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Investing in Mobile Home Parks with Kevin Bupp

SHOW SUMMARY:

Kevin Bupp is a real estate investor and the host of the Real Estate Investing For Cash Flow Podcast. He is also a serial entrepreneur. Kevin completed his degree in business at a small community college in PA before focusing all his energy into real estate. His expertise ranges from apartment buildings, single-family homes, office buildings, raw land, condos, and by far his most profitable, mobile home parks.

In this episode, Kevin shared his expertise on mobile home park investing.

SHOW HIGHLIGHTS:

  • Who Kevin Bupp is
  • How he got into real estate
  • Losing and rebuilding his business
  • Lessons he learned and things he could have done differently
  • On running mobile home parks through different modelling scenarios
  • Why he chose mobile home parks
  • On its diminishing supply
  • Minimal turnover that exists
  • Management is less extensive
  • Can get higher return of investments today
  • On his model and structure
  • Downtime equals loss of revenue
  • Significance of management intensity
  • Handling delinquency
  • Average age of a mobile home park
  • Onsite community managers
  • On putting deals together
  • Best ways to find mobile home parks
  • Why developing your own park is not the best plan

Quotes:

  • "Take the lesson away from the experience and apply it to your life moving forward."
  • "Your net worth is your network."
  • "Good ideas does not care where it comes from.”

RESOURCES AND LINKS FROM THIS SHOW:

SHOW TRANSCRIPT:

Larry: Welcome to the Brain Pick-A-Pro show live from Lake Wylie, South Carolina. I’m really excited on today’s show. We try to give you a variety, a lot of different things out there. You guys all know what I do, day trade real estate, seller finance real estate, I’ve done just about everything there is to do over the last thirty years, but today is a special guest that focuses – now, he’s done a lot of stuff too, but he focuses primarily on mobile home parks and we’re gonna get in to all the details and everything about it, but I’m really excited to have him on today. I’ve been excited when I found out I was gonna get him on here, been excited about this, so I’ve got a lot of questions myself, so please give a warm welcome to Kevin Bupp. What’s going on, buddy?


Kevin: Oh, Larry, I’m doing great, bud. Thanks for having me on. Looking forward to it.


Larry: Awesome, man. Thanks a lot for being here. Why don’t you start out and tell our viewers and listeners – by the way, guys, please share this, please share it and please tell everyone about it, please leave us a review if you like this. It’s all good free content information so we appreciate you watching or listening and please share it and leave us some good feedback. So, why don’t you tell our viewers and listeners a little bit about yourself?


Kevin: Yeah, absolutely. So, it sounds like just like you, Larry, I’ve been doing – I’ve been a full-time real estate investor most of my adult life. You know, I accidentally became an investor. I wasn’t looking for it back when I was nineteen years old so I’m very grateful and blessed for that experience and the opportunity to meet someone that was a full-time investor and kind of showed me this beautiful world, and so I was in school at the time, community college, not really having much direction other than feel like I had to get a degree and met a guy that was about twenty years older than I and he was a local real estate investor, had owned – at that point, he had owned, you know, pretty decent portfolio of single-family and smaller multi-family properties and lived a pretty cool lifestyle. I was raised in a blue-collar family, never really went without but we didn’t have a lot. My parents didn’t drive fancy cars, we lived in a very normal neighborhood. Again, never went without clothes in my back or without food in the table but David, who is this guy, he became my mentor. He had a slightly elevated lifestyle, very nice car, seemed to have a lot of flexibility in schedule, traveled a lot, dressed really nice, and I took a liking to that. Not for the material aspect of it but just – I saw it as a place I wanted to be and I saw it as an opportunity, and so David also must have saw something in me in that he actually invited me to a real estate conference, a three-day boot camp, that he was going to in Philadelphia. I’m from Pennsylvania, that’s where I grew up and so this was Ron LeGrand, Larry. You’re probably familiar with Ron LeGrand, you’ve been in this business for a long time. Ron LeGrand has been teaching for a very long time.


Larry: Yeah.


Kevin: It was a Ron, yeah, Ron LeGrand boot camp on how to fix and flip houses and I had no idea what I was getting into. I’d never read a real estate book. I didn’t understand it at all and this was like two weeks after I’d met David. Him and I befriended each other and he invited me there and I went and I left that conference confused, excited, scared. I mean, a whole bunch of different mixed feelings, but what I did know is that I met a lot of people there that were making a ton of money and I didn’t feel like they were any smarter than I. They knew more than I did, you know, with regards to that particular niche and that specialty of fixing and flipping homes, but I didn’t feel like they were any smarter. Their IQ wasn’t higher than mine. So, I went back to David, I said, “Dave, I gotta learn how to do what you’re doing and what these people are doing. How can I help you?” right? How can I – in my spare time between tending bar and going to school, that’s what I was doing tending bar to make money at night and going to school, “How can I help you in your business? How can I be around you and, you know, learn what it is you do on a daily basis,” and he accepted the offer and that’s what I did. Every waking hour that I wasn’t at school or at work, I was at his either home office or on the road with him or meet with the contractor, helping him with paperwork. Basically, I was an admin. I did whatever he asked me to do just so I could be around it and that’s what I did for about a year and then, ultimately, I was chomping at the bit to do a deal and I bought a really rough rundown row home in the city of Harrisburg, Pennsylvania, where I grew up with a private lender with introduction from David and with some money I had saved up tending bar and renovated that property. I flipped the first couple properties I did because I needed my money back. I wasn’t really at the point where I could hold on to it for cash flow and so I did that for a couple of deals. He did not partner with me, did it all on my own. He was there to help me, give me guidance, but he surely kind of left me to do my thing and let me take some risks all by myself and it was scary as heck and I made money on the first couple deals I did and morphed that into, you know, what became a bigger company and so that really – that was like ’01 era. I moved down to Florida in 2002 which is where I’m at today down in Tampa Bay area and really that’s where my business scaled. You know, it’s a new world down here, bigger market and things were hot. This is ’02 so the rollercoaster ride was going up and just started buying a lot of homes, really started focusing on holding property and creating a portfolio for cash flow which is – that was David’s business model, right? So, I was emulating what he had taught me.


Larry: Right.


Kevin: And did that so we’re buying, you know, lots of single-family homes, had a very large portfolio leading into the great recession. Also started buying apartment complexes back in ’05 leading into the great recession and, ultimately, lost pretty much all of it during that crash, you know, over a period of twelve to eighteen months. Even my primary residence, bank accounts got garnished, it was a rough time and, ultimately, rebuilt myself a few years after that and started focusing on mobile home parks which is where we’re at today, so that’s kinda the condensed version of the story. Lots of other things that happened in between those time periods, lots of other types of real estate and businesses that I was involved in, but real estate has always been my core, it runs through my blood, and I can’t imagine doing anything else.


Larry: That’s really cool. I love real estate because there’s so many different things you can do with it, so I’m assuming that during those times when you were laughing and crying and, you know, losing properties, market was crashing, I’m assuming you figured out what it was that you did wrong so it won’t happen again, right?


Kevin: Yeah, yeah. I don’t think there was any laughing involved at that point, I was probably crying and just – I wouldn’t say depressed ’cause I’m a pretty happy person generally speaking but it was a little rough. I’ve never been through like that – anything like that before and it felt like everyone I knew that were – I considered to be smarter than me or older that had been through this before were also losing their behind, and so it was a challenging period that I couldn’t see the light through the tunnel at all, but in any event, yeah, looking back – it took me about two years, Larry, to really look back. I mean, it was a disaster. I don’t know how else to put it. Like, literally my personal bank accounts, I tried to, you know, I made a strategic decision at some point ’cause I knew I was gonna be out of money very quickly and I wouldn’t be able to live and feed myself and so I kinda set aside, you know, a nest egg to get me through this down period and that bank account got garnished by one of the creditors and literally, yeah, it was really, really ugly and so I stuck my head in the sand for a couple years and just, you know, started two other side businesses that were non-real estate related, they were health and fitness related. That was really something I thought I could control was, you know, how I felt and, you know, my mindset and I didn’t really wanna think about real estate ’cause I felt – I kind of blamed real estate for the issue and that challenge and we all know the buy low, sell high, it’s really hard when it’s your blood that’s in the street. It’s really hard to like get yourself out of that bubble and look and say, “Now we gotta get going. Like now there’s opportunity,” you know, and I think the second time around, if it would happen again, I think it would be a completely different – now I know but I didn’t. I was young and, you know, naive and whatever, so, looking back, trying to determine what happened and what I wouldn’t do again and this is not – nothing related to, you know, residential single-family homes ’cause that’s what majority of my portfolio was made up of and I don’t blame residential single-family homes but I blamed my investing style and I blamed where we owned real estate, so we owned it here in Southwest Florida. Taxes are incredibly high, insurance is really high with, you know, with hurricanes and such, and so it was a very difficult cash flow market. Even though we made cash flow, you know, and our loan-to-value was very low on our portfolio, our rental portfolio, it was a very inefficient business to manage when we had properties in three different counties, you know, just the leasing process was inefficient and I know a lot of big REITs have figured that out, I think, but it was inefficient. They weren’t really the strong cash flow machines as what I thought, and in addition to that, down here it’s a little bit of an anomaly and I think like, you know, Arizona and Nevada and a few other states got hit really hard like Florida did. We had a lot of spec builders down here building rooftops by the thousands and basically kept building for populations that weren’t really coming at that point and this is back when – I don’t know if you remember, Larry, we would see like pre-construction homes get flipped three times before they ever even – like before a nail was even, you know, hammered into a board. That was happening down here.


Larry: How to buy pre-construction –


Kevin: It’s crazy.


Larry: Once it was done.


Kevin: So what happened down here, the big thing, which I don’t know what I would do differently other than probably not build a portfolio of homes down here or in a market like we were in, but there were a lot of these brand new three-two-twos, four-two-twos that were built, a lot of builders they weren’t selling ’em and so they started renting these things out and we literally were getting poached. I mean, they were renting them for, you know, a thousand bucks a month, you could rent a brand new three-two-two whereas we were renting a twenty-five-year-old three-one for, you know, $900 and so we were getting kinda this mass exodus. We’re getting people that weren’t renewing leases, they were bailing out early, moving into these brand new homes and so we had an occupancy which basically just took away all the cash flow and we were having to basically make rent concessions or lower our rents to get these things reoccupied and so we went from a positive cash flow to a negative cash flow, we were writing checks each month to meet our debt service and it wasn’t sustainable. I mean, it was – and I don’t know how long it was gonna last and so that was – I don’t know what I would have done differently, like it’s funny, I get asked that question many a times. Other than nowadays when we buy mobile home parks, when we buy any type of property, but I mean mobile home parks are our specialty, we run them through multiple different modelling scenarios where we run ’em – we create very stressful hypothetical situations, you know, if it’s a five-year balloon note, what happens if the rates go from the 5 percent to 8 percent? What happens if we can’t get cash out and that’s kind of what we’re projecting to get some more investor capital back. What happens if we can’t do, you know, 3 to 5 percent annual rent increases for the next five to seven years. Like what if we have to skip three years, like what happens, what is the worst case scenario, what’s the threshold to where this deal doesn’t make sense and then can we get comfortable with that, and so I never did that, right? I never ran through these, you know, these catastrophic scenarios before and if I would have, you know, I probably would have seen some of the risks but a lot of people didn’t, right? A lot of people got hammered as unexpectedly as I did and, ultimately, it’s just changed our focus and I’m a smart investor because of it and I’ve learned a lot and have taken lessons away. I think that’s the most important thing, right? Take the lesson away from the experience and apply it to your life moving forward and so I wouldn’t change a thing.


Larry: That’s awesome.


Kevin: It would’ve been hard to say that back then but I surely wouldn’t change a thing looking back.


Larry: It is difficult to say that when you’re going through it.


Kevin: Absolutely.


Larry: I totally get that and I totally understand it but, you know, it’s the school of hard knocks. It’s the best education there is. So, let’s jump right in with the mobile home parks. You know, I mean, there’s a lot of people out there doing even multi-family. Why mobile home parks as opposed to something like multi-family or another type of vehicle?


Kevin: No, that’s a great question and I told you I stuck my head in the sand for a couple years, but ultimately the real estate bug kept biting at me and I couldn’t quiet it down, right? I couldn’t make it go away, and so in mid 2010, early 2011, I started getting back in, meaning like I was talking to people again that were still active in the space or had made it through the downturn or were new investors. There’s like two categories of people. They’re the old timers that made it through that just continued even if they might have lost money, continued through, they’re on the other side, and there are the new investors that ultimately jumped in when there was blood on the streets and they haven’t been through the downturn, you know, all they’ve seen is that upwards trajectory which was me back in ’02, right? All I saw was going up and so I was trying to understand this new landscape that existed, you know, lending was different, lending was very challenging in 2011. There were still a lot of distressed stuff out in the marketplace and I didn’t make a decision that I was not going to buy single-family. I needed to be able to rebuild and scale in a much bigger manner and I wanted to scale a sustainable business and based on the amount of time it took me to build the portfolio of single-family properties, I didn’t wanna spend that amount of time rebuilding what I had and I felt like I’d do it bigger and better in apartments and so that’s what my focus was gonna be and I had owned apartments before, I had about five hundred units and so I understood that space and as I was going on this journey of reeducating myself and getting comfortable with this new real estate landscape, I had met a guy through a mutual friend that had been in the banking business for thirty years, his name was Randy, and Randy had been in the banking business in commercial real estate and he had specialized, at least for fifteen years of his career, financing mobile home parks across the country and I had no interest in mobile home parks, Larry. I wasn’t going in to meeting with him, pick his brain, I like meeting people and I agree with the phrase that, you know, your net worth is your network and so I had lunch with Randy just to meet someone new and I left that lunch, about two-hour lunch, and had a newfound interest in mobile home parks and Randy piqued my interest in many ways and he wasn’t really trying to sell me on ’em, he was just trying to help me understand why he liked them and why he chose that asset class and a few different reasons. Number one, it’s the only asset class that has a diminishing supply, meaning that there are more mobile home parks that get redeveloped or shut down every year than get built. In the last – I don’t have the statistics in front of me but there was only about seven or eight mobile home parks that were brought online in the past five years and probably hundreds that were redeveloped into something else, you know? A lot of these were built in not-so-great – you know, not-so-valuable pieces of land, you know, in the outskirts of cities or towns that are now basically in the path of progress or the town has surrounded it, right? And there’s higher and better uses like, you know, commercial redevelopment, and so that’s one thing. Barrier to entry is important to me. Like, to me, that’s a huge barrier to entry. They’re not building more of ’em. Another one is the minimal turnover that exist because when they own the homes in these communities, they stay. I mean, it costs a lot of money to move a single wide or double wide, more money than the average person that’s seeking affordable housing has, and so these homes, once they get moved in, they very rarely ever leave that community and so what happens is when someone wants to move, a resident wants to move, they typically put their home up for sale or the trailer up for sale, just like you would in your subdivision or like I would in my home, they pay the lot rent until someone else buys it and starts paying the lot rent so you don’t have that – you don’t have that down period that you would in apartment, right? You don’t have like the two-month span where you got a vacancy, got to turn it over or release it, blah, blah, blah.


Larry: Right.


Kevin: That doesn’t exist. The management side of things is a lot less intensive than apartments. They own their own home, we’re not getting calls about their AC not working or the roof leaking, plumbing. Our only responsibility for the most part is the common areas and the infrastructure so the water lines, the sewer lines, you know, the common grounds. Sometimes we have an office inside the community, but really that is the end of our responsibility for the most part. They’re responsible for everything that happens inside their home. And then, a few other things. I mean, there’s a list, but one of the other big things is when we were, you know, kinda comparing apartment complexes to mobile home parks, you know, if you could compare apples to apples, like a hundred-space mobile home park versus a hundred-door apartment complex in the same city, the same class of asset meaning like maybe a C class, what kind of returns could we expect from one versus the other and what we found and what we have found even today is that we can get a higher return on our investment with mobile home parks than we can by buying a similar-sized apartment complex in a, you know, the same town, so many other reasons that exist in addition to those but those are some of the really big ones and those piqued my interest enough to where I left that lunch with Randy and basically dedicated the next twelve months to learning everything I could about this niche and then ultimately buying a park, I’m like I’m gonna buy a park and I wanna either prove or disprove this asset class, like is it a good fit for me and can I make money, and I did that and here we are today, you know, I don’t know, twenty parks or twenty-some odd parks later and we’re in eleven different states and that’s our only focus now, so we like the park business.


Larry: And that’s awesome. Now, that’s called taking action and I like what you said about your net worth is your network, right? So, not many people really think about, you know, networking with other people just to learn and grown and get new ideas because I’ve said it for years, a good idea doesn’t care where it comes from, right? And you need to be networking with other people so that – that alone, nothing to do with real estate, is a very, very good tip. You know, when you meet somebody that’s doing something that you either don’t know how to do or don’t know anything about it, take ’em to lunch. Buy their lunch, right? It will be well worth it. I mean, look at you. You got twenty-plus projects in eleven different states now because of one lunch.


Kevin: That’s it. And I wasn’t going into that lunch, Larry, excited about learning about his business per se, I was going just to meet someone – you never know. You never know who’s gonna be on the other side of that table, who’s gonna be on the other end – you know, the most – your humble individuals that you, like the guy that drives the beat-up pickup truck, that’s your neighbor, right? For all you know, that guy could have sold a business fifteen years ago and it’s worth a hundred million dollars, right? Like, just be open, you know, be approachable, speak to people, talk to people, get to know them, right? And just – the value that gets uncovered from just putting yourself out there is so significant and that alone will take you very far in life.


Larry: Absolutely. Now, you’ve mentioned a couple of times a minute ago that you rent out, I’m gonna call it the pad, right? You rent out the space and so your tenant actually owns their own home so you don’t have to worry about any repairs or anything, so why do you that and tell us how you’ve managed that because I’m sure you get some people that don’t pay but they also don’t have the money to pull their trailer off the lot either –


Kevin: Right, right.


Larry: Tell us a little bit about that whole model and structure.


Kevin: Yeah, yeah. Now, I will, just to give absolute transparency here, we do own, give or take, the number changes every day, about 150 individual mobile homes inside our communities. In some communities, we own none. Some of our communities are 100 percent resident-owned. Other communities, we have, you know, maybe a handful and some communities, I think the most that we own in one community is probably about twenty-five homes, maybe a little bit more than that. And the only reason that we own them is because the prior owner, he liked the rental model so like basically just like an apartment, you know, he’d rent the mobile home unit, put someone on an annual lease and that’s how they ran it and so when we acquired the park, we acquired their business model, but we ultimately try to change it and try to sell those homes off to deserving families that want to be a homeowner versus just a continual renter, and so the reason why we don’t like that business model so much, it’s much more management intensive, you know, for some of the reasons I mentioned earlier, you know, you got turnover, you know, when people – when someone leaves, you know, they don’t always leave the place in the best condition. You’ve got, you know, carpets and floors you’ve gotta replace, you’ve got drywall repairs, you’ve got paint, you have down time, and down time equals loss of revenue. You know, a two hundred-space park where we own none of the homes is about the same amount to manage as a forty-space park where we own all the homes, like so the management intensity is significant. I mean, you know, ACs are always breaking. Roofs are always leaking. Plumbing backups. I mean, it’s a forever reoccurring, you know, maintenance issue when you own those units and so we don’t love it, and so, in any event – that’s why we don’t like that side of the business so we’re always working towards selling these units back to the renter. If they’re a good renter, they’ve been there a while, they tell us that they wanna be a homeowner, we create very easy financing terms for them to essentially take responsibility of that unit. Everything’s a little different but, you know, essentially like a rent-to-own model and, ultimately, get them into a position where they can own it in a very short period of time, you know, on average five years or so.


Larry: That’s really good. That’s really good. Now, how do you handle the delinquency because with the mobile home park, I mean –


Kevin: Oh, yeah, that was the other question.


Larry: Naturally, it’s – and I don’t know if this is a right terminology or not but naturally it’s probably a lower quality of clientele that you’re dealing with.


Kevin: Not necessarily. Let me get on that point then I’ll answer your question about how we handle delinquency when they own the home. I like to use the comparison of, you know, in any city, you know, I don’t know Lake Wylie, South Carolina, but I’m assuming that you guys have apartment complexes in town, you have residential neighborhoods, and you probably have some mobile home parks, you know, within a thirty-mile radius of where you live, right? You can go in any part of your town and probably find a D-grade apartment complex that’s run very poorly, that’s full of, you know, the wrong elements, and in a different part of that same town, you can find an A class, right? In a different part of town, you can find a B or C class which is full of blue-collar individuals. The A class is full of white-collar individuals. Same thing with residential neighborhoods. You’ve got nice neighborhoods which are high end, you’ve got the blue-collar neighborhoods, single-family homes, and you’ve got the rough neighborhood which your parents tell you to stay away from, right? Same thing, it’s just the mobile home parks. We’ve got the entire spectrum here. Unfortunately, we’ve kind of been lumped into the category of like we’re all bad, but we own some communities that are gorgeous. We own some communities that literally the mobile homes, you can more affordably live outside of our mobile home community, in the same town, literally the same village, as you could inside our community and the people that live in our community live there ’cause they like the community aspect and they have got really nice homes that are a hundred plus thousand dollars, and we have a lot of blue-collar type communities that are just good, hardworking folks that want an affordable place to live, and then the other side that we don’t own are D-class, you know, mobile home parks like the trailers, you know, the trailer parks of the world that are just filling up with the bad elements, you know, the rough crowd, they’re in the bad part of town, so I wanna make sure I make that point there. It really depends on your model and who you like dealing with, the demographic, but if you like dealing with, you know, responsible people that pay their bills on time, you can clearly find those in our niche. And so, back to the delinquency, that’s one of the cool things about this space is if they own their home and they don’t pay their lot rent, they have a lot to lose. For the most part, the folks that live in mobile communities in general, not just ours but in general, that’s their home, their trailer, it’s probably the most valuable asset that they own, other than their vehicle, right? Even if it’s only worth $10,000, it’s probably still the most valuable asset they own and if they lose that, let’s say, you know, across the board, the nation, the average lot rents are about $300 a month, in California, there’s lot rents $1,000, in Florida we have some as well, but, you know, there’s some parts in South Carolina, North Carolina where lot rents are as low as $150 a month but just, cross the board, on average, assume $300 a month lot rent, that’s pretty standard. There is no part in any city, any town, to where if that person owns their own trailer, if they’re only paying $300-a-month lot rent, where if they lose that roof over their head, that they’re gonna find to live for $300 a month at all, like it’s not possible, especially if they have a family. Maybe they can go rent a room in a boarding house for $300 a month, but – and so I guess where I’m going with this is they’ve got an asset that they’re gonna lose the most valuable thing they own. Most folks that own their home figure out a way to make that $300-a-month lot rent payment ’cause they run the risk of losing their home if not, and we’ve only had one situation, we’re very black and white in our collections policy, like no pay, no stay, we don’t give breaks, we don’t – we run a business and we’ve only ever had one eviction in the situation where the resident owned their home and it was an anomaly. The guy lived there for eight years, paid on time all the time and didn’t pay one month and the manager went to the door, he wasn’t home, went to the door again a couple days later, couple weeks later, couple months, guy disappeared. Called the local hospitals, jails, prisons, we couldn’t track this guy down. He literally disappeared and after like five months, we had to go through the eviction process and that unit became abandoned and we took back the ownership of it and then we ultimately renovated it and sold it, you know, to someone else that wanted to live there, so that’s the only situation where we ever had to evict somebody that owned their own home and so it doesn’t happen often, ’cause they’ve got so much to lose. They just have so much to lose.


Larry: Right. Wow, that’s really interesting that, you know, out of all the different units that you have that – and as long as you’ve done this that you’ve only had one –


Kevin: We’ve got two thousand units and we’ve sold some parks and so, I mean, we’ve owned a lot. Yeah. One. One. And it was a very unique case. It wasn’t just a case of irresponsible person not wanting to pay their lot rent. And for the person – where there’s a will, there’s a way, and $300 a month is not a lot of money to figure out how to come up with. I mean, you go to CVS, buy a case of water for $2.99 which is, I don’t know – I still don’t know how they sell that stuff that cheap, and go in the corner and sell those bottles for a buck, right? And do that for the entire month and you could easily make $300 doing that.


Larry: Right, right.


Kevin: So, most people figure it out.


Larry: That’s good, but if they can’t pay, you can have their mobile home pulled off the lot, right?


Kevin: Yeah. You know, that’s what would happen essentially if they, you know, if they ultimately don’t proactively sell their home, you know, ahead of time, which that happens, if someone was not gonna be able to afford it, they just sell the home, but they literally go through the eviction process and leave their home there and they abandon, you know, get out of town. Every state’s a little different but we go through what’s essentially an abandoned title process, very similar to what would happen if someone like left the car at your house or you left your car at the impound, after a certain period of time, the impound can basically take ownership of it and get a new title reissued in their name, it’s now their property, and we do the same thing and every state’s a little different. Some states it’s fairly quick, it takes a couple months. Some states, it can take, you know, eight, nine months, but it’s not very expensive, less than a thousand bucks for the most part, and we take the home back and then we have legal ownership and we’ll go in and renovate it or, you know, depending on the home, you know, we’ll – like this we only had happen once so we’ll go in and that one we renovated, it was worth saving, it wasn’t in that bad a shape and then we turned around, we put about $3,000 into it and we sold it for I think $8,000, made $5,000 and, you know, it basically helped us, you know, recapture the lost rent. I think at the end of the day we probably netted about a grand when you actually factor in the lost lot rents and things like that that occurred.


Larry: Right.


Kevin: And you got a new tenant in there. That person still lives there today, you know, that was like three years ago. The same person lives there, they own their home free and clear and they pay us $350-a-month lot rent.


Larry: They don’t go anywhere, that’s for sure, ’cause they’re not gonna move their home to another park.


Kevin: No. Cost, you know, single wide, on average, and this is assuming if they move something, you know, to another community close by, a single wide, on average, and this is the move and also resetting it back up at another community and that means blocking it, leveling it, putting skirting all the way around. A lot of times, you can’t reuse skirting ’cause it might be a higher elevation, you know, it’s not the right size anymore, you gotta build new decks, you’re talking, you know, $5,000 to $7,000 when it’s all said and done, getting utilities hooked up, getting your AC hooked back up, all that stuff. The average person who lives in a mobile home park doesn’t have the $7,000, you know, waiting to burn a hole in their pocket. It just doesn’t –


Larry: That’s true. What would you say is the average age of a mobile home in a park like that, and I’m sure there’s some parks that were developed later than earlier, but in some of ’em, once they get a certain age, you can’t move ’em anyway, they don’t allow –


Kevin: That’s it.


Larry: For that.


Kevin: Yeah, if they were built prior to 1978, that’s when HUD got involved in the manufactured housing space, so if they were built prior to ’78, they’re legally not allowed to be moved anywhere. They’re not road worthy, per the government, so anything prior to ’78, they have to stay stationary, but, you know, it’s kinda hard to give you the average age across the board. I mean, the average age of probably the homes in our communities, we’ve got some newer stuff, we’ve got some older, but probably like mid-’80s to, you know – or late ’80s to early 2000s.


Larry: Okay. So, a lot of –


Kevin: We’ve got some very new stuff and we’ve got some old stuff but like that’s kind of the middle of the pack.


Larry: A lot in the ’90s, yeah.


Kevin: Yeah, yeah.


Larry: Yeah, that makes sense. That makes sense. Now, do you, as a park owner, do you ever, like if you have an empty space, will you find a new mobile home maybe or a mobile home and move it on there and sell it and, you know, get that buyer financing and all that third party and so you don’t have to do it, so you create your own tenant and you make money on the mobile home.


Kevin: Yeah, yeah. We do both. We’ll bring in used homes. It depends on the park, it depends on the market and who the end buyer is gonna be.


Larry: Right.


Kevin: Ideally, we like bringing new homes in ’cause it just – it kinda refreshes the community, right? If you just got a community full of old homes, at some point, it literally is just gonna – like it’s hard to make, you know, forty-year-old mobile homes look good, at least –


Larry: Right, right, right.


Kevin: And so if you start bringing in newer, you know, newer mobile homes that have vinyl sidings, shingle roofs, nice shutters, they look more like a traditional home, you know, that definitely spruces up the community and so we’ll bring new ones in. I can tell you that we don’t try to make that much profit on the new home sale, ’cause really, at the end of the day, like the value that we want is in the lot rent, like that’s really where the value is made so we’ll bring a new home in, we’ll set it up, you know, we’ve got some financing programs like in house that are, they’re third-party companies but like we’re set up with them as a, you know, whatever, correspondent lender, whatever you wanna call it, and, you know, so we have full-blown sales program with some of our communities with new homes and we’ll have single wides, some double wides depending on the demographic we’re serving and what kind of price point they’re looking for and, you know, we don’t try to make much money on the new homes. Sometimes we’ll even consider losing money on a new home sale. If we’ve got an incredibly qualified tenant, like if someone came in, if I have $40,000 into a new home and someone came in and said, “I don’t need financing, I got $38,000 cash, I just wanna buy this thing, I wanna live in the community but I don’t wanna get financing but I’m really, I got $38,000 and I need to make that fit my budget,” I would lose $2,000, especially if they’re getting – if they’re paying cash for it, ’cause I know they’re not going anywhere anytime soon. There’s no risk of them even going into default on the mortgage at that point ’cause they don’t have a loan on it.


Larry: Right, right. That’s huge, man. I love that.


Kevin: Yeah, yeah.


Larry: I love it. That’s awesome. That is awesome. That’s good stuff. Let’s talk a little bit about the utilities because I know some parks have their own utility company, whether it be water or whatever, so talk a little bit about that ’cause I’m sure that’s an extra income source as well.


Kevin: It can be. I don’t think – we try to get our costs back so we’ve purchased some parks to where they actually, you know, make money on their utilities but what I found is that if you’re really honest with yourself and you don’t defer maintenance in your community and like if you have a well system, well systems don’t run forever without needing repairs and maintenance, right? And so if you’re adding a little bit of – and if you’re allowed to. Not every state or every county allows this and so some people would do it illegally, but if you’re adding some type of premium in there for the cost, you know, you still have repairs and maintenance, you have a licensed operator a lot of times that has to maintain that system. There’s not a lot of profit margin there. You know, some folks might lie to themselves in their profit statement but they’re really, at the end of the day, like that’s not where the profit center is. You might make a little bit but not enough to, you know, change your life.


Larry: Right.


Kevin: And same thing with the sewer. You know, we’ve bought parks that have their own private sewer systems where the old owner, you know, tries to charge a premium and what we found is that a lot of times that premium just really helps basically pay for the licensed operator for the reserves that we set aside for future big capital expenditures that might happen to the system, and it’s really just more of a breakeven, if you’re lucky, it’s a breakeven side of the business, so, but with that being said, I’m not saying you can’t make profit off utilities, it’s just not a – the amount of headache and regulatory issues involved with trying to profit on private utilities is not worth the brain damage, but speaking to utilities, you know, there’s different types. Ideally, it would be municipal- or city-provided water and sewer, that’s the most simple and straightforward, you know, you don’t have to worry about the quality of the water ’cause it’s the city or the town. The sewer system, again, you don’t have to really worry about what they do with the, you know, the waste once it makes it to the plant, not your responsibility, whereas if you got a private well, you know, now you’re in charge of not poisoning people, right? Giving them clean drinking water. You gotta be responsible of that. It is – there’s some risk there but there’s licensed operators out there and we don’t do it ourselves, we don’t have our managers do it. I know people that do. They’ll get certified, they’ll have their manager get certified. We’re surely not putting that responsibility in the hands of our managers, ’cause at the end of the day, you can’t poison someone with the sewer unless they go and drink out of the sewer but you surely can poison somebody with a well if you don’t stay on top of it and I think that’s a big risk so we always have licensed operators manage that stuff for us, and then on the sewer side, you know, there’s different types of private systems. There’s, you know, the traditional septic tank system. You’ve got lagoons, which you don’t see too much of anymore, which are basically large cesspools and then you’ve got, you know, package plants or sewer treatment plants that are basically a miniaturized version of, you know, what your town or municipality uses to treat the sewage and you have those on site and we only own one of those today, like the actual treatment plants, we just bought a park with one and we’re about to buy another park with a sewage treatment plant, and we own a number of parks with septic systems. We own a few wells, but for the most part, we have municipal utilities. Again, it’s just, from a risk perspective and just ongoing operations cost, it’s much easier and straightforward to have municipal utilities, but with that, there’s lots of parks on private systems that are great opportunities.


Larry: Yeah, that’s good. That’s good. Now, tell us a little bit about, if somebody wanted to get started in this, what would be like, I’m sure you, having done as many as you’ve done, there’s probably like an ideal size or a good starting point for somebody to get into this space. What would you recommend somebody wanting to get started?


Kevin: Yeah, it’s really, you know, I’ll back up a little bit. You know, kind of how our management works is since we own communities in many different states, you know, and we’re not visiting them every week, we have on-site community managers. Sometimes they live in the community, sometimes they’re outside but they’re very close, but they handle the day-to-day operations. They handle the rent collections, eviction notices, you know, meeting vendors, all that stuff, right? I mean, just all the day-to-day daily grind, they handle it, and so you get what you pay for as far as the community manager. If you’re only willing to pay someone, you know, minimum wage, you’re gonna get minimum wage, right? And so I like to say that you need to – you should probably choose a mobile home community – if you don’t intend to manage it yourself, meaning like if you don’t plan to live there or be there every day, like you want someone else to kinda handle the day-to-day stuff, the collections, you need to have someone competent there to manage the day-to-day operation, and the park needs to produce enough revenue for you to be able to hire someone that’s competent and every location, every market’s a little different, but I found that if you can pay someone the equivalent of, you know, $15 an hour and every park’s a little different, how much time that’s gonna require on a weekly basis to manage it and to do the day-to-day operations but most of the time it’s not full time unless it’s a, you know, eighty- or hundred-plus-space park, most of the time it’s a part-time job but you gotta be able to pay someone $15 an hour or so, and if you can’t do that, then you’re not gonna get someone that’s competent so the normal size that can accomplish that, that you can justify paying someone $15 an hour, is normally about forty lots, forty to fifty lots. Now, if it’s a park that’s in like, you know, the outside extreme to that would be if it’s a park in like, you know, Boston, Massachusetts, where lot rents are $700 a month, then you can probably manage that same thing on a twenty-lot park, right? ’Cause your revenue on that twenty-lot park, because your lot rents are so high, is just as high as a park that’s forty or fifty spaces that’s $300 a month, so forty or fifty I’d say across the board, generally speaking, is about the size that you should be looking at. Not that you can’t make money on smaller ones, not that you can’t make it work, not that you can’t find a competent manager for $10 an hour, but depends on how much brain damage you want and how much freedom you want that community to create for you is the best way to put it.


Larry: That’s really good. That’s – that’s some good info right there. So, tell us a little bit about putting these deals together. I’m assuming you probably do some syndication to raise money for these type of projects.


Kevin: We do. You know, the first, you know, I think six or seven communities that we purchased, we didn’t. Most of them we used either – I had one of the parks that we used our own money, we had some private lenders that we still had good relationships with from our, you know, back from our single-family days, and so most of the first, you know, batch that we did over the first couple years was all of our own money and we really did that for a multitude of reasons. Number one, we wanted to put our own money to work. We wanted to prove the concept. We didn’t wanna go risking investor capital with a kind of unknown entity at that point, right? And so we did that, we kind of proved the concept, you know, refined our systems, refined our focus, kinda how we wanted to take a bigger stab at this piece of the pie or this niche and then, you know, two and a half years ago, maybe three now, we basically, you know, formalized our company, put a business model in place where we’re raising capital and so we do it – we don’t do it deal by deal. We do it in a fund structure, so we’re rounding out a second mobile home park fund, we opened one last year and we bought a number of communities. We opened one this year. This year it’s a $20 million raise of equity and we’ll close out the current fund we’re in here in the next six months or so and then we’ve got a third mobile home park fund that we’ll open up and, again, bring capital in as equity and just keep the buying machine going so we decided to go with a fund structure for the syndication to where we buy multiple properties underneath one entity because our pipe – we’re pretty confident of our pipeline. You know, we do a lot of the same marketing methods that a lot of the residential guys do, the big-time guys that are doing multiple hundred deals a year, we do a lot of direct mail, we do a lot of cold calling, we have full-time cold caller in-house. I work with brokers as well and so our pipeline has always got deals in it. We’ve got stuff that falls apart. We’ve always got a pretty healthy pipeline so we decided the fund structure was much more efficient. We could buy multiple properties at once then doing one at a time and, you know, the legal cost with an individual syndication is just as much as it is with a fund syndication and so that allows us to kinda spread that out amongst multiple properties.


Larry: That’s good. That’s good. Are you able to share a little bit about what kind of returns the fund is generating?


Kevin: Yeah, yeah, absolutely. So, right now, we’re in the middle of our second capital raise of our mobile home park growth and income fund to, it’s a slightly different structure than our first fund was and we’ll probably make some tweaks to it again next year, but, ultimately, there’s a pref involved depending on how much capital the investor puts in. It’s for accredited investors only. Eight percent pref is the minimum. Someone can get up to a 10 percent pref if they put in a half million dollars or more, and then essentially it’s a 50-50 split after the pref is met and so our projected returns, and we actually have a pullback provision in our operating agreement which allows – there’s no guarantee but it’s the closest thing to a guarantee possible so the pullback provision basically states that our investors will achieve an annualized return of 12 percent, you know, during the life of that investment or those investments inside that fund. If they don’t, at the end, when we divest these properties, let’s say it’s year 8 and we sell everything off, we haven’t met their annualized 12 percent return in those eight years, every year for those eight years, they get to take it back from our general partner side before we receive any profits. They get pullback from us to basically level out at the 12 percent, so 12 percent, to answer your question, 12 percent is what our investors can expect.


Larry: So they get an 8 percent preferred –


Kevin: Eight, nine, yeah, eight, nine, or ten, depending on their level of investment. Yeah, so 8 percent is the minimum. If they put in, you know, basically $250,000 to $500,000 they get a 9, and anyone that puts in over $500,000 gets a 10 percent pref, so it just really depends on their level of investment.


Larry: Right, right, right. That’s good. Well, 8 pref is pretty good. A lot of people do 6, so that’s pretty good.


Kevin: Yeah. Yeah, absolutely. Yeah, and you can actually see, I mean, all the investor guys – apartment guys, you know, deals are, even in the mobile home park space, deals are getting harder to come by, the returns are getting squeezed a little bit so you see who might have been doing an 8 pref, you know, three years ago now is doing a 6 pref, they have to in order to make the deal work, in order to be able to get their investors paid and also for them to make some money in the deal so, you know, we’ve also made tweaks to our fund structure from our first fund to this fund. We’re setting up the paperwork for our third fund that we’ll be rolling out here in a little bit. It will be a slightly different structure as well. The whole goal is all of our investors are our partners. I mean, we’re directly aligned with them. You know, we’re really looking what’s in their best interest and we truly are grateful for every investor we have and we wouldn’t be where we’re at today and we wouldn’t be able to do what we’re doing if it wasn’t for those partners that we have so we’re always like first and foremost when we put the plan together for the structure itself, it’s like, what’s the market doing, what are our competitors doing, and also what does the investors really want, you know, like what are they expecting, what are their expectations and how can we directly align ourselves and our structure with their expectations and actually meet it.


Larry: Right. That’s good, that’s good. So, tell us a little bit about how you go about – I know you’ve mentioned you’ve got somebody on the phone, you do some direct mail, but what are some of the best ways to find mobile home parks?


Kevin: Yeah, I mean, there’s some listing sites out there. I mean, everyone knows about LoopNet, you know, which is the basically commercial MLS. We have bought a few things off LoopNet. It’s – I kinda classify LoopNet as the broker trashcan, right? Like if they’re – 99 percent of commercial deals, this is generally speaking, 99 percent of commercial real estate transaction happen off market, meaning that it’s a broker has a relationship with the seller and then that broker also finds a buyer, the transaction happens and, Larry, you and I don’t even know, right? It was never listed on an MLS. It wasn’t, you know, wasn’t posted for sale. It just happened behind the scenes, whereas residential, probably 99 percent happen on market, right? They go on the MLS and they go for sale that way.


Larry: Right.


Kevin: And so LoopNet is not a great place because normally that’s like the Hail Mary pass for the broker, they’ve kind of shopped it around, either it’s too expensive, there are some challenges with it, it’s in a bad market, and their buyer’s list hasn’t bought it and so then they put it out the world to see on LoopNet so LoopNet is not the best place for those. There’s also a website called MobileHomeParkStore.com which is a listing site for mobile home parks also. We’ve never bought anything off the site. We look at it every day. We have for five years, still can’t find anything. The owners of that website are big investors, mobile home park investors, and I’m pretty sure they cherry pick everything before it gets posted to the public, which is good for them, I like the business model.


Larry: They ain’t selling.


Kevin: Right, right, and so, to get back to the original question, you can search those sites, but really brokers are a good option, building those relationships with industry brokers, we have a number of ’em in our space that that’s all they do. You know, also, you know, direct-to-owner marketing. You know, just like a lot of your listeners are probably familiar with that, you know, we talked about direct mail, you know, getting a direct mail campaign put together, mailing directly to owners within a particular target region or market, pick up the phone and cold calling them, right? If they’re local to you, you know, schedule a lunchtime with them, go visit them if they actually work inside the community at the office or, you know, go meet with ’em. You’ll find a lot of these owners are old mom and pops and you’d be surprised, like you’d find a guy that he owns the park worth $5 million and he literally lives in it, you know, he lives on one of the trailers, go meet with the guy, and so it’s really all about getting direct to those owners if possible and then also utilizing brokers as well but about 90 percent of our deals, and we’ve been doing this a long time so we’ve got good broker relationships and we look a lot at broker deals, but broker deals, it goes to the mass market and there’s always someone willing to pay more than you for it, right? And so you get into this like bidding war and you end up overpaying for stuff and so 90 percent of stuff we buy, that we’ve bought to date, has been direct to owner. We’ve sourced it ourselves. And we don’t get into that bidding war, we get things for fair prices and a lot of times we get to negotiate some good terms, like seller financing and – or, you know, interest-only periods and all that kind of good stuff.


Larry: That’s really good, man. This has been some really, really good stuff. I really appreciate you sharing a lot of good information. One question that I’ve been thinking of is, you know, do you or have you ever or what are the benefits of developing your own park because it’s really just the infrastructure, just putting in, you know, clear grade gravel pave, put the utilities, and the pads in.


Kevin: Yeah. Couple different things is, number one, if you’re talking about doing this in any developed town or city, the chances of you getting approval from the town or the city to do so is less than zero.


Larry: Wow.


Kevin: Yeah, it’s just, you know, just like you thought, like you thought that, you know, mobile home parks would mean dealing with challenging tenant base, municipalities and towns feel the same way and so like the last thing they want is to have another mobile home park in their backyard because some of the ones that are probably in town already probably aren’t run properly, right? They probably got some bad elements to ’em, so the chances of getting approval for that, unless it’s out in like the middle of a rural area, is next to none, and even if you could get approval, there’s plenty of parks that exist out there today that already have the infrastructure in place that are being mismanaged that you can essentially pick up for less than replacement cost, less than it would cost you to develop them, and they already have some cash flow in place and so if you went and actually developed your own park, not only do you have the risk of – you have the uphill battle of getting approval, then you’ve got the risk associated with developing, you know, having that debt and the time period associated with developing a piece of property, and once you’re said and done, you still have to fill it with people that are willing to move their homes in and pay lot rent or you’ve got to put in a new home sales program and literally, the breakeven time period, it would take quite a while to get to where you’ve got, you know, 30, 40 percent occupancy where you’re actually breaking even, you know, so like you got a long, long road ahead of you of negative cash flow and basically supporting this massive debt beast, so that’s why developing is not – it’s not the best plan today. About the only time it really is is if you’re gonna develop, you know, a very high-end community, like the parks that really get developed today typically are parks that are in like Florida and they’re not affordable housing, they’re lifestyle communities that, you know, they’ve got palm tree-lined streets, they’ve got three swimming pools, you know, the people that live there have other homes up in the north, you know, it’s like their summer or their winter getaway, it’s a snowbird type thing –


Larry: Or a fifty-five plus type place.


Kevin: That’s it, that’s it. You know, again, they’ve got activities directors, I mean, it’s more of a lifestyle choice than it is “I need an affordable place to live,” so those are the types that typically are built and we’re talking about huge projects at that point and you can truly make money there but that’s not our – our niche is – there’s plenty out there that need work that are good value-add place that, you know, that we can buy for below replacement cost and we get in and have cash flow right away and add a lot more to it down the road.


Larry: Good. That’s good. Well, man, I really appreciate you being on. If somebody wanted to reach out to you and connect with you, check out your podcast or whatever, how will they do that?


Kevin: Yeah. So I’ve got two different places I can be reached. Our company website, in case anyone wants to know what we’re doing, they can contact me through there as well, it’s SunriseCapitalInvestors.com, and then my personal website is KevinBupp.com and on my personal website, I also host my real estate investing for cash flow podcast. They can listen to them there, they can find them in iTunes, and then we’ve also got a mobile home park investing podcast that you can find on iTunes or Stitcher and I think a variety of other places as well, so any of those ways they can reach me. I’m not too hard to find. Just like you, Larry. We can be tracked down pretty easily. We can’t hide anymore with this whole internet thing, right?


Larry: I know, right? We’re out there.


Kevin: Yeah.


Larry: For sure. Well, buddy, I really appreciate you being on and thank you so much for sharing. It’s been a lot of good information.


Kevin: Yeah. Thanks for having me, Larry. It’s been an absolute pleasure. You take care.


Larry: Alright, thanks a lot, everybody. If you’re watching, appreciate it. Thank you and be sure and share the video and leave us some feedback and we appreciate it. Thanks a lot. See you later, Kevin.