BiggerPockets Podcast 339: 60,000 Tenants?! How Frank Rolfe Built a Mobile Home Empire

BiggerPockets Podcast 339: 60,000 Tenants?! How Frank Rolfe Built a Mobile Home Empire

60 min read
The BiggerPockets Podcast Read More

Over 20 years’ experience in mobile home park mastery!

On today’s show, Brandon and David interview Frank Rolfe, an experienced mobile home park investor with TONS of great advice to share—and share he does! You won’t want to miss Frank’s incredible tips for using seller financing to buy parks, staying low risk while scaling, and the beauty of owning “small cities”!

He also gives fantastic advice for making “stakeholders” out of tenants, describes what the perfect mobile home park setup looks like, and discusses how to find pocket listings no one else is seeing. Frank goes on to share the incredible story of how he bought a mobile home park with a wrestling ring in the back and how he sold it for a $1 million profit seven years later!

In addition, he talks about his strategy for finding the perfect resident manager and insuring yourself against embezzlement from your management team.

This is one of the most information-packed shows we’ve ever done in the MHP space, and you’ll be blown away by the amount of content here. Download it today!

Click here to listen on iTunes.

Listen to the Podcast Here

Read the Transcript Here

Brandon: All right, Frank, welcome to the BiggerPockets Podcast, man. This has been a long time coming, I’ve been looking forward to this. How are you doing?

Frank: Thanks for having me.

Brandon: Yeah. Let’s talk about your story. Today, I know that you do a lot of mobile home parks. Is that how it began for you? Walk us through. What did you do before real estate and then why did you get into real estate? Then talk about how you got that first deal. The beginning of your journey, what was that like?

Frank: Sure. You bet you. Here’s my story. I grew up in Dallas, went to Stanford University, got out in three years with a degree in Economics. Back then, if you wanted to go to a prestigious business school, it was recommended that you start a business and you write about that as your essay on your application. I got out of college a year ahead of all of my peers. I had one year to start a business and then sell it or shut it or whatever, write that into my application. I asked a lot of different adults, “What would you do if you had to start a business for one year with the sole purpose, having lots of stories to write under your college application for business school?”

Frank: The only adult that had any common sense on this idea said, “I would go into the billboard industry,” which I knew nothing about. I did a little research and I found that billboards was the perfect choice because it didn’t take any qualifications to get into it, was not capital intensive, and easy to liquidate. I thought, “Billboards is what I will do.” Armed with absolutely nothing but a rough idea of how it worked, I jumped into it and I failed miserably. For about eight or nine months, I hadn’t achieved nothing. I didn’t have a single billboard lease, single billboard, nothing to show for it, dismal failure.

Frank: As I was getting extremely depressed, suddenly, I scored my first billboard lease. I then, in rapid succession, scored two more. As it came the end of the first year, I had three billboard leases and permits and I’d started building those three. I had another batch behind that, just suddenly, I gotten good at it. I thought I will delay my application for business school one more year, and that way, I will get all 10 of these billboards built and then I will sell them. You can guess what happened at the end of that year, I had extra more pending, never went to business school.

Frank: I just kept on building billboards. That’s building at the rate of about two billboards per month pretty much all by myself. When I turned around 14 years later, I was the largest private owner of billboards in Dallas, Fort Worth. I earned about 300 billboards. I assumed I would do that for the rest of my life and as soon as I had decided that was it for me, I got a call from a company that just gotten public, who bought me out of the price I could not refuse. Now I was suddenly, in 1996, self-unemployed, having just scored my big sale to the big public company.

Frank: Then the problem was now what do I do? Because at that point, I was 36 years old and not really ready to retire and hang out with people and play golf and watch TV. I thought, “What do I do?” I remembered back to the Stanford day, and I know what I will do. I will ask a bunch of people what’s the hot industry to go into. I started calling all my old billboard landowners, 300 of those. I had everything from topless bar owners to Dairy Queens. As I’m calling around, I called the guy that I built two billboards on who had a mobile home park in Dallas and on that one call, he said, “Why don’t you just buy the park for me and you’ll learn all about it. I’ll sell it to you for 400,000. 10,000 down, I’ll carry 390,000 for 30 years.”

Frank: That’s what launched me into the mobile home park business, was basically that one conversation on the phone. That’s how I got into it. From there, starting with that one mobile home park, we have now built up to the fifth largest owner of mobile home parks in the US. Kind of a repeat of the billboard story all over again, only this time with mobile home parks. That’s pretty much how I got into it.

Brandon: Being fifth largest, what does that mean in terms of … What’s your portfolio look like today? Like pads or parks or-

Frank: Being fifth largest means we have about three to 400 employees. If you took a mobile home and put it on either side of the road, that road would go 100 miles. That’s how much we’ve got. We maintain and monitor about 100 miles of roads, water pipe, sewer pipe, electrical line. We are virtually a city. We have 20,000 lots, probably about 60,000 people roughly, in those property. It’s basically, we manage a city. That’s what it basically means.

Brandon: You’re like the mayor of this.

Frank: I don’t know if I’m the mayor. I’m more like the public works administrator but yes.

Brandon: Okay, there you go. You got 20,000 lots. Man, I have a goal in the next three years to get to 1,000 lots and like that or 1,000 units total in three years. 20,000, that is significant. It’s awesome. Let’s walk backwards a little bit and go … First of all, that many employees is crazy as well but we’ll get there. This is mid ’90s, you’re getting into this thing, that very first deal.

Brandon: I’m wondering, like most people when they get into rental properties of some kind, most people end up buying, having to buy a single family house and then later move to something a little bit bigger, maybe. Or they stay small for years and decades and eventually going to that. You jumped right into the big things. Do you think that was wise? Do you think that other people should follow that? Do you think that … I mean, you just didn’t know any differently? What can you say about that?

Frank: Well, everyone has their own ideas of risk and reward and their own private elements of capital that they have and such. The mobile home park business, that first deal I jumped into was relatively low risk. That was the key. If you look at my mobile home park career, I’ve always tried to predicate it with very low risk because I’m a risk averse person. Some people are highly risky, I’m the reverse.

Frank: What really attracted me to the industry in the early days was the non-recourse stat that the sellers would finance. My first deal, 400,000 10,000 down. My second deal was I think 65,000, 5,000 down. Third deal, as I recall, was about 250, I think, with 50 down. I just kept that progression. All the time, I felt good about my life because I had a lot of debt but it was all non-recourse seller debt.

Brandon: Can you explain real quick … Can you explain though what that means for the people who are brand new to this and their thing? Non-recourse seller debt, what does that mean? I’d love to spend a couple minutes talking about seller financing because that’s a fascinating topic that applies to both mobile home parks and other real estate as well.

Frank: Sure. What happens is that let’s say your Mom & Pop and you’re going to sell your property. If I gave you all cash for the property, the sequence of events would be you’d have to pay the IRS and you have to pay your state income tax and let’s just say those two eat up about a third of the money, even though I know you got capital gains, you also have depreciation recapture, et cetera. Let’s just say, 30% out the window, and then that remaining 70%, when you go down to A.G. Edwards or stock brokerage and tell them, “I’ve got all this money to invest, what can you get me?” They’ll say, “Are you a risky guy or a non-risky?” Mom & Pop is always none risky and they end up in treasury bills or CDs right now paying roughly 2%.

Frank: Whereas in seller financing land, I’ll pay roughly the same as a bank so I’ll pay them maybe 5% to as much as 6%. That’s somewhere between two and three times as much interest as they can garner. On top of that, when they said it, when they carry the financing, they don’t pay any income tax on the money until it’s received. It’s a two-pronged betterment of their position. A, they’re earning interest on what they would have paid in income tax and then, B, they get a much higher interest rate. That’s why there’s so much seller financing in the industry.

Frank: Another reason would be I talked to an old timer who owned a park back in the ’60s and I asked him what was the hardest thing he ever had about the mobile home park business. He’s long since retired, the guy’s in his 90s. He said that it was impossible to obtain debt from mobile home parks back in the ’60s. Since almost all the parks are built in the ’50s and ’60s a lot of these moms and pops just assume there is no death. They often carry because they assume anybody buyer would have to have carry because you can’t get a bank loan. Those are the two reasons that pops up.

Frank: The benefit to the buyer such as myself, is when you have seller carry debt, number one, there’s no banking stress, you don’t have to go through a committee, you don’t have to do a lot of those same third party reports. Then the other huge benefit is it’s non-recourse, which means the most you can lose if the deal was to go sour is your downpayment. For example, my first deal, the most risk I had at any given moment and I could have given it back to the seller, I only lost my $10,000 down. Again, a very large comfort level.

Brandon: Yeah. I actually did seller financing and my very first … The only mobile home park I own right now, I did seller financing, and it was great. It worked out really well for the seller, it worked out really well for us. We’re definitely looking for more of that because I just find that a fascinating way. It’s not necessarily no money down, though it is possible to do no money down. It just gives you that ability to get around the bank and the irritation. It took me nine months to refinance a $50,000 property recently. Nine months to refinance a $50,000 property. For that reason alone, I just hate working with banks at this point. It’s just too stressful for me.

David: Yes. I agree. One of the reasons that it’s more efficient than using a bank is a bank doesn’t want to take your property back because they don’t know what to do with it. That’s why it’s an REO. If you ran that property yourself, of course, you don’t want to take it back but if you have to it’s not catastrophic because you know how to manage that asset class, whereas banks are not in the business of managing property.

David: Frank, one thing I want to ask you about that, something people don’t consider when they’re either refinancing or when they’re taking out financing is the actual closing costs. They are massive, especially when you start to get into higher price ranges. When you do seller financing, are the closing costs less? Are they the same? How does that usually get worked out between the two sides?

Frank: When we’ve done our seller finance deals, we treat them just identically the same as if we were getting bank financing. We run them through a title company, seller conveys title to us and carries back the paper on it. As far as third party reports, obviously we don’t do a appraisal, we don’t do a property condition report, we do a phase one, we do a survey, although we can do a much lower quality survey with a bank. We do often a boundary survey, bank will often require an ALTA. There’s huge cost savings there as far as the actual closing costs themselves.

Frank: Again, that’s always negotiable. Some moms and pops, they want to split them, others will pay all the closing costs and then some want to pay none. We calculate that into the deal on the front end. When you work with moms and pops, it’s really not necessarily a playbook of how it works because they’ve only done this one time when they bought it back in 1960 or built it in 1960 and then this one last time when they sell it so they’re not very sophisticated. It really is very much dependent on the Mom & Pop that we have. Our life is we try and be easy to sell to, which means that we work with the seller, we don’t want them to ever be unhappy, we call it win-win deal making. We work with them, however they want to do it, we do it.

David: Easy to sell to, that’s a really good tip. A lot of, I think a lot of people just make it really complicated and difficult to sell to but no matter what kind of real estate you’re in, that is a principle that should apply to everything. Make it easy to sell to and people are going to want to do business with you. Make it fun, make it easy, make it light to do business with you and you’ll go a lot farther in life. You mentioned phase one, for those unaware of what that means, can you explain what a phase one is?

Frank: Absolutely, a phase one environmental is a report. What you do is you get a licensed and insured environmental engineer and they look at the property and they report back whether it’s clean, which means it has no environmental contamination or if it’s dirty, which means that if you want to continue on, you’ll have to do a phase two to determine how bad is the pollution and then a phase three, which is your plan to clean it up.

Frank: In our industry, it’s very hard to survive a bad phase one because we’re not at the top of the pyramid. In a big office building, in a big hospital, they encounter environmental pollution, they can re-mediate it, even if it costs millions of dollars, they just throw that into the loan. They had some underground toxin, they cost them three million to clean up. Hospital cost 300 million to build and now it costs 303 million. [inaudible 00:14:25] marks when they’re dirty, pretty much have to always walk the deal.

Brandon: All right. Makes sense. Let’s talk real quick about why mobile home parks.. What are some of the benefits to owning a mobile home park? What are some of the things that stand out to you as a good thing?

Frank: The key benefits and there’s several, probably the most important and unusual factor of a mobile home park is the fact they don’t allow them to be built anymore. The supply is effectively kept. There’s roughly 44,000 mobile home parks in existence in the US and it never actually diminishes somewhat each year, there’s about 10 new ones built and there’s about 100 that are torn down. There’s something exciting, I think, and rewarding about owning an asset that is limited, which makes it thereby precious.

Frank: Mobile home parks are the precious gems of real estate simply because of supply, there’s just not no more being built. That’s a huge attraction for most people, myself included because that means every mobile home park you own is one of a kind, it’s rare, you don’t have to worry about competition, building one down the street or across the street. That’s one really cool part of it.

Frank: The next part about mobile home parks that makes it unique is that our customers are actually stakeholders in the business because we own the land but they own the homes. We’re stuck together in this enterprise. Whereas, in apartments, the owner owns everything and the tenant owns nothing and therefore they don’t have often a lot of pride of ownership. Ours are the reverse, our customers actually are stakeholders. That’s a neat thing. Another traction is it’s just land, we don’t have any improvements. Most mobile home parks with the exception of … Sometimes you have a clubhouse and a pool, maybe a laundry room, some common area but in the perfectly run mobile home park, the perfect position would be one in which the tenants all own their own homes and we own the land so we’re just landowners.

Frank: The beauty there is you have very, very little repair and maintenance. We don’t have to fix toilets or doors or anything, we just rent land. That’s, again, a very attractive item. Another thing that fuels a lot of people to be excited about the industry and ourselves included, although I know it sounds politically incorrect but the lot rents in America are insanely low. Now, they cannot be supported by any form of math. An economist from Duke University named Charles Becker studied them a year or so ago and determined that based on economics, mobile home lot rents need to be up at least 50% to as much as 100%.

Frank: What happened there is if you go backwards, Mom & Pop never kept up with inflation. If you take the standard mobile home lot rent in 1960, it was about $60 a month. In today’s dollars, that would be equivalent to $500 per month, yet our average lot rent in the US is only running in about $280 a month. There’s massive room to increase the rents and obviously, that’s a huge driver. From a profitability standpoint, you’re not doing it to take advantage of people, you’re simply trying to bring the parks back up to where the rents need to be based on inflation.

Frank: Of course, in so doing that, that allows you to reposition the park because with higher rents, you can now put in new capital features and put money back into it. It’s really a win-win for everyone but it’s obviously an attraction for people because they can buy a park in a certain rent knowing that they can raise it over time to an entirely different rent. That’s an important feature.

Frank: Another thing people love about the industry is the fact that you’re almost always buying directly from Mom & Pop. The 44,000 parks, only about 4,000 are institutionally owned. About 40,000 are still owned by the original Mom & Pop builders so that’s kind of a cool item. Seller financing is good. Then the last item, of course, is the demand for affordable housing, which is off the charts. Those are probably the key drivers of people like it.

David: You mentioned that it may be politically incorrect to mention that rents can be raised, I think you said the average rent is 280, it could be 500. There’s two different ways you can look at that one, you can look at it like people are entitled to below market rents just because in which case you’re the bad person for raising the rent. Or two, you could look at it like for 10, 15 years, they’ve been getting rented half of what they should have been paying that whole time.

David: They should be grateful that they add 15 years of really low rent and now you’re just resetting it to where the market is supposed to be because even though rents haven’t been raising inflation, it has still been going on that whole time. The park owner has been seeing the money that they’re getting worth less and less and less even when they’re not raising it, it will cost more [inaudible 00:19:38].

Frank: I think I mean you’re exactly correct. Then, of course, the spin we try and give people, of course, is and it’s the truth that without higher rents, the parks will all be gone because in most markets, the apartment rents are $1,000 a month more than our rents. It makes more sense to tear the park out and make an apartment complex. Without higher rents then the narrative is the parks won’t exist anymore. What’s also interesting is no matter what you say or do there’s a certain group of people that are always agitated about higher rents but yet at the same time, the bulk of our customers like paying higher rents and thereby getting you know, working water and sewer and professional management. It goes both ways.

Brandon: While we’re on the topic of the raising the rent thing, I want to make sure we talk about today because a lot of people probably would have seen it, the John Oliver episode. Is that cool? Will you cover talking about John Oliver?

Frank: Yeah.

Brandon: Recently, John Oliver, for those who didn’t see it, he’s the late night TV or whatever, the late night TV guy on HBO. Does a lot of funny little comedy bits, he’s a comedian. Similar to what the Daily Show used to be with Jon Stewart. Anyway, John Oliver did an episode on mobile home parks and I had so many … Because people know that I’m in a mobile home parks now that I’m excited about them. I probably had 50 people send me the link to this video of him just pretty much tearing apart the industry. I mean, just like really up … He featured you in it and he talked about you a lot in there and it wasn’t always flattering. Here’s what my question is, what did he get right and what did he get wrong about that … I mean, obviously, he’s a comedian, this isn’t like New York Times but what did he get right and what did he get wrong?

Frank: Many of his points were valid, they were just taken out of context. Number one, he is correct, mobile homes do not appreciate. They never have appreciated, nobody who sells them, to my knowledge, has ever told anyone that they do appreciate. The reason why mobile homes is in most markets 1,000 a month less than the other housing types. That’s really depreciation, it’s actually better than appreciation because appreciation is what you hope to sell it for in the future. There’s some degree of risk with that. In this case, its actual cash in your pocket every month savings. That was one item he was wrong on.

Frank: Then, of course, his portrayal of me, it is true, I’d be the first to admit that mobile home lot rents are insanely low and can only go up. I mean, if you look at some markets in America, let’s just take Denver as an example, the average lot rent in Denver is now 750 per month, whereas the lot rent there was not too many years ago about $350 per month. The reason being that Denver is one of the most consolidated markets in the industry, that’s the second largest number of mobile home park operator headquarters are in Denver so they’ve consolidated up the market of Denver.

Frank: Then like any smart business person, they’ve looked around and said, “What kind of rents should these be?” They ignored what Mom & Pop did and just say, “What rents are appropriate based on supply and demand?” At 750 a month, those parks are all full. There’s no question that rents are going to go up and there was portrayal of me as someone who just raises rents haphazardly or opportunistically, that’s incorrect. If he had gotten to any of the seminars that I teach or read any of my writings, we recommend that people do not raise rents like that, they raise them in slow, manageable increments.

Frank: When I watched it, to be honest with you, I don’t watch John Oliver so I only saw when you gave me the link but I thought part of it was funny. I mean, he is a comedian. It’s satire news, it’s not real news. The only part I thought was unfortunate was that it basically made fun of about 8% of Americans who live in mobile homes. That wasn’t very cool, I thought. Also, he made absolutely no effort to actually get the facts about what he was reporting. I’m sure he doesn’t write those stories. I’m sure they’re written by young associates there at his show but if he’d simply bothered to call me or anybody that could have easily explained some of the things he had in there why they were wrong.

Brandon: Frank, then that wouldn’t make for good TV, that’d be …

Frank: Well, that’s exactly right. I would call your attention, as you mentioned New York Times article, which the reporter actually went to one of our events and then also lived in one of our parks for a week. He was a very informed writer, a very negative anti-business writer. If you look at his writings, his books are always, Broke USA, How Payday Lenders Ruined America, et cetera. He became a gigantic fan, which was really crazy. We never expected that. He wrote how the industry’s the best thing going and affordable housing. How we went from the best thing going an affordable house to John Oliver, I think is simply because what one person put the time and effort in to get the facts and the other did not.

Brandon: When I watched that episode, yeah, I mean I definitely thought they pulled out … It’s one of those things if you take all the negative stories of the last 10 years that you could find about mobile home parks and then put them into one funny story that sounds like it applies to everybody, that’s what the show did. Again, it’s entertainment, it was funny-ish.

Brandon: Then I got an email a few weeks later from a guy. I sent out a message to some people. I think I mentioned it here on the podcast that I was looking to build out a team of people to help me work on these mobile home parks. I got a message from a guy saying that I was being unethical by looking into mobile home parks. He flat out told me that I was unethical and that he would never invest in mobile home parks because mobile home parks keep people in poverty, I think his exact phrase was.

Frank: That’s the craziest comment.

Brandon: Yeah, yeah. Explain why.

Frank: Mobile home parks are the solution to poverty. They’re not the problem, they’re the solution. In other words, without mobile home parks, you have a huge number of people who are generational renters, who are extremely cash strapped because apartments in most markets are far beyond the levels of affordable housing. The mobile home parks give people as close as they can to that American Dream not only of homeownership by having your own little subdivision community with your own yard and privacy and those type of items.

Frank: I get the same comments. I even had death threats after John Oliver on social media from people in Brazil and other countries, saying that I was going to be damned to hell for taking advantage of the poor. The problem is, number one, we don’t deal in the poor. The mobile home park business is not … If you look at the US definition of poor, that is not our grouping, it’s an odd classification that we are lumped into that because our typical household in our mobile home parks got an income of probably 30 to 50,000 a year. It, in no way, meets the definition of poor.

Frank: The other thing, which they’re completely wrong about is that people love our product. That’s what the New York Times writer found when he lived in the park. It was a 200 space park, he could not find a single person who didn’t love living there, that’s why he became a huge fan. I think the bottom line is right now, America is stuck in this cage fight of capitalism and socialism. We try and define everything into one of those two boxes. It’s either those capitalists or those socialists, but that’s not where mobile home park’s really want to be or even are fairly positioned. We just get stuck into that bizarre narrative.

Frank: To me, the bigger narrative, if we want to get mad at somebody is when we buy mobile home parks that are in bad condition and bring them back to life and repaved the streets and fix the water and sewer and bring in a professional manager and the rents do go up, there were people when we bought it, who were just marginally living there. They really could not afford to live there. We bought parks with different people living in all kinds of things. You shouldn’t even live in a school bus. We once had a family of four living in a pop up camper [inaudible 00:28:09] sewer.

Frank: If you ask them, “Why are you living like this?” They say, “Because I can’t get into any of the government programs.” They’d applied to Section 8 and they were told, “I’m sorry, we’re full right now. Don’t call us, we’ll call you.” Really, people tried to refocus that anger about those people who are marginally trying to live in America but that really is a government issue, it’s not our issue. Section 8 needs more funding.

Frank: I think if you watch the National Geographic thing I was on affordable housing, that they went down to Washington and they talked to, at that time, the head of HUD, and he admitted, “We cannot accept many people anymore.” I think he estimated that the need for affordable housing through Section 8 was roughly double what they were currently serving. Again, there’s not really an issue with mobile home parks. We’re part of the solution, not the problem but for some reason, we get stuck in a lot of different narratives.

Brandon: Well, I think for those who manage their money wisely, a mobile home park is a great solution because it allows you to save money that you would normally be paying for rent. The example you gave us earlier, people are paying 280 a month, they could be paying 500 but an apartment would be $1,000. That’s actually a way that for someone to save money to get themselves out of a bad situation. Now one of the …

Frank: That’s exactly correct.

David: One of the things that makes mobile home parks unique is like you mentioned, you’re a stakeholder with the people that you’re renting to. You’re renting them the land but they’re owning the home, which is a better situation for the tenant to be in, if we’re going to call them a tenant. It’s better that they’re owning the home than like when they’re renting an apartment, you own the property and you own the land. Do you recommend that people buy mobile home parks that have park-own homes or do you want to try to only be renting the land so that you have more stakeholders that are owning the homes?

Frank: In our case, let me tell you, because when we talk mobile home parks, it’s a big nation, there’s 44,000 parks spread out over 49 of the 50 states. There’s no parks in Hawaii. In the south, the mobile homes rent for, let’s say 700 a month and a lot rents can be as low as $100 a month. In a lot of the Southern mobile home parks, to make money, people actually have to own the homes and they view those parts as detached apartments because of the low lot rents. The parts of America we serve, our lot rents range from about 300 a month up to somewhere in the mid-500s. The spread between home rent, which is still the same probably 700, 800 bucks, the spread is very narrow.

Frank: When the markets in the states we’re in, you don’t want to own any of the homes, you want to just own the land. Of course, owning the land is the best because when you own the land, you don’t have to deal with repairs and capital cost on the homes. For most people in most states in the United States, you’re better off not owning the homes. The only exception would be in some states, Mississippi, Louisiana, Alabama, Georgia, some parts of Arkansas, the rents are so low, there really is not a business model unless you deal somewhat in the homes.

Frank: There’s one other thing I will add, which is you can’t really be in the business and be afraid of the homes because at some point in every park owner’s career, you end up owning a home because someone dies and the heirs give it to the park or someone doesn’t pay the rent or runs off, you take the home through abandonment, and then you have to go in and renovate it and sell it. You have to be at least a little adept at the home game but the ultimate goal is not to own any.

Brandon: When you look at a park … Right now, I’m looking at a lot of parks, analyzing a lot of deals and most of the ones I’ve come across are maybe 50-50 park on homes, just rentals, and where the tenant owns their own home. Or maybe 70, 30, whatever. Finding a lot of them, a lot of them have both. When you encounter these, do you just say, “No, I’m not going to buy it,” or do you say, “I’m going to buy it,” and then sell these homes off as quickly as possible to the tenant?

Frank: What you want to do again, every park is different but in most cases, if the homes are older, you want to, in some states, just gift those to the tenant because if you gift it, you do not buy the act of gifting fall under some of the regulations regarding title and habitability and the items like that. You really need to know your laws. The first stop is, “What are the laws in my state?” The good news is there’s a state mobile home association for every state except Hawaii, so you can call them and ask what the regulations are in that state.

Frank: Often, the typical playbook is on the older home inventory, ’60s and ’70s, you’d probably try and just give it to whoever’s living in it on your ’80s and ’90s based on condition. 21st Mortgage, which is the largest lender on mobile homes in the US, they have programs whereby they will actually finance used homes as long as the mortgage is about $10,000 or more. The ’90s homes, that stuff actually has value. The ’80s homes may or may not have value based on the state and locality you’re in. The ’60s and ’70s, they’re typically you just want to want to make them owners they want if you can, even if it just means giving it to them.

Brandon: Interesting, yeah. Fascinating. I look at the parks, and I’m like if lot rent is 280, let’s call it, lot rent is 280, but if I hold it as a rental property, I can rent it up for 600. That’s way more money, Frank, why shouldn’t I just hold on to it then you get the $600 rented out and forget about the owning it? I’ll just own a bunch of rentals and make twice as much money.

Frank: Here’s what you have to look at it. Typically, the cost of a mobile home, you’re looking on the insurance and property tax, probably about 50 bucks a month between the two, depends on what state you’re in and how many weather events you have. Then the rest is all repair and maintenance. It costs you about 100 to 200 a month to keep a mobile home and repair. You figure you got a cost of operation, let’s just say in many parts is $200 a month and that’s not even being super conservative.

Frank: If you take the home rent and you subtract the lot rent and then you subtract the 200, then the question is, “Is that still worth your time or not?” A lot of modern Mom & Pop’s, what they do is they don’t take out any of the lot rent. In some of the parts, we buy Mom & Pop on their books, they show that the home rent is for 700 a month and then they take out the 200, they think they made 500 profit. In fact, in some of these parks a lot rent is 500 so there’s no economic gain at all, not one penny to owning and renting the homes.

David: Yeah, fascinating.

Brandon: Yeah. I think that the repairs and maintenance. The park that I bought in Maine, that’s probably the thing that was most surprising, is how much each of these homes would need. Especially if a tenant left or we evicted a few, just how much work … There was not 30, 40, 50 grand but they all needed a fair amount of work to fix them up and they would end … Because they were all rentals at the time, they’re about half, about 50-50 when I bought it, they needed a lot of work going into them.

Brandon: The repairs surprised me, which has completely taken me over to your side of the equation. I don’t want to own the homes because the whole reason I got into mobile home parks is because I don’t like doing repairs and maintenance very often. I don’t like dealing with contractors, I want to do as little of that as possible so that my cash flow is stable. I’ve definitely come to [inaudible 00:35:42] the ones that we own as rentals, we just had a lot of repairs, it’s things break and it’s a lot more expensive for us to send a plumber.

Frank: I think part of the puzzle is that the mobile homes themselves are not really built very durably. If you go down to the factories and see how they’re built, you can immediately see what’s an issue because in many cases when they’re building them, they bring out and put in the carpet and pad and then they put the interior walls on top of it because in a mobile home, none of the interior walls are load bearing. Then you look how a lot of other things are built, many of the parts in your home, they’re made of metal and mobile home are made of plastic. You had to treat them very gingerly.

Frank: Some residents are perfect for mobile homes. You can have a retired couple in a mobile home and they’ve been in there since the 1960s. Suddenly, they move away and the home is immaculate on the inside because they were exactly in tune with the lifestyle that that home requires to stay in good condition. They treat it nicely and they maintain it. Then you can also have another family in one and they just beat it to death because again, it’s like fine china. They’re not build as sturdy as a lot of other housing types by design under the supervision of HUD so they can remain inexpensive. That’s one reason that the repairs can be so bad.

David: I want to ask you, a lot of people are worried about this asset class because of some of the stereotypes that come with it. I’m sure there’s some truth to it just like there is to every other form of real estate investing. You’re renting your house to someone who doesn’t own a home and they’re not going to have the same pride of ownership that a normal homeowner would have. Obviously, Frank, you’ve learned a lot over the years of what to avoid, what to look for, how to analyze a deal. Can you tell us a little bit about your first park that you bought in Dallas, Texas? I have some pretty funny notes here about what you had going on in the back there. Then what you’ve learned so that you’re avoiding that situation in the future?

Frank: Sure. The first Park I bought, I would probably not have bought today because it doesn’t really meet a lot of the profile of things that we normally buy. It was very, very rough clientele. I office in that property every day from probably about nine in the morning until five o’clock at night. It was a little single wide trailer in there. It was my first mobile home park, I knew nothing about the industry so I thought I’d better self-manage it and therefore I would then be more of a master of my destiny. I drove down there every day from my house and then drove back every night.

Frank: I learned a great deal. The first thing I learned is there’s a certain customer that you just can’t run a business around. That’s what the first park had. It had basically people who were not gainfully employed, they were not stably employed and so how can you pay the rent? I had people that would bounce around jobs, be an employee for long periods of time. I immediately learned that in the mobile home park business, there’s a certain class of customer that works and there’s a certain class of customer that does not.

Frank: Over time, because I made people start paying their rent every month. The guy that I bought it from had not done that policy. You could skip paying rent sometimes for five or six months, he wouldn’t file eviction. I’m not sure how far you could have gotten before he would file eviction, possibly into the years. At the same time, there were no rules enforcement. When I showed up, they had built in amateur wrestling ring in the back corner of the property, little concession stands made of plywood and the place was just an absolute travesty.

Frank: People were not bothered in taking their trash to the dumpster but just throw in the bag in the yard. They had non running cars everywhere. Just crazy stuff. When you have people like that, nobody who’s stable, who wants to live in a civilized society can live around them. Basically, they created this Utopian society of misfits and it was my job to bring back law and order and civilization. Over time, I was able to groom the property and those who could not pay rent, who would not abide by the rules had to go.

Frank: Now, I remember one day I went in there and overnight a resident got in a bad mood, had an argument with their girlfriend and then had taken a baseball bat and knocked the windshield out of three cars of other residents, right? I mean, so I told the guy that he had to go. He could not understand why. He couldn’t figure out why that was unacceptable because he told me, you know, he was gonna come up with the money someday to put the windshields back and he just had no clue that, you know, people demand more out of life than that.

Frank: So that was a big lesson learned at Glenhaven is that, you know, that the industry really is not about poor people and misfits and all those stereotypes you see on television, although there are some parks like that somewhere in America, but you know, our industry, the normal industry, the industry that houses 8% of United States population is basically based on high-density subdivisions where with people with the same aspirations and goals and pride of ownership as everybody else. So, that was my big lesson learned from that very first park because that was exactly not, just there was a clientele that I thought is what the industry served that’s actually not our business model at all.

Brandon: Interesting. So, I like how you differentiate, there’s clientele that are ideal for a park and a clientele that are not. How do you know though? I mean, you’re analyzing a park, you get a lead on a park on an … Well we could talk about that, but you got a lead on a park, how do you know it’s the type of tenants that are gonna actually pay the rent and that have jobs or have income of some kind versus the owner just putting a bunch of warm bodies to fill lots before selling it?

Frank: Well, what you do is there’s two basic rules of any mobile home park, two policies. We call one, no pay, no stay and then we call, no play, no stay. So no pay, no stay means if you don’t pay your rent, then we evict you in the very month you didn’t pay. So, if you don’t have the rent to us by the fifth, we add a late fee to it and then we sent you a demand letter based on the State’s requirements and after that we file eviction on you. Because it’s not fair to those who pay rent to have people living among them who don’t pay rent.

Frank: The same is true with no play, no stay. If you won’t play by the rules, which were not a high bar at a mobile home park, they’re very reasonable rules, if you can’t do that, if you can’t follow any form of rules to live in a neighborly fashion with your neighbor, you have to go because it’s just not fair to the others. What we find is when you stick people in to that paradigm of no pay, no stay and no play, no stay, some people make it and some people do not. We don’t have, on the front end, we don’t really have any idea who will and will not succeed in a structured environment.

Frank: So, one thing we have learned, which is interesting is that credit scoring in our industry means nothing, because many people who do not have large incomes and some who do have large incomes have terrible credit, because all it takes in America today is to have a medical emergency and you end up with a $30,000 hospital bill you can’t pay. Or you go down to the car dealer and you get a car and then they lose their job and then the car gets repossessed because they really … It was overstretched when they bought it to begin with.

Frank: What we’re looking for is what we call the fight co-score, F-I-G-H-T co-score, and that means how much fight do you have in you to make sure you always pay your rent. That’s proven out through eviction. So, when we look at credit scores and what we’re really looking for are evictions. If someone does not have any evictions, even though they may have terrible credit on paper, we are more than happy to give him a try, then we buy the park originally and we set about bringing back law and order. Those people who embrace that and want to pay the rent, and want to be a good neighbor, then that’s great with us. But we’ve learned over time, we can’t really tell any of that on the front end.

Frank: You know, a lot of parks we buy we think we have a handle based on the cars. If they have really nice cars, we say, “Well, if they’ve really nice cars, they must have good credit to get that car,” and that maybe true, but at the same time it may also be true that they got the car because they weren’t ever paying the rent and they may also be that they’re just a terrible neighbor because although they have a nice car, they may have loud music at three in the morning and who knows what. It kind of all magically works out once you set parameters and people either fit in there or they don’t.

Brandon: You know-

David: I let-

Brandon: I’m sorry go ahead, go ahead.

David: No, you go ahead.

Brandon: Well, I was in a, just kind of close of that thought on the no pay, no stay, no play, no stay. One thing that really has attracted me to mobile home parks and you can … I think you’ll agree to this is that there’s a lot of badly managed parks out there. From what I’ve seen there’s a lot of badly managed parks and real estate in general is like that, but I noticed that with Mom & Pop’s like who haven’t raised their rent, they haven’t enforced rules for a long time. So, what I found is that, I feel like success is more likely if can just manage correctly, and that’s a skill that I feel like I have. Look, I really pride myself on being able to manage tenants well and manage property well and therefore, I’ve got a better shot than most because of us just don’t bother to learn that skill. Do you agree?

Frank: Yes, I totally agree. You know it’s really sad the condition of some of these properties. We’ve bought properties that are in magnificent locations. We have some that are next to like mansions, subdivisions with private schools behind them and I’m not really sure why Mom & Pop held on as long as they did, because clearly they’ve lost the energy, you know, years before. I mean we bought a property once that had not been mowed in three years. Picture that. We bought a property once that have not had the leaves picked up in so many years, that we could not actually open the door to the vacant homes because the leaves were higher than the doors.

Frank: Right? and I think some of that maybe also is to blame with those city governments for allowing that to occur. Because sometimes they look the other way because again, let’s all be honest, most Americans have this terrible stereotype of mobile home parks and the people that reside in them and so they just let those things just get away with murder because they don’t even want to drive in and take a look at it, but a lot of these parks, there’s no excuse for the condition that they’re in. I honestly don’t know why, again, why Mom & Pop are not selling this maybe a decade ago or at least when they started to lose interest in the business model we should have sold.

David: That kind of leads me to the question I want to ask you, but before I do, I wanted to comment on your credit thing. I just think that’s great that you’re looking at more than a fight co-score score. I really believe that people who just look at the credit score is the lazy man’s way of choosing a tenant. Because the way that credit scores are calculated is not a government standard. It’s just three companies that come up with their own algorithm.

David: You can be really good at paying all your bills, but if you’re an unorganized person and you get late payments because you forgot, you were supposed to pay something. You didn’t sit down and write the checks. You travel a lot, whatever, your credit score can get trashed just because you didn’t realize that you weren’t paying it. The minute you find out that it was due, you send in the money. You have the money, you manage your money fine, but you don’t manage your books very well, and there’s lots of people with really bad credit score who could actually make a really great tenant.

David: A lot of the consumers that are out there don’t realize how whack the credit system is for different people scores and I love what you said is, “I look for evictions because that tells me whether this person is gonna pay their rent, rather than maybe how organized they are.” The other point, that I want to mention is for a new person, right? Let’s say I have heard this and I’m like, “Man, I really wanna get out there. I wanna start buying deals.” You mentioned a lot of Mom & Pops should be selling, but they’re not. They kind of just letting their park get run to the ground. What something that a newbie can look for that they can recognize, “Ooh, that’s an opportunity right there, I should pursue that person.” Where can people find deals?

Frank: Okay, well let me tell you where we find our deals. Because we all find deals in the mobile home park business in the same manner. The first place is online. So, if you go to Mobile Home Park store, you’ll find typically about 800 to 2000 mobile home parks right there online. Now, I can caution you on two items. The first is, of the parks online, at least a half of those you wouldn’t want if they gave them to you because they’re defective on water, sewer delivery or some other terrible issue. They don’t have the permit, or the market is terrible. So, half of those you’d want to just discard.

Frank: The other half are massively overpriced. Most people typically ask prices are often up to double what they actually expected to sell for, and they do that because they get very bold online. It’s kind of like people on eBay who would put something on eBay that they know would never garner a hundred dollars, if they ask $200 hoping there’s some sucker who will take it. That’s the online dilemma.

Frank: After online, you have brokers, and brokers is where we get over half of all of our deals. The typical broker deals that we buy are not the ones they advertise. It’s what they call pocket listings. In our industry is very unique because I don’t know of any other industry that has so prevalent pocket listings. Here’s what happens. Mom & Pop wants to sell. Mom & Pop is big buddies with the manager and all of the residents. They don’t dare tell anyone that they’re going to sell because they’ll hate them. Whereas they call up a big broker and they say, “I wanna sell my mobile home park in, you know, Des Moines, but here’s the deal, I’ll sell it for $700,000, but no one can know I wanna sell it. You cannot put it as … You can’t put on MLS. You can’t put a sign in front of it. You can’t put it on Mobile Home Park store. You can just store in your brain and when one day you meet someone who’s got $700,000 that wants to park in Des Moines, call me.”

Frank: These guys carry, I mean they’ve probably the largest pocket listings I’ve seen. There is one guy who had 50 of them, but a lot of these people all seem to carry five to 10 and there’s about a 100 mobile home parks specific brokers in the U.S. So, it’s a tremendous number of pocket listings. That’s our number one source of deals. Beyond that there’s three more we’re discussing. One is direct mail, right? You just get the mobile home parks. You get the owner’s name through the property records and you ship him a postcard or letter. We prefer postcard that basically says, “Hey I buy mobile home parks, give me a call,” and when you do that like most direct mail, you’ll get typically one to five percent response rate, although if you’ve sent a really good postcard you’re really lucky people have gotten as much as 10% in that market.

Frank: Then you have cold calling, which is a little harder because you’re now having to stick your neck out and actually dial a phone and talk to a stranger. A lot of people hate that. They prefer direct mail, but the beauty of that is if you do cold calling, you typically score very high. There are definitely people who are doing it.

Frank: Then the final one, the oddest one is where you actually drop by the person’s home. We call it drive and talk. It’s a terrible concept unless it’s a mobile home park that you really, really, really want because the odds are very low and often even though the person won’t invite you in, they really don’t want to sell and you waste the entire day just sitting there talking to them. Those are basically the you know, the five four methods that we use. Again, of those over the last 25 years, the majority of all of our deals came from brokers via pocket listings. Then the balance that we have is probably in equal breakdown, what we can cold calling, direct mail and online, and then just a little tiny bit of the drive and talk.

Brandon: All right, that was super, super helpful. What about funding those deals then, how do you typically fund them? Are you also a financer or a mixture of different things?

Frank: Oh, that’s incredibly easy. That’s the crazy part. When I get in the mobile home park, there’s this I was just convinced the bank financing did not exist and maybe did not back in the mid ‘90s. But today, the financing from mobile home parks is perhaps the easiest part of the process and I think there’s two reasons for that. Number one at the same time that I was buying my first park and my partner Dave Reynolds was buying his first park, there was another guy out there buying his first park and that was Sam Zell. So, Sam Zell who is the biggest owner of office buildings and apartment buildings in American history is also, by far, the largest the largest owner of mobile home parks. You know we have about 20,000 lots, he has 160,000 lots.

Frank: Because he is on the mobile home park business. That one fact has given huge comfort to lenders the world over, that it must be a good industry because Zell’s in it. He has that much clout. Today, just because Zell buys parks, almost every major bank in America likes parks. The other thing we had going for us is we have the lowest default rate or the second lowest of all real estate and why that’s important is, number one, it gets banks a lot of comfort. But the crazy outcome is it also gives conduit lenders a huge amount of comfort. Because when they sell those conduit pools at Wall Street it’s also based a little bit on risks. So, what they will do is, they will slam enough mobile home park loans on the pile to offset the risk your loans like hotels and things like that.

Frank: The final thing, which is brand new that is interesting about the industry is, and I don’t know if you guys ever even saw it on TV because, I mean not many people follow mobile home park trivia, but the Fannie Mae and Freddie Mac got in trouble because they were violating something called The Duty Deserve Law and duty deserve means that you have to treat all Americans respectfully regardless of income and they were not helping mobile home mortgages. They just they haven’t supported the industry in decades, and someone suddenly realized that, some congressman, and they had different trials that run C-SPAN.

Frank: In the end, they announced that Fannie May and Freddie Mac had to start aggressively making mobile home park loans. That’s the first of a two-pronged attack for other duty deserve and today, starting almost ground zero, five years ago, agency debt is now more than 50% of all mobile home debt by dollar volume.

Brandon: Wow, I did not know that.

Frank: Yeah. It’s crazy. In fact, it is the only form of real state within Fannie Mae and Freddie Mac that has no boundaries. It’s limitless. There’s no path. So we have this huge advantage over everybody, apartments, office, you name it because of the duty deserve law. Now the other leg to that which starts this year is they have to start secured [inaudible 00:55:14] mobile home mortgages. I think they’re supposed to do twenty million this year, mobile home mortgages and then wrap up from there. But that’s another unique financing angle that did not exist too many years ago, which is now a huge player in the industry.

Brandon: Yeah. That’s fascinating. I did not know that. So, I’m gonna look that up here and do some research on that later so very cool. Well, next segment of the show I want to kind of shift this over to … Oh, it’s been fantastic but next on the show we dive deep into one of your particular deals. It’s called the deal Deep Dive.

David: Deep Dive.

Brandon: Frank this is basically the part of the show we want to dive into a one particular deal. So, do you have a deal in mind, anything that we could just kind of jump in and ask you a series of questions about the property.

Frank: Sure. Absolutely. You bet.

Brandon: All right. Perfect. Let’s go to what I got. I got a total of eight questions here that we’re gonna throw at you. Will start with the first one. Well, the first ones will probably be pretty obvious. What kind of property is it, but I’ll clarify also and where is it located?

Frank: Oh, it’s a mobile home park. In Dallas, Texas. This is my first property.

Brandon: Perfect. Awesome. Okay.

David: Okay. How did you find the property?

Frank: Well, I found the property by calling up the Mom & Pop owner and he wanted to sell right there on the phone.

Brandon: Perfect. How much did you pay for it? He said $400,000, right?

Frank: $400,000, $10,000 down, $390,000 mortgage. Interest rate as I recall back then was 7%, 30-year amortization.

Brandon: All right.

David: I’m wondering at ’96 how much was $400,000 in today’s dollars? Like a little over 20 years ago. It’s probably like at $1.2 Million or so I’d say. So, this was a pretty big park. Okay, Frank. How did you negotiate the deal?

Frank: Well, basically I knew when the guy wanted to sell me something over the phone with $10,000 down and carrying $390,000 for 30 years was something wrong with it. Well, I couldn’t really negotiate the price. I simply said, “So, how much are you gonna lose then?”

David: That’s funny.

Frank: And he said, “I’m losing two grand a month.” That’s the whole negotiation. I said, “I’ll take it. Let’s write it up.”

Brandon: Why was he losing so much money?

Frank: Well, let’s see. He was terrible operator. He did not collect money from people, but I was able to solve the $2,000 in one phone call. It’s a bizarre story. When I finally got his financial records during my quickie due diligence prior to closing, I saw that he had a cable TV contract for the entire park, all 83 lots, and he was paying the full amount. He got no volume discount, right? So what he did was apparently some salesman called him up and said, “Hey, do you want your people to have cable? It’ll be such a great amenity.” He, being a good, nice Mom & Pop said, “Yes. That sounds like a very nice thing for the people.”

Frank: So, they basically were billing him 83 times the regular cable amount, which back then was I think 30 or 40 bucks a month. The crazy part was, the park was half empty. So, half of that didn’t even, wasn’t even using the cable. Of the other half, most of the people are on Dish or Direct TV. So, I basically sent everyone a letter that said, ”We’re no longer providing free cable, but if you want cable contact the cable company,” and I shut the park’s cable off as far as the … We still had cable access for those who wanted but shut our prepaid account for the entire park off and I lost not a single resident, not a complaint, and I had solved the negative instantly. That’s how screwed up it was.

Brandon: That’s awesome. That’s awesome. All right, what did you end up doing with that park a long time? Did you hold on to it? You still with it today?

Frank: No. I sold it. I sold the thing. I held it for about seven years. I raised the rent. The rents when I bought it, I think were like $190 a month. I got them up to I believe $380 when I sold it. I talked to the guy that I sold it to recently and had not talked to him in, oh, my gosh, a decade, I think. The rents have almost, not quite doubled again, but the Dallas market rents are now up in the fives to six hundreds. I sold it for around a million five. So basically, it was about a million more than what I had paid for including the capital upgrades.

David: How long did you hold it before you moved it?

Frank: Seven years. Seven-year hold.

David: So, you made about a million dollars in capital gains over 7 years plus whatever cash load you got?

Frank: That’s correct.

David: Not bad.

Brandon: Not bad. Frank, did you close the park? Go ahead.

David: [crosstalk 01:00:26] that had the wrestling in the back and the women of ill repute over there?

Frank: Exactly correct. It was an odd deal all the way around.

David: So, you said this was like you wish you wouldn’t have bought it, right? That’s not terrible if you take a deal you wished you wouldn’t have bought, you made a million dollars over seven years on it?

Frank: Well, let’s talk about that for a minute. As you get older and perhaps wise or you also get more jaded, that was a very tough turnaround deal and I’m not sure I’d get a dive for that again today. Now, if someone called me with that deal today, I’d say, “Yeah. You should definitely buy it.” I just don’t know if I would be the guy to buy it again today and in that condition. It was really, really rough.

David: That’s about real estate though.

Brandon: Yeah. I was gonna say, we talked about that a lot how awesome that is, like different phases in an investor’s career are good for different people and so like there’s investors out there like you, Frank, who have property that doesn’t fit your current things. I mean there’s up and coming real estate investors who would perfectly fits their current phase because they’re willing to do the wrestling bit. They’ll even get involved in jumping in the ring. I mean …

Frank: Yeah. You’re exactly correct.

David: Yeah. So, I love that.

Brandon: All right. Last question.

David: All right. That’s a very good segue to our last questions. What lessons did you learn from the deal?

Frank: The lessons I learned from the deal are that if you will stick with it, and you get in the right niche in real estate, you can make almost anything work. I mean, Glenhaven gave me no more raw material than a permit for 83 lots in a not-very-good location of Dallas at that time, and the area has changed somewhat over time, but it was pretty rugged stuff. But you know, I still had strong winds behind me as far as demand for affordable housing and you know, a good business model, but I was very persistent with it.

Frank: I mean there were moments early on where I just thought, maybe I should just give it back. You know, maybe a resident that came with a little trailer and yelled at me, “We lost our natural gas.” At one time, that was depressing. I had to get retrofitted to propane. So, there were moments in there where I thought, “Ah, screw it,” but I refused and so I think persistence is really key, particularly when you’re doing turnaround stuff.

Brandon: That’s really good. That’s really, really good. All right. The great deal Deep Dive and now it’s time for the next segment of the show. This is our Fire Round.

David: Fire Round.

Brandon: All right, Frank. These questions come direct out of the BiggerPockets forums and these are people asking these questions. Actually, BiggerPockets members are asking these questions and we pulled most of them off of mobile home parks, but some of them could apply to anything. First question, “I’m looking to buy a mobile home park soon. Do you have any suggestions on what kind of percentage of the rent I should set aside for like reserves and capex on a park that’s all tenant-owned homes? Is there a rule of thumb?”

Frank: Well, here’s the deal on that. Mobile home parks are little bit like Johnny Cash’s ‘One Piece at a Time’ because every time someone breaks, they typically replace what’s broken. So, even though your mobile home park may have old galvanized metal water pipe and old clay tiles sewer, it really does in underground, if you could look under there, you’d see it’s a mish mash of that and a couple of lot of new PVC. So, mobile home parks typically don’t need a lot of capex reserve except if you are in like few of a dreaded positions of mobile home park ownership in that it comes in a world of private water and private sewer.

Frank: You’ve got a water well. If you’ve got a packaging plant, if you have a lagoon, if you have septic, then you need some reserves. Now, some of those are so severe, you can’t even buy them. For example, if you’re going to buy a park with a lagoon, number one, most states are trying to outlaw them and number two, just the simple features, if the state covers you and wants to get for example, your lagoon lined, that could be several hundred thousand dollars so huge amounts.

Frank: Packaging plants can run anywhere up to half a million to a million dollars, which is way too much risk obviously from most mobile home parks. Water well can easily set you aside $20,000, $30,000 if it was to go down. Then septic cost you roughly $4,000 per Lichfield and then also you could have tanks that fall in. So, basically that’s if you … I mean, I look at it kind of like there’s two restaurants in mobile home parks. There’s the, you know the McDonald’s, the Wendy’s, the casual dining, the Chili’s, or basically every time the phone rings, it’s all cool. It’s not going to be any worse than your car breaking down.

Frank: But then you have this very expensive fine French restaurant where the tab can just be unbelievable and the bottom line is, if you don’t have the money to pay the tabs, you’re not eating at the French restaurant. If you can’t write big checks, don’t deal with private water, private sewer. If you can get away from that stuff, you don’t really have to have a whole lot of capex reserve. But in the industry norm, even with the institutional lenders that require reserves, they only charge typically often a hundred dollars a year in reserves. So, that’s per lot so it’s not a huge amount.

Frank: One thing I would say for a first-time buyer, the best thing you could do would be to have it in reserves one month of revenue. So, if the park has $15,000 a month revenue, it’s not a bad idea to have $15,000 in the bank just in case through some unknown catastrophe you lose the rent for the month. It could be that the you know, the manager runs off with it, that the residents don’t know where to pay it, whatever the case maybe, but that to me that would be the biggest thing you’d want to have for rainy day.

David: All right.

Brandon: Beautiful.

David: All right next question, “I’m looking at the mobile home park, with roughly 100 units. Mostly tenants own their own homes. What kind of management is needed on a park like this? Can a local property manager take it over or do I need a resident manager or a combination of the two?”

Frank: And how many lots did you say it has?

David: 100.

Frank: Okay. You’re right on the cost of what my answer would be, if typically parks that are under 100 lots, you manage it using someone who already resides in the park. So, you find a home that’s the nicest home with the nicest yard. You go to that person and initially just as a nice conversation …

David: I love that.

Frank: … and you say to him, “Do you want to be the manager?” It is a beautiful situation because not only are they stakeholder, but sets an excellent example for the rest of the residents, right? So, that’s how many of the parks are managed under 100 lots. When you get to the 100 and lot size and up, then you have the second option. You still have the same option of the stakeholder resident, but you can also now what we call import a manager. Typically, the same labor pool, the self-storage users, a lot of people who are retired, retired military but not always retired people and you often then house them in Mom & Pop’s old house or often there is a mobile home there that you designated as the new manager’s home.

Frank: But there’s some debate over whether that’s better or worse than using somebody’s already a stakeholder in there. To be honest with you, the best managers we have are traditionally people that already live in the park because they know everybody, they love the park. They’re like the ambassador, the mayor, the police chief, they’re everything rolled into one. Now, when you bring in an outsider, they don’t really know anybody and they’re also not a stakeholder. So, known as fully unlock the riddle, but in the 100 lots, you’re right on the cost of going either direction.

Brandon: All right. Next one. It’s actually kind of related with what we tackled earlier, but it goes in a lot more detail. “I’ve heard brokers are the best way to find deals when searching for a mobile home park to buy? Do you have any recommendation on how to find a broker that have listing like a real one?”

Frank: Oh, yeah. That’s an easy answer. If you go to Mobile Home Park Store, there’s a section on the left, there’s a tab that says brokers. If you click on that tab, you’re gonna find pretty much every industry-specific broker, and there’s about a hundred of them. They range everything from Marcus & Millichap, which is the largest. There’s Sunstone, MHRA, Mhp 360. There’s all these different groups and we contact each and every one of those brokers because remember, pocket listings are never shared.

Frank: If you call Marcus & Millichap of Houston and talk to, you know, John Smith, John Smith has his pocket listings, but he doesn’t have any of the listings of Tom Jones who’s also in the same office, who is the next office over. So, we contact pretty much everybody. That list is ready at all times, if you just go to Mobile Home Park Store.

David: Beautiful. That’s really good. For those who don’t know what a pocket listing is, it basically comes from the days when before the internet when brokers would have a piece of paper that have the listing information, they’d put it in the office for everyone to look at along with the other offices listings. A pocket listing is a listing that they didn’t share with everyone else in the office. They kept it in their pocket for their own client.

David: So, when we use that phrase, we’re basically talking about a park that is available for sale that is not being advertised through traditional means like Frank said earlier so that not everyone knows about it. Next question, “How do you currently collect rent? I know some investors use automatic payments, some pick up cash, which I don’t want to do, and some have tenants drop off the rent at a bank. How do you recommend as the best way to collect the rents?”

Frank: Okay. Well, there’s several different systems. First, let’s go over one issue, which is most of our residents or many of our residents do not have checking accounts. So, right off the bat, automatic withdrawals are nearly impossible. It’s not true across the board. Some of the northern properties in Wisconsin and Minnesota, those do use a lot of automated payments, all the way to where everyone is using an automated payment. But in most of the rest of the parts of America, the residents do not have bank accounts frequently and we only take checks and money orders.

Frank: So, what does it mean? It means we get lot of money orders and so, we give two options to get the money orders. Option A, is they do bring it to the manager or put it in a dropbox at the manager’s door. Option B is you have those mailed in so you can set aside a P.O. Box near your home and have those mailed to you. Because of course, they pay many other bills by mail. They pay their utilities by mail. Possibly their car payment and everything. But there’s a banking issue with a lot of customers in the mobile home park space.

Frank: As a result, although there’s all kinds of great internet options, paying online and stuff, our customers are not really big on that yet. Now, maybe over time it’ll change, but right now, it’s pretty much all about money orders and then some checks. We never take cash, that’s one big thing any park owner will tell you never take cash, but we don’t take cash not for the reason you think. We don’t do it because of embezzlement. Because most park owners have what’s called EPLI Insurance, Employee Practices Liability Insurance, and for example in our case, we’re actually insured against embezzlement. So, if the manager runs off with the rent, the insurance company gives us the rent back.

Frank: The bigger issue is, if you collect cash at the mobile home park office, one day someone at that park or someone outside the park will realize, “Let’s think about this, now there’s a hundred lots at three hundred, that means there’s $30,000 in cash sitting on that office somewhere between the first and the fifth and they’re going to rob it. So, that’s the key item you don’t want cash because you’re going to get robbed and now you’re talking you know, who knows what danger may come from that. So, that’s why we don’t do cash because it keeps you from having any kind of criminal problem.

Brandon: All right. All right, great answers. That was the end of the final round. Now, let’s get to the last section of the show, our Famous Four. All right Frank, these are the four questions we ask everyone every week. So, let’s thrown them at you. Number one, do you have a favorite real estate-specific related book?

Frank: I do. Although, I’ll give you two of them, because one is very hard for anyone listing to get ahold of. My favorite real estate book is called, The Man Who Bought the Waldorf. It’s the story of Conrad Hilton. I love the book because it’s a shocker. You think the book is all about him building up his beloved hotel brand which he does, but then he loses it all with depression. Then he has to start from scratch and rebuild again before he dies. So, I like the fact it’s a rags-to-riches to rags-to-riches story, it makes it more exciting.

Frank: The other one I like, which is a new book, but you can’t get. The first book is not in print. You can only get it only at like old antique booksellers. The second one is Am I Being Too Subtle? Which is a book by Sam Zell that came out, I think about a year ago. It’s a great book because it’s all about risk and reward analysis. So, those would be my two best real estate books.

Brandon: All right.

David: Okay. Our next question is your favorite business, but do you have an additional one or is that Sam Zell book kind of a business book?

Frank: Okay, favorite business book, am I allowed to do two again?

Brandon: Sure. No rules here.

Frank: Okay. First one is called Dave’s Way, the story of Dave Thomas. It was a little book you could get at Wendy’s for one dollar back in about the ‘80s.

Brandon: Really?

Frank: Fascinating book. I had no idea that Dave Thomas invented not only Wendy’s but Kentucky Fried Chicken.

Brandon: Really?

Frank: Yes, and it’s very much of a not just insane all rags-to-riches story, starting off with Dave Thomas living in the back kitchen area of an old abandoned chicken restaurant trying to bring it back to life and inventing Kentucky Fried Chicken all the way from beginnings of how it worked all to the red-striped bucket. He invented all of it. Selling it. Going into retirement. Getting incredibly bored to suddenly wants to invent a bigger, better burger. It’s got some great chapters on managing managers. He calls it Riding the Wave. It’s a very interesting book.

Frank: The other one is, because I like reading both business and war books. Interchangeably, I like the biography on Patton, which is just called Patton. A giant book got a thousand pages in length. It’s all about Patton’s philosophy of always being on the attack and it really relates well to real estate or my own beliefs in real estate. Because you know, being on the attack typically does better your position.

Brandon: All right.

David: That’s awesome. I really like that. Okay. What are some of your hobbies?

Frank: You know, I don’t have a lot of hobbies. My big hobby is in fact, teaching. I think I was a frustrated, I don’t know, college professor or something in another life. So, I’ve been teaching in all the way back when I was at Stanford. In fact, I was the youngest member supposedly of the Stanford faculty in history because I was the Public Speaking instructor while a junior at Stanford, and I got that gig because I was the TA for the Public Speaking in the Giant Stanford Internal Public Speaking class, which was taught by two attorneys.

Frank: One attorney did not come back and Stanford contacted me over the summer to see if I wanted take the guy’s position. So, I sure had a full faculty card. I could use the faculty club and everything else, but I was only a junior. I’ve always been teaching ever since then. I taught Public Speaking and continuing ed in SMU for 20-something years. Of course, today I teach on mobile home parks, but I’ve always been teaching. I like teaching.

Brandon: Cool. That’s great. All righty. Well, last question from me then. Frank, what do you think sets apart successful real estate investors from those who give up, fail, or never get started?

Frank: I think the big thing that separates people is coming to grips with fear. It’s kind of like the Will Ferrell movie, Talladega Nights where he can’t drive the car because he’s so obsessed with being on fire that they have to, what stick a mountain lion in the backseat to finally get him over his fears or something. I think a lot of times when you approach real estate or anything at life, or at least what I have to do, is I break everything down into three modes. My best-case scenario, my realistic-case scenario, and my worst-case scenario. You can’t go with the full-on worst-of-the-worst case.

Frank: The full-on worst-of-the-worst case would be, I get in my car to drive out of the property, and I’m hit by a truck and killed. So, you have to give a little reduction of the fear factor. When you look at any deal and you say, “What’s the worst that can happen to me? If I go back to Glenhaven, what was the worst that could happen to me?” Well, I would have lost my $10,000 downpayment and if I’d put anymore money in, I would have lost that, too. That was my worst case and that got me over the hump because I’m a very pessimistic person by nature.

Frank: So, I’m really never obsessing on my best case and that’s someone who gets involved with something and says, “Well, I can make all this money worth it.” I mean, that’s important or you wouldn’t do it, but I’m always obsessed with my worst-case scenario. But at the same time, I think it’s also important that people acknowledge there’s a worst-case scenario in doing nothing. That actually probably the worst risk you have in life is to doing-nothing playbook.

Frank: In fact, I read a book on this by the Army. I can’t remember the name of it, it’s the army’s management book they give to their officers and there was something in the book I thought fascinating, which was called the 80% Solution. What the 80% Solution meant was, if you were pinned down, under fire, and if you don’t move, you’re going to die. So, you have 80% chance of living if you move. Because at some point, the enemy is going to pinpoint exactly where you are and blow it up. I think that’s true for a lot of people. I think a lot of people, they get so obsessed with fear that they miss the bigger fear, which is the fear of doing nothing.

Frank: As long as you can get involved in things, then you can manage the downside risk, you should definitely get involved in. Even if the worst-case scenario happens, at least you tried and maybe you’ll learn from it and you can try again, but I think fear is the number one thing that stops people from being successful and I think if people can just overcome that, you know not just saying, “Oh, what the heck. Let’s go and attack,” and you know, like some crazy cavalry charge at World War II that went nowhere, but if you just look systematically at every deal and analyze your worst-case scenario and realize how you can mitigate it, then you should move forward. I think the number one problem is fear.

David: I love that you said, “If you’re afraid and you do nothing, you’re almost guaranteeing that you’ll die.” You know, because that’s a lot of people’s initial instinct is, “Oh man, I don’t know what to do. I’m going to freeze and I’m not going to move.” I posted something on my Instagram actually about indecisiveness and how like the roads are full of squirrels that couldn’t make a decision basically. They got run over by cars. You know, if they had gone one way or the other, they would have been okay, but because they didn’t move at all, they got run over.

David: Then when you couple that with, you know that car that’s coming for you or the enemy that’s shooting at you, could actually be the opportunity that you didn’t take, the chance that you had to make your life better if you don’t make any action or decision at all then you’re sure to lose as opposed to choosing and making the wrong one. I mean I’m probably going to be thinking about that all day. Really good point. Yeah, maybe you want to add on that, Brandon?

Brandon: No, I mean I think that’s great. I think yeah, too many people are plagued by indecision and that sometimes even a bad decision is not as bad as no decision. I’ve been thinking that a lot lately. I’m actually reading that book Traction right now, which about like forming your business. Traction talks a lot about that, it just you got to just make decisions in life. You got to just do stuff otherwise you’re just frozen. Frank, it’s been amazing. Really, really good stuff. Really, really powerful show so thank you so much for joining us today. David, I’ll let you ask the final question before we get out of here.

David: Yeah, Frank. For people that want to hear more about this. Where can they find out more about you?

Frank: Okay. You can always find out all my latest writings and thoughts if you go to mhu.com, just www.mhu, which stands for Mobile Hub University, .com. That’s where everything I write or talk about or lecture on it’s all stored in that one repository so that will be the only best place to go.

Brandon: All right, perfect. All right, well, thank you very much, Frank. This has been fantastic. We’ll see you around.

Frank: Okay. Thanks for having me.

Watch the Podcast Here

Help Us Out!

Help us reach new listeners on iTunes by leaving us a rating and review! It takes just 30 seconds and instructions can be found here. Thanks! We really appreciate it!

This Show Sponsored By

Rent To RetirementEnjoy all the benefits of Real Estate Investing without all the headache! Rent to Retirement is your partner in achieving financial freedom & long term wealth! Retire on your terms & timeline by investing in passive income properties!

Learn more by visiting renttoretirement.com or call 307 421 4049

 

FundriseFundrise enables you to invest in high-quality, high-potential private market real estate projects. I’m talking anything from high rises in D.C. to multi-families in L.A. — institutional-quality stuff. And each project is carefully vetted and actively managed by Fundrise’s team of real estate pros.

Their high-tech, low-cost online platform lets you track the progress of every single project, and keep more of the money you make. Oh, and by the way, you don’t have to be accredited.

Visit Fundrise.com/biggerpockets to have your first 3 months of fees waived.

Mid-roll Sponsor

simplisafeCheck out SimpliSafe Security’s DIY home security systems; an affordable, wireless, cellular, and customizable system that doesn’t require a contract!

Go to SimpliSafe.com/pockets to enjoy their 60-day money back guarantee.

stessa logo

Stessa makes it easy for both novice and sophisticated investors to drive operational efficiencies, maximize revenue, and improve overall portfolio performance. Just take a few minutes, add your properties, link your accounts, and everything updates in real-time. Stessa brings the institutional tools used by the pros to the everyday investor for free

Get your free tax guide here: www.stessa.com/biggerdeductions

Late Mid-roll Sponsor

Deal Machine e1562821662145It’s a smartphone app that lets you (and your team) pin distressed properties, look up the property owner on the spot, and send them a personalized postcard in seconds – directly from the app. You can set the mailer on repeat to make sure you won’t forget to follow-up. And, while the app is sending a custom postcard, you can look up the owner’s phone number and email instantly.

Go to dealmachine.com/bp to get a 14-day free trial and $40 worth of mail!

In This Episode We Cover:

  • How Frank uses seller financing to buy deals he never could with a bank
  • How he stays low risk while scaling
  • How he got started with a billboard business
  • How he owns “small cities
  • The key to doing seller financing correctly
  • How he rents to “stakeholders” not just tenants
  • What the perfect mobile home park setup looks like
  • Why he loves mobile homes (aka “the gem” of real estate)
  • Why mom and pop-type owners love mobile home parks
  • How the average park can be bought and rents doubled year one
  • The win-win opportunity mobile home parks provide for tenants and owners
  • The mistakes he made on his first deal and how he learned to avoid it
  • The No. 1 thing to look for when buying a park
  • His strategy for finding pocket listings from brokers
  • The 5 ways he finds parks to buy
  • And SO much more!

Links from the Show

Books Mentioned in this Show

Tweetable Topics:

  • “Pick something and commit to it.” (Tweet This!)
  • “I never went to business school.” (Tweet This!)
  • “There’s a certain customer that you just can’t run a business around.” (Tweet This!)
  • “Success is more likely if I can manage correctly.” (Tweet This!)
  • “Fear is the No. 1 thing that keeps people from being successful.” (Tweet This!)

Connect with Frank

In this episode, Frank Rolfe, a mobile home park investor with 20 years' experience, shares incredible tips for using seller financing to buy parks, staying low risk while scaling, and the beauty of owning “small cities”! He also gives fantastic advice for making “stakeholders” out of tenants and so much more!