All Forum Posts by: Chris Reeves

Good points all around Jack. 

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?

You made several points so I'll try to respond to them all in a list of items:

1 - As to the "depreciating asset" comment I mentioned it because as a portion of your entire investment, the part which will decline in value looks quite high - to me, anyway.

2 - On expense ratios - I didn't realize you plan to do maintenance/repairs yourself. Yes, if you do it yourself then maybe your ratios work. But if you want an accurate picture of the performance of the investment then assign yourself an hourly theoretical wage (as if you had to pay someone else) and insert how many hours you might spend working over the course of a year - and add it in to your calculations.

3 -  I didn't mean to suggest you need a complicated plan to make money - I meant the facts and figures you presented the forum are too simple for anyone to help you with. By that I mean - you don't have the numbers broken out in detail. Such critical factors as: a) How many $ per month do you anticipate the homes will drop in value in year 1, 2, 3, 4, 5? b) How did you derive your expenses?

4 - Be sure to calculate an appreciation factor for the land itself - hopefully the land will keep pace with inflation, which will partially off-set the depreciation of the homes.

Lastly put all this in a basic excel or google drive spreadsheet - doesn't need to be fancy - just the line items of revenue, expenses, appreciation of land and depreciation of homes - and get your total $$ number for each year (projected) then divide against the value of the entire investment to calculate your ROI.

There are a million parks - don't get excited over any one individual one.

You haven't told us a few critical factors in valuing your park:

1 - What the lot rents are

2 - How many lots total there are

3 - Are any of the park owned homes vacant, and if so - how many are vacant?

4 - What are the ages of the park owned homes - and how much is the seller asking for them? They should be valued separately from the park as a whole to keep your numbers straight.

5 - What is the water/gas/electric/sewer situation?

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).

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.

He's trying to do one of two things - probably BOTH things simultaneously:

1 - Reprice the entire asset class - ie raise prices of mobile home parks as fast as possible.

2 - Attract deep pocketed accredited investors to his private funds so that he can enlarge his portfolio as rapidly as possible while waiting for the stabilized caps to compress further.

I'll lay out the remainder of my reasoning for this tomorrow.

 And this is why Rolfe allowed NPR and Al Jazeera into the room at this weekend's Mobile Home University.

Rolfe doesn't care how negative or positive these articles are about his industry - he is too smart for that.

The value to Rolfe in having mainstream liberal press write articles that paint him in *at BEST* a neutral light - is that he knows that deep pocketed investors love mis-priced assets. And there are plenty of deep pocketed investors out there who will listen to NPR's upcoming This American Life piece on the slumlording professor of Mobile Home University - and instead of wrinkling up their faces in indignation, will instead salivate at a potentially discounted investment class.

He appears to be an adherent of classic deep value investing - going back to Graham, and currently espoused by any number of value adherents, perhaps most cogently by Seth Klarman of Baupost Group.

The classic value play is to patiently sit on the asset until the market recognizes its true value, the asset price rises (ie cap compresses) and you unlock the true value of the asset you bought so cheaply that you had the "margin of safety" as Graham put it, and Klarman titled his legendary book.

But rather than wait for the market to recognize value - Rolfe is trying to teach the market.

Rolfe doesn't believe in buy and hold forever - he wants to unlock value and appears to really believe his assets deserve lower cap rates than they are given.

I think he is probably succeeding in helping to single handedly move the market.

Still not done but getting tired - will write more of my theory tomorrow.

So, Rina - we must ask ourselves - does Uncle Frank need or want our $2,000? Or even our $75,000 combined dollars for the weekend?

I think not - that is pocket change to him.

There are three plausible motivations to Frank Rolfe that I can see:

1 - He wants to help people succeed in business and he likes to teach.

2 - He holds a large, concentrated portfolio of undervalued real estate and he has taken it upon himself to single-handedly raise the value of his real estate by publicizing its virtues to the world so he can unload his portfolio at higher prices.

3 - He needs a bunch of newbies in a conference room to go bird dog deals for him.

4 - He is creating a pipeline of new leads to buy into his private investment funds.

So - what of the four motivations is most likely to be the real one?