached to anything.

If you don't get attached to a park, then you'll be a smarter buyer, because you'll do your due diligence and you'll stand back emotionless. Say, "Ah, at the end of the movie, even though I thought I would buy this mobile home park, I decided I'm not going to. Because it doesn't have a strong test ad, it doesn't have the right density. I don't like the numbers." Whatever the case may be.

Those who are not pessimists, they tend to get emotionally involved. They tell their friends and neighbors too early on they're buying the mobile home park. Then, when they don't, they feel crushed and humiliated in front of everyone, because lo and behold, they said they were going to do something and they didn't do it.

Now, what's great about being a pessimist is you align beautifully with lenders, because lenders are also mostly pessimists. It's very rare to find an optimist lender, because they didn't survive in the banking industry. The optimist, well, they make stupid loans that end up going bad and then they get fired. But, the pessimist, there's the lender that always is looking for the dark side to all of it.

"What could go wrong? Where's the storm cloud hanging above?" Pessimists, they align beautifully with banks. Remember that a bank doesn't get any of your upside. All the bank ever gets is your interest and hopefully their principle back. That's exactly who a pessimist is. Pessimists never worry about the good things, what the upside is. They're totally focused on the negative.

Only new deals that meet the Sam Zell formula of risk versus reward. If you've not read the Zell book, Am I Being Too Subtle? I heartily recommend it. It's like 20 bucks, you'd probably get on Amazon at this point used for, I don't know what it would cost, maybe $10. Is it worth 10, is it worth 20? Yeah, it is totally worth that much. It's worth far more than that. Sam Zell is the largest owner of mobile home parks in the United States, which means in the world.

He has spent his entire career working under the metric of risk and reward. His theory is that you would never buy a property with high risk and no reward. You would definitely always buy a property with high reward and low risk. Then you ponder really hard the ones that are high risk and high reward.

As a pessimist, you're probably looking and focusing on this metric all the time. Probably not on the reward side, but definitely on the risk side. As a pessimist, it would be rare that you would miss out on this, because to screw up Sam Zell's formula means you have to be an optimist who only focuses on the upside and never looks the risk.

Why would anyone want to buy a mobile home park then? If I'm a pessimist about the industry, which I am, why would I ever want to own one? What would make anyone want to stick their neck out and buy a trailer park? Number one, we have the highest rates of return that I know of in the real estate sector.

Now, there may be some things that I don't know about, I've never done Airbnb, so I know there's some new wave things that people may say, "Oh, no, I'm doing great with my Airbnb." I doubt it, but I don't know. But of everything I've ever looked at, which are all your normal things like single family and apartments and duplex. Retail and hotel and office and all those things, those don't hold a candle to mobile home parks. That's just a given.

Talk to anyone you want, talk to any lender you want who's made loads across the spectrum of asset classes and you'll see parks are the best. We are the only thing out there that has an attainable target of 20%. Why is 20% so important as a cash-on-cash return? Well, because when you're making 20%, you think you're a god, because nothing else makes those kind of rates of return. That's about double what the best apartment guy could hope for.

The fact that it is attainable, that it's possible, is what spurs people on to want to be in the mobile home park business. Also, one thing I love about parks is you get paid twice. First time you get paid is every month you collect in the revenue, you pay out the bills. Whatever's left over is yours. So, that's great. But then, after that monthly income, for however long you own it, then you go to sell it and you get paid, now, a second time. Because when you sold it, I get even more money in one big lump.

If I want, I can take all that money and go backward, since I bought the park and come up with my rate of return. Often, my rate of return is double with that final ending what it was, just by itself. Right now, with where America's heading with stagflation and all this other problem, it makes you happy to think you have a stream of income. But then, it makes you also happy to know at the end of the movie, you also get this final pop.

This is a big one right now. If you followed inflation today, oh my gosh. Is America screwed? It is so screwed. If you were around during the Carter Era, which I was, then you've seen this movie before. You're saying, "oh my god, I can't believe, I can't believe we're so stupid as to go back to the Carter Era." I can't, I mean, it is hard for me to fathom that as a country, we elected people that would allow us to go back to the most terrifying era, economically, in American history. But, that's exactly where we are at this moment.

You're looking at inflation that came out today at a 40-year high. It is absolute Jimmy Carter inflation. Jimmy Carter inflation doesn't work, not for most people, but it does work for park owners. Now, why would that be? Well, because as long as you can raise your rents in line with inflation, which right now means you'd have to raise them 8% a year, but we all know the government's lying. It's not even 8%. It's much higher.

They are already saying, "Well, when you kind of screwed up on those inflation numbers, it didn't actually take into account all the differences in gasoline." Right, of course. Because they don't want to say it's 10 or greater, because they know it's political suicide. You've got midterms coming up and if you had even one month of 10 or greater, you're doomed.

Well, it'll be 10 or greater before November, so that it's pretty much a certainty. It might be at 10% next month, but that means you have to raise your rents in your park by 10% per annum to keep up with it. As you do that, however, your debt on your park is fixed, much to the chagrin of the bank. If I bought a park for a million dollars, I put down 200,000, I have an $800,000 note. Meanwhile, inflation is rising to 10%, I'm raising my rents at 10%. It's going to really, really make that note really small 10 years later.

Real estate does well in times of inflation. In fact, when I was at Stanford as an economics major, I recall very well in one of my early books. I think I ripped the page out of it, I think I still have it in the file somewhere, with a highlighter on it. The only two things that work in high inflation are real estate and hard assets like gold and silver. That's about it. That's a positive for parks.

Warren Buffett talks all the time about a moat. I don't care who you are, optimist, pessimist, I don't care if you're conservative or woke or what you are. You have to acknowledge the fact that our industry, through sheer luck, has the perfect moat. What is a moat? A mote is what Warren Buffett says every good business has a moat to protect your investment.

Almost all of the good markets in America have not allowed mobile home parks since the seventies. I don't care where you go, in any state, you will find any city worth it salt hasn't allowed a new mobile home park to be built in half a century. No other real estate sector can say that. That is the moat. Will it ever change? No. It will never change.

Cities, as we already discussed, hate mobile home parks. For a city to wake up one day and say, "Oh yeah, all that vacant land we have? Let's put parks on it. Let's not put beautiful high-rise hotel/retail combos. No, no, no. Let's slam those trailers on that ideal bit of land." That is never going to happen.

Another bit of our moat is our customers really rarely move the home. It costs a lot to move a mobile home, five grand, 10 grand. The homes aren't even worth five or 10 grand frequently. As a result, no one ever moves around. We are very, very, very, very stable.

Finally, we are the only form of affordable detached housing in the United States. You want affordable attached housing? Well, it's not really affordable. It's going to be really gross and horrible and terrible and terrible location. You have neighbors knocking on your walls and ceilings 24 hours a day. Can't park by your door. No yard, nothing. Or, you can have a mobile home where you have privacy and you have pride in what you've got. You've got a yard and you've got neighbors that have been there a long time.

We are the only ones who can offer that whole detached affordable housing model. Doesn't exist as single family, other than us. The demand for affordable housing, once again, pessimist or not, you have to admit it is a sector-

... Not. You have to admit, it is a sector of the economy that is just blossoming and growing daily. Single family homes in the United States today average around $300,000. That's way too high for what Americans earn. That's not even close. We are a nutty nation. There's no way that's sustainable, long term. That's basically people who are just bounce around selling a home, buying a home. And there's no way that the young millennial today is going to be able to keep homes on this trajectory. But until that time, they are going to be just clamoring for mobile homes, in mobile home parks, because no one can afford $300,000, not starting out.

Apartments rent went up to $1,600 a month last year, up $400 from earlier averages. That's absolutely insane. How in the world is that sustainable? Look at what you get for those numbers. Terrify yourself. Look at some apartments. Go to any of those websites that show apartments available in your city. Look at the nothingness you get for or $1,600 a month. It's embarrassing. It's horrifying. We, on the other hand, are the only form of detached, affordable housing. We are the only thing.

Most parks have a huge amount of upside in the rents, in costs, and occupancy. I get criticized on this all the time. This is the very basic foundation of all the criticisms I receive in the media, is the simple fact that our mobile home park lot rates in America are absurdly low. I didn't create it. And I'm not the one who's changing it.

What's happening is, everyone out there is realizing, for all these many years, moms and pops were very poor stewards of the property; and they never kept the rents up to market. Sometimes they didn't raise the rents for decades, even during areas of high inflation. What were they thinking? I don't know. Were they thinking? All I know is the average US lot rent is $280 a month. And yeah, that's about $1,300 a month less than the average apartment. Yet, we're superior. Our product is better. People like it more than the apartments; that the same economic group that lives in the parks can afford to live in.

So the bottom line is, you could raise your rent up to $500, $600, $700, $800 a month in most markets, and you'd still be completely full. And you can can't pin that idea on me. Everyone is figuring it out. As people experiment, as rents go up, as people call out the simple fact, "There's no reason my park should be so cheap. I'm better than this." Then they get more money.

You see the same thing going on in the sports industry. I don't recall any of the football players on the Chiefs back in the sixties making $30, $40 million a year. And the same in the entertainment industry. In Studio Hollywood of the 1960s, there was no one making $20, $30, $40 million a film. But they realized they could command it, because they were worth it.

And that's where park owners are today. The modern park owner who's buying this has some professional background, and enough of a knowledge to look at all the other housing around them, and say, "Wait. That's stupid. I'm not going to be this cheap anymore. I'm going to raise my rent. I'm not going to gouge people, but simply bring it up to market forces."

On top of that, you have to remember, if you don't raise a rent to market force, then the parks will cease to function as parks. You couldn't put any money back into FX issues, and ultimately, you have to just redevelop them all. So it's just a fact of life that the rents are going to go up.

Also, submetering your water/sewer has become a very common item in parks today. Why? Because it makes total sense. Do you know anyone in America today who does not pay their own utility usage? I don't, outside of a mobile home park. That's about it. As a result, park owners have been submetering at a rapid pace. All the water/sewer at all these parks; is that a big cost increase for residents? To some degree, but it's a necessity. If they don't pay their own water/sewer, then they don't conserve. You can't on the one hand, tell me that America is all about conservation today, and on the other hand, tell me, "But you're not allowed to submeter and foster it."

Finally, most parks you look at are only at about 80% occupancy. It's kind of a nationwide average. Some areas, the parks may be at 20%, others may be at 100%. But it's very rarely to see parks that are fully at 100%. Most deals that we look at, most park we buy, there's typically a component of 10 or 20%, or sometimes even more of occupancy, which gives you one more level of upside.

Also, there's a huge variation in park sizes and price points and capital needed. We are a very inclusive industry. There's a park there for everybody. There are mobile home parks out there that have only four lots, and there's ones that have 400 lots. There's ones that have 100 lots, and there's ones that have 1,000 lots. What's the difference? Well, what can you afford? What are you willing to sacrifice or risk to buy the mobile home park? But regardless of what your budget is or your goals, there's a lot of parks out there. There's about 44,000 in the US, and there's always one that's going to match to you and what you need.

Also, it was very refreshing during COVID, to stress test America, and to find that mobile home parks are an essential industry; because everyone learned in March of 2020, that the government already had a master plan for you as a business. You were either going to prosper or you were going to die. I don't know who set up that list of essential industries. No one ever discussed it. It was never made publicly available. I don't know what it was, neither to you. I don't know why Home Depot was chosen to do well, and yet Hobby Lobby was chosen for destruction. Why was one able to be open, and the other not, even though they seemed to carry roughly the same equivalent products.

All I know is, mobile home parks, well, we passed it; because we were deemed to be essential. And in this nutty America we're in today, when who knows what tomorrow will bring, it's nice to know that we're thought of at least as being an essential industry.

Also, we have no technology threats. To me, this is a huge item; because so much of the things that I know as a 60-year old person that were big not too long ago, are now gone, because technology destroyed them. Think of all the things, not even if you are 60, 50, 40, maybe even 30; things that you grew up with, which at the time seemed industries that were going to be strong forever.

I knew back in this sixties and the seventies, if you wanted to be a big shot, man, just own a radio station, own a television station, own a car dealership. Where are those people today? Bankrupt. Gone. The empty buildings riddle the highways across America: old car dealerships, abandoned towers from old radio stations; because technology came in, swooped down and destroyed them all.

Housing is different. There's no technology to housing. You can't just slap some kind of newfangled high tech nest item on it that you saw off an episode of some show, an entrepreneurship, some gadget like Shark Tank, and render mobile home parks no longer essential, or even something that people need.

And you're in good company in the industry. I don't care how pessimistic you are, you have to acknowledge Sam Zell and Warren buffet are two of the biggest names in America. Zell is the only person to ever be the largest in three sectors: office, apartment, and mobile home park. He is in fact, the largest mobile home park owner today. Warren Buffet, we all know who Warren buffet is; but many people do not know that Warren Buffet is the largest manufacturer and financier of mobile homes in the US.

Financing has really come a long way since I've been in the industry. If were a pessimist in the nineties, financing was definitely on your radar screen. It was so hard to get a mobile home park loan back then. If you wanted a loan, you would have to literally beg, beg your local bank to, "Please do the loan." And half the time, they still wouldn't. It didn't matter how hard that you begged them.

Today, you've got seller financing, you've got regular bank debt, you have conduit lending, you have agency known Fannie and Freddy. And the reason they all love us isn't because they love the product. What they love is the low default rate. Because again, banks are pessimists, and banks do not like to lose a penny of their capital. And as a result, since parks rarely, rarely go bad; you rarely see a park in REO. As a result, banks love it.

Also, the industry, no matter how pessimistic you are, you have to admit, we are the least consolidated of all real estate sectors. If you take the top 100 owners, Sam Zell is number one, I think one of our Bootcamp attendees, Abraham Anderson, is number 100. If you add up how many parks, number one through 100 owned total, it doesn't even add up to 4,000 parks. How's that possibly, you might say?

Well, look at... Les only owns a few hundred. Sun Community is the second largest; they only own a few hundred. It's not hard. It's not hard. Do the math. Just look at the list. The list is right there on maq.com, the top 100 list. And look at the numbers, look at the stats, and add them up; and you won't even get to 4,000. Yet, there's 44,000 parks in America; that means that less than 10% have been consolidated.

Now, why is that? Because we're not that young; parks have been around for about 50, 60, in some cases, 70 years. So why is it so unconsolidated? Well, it goes back to the earlier slides we had this evening, which are basically, there's a lot of hate out there, a lot of negativity. A lot of people won't look at the industry, because it's like, "Ooh, I don't think I want to get involved in that. It's got all kinds of negative. I want to be a happier thing. I know, look. HGTV. Everyone's so pretty. It's so happy. I know I'll buy and flip houses." So our industry, however, since it's never had positive treatment, most of them will think about it. So most of the parks are still in the hands of the original moms and pops.

We are a very simple business model to do great due diligence on. So, even if you are a pessimist who thinks that it's hard to ever get a true handle in anything, you can get a handle with our industry. It's very, very easy to rebuild the P&L from scratch, using only actuals and third-party numbers; so you don't have to trust the seller.

I've always been criticized from my quote called the Waffle House Quote. It's just ridiculous that the media cares about it. It's dumb. But I was talking to a journalist about the reason that mobile home parks rarely default, and restaurants default so frequently. And the moral was that the restaurant opens their doors daily, and doesn't know if anyone's going to come in. And yet, the mobile home park opens their doors daily already knowing their exact customer count.

So when you buy a restaurant, what are you buying? You have to trust the seller. You can't possibly know how many people were in the restaurant the last 12 months. It's a complete unknown. However, mobile home parks don't have that degree of uncertainty. So even as a pessimist, you can do great diligence with others' stuff.

So can a pessimist be happy with mobile home park investing? And the answer is, it's completely up to you. The question is, "Can you be happy with it?" I simply have provided you here the facts, the true facts, the negative facts on the industry. But you have to decide whether it works for you. You may say, "Nah, I don't know. I like happier things." Well, that's fine. But you may say, "You know what? I really want to make a nice financial decision. I want to create an additional stream of income. I want to build some kind of large asset base for my family." And if that's the case, well then, mobile home parks may well be for you.

It's never, ever wrong to ask tough, pessimistic questions. You have to understand the risk and rewards on a micro scale, and on a macro scale, to see if something matches your goals. There's nothing in the world worse than getting involved in something, only to later find out that the information you had was not based on reality. You didn't learn any of the hard traits. All you heard was the good stuff.

It'd be like someone who applies for the army because they see nothing but beautiful posters of all the fun places you'll see, you get to play with all kinds of cool gadget; but they don't tell you you have to go to a boot camp, and they don't tell you you have to live on the base. And they don't tell you you have to live in a giant barracks where people can snore all the time. And then, you might sign up and say, "Oh man. This isn't what I thought I was getting into."

So when you're looking at investing in mobile home parks from the outside, don't be afraid to ask tough questions, and don't be afraid to dig through piles and piles of content. God knows we have enough on MHU.com to last you forever. Look at stuff, and just decide, as a pessimist, does this thing work for you or not? Because I'm a pessimist, and I like the industry; but you may not, and I respect that.

In sandy America today, we cannot have opposing viewpoints. We have to be all on one team or the other. But if you look at the park industry, and you say, "Oh gosh. I don't really like it after all." You're not going to hurt my feelings. It may not work for you, but yet, it may work for you. And that's the important part, is that you find something out there in the world of investments that is a good fit. And I think it's a good fit for a pessimist to be a mobile home park owner.

All right, we're going to open up to questions here.