BP Podcast 111: A Unique (and Profitable) Real Estate Niche You’ve Probably Never Considered with Jefferson Lilly

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In this episode of the BiggerPockets Podcast, we dig into a real estate niche that, until today, you’ve probably never considered. However, after listening to this entertaining and informative show with guest Jefferson Lilly, we think you’ll be a believer! Join us as we dive into the world of mobile home parks, and learn numerous reasons why a park might be a better investment than either single family or multifamily real estate.

Whether you’re looking for a great, low-barrier first time real estate niche to invest in, or you’re simply looking to expand your growing portfolio — don’t miss out on wealth of knowledge covered in this episode!

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We just waRealtySharesnted to give a shout out to our podcast sponsor on today’s show: RealtyShares. RealtyShares is a crowdfunding platform that allows you to invest in professionally managed properties without leaving your living room!

Learn more by visiting RealtyShares.com/biggerpockets!

In This Episode We Cover:

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  • How Jefferson got started with value investing
  • Why you should emulate Warren Buffet
  • How he began investing in mobile home parks
  • What you should know about the views on mobile homes in America
  • Insight on helping people move from one asset class to the next
  • The ins and outs of how investing in mobile home parks works
  • How Jefferson got a half million dollar line of credit
  • How he got a 50% increase in the affordable housing program
  • Discussions on income streams for mobile home parks
  • What you need to know about LLCs for mobile home investing
  • How to find value in a mobile home
  • A great explanation of “cap rate
  • The essential duties of a park manager
  • How Jefferson raised funds for his investing
  • Why you should use outsourcing & streamlining to manage your business
  • And SO much more!

Links from the Show:

Books Mentioned in this Show

Tweetable Topics:

  • “A key point is the ability to think broadly and use OPM — other people’s money.” Share on Twitter
  • “It’s about helping people moving from one asset class to the next.” Share on Twitter

Connect with Jefferson

About Author

Thanks for checking out the BiggerPockets Real Estate Investing & Wealth Building Podcast. Hosts Joshua Dorkin & Brandon Turner strive to bring top-notch educational content and interviews to our listeners -- without the non-stop pitch prevalent around the industry. With over 80,000 listeners per show, the BiggerPockets Podcast has become the biggest real estate podcast in the world. But don’t take our word for it. We’re the top-rated and reviewed real estate show on iTunes — check it out, read the reviews on iTunes, and get busy listening and learning!

26 Comments

  1. Julia Rowling

    LOVED!!!! this podcast, guys! you totally knocked it out of the park with this one. @Jefferson Lilly – you are so articulate, intelligent and apparently very successful in this intriguing niche. I’ve thought of getting into mobile/manufactured home investing on several occasions and this “lesson” has only served to confirm my suspicions that this could be a very interesting area to get into. I keep wanting to include a community garden somehow in my future investments, and this seems like an ideal way to do something like this…what do you think?

    Also: do you think you’ve gotten lucky with the quality of buyers/renters that have come your way because of any specific local market conditions or do you think it has more to do with the lease/purchase arrangement that you implement?

    Thanks again for an AMAZING pocast!

  2. Jefferson Lilly

    Julia –

    Thank you for your kind words! It’s a great niche, but can be a bit difficult for individual investors to find properties, which is why we have a fund to help people take advantage of our deal flow and co-own MHPs with us. We have been paying out as much as 14% cash-on-cash to investors on one of our deals. We anticipate other deals will have strong returns, but weighted toward long-term appreciation. MHPs are a great niche, but like children, each has it’s strengths and weaknesses..(!) http://www.parkstreetpartners.net/fund.

    All that said, if you pursue direct ownership and maintenance of a MHP, then pick one that is in at least a ‘C’-quality economy or better.

    Look for:
    1. Household incomes of $40,000 or better,
    2. Average house prices of $100,000 or better, and
    3. Housing vacancy of 10% or less

    You can find all these statistics and more on BestPlaces.net. Compare Denton, TX with Youngstown, OH to see the difference between ‘B’ economy vs. an ‘F’ economy.

    Finally, You should always run a test ad on CraigsList for a mobile home in your community – that is the ‘acid test’ as to whether your property is in a good economy or not. You’ll want to receive 20 responses or more in a week.

    To your continued success,

    -jl-

    This blog posting does not constitute an offer to sell or a solicitation of an offer to buy securities. Any such offer will be made only by means of the Confidential Private Placement Memorandum (“Memorandum”) of PSP Mobile Home Park Fund, LLC, or such other applicable Memorandum. Any information contained in this release is qualified in its entirety by the Memorandum. Past returns are no guarantee of future returns.

  3. Mark Kvam

    Great info @Jefferson Lilly . I have been looking at this market. My wife and I are concerned about storms (tornados) and Midwest MPHs. How do you look at this from both a business standpoint (ie income devastated) and personal (gee I am somehow am responsible-not providing safe access). My solution is to look outside of the main storm areas but they do not seem to be the same type deals.

  4. Jefferson Lilly

    @Mark Kvam –

    Don’t worry about storms. Nobody in this business does. And we are all insured anyway (both for property damage and loss of business income). You’ve just got to press ahead and purchase properties. My tornado insurance for my parks in tornado alley south of OKC is 1/7th what earthquake insurance is in San Francisco. Assuming markets are approximately efficient, then SF is 7 times more risky than the dead-center of tornado alley..! Think about that.

    Your bigger concern by far is to purchase a MHP in a stable economy (multiple employers and industries), and to not over-pay (e.g. not get sucked dry by the banks). You’ll find some additional educational resources on our website at parkstreetpartners.net.

    … and (shameless plug here) we are happy to have a conversation with you about our MHP acquisition fund which provides diversification for our Limited Partners by investing in multiple properties in multiple states.

    To your continued success,

    -jl-

  5. Barrett Boone

    GREAT PODCAST

    In regards to the evolution of investing from “cigar butt” to quality investing. Do you think that is the best way to go about getting in to the REI game? or is it better to go straight to quality investments at fair prices?

  6. Jason Wolff

    Thank you for your insight. Great podcast. I’m currently in negotiations with a RV park owner (23 spaces, each individually metered for water and electricity with direct city sewer access). It is a very seasonal business as is and I would like to transition it into the “parking lot” model you use for MHP’s. The city allows year round rentals as long as they are R.V.’s and not mobile homes. Late model Fifth-Wheel R.V.’s can be quite spacious and suitable long-term housing for many people. Wondering what your thoughts are? Thanks for the input.

  7. Michael Rogers

    Jefferson – Really enjoyed your podcast. Definitely opened my eyes to investing in an area I had never considered.

    I’m also a big Buffet fan. I’ve been to 2 Shareholder meetings and they were so much fun!!! Not sure if you’ve been yet, but definitely worth the trip just for the experience. It’s the Golden Anniversary this year (50 years). Buffet dropped the shareholder letter on his website this weekend and it was a good read as always.

    Thanks for the insight into mobile home investing.

    Brandon and Josh – As usual, great podcast!

  8. Thomas Sheehan

    J.L.

    Thank you very much for a very enlightening podcast.
    It appears that, even as a flipping endeavor, it can be a great beginning opportunity.
    I was looking at the rehabbing of a mobile home to provide all the perks of a very decent condo without nearly the monthly expenses.

  9. Anish Patel

    Great Podcast with lots of good info. I have two questions. The first one is what is the name of the company that you use for doing quick books overseas. I am interested in setting this up for my own business. Also I’ve heard of buying and selling of existing properties in this niche, but in your experience are there people creating new parks from raw land or does that usually not make economic sense in these times. There is a 30 Acre property with a plot plan of 125 proposed mobile home units. What are some of the due diligence questions I should be asking myself as I evaluate the deal?

  10. Eric Black

    Great interview Jefferson! I was hoping they would ask during the interview but they didn’t what would be your top 1 or 2 books you would recommend on learning mobile home park investing? Cheers!
    Eric

  11. Andrew Herrig

    Great podcast! Really got me thinking about my long term goals and how MHPs might fit into them. One question – how has your business changed with the implementation of Dodd Frank? I have heard it is much more difficult to sell on terms. Do you find that to be true?

  12. Jason Brenizer

    I’m new to MHP analysis, but I feel the general rules for any real estate investment apply. Mostly on the Mobile Home Park Store I’m seeing list prices based off of the future full capacity of a park, not the actual performance today. Of course it’s rare (as a Tasmanian Tiger) to see accurate expenses and projected property tax increases on any proforma or OM.

    I have a few questions:
    1. Are investors successfully negotiating “on market” deals to get purchase price and terms that make sense?
    2. Is a 10% cap rate a reasonable target to expect in the U.S. market as a whole?
    3. Do cap rates for MHPs vary widely by local market conditions or are they stable across the country?
    4. Is there a service, like Listsource for residential, where investors can reliably find address and contact information for MHPs?

  13. Dennis S.

    Jefferson – thanks a lot for sharing your knowledge. It absolutely blew my perceptions away about MH and MHPs. I have started discovering some parks near me that I did not even know existed – have started looking at it more closely and driven by it. As you mentioned, a good number of them seem to own decent cars and kid friendly…

    My question is regarding your mention about sewer versus septic – how big a deal is it? meaning I see many in my area are connected to city water but are on septic – other than the inspection and periodic maintenance which is the case of any septic system – are there any specific issues related to MHP and septic tanks/ waste disposal? someone on BP forum mentioned EPA guidelines to waste disposal – no idea what that is.

    Thanks
    Dennis

  14. Sam McPeek

    So, I’m looking at a MHP…and the numbers aren’t adding up. Am I off somewhere?
    16 spots + 1 stick built home (5 mobils are park owned)
    2 spots are vacant
    $225/$250 lot rent
    city water/sewer
    Expenses (not confirmed) @ $21,813
    Gross lot rents as best I can tell is $44,700
    Leaves NOI of just under $23K
    Realtor is projecting a sales price of $498K @ 8.6% Cap Rate. This is because they are including the rents from each of the park owned Mobile Homes in the Gross Rents. These park owned homes are 1960’s single wides…
    The current owner bought the park 2 years ago for $189,500 and paid $500 each for the park owned homes.

    This is crazy, right? My math says this park should be worth about $225K @ 10% Cap IF the expenses are anywhere near correct. I don’t think the 50 year old mobils are worth much of anything and would need to be replaced soon. Where’s the disconnect?

  15. Sandi Hague

    Jefferson – Thanks for the podcast! I’ve listened to it a few times.

    One question: Aside from saving yourself the hassle of maintaining homes, why do you recommend selling the park-owned homes to the occupants? We’ve run the numbers on a potential purchase both ways, and it seems like we’d be leaving a LOT of profit behind by selling off the park-owned homes – even after figuring a 25% maintenance cost on each. The homes in this park are old but recently renovated. Seems to us like we’d be better off charging rent year after year for something that essentially has no real book value. I must be missing something.

    Thank you!
    Sandi

  16. Nate T.

    Hi Jefferson, would you mind sharing the name of the company that you use for bookkeeping in India? I’ve been looking at trying something like that. If you prefer not to post it to the whole world, feel free to send a private message.

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