Why should mobile home parks trade at higher caps than multifamily?

Mobile Home Park Investing
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Why should mobile home parks trade at higher caps than multifamily?

Chris Reeves
Investor · Redlands, CA · Member since 2015 · 56 posts · 35 votes

Hi folks - first post here on Biggerpockets. Glad to be here!

I and my family have been in the multifamily industry for many years, owning and operating apartment complexes ranging in size from approximately 30 - 130 units, in California and Oklahoma.

We are considering dipping our toes in the mobile home park business to diversify the portfolio and add some yield (anybody half awake has noticed that multifamily caps are at historic lows) - we'll be at the bootcamp in Seattle this week.

But one question has been gnawing away at me - there is no free lunch in this world. While I am a believer in the tenets of behavioral finance and of going against the herd to find deep value, I still struggle with the idea that there is a whole asset class out there that is mis-priced and a goldmine waiting to be claimed.

In addition it does not make sense that parks are claimed to be both very stable compared to multifamily, easier to run than multifamily, AND trade at yields well above multifamily.

We live in a world where information is instantaneous, and investors are flush with dollars coming out their ears driving yields down on every type of asset class - why should mobile home parks be any different?

So I have a hypothesis - that the high mobile home park cap rates are an illusion - that in the long run (ie holding periods of 20-40 years) these cash cows are giving you a return OF your capital, not a return ON your capital - i.e. a gradual liquidation.

The reasoning is simple - if your customer base is stable because they are so poor they cannot afford to rent an apartment, how in the world can they afford to maintain the mobile home they own in a habitable condition over a very long period of time? You can't have it both ways.

And if you are dead broke and can't maintain your home - eventually you may simply stop paying lot rent and abandon your now-trashed "home" - leaving it for the park owner to fix up and attempt to sell to the next person who also cannot afford to maintain it.

With multifamily the caps are lower but as the owner as long as I maintain my property and make the necessary cap-x investments when needed (roofs, fencing, interior upgrades, siding, etc.) the property's life is indefinite.

In any case - somebody please tell me where I'm wrong. I would very much love to be able to gobble up a portfolio of 10 cap parks, put a regional manager in place, and be sitting in cash cow city while I wait for the multifamily industry to crash and burn from its current low cap rates until acquisitions are attractive again in that sector.

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Account Closed
Rental Property Investor · Friendswood, TX · Member since 2010 · 663 posts · 508 votes
11y

I operate under the belief it is a misplaced asset class. The stigma that some have mentioned above is I believe what keeps the opportunity alive.  I don't think it will last forever (and I could be wrong) .  MHPs don't have the CapX that multi family will which is really tremendous from an investment perspective i feel. Cash flow is much better and stability of revenue far exceeds apartments.  When you own your own home, it costs 5 k to move.  When you live in an apartment, you skip out overnight in a uhaul truck. 

True the regulation increases on some levels but its a double edged sword.  That makes it much harder for any new parks to be built and therefore makes your park that much more valuable.  The business term would be "competitive advantage" 

So the rest of BP knows, there are a lot of well run parks out there, with respectable people living there, who aren't all dumps and the police called 24/7 in GREAT areas that go for 10 caps.  But as long as you have your blinders on, those deals will pass you but there is TREMENDOUS opportunity in MHPs and they are far superior to apartments in all ways. 

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  • Chris Reeves
    OP
    Investor · Redlands, CA · Member since 2015 · 56 posts · 35 votes
    11y

    Notice what Rolfe did to relax his audience at the very *beginning* of the weekend: he made two claims:

    1 - I'm not going to up-sell you anything - so relax - there's no pitch coming.

    2 - I have a plausible reason for being here this weekend *other than trying to make money for myself, Frank Rolfe** - so relax folks. What is that reason? I worked teaching people at Stanford when I was a student there.

    Rolfe did this at the beginning to relax a naturally skeptical audience who would of course wonder why, if there's all this free gold for the taking, Uncle Frank was kindly showing them where to find it - rather than going to get the gold himself.

    The reality is that Frank is selling something much bigger - he's selling the industry to the entire world to raise the value of his existing holdings, and he's selling his private investment funds to deep pocketed people - many of whom of course would be at his weekend seminars.

    But he is smart enough to know that he can't directly sell those people - the only way to do the sale on the scale he is attempting is to convince the world that he is right in his analysis of the asset class itself.

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  • Chris Reeves
    OP
    Investor · Redlands, CA · Member since 2015 · 56 posts · 35 votes
    11y

    Ending thoughts: I'm not criticizing Rolfe at all, and I'm NOT saying he is screwing over his students. If he succeeds at this giant sales job he will help all the owners of mobile home parks and his early students who bought parks while the market was still relatively low (although I don't believe it is as low as it must have been when he started buying a decade or more ago).

    But don't, for a minute, think that this guy who built a career on squeezing dollars out of the working poor has kinder feelings toward you, the small investor. He needs to build demand for parks - which helps himself (and may help you along the way if you own a park or buy one).

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Chris Reeves

      I think this can be said about any one in the education business.

    the MHP industry has not been a secret at all.. If you look up the Dougher family in your area Orange county.. they own well over 6,000 spaces in Orange county and all of them free and clear.  And they have been buying parks since the 50's. 

    What you have with this industry right now from my perspective.. Is the same phenom you have with most Real Estate right now.. you have the mom and pop investors buying low end c and D class SFR's predominantly out in the mid west and deep south. And the institutional buyers Blackstone Coloney etc. entered the space at the crash.

    But MHP did not crash to the same extent SFR's did.. if a park is producing income its value held.. I sold my park in Vancouver in 2009 for tippy top dollar and for Cash to Taylor group out of SF.

    MHP like any other asset class price themselves by age.. MH  profiles In the park. Do they have common areas are they pit set are there single wides etc etc.

    So you have A class MHP that have been selling since the industry started for the same cap rates or lower than A class multi family..

    And parks are very regionalized and much of that has to do with land use laws. so in states with very laxed land use laws in the past mom and pops sprung them up all over the place as is alluded too.. but these are generally C,D,F class.. and are priced accordingly.

    the Park I bought a couple weeks ago in Eugene Oregon is a prime example of a mom and pop burnt out land lord syndrome and the park had gone to pot and is full of white trash tweakers. and it was priced accordingly... we paid 80k for a 14 space mom and pop park with a SFR and 2 apartments.. rents are 300 a space, in addition we have the house and two apartments.. why was this so cheap... burnt out land lord syndrome.. I think I can reposition it move it from F class to strong C and resell in the high 300's... and there are many parks like this throughout the country... But its work and its dealing with these bottom of the barrel tenants.

    Now you find a solid A or B class and your going to find syndicated owners already.. I know of a few companies that have been syndicating parks for 25 years and own a hundred or more of them.

    But they only buy the top of the line. and the cap rates are akin to what you see in Multi.

    So my point of all this... is your not going to find folks with A and B class parks that fell off a turnip truck and are going to give their park away... you might find the outlier.. But the parks with 10 plus caps will be like the one I just bought reposition play or mini Ghettos and you run them like a slum lord.

    Same in Multi you can find all sorts  cap rates North of 10% in the mid West and deep south.. but its the exact same play.. .burnt out land lord  D class mini ghettos.

    The thought that you can by a prime park for a 10 cap.. by just taking this guys class and thinking this is all a new Paradigm .. not reality when you actually start looking at the inventory out there and you understand the tenant demographic and challenges.

    If Rolfe has his own fund  then I would agree with you what better way to get accredited investors in one room then to charge them 2k and teach them what you do,  I worked for a syndicator in the mid 80's in SF and that's how they established their relationships with investors.. Free Seminars and chapter and verse how to buy 6 to 20 unit apartments in Northern Cal.. they owned hundreds of them...

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  • Account Closed
    Rental Property Investor · Friendswood, TX · Member since 2010 · 663 posts · 508 votes
    11y

    Chris,

    Always good to question motives , it makes you a good investor. 

    As of a few months ago, on a weekly call,  Frank mentioned their fund were not accepting new capital at the moment.  So that is an obvious one but for the sake of your boot camp if that information is still accurate, you can not invest with them through that method ( though that may have changed now and it knocks it out of the running for your suspicions. 

    Im sure you are right they want to increase the value of their holdings through education on the industry.  But rather than stating it that way, if this is an underpriced asset class, they are just trying to bring market pricing as their portfolio that may be currently undervalued due to stigma and mis information.

    As you know , they won't sell you anything else.  You know have Franks numbers so you can give him a call, he is not charging you, just helping.  I was working on a park one time having dinner, sent him an email and then a bit later he is calling me telling me a logical plan of action.  Im not sure where he gets time for everything but don't believe me? Give him a ring and get some feedback from him.

    I have had the privilege of working with Franks group.  For what I have paid on the bootcamp, I have been repaid many times over.  So if there is a catch, I am still looking for it. He is not just selling theory, Frank is out there doing deals every day within his group.  They are a very disciplined group of investors.  If they were trying to pump an asset class, they would push you to overpay say at an 8 cap etc but they are firm on their 10 caps ( along with a lot of other caveats).  He also gives the additional caveat that caps are a function of interest rates so if rates are 8 perecent, they might say you need to buy 13 caps.  Until they are saying you can get by on a 2 point spread (ahem , apartments anyone?? ), that is probably sound logic. 

    Its not just mom and pop in the industry either.  Lots of deals happen between investment groups. 

    If you will look at some other small startups that have already grown 10 million plus dollar portfolios, it was headed from a Frank and Dave bootcamp.  There is tremendous opportunity in the park space right now. Im not sure if it will be that way forever.  If you look long enough, you will find stories littered with people making a lot of money through Frank and Dave's educational materials. 


    As for the news cameras...... that seems to be pretty common place now.  They don't ask them to leave. If you will do a search on Guardian Frank Rolfe, i believe they were the ones that did bad publicity from a boot camp.  So they risk scrutiny as well but I think its to have a level of transparency and education ( not sure if thats their goal) as opposed to having a closed door policy.

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  • Rina Amir
    Investor · Sunnyvale, CA · Member since 2015 · 39 posts · 9 votes
    11y
    Chris Reeves nice to chat again :-) while I think you are wise to think about motives Frank doesn't strike me as so self focused. Some of your reasons are probably right, I still think he is an honest person trying to do some good. He says there are 44k parks in the US right? He owns only 170 of them. Less than 1%? Or did I get anything wrong? While he might have used techniques to put people at ease its not necessarily bad, might just be intuitive and not mentioning media I don't see it as necessary evil, why create panic? Media often don't show up and we had a full choice of not appear or interview. So there's no harm and no pushing you to the wall. You had many points and it's great that you expressed it all do you really think all these ulterior motives are true? I feel like his teachings are honest. I've talked to few people who realized this business is not for them. He is not painting everything in pink colors. What alternate motive can he have for giving free advice, deal analysis, coaching and ALL the documents needed in the business? I have looked at the reference library and am just in awe at the amount of information he gives us!
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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Account Closed

    funny how 3 people can go to the same event and have different opinions.

    Any one charging any amount of money for information is also suspect for ulterior  motives.

    I mean you have to pay a few hundred to a thousand bucks to go listen to the big boys ..

    Trump   Ziegler and others... and those are mainly motivational and then sell their books etc.

    The RE industry has just really latched onto this segment of education with of course some of the fix and flip guru's making obscene money.  but I am sure many would trade places with the top guru's that make 5 to 10 million a year in their jeans.. anyone who says they would not ( I would not believe them)  lets see I make 50k a year but I hate paid for gurus' I can become a guru and make 5 million but I am not going to because I don't think its right LOL

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  • Account Closed
    Rental Property Investor · Friendswood, TX · Member since 2010 · 663 posts · 508 votes
    11y

    @Jay Hinrichs

    Absolutely , I have heard from the grapevine that there is a large apartment owner who currently preaches buying apartments all while dumping almost an entire portfolio with 1,000s of units :) 


    Be cautious and think for yourself and at the same time, don't be scared to listen to others who you think are smarter than you :) 

    2Reply
  • Chris Reeves
    OP
    Investor · Redlands, CA · Member since 2015 · 56 posts · 35 votes
    11y
    Originally posted by @Rina Amir:
    Chris Reeves nice to chat again :-) while I think you are wise to think about motives Frank doesn't strike me as so self focused. Some of your reasons are probably right, I still think he is an honest person trying to do some good. He says there are 44k parks in the US right? He owns only 170 of them. Less than 1%? Or did I get anything wrong? ... do you really think all these ulterior motives are true? I feel like his teachings are honest. ... He is not painting everything in pink colors. What alternate motive can he have for giving free advice, deal analysis, coaching and ALL the documents needed in the business? I have looked at the reference library and am just in awe at the amount of information he gives us!

    Maybe I am too cynical Rina but I'm cynical by nature - especially when it comes to business and money. Protective mechanism I suppose. Like I said - I do believe that the information Frank gave us is good quality - and if one wants to get into the MHP business it's very valuable info.

    Also, don't interpret me as being negative on the MHP industry as a whole - parks do seem to me like a good investment. And for what it's worth we've been doing apartments for decades (on a small scale) - so the MHP business model does seem to make sense. I also agree with the idea of buying value - we have done well buying assets when they were out of favor (apartments after the S&L crisis - when they couldn't give apartment buildings away) and selling when the market discovers their value.

    My plan is that I (my family) will buy one or two parks and test the waters - then if they work out, commit more capital and build a portfolio.

    As for the 44,000 parks - this is true - Frank's portfolio is tiny compared with the total number of parks.

    On the other hand - the number of parks that meet Frank's criteria for what makes a good investment (minimum metro size, diversified employer base, minimum lot size, ruling out lagoons and master metered gas, etc.) would seriously whittle down the number of parks he sees as being good investments.

    You are also correct that Frank didn't paint a rosy picture of the ease of management or make claims that it is super easy to fill lots. He was very honest about that.

    I'd also recommend that eventually you look at buying apartments - but currently the market for apartments seems nutty to me - especially in California. It will surely cycle down again at some point and present attractive buying opportunities.

    Are you looking to invest in a MHP out of state or stay in California?

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  • Chris Reeves
    OP
    Investor · Redlands, CA · Member since 2015 · 56 posts · 35 votes
    11y
    Originally posted by @Account Closed:

    Chris,

    Im sure you are right they want to increase the value of their holdings through education on the industry.  But rather than stating it that way, if this is an underpriced asset class, they are just trying to bring market pricing as their portfolio that may be currently undervalued due to stigma and mis information.

    You know have Franks numbers so you can give him a call, he is not charging you, just helping.  I was working on a park one time having dinner, sent him an email and then a bit later he is calling me telling me a logical plan of action.  Im not sure where he gets time for everything but don't believe me? Give him a ring and get some feedback from him.

    So if there is a catch, I am still looking for it. If they were trying to pump an asset class, they would push you to overpay say at an 8 cap etc but they are firm on their 10 caps ( along with a lot of other caveats).  He also gives the additional caveat that caps are a function of interest rates so if rates are 8 perecent, they might say you need to buy 13 caps.  Until they are saying you can get by on a 2 point spread (ahem , apartments anyone?? ), that is probably sound logic. 

    Good points all around Jack. 

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  • Belinda Lopez
    Specialist · Houston, TX · Member since 2012 · 579 posts · 301 votes
    11y

    Good discussion all around.  Yes, the Bootcamp turns many into birddogs for Rolfe and others - is that a bad thing?  I've been able to Wholesale several parks this way so there are different business models that all benefit from the MHP Bootcamp ecosystem.  People not ready to buy a park on their own can network to find potential partners, folks like me can build their buyers list, others get deal analysis and everyone learns a ton of new info.

    Part of the ecosystem includes Rolfe's other ancillary businesses like the mobilehomeparkstore and rvparkstore and other affiliate relationships.  When you pay to post a deal on their sites, they make money, they also get first shot at the deal!  Not a bad strategy.  

    I can tell you from experience it is really hard to find the great deals on Mobile Home Parks and there is a ton of competition for the old Mom & Pop parks.  We beat the bushes for them and have only turned up about a dozen off market deals that we either Wholesaled or the owners changed their minds or wanted too much for.  We tend to track some Parks for years, so it's not an overnight thing.  Also once you start looking for them you will start to notice more and more parks around but finding those owners who are willing to sell at  a discount is not easy.

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  • Jay HinrichsBusiness Member
    Real Estate Consultant · Summerlin, NV · Member since 2014 · 45k+ posts · 66k+ votes
    11y

    @Belinda Lopez

      finally someone who knows what they are talking about.. good MHP are sought after items not an over looked cash cow business..

    those that think they can just go out there and buy great parks at huge discount are just whistling Dixie and have no clue.  there is intense completion for quality parks as much if not more than in the MUlti space

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