Episode 292: Mobile Home Parks = Cash Flow! with Kevin Bupp
A mobile home park is a fantasy for a lot of people out there. Although the industry is still fragmented, mobile home parks will eventually be recognized as an asset. Kevin Bupp, CEO of Sunrise Capital Investors, is all in for this as he talks about how mobile home parks is the best cashflow vehicle for him. He shares some of his deals – from the best victories he had where he had a park that was beyond his wildest dreams, to the one that hurt him the most. He also talks about the importance of being a problem solver in the industry while giving out the secret to finding distressed properties. Discover more insights about mobile home parks as Kevin shares how it can help you to have a tremendous cashflow.
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I have a very special guest, Kevin Bupp, and he’s with Sunrise Capital Investors. This guy had a long, lucrative career of about sixteen years figuring out what’s the best cashflow for him. We all go through some stages. He’s been through single-family and then he went to apartments and then he did some other stuff and now he’s excited to be doing mobile home parks. It is a fantasy of a lot of people out there to get a mobile home park and get it all run in and get it all straightened out and make that cashflow. We’re going to talk to Kevin Bupp, but I need to talk to you about TaxFreeFuture.com. If you’re not investing through a tax-deferred or tax-free account, you have no idea of what you’re missing. Please check out TaxFreeFuture.com. There are about 37 videos over there. It explains how you can take a little bit of money to a lot of money quickly and a lot of case studies. The main reason you need to check out TaxFreeFuture.com is that you will not believe what your financial advisers are not telling you. How are you doing, Kevin?
I’m doing awesome. I appreciate you having me on the show and I’m looking forward to it.
I love this topic. I’ve had some experience in the mobile home arena, but I never owned a park myself. I always wanted to. My cashflow vehicle of choice ended up being self storages, boat storages and dry storages, but I always liked these parks. One, you could double dip. You could get your park and then you could also owner finance the box on top of it. You can have two things going. Let’s digress a little bit. You did sixteen years of figuring out where the best cashflow is. Tell us a little bit about that journey.
I got introduced to real estate when I was nineteen and bought my first single-family property when I was twenty. I started like a lot of people do. I started buying rundown properties. This was in Pennsylvania where I was born and raised and I cut my teeth doing that. My mentor at the time focused his business on cashflow. He had lots of single-family and small multifamily properties and he built a lifestyle around that. He was about 22 or 23 years older than I. He was much further along in his life. He had the luxury at that point of whatever he bought, he kept. I couldn’t follow his model immediately so I bought and flipped. I bought, fixed and flipped, built up some capital and holding as much as I could. I was in Pennsylvania doing this for two years. At that point, I realized that I hated the cold. I was down with it and I wanted to move somewhere sunny and warm. I moved down to Tampa, Florida, which is where I still live and that’s when my business took off. It’s a much more active market and lots more going on. It’s a larger market in general and a more progressive area.
I started buying single-family properties. I built up a big portfolio of single-family rentals. I also built a quite substantial mortgage company back then, and it was doing well leading up until 2008, and 2008 crushed me. I lost every single-family property that I owned in addition to about 500 apartment doors. I didn’t lose, but I had a hard time meeting the balloons when they came getting new debt in place. It ramped up fast and it ramped down fast. I was introduced to mobile home parks a couple of years after the crash happened in 2011 and I studied it for about a year. I bought my first park in Atlanta. It’s a distressed deal and bought the next one. Now we own parks in thirteen different states and this is all we do. We own and operate mobile home communities. A lot of times we’ll buy distressed ones for many different reasons. It might not be operating efficiently. It could be the management, it could be the tenant base which goes hand in hand, it could be they got a lot of vacancies, it could be that the rents aren’t at the market and we go in and fix them. We go in and fix the problems and it’s treated us quite well and we like it.Figure out how to be an excellent problem solver; that’s where the wealth is made. Click To Tweet
It’s not unlike most businesses. You’re buying someone’s problem and then you’ve got to turn it around. You got to have an inkling of an idea where that turnaround is.
That’s where the money is made in real estate in general. If you can figure out how to be an excellent problem solver, it doesn’t matter if you’re buying mobile home parks, single-family properties, commercial or apartments, or whatever it might be. You can figure out how to identify the problems and then figure out the solution better than the next guy. That’s where the wealth is made. Anyone can go buy a fully stabilized property at a five cap. Anyone can do that.
Five caps will be good. I see these mobile home parks going in four caps and I’m going, “Who buys this stuff at a four cap?” That’s assuming that their financials weren’t fabricated at all that it’s a four cap. If there’s any fabrication in the profit loss on that by the seller, then it’s not even a four cap. Everybody write their numbers to their favor. That would scare the living out of me.
To answer the question who is buying the four caps, there are lots of institutional money in our space now that wasn’t here a few years ago. Their cost of capital is much cheaper than your cap or my cap, depending on where their source is. They can make numbers work at four and five caps. Unfortunately, we can’t and I’m assuming you can’t either. That’s a little too skinny for us.
I’m going to ask you about a theory that I’ve been thinking about. I’m not proud of the theory that I’ve come up with. You get a little older and you’re getting ready to check out. You’re running different kinds of numbers. I suppose that’s the hedge funds on those people that are parking money. It’s the same thing in storage. You look at a 90% full storage place. They’re not giving them away by any stretch of the imagination. They want every drop out of them. What’s the secret to finding the distressed properties or maybe you don’t want to share that secret?
I don’t think there’s a silver bullet, but most of the hedge funds and institutional guys or private equity firms, they don’t like buying problems. They’d rather place $100 million or $500 million worth of capital and stabilize the assets. They need to buy at scale and you can’t buy at scale if every single property you’re buying has underlying issues that need to be solved. That’s one of the big benefits of how we approach the space. We like finding the problems that the institutional guys don’t want to deal with. We fix those problems and then our end buyer at that point can then be an institutional buyer that can pay very low cap rate. We buy institutional grade parks that would meet institutional standards three or five years from now and we put the plan in place to get them to that level. Not necessarily with the plan of exiting, but just knowing that we do have an exit plan in place and that there was someone on the backside that’s willing to pay very aggressive prices for the product that we created.
As far as finding them, this industry is still very fragmented. I compare it to what self-storage looked like a few years ago. Back then, there were only a handful of big players in public storage. In any event, it’s different now. There are multiple REITs, multiple public traded companies that are in the self-storage space, tons of private equity. A few years ago, it wasn’t even recognized as a commercial asset. It was a redhead stepchild. Now it’s included in all the different commercial investor reports that are put out on a monthly and quarterly basis. It’s the real deal. Mobile home parks are going there. It’s happening at lightning speed. Carlyle Group, Blackstone, and all the big PE names that everyone is familiar with, they’re in our space now. They’re in it in a big way and they’re consolidating it. With that being said, there’s still fragmentation that we can take advantage of. We can find those moms and pops that are aging out of communities who’ve owned it for 30 to 40 years. Maybe they haven’t run it as much like a business as you and I might run it.
We can get in there. We can bring rents up to the market. We can fix the infrastructure issues that they’ve been dealing with that. Maybe they have been keeping new residents away from moving in. We can do a better job of collections, which I see as a common problem with moms and pops. They become friends with the residents. They give everyone a break. They don’t do great at the collections. It’s easy to fix. We’ve got a very black and white no pay no stay policy. We fix the problems and then we have something that a big backend buyer like a REIT or a private equity firm would have an interest in purchasing.
You said one thing that you left out in that last run. It was the quality of people that are in there because sometimes you’ve got to start over and raise the bar a little bit. It’s also the quality of rooms that are in there because sometimes the homes are old and it makes the whole place feel downtrodden. My bankers have asked me, “Why would you invest in mobile homes? They’re not going to be worth anything in a few years.” I said, “That’s not true. Mobile homes will be worth something as long as you paint them and keep a roof on and then stop the leaks just like your million-dollar house. If you don’t fix a hole in the roof on your million-dollar house, it isn’t going to be worth anything soon either.” The problem why mobile homes have the stigma that they fall apart is because a lot of people live with some economic levels in mobile homes. They don’t have the sophistication to keep up or the finances to keep up. I still collect notes on a 1978 double wide mobile home. It’s beautiful. You wouldn’t know because this one has been taken care of and kept up.
We have some homes in our communities that are from the ‘60s that had been maintained over the years. The outside looks good. They’re not all dented and rusted. They’ve had new roofs put on them. They’ve had new windows put in over the years. Just like you would upgrade a normal single-family home that’s 40 or 50 years old, the same thing occurs. We’ve even reconstructed floorplans in some older homes. Older homes that might have been a three bedroom that had small bedrooms, we’ll break it down to two bedrooms and make normal sized bedrooms out of it in a more modern floor plan. You’re right. As far as mobile homes having an actual economic lifespan to where they’re not necessarily usable or they’re completely obsolete, that’s not the case. A lot of times it goes to the type of residents that are living in it, whether or not they have the means to maintain the home. You make a very valid point there. At the end of the day, they are personal property like a car. That mobile home will never be worth more now than it was when it was new.Timing is everything with different strategies. Click To Tweet
I have an objection to that statement.
I was about to give my one objection to that statement because there is. There are always those anomalies that occur. I’ve seen some communities in very high-end expensive markets to where older homes fetch a higher price now than they would have a few years ago. It’s more of the local market that they’re in. There is zero affordable housing and people were just clamoring to get their hands on anything that is remotely affordable. In California, that happens a lot. In Florida, that happens a lot. Give me your objection.
You’re talking about the market.
I’m talking about NADA value.
I once went out and bought 140 mobile homes in six weeks after reading half of Lonnie Scruggs’ Deals on Wheels book. I read half the book. I got excited. There are some things going on in the State of Texas that had bankrupted the mobile home industry. They passed some laws in the name of consumer protection and they made a law where you couldn’t finance the home and the dirt separate from each other. They all had to be on one loan, which meant now every mobile home buyer in Texas couldn’t qualify for the loan, so they all went bankrupt. All of the mobile home dealers went bankrupt. There were 70,000 repo mobile homes in the State of Texas. Being an entrepreneur, I had my nose in the wind and I smelled that. I was buying them for $6,000 a piece for about twenty at a time. They do depreciate on paper.
If I’m going out to speak to private individuals, I bring the NADA book, and then I negotiate my price based on what the book says it’s worth. Usually, people buy off on that more or less. I take that book and I throw it in the trashcan, and I offer owner financing on a used mobile home where no one offers financing on a used mobile home. No one I know except for me and some other private guys. You could get one if you had an 880 credit score and you had a personal relationship with your bank, but who does that? I’m buying them at 6%. I offer to owner finance them at 18%. At the time, it was 14.5% because the interest rate was high because the balances were so low that it didn’t matter. What made the house worth more than it should be or would normally be thought of is because I offered terms. It’s like buying a sofa. That sofa is not worth $3,500, but they’d give such great financing terms that people will buy the sofa for $3,500. That’s what happened.
I did that. I bought it at $1 million, I bought 140 homes, I didn’t touch most of them and owner finance them for at least double, sometimes triple, sometimes quadruple. I created $4.8 million at 14.5% in eighteen months. My problem was I didn’t own the dirt underneath of them. I could have been in a lot of trouble there if someone had sold that part to put up a strip center or something. I heard horror stories about that. I knew a guy that had 90 houses in a park, and they sold it to build the big Home Depot and anchored strip center, and it collapsed his business overnight.
There have been some other big changes that have happened over the last few years. There is some decent consumer financing now. I wouldn’t say that it’s great by any means. What you needed a few years ago was 700 plus credit score. If that person had 700 plus credit score, they’d just buy a house. They wouldn’t be buying a mobile home, most of the time. There have been some changes. There are a lot of banks getting into space now. Neither here nor there, one of the other big changes that have occurred is the Dodd-Frank and the SAFE Act as far as loan origination is concerned. It creates a lot of additional challenges with truly being able to owner finance those notes and not fall within the radar of the government.
We don’t do that. We’re buying these parks for the value of the land. The revenue that the land creates has value to the homes, but it’s not where the real value is at least being the park owner. We want someone in that home. We want them to own it. We don’t want to get it back, so we’ll make it very easy. We’ll put together what’s equivalent to a rent credit program, which is like a frequent flyer mile program. They live there. It gets around the SAFE Act and Dodd-Frank and it allows them between three to seven years depending on the age of the home and the value of the home. If they make their payments on time to own that thing free and clear, we will get our money out of it and then let them sail off into the sunset and be a lot renter.
Once they own that home outright, they’re not moving anytime soon. We’ve got some residents that live in our communities. Our longest tenured resident is at 38 years and we’ve got lots that are twenty plus years. We’ve got hundreds at twenty plus years. We know that once they own their home outright, there’s no cheaper place that they can live in that market. Pick any of the markets we own and there’s no cheaper place that individual can live. We want to get them to home ownership as fast as possible even if it means we lose some money on mobile homes.
If we’re into that home for $10,000 and we get a buyer that comes in with $6,000 cash and we run a background, they’re clean, they’ve got a solid job, I will lose $4,000 on the home. I know that once they own that thing, they’re not going anywhere and it costs too much for them to move it. We look at it a little bit differently through some different lenses. That’s where the value from our perspective is, especially on the backside. Most buyers, in general, don’t put hardly any value on the notes associated with the mobile homes or on the NADA value. It’s not an attractive part on the buyer end or the financing end for a new buyer to come in and buy the park itself. We always focus more so on the dirt than anything else. Like anything, there are a million different ways to make money.There are 1000 additional ways to make money in real estate. You just got to pick one and then master it. Click To Tweet
One of the things is you’ve got to master your niche. That’s one of the things I wanted to talk about. You’ve got to focus on the one thing because you can get spread thin and easy. I don’t make up many quotes, but I think I coined this one. The hardest thing an entrepreneur will ever do is find one great idea and finish. I created 140 notes on those boxes. I sold those notes to Clayton Williams. I sold 35 of them for $750,000 and then I sold another thirteen to fifteen for $350,000. I paid back my $1 million and I had $150,000 in the bank and I had 90 mobile home notes free and clear, but I don’t know that that can happen again. Times change. He had just sold to Buffett. He had a vertical company and he took that money and went right back into the mobile home business.
Timing is everything with different strategies. You capitalize on an opportunity that doesn’t exist now as far as a lot of repos. In fact, it’s completely the opposite. It’s very challenging to find used quality homes at reasonable prices. If I’ve got 50 vacant lots in my community in any market and I want to find twenty used homes and get them at a reasonable price, it’s very slim to none chance that that’s going to happen unless you get very creative. You can’t just go to a local dealer or local banking at the repos. You’ve got to get creative and you’ve got to utilize. We buy houses strategies and market and campaign a direct owner in different communities. We find people that need to sell their homes and need to move or whatever it might be and buy them that way. You can’t easily go to a bank and ask for their list of repos because it doesn’t exist, unfortunately.
I’m trying to buy one right now as a place for an onsite manager to live in a storage place. There are no more $6,000 to $7,000 mobile homes that are in any kind of condition at all.
There are, but they’re crappy.
It’s not even in consideration. What I’ve been doing was going to the parks and saying, “Let me know when you’ve got one that you’re getting as a trade-in. Instead of moving it to your lot, just move it straight to my place. We’ll save that double move if we can.” Still, they want $25,000 to $28,000 for those double-wides. We used to pick them up for $10,000.
One of the best places we have found to find used mobile homes is on the Facebook Marketplace. Most of the seller is on there. There’s a portion that is slightly motivated because they have to leave, but yet they don’t want to continue paying their lot rent while their home sits in so they get very motivated very quickly as time goes on. They start asking $20,000 for it. You’ll find very quickly that they’re willing to take $15,000 or $12,000 because they’ve got a $400 a month lot rent that keeps accruing and they can’t move to whatever their next stage of life might be. Facebook Marketplace has been one of the better places that we found used homes. You’ve got to be on top of it and you’ve got to be willing to pounce very quickly when you find someone willing to sell for a discounted price. You’ve got to have cash and make sure they’ve got the title and make the transaction happen quickly. Also, quickly move that home off that lot so that you don’t have to start paying the lot rent to that community because your profits or your discount will go away quickly if it sits there for a couple of months.
Make sure you’re around the serial number and check for any past due personal property taxes. Go through whatever authority. Down here, it’s the TDHCA, Texas Department of Housing Community Affairs in Austin. That’s a hard place to deal with too. I wonder if it’s like that in every state. Let’s talk about the power of affordable housing. People think that when you and I or people like us are dealing in mobile homes, we’re scraping the bottom of the barrel and it’s a war zone and that we’re slumlords and all that stuff. It’s simply not true. It doesn’t have to be true. I know there are a lot of people that are slumlording it in this arena, but it doesn’t have to be like that. I’m sure you’re with me on that.
This is the example I always like to use when someone brings up the negative stigma associated with not just affordable housing, but mobile home parks. There are run down rough neighborhoods that are in the war zones and on the other end of that spectrum, there are high-end A class neighborhoods where all the executives live. There’s everything in between where the good, hard-working people that want to live in a good school district, have a roof over their head and have a clean, safe and quiet place to raise their family. The same exists in apartments. You’ve got slumlord apartments that are on the wrong side of the tracks with bad elements like drug, sex, and rock and roll. You’ve got the high-end newer build apartments that the executives live in. You’ve got the B and C grade stuff where the average Joe lives and want the best for their family and their kids.
The same exists in mobile home parks. We’ve got some rundown stuff and that’s not where we participate. Those are identified to me as trailer parks. They’re on the wrong side of town. They’ve got bad elements in place. It’s more of a transient crowd like the motel dweller type of crowd and then there are some high-end mobile home parks especially in places like Florida, California and Arizona. We call those lifestyle communities. Those are not affordable housing. Communities that have three swimming pools and palm tree lined streets that got activities directors, lot rents are $800 or $900 a month. Most of those are second homes for people that live up north. They’re winter homes. That’s not affordable, but it’s a higher-end demographic and then you’ve got everything in between. You’ve got the good and hardworking people that want a good affordable option in that particular market they live in, and they want a safe community. That’s who we cater to.
That’s the one I want to talk about because you usually have a fence or a wall around these communities. You can be the island of paradise inside a rougher neighborhood and be the place that people want to go to. Last but not least, I always looked at it like this and I always felt very safe in that place because if you can’t live in one of our very nice mobile homes and a nice park, you’re under a bridge. You don’t get much cheaper than this without going to a war zone. That life might look cheap, but when you get your car stolen and your air conditioner was stolen, the rent is not so cheap anymore.You can always measure a good coach by how much money you make. Click To Tweet
Our goal is to have the nicest community and be slightly below what the rest of the market is. We give the best option for people in that particular marketplace and give the best price and nicest community. Our turnover is next to none. In fact, the only time we ever get people that leave, they might pass because of age or they’re forced to move out of the area due to a job relocation or a family event. That’s about it. We don’t get people to leave because of the price. It’s not a price shopping issue to where they can get a better deal and a nicer location in another part of town or in another community. They just don’t exist. We love the space. I love serving that demographic. If you’re good, it’s all about your management style.
If you’re good and you have a good screening process in place on the management and you can filter out the battlements, this existed whether you’re renting to A class people, D or F class people or everything in between. If you have a good filter system in place, make sure that you’re screening residents and you’re eliminating people that have got felonies and that are convicted murderers and drug dealers and things like that. There are plenty of good people right in that middle range that is in that socioeconomic class that needs housing that are good people. They want to do well. They want to pay their bills on time and they want a quiet place to live. That’s who we serve and it’s great because if they can’t afford to live there and they can’t afford to pay $300 lot rent, which is the average across the country, we’ve got some parks that are $500 and some that are in the low $200. Low $300 is the average. There’s no cheaper in that market that they can live. You can’t live anywhere for $300 a month. It doesn’t exist.
Let’s talk about this special leverage that you have because there’s definite leverage that a park owner has. You could lower your rent and everything to get your park full, but once they’re in there, it’s not easy for people to leave. I know you’re a great guy and that you’re going to have some compassion for these people, but you have to police yourself because you could raise the rents at that point. Once people get in, you have them encapsulated. If you raise the rents, do you have a tradition that every year everyone’s rent goes up 5% or 3%?
Once we get within range of what the market rent is for that given area, then we typically follow CPI, which is 1.5%. Historically, it’s 3% give or take. That’s the annual model. Once we get to a market rent stamp on and let’s say that market is $350, maybe when we bought the park, it was $250 so we might be a little bit more aggressive over the first couple of years to get to that $350 mark. Once we get there, we have a normal annual 3% give or take increase that comes into play. That’s what you’ll find common across the industry. Typically, it’s somewhere between 3% and 4% and it keeps going from that point moving forward. Taxes go up, costs of operations go up, everything goes up with inflation. We like to maintain and stay in line with current inflation.
What are your best victories? Tell us about a park that was beyond your wildest dreams.
We’ve had a lot of them, but I’ll give you one that we went full cycle. We don’t sell much. We’re not buyers and sellers. We like to buy and then fixing the hole for the cashflow, but I’m always a seller at the right price and the right price means a number that doesn’t make sense. I would never ever buy it for that, but someone is willing to. We bought a park up in the Richmond, Virginia market. We picked it up from a guy that owned it for 33 years. He was a very intelligent and successful attorney in Washington, D.C. He had a practice, did well, did a horrible job at managing this park, and kept it up.
He kept it up and spent a lot of money putting improvements into the park over the years. He owned it but he did a horrible job with the operational side. His payroll was way too high. He had four full-time employees. This was a 52-space park. It was not big. It needed half a full-time employee, one part-time employee to run this thing. In addition to that, he had no screening process. If someone had money and they can fog a mirror, he let them move in. They were turning homes on average two and a half times a year. They’d move them in, they’d pay, they would stop paying after the first month, they’d have to evict them. They trashed the house and they’d go and renovate it so they were losing money like crazy.
We bought the park. The year we bought it, it had an annual gross income of $240,000 but the NOI was $28,000. Their expense ratio was 82% or 83%. We went in immediately. We saw the opportunity. We bought the park. It had a fairly aggressive cap rate based on the NOI, but I knew I could fix it very quickly. We bought it at five caps based on current NOI. We paid $654 and within three months, we had that thing on track. The first year we ended up with an NOI of $160,000. We increased it by $130,000 by firing the majority of the staff that were just standing around collecting a check. We put up a screening process in place. If you had money, you also had to pass a background and prove that you had a job and you could continue paying once you got in there and that you weren’t a drug dealer.
Things changed very quickly. In three months, we were stabilized and we turned around and sold that park in the middle of last year for under $1.9 million. We paid $654 for it and put about $40,000 into it because it was nice. It was in good shape. It was run horribly. Their expenses were way overloaded. After our debt service and everything, it netted about $100,000 a year. After the debt service and all the operational expenses, it made $100,000 a year for the first two years we owned it. It was a big one. We’ve had a few others like that, but that one was for a small park. It packs a big punch on the backside.
Let’s go to the opposite side of the spectrum. Which one hurt you the most and why? Let’s talk about the downside. I hate it when people talk about the upside, but they don’t talk about the downside. We’ve all got horror stories.
In this is one, I put some of my own personal money in, but it wasn’t a deal that I procured myself. We were working with just another investor that was getting into space. The deal is a little too small for us to take on operationally from a company standpoint, but I thought it was a good deal. I did the minimal due diligence of mine, and I only put about $40,000 of my own money into it, so it wasn’t a huge amount of money. I coached this individual through due diligence. This one had the purchase price on front and it looked like it was a no lose endeavor. We got owner financing with 10% down. We’re paying $200,000 for the park. We put $20,000 down and it needed about another $40,000 of capital improvements. It was a 50 space park. It was in Pennsylvania. There were 38 of the lots that are occupied. The lot rent at that time was $280 a month, give or take, but they were running it through the ground. They’ve owned it for 40 plus years.
The catch with this one was it was on municipal water, but it had a master septic system that fed the entire park. All the sewage flow to the back of the park had large multiple different leach fields and septic tanks. The municipal sewer was at the front of the park, so we knew the connection was there and we had an idea what it will cost to connect to it. We thought that’s a backup plan. If we can get five or ten years out of the septic field, that’s perfect. We’ll work on holding back reserves so we could connect at a later date. The company we hired to do the due diligence on the septic, I’m sure they didn’t do it. It was a local licensed company. They didn’t do it and within a couple of months, we realized that one of the two leach fields was completely failed. It wasn’t failing, it was failed. There was an illegal pipe that the old owner had put into the side of one of the tanks and was disposing of effluent to the back of the park. It was flowing out to the back of the park and not into a leach field. That was a big one. That was a massive undertaking with hundreds of thousands of dollars of connecting to that municipal sewer source many years sooner than what we had anticipated.
It was due to a lack of due diligence. I don’t want to blame it on the buyer, but there should be an additional verification in place for him to determine that the inspection had been done. If you do a load test in the leach field, you can quickly identify that it’s failed. Also, this illegal pipe that was plugged into the side of one septic tank was a big deal. I’ve got money in the deal and he’s still working on doing the connection. The park has made no money. It lost money month after month for a few years. The private sewers and private water systems are a big risk. We own a number of communities that have that in our portfolio. We spend a lot of money on engineers during the due diligence process. We hire licensed professionals. We spent a good deal of money before we ever even by the park. We’re making sure that what we’re buying is in good shape or if it’s not, we have an idea of the life expectancy, but also the different costs that we might incur over the next one to seven years. We budget it accordingly and we underwrite that into our numbers so that we have that necessary capital from day one to inject into those improvements.
That has been the horror story I’ve heard. The municipality forces you to go hook up to the city sewer.
This was a little different. The municipalities are the ones that are making it very tough. They’re making a bad situation even worse. They are finding it as a way to bleed the park dry. They’re not allowing the connection to happen very easily. They’d be looking to collect their impact fees and connect fees and all that and they’re making it incredibly difficult. The only thing I can chalk up to is that this is the opportunity for them to pounce in and shut this place down. They had not been happy with the old owner that owned it for 40 plus years. The husband died a few years ago and the wife took it over and she wasn’t into the running of a mobile home park. For years, the thing just went downhill and they didn’t like it. The municipality hated it and now is their chance.
Municipalities don’t like mobile homes. We’ve found some land that we thought would be good for some parks and the city doesn’t want to zone it for that. I got mixed emotions. I know from past experience how things have been and I could see why the way parks were in the past. You can set up good bylaws or whatever and make sure that the park that’s going in has a certain standard, which is a standard that you and I would want anyways for the most part. Municipalities traditionally don’t like mobile home parks so be aware of that if you’re reading this.
A lot of it has to do with the prior ownership. Did they comply? Did they keep up with the park? Are they slumlords? We’ve gone through multiple situations where if it’s a smaller town, we try to meet with the mayor and their counsel or city officials. If we’re truly buying something that we feel has a negative connotation within that particular marketplace, we try to meet with the city officials. We let them know who we are. We show them our game plan. We show that we’re going to inject a lot of money back into their community. We’re going to improve the quality of living for the residents that are there and provide a better place for other residents to come, those that need affordable housing.
Get a pulse of whether they’re going to be onboard and help you or they’re going to fight you.
Half of the time they’re not onboard. They’re fed up with how it’s been run. They don’t believe that a mobile home park can be nice. The other half of the time they’re compliant and they work with us. We’ve had some battles. We had one instance where the mayor threatened us that if we bought it, he would even make it more about his job to shut us down and for us to lose our investment. We bought it anyway. A year later, he called me and apologized. One of his staff members lives in our park. They did live in our park for a couple of years. He apologized and wrote a letter of recommendation to another mayor that we were having issues with at another state.
You did a good job. You turned it around and had the good fortune to have one of his own staff live in there. You’ve got these guys all wrong. This park is nice.
In his mind, mobile homes were the problem and that you can never make them nice. We showed them quite differently with a clear plan in place. We spend a lot of money on improving the park and put a screening process. We got rid of all the riff-raff and only let the good quality of people live in there. It wouldn’t be a drain on the resources. The police didn’t have to go there once a day or multiple times a day. He quickly realized that it wasn’t mobile homes. It was more so the operator that’s the problem and we fixed that.
I could talk to you for a week and talk about this topic again because you’re very experienced. Mobile homes are a good place for some newbies to start. You have to understand that there are certain licensing. You have to understand Dodd-Frank if you’re going to owner finance. Make sure that you’re compliant. One thing cool about mobile homes is you can get into them and finance mobile homes as cheap as you can find an investment vehicle that has a great rate of return. I bought my first 100 houses on credit cards and they weren’t mobile homes. This was several years ago in San Antonio, but you can still buy mobile homes on credit cards and owner finance them. A lot of times, funding is half the battle. If you’re not to the point where banks or private lenders are willing to finance you, but you have good credit, I know people right now buying mobile homes with credit cards and then owner financing them and getting them straightened out. Now they’re starting to go back and find the private lenders to get the credit card paid off and get more of an amortized note. It’s a way to do things.
There are 1,000 plus ways to make money in real estate. You just got to pick one and then master it.
I have one more important question. When you went into this and you were buying your first mobile home park, did you get a mentor or were you with someone who had done a lot of them for or did you just freewheel it? I’m going to guess you had a mentor but I don’t know.
I didn’t have a mentor in the mobile home park space. I had owned hundreds of single-family renovated and also had a large portfolio of hundreds of single-family properties. I built that business and I own 500 apartment doors and some other commercial real estate over the years. It was just through trials and tribulations and the other stuff. Mobile home parks aren’t rocket science. There’s not necessarily anything overly unique about them if you’ve got a lot of other experience in other rental housing. I went through some training and I read some books. I didn’t have a mentor per se. I had someone that was on with other mobile home park operators.
I would ask questions and things like that, but most of it was pretty simple and straight forward. “Let’s buy this park. It’s a rundown. It’s a great market. Let’s get it stabilized, get units rehab, rent them, sell them. Get a manager in house here on site, and let’s make it happen. Here’s our pro forma. Here’s how we think we’re going to get there and let’s figure it out along the way.” That’s ultimately what we did. I’ve had many mentors in my life. I don’t want to act as though we did it alone. I’ve had many mentors, but nothing specific just to mobile home parks.
You went in when you were very sophisticated. You are already very sophisticated. 500 doors are sophisticated.
I know way more now. I missed out a couple of opportunities that if I would’ve had a mentor, I wouldn’t have passed on some deals we had tied up that I didn’t get comfortable with because I didn’t know enough. I probably missed out a couple of million dollars’ worth of opportunity from deals that we passed or killed because we couldn’t get comfortable with certain aspects that an experienced operator would have been like, “Kevin, you’re crazy. There’s an opportunity here and here is how you realize it. Those risks that you are assuming, just throw them in the trash can. They don’t exist and here’s why.” If I had someone like that telling me, I would have been even further along in the business. Mentors are incredibly important. Maybe I’m stubborn. I thought that I knew all of it.
It might be interesting if you had a crystal ball and you could go back in time to find out if a mentor would have caught that septic tank issue.
I knew a good deal when we got in that deal. I just wasn’t intimately involved in the due diligence. It was more of me putting my money into it with somebody that it was their second park. I was overseeing it from a 10,000-foot view while I ran my own business. If I would have been intimately involved, we have a checklist process that we go through due diligence. We sure would have caught it. It’s inevitable. This was a different situation. It’s unfortunate because it’s a very expensive lesson that this person learned.
Did you have any recourse against the inspector?
No, we did not because they’d never documented the inspection process nor was there funds that were documented. It was paid in cash. It was a bad situation all the way around. We should have in a normal situation. When we do due diligence. We hire engineers that are from a legitimate company. We get bids, we get invoices, we pay via check or electronic transfer. There’s documentation of emails, of funds, of everything. Another lesson learned for this person is that every single step of the way, assume that what you’re being told is a lie and document everything.
Trust and verify. I want to take time to tell everyone out there that when you’re talking to someone as experienced as Kevin, find out what forum he’s on or what forum these other experienced multiple park owners were on. Get on those forums and learn. There’s always a lot of nuance in the minutia no matter what strategy you pick, and you’ve got to drill down and drill down until you become an expert at it. Once you’ve been through it all, seen it all or heard it all, you have a great chance of not making those mistakes. Learn from other people’s mistakes as best as you can. I want you to go to REInvestorSummit.com/DealFinders and there you can get the report 21 Biggest Mistakes People Make When Purchasing Their First Mobile Home Park. You have some courses and some mentoring available for this thing yourself, don’t you?
That’s correct. What I like to call it is our Business In a Box and it’s our entire process from finding deals to negotiating them to funding them to operations on the backside and it’s called the Deal Finder’s Formula. They can find that on our website and the Mobile Home Park Academy website.
If this is what you want to be and this is who you want to be and you don’t have someone around you, get with some pro that’s done it before. The money that you spend will fail in comparison 99.9% of the time. You can always measure a good coach by how much money they make you, but you’ll never be able to measure how much money they kept you from losing if they’ve done a good job and there’s nothing that you’ve lost. I’ve had students call up and say, “I’m not sure that the mentoring was worth it.” I’ll say, “Let’s go back. You were fixing to buy two houses that I told you not to buy because you’re fixing lose.” We all came to a conclusion and I said, “You’re trying to measure by how much I made you. You’re not measuring by how much I kept you from losing. Your career may be dead right now. If you got lost on those two houses that you are going to buy back to back from that guy, you won’t be in this business anymore because your wife would have shut you down a hundred times after that and your life would be miserable.” They’re like, “I didn’t think about that.” I go, “It’s not all about how much money you make.”
A good professional mentor or coach will try to keep you out of trouble and try to keep you losing money. If you do well, you’ll be able to measure by some extra money that they pointed out in places that you couldn’t see and you can measure by that as a stick. A lot of mentoring and coaching is about keeping you from losing or keeping you for making bad mistakes. I was only one more mistake away from being out of a career that I’ve been in for 24 years. I was only one more mistake away because I lost on a couple of deals. They had put me thin and if I made one more mistake, I’d have been out of this industry forever.
I hired a mentor, he straightened me out. I was trying to get out of the business when I called him and he taught me how to stay in the business. That was many years ago and millions and millions of dollars ago. I didn’t even hire that guy thinking that he was going to help me stay in. I hired him to help me get out and he showed me what my problem was. Please go to REInvestorSummit.com/DealFinders and see what Kevin Bupp has to offer. If I’m going to that business, I’m going to call you. Thanks for stopping by to get you some Kevin Bupp. We’d been talking about mobile home parks and cashflow. Cashflow is king. They say cash is king, but cashflow is king. Cash goes away and cashflow keeps coming right back every month. Is there anything you want to say to the young investors out there, Kevin?
First and foremost, Mitch, thank you for having me on. It’s been an absolute pleasure being here and hopefully, your audience was able to extract some good value from our conversation. It doesn’t matter what you choose or how you choose to make money in real estate, find that focus and find that one niche that you think is the best fit for you that can help you achieve your end goal, whatever that might be. Everyone has got their own individual goals and then focus on it. Don’t get pulled in a million different directions. That happens especially when you’re surrounded by social media. There are always different events. I get on Facebook and I see at least twenty times a day a different training program being touted and that’s fine. You and I can make money in every single one of those, but pick the ones that you think is best aligned with your interest and your personality and then give yourself a lot of period of time. Let’s say twelve months to eighteen months to master it, to learn everything you need to know and prove the concept. Put it to use and ignore everything else.
It’s hard to do, but focus. Those that focus in a particular niche and specialize in it and master it are the ones that are most successful in those individual niches. That doesn’t mean you can’t go do something else in another point. Once you get that business up and running, I know you’ve got multiple businesses and starting three things at one time. “I’m going to flip houses, I’m going to buy mobile home parks and then I’m going to develop self-storage.” Good luck if you’re starting all at once. You’re going to get pulled many different directions and find some type of failure in one of those areas because of lack of focus.
I want to give thanks to my sponsor, TaxFreeFuture.com. Please go there and watch the 37 videos on how to grow your investment or your retirement tax-deferred or tax-free. You will not believe what your financial advisors are not telling you. Kevin, thank you so much. I appreciate you. I will talk to you soon. You’re going to be interviewing me on your show. Just so you know, Kevin has one of the most successful podcasts on iTunes. It’s called the Real Estate Investing for Cashflow podcast. I’m going to be over there talking about mini storages, self storages and boat storages.
I’m looking forward to it.
It’s just a different form of cashflow. You chose parks and I chose that. They’re both great. Figure out which one you liked the best and drill down.
- Sunrise Capital Investors
- Carlyle Group
- Deals on Wheels
- Texas Department of Housing Community Affairs
- Mobile Home Park Academy
- Real Estate Investing for Cashflow on iTunes
About Kevin Bupp
I am a Real Estate and Marketing Professional with extensive business development experience who holds a sincere passion for helping investors achieve above average and safe returns. I have a successful track record of identifying and re-positioning multi-family value-add properties.
HOW I WORK WITH INVESTORS
★ Evaluate investment needs and goals
★ Identifying opportunities with above average returns
★ Extensive due diligence and analysis of any prospective investments
AREAS OF EXPERTISE
★ Mobile Home Park & multi-family properties
★ Comprehensive investment analysis and due diligence
★ Identifying above-average investment opportunities
★ Large rehab projects and property management
CONTACT ME TO DISCUSS INVESTMENT OPPORTUNITIES
I am always looking for equity partnership opportunities and enjoy speaking to like-minded individuals. Please don’t hesitate to contact me at any time to arrange a meeting. My email is Kevin@KevinBupp.com
I also host two Top-10 Real Estate podcasts, free on Apple Podcasts:
1) Real Estate Investing for Cash Flow with Kevin Bupp, and
2) The Mobile Home Park Investing Podcast