The extraordinary market volatility the last couple months has been enough to wrench the stomachs of even the most battle-hardened investors.
Right now, the markets are on a tear and have recovered most of their losses since the coronavirus sent us running for cover.
But the kind of top to bottom -35% freefall we saw in one single month earlier this year is exactly the kind of whiplash that destroys an early retiree’s confidence when it comes to retirement withdrawals.
That’s why it is so crucial for at least part of your portfolio to be stable cash-flowing assets. Stable cash flows that don’t go poof when the market tanks will help tide you over to the recovery, whether recovery takes 3 months or 3 years.
We’ve been talking a lot about real estate the last few episodes. One richly cash-flowing real estate asset class we haven’t talked about yet is mobile home park investing.
In this week’s podcast, I chat with mobile home park investor Andrew Keel about this unique real estate investing strategy.
Andrew owns and operates more than 1,000 mobile home lots across 17 parks in 7 states. He shares insight on how wealth is built with mobile home parks by owning the land and not the homes that sit on it.
- Structure of the mobile home park industry
- How mobile home park investing differs from traditional real estate investing + what makes it especially attractive vs. other niches
- Why supply and demand for parks increasingly favors investors
- How to find mobile home park deals
- How mortgage financing works for mobile home parks (what kind of banks lend to park investors, typical loan terms)
- How Andrew found, acquired, and turned around his first mobile home park deal
- What are the markers of an attractive mobile home park deal
- Typical value-add improvements to increase park value
- Why a park’s utilities can make or break the deal
Have you or anyone you know invested in mobile home parks before? If you’re intrigued but hesitant, what concerns do you have? Let me know by leaving a comment when you’re done.
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Links mentioned in this episode:
- Keel Team
- Bestplaces.net – demographic data and stats about cities and zipcodes
- HYW private Facebook community
Read this episode as a post:
Andrew Chen 01:22
My guest today is Andrew Keel. Andrew is a real estate investor whose real estate portfolio currently includes 17 manufactured housing communities or mobile home parks across six states: Illinois, Indiana, Iowa, Ohio, Pennsylvania, and Tennessee.
His expertise is in turning around undermanaged parks to maximize lot occupancy and reduce operating expense. He does this by bringing in homes to fill vacant lots, implementing utility bill back programs, and improving overall operating efficiency to increase park net operating income or NOI.
He often moves on site during the initial months post acquisition to implement his management turnaround plan in a hands-on way.
I invited Andrew to the podcast today to share insights and learnings about how to successfully invest in mobile home parks as an asset class.
Thanks so much for joining us today, Andrew.
Andrew Keel 02:09
Yeah. Thanks for having me.
Andrew Chen 02:11
I’d love to start just by learning a little bit more about your background. How did you get started in mobile home park investing?
Andrew Keel 02:18
It’s a crazy story. Never would I have thought that I would end up in the trailer park business.
I started out, I worked in sales at a marketing and branding firm down here in Orlando, Florida. Eventually, on the side, I started dabbling into real estate, bought a couple of single-family rentals, and was managing those.
I knew early on that I wanted to be a landlord. My grandfather had a nice portfolio of rentals up in the Cedar Rapids, Iowa area. That’s where my whole family is from, both my mom and my dad’s side.
So I knew I wanted to be a landlord. I had a couple of single-family houses. I met a wholesaler down here in Orlando that was finding off-market deals, and I was really intrigued by his whole business model.
So I ended up leaving the marketing firm and going full time with this wholesaler. And I learned about how to market for deals, from bandit signs to yellow letters, you name it. I was completely dialed into that.
And I had signed probably 15-20 deals a year. And then I also would go ahead and do the full renovations probably four times a year. I was only doing maybe four flips a year.
So I did that for a couple of years. And then off of a yellow letter that I had sent out, I got a lead on two individual manufactured houses up in Ocala, Florida, which is just a couple of hours drive from Orlando where I was from.
I didn’t know how to make money on these things, but I just knew that the pricing was really good. It was $2200 and I could buy both of them. And they were vinyl-sided, shingle roof manufactured houses from the ‘90s.
And I was like, “There has to be a way to make money on these things.” So I went online and typed into YouTube “how to make money with mobile homes.” I figured that was the best place to start.
I found an awesome guy named Lonnie Scruggs who was teaching a class on creating mailbox money through investing in mobile homes. Subsequently, I read his book, “Deals on Wheels,” which is a great book on creating temporary cash flow off of buying mobile homes, fixing them up a little bit, and then selling them on contract.
Like those two we bought for $2200, we fixed them up a little bit, made them marketable, and then put them up on Craigslist and sold them for $2000. I think one sold for $2000 down, the other one sold for $3000 down, and then $250 a month for five years.
So we did those deals and they were fantastic. They created good income, so I scaled it.
I was like, “I need to start focusing on this. There’s something about these mobile homes. I can’t believe the demand for these things.”
And I put it up on Craigslist and I had 24 people reach out to me in two days. It was insane.
So I was like, “There’s something in this affordable housing business” at that time.
I did 19 more of those manufactured mobile homes, sold it on contract deals. And then I met a mobile home park owner in the process, and that seemed like the logical next step in the ladder. If I could own an entire park, that would obviously be fantastic.
But I thought you got to be a millionaire to be able to do that. I was just getting started in real estate. I had a couple of single-family rentals and I was flipping a couple with hard money, so I didn’t have a lot of liquid cash at the time.
And then he told me, he said, “The real wealth is built through owning the real estate. There’s tax benefits to that. With depreciation, you can scale easier with the financing available to purchase these assets.”
“And you can also bring in partners so that you don’t have to bring all the money yourself.”
And that was like a huge aha moment for me. I ran home. I put on my refrigerator with dry erase marker that my goal was to buy a mobile home park in 2016.
Unfortunately, I did not end up buying a park in 2016, but I was glued in at that point and my education started.
I went to the Mobile Home Park University Boot Camp. I went to another mobile home park three-day seminar. I did some online courses, and then I read “Trailer Cash” by Jamie Smith several times, and just got glued in to mobile home parks and investing in them.
I started doing some marketing for mobile home parks direct to owners, like I was doing through my wholesaling business. I was mailing out yellow letters. I was cold calling.
And through a cold call, I actually got my first deal, which was in Edwardsville, Illinois, Quail Run. It was 67 lots in a nice metro of St. Louis.
I ended up contacting some of the people that I went to the MHU boot camp with, and one of them reached out and ended up funding the deal, putting the money up. I was the sweat equity partner. I did put a little money in that first deal, but the rest is history.
That initial park, I was very hands-on with the whole project management of it. It ended up being a homerun. Since then, we’ve done four more deals with that same investor.
I’ve also done syndications. We’ve bought a five-park portfolio in 2018, and we syndicated a couple of million bucks from about 18 investors. And I’ve done a couple of other syndications since then as well.
We’re now up to 17 communities and we have five more that should be closing in the next 60 days. So we’re well on our way and really love the asset class.
We’ve taken several assets through the full business cycle, where we’ve refinanced, paid back the initial debt, and now we’re just paying distributions to our investors and everybody is really happy. So it’s been a great ride.
Andrew Chen 08:40
Wow. It sounds like you are definitely firing on all cylinders right now. I want to definitely jump into that first deal in some detail in a moment.
But first, I wanted to ask. It sounds like the concrete actions you were taking to start investing were you started getting educated, even just starting with YouTube videos, then attending some seminars, meeting some folks.
And then you started cold letter writing to park owners. Have I got that right?
Andrew Keel 09:07
Yeah. Really just diving in and becoming obsessed with everything that hit online or any sort of content I can get my hands on.
Andrew Chen 09:17
How did you even identify or locate park owners? Did you just Google for the names? How did you even know who to send the letters to?
Andrew Keel 09:30
Initially, it was just Google searches. I would type in “mobile home park owners” or “mobile home parks in Omaha, Nebraska.” I was very specific on the areas I wanted to purchase in.
And then I would generate a list of all of the addresses, where they got their tax bill at, that address, and I would mail out letters to those. And also cold call, just call through the list. I eventually hired a VA to assist with the calling and appointment setting, and that helped us scale quite a bit.
Andrew Chen 10:03
Got it. Cool.
So you started with single-family homes. Now it sounds like you’re all in on mobile home park investing.
How does mobile home park investing differ from other “buy and hold” strategies like single-family homes or even multifamily investing? And what makes mobile home park investing especially attractive compared to these other niches in your mind?
Andrew Keel 10:27
Great question. The first thing is supply and demand. They’re not making very many new mobile home park developments.
I think I saw something the other day that, on average, there’s about 5-10 mobile home parks that are developed every year, and there’s about 100 mobile home parks that are torn down and redeveloped into a higher and better use, whether that be multifamily or something else.
So there’s a shrinking supply and a very high demand. Affordable housing is in very dire need. You can put up “mobile home” up on Facebook Marketplace or Craigslist and you’d be very surprised at how many people would reach out to you with an interest in renting or buying that unit.
That’s the first reason why I like the asset class is that equation. There’s several other reasons, including there’s really good financing available through the agencies, Fannie Mae and Freddie Mac.
The maintenance on a mobile home park is a lot less compared to a single-family rental where you’re responsible if the AC unit goes out. You’re responsible if the refrigerator is leaking, there’s a squeaky window that water gets inside of, the unit when it rains. Three’s just a lot of maintenance costs to keep up with.
In our mobile home parks, we don’t own the individual homes. Our goal is just to own the land underneath of them. So our expense ratios are a lot lower, near 30% of the gross income that we’re bringing in.
And it’s more scalable. We’re able to acquire more assets with a smaller management team.
Those are a couple of reasons why. There’s several others, but those are some big ones.
Andrew Chen 12:27
Why is the supply shrinking?
Andrew Keel 12:30
Well, there’s mobile home parks in very good areas.
In downtown Austin, Texas, there was a mobile home park, and it just made sense based off of the numbers to make all the tenants leave, tear down the mobile home park, and build a 50-story apartment complex on top of that location. There’s just higher and better uses for these properties that mobile home parks are present.
That’s one of the reasons. Also, municipalities don’t like these assets. It doesn’t benefit them financially.
It costs, on average, around $11,000-12,000 a year to put a kid through public school. And the tax revenue that the municipality receives off of a mobile home, on average, is around $100 a year. So from an economic standpoint, it’s a loss leader for the municipalities.
Andrew Chen 13:29
Gotcha. Where does an investor who wants to get into this asset class actually go to look for mobile home park deals?
I know there’s mobilehomeparkstore.com, but I suspect that’s not where you’re going to find attractive deals. What are better strategies for finding opportunities?
Andrew Keel 13:47
mobilehomeparkstore.com is a decent resource. I have bought a property off of that website.
But other resources, all the commercial real estate websites, LoopNet, CoStar, some of the other ones, are good aspects. But we try to buy as many off-market, direct to seller as possible.
You cut down on the commission. You’re going to pay to a broker. And you usually can negotiate better deals with better terms.
There’s about 44,000 mobile home parks in the country, and about 80%-90% of those are owned by “mom-and-pop” owners. This is another reason why I like the asset class is because these “mom-and-pop” owners are less sophisticated.
They have owned the properties for a long time, and they usually have a lot of equity built up in these properties, so they can be more flexible when they sell.
Out of the 17 mobile home communities that we own now, we’ve got five of them with seller financing. So there’s things like that that you’re able to negotiate.
Also, since they own these things free and clear, they leave meat on the bone. If a unit goes vacant, instead of spending $5000 to rehab it and get it occupied again, they’ll just leave it alone. They won’t touch it.
They’ll just let it sit there because when they were younger, they usually did the rehabs on the homes themselves. And now that they’re in their 70s or 80s, they just don’t have the energy for it. And they’re still making a boatload of money off of the other occupied units because they don’t have the debt service that they once did.
So there’s a lot of room for improvement and NOI growth in these assets. And that’s really one of the main reasons why I like the asset class is because of that opportunity for the NOI growth and increasing the ultimate value of the properties.
Andrew Chen 15:46
So it sounds like there’s a lot of benefits to investing in mobile home parks. You mentioned shrinking and low supply, high demand, lower maintenance cost, really high cash flow. There’s all these benefits.
Economics would say capital would flow to where there’s opportunity. Why isn’t this asset class getting totally crowded with tons of investors?
Typically when you think of real estate investing, you’re thinking of investing in a single-family home or maybe a small multifamily. Why don’t all the dollars flow into mobile home park investing, or are they?
Andrew Keel 16:23
That’s a great question. There is a lot of institutional money coming into this space.
Typically when those organizations come in, they need to spend a lot of money, so they go after the bigger assets. But demand is increasing for these assets, especially the larger ones, over 100 lots.
But also, there is this stigma around mobile home parks.
I’ll never forget the very first potential investor that I took out to lunch and showed that first deal in Edwardsville, Illinois. I put a business plan together, put a pro forma together.
This is a family friend. He was the wealthiest guy my family knew.
He has the Maserati, the Ferrari, the nice house on the lake.
And he fortunately had coached me in basketball when I was a little boy. So he went out to lunch with me, and I said, “Hey, I got a business idea I want to run by you.”
I sat down and showed him all the numbers and everything, and they were great. The projected returns were well above 20% annually.
And I’ll never forget what he said. He said, “Andrew, I love you, man, but there’s no way that I’m going to invest in a trailer park with you.” And the sticker shock of owning that type of an asset scared him away.
So there are some stigma, people that won’t invest in this space because it’s not sexy. They can’t go to the country club and tell their friends about it. It’s not something they want to brag about.
But once that deal went full cycle and we were able to purchase that park in Edwardsville and refinance within 18 months, the returns were off the charts, above 100% annually.
So it worked out, but some people just aren’t interested in the asset class, which is a good thing for us because it artificially will keep some people out of the asset class entirely so that there’s more room for the people that are in it.
Andrew Chen 18:31
How accurately or inaccurately does the stigma line up to reality?
Andrew Keel 18:39
As with any asset class, multifamily, single-family, there are slumlords out there that let the assets just disintegrate and they don’t keep up with the maintenance. There’s a lot of deferred maintenance on these things.
A lot of times, it’s not done on purpose. It’s just “mom-and-pop” owners that are aging and they can’t keep up with it anymore.
They’re not used to hiring third-party contractors to complete these things. They’re used to doing it themselves, including trimming the trees, general cleanup around the property. So when they’re not able to do that anymore, obviously, the grade of the asset goes down.
So I would say there are some trailer parks that are the typical, you think of “8 Mile.” You think of “Trailer Park Boys.” You think of the bottom of the barrel.
But then there’s very nice communities as well, like Equity Lifestyle. They own a lot of “55 and older” communities in coastal states that are very nice subdivisions.
You can’t even tell that the mobile homes are mobile homes. They look like actual residential stick build houses.
Same in apartments. Apartments have D and F grade assets, and they have A grade assets. So it depends on many factors and how they’re cared for.
Andrew Chen 20:01
You touched upon a little while ago how there’s often good financing for mobile home parks. How does loan financing work for parks? And what kind of banks lend to park investors?
Andrew Keel 20:18
Financing available, there’s usual regional banks. The bank on the corner near the property usually will lend on the property, but that will be recoursed at, meaning that if you don’t pay the loan, they’re going to come back and take your house and your cars and everything.
And then there’s also agency debt, Fannie Mae-Freddie Mac, which is the best debt possible in the asset class. Usually 10- or 12-year fixed rates. Right now, rates are 3-4%, 30-year amortization, interest only for 1-3 years.
And those are non-recourse. So there’s really good debt available.
Typically on the assets that we purchase, they’re value add properties, so they need some work. We’ll use the local regional bank to purchase it and spend money improving the asset, getting occupancy above 90% to meet the requirements that agency debt requires, and then refinance through agency debt to “buy and hold” long term.
Andrew Chen 21:25
So it sounds like the loan terms for park investments don’t differ so much from your traditional mortgage on a single-family or multifamily asset. In some cases, it may be even more attractive. Is that accurate, such as the interest only for 1-3 years?
Andrew Keel 21:42
Yeah. It depends on the grade of the asset. If it has curbs and gutters and paved off-street parking, you’ll get better debt compared to a property that just has asphalt roads and gravel parking pads.
As with multifamily, it’s the same way. The better quality asset, the better debt that you’re able to acquire.
Andrew Chen 22:03
Cool. Got it. All right.
I’d love to jump into a bit of a deep dive into your first mobile home park deal. You touched upon this or alluded to it earlier, and it sounded like you found it from cold letter writing, if I recall. Correct?
Andrew Keel 22:22
It was actually off of a cold call, the first park was. It was 67 lots five states away, so I had to get comfortable real quick with managing these assets from a distance.
And luckily, some of the seminars I had gone to had basically been set up that way from the start. This is how you manage these assets from a distance.
It’s Quail Run Mobile Home Park in Edwardsville, Illinois. It’s on my website.
We bought that in June 2017 off of a cold call. I actually was calling to get lot rent comps for a park down in Southern Missouri, and the park manager said, “Hey, I think the owners of this park are not interested in selling the one in Missouri, but they would be interested in selling the one up in Illinois.”
And I said, “Okay, great. Pass my information along or let me get on the phone with them, and let’s talk about it.”
And we did, and we came to terms on a nice price, about a 10 cap. It was 67 lots. I think there was 58 occupied, so we had to come in, bring in some homes, and then we had two homes that we needed to rehab and get occupied as well.
So we did that. We also billed back for utilities because utilities was included in lot rent, ultimately increasing the NOI. And we invested it initially.
If you’d like, I can go through the numbers.
Andrew Chen 23:51
Yeah, definitely. That would be great.
Andrew Keel 23:55
The initial equity was $400,000. We did get financing, 75% LTV, on that deal.
It was recourse debt for both partners. It was myself and the investor. We got that through a local bank.
It was a 25-year amortization. Interest rate was 5.25%, and it was fixed for five years. That was through local bank.
That was June 2017, we closed. December 2018, we took a cash flow distribution just off of the excess cash flow of $85,000.
We ended up doing a refinance April 18th of 2019, and the investors received $783,917.17 from the refinancing event because the property had appraised it quite a bit higher than it did when we purchased it after we did the improvements. And then at the refinancing event, we also took a $65,000 cash flow distribution.
So in summary, we took the $85,000 cash flow distribution in December 2018. At the refinance, April 2019, we took out about $783,000 along with a $65,000 cash flow distribution.
So the total distributions were like $933,000, and we were able to repay the initial equity out of that. And then the return was $533,000.
That was all done in 1.8 years. The ROI was 74.15% annualized, cash on cash.
That obviously is not a typical deal. Not every deal is like that, but I’m very thankful that that was my first property and ultimately what got me hooked on the business model and encouraged me to go deeper.
Andrew Chen 25:59
I was jotting some notes down as you were walking us through that. It sounds like purchase price was $1.6 million, and a quarter of that was sponsor investment from you and your partner, and then the three-quarters of that was bank debt. Is that correct?
Andrew Keel 26:17
Actually, the purchase price on this one was $1.34 million. And the initial equity included improvements, so the amount that we raised, the $400,000, was down payment money, closing costs, and money to bring in homes to fill vacant lots.
Andrew Chen 26:35
When you saw this property, what was the opportunity that you saw? What did you envision that you would be doing to improve the property and increase NOI? Did you have a clear point of view on that from the very beginning?
Andrew Keel 26:56
Yeah. It was pretty simple.
We needed to fill the vacant lots. I think there was nine vacant lots that we needed to bring homes in and put on those lots. And we needed to bill back for the water and sewer that was included in lot rent.
And then we needed to raise lot rent. Lot rent was below market because the “mom-and-pops” hadn’t raised rent in about five years. So that was our value add which was in our pro forma.
Luckily, we were able to get boots on the ground and find homes to fill those vacant lots pretty quickly. And that ultimately helped us execute the business plan.
Andrew Chen 27:35
Can you talk a little bit about the negotiation process when acquiring the park? Were there challenges you faced? How did the dynamics play out?
Andrew Keel 27:44
Yeah. Great question.
The owners were “mom-and-pops.” They were really set. They wanted a nine cap value on the property.
We did a lot of research, and during our on-site due diligence, we found that a portion of the road just had some deferred maintenance. They needed some work.
The trees needed to be trimmed. And during our plumbing inspection, we found that the water lines that were close to where the main comes into the park, the psi that was read on those lines was over 100 psi.
So we were able to renegotiate to get a reduction for the additional items that were needed, including putting a pressure release valve on the main so that the psi could be closer to 30 or 40, which is where you want it to be.
Andrew Chen 28:43
Got it. A bit earlier, you talked about how you had to get comfortable with this notion of managing five states away.
Can you talk a little bit about how things have to change or just systems you have to put in place to manage added distance five states away? Because I imagine that is going to be different than managing a half an hour drive away.
Andrew Keel 29:07
In all of our properties, we have an onsite manager that is basically our eyes and ears. And they live in the community, so they help us with several different tasks, but mainly it’s being our eyes and ears in the community. So that really helps us.
We use a couple of softwares, like Trello and Slack, to communicate. And those help us get a lot done instead of just making phone calls and text. And it helps us keep things organized.
But there is a lot of stuff that has to be done off site, from the accounts payable to bookkeeping to collections and keeping track of the water sewer usage and making sure that there’s not a leak and so forth.
Offsite management is pretty intensive, and we’re very hands-on. And I think that’s why we can manage these projects so successfully is because we have our hands on the pulse of the property at all times.
Andrew Chen 30:13
When you look at your portfolio today, how regularly do you actually go and visit your parks in person these days?
Andrew Keel 30:24
We go once a quarter. That’s a requirement of ours that we have to check that box.
Somebody, whether it’s me or one of the asset managers, will visit the parks at least once a quarter. I’d probably go twice a year to the different properties. That’s a good gauge.
We are a little behind on those right now due to this COVID pandemic, but we plan to visit those just as soon as we can.
Andrew Chen 30:50
When you go visit in person, are you driving all the streets to just take a pulse of the maintenance and upkeep of the park? Is that what you’re more or less looking for?
Andrew Keel 31:02
Really two things. The first thing that I do a drive-through of each community is I look for any liabilities.
I’ll never forget I was going to our park in Dayton, Ohio, and I was doing just a drive-by. And usually we show up unannounced. We don’t tell the onsite manager we’re coming in hopes that we can see the property in its true form.
If we tell them that we’re going to be there on this date, a lot of stuff gets done. The grass gets mowed. The trash gets picked up right before we get there.
So usually we show up unannounced and do these quarterly visits just by surprise for the onsite manager.
I showed up Dayton, Ohio, and there was an electrical line laying on top of one of the homes. It had come from a telephone pole and had, over time, sagged and was laying on top of a metal mobile home and then went and connected to another set of lines.
Something like that, the onsite manager that’s there every single day didn’t think to mention to us. And we couldn’t see that in the drive-through videos that she sends us every month. So me being able to drive there and see that and, while I was there, call the power company and have them come emergency fix that was very important.
So I look for liabilities first. There’s other things that follow that suit, but liabilities are the first thing I look for. Never do a drive-through and just look at general cleanup.
Typically, I’ll take pictures of people that need to pick up trash or if they have a refrigerator in the front yard or tires on the side of their home. We’ll get those pictures and then send them to the tenant and ask them nicely to get those picked up. And usually the onsite manager will issue violations if the tenant doesn’t pick it up the first time when she asks them to.
Andrew Chen 32:55
So it sounds like in addition to going yourself in person once a quarter or twice a year, you are having the onsite manager actually drive around the park with video monthly. Do they just put a GoPro in their car and just drive around?
Andrew Keel 33:12
Yeah, a GoPro. Or there’s a Kodak 360 cube that they can put on their car. And some of them just walk through with their phone.
But that’s very important. And then we have someone review those and look for potential additional violations that need to be issued after looking at those every month.
Andrew Chen 33:33
Gotcha. Now, when you’re investing in parks, do you typically go through brokers, or are you able to make direct contact with sellers and not go through brokers? What’s the typical etiquette or practice in the industry with respect to working through brokers?
Andrew Keel 33:53
We cast a wide net. We’ve done several deals with brokers. We’ve done several without.
We’re always looking for deals through several different avenues. This is all we do, so we’re always looking for another deal that we can be working on.
But there is mobile home park specific brokers that you can go through and different brokers’ houses. They’re all very professional and they know how to value these asset classes. So that is an option to go with.
But typically, the ideal situation is to go direct to the owner.
Andrew Chen 34:30
Got it. Today, what do you look for when you are evaluating a new mobile home park deal? What are the overall markers that indicate a park might be a good fit for your investing criteria?
Andrew Keel 34:45
My criteria might be different than someone looking to buy their first park. But we typically look for parks that are larger than 50 lots. We just find that those will move the needle enough for us to make the deal make sense.
We look for parks that are on public utilities, meaning city water, city sewer.
The infrastructure is a big deal for us and for anybody looking to buy a mobile home park. The infrastructure is going to be very important. You’re going to want to do a lot of due diligence on the water lines, the sewer lines, the gas lines.
Is there natural gas available, or are the tenants going to have to go with propane tanks to heat their homes?
The electrical, how often is there a transformer? Is there a transformer every 4-6 homes, or is it daisy chained? Because it could be several thousands of dollars missed.
We do a lot of inspections. We pay money for those to make sure that these are good assets that are going to last. And public utilities are important.
We also look for mobile home parks that have less than 25% park-owned homes. Some “mom-and-pops” will have park-owned homes that they keep and rent out. And that doesn’t meet our business model where we want to just own the land, and the tenants own their homes and pay lot rent.
A lot of times, we’ll accept some, but we’ll try to sell those homes off once we take ownership of the property. So those are a few things we look at.
We also do a lot of data on the demographics of the area. We want to buy within a metropolitan area that has at least 50,000 population. And there’s other metrics we look for in terms of the average home price in the area, the average household income, and if the population is trending upward or downward.
Those are just a few things we look at.
Andrew Chen 36:42
You mentioned this notion of city utilities. I know this is a big deal whether the park is on private sewage versus public city utilities. Can you talk a little bit about why that’s so important?
Andrew Keel 36:59
It’s going to come down to maintenance and liability.
We have a property with a well, and we have a well operator that has to go to the property about two times a week. And then the onsite manager is responsible for reading the chlorine readings every day. There’s additional liability there with the EPA, with the state, and so forth for that property.
With that, you’re going to have more costs. Your expense ratio may be 40-50% on a property that you have private utilities compared to 30% on a property that you’d have city utilities and the city takes care of all of that. That’s why it is more important.
But we do own properties with septic tanks. We own properties with a well.
And we own several with public utilities. Public utilities is just a much better asset, if you can.
Andrew Chen 37:58
And you also mentioned that ideally you’re looking for parks with less than a quarter park-owned homes. I can imagine that’s because then you’re not on the hook for property taxes or unclogging the toilet at 3:00 a.m. Are there other considerations for why you would rather not own the homes on top of the land?
Andrew Keel 38:20
Yeah. The biggest one is going to be turnover. We found that the turnover annually on the park-owned homes is around 40-50%, meaning that they rented a mobile home for a year and then they move out at the end of the lease and go into a different form of housing.
On the tenant-owned homes, our turnover is only around 4-5% per year. There’s a lot less turnover, which results in a lot less expense. And that’s the long term business model that we want to follow.
Andrew Chen 38:58
Is that because the park-owned versus tenant-owned or resident-owned home, the two attract different profiles entirely, or just tenant quality is different? That’s a 10x difference. That’s quite significant, so I’m curious about your insight on what drives that.
Andrew Keel 39:15
I think it comes down to affordability. For a park-owned rental unit, depending on the market, you could be $500-800 a month that you’re charging for straight rent. And for a lot rent, you may be charging $300-500 for just lot rent.
So it’s just more affordable, once they own the home, for them to make that monthly payment. And I think that is a big differential for a lot of people.
Andrew Chen 39:51
Got it. Cool. So it sounds like you have lots of professionals who come in, diligence the property, all the infrastructure things that you mentioned.
For somebody who is getting into this or who is interested in investing in mobile home parks and they’re just learning about it, what are the biggest problems or nightmare scenarios that can occur if you didn’t do good diligence? What is a park owner’s worst nightmare?
Andrew Keel 40:17
That’s a great question. I would say it would come back to the utility infrastructure and something being wrong with that.
I heard a horror story recently about a property owner that purchased a mobile home park that had a septic tank system and they had a leach field that went with it, and the septic tank was leaking. And they knew that they had a leak.
The EPA was notified by a current tenant that the septic tanks were leaking, so the EPA came, inspected the property, gave the property owner a timeline to fix this issue.
The property owner then went to the Health Department and found out that based off of the square footage of the new code, which, if you’re going to tear out the current septic system to do any sort of replacement or repair to it, you would have to bring the entire system up to the new code, which would require more square footage for the leach field, would require more septic tanks instead of just having one septic tank for the whole system.
So he was trying to negotiate to somehow buy the land next door so he had more room for the additional square feet for the leach field that was required now by the Health Department. And he was not able to get that going quick enough. Ultimately, the EPA started charging him $10,000 a day, fining him for leaking the sewage from the septic tank into the ground.
That’s obviously an extreme measure, but it just shows you the importance of doing proper due diligence and making sure you get the septic tanks pumped and inspected for leaks prior to owning them.
And then also looking at the current Health Department codes to see, “If we do have an issue with the septic system, is there a way to connect to city sewer?” because that would be the ideal situation. If not, what’s the next best thing?
“We need to put in the new septic field that meets the current code. Do we have room for that leach field?”
So those are a couple of things that you would want to look at. And I think that would be a worst case scenario type of deal.
Andrew Chen 42:19
All right. Good tips there.
What are key metrics you use to analyze a mobile home park deal? Also, what cap rate do you personally need to make an investment successful?
Andrew Keel 42:32
Great question. We’ll look at the area. We’ll look at the number of lots, how much lot rent is compared to what market lot rent is.
Also, we’ll look at the P&L extensively. A lot of “mom-and-pop” owners have managers that they’re paying full time salary to.
We looked at one park where the net operating income was $100,000, which looked like a decent deal, so we were able to tie it up for a 10 cap price of a million dollars. And then once we dug in and got the P&L’s, we realized that the park owner was paying a manager $50,000 a year.
The park manager is more of a very part time position. It’s less than 20 hours a week for our managers. So we were able to reduce that expense and increase the NOI, ultimately increasing the value.
Mobile home parks are income properties. They’re valued off of that income solely. So if you can cut an expense, you’ll directly increase the NOI and the value of the property.
What cap rates do we purchase at? It really depends on several factors. The type of debt that we can acquire on the property is very important for us.
We usually look for a three- or four-point spread from the interest rate that we’re able to acquire on the property to the cap rate that we pay. If interest rates are 5%, we’re looking at eight or nine caps or higher to make the deal work because that will get us a 20% cash on cash return on the investment.
Andrew Chen 44:12
Got it. Really helpful.
You alluded to a little bit, but I just wanted to hear in more detail. What’s this high level analysis that you do of the surrounding metro area? What are you looking for?
I know you mentioned population of at least 50,000. What are other markers that you’re looking for in the surrounding community as well as in local government or city council, if that is important in your analysis?
Andrew Keel 44:43
Definitely. We use a website. There’s several websites we use, but one of them is called bestplaces.net.
You can go on Best Places and it will show you demographic data about a specific metro, about a specific ZIP code, and even the city there as well. We use that.
We look for average home prices of over $100,000. We look for average household income above $40,000.
It has links on there to show homes that are for sale in the area. It has job descriptions, like what sectors people work in, whether it’s manufacturing, service businesses, healthcare, education. We look at all of that.
Obviously, more stable employers, like healthcare, education, and so forth are long staples that we like to invest in. We look at those measures, and that plays a huge role on if we invest into an area or not. That’s a good gauge to look at.
Andrew Chen 45:53
Do you do any diligence on local government?
Andrew Keel 45:57
Yeah. To piggyback on that, we do a lot of extensive research.
We just had a property under contract in Texas, actually, that we had to cancel the contract because the local government was requiring, upon sale of the property, all of the parking pads to be paved, and they were currently gravel.
So you’re looking at a six-figure expense right off the bat had we had not contacted the local municipality to see what they were going to require to get the new mobile home park license and certificate of occupancy. We could have missed that, and that would have been a six-figure mistake that would obviously affect your returns.
So we definitely check in with the local municipalities, see what their requirements are for obtaining the certificate of occupancy, and do our research there.
Andrew Chen 46:47
When it comes to your turnaround plan, I know you mentioned you typically will do things like utility bill back, filling in vacant lots. What are other typical value add improvements that you do with a newly acquired park?
Andrew Keel 47:05
Billing back for water/sewer is a big one. Billing back for trash or getting the trash company to bill the tenants directly. Changing the streetlights to LED lights will reduce your costs.
Increasing lot rent. We don’t believe in just doubling lot rent overnight, but doing modest rent increases over a course of a few years to bring it up to what the market is is very important.
And then also general cleanup around the property is usually needed because there’s always some deferred maintenance, whether it be trees that need to be trimmed or trash that’s been left out and the previous owners just haven’t implemented a violation policy where there’s actually a fine involved. Things like that are all-encompassing during our first three months on site.
Andrew Chen 48:00
Got it. And it sounds like you often will move on site. Is that still true, or do you now have teams that do this?
Andrew Keel 48:06
Yeah. I have four asset managers that will move on site at new acquisitions and basically be the eyes and ears, running the projects. And then they’ll hire an onsite manager that is the on-hand person while they’re focused on infill and working with utility companies and so forth to submeter properties.
So I have the project managers and then I’ll visit with them at least once a month to assist them with different projects or visit the properties myself.
Andrew Chen 48:40
Now your portfolio is more than 1000 lots, 17 parks, as we were talking about. How do you finance a portfolio this size?
Are you raising outside capital from LPs now? Do you have lending relationships with specific banks or private money to finance the debt portion? How does that work at this scale?
Andrew Keel 49:01
We don’t have a fund at this point. It’s something we’ve looked into doing going into next year.
But we have done syndications where we’ll bring a group of investors together and show them a business plan and a pro forma on a specific property. And the investors can choose if they’d like to invest in that asset or not. That’s primarily how we fund our deals moving forward.
For the acquisition financing, typically the properties that we buy don’t qualify for that agency debt just yet because they have some hair on them at the beginning. They need to be cleaned up. They need lot rents a little bit higher.
They need occupancy above 90%. They need less than 20% park-owned homes. They need x, y, and z.
We usually go with a local bank for the initial acquisition financing. And then within five years, we’ll aim to put better long term agency debt on that asset.
Andrew Chen 50:01
Got it. Is your plan currently to just “buy and hold” your parks and not dispose of them after some holding period so that they just eventually become cash flowing assets, or is your plan to eventually sell parks back?
What is the agreement that you have with your syndication investors?
Andrew Keel 50:22
Great question. We’re in it for the long run. We’re “buy and hold” investors.
With all of our deals, our business plan is to buy, fix up, refinance, and then hold long term and pay out distributions every quarter into perpetuity.
Andrew Chen 50:39
Got it. Cool. Closing the last lap around this, what do you feel like are the most important skills that somebody needs to be successful in mobile home park investing, whether it’s ranging from finding leads to getting a deal done, turning around the property, managing tenants or park managers?
What are the most important skills one needs to be successful at this?
Andrew Keel 51:07
I would say you need to have a baseline knowledge. I would recommend the MHU boot camp. That’s probably the industry leading boot camp that someone could attend.
Andrew Chen 51:20
That’s the Frank Rolfe one?
Andrew Keel 51:22
Frank Rolfe and Dave Reynolds. They have a nice program there. I would recommend that.
And then I would say it takes a lot of persistence. It’s not a very complex business. There’s only a certain number of levers that you need to pull, but you need to be persistent with them.
You need to hold your onsite managers accountable. And you need to be consistent. If you can do that, you’ll be very successful in this space.
Andrew Chen 51:49
What do you feel like has been your superpower that’s made you successful in acquiring your portfolio? Also, what would you advise your younger self to do differently if you were to do it over again, if anything?
Andrew Keel 52:05
One thing about myself is I became obsessed with the asset class early on, and I just dove in. For someone working 40 hours a week, it was going to move at a certain pace. I 10x-ed that because there was 80- or 100-hour weeks where I was just flying through as much content as I can get my hands on.
I think that really helped my learning curve. It helped expedite that.
I think also just attacking new projects with tenacity and with an attitude of “The quicker we can get this done, the quicker that we can refinance, the quicker that we can get our investors’ capital back to them.”
We’re very hands-on. After a new acquisition, it comes in-house.
And I think that differentiates us from a lot of other operators that may have a slower approach. So I think that makes us different.
Andrew Chen 53:13
All right. Well, this has been really insightful, Andrew. I really appreciate your time.
Where can people find out more about you and your platform and business? Also, importantly, what are you looking to do next, and how can folks help you with that?
Andrew Keel 53:25
If anyone wants to reach out, maybe they have questions about the business or they’re interested in investing passively in mobile home park acquisitions, they can check out my website. That is keelteam.com. And fill out the contact form or set up a consult with me so we can chat one on one.
Also, if you find a mobile home park deal and you’re interested in bringing it to the table and doing a joint venture on that deal, I do several of those as well.
And if anyone wants to help out, that’s how I would say is to find mobile home park deals and bring them to me. Just for finding a deal, we can partner and make that deal a cash cow for us.
Andrew Chen 54:16
Awesome. By the way, do you have a minimum check size for syndication investors who may be interested in co-investing with you?
Andrew Keel 54:24
Yeah. Our minimum is $50,000.
Andrew Chen 54:27
Got it. Awesome. Well, thank you so much for taking the time.
Again, it’s been really insightful. I’ve really enjoyed learning about how you think about the asset class and some of your experiences in it. And I can’t wait to share this with our audience.
Andrew Keel 54:40
Awesome. Thank you so much for having me. It was a pleasure.
Andrew Chen 54:44
Thank you so much. Cheers.
Andrew Keel 54:46
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