The correct time to buy mobile home parks is when interest rates are high rather than low. That’s because high rates – if used as a tool – can create even higher overall yields. Look no further than 2009 to see how some of the best park deals in history were forged during the high interest rates before quantitative easing kicked in. Frank Rolfe led the discussion and gave factual evidence on how mobile home parks have handled high rates in the past, with examples from his 30+ years in the industry.
Following the discussion there was Q&A from the audience.
If you want to learn how to make high interest rates work in your favor, consider our upcoming Mobile Home Park MasterClass on November 7th and 8th, 2026. It’s a live, immersive two-day event with Frank Rolfe at his personal home in Missouri, covering the hidden science in mobile home parks with Q&A throughout.
Why High Rates Are The Right Time To Buy MHPs - Transcript
Welcome, everyone. If you're buying a mobile home park, you're typically targeting a 20% IRR, or for others who don't know how to calculate IRR, at least a 20% cash-on-cash return. And a big part of hitting that high level of results will be somewhat tied to interest rates. And we, for the longest time, had very low rates, but now suddenly rates have gone up significantly. So the question many people have, many investors in mobile home parks is, how do I work around this new higher rate environment? And additionally, what is the future direction of rates? So we thought it'd be interesting to have just an educated discussion on interest rates, where they're going, how they change, which we've titled "The High Rate Playbook."
So let's just jump right into it. Now, we'll start off with a quote by Abraham Lincoln, not known for his futuristic quotes. But Lincoln once said, "Whoever wishes to foresee the future must consult the past." Because that's the only thing we really have to make an educated guess on interest rates, is how markets have performed in prior decades. And the good news is all of that information is tracked, so you can, on your own, go to AI, and you can ask AI many wonderful interest rate questions, and it can produce the answers and even graph them for you. And I urge anyone on this discussion who is suddenly getting more intrigued on interest rates to do that, because it's never been easier than it is right now by virtue of AI to see what happened in the past.
And I would also like to remind people that we've been in this low interest rate environment for so long, that unless you are at least in your late 40s to 50s, you don't recall an environment with higher rates, because rates started to decline all the way back in about 2008. So we're nearly 20 years beyond that, and for you to own a business or a property, you were probably already in your mid-20s. So if you're not 45 and older, you probably have no idea what past interest rate cycles have looked like. So we think you should also take note. So here is a graph that I pulled for everyone, which shows you interest rates in the US for the past 150 years.
So this is what all the interest rates have looked like, not from the founding of the country, but not very long after that. And you can see here that the highest interest rate we ever had was in 1982. It was a whopping 14.6%. And the lowest was in 2021 at a whopping 1.1%, and we were at a 4.5% average.
And this ties very closely to those book nerds like myself that often buy old books on different topics, banking, interest rates, and if you buy those books and go to the back, there's an index at the back, and it shows you interest rate tables. Because before calculators, you couldn't come up with what you would have to pay monthly in interest if you were to borrow money. And you will note in those old books, the interest rate calculator at the back, which shows you put in the principal amount, it tells you how much the interest is. They don't have any interest rates between other than 5 to 10. They have nothing lower than 5, and they have nothing higher than 10.
So for the longest time in America, we always assumed rates would be roughly around 5%. And you can see from that chart why people kind of, sort of thought that, because that is the standard range. But again, you see we've had extremely high peaks back in '82 and extremely low lows in 2021. But what do you notice from that, just to begin with? You notice interest rates go up and down.
They're not just a flat horizontal line right across the page. So we have to assume that interest rates have historically, and will going forward, move in cycles. They go high, typically you have a recession, and they go down, and then they come back up again, and you have another recession, and then so on and so forth. So that's the first observation of interest rates are they run in cycles.
Now, there are basically four big observations from that chart, other than the fact that they do run in cycles. You will also note that interest rates decline. If you take everything I just showed you, and you go starting in 1950, and you identify every top of the market and then every bottom of every economic cycle, so in other words, the boom to the bust, back to the boom, and you average them together, you'll see that interest rates have traditionally declined two to three points during each recession.
Now, to come up with that number, I also equalized the crazy peak of the '80s, up when interest rates shot up into the teens. And the reason I took that out was that, I believe, was a historical anomaly. Now, you might say, "Wait a minute, if Lincoln is saying to see the future, think of the past, then we have to assume rates can go there again." Rates can't go there again.
If you study up on what happened when the rates went up into the teens, that was during Ronald Reagan. At that time in history, we had less than $1 trillion of debt. So we could afford as a nation to raise those rates up to infinity, and there was no pain and suffering on the government's part. Today, we are the largest borrower in the world. We have 40 trillion of debt, roughly. And the interest on 40 trillion of debt at a mid-teens interest rate would wipe the country completely out. We only bring in total receipts annually at the federal government of about 4 to 5 trillion.
And the minute you exceed where we're currently at, which we can't even afford, which is about a trillion and a half of interest, the country would go completely insolvent. So I'm just kind of figuring that that great peak that we saw under Reagan, which was a great thing at the time, it saved the country from ruin, but it cannot be replicated. So when you take that one out, you still come up with a two to three-point decline in interest rates during recessions.
Also, the high side of rates, the average has run from about 15 to one, but when you average them, you end up at about a 5% number, roughly, historically. And the Great Recession was also a huge anomaly, if you look at the chart, because we'd never seen interest rates that low since the country was founded. And there's no way you would ever see those again in the absence of extreme market manipulation. And some would say maybe Obama went a little crazy when he started to do quantitative easing, driving the rates down so very low. But I'm sure the government at that time thought we were in such desperate measures that if they didn't do something huge, everything would simply collapse.
But the interest rates became so low and stuck so low that many of us just thought, well, the rates just appear to be forever nearing 1%. And clearly, that's not true because rates have now gone up roughly, what? About four or more than 4% at each points. So clearly that was the bottom. Maybe forever was the bottom at roughly about 1 point something percent, and then the top was in the mid-teens.
So let's move to the next slide here. So when you look at the thing and you look at recessions and you look at booms and everything else, you see that typically interest rates today are the object of manipulation. They're not based on free market. That's just a fact. If you look backwards when we were able to lower rates as a nation in the past, it wasn't just because we went into a recession and the market said, "Oh, people don't want to borrow out money anymore. We lower our rates and still find people that want to borrow it." No, what happened was we went down the pathway of quantitative easing. That's the big one. But we did this artificially.
So the country, the government, Federal Reserve, the Treasury, all of these players at the appropriate time when the economy is in the dumpster, make a move to try and keep the country's economic system from complete collapse. So you start with the recession, which is two consecutive quarters of negative GDP. Then comes the intervention, when the government says, "Uh-oh, we are in a recession. We better do something. Let's buy our own stuff through quantitative easing." That's how you get the lower rates. So when you look at interest rates, you say, "Well, when will rates go down?"
The real question is, when will we have a recession? Because it's a recession that leads to lower rates. That's just the way it works. It's not the free market that does it. So that then begs the question, okay, well, when does the next recession hit? Because if interest rates are manipulated by the government based on trying to keep the economy going, trying to jumpstart the economy, then the only real thing you need to know is when does the next recession hit? That's the big issue. So let's just look at what some of the experts say. Wall Street Journal, they're predicting possibly next year. Mark Zandi, I'm not even sure even who this guy is. These are the experts out there on interest rate movements. He's thinking we're in a recession soon. David Rosenberg, soon. Goldman, Kalshi, everyone predicts our next recession is going to come in next year or maybe the year following. No one is predicting that we will fend off a recession for very much longer.
So you're going to have to look really, really far to find someone who is a notable expert on interest rates who says, "Oh, no, we're fine. We're nowhere near a pending recession." Pretty much everyone across the board thinks we're about to have one. They just don't know exactly when. Many people were wrong. They thought it would happen this year. But most people are now saying, "Wait, we got that wrong." You're not going to have a recession probably in the year with midterm elections. It's going to come after the election. But most people are thinking it will happen within the next couple of years.
So then if we assume that we will have a recession in the years ahead, if we assume based on past history that interest rates decline about two points when you have a recession, then how do you harness this knowledge? How do you harness this educated guess to make money with mobile home parks? Well, if you have ever bought mobile home parks, if you've been in the mobile home park industry in prior cycles, and let's look at one of the most severe, Great Recession and the plunge in rates then.
There are some observations you have of how markets behave during these periods. One is, to buy something, you can get seller financing with a lower rate. We did a lot of that during those periodic high cycles, and you can do it even today. Because the seller who really wants to sell is probably going to say, "Wait a minute. I'll wait till that recession comes. I'll wait till the rates go down and then I'll sell. But gosh darn, I want to sell it now." And you say, "Well, this is the most I can pay based on its net income, but to hit your price, you'll have to carry the paper at a lower rate than what currently the market rate would be."
And many sellers are going to do that. We've done a ton of seller carry over the decades, and the main reason they do it is they make more money carrying than if you pay them in cash. If they carry, they might get 5% or 6% interest, and they can't achieve that right now in any other investment, at least not any investment paying a cash dividend. So that's one thing you can do, is you can just push people during this high interest rate cycle to carry paper.
Another thing you can do is you can only buy deals that work with bank debt, which means you're going to be paying lower prices. Because right now, to clear the trees, to offer that 1.2 to 1.3 debt coverage ratio that banks are going to want, to hit that DSCR, you're going to have to be paying a much lower price than you would when interest rates were lower.
And that's not a bad thing either, because you're going to be buying things at a lower price. And the third option, which a lot of the larger players, private equity groups and stuff have been doing, is they just put a lot more capital down. Because at the end of the day, you can't get around debt service coverage ratio. This just means you take the amount of EBITDA the park produces, and you look at that as a ratio to what the mortgage payment is. And most banks want you to be at 1.2 or 1.3 times that, and they're not really going to waver from that. They're not going to say, "Oh, no, we'll make an exception for you. The bank's policy is 1.25, but for you, we'll go with just flat one." No, it's not going to happen.
And when the seller will not carry the paper, when the seller will not lower the price, the only option you would have if you really wanted to buy that property is to go ahead and put more capital down to bridge the gap. Because the loan that the bank will give you is only, let's say, this much, and the seller wants this much. Well, this gap has to come from somebody, and it would have to come from you. There are a lot of deals that are being done right now in the mobile home park arena that are being done at 50% loan-to-value, as opposed to 70% to 80% loan-to-value, and yet the buyer's happy with this.
Because they know that by pushing rents and by filling lots and by cutting costs, coupled with lower rates they can refinance into later, the deal still pencils. But you'll notice of those three options, two of those are pretty attractive, because everyone likes seller nodes, and everyone likes paying lower prices. So periods of high interest rate do have one benefit, which is two of the three ways you can buy parks during that period are more attractive than what you get when rates are lower. Now, again, you cannot get around debt service coverage ratio. And most banks want a 1.2 to 1.3 on your mortgage payment.
And so what that means is this is set in stone. You can't do much otherwise. So clearly, interest rates have a lot to do with park valuations, because that mortgage will be significantly lower when the interest rate is lower, and obviously higher when it's higher. It's the same thing you see in single-family homes, when people try and buy a single-family home, and now suddenly they can't qualify because their income isn't enough to cover that mortgage at, right now, let's say 7.5%. But it was able to back when interest rates were at 4%. So there's definitely a correlation between interest rates and park values. And when rates are high, then values become lower.
Now, the truth, for those who've been through the cycles, is that you can use higher rates as a tool. A lot of people look at higher rates and they say, "Oh, I don't think I want to buy because the rates are too high." No. You should actually embrace the rates being high because that gives you the tool that creates the opportunity. So you can negotiate for a lower price using the DSCR as your cover. Saying, "I'd love to pay you more for your mobile home park, but I can't.
Why? Because the bank says I can only borrow money at a certain debt service coverage ratio, and this is as much money as a bank will loan me based on your existing net income." 100% true. Not telling any lies there at all. It's just a simple fact, and that can be a great tool for you. A lot of times when negotiating with sellers, one big issue is trying to have them embrace what the fair market price is, trying to figure out what's going on. We've had bankers call sellers before and saying, "Look, I can't do a loan at this price. The price couldn't be more than this." Or you get an appraisal and you say, "Oh, well, you've got to match this appraisal. I can't pay more than this appraisal value."
So basically, when you have higher rates, what are you going to get? You're going to get lower valuations. That's good. Also, if you buy a park when the rates are high, then when the rates go down, you look like a total genius. Case in point, if you bought a mobile home park prior to the Great Recession, so if you had bought a mobile home park in the year of 2006, and you pay at a low value because rates were high, and then they stop doing quantitative easing, and the rates go down and down and down and down and down, you look so smart. Because to get a 20% cash-on-cash return, you need a three-point spread between the interest rate on the loan and the cap rate.
And suddenly, you just bought the thing and you haven't done a thing with it. You haven't raised the rents or filled any vacant lots or cut any costs. But as the interest rates go down, the values go up. So when you buy in a high interest rate environment, you typically end up looking smarter than if you buy when rates are lower.
So if you say, "Well, I'm going to buy a mobile home park when the rates go down," well, that's not where you want to be. You want to buy when the rates are high, so you can ride them down. You don't want to buy when rates are low, and then ride them up. And then finally, a big tool of high rates is it gives you a better chance to push sellers into seller financing. Our absolute favorite way to borrow money is seller carry, without question, because seller carry is non-recourse. Seller carry, typically a lower interest rate than what you would normally pay. Down payments can be low, all the way down to zero. We've done like seven zero down deals. You don't have to get any really expensive third-party reports done. You need to get enough to cover yourself, but some of the things banks do are excessive.
And you have no real closing costs. You don't have to hire an attorney to review the loan documents. You don't have to pay any points. So seller carry, which is our favorite type of financing, is more prevalent when the rates are high. Now, let's look at some real estate values since the Great Recession began. Because right now, the interest rate movement that we're seeing right now is historic. It's some of the biggest that we've seen.
So the whole playbook in our business is obtaining a three-point spread. And if you do the math, and I don't care where you start from, what cap rate, or what interest rate, if you have a three-point spread, you're going to get a 20% cash on cash return, roughly. The way the formula works is a one-point spread between interest rate and cap rate gets you about a 10% cash on cash, and a two point gets you about a 15%, and three points gets you about 20%.
And that's always been the playbook for every real estate investor ever, is we all use leverage as the tool to get the higher yield. If you bought, just using this example, if I paid all cash for the mobile home park in that example, my total return would be the cap rate, which is only 10%. But by using leverage, I am able to boost that from 10 to 20. I'm able to double my return through the simple use of leverage. One of the key reasons that people use real estate to begin with is the readily available tool of leverage, which you don't typically get in small businesses and things like that.
So if you buy a mobile home park and then the rates go down, what it's going to do is it's going to spike your spread, and it's going to make you look incredibly smart. And then additionally, you pack on top of that, raising the rents and filling the lots and cutting the costs, and you have some of the most profitable deals of all time.
If you talk to people who are buying mobile home parks prior to the Great Recession, you will be talking to people who all are very, very happy. Because many times as those rates plummeted, the values of those parks went up quantum. Two times what people paid, three times what people paid, just depending on what rate you bought at, and then how far those rates fell.
But riding interest rates down has always been one of the most profitable niches of the mobile home park arena. So here's pretty much the playbook then. If the whole point of this is what is the high interest rate playbook? Here's the playbook. Number one, you keep on seeking out deals that hit your threshold of price and location in the entire IDEAL system, which for those who don't know what the IDEAL system is in park buy, it is infrastructure, density, economics, age of homes, and location. So effectively, don't lower your standards. Keep looking for exactly for what it is that makes for a good mobile home park investment.
And then negotiate the price downward due to the reality of your debt service coverage ratio and push sellers to carry the financing. The two big negotiating benefits of higher rates, lower price, seller carry. Then do great due diligence and model the impact. And what will happen is you push those rents and lower the cost, which is typically sub-metering water, sewer, maybe replacing the manager, and filling vacant lots.
So let's get all of that modeled. And then we got to get a loan, we got to get the tool, got to get that leverage. And the deal, if it's incredibly attractive, if the IDEAL system tells you, "Yes, this is something I want to put my money in. I feel this has a very good likelihood of hitting a 20% cash on cash or IRR return, and I feel really good about it," then you can step up to the plate in the event the seller won't drop the price and won't carry the paper, and you can use a lower loan-to-value. So you can model it and say, "Well, I was going to buy with only 20% down, but to make this deal happen, I'm going to put 50% down."
And then enact your plan while the interest rates go down, and as part of their natural cycle. And the deal you modeled to get a three-point spread through interest rate, coupled with the raising rents and cutting costs and filling occupancy. If those rates go down two or three points in the recession, you won't end up at a three, you'll end up at a five or a six.
And when you get to a five or six, your rate of return is insane. If you are 20% at a three-point spread, at a six-point spread, you're going to be up there like in the 30s and 40% returns, which are epic, groundbreaking, and can only be achieved if you buy mobile home parks when the rates are high. So the bottom line to it all is people have everything backwards, in my opinion. They think, "Oh, I'm just going to buy the mobile home park when the rates are low." But the truth is, the best time to buy mobile home parks is when the rates are high.
Now, those of us here on this call who have ever owned apartments, or if you're a big apartment player at this time, you're going to say, "Well, no, this doesn't work for me because gosh darn it, if I buy stuff at these rates, I'm not going to make any money." Right. Well, the apartment industry is a disaster right now. It has fallen off a cliff. 8% of all apartments are in default.
That is the highest level ever. The level was only about 5.4% of apartment loans in default after the Great Recession began, and we're not even in a recession yet. So how is that going to work out for everybody? I don't know. The problem with apartments are they built 2.5 million new units since the year 2020. They swamped the market. The failures originally were Class C. Now they've spread into Class A.
Blackstone recently had their blackjack portfolio go into workout phase because they were unable to find a bank to replace the loan. So in these other asset classes, no, you can't be as aggressive in buying them as you can with mobile home parks. But in the mobile home park arena, where our demand is fairly steady and our ability to push rents is large, as well as to fill lots, then you can do some more extreme buying. And additionally, for those who say, "Well, what do I do in the recession? Because won't my revenue fall off a cliff?"
This is the most interesting aspect of mobile home park ownership. Mobile home parks are basically contrarian. They perform better when times are bad. Now, you might say, "Why would that be?" Well, because when times are bad, people need cheap places to live. So our demand actually goes up when times are bad. Most of the other real estate sectors out there, if you said, "Well, I'm going to go ahead and buy something and wait for the recession or the rates to go down," well, it's not going to work, because when you hit the recession, that strip center you bought is going to go vacant. So is that office building. So is some of that self-storage.
All of these different asset sectors other than mobile home parks are not contrarian. They're reliant on prosperity. But with a mobile home park, when times get bad, things get better. If you talk to people who owned mobile home parks back during the Great Recession and the early part of that, if you went to an industry convention like MHI in Las Vegas, people were just the happiest they've ever been.
I hear people going around saying, "Yeah, keep voting for bad leaders. We want this recession to go on forever. We're loving these low rates, and we're loving all of our additional demand." So that's another reason you can play the interest rate game with mobile home parks when you can't do it with the other sectors, is because when we hit the recession and the rates drop two or three points, we're the only sector out there where you can still keep your stuff full, you can still raise rents, you can fill your lots. All of those magical things that are part of the playbook, those all still work.
But the key is you got to understand the fact that high rates are a good time to buy and not a bad. And now we're going to go ahead and do some question and answer. Also want to remind people the last live event we do of the year, we only do this a couple times a year, the master class, which is held at my house in The Dining Room, right there in the picture.
We're holding that coming up on February 7th and 8th. I'm sorry, not in February, November 7th and 8th. So just coming up here in about a week or so. If you want to attend that, let Brandon know. We're going to discuss lots of topics like interest rates and the whole greater playbook of the industry, like the whole ideal system. So if you want more adult, educated discussions on the correct way to identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn around and operate mobile home parks in an in-person setting, then I would invite you to come to the master class. And we've got a lot of questions here already, so let me just go over here to the questions here. Just a minute.
First question, "When you have to put way more down to make a deal work, do you usually just write a bigger check, or do you bring in a partner? How do you decide?" Well, it's always a personal decision whether you want to buy things on your own or with a capital partner, or in a bigger way, beyond a capital partner, you might even do a Reg D fund or something that would even raise much more massive amounts of capital. But to me, the key would be, I would much rather own 50% of a really good deal than 100% of a very small deal. So it's entirely up to you and your preference. Now, the negative of having a partner is just that, because having a partner can be scary. Now you have to deal with the partner, and what if the partner gets weird? And we always encourage people to get buy-sell agreements and write really good operating statements. But getting capital for a bigger deal has never been a bad idea. If you look at even the REITs, if you look, for example, at SUN, which is the second-largest US mobile home park REIT, that started as a hobby business of a doctor, and it just grew, and it grew, and it grew, and he kept raising capital, and he eventually went public and stopped being a doctor.
But that was his preference. He could have stayed a doctor and just bought mobile home parks on the side. I think a lot of whether you want to raise money is also based on how big you think the opportunity is. And if you think that there's a big opportunity to buy mobile home parks, if you feel like you have the skill set to do it, then yes, I would probably raise money to do it bigger. But again, it's personal preference. I know a lot of people own just one mobile home park or two mobile home parks, but then I also know a lot of people who own portfolios of parks all the way up to people who have partnered with private equity groups to raise tons of capital, done a Reg D, and of course, some who've even gone out and formed REITs like Flagship over in Canada.
Go to the next question here. Hold on. Question, how do you usually structure the seller carry when they'll do 6% to 7%? What terms do you push for so you're not stuck if the park doesn't hit the numbers? The big items on a seller note, traditionally, because you don't want to buy a park that you do not feel strongly will be a success. So this isn't like something you want to basically get out of. But at the same time, there are some benefits to a seller carry, and there's also some pitfalls.
The main benefit is it's non-recourse debt. That's huge. You always want non-recourse. You do not want recourse debt if you can help it. You're going to get typically a fixed rate, whereas some lenders are going to want a variable. This will be fixed. You'll get a lower rate than normal. You can often get a lower down payment than normal. And those are all great things. But there are some pitfalls to seller carry. One is when you do seller financing, particularly if you don't know what you're doing, you could get in trouble because the lender acts kind of like an additional guideline to make sure that you don't make any rookie errors.
So the bank will get an appraisal. The bank will look at your stuff with a jaundiced eye, very pessimistically, looking for mistakes in your calculations and your business plan. You will not have that scrutiny with seller financing. And if you buy something and it's got flaws, like it's got flaws in the title or the survey or whatever, then you probably wanted a bank to be looking over your shoulder criticizing you to stop you from doing that.
Another problem with seller notes are they typically are not fully amortizing, and by that I mean they don't go 30 years or 25 years of length. They normally go 5 years, 10 years. If you're going to do a seller note, it's got to be at least five years. Sometimes sellers will say, "Yeah, I'll carry the paper for just a couple years." That won't do you any good. Typically, you want to give yourself a whole year to get something refinanced.
So if we assume that we need a year to get refinanced, and it's a two-year note, I have to start the refinancing project within only 12 months. How much can I really do to that park to enhance the value in 12 months? I could do one rent increase. I might be able to sell off, I don't know, six homes, maybe 12 homes.
But then the other problem is the next lender, they're going to want to see a track record of performance. You don't have it. You've only got these things accomplished over a matter of months. So a seller has to carry it for at least five years, or it's not really a seller note. It's more like a mousetrap that will come clacking down on your head and killing you. And if you can get to 10-year, that's even better. Here's a tip for you. If you can only get to five, see if you can include in the documents the ability to buy an extension. This is a one-time payment of down payment on more capital if you need it five years in the future.
You might be able to buy yourself another couple of years. As interest rates do run in cycles and the economy runs in cycles, you don't want to be going out to market to refi your park at the wrong time. And if you can get yourself the ability, if you do expire five years into the future at the worst moment ever, it would give you another two years to wait for the market to get better.
Go to the next question here. Hold on. Got a lot of questions here. Hold on. Next question. I'm trying to buy a campground. The sellers want $1.5 million. They owe $675,000, $673,000. They will carry $400,000 at 5% because they need cash to open a different business. We have $450,000 to put down. With their gross expense ratio, we offered 1.4, which gets us a 9.2 with our credit union loan at 7.25%, blending with a 5% carry to give us around 6.16% interest. We are squeaky with the three-point spread. We went up to 1.45, and they are still saying 1.5. Do we increase our LTV with more cash?
Nervous about not having a three-point spread. Well, I'm more nervous about this being a campground. So, we own mobile home parks, and we own RV parks, and we own mobile home parks with RV sections inside of them. So we're pretty familiar with the RV and campground industry. And the problem you're going to have on this is mobile home parks are a necessity. When we have a recession, the demand goes up. RV parks are not. They're a luxury. So if we're banking here on the rates going down to make our whole deal work, you got to buy campgrounds with a lot more juice than that.
So I would urge whoever did this question, I would reach out to some of the loan brokers. The first one that comes to mind on a deal like this would probably be Security Mortgage Group. Their number is 585-423-0230. And I would tell them you're looking at buying an RV park/campground, and these are the numbers, and can you get me a loan?
Because you need to find out in the big picture, years down the road, what are these things really coming out to? In this deal, what you're doing is you're tying the numbers together by getting the seller second. But when that goes away, will the numbers tie? So you need to get a more educated idea on the lending side of this, I think, as the macro whole. There's another guy named Bruce Hurta, H-U-R-T-A, who does campground RV lending. I would also try and reach out and get his opinion on that. But that's what's scaring me here. Then I'd be a whole lot more gung ho than the fact it is a RV park campground.
So I don't want you to get in trouble with that. So I would definitely get some further information on the debt side of that. Go to the next question here. "If rates just stay high for another year or two, does the playbook still work, or are you mostly just waiting?" Well, the playbook works because you're still buying parks with the assumption that through pushing rents, cutting costs, and filling vacancies, you can get to a three-point spread, and then you're just going to ride the elevator down.
But none of us know what we're looking at as far as the triggering recession or even after the recession hits, how long it will take the government to start doing their manipulation. So you could be completely wrong. It might not be one year, it might even be two year, it might be three years from now. But the whole point of it is if you're still out there buying during these kinds of moments when the rates are high, you'll still have the luxury of riding the rates down.
So I don't really care if you're buying right now and everyone's wrong and we don't have a recession and manipulation for four years because you still have a plan to get to your three-point spread without any change in interest rates. So you still have the luxury of time. You can still wait for that to occur. Go to the next question here. Hold on.
Next question. "What is a reasonable offer to make or include to the initial document to buy out a 50% more or less partner?" Okay. Well, there are a number of things you need to know about partnerships, some of which are just esoteric and others are more objective. So esoterically, you have to assume in any partnership that any number of things could occur. That person might get weird over time. We all have heard the expression, the seven-year itch. People often change over a seven-year period. But you could also have a partner die, right? You have every reason in the world to have the ability to end a partnership, just as we in America have the concept of a divorce to end a marriage. But I am horrified at how many people call me trying to end a partnership, and they can't because they have no written document in their partnership agreement how it could ever end.
The standard ending that you would want to have in most of these agreements is what's called a buy-sell agreement. Now, a buy-sell agreement, if written correctly, is something which presses both parties to be very fair. Because if someone makes you an offer for your portion, you have the corresponding right to buy them out at the same price.
So when you have a buy-sell agreement, people typically don't lowball because they know that if you offer someone a penny on the dollar, they can turn right around and buy you out for a penny on the dollar. So it tends to keep everybody honest. But you definitely need to, if you're going to do a partnership with somebody, you need to put a lot of thought into it. I would go to AI and ask them to give you every devil's advocate possible screw-up that could occur, and I would probably seek out, at least, even if you draft something yourself, someone to make sure, based on your state law, that that partnership agreement is going to work, particularly on dissolution of the partnership.
But buy-sell has always been kind of the standard. Go to the next one here. "When the rates drop and you want to refi the seller notes, how do you avoid getting crushed on prepayment or losing the good terms?" Okay. Well, when the rates drop, you're not going to immediately just refinance a seller note. Typically, what you do with seller notes are you typically pay the seller off about five years down the road. And here's why.
With a mobile home park, it's one of the only real estate things out there that can do this. If you can boost the NOI up 50%, so in other words, you buy a mobile home park with a $100,000 a year net income, and you can boost that to $150,000 net income. So if you go up 50%, then you can typically do what's called a cash-out refinancing.
That means you can go ahead and refinance it, get all your capital back out, and yet still own the property. And that is so attractive to most buyers. Why would it not be? Because you're able to take that asset, and rather than have money tied up in it, you have nothing tied up in it, which makes your rate of return effectively infinite since you have nothing in it. You could then use that capital to go buy another property, but more importantly, you have something that's beyond just your seller non-recourse. You have no recourse at all. You have no risk and no money in the deal whatsoever. The only risk you would have is if you committed bank fraud to get it, then you would have the fraud carve out in your loan. But assuming you didn't commit fraud, which I hope you would not, the cash-out refinance is a wonderful end result. And it takes most people, many people, about five years to get the NOI up by 50%.
But what's kind of crazy in our industry is it's pretty normal for almost everyone to increase the NOI by 50% within about five years. And that's when you typically pay the seller off. Now, correspondingly, that's pretty close to when most seller notes come up, right? Often they're five years, maybe the option to buy a couple years beyond that. So it's kind of win-win for everybody. The seller got that nice steady monthly income for the period of time, and you got when you first bought it, a low interest rate, maybe a low down payment, and a non-recourse loan. So it's a match made in heaven. But you're not going to get crushed on the prepayment because typically seller notes don't have any prepayment penalty.
But yes, you will get terms that are not as attractive, often in interest rate, as you will at the bank. But you get one big one, which is you get all your money back And that's the key driver why people do that. Go to the next question here. Hold on. Next question: How do you build a successful deal for a heavier value-add property in this environment? The banks won't finance the poorly managed park, and the desperate seller can't finance it, or else they wouldn't be desperate. Well, no, I would have some counterarguments on this. Let's first say the banks won't finance the poorly managed park. There are banks that will finance the poorly managed park.
PEP, Performance Equity Partners, the people that everyone knows and use and love, that finance mobile homes to fill vacant lots, they also do park financing, and their niche are parks the banks don't appreciate. And they act kind of as that shock absorber between when you buy it and when you get it ready to go on to the next level of lender. So there are banks that will do those heavy lift turnarounds, high vacancy, poor collections. That does not make them completely illiquid and impossible to borrow. Now, that's assuming there's a plan to get them out of that rut.
So it can't just be that the market's bad or the private utilities are failing. But if it's regular, just poor management, which the bank agrees can be solved through good management, then you probably can find a lender for that. But what makes a seller desperate typically is they just don't want to do this anymore. And so as a result, since they don't want to do it, particularly on the case of a park that's in poor condition, they're more willing to carry the paper because they want to move on. It's the parks that are performing well that are the hardest to solve, because that seller says, "Why should I sell to you? I don't really need to sell at all. I'll just keep the park. It's doing great. I'll just hold onto it."
But the ones who can really make deals, cut deals, low amounts down, low interest rates, those are the people who are desperate, but they're typically not financially desperate, because they have no debt often. So instead, their time clock is they don't want to do it anymore. If you're 79 years old and the life expectancy of a male in America is running, what, 82 years? You might say, "Man, I've only got a handful of years left. I don't want to do it in this trailer park. I want to buy a house on the beach in Florida. That's the life I've always wanted to live." And so you're desperate to get it out the door, and that's when people will do these deep dish dive deals.
Now, another option, if someone already has debt on it and it doesn't match the amount that it's worth, is to do a master lease with option. We've done many of those over the years. That's a transaction in which you take over the property day one. You pay the seller a monthly amount, which typically equates to their existing net income, while you push rents and fill things and clean things up. And then as you increase the value, then you come in and buy it from the seller at a price which extinguishes their debt.
But there are creative ways to make almost all these heavy lift deals work. We've done tons of heavy lift transactions, and you have a number of tools you can use on those. Let me go to the next question. Hold on. Next question. Hold on here. How are you funding deals today? Well, it's always been the same old thing.
Our industry is very boring. There's no original thought, it doesn't seem, in most of it. There's very rarely big things occurring. I know Apple just brought out the iPhone Duo. It's revolutionary. Your phone folds in half, right? We don't really have very few breakthroughs in our industry. Probably the last big breakthrough we had in the industry was when PEP and 21st and Zippy and Triad came on the scene financing mobile homes. That was a groundbreaking development. We seem to only have these groundbreaking developments every, I don't know, every half a decade or something.
So as far as finding deals, it's the same now as it's been for the last 30 years. You have just a handful of options. The main one, the best one, are brokers. And in our industry, there's about 100 brokers that control the market. They list almost all of the deals. People like Marcus & Millichap and Sunstone, Mercadia. These are the groups out there that you'll see repetitively over and over and over again on deals that have closed. So brokers are a great way to find stuff. We once mapped out where all of our deals came from. Over half came from brokers.
What's next? Well, it's kind of a toss-up next between cold calling and direct mail. It's about a tie. And if you started with 100% and we say 50% is broker, you're probably about 24% of cold calling and maybe 24% of direct mail, and then maybe the last 2% is online. Online has not proven to be the most effective way to buy things. Pretty good for buying used cars, but most of the deals out there that are to be bought are going to be arising out of brokers in number one, and then a tie between cold calling and direct mail, number two. Go to the next question here. Hold on.
Next question. What would you advise the partner overseeing a parks manager to do to turn your bootcamp checklist into written duties and procedures specific to that park and manager as the basis for compensation decisions when he considers the general checklist and verbal discussion sufficient? Okay. This one's complicated. All right? Let's break it down by sentence. All right? What would you advise the partner overseeing the parks manager to do to turn your boot camp checklist into written duties and procedures specific to that park? All right. We actually have an online course for managers.
I forgot what Brandon titles it. You'd have to ask Brandon. It's not very expensive. And that's initially an intro to the business for the manager, just so they understand what a mobile home park is, and what people are trying to achieve, and what fair housing is. It's like a defensive driving course. You have to complete each module to go on to the next. And the concept there is just to save you from spending wasted time with managers, since the attrition can be so high, going over things which are so basic and so generic. And then after that, you have to show your person what you're trying to do, which includes what software you're on. We use Rent Manager, some people use Yardi.
People use everything. Some people use QuickBooks and Excel. Show them how that works. But the key thing you want to go over then are the gauges on the dashboard of Ready to Park. So, one big dash is collections. Collections is like an assembly line. You want to make sure that everyone has a signed lease, that their rent is due on the first of the month. You typically have a grace period till the fifth of the month, and if they haven't paid you by the fifth, then you want to send them a demand letter in line with what your state says the demand letter should be. Some states say a three-day, some say a 10-day, some say you have to do a 10 and a three-day.
And then if they still don't pay you, you file eviction, and you'll win the eviction, and then you'll file writ of possession, and then it will basically come time for them to either pay or be tossed out on the street. So the occupancy gauge is simply following along that what's going on is in tandem with what the law says you're supposed to be doing.
Right? Another one you have is your occupancy gauge. That's a gauge which should never be going down. That's the key thing with the occupancy gauge. Many parks you'll buy to fill vacant lots, you have to do it. You can't blame the manager if you have 10 vacancies, but yet you refuse to buy 10 used homes to fill them. So that's not the manager's duty to do that. But the manager needs to keep every home on the park full.
You can have vacant lots, but you shouldn't have vacant homes. So that's what that gauge is all about, is showing them the systems you use to market and sell your homes. Then you have your water/sewer meter. What you're doing here is you're just making sure when you get the water bill, if that water bill is roughly equivalent to that same month the year prior or the month prior. You're looking for leaks. You'll see them pretty readily, because a leak in a mobile home park can easily run 1,000, 2,000, $3,000. And so the race is on to find the leak and fix it. That's what the water/sewer gauge is. If your water bill is fine, which it normally is, then that gauge only takes a few seconds a month to do.
Another one is the property conditions gauge. The property condition gauge is going to revolve around having the manager send you HD videos with a GoPro camera, suction cup mount on the roof of your car. Turn it on when they're outside the park, drive through the park, and either take out the chip and send it to you, or they can. One of you has to download it. And then you have a GoToMeeting webinar with them, and you can literally drive the park with them like you were right there, and you can start your car and back up your car and have commentary continuously, and you can tell them which rules violations are bad and which ones are okay.
And every time you get that HD video, which you should probably get every month, you can see if the park is progressing in the right direction or not. Final gauge on the dashboard is called budget actual difference. This is something that you create, not the manager. You simply take your budget when you bought the park and you overlay in every expense category and revenue category if you are on budget, better than budget, or worser than budget. I'm not sure there is a word worser, but in our industry, you don't have to have real words to get the point across. So, you then take two highlighters, a green highlighter and an orange highlighter, and everything that's on budget or better, you draw a green stripe through it. Everything that's not as good as your budget, you put an orange stripe through it. And then you look at every orange stripe and you say, "What the heck is going on? How do I fix this?"
So, it might be that your orange stripe is on water because you have a leak. It might be your orange stripe is on payroll because you're paying the manager more than you originally thought. And then you try to come up with three outside-the-box ideas to fix each one. That's the key. So if you say, "Uh-oh, my manager is costing more than I budgeted. Okay, how do I fix that?" You might say, "Well, as I filled up the lots, I don't have many vacant stuff anymore. Maybe I could hire someone who already lives in the park and cut the manager cost down enormously."
But that exercise, which we call budget actual difference, which spells BAD, that's actually very good if you want to run your park properly. Now there's finally compensation. Let's go over that for a minute. Because when you start going down the path of giving bonuses, you can't ever stop. So make sure that whatever you're giving people bonuses on are things they actually control, and that you are prepared in your budget to keep going.
So let's say, for example, that you tell the manager that every time they fill a vacant lot, you're going to give them $1,000. Okay, that's cool. But remember now, when they get full, there's no more bonuses because there's nothing more to fill. But that's going to send them in the right direction. They're going to then be always watching over such things as calls coming in and showings to customers, because gosh darn it, they want the $1,000. Let's say on collections, you say, "Well, I'm going to give you a bonus of $250 every time you hit 95% collections."
Well, you're going to regret that maybe later, because if you have ACH payments And your park gets nicer over time, and you weed out all the bad apples over time, then that manager isn't doing anything for collections. The money comes in every month, all of it, and they didn't do a darn thing. Do you really want to pay out another bonus on top of that? Probably not. So bonuses are great to create enthusiasm with the manager to get things done, but just make sure you've thought through the whole picture. Some people jump out there and start giving bonuses on almost everything immediately, and then they later find out, and they regret doing it. And so once you've done it, you can't stop.
Because if you stop, you totally, totally bum the manager out. They'll probably quit, or even worse, they might start finding some way of embezzling to make back the money that they feel you owe them because of these bonuses that you no longer are doing. See if we have any other questions here in just a moment. Oh, yes. We have more questions that have come in.
Next question: How long are sellers actually willing to carry these notes right now? Five years, or are people getting to 10? It really depends on the seller and what their life plan is, I think. Some of your sellers, the pushback will be between the five and the 10 year is, "I'm 89 years old. I'll probably die in a year." Your counter to that is, "So what? If you die in a year, your heirs will get a first lien secured real estate note at 6%. How is that bad?" And then they say, "Well, what if they needed immediate cash?" Well, then they can sell their first lien real estate loan at 6%. It's all over the internet, people who buy those kinds of deals.
So the immediate death thing, that should not be what hampers you. Then you have the issue that some of them want to go short-term, but even shorter than five, because they say they don't really know you. Well, that's not a very good way to figure out who you really are. So now you have not bonded well enough with the seller, and you need more bonding till they trust you enough to believe you can actually make the payments. And then remind them if you default on the payment, it's the best day they ever had because they get the park back, and they get to keep your down payment.
They should have a party over that. They can go out and resell it again and get a whole another down payment. Assume when you put 20% down and the next guy puts 20% down, then they got 40% of the whole price in cash up front. What a wonderful experience. So there really is no downside to the seller carrying paper except funding their future life plan. And for most of your sellers, their only concern on their life plan is their monthly income. Because typically, the mobile home park is their largest asset. They'll have Social Security, but we know that's roughly 1,200 a month per adult. So that interest you're paying, that's funding their retirement, and most people don't want that to stop.
There are sellers out there that when you come to the end of year 10, they want to know, "Can we up it for another 10?" But the truth is that somewhere between five and 10, you're not going to want to renew it because that's when you're going to want to either sell the property or try and do a cash-out refinancing. So it's very unlikely on a seller note greater than 10 years that you'd ever still be hanging around by then.
But I find most sellers, if you bond with them and negotiate it properly, you can typically always hit five, sometimes hit 10. And if you hit five, at least try and get the ability to buy an extension for a couple of years. Get the next question here. Hold on. Question: My campground, I don't think is a luxury, as in my case, people can't afford a house, can't afford to buy or rent a mobile home, can barely afford my campground, but their next best option is living in a tent or being homeless. Okay, again, I have seen many things over 30 years of the park business.
And when I first got in the business with my first park, Glen Haven, and I asked people, "What should I model my career after? Are there any parks in Dallas that are worthy of study?" And someone said, "Yeah. Hi-Ho Campground." And I said, "What the heck is Hi-Ho Campground?" "Oh, it's down there around DeSoto, Glen Heights. It's down I-35 South." So I found Hi-Ho, went down there, and Hi-Ho was basically an RV park that everyone was living in full time in their RVs, and nobody ever left. They were all in there in travel trailers and fifth wheelers and the occasional motor home, although its engine probably didn't work.
And these people were trying to live as cheaply as any humans have ever lived. So they were buying travel trailers for $1,000 and putting them in the park and paying the lot rent, and they had no home mortgage. And additionally, I don't think many of these people even worked. I think a lot of people were on social subsidies, either their disability, Social Security, who knows? But they were probably living cheaper than anyone in the entire Dallas-Fort Worth metroplex, and that was the business model. So the bottom line is, if you wanted to live cheap, you went to Hi-Ho Campground, and they were always completely full.
So if that's the kind of park you're looking at, if that's it, then that does kind of act like a mobile home park where it's affordable housing. But here's the problem. It's still not a mobile home park, and a lot of your lenders are very adamant. They only want to do mobile home park. They don't want to do RV park or campground. They like the fact mobile homes don't move. They like the fact that a mobile home park is a commodity which has had incredibly low default rate, less than 1% at a time when apartments are at 8%.
But they like mobile home park, but they don't like it with RVs. Why? Because they are afraid that an RV can simply turn on their engine and drive off. It scares them to death. Mobile homes cost 10,000 to move at least. You can't move the ones that were prior to 1976. So they're pretty comfortable at the bank when they go to bed at night knowing you won't be calling the next day to say your occupancy fell by half.
But that's why when I earlier said you need to get ahold of maybe Bruce Hurta at Security Mortgage Group and any other lender, because the lending on RVs is very different than on mobile home parks. So some of the strategies people use in mobile home parks, you can't really use completely on RVs, even if your RV is more like HiHo Campground. In the case of HiHo Campground, I don't know how it ended up with the guy that had it, because the problem would be, I don't know what it would appraise at or who the lender would be at the end. So it's really RV park, a big part of that puzzle is the lending.
Go to the next question. Hold on here. Question, are people also looking at RV parks for storage right now, or are you staying strictly with mobile home parks? You want to stay strictly with mobile home parks, except for the fact that you will sometimes come upon RV parks that you can do dramatic things to, and you can buy them very cheaply and really pump the net income. And let me explain to you how you can really pump the net income at an RV, sometimes more than a mobile home park.
Let's assume that you find a mom and pop who have an RV park, and it's running at 25% occupancy because Mom and Pop don't even know what a computer is. They have no social presence at all. If you Google the name of the town and you put in the word RV park in the town, they don't even show up. And if they did, they would have no website, nothing at all, no star ratings, et cetera. If you were to buy that RV park based on 25% occupancy, whatever that number might be, there is no barrier to filling that in a week. Because unlike a mobile home park, where I have to go out and buy a new or used home and put it on a lot and market it and sell it, all the RV guy has to do is pull in with his car.
Or if it's a motor home, just pull it in itself. So that's why some people like RV parks. When they find opportunities where RV parks are priced cheap with bad management that they can fix, there's no limit to literally fill it overnight. You could go from 25% to 100% in a day because everything's already there. You already have the power there, you already got the water there, everything. You already got the manager there. So, people just check in. It's just like a restaurant. But again, that's also the problem. Just as they can check in overnight, they can also bail out overnight.
But mobile home parks right now are the best positioned thing in real estate. RV parks are probably in the second position, but I would not go big with self-storage right now. Just like the Class A apartments, which have horribly overbuilt, terribly overbuilt. They've built two and a half million new Class A apartments in America just since 2020. The storage industry is pretty much the same. They have so horrifically overbuilt it.
Where I am, down in little Ste. Genevieve, Missouri, population 5,000, we have self-storage coming out our ears. People have built everything. They've built climate control. They've built all kinds of new facilities out on the freeway as you go into Ste. Gene. It's just too much, and that's the problem. So, Warren Buffett often talks about the moat, and how the moat is the key to a successful investment. Well, mobile home parks have a huge moat because no one will allow a new mobile home park to be built. My small town in Ste. Gene, no, can't do it.
Moderate-sized city, no, can't do it. Biggest cities, no, you can't do it. Dallas-Fort Worth, no, you can't do it. No one will let you do it because they hate mobile home parks. They do not want them in their city. And it's that moat that stops oversupply. Self-storage has no moat. RV has a moat, but it doesn't have as big a moat because RV parks are typically built out in the countryside where, since people don't have to have jobs or access to healthcare and stuff, they're willing to go to an RV park an hour away, two hours away from the city.
So they don't really have a moat as far as zoning. They have more of a moat of people just don't want to take the risk of building it. But mobile home park is the best one, in our opinion. Go to the next question here. Hold on. Question, do you ever just walk away from a deal, even if the seller will carry, if there is a problem? It all depends on what the problem is. There are some problems you cannot solve.
Let's just do a short list of the problems you cannot solve. Let's say the park does not have a license. It has no legal right to exist. It is classified as illegal. You can't fix that. There's no way you're going to fix that. You'd have to go through and get the whole park rezoned and fully permitted, and I don't think the city would ever let you do it. So when a park does not have a legal operating permit, most people leave the building immediately. If the park has pollution, if it fails a phase one and you have to go to a phase two and a phase three, and lo and behold, it's on top of a landfill, it will cost $19 million to fix it. No, you're going to totally walk that deal.
If you do a test ad and there's no response because there's no demand for a mobile home at all because there's no one wanting to live in that city at all, well, then you want to bail on that. And if the park is in floodplain and it's in flowway and the BFE or the height of the water above the ground is, let's say, 10 feet, you can't buy that because you can't fix that.
And in every deal, there may be an element which you discover in due diligence that you can't fix. Well, then you have to walk it. But sometimes those problems, what you're calling a problem here, are really opportunities. There was a guy named Kaiser, he was the steel baron of America. He always said, "Problems are only opportunities in work clothes." Which means that problems sometimes are beneficial. They allow you to buy the deal cheaper, to get seller carry, a lower down payment, but only if those problems can be fixed.
So if the problem is something in work clothes that you can put on your overalls and fix it, okay, great. But if the problem is something you can't fix, like environmental pollution, then that's when you would definitely walk. See if we have any more questions. Yes, we do. Question here. Thank you, Frank, for the master class. Do you expect anything significant to happen in real estate after the midterm elections?
Well, yes. I anticipate, and again, everyone has their own opinion. If you don't like my opinion, you're free to have your own opinion. No, I have no problem with that. My bet, and let me tell you where my bet is derived, because in the absence of science, your bet is really meaningless. I have become a huge fan of guessing the future using Polymarket. Polymarket is a gambling website. I hope I have the name correctly. You have Kalshi, you have Polymarket, and I looked at them starting at the last round of elections, and I noticed they were pretty darn accurate. I noticed they skewed about six points towards Democratic politicians.
So if Polymarket said that some guy was going to win 55 to 45, then it's a toss-up or he might lose. But when they got above about six points, they were deadly accurate. If they said that someone would win by 75 points, well, they're definitely going to win. So what's it say about this coming election? In the House right now, unless they've changed it, Polymarket is running about high 80s to 90% Democrats win.
So I have to assume, just being a realist, that that's probably where it will end up, because that's far beyond their typical margin of error. But in the Senate, it still shows Democrat, but it's Democrat by 54 to 46. To me, that spells probably Republican or at least toss-up. So my bet is the Republicans lose one part of Congress. They either lose the House or the Senate. But more than likely they lose the House, and they might keep the Senate, but they might also lose the Senate. It doesn't really matter based on my analysis.
If they just lose the House, what happens in January? Well, they start endless Trump impeachment proceedings. That's just a given. They've said that. That's priority number one. They not only want to impeach Trump, they want to investigate all of his kids. They just want to do as much investigations as possible. You'll see it on TV constantly. And meanwhile, Trump can veto anything. So you will have complete and total gridlock. Gridlock in a way we've never seen before. I don't think there will even be any attempt at reconciliation. It'll simply be flat out no. And then you have this issue, because on December 7th, I believe, the government runs out of money.
This is a normal pattern. The government loses money all the time. So they can't fund the government without people voting in more money. They're not going to get a vote for more money. In a deadlocked government with everyone hating each other and yelling at each other, you're never going to get any consensus. No one's ever going to. There will be no give and take. And I see that as being the trigger to the recession.
Now, let me give you, beyond that, my motivational reason why I think we're going to have a recession. We have to have a recession. This concept that we're not going to have a recession blows my mind. Normally, the people saying this have a vested interest in convincing you there won't be a recession, namely stockbrokers and public companies who want to keep their stock high, and they're loving it right now. The market's insane. The market valuation is higher than 1929 before the Great Depression. It's higher than before the dot-com bust. It's higher before the Great Recession. This is the highest it's ever been. It's absolutely unsustainably nuts.
So when the thing blows, it's bad PR if you're the president when it blows up. But in this case, if the Democrats take the House or the House and the Senate, then that gives Trump the perfect excuse that the Democrats have ruined everything, that the economy was doing great with the Republican trifecta, now the Democrats have come in and they've ruined it all. And he's even said this, if the Democrats win the House or the Senate, the economy will crash.
So what do you do? You let your foot off the gas, you stop doing any kind of stimulation in the economy, and lo and behold, quarter one comes in negative GDP, quarter two negative GDP, you're full-blown recession. As a veteran of recessions, I can tell you when they start using the word recession in the media, everyone stops spending, and then you just freefall.
As the economy freefalls, the rates go down. Let's just say you model it that even the first quarter of the year is fine. As long as you are in recession mode after that first negative GDP quarter, at that point, people are already going to start using the recession word. Then at some point, you're going to get quantitative easing, and I think the goal would be that if Trump can crash the economy very early in the second half of his term, he has time to fix it before the end of his term. So he would go down in history as the guy that saved the economy, just as Obama tried to portray himself.
So my bet is that's what's going to happen. Now you might say, "Well, how does that apply to real estate at all?" Well, again, the whole point of tonight's discussion is the fact that in the recession, the rates will come down two or three points. So it's very, very significant to all real estate, particularly mobile home parks, if the rates come down. But the rates can't come down until you have the recession. You have to crash the economy to get those rates down. Now, we haven't brought this up yet, but I will also throw out that everyone on here has been spoiled because you're never going to see the rates as low as they are, and here's why. We've never had a national deficit like we have. We're $40 trillion in debt. We're on the pathway to being $100 trillion in debt sometime in the 2030s.
That's just crushing. That's impossible. It's impossible to ever pay that much back It is just horrendous. But as a result, we have to borrow so much money, it's not really possible to quantitative ease things like we have done in the past. So I'm not going to advocate that rates are going to go back down to being where they were at the bottom in 2021. Don't see that happening. I think you're going to see rates are going to run in a cycle from about 5% to 6% down to about 4%. That's going to be the norm. Right now, we're a little higher right now because the 10-year treasury is what most mortgage rates are based on. Not all of them. There are some mobile home park loans that are based on Fed funds rate.
But if you assume 10-year treasury, where's it at right now? It's at roughly around 5%, and then most Fannie Freddie people are doing a point to two points above that. So interest rates, high sixes will be the typical cyclical high, and then the low might be down in the... I think if things ever got back down into the high threes, that might be the next low. So I don't see things going as low as they were in the past because of how much debt we have. I don't see interest rates going as high as they did under Reagan because of how much debt we have. I think those will become kind of a new limiter to the engine.
You go to the next question here. What would you advise the partner overseeing a parks manager to do during your boot camp? Oh, hold on. This is the same question again. I don't know why this popped back up. Let me see if there's been any changes to it. No, I think it's the same one. And again, I would mind the five dashes on the dashboard. I would show them how those work, and that would be able to give me the best avenue for them having success. Hold on, let me see if we have any more questions. Scrolling down here.
No, it looks like we have, in fact, answered all the questions. That being said, we appreciate you being on here because one big problem of the mobile home park industry has been since its inception is there's a complete lack of intelligent discussion. Let's all be honest. There just isn't any. We are in an industry that has almost no data. It has almost no publications. I have had questions in the past from people. I've had calls from people getting a Harvard MBA.
The guy's writing a paper on mobile home parks, and he can't find any data, wants to know where it is. I said, "Dude, there is no data." The only data in our industry that has been maintained has been mobile home manufacturing shipments. And that data exists back to 1950. That's the only thing there is. There is nothing on nationwide park rent levels, nationwide park occupancy, nothing. There was a guy named Becker at Duke University. We thought he would be the first guy to start producing industry data. He, in fact, wrote some papers that were very good for the industry, saying that lot rents were effectively too low, saying that parks were really in pretty good shape. And then because he's in academia, it all stopped. I'm not sure an academic today could do any kind of factual reporting on landlording. That's not going to work.
So the only thing we have in this absence of stuff is park owners just discussing the business and life and predictions and things like interest rate. And so we appreciate you joining us tonight to go over these many things because our industry just lacks enough discussion. So that's a big part of why we go on, and we've been doing these things industry-wide now at MHU for about 20-something years. And when we started doing them, there was nothing. The industry had literally nothing. It had no event. It had no book. It had no playbook. It had no operating procedures, no science, zero. And so this is our attempt to try and bring a little science. Why? Because mobile home parks are right now on the verge of becoming a very mainstream asset class.
No longer the joke, no longer a trailer park filled with trailer trash, which is what most people say of the industry. But now we're going legitimate, yet we have too big a vacuum of information. Hold on. We have a question here. Just a moment. Do you see any advantages of filling RV spaces with park models? Yes, I see a big advantage. We have some rather large and nice RV parks that we own down in Texas. And when we look these things over, and they have wonderful amenities. They have ballrooms and pools and everything known to man. But the problem, I think, with the occupancy was not the property. The problem was the actual way the RV business works. Because most of our residents were what they call snowbirds, people from the north, states like Ohio, Pennsylvania, even up to Canada.
And when it gets cold out up there and you're retired, people want to get out of town. They want to go where it's warm. Nobody wants to slug through five feet of snow every day. So they would come down to this RV park we have. But moving your RV from Canada to Texas is quite the ordeal because that's like being on an over-the-road truck. You've got this giant thing. It's blowing around in the wind. It's really heavy. It's hard to drive. And yet here you are, and you're 72 years old, trying to drive this thing from beyond the American border to the north all the way to almost the American border in the south.
So we saw an opportunity here. So we started bringing in park models. So we would say to those RV owners, we'd say, "Hey, you know what? Why don't you sell your RV and buy this park model?" We were buying mostly used park models. And people would say, "Hmm, that's an interesting idea. So I could sell this thing and never have to drive this God-awful thing again." And I could simply drive down here in my car, which means I would then have my regular driving car, not a pickup truck for a fifth wheel or something. And it would be an even swap. Well, that's just a wonderful idea.
So they would start doing that. And we found that as more people did it, that it's like keeping up with the Joneses. People are like, "Hey, what are you doing?" "Oh, I sold my RV, and I bought this park model. Now I never have to drive that stupid RV down here again." Well, what happened was, once people got in these park models, bear in mind, a park model is luxury compared to an RV.
It's got regular residential-sized hallways and bedrooms and bathrooms, and it's handicap accessible. People then started to think, "You know what? Why do I keep the house up there? I abandon the thing half the year, and this is more fun down here. They got all these amenities. Screw my house. I'm going to sell my house and bank that money, and then take the interest off that money, coupled with my Social Security and my pension, and I'm going to live like a king."
And I think there's a real demand for this conversion of people wanting to live in RV areas because RV areas typically have their fun, right? There's destination RV parks. There's things to do there. But they just can't live in the RV. Living in an RV is really tight quarters. Living in an RV is not for everyone. They can do it on a very temporary basis, but not a permanent basis. But I do see an opportunity, if you have the right property, to convert those temporary tenants into permanent tenants, which they're not going to do with their RV. They can't live in it. It's too small.
But they could do with the park model. So that's why we're really big on this concept of filling RV spaces with park models. Let me see if we have any more questions. Last call for questions. I'm hoping I'm working the technology properly. I think that I am. All right. Well, at any rate, again, we know you have lots of options with your time, TV shows you like, all kinds of things. We appreciate you spending the time with us. Hopefully, you got a lot out of this discussion. Again, if you would like to come to the master class at my house, feel free. It's coming up a week from this weekend, November 7th and 8th.
And we would love to have you, if that would work for you as a venue in person to learn more about mobile home park investing. And again, on behalf of my partner, Dave Reynolds, Brandon Reynolds here at MHU, we appreciate you being here, and we will talk to everyone again real soon.