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SHOW NOTES

Welcome back to the Passive Mobile Home Park Investing Podcast, hosted by Andrew Keel. On this episode of the Passive Mobile Home Park Investing Podcast, Andrew talks with Ryan Murdock from Open Door Capital. Ryan and Andrew discuss the benefits of having a vertically integrated mobile home park property management company as an owner/ operator. They also discuss the opportunities available today in the MHP space and the proactiveness needed in the current economic market in order to transact. They also discuss in depth what Ryan thinks are the most important things that passive investors should look out for when investing in mobile home parks.

Ryan spent 10 years in the semiconductor manufacturing industry before moving into real estate investing and property management in 2007. Since then, he has acquired an extensive portfolio of multifamily rental properties. He has operations and management experience in many facets of real estate including retail: office, multifamily, homeowners associations, and our favorite mobile home parks. Ryan also has experience managing and consulting on nationwide commercial real estate turnaround projects. As a co-founder of Open Door Capital, Ryan played a critical role in setting up the early operations and in assembling some of the experienced team members they have today. In his spare time Ryan is an avid scuba diver and adventure seeker from his home base in Maui, Hawaii.

***Andrew Keel and Keel Team Real Estate Investments (Keel Team, LLC) do not endorse any interviewee. This interview is for informational purposes only and should not be depended upon for investment purposes. ***

Andrew Keel is the owner of Keel Team, LLC, a Top 100 Owner of Manufactured Housing Communities with over 2,000 lots under management. His team currently manages over 30 manufactured housing communities across more than ten states. His expertise is in turning around under-managed manufactured housing communities by utilizing proven systems to maximize the occupancy while reducing operating costs. He specializes in bringing in homes to fill vacant lots, implementing utility bill back programs, and improving overall management and operating efficiencies, all of which significantly boost the asset value and net operating income of the communities.

Andrew has been featured on some of the Top Podcasts in the manufactured housing space, click here to listen to his most recent interviews: https://www.keelteam.com/podcast-links. In order to successfully implement his management strategy Andrew’s team usually moves on location during the first several months of ownership. Find out more about Andrew’s story at AndrewKeel.com.

Book a 1 on 1 consultation with Andrew Keel to discuss:

• A deal review
• Due diligence questions
• How to raise capital from investors
• Mistakes to avoid, and more!

Click Here: https://intro.co/AndrewKeel

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Would you like to see mobile home park projects in progress? If so, follow us on Instagram: @passivemhpinvesting for photos and awesome videos from our recent mobile home park acquisitions.

Talking Points:

00:21 – Welcome to the Passive Mobile Home Park Investing Podcast

01:51 – How Ryan Murdock got into manufactured housing communities

03:00 – Open Door Capital and Ryan’s current projects

05:09 – The toughest hurdle for most operators in mobile home park ownership

06:55 – The hardest value add component in mobile home park investing

07:58 – The easiest value add component in trailer park investing

09:00 – Ryan’s mobile home park investment strategy

11:49 – Running a property management company

13:55 – The best opportunity in the marketplace NOW for mobile home park investing

15:43 – Mobile home parks and the economy the next couple years

19:33 – Mistakes Ryan has made in mobile home park investing

21:21 – The most important things that passive investors should look out for when investing in mobile home parks

23:15 – Raising rent

25:20 – Ryan’s perfect mobile home park

27:00 – Underwriting

28:54 – Infill and paying for vacant lots

30:11 – Getting a hold of Ryan Murdock

00:00 – Conclusion

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Links & Mentions from This Episode:

Open Door Capital: https://odcfund.com/

Ryan’s Email: ryan@odcfund.com

Keel Team’s Official Website: https://www.keelteam.com/

Andrew Keel’s Official Website: https://www.andrewkeel.com/

Andrew Keel LinkedIn: https://www.linkedin.com/in/andrewkeel

Andrew Keel Facebook Page: https://www.facebook.com/PassiveMHPinvestingPodcast

Andrew Keel Instagram Page: https://www.instagram.com/passivemhpinvesting/

Twitter: @MHPinvestors

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TRANSCRIPT

Andrew: Welcome to the Passive Mobile Home Park Investing Podcast. This is your host, Andrew Keel. Today we have an amazing guest in Mr. Ryan Murdock from Open Door Capital. Before we dive in, I want to ask you a real quick favor. Would you mind taking an extra 30 seconds and heading over to iTunes to rate this podcast with five stars? This helps us get more listeners and it means the absolute world to me. Thanks for making my day with that review of the show. All right, let’s dive in.

Ryan spent 10 years in the semiconductor manufacturing industry before transitioning to real estate investing and property management in 2007. Since then, he has steadily acquired a solid portfolio of multifamily rental properties. He has extensive management experience in many facets of real estate, including retail office, multifamily, HOA, and especially our favorite mobile home parks, including nationwide consulting and turnaround projects. As a co-founder of Open Door Capital, Ryan played a critical role in early operations and assembling some of the experienced teams they have today.

He continues to provide value through an ongoing advisory role and targeted projects. In his spare time, he’s an avid scuba diver and adventure seeker from his home base in Maui, Hawaii. Ryan, we are excited to welcome you to the show.

Ryan: Hey, good morning, Andrew. Thanks for having me on. I really appreciate it.

Andrew: Yeah, it’s afternoon on my time, dude.

Ryan: I’m always behind the curve.

Andrew: Awesome. Maybe you could start out. I’m excited to hear your story and how you got into manufactured housing communities.

Ryan: That just came from the experience of multifamily started with a management company that I had started in probably in 2007 or 2008. I found some small multifamily stuff. I kind of started my own property management company as a complement to that. Also was a real estate broker for 10–12 years.

I found that as I was expanding my management business, there was a real need for mobile home park management. There were a lot of mobile home parks in my area. Nobody was managing them well.

I really didn’t have any relevant experience but took on a couple of small parks here and there and steadily grew the number of parks that I was managing and the size of them just through a lot of trial and error as much as I hate to admit it early on. But I got some pretty good systems in place and was certainly doing it better than anybody else in the area. It really just grew from there.

Andrew: That is fantastic and that was up in the Northeast if I recall?

Ryan: Yeah, I was based out of Maine originally, so everything around the Bangalore, Maine area, we had several hundred units, which actually grew to several thousand units over the course of 5 years and 8, 10, or 12 mobile home parks in that mix.

Andrew: Wow. That is fantastic. Maybe you could tell us a little bit about Open Door Capital, what you’re working on now.

Ryan: Sure. That’s kind of been where I focused my efforts over the past four or five years and partnered up with Brandon Turner who five years ago was very vocal in his search for a mobile home park. He wanted to start investing in that asset class. I actually found a park in my area that fit his criteria, sent it over to him, and long story short, we ended up partnering on that. That was my first real equity piece of any mobile home park.

I owned other properties, obviously, and managed other mobile home parks, that was our first foray into actually buying one. I think we bought that right around January of 2018. We have owned that for about a year.

It was a real value add project. It was a smaller park, but the heavy value add, real heavy lift, but it worked well. It was kind of like the boots on the ground that did a lot of infill and some improvements. We sold that park just after two years for a really strong return. I think we paid just around a million for it and sold it for $1.8 million.

All the improvements and everything were done out of the cash flow of the park. It didn’t really require much additional capital from us. A very small park size, but it was a test bed of like, hey, this model actually works. Let’s take this show on the road and see what we can build from there.

In the past four years or so, I think we’ve acquired just over 35 parks. We’ve done six funds, 506(c) syndications where we raise investor capital. We’ve got around, I think it’s 5500 lots and probably $220–$250 million in acquisitions for mobile home parks, in addition to the multifamily stuff that we do as well.

Andrew: That is such an awesome story, and literally, it was just like a cold outreach to reach out to Brandon. You just had heard him in BiggerPockets and just said, hey, I got a deal, let’s talk.

Ryan: Yeah, and I’ve told the story a million times, but that was very much outside of my normal comfort zone is to reach out and communicate with other human beings, especially over a deal that I thought was kind of a hail Mary. There’s no way he’s going to want this, but just goes to show to get out of your comfort zone and do those uncomfortable things, make those connections, continue to network, and big things can happen from it.

Andrew: Big things for sure. Let me ask you this. What do you think is the toughest hurdle for most operators in mobile home park ownership?

Ryan: I think there’s this perception that mobile home parks are very easy to manage. You hear about the tenants owning their own homes. They’re in charge of all their own maintenance and repairs. It’s really easy to manage these things, which is the goal and where some parks can certainly get to and that’s what we strive for in all of our acquisitions.

I don’t know about you, but I’ve never had one start out that way. There’s always some sort of train wreck taking over, especially if you’re targeting value stuff that requires infill, maybe it’s been a mismanaged park, or that kind of thing, which is where a lot of the opportunity lies to make a lot of money but they are very management intensive or can be.

I think we have some excellent systems in place. We have some amazing people that do hands-on management. We’re vertically integrated on the mobile home park side, so we do everything in-house, but man, it’s a lot of work. People get into it just thinking they’re going to do it “passively” as a part-time gig. A lot of them are in for a rude awakening on just how much work it can take.

Andrew: I totally agree that’s the number one thing I would say as well. The management is not passive, it is very active. You have to be hands-on with it or it will run away with you. We try to visit all of our mobile home parks every quarter and within that three-month span, you could show up and there are appliances on the roads and hiding behind homes and things like that. We do drive-through videos every month, but it’s just the stuff you don’t see from the drive-by that adds up and it can get out of hand real fast.

Ryan: For sure. Yeah, it shows if you’re not right on top of it.

Andrew: Totally. I know you’ve done a lot of value add perks. What would you say is the hardest value add component in mobile home parks and why?

Ryan: I think recently it’s just been sourcing homes. Our target park is generally really 60%–70% occupied. I’d say on a 100-lot park, we have to infill 20–30 lots and sometimes a few more lots. Pre-COVID, I think it was easier to source mobile homes, whether it be used or new.

Certainly, since COVID and supply chain issues, the new ones, their waiting list is a lot longer wait for those. You might previously be on a six-month lead time, and recently it’s been 12–24 months lead time. We found some avenues to try to skip to the front of that line a little bit, but that’s certainly been a challenge.

Then of course, mobile home parks, in general, have become more popular. Even sourcing used homes has been more of a challenge. Everybody wants to do it now, so we’re scrubbing wholesale lists. We’re keeping our eyes on all the Facebook Marketplaces local to our parks and nationwide. We’re certainly getting it done, but it’s been a little more of a challenge for the infill piece over the past couple of years.

Andrew: Yeah, I agree. What would you say is the opposite? What’s the easiest value add component?

Ryan: The easiest would be to just take over poorly managed parks. You walk into a place that has been poorly managed over the period over the handful of years prior to our ownership and that’s like the easiest low-hanging fruit. Whether it be tenant relations, your rent collection procedure, or just sometimes you take over stuff that was dealt with on a handwritten ledger and bringing in some actual management software, some consistency, leases, rules, and people that are able to implement those and follow through with a large amount of consistency.

Just that alone can add a tremendous amount of value to your park even if you don’t do any infill. Just go in and clean up the management efficiencies. Again, it’s a ton of work, but we have great people and great systems and that’s easy. Right from day one, we can start turning that stuff around.

Andrew: I think that’s one thing about mobile home parks as an asset class. Having so many mom-and-pop-owned parks, there is a lot of meat on the bone. It’s really good that you guys have those systems down and can improve those. What would you say your mobile home park investment strategy is today and how has that changed over your years in the business?

Ryan: I think we’re definitely targeting larger and higher-caliber parks. We still want and need that value-add component for it to make sense, but I’m definitely seeing an improvement in the overall quality of the parks we’re buying. If you look back to our first fund, we’re about to kick off our seventh fund and we’ve already got some things in the pipeline for that. It’s just a higher quality of the park.

There are probably a few different reasons for that. Certainly, we’re much more established these days in the eyes of the brokers. As you know, it’s a very small broker community that deals with these larger products nationwide. I think we’re getting a closer look early on at some of these things before they’re shopped widely or certainly publicly marketed.

We’re getting an opportunity to bid on some of those right out of the shoot. Our management has gotten a lot better. Our margins on that are slimmer, so we’re able to maybe buy a little higher price. We’re getting better debt terms with some lenders that we’ve got established relationships with.

Certainly going after higher quality parks with slightly higher purchase prices, but the projections on those are good and the management should be a little easier because they’re not quite as heavy of a lift.

Andrew: Just to repeat some of those things you said because I think a lot of people know that the bigger firms go after these larger, better quality parks, but they don’t really know why and how it makes sense. I think some of the things you said is that the management should be easier because you should be able to pay an on-site manager more and that’s part of it. You should get better debt terms because you’re able to get more capital out and typically, banks want that. They want those higher loan amount deals.

Because your management systems are better, your expense ratios on the management are probably a little bit lower so you’re able to kind of pay up. Other groups that don’t have the scale, the team, and the management fee side of things probably couldn’t afford to do that.

Ryan: Yeah, certainly. Now that we have as many parks as we do, and that continues to grow just proximity to other parks. We’ll pick our interest to allow us to maybe pay a hair or more for a park if we’ve got another one or two right down the street. We can sometimes share managers, and if not, then definitely share some of the efficiencies by tapping into systems and the maintenance guys, the rehab crews, and all the systems we have in place in one specific geographic area certainly make it much more appealing to go after something else that’s very nearby.

Andrew: Yeah, I totally agree. Just having all of those contractors that you’ve worked with before to be able to start brand new. We’re starting from scratch, somewhere brand new is such a big deal. Maybe you could tell us a little bit about the management company.

What does that look like? How many team members are there? What type of divisions do you have? Do you have regional managers that are in parts of the country? Because I think you guys are fairly spread out. You guys don’t target one specific area?

Ryan: No, we’re really spread out. We prefer the Southeast, Sun Belt stuff, but we have parks everywhere from Florida to Alaska and everywhere in between. Certainly all the parks, of course, have onsite managers. As we all know their skill level varies. Usually, it’s pretty basic in what they’re able to do, but we’ve got some great people there.

All of those on-site park managers are overseen by regional managers who the bulk of them are based out of the Atlanta area, but we certainly have regional managers all over the country. A lot of people are working remotely and never have seen the inside of our office, and we’re fine with that. All of those are overseen by our VP of Property Management.

We’re Open Door Capital. We’ve got a completely separate, it’s Open Management, which is the property management arm. It runs as its own freestanding company. Obviously, we’re sharing resources across Open Door Capital and Open Management, but that’s a freestanding entity.

It is nice that since we do manage all of our own stuff, our property management company doesn’t necessarily need to run at a profit. If you’re owning parks all over the country and you’ve got to hire third-party management, number one, you might not be able to find anybody. That was certainly a decision we had to make early on.

It’s not like buying tires where you can just go to the store, pull them off the shelf, and they’re the same as everywhere else. Sometimes you might find a great deal and a great property, but there are just not any viable management options there. No better way to ruin a good property than to put a bad property manager in there. That’s why we built this out.

Our property management company, if it runs at a break-even, we’re okay with that because our goal obviously, is to increase the value of the properties themselves. It’s not like we have to run that property management company at a significant profit. As long as it’s break even, it covers the overhead, we’re good, which makes us a little more competitive when we’re offering them because our property management definitely costs us a little less than it would if we were going out for a third-party management company.

Andrew: Yeah, that’s awesome. We do the same thing. Where do you feel is the best opportunity or strategy right now in the marketplace for mobile home parks and mobile home park investing?

Ryan: It’s a strange environment out there right now. I don’t know what you’ve seen, but we’re seeing things retraded a lot. We’ve always prided ourselves on both the mobile home park side and the multifamily side. We don’t retrade. We’re not there to bait and switch, and the brokers certainly don’t like it, it just wastes everybody’s time

In this environment, both on the buying side and trying to sell things, there’s been a lot of retrading going on from people, not just us, but other operators that wouldn’t necessarily retrade, that really have to. Whether their debt chain, terms changing, or uncertainty in the market.

There are a lot of different factors right now, but I think still just the ability to get it done. A couple of things that we have had to retrade, there’s been really solid reasoning behind it and we’re still able to close. We’ve seen a lot of deals just fall out of the market like they just can’t or won’t get it done so the brokers are bringing them to us saying, we know you guys can make it happen.

I think there’s a lot of opportunity there where other buyers just can’t push things across the finish line for one reason or another and we’re able to pass on those and take. Of course, the deal still needs to make sense for us, but there are a lot of people that have sensible deals, very conservative underwriting, very promising deals that they just can’t get it done. We definitely see some opportunities there.

Andrew: Yeah, we had a deal just a couple of months ago that fell out of the contract because the financing changed at the last minute. Luckily, our escrow money hadn’t gone hard yet, but the bank came to us and said, hey, from the loan committee, we’re going to have to change your terms to this. I was like, okay, this doesn’t work anymore. It’s interesting times for sure what rates are doing.

Maybe you can touch on that a little bit. What do you think the economy is going to look like in the next 18–24 months? How do you think mobile home parks will fare given all of that?

Ryan: Yeah, if I had a crystal ball, I’d be making a lot more money than I do now. Anything is possible. I can tell you that what we’ve seen and what we’re doing is we’re going in with our underwriting and our debt terms a lot more conservatively than we would have a couple of years ago.

I know everybody says they’re conservative on their underwriting, but if we’re getting bridged on any of our properties now, we’re certainly buying rate caps. I think years ago we would have been willing to roll the dice and not do that. We’re going in much lower leverage, even on a property that maybe we could have gotten 75% or 80% LTV right out of the gate. We’re not doing that anymore. We’re targeting that kind on a 60%–65% LTV that just gives us a lot more options.

Certainly, we hope that even if rates continue to climb, they will creep back down again by the time we’re ready to exit or refinance. If it’s not, just going in much lower leverage just gives us more flexibility when it does come time to refinance or sell.

That’s tough because the lower leverage you have, the more capital you have to bring to the deal and the lower those promoted returns are in our advertising and in our marketing, but we just sleep a lot better at night knowing that we’ve kind of taken those additional conservative measures.

If the economy stabilizes, people are okay with it, and rates stay somewhat realistic, then great, that’s just more meat on the bone for us. If things continue to go sideways, then we feel that we’re pretty protected.

Let’s face it, mobile home parks are generally standard workforce housing, and there always seems to be a demand for that. I think that’s why both of us, you and I, are in this business. No matter what economy, there’s always a demand for that. If it comes to the point that there isn’t anymore, then we’ve got problems, presumably way worse than hitting returns.

We try to be very responsible stewards of our investor capital and make sure that we’re not overpaying and we’re not going in over-leveraged on anything. I know early in the year when we launched the fund, I think we raised $30 million in less than a week. It was really simple for us, as it has been.

We’ve got our golden goose, Brandon Turner, who will just post on Instagram that we need some money and then it all comes in. It was around April, May, and June, when stocks and crypto started to slide and interest rates increased. We saw a noticeable difference and all of a sudden it was a little harder to raise money instead of just watching it walk in through the door on its own. We actually had to be a lot more proactive, spend a lot more time on the phone with investors, and had to sharpen our pencil on our underwriting.

You’ve mentioned before we got on this, but we were doing a lot more actual advertising, which we haven’t done before, between Facebook ads, Google Ads, and all that stuff, just a larger outreach and trying to widen our net.

We were able to do it, but those few months where it was something that we hadn’t seen before. I think even as recently as this month on our most current raise, that initial panic from the market pullback seems to have subsided. People are like, okay, things are not like they were six or eight months ago, but the world hasn’t completely fallen apart yet and we’re seeing that ease of capital raising again. Does that get better or get worse next year? We’re bracing for it to get worse, obviously, hoping that it gets better.

Andrew: I do think the mobile home parts are moted, and not to say that they won’t be impacted at all, but I think the resistance of the asset class has been proven right from previous recessions. We’ll see how that plays out. Back to your history with mobile home parks, what mistakes in mobile home park investing have you made that we could learn from?

Ryan: I think it’s the one that if I go back to even my early days of just managing other properties and either being in charge of the management or helping the owners do it is just like under budgeting for CapEx stuff. I think in any asset of the class, that will bite you and that’s probably a very common mistake.

Between infill, surprises, and failed infrastructure, if you haven’t done adequate due diligence, you have to put in whatever you think it’s going to be and then a significant buffer on top of that. I’ve seen parks go very bad very quickly just because they’re undercapitalized and thought that they would hit the ground running and didn’t.

That’s why I think we tend to be very conservative on our reserve capital, and that negatively affects investor returns. It’s a delicate balance, but we want to make sure that we do not get blindsided by anything and we do a ton of due diligence upfront.

I’m always thankful that I had started and learned these lessons on the smaller properties years ago because those mistakes are generally survivable when the dollar marks are small. But you get caught up in over your head on a $10 million or $20 million property and those mistakes get a lot more costly. It’s good to bang your head and stub your toes early on the cheaper stuff so that by the time you’re on the bigger stage, you’re older and wiser. I certainly am.

Andrew: That is a great tip. This is a question I ask all the operators that come on the show and it’s the listeners’ favorite question. What are the most important things that passive investors, we’re talking LPs, need to look out for when investing in mobile home parks?

Ryan: There’s a lot of answers to that, but would I give the same advice for any sponsor whether it’s a mobile home park, multifamily, self-storage, or whatever, you really got to put a lot of focus on the team and on the operators. You can second guess somebody’s underwriting all day long until they blew in the face, but ultimately, you need to rely on your team. You’re giving your money to people who will have complete control of it and it’s generally a very liquid investment. on the LP side.

I know when I’m investing in other people’s deals, I want to know the team most often personally because I have prior relationships with them. I certainly want to know how long they’ve been in operation. I want to know what their experience level is. There are some great operators out there, but I’ve been seeing some stuff, especially recently, that you look at the returns or whatever the goal is and be like these are crazy great returns.

Then you dig in a little bit and realize that it’s those operators’ first deals, they’ve underwritten rent growth to be on par with what we’ve seen for the past three or four years, and a bunch of other stuff that the red flags just immediately start going up.

I definitely want to know about the team. I want to know about the experience and the track record. I always like to know how much the GPs are throwing in of their own money right alongside the LPs and LP shares. I know we personally, as general partners, invest in all of our deals on the LP side. Not all operators do it, and because they don’t, it doesn’t necessarily mean it’s a bad thing.

I feel a lot more comfortable when I know that the GPs have significant skin in the game. They’ve got a lot at stake both from the GP side and if the thing goes bad, they stand to lose probably a lot more money than I do as the investor that invested my capital.

Andrew: Great insights there. You brought up one thing about rent growth numbers and I wanted to ask what is the appropriate or customary amount you feel comfortable raising rents years one and two?

Ryan: Sometimes what looks good on a spreadsheet doesn’t play out well in real life. There are some operators—Andrew, if you’re one of them, I apologize—that go in there and just double the rent on day one because it makes your numbers look great.

Andrew: I don’t want to end up in the newspaper.

Ryan: That’s exactly it. That’s one of the huge points. We do try to maintain some level of humanity and these are actual people. A lot of them have been long term residents and maybe the previous owner hasn’t kept up nearly like they could or should have with gradual rent increases.

We’ve certainly acquired some deals where on paper, it’s justifiable to all the cops in the area. We go in and double the rent on day one and we’re still under market. We don’t want to displace and ruin people’s lives. Both from the humanitarian aspect and if you double their rent and they can’t afford that, maybe half of your park is going to be empty within six months. That’s no good.

Then certainly, the bad press that goes along with that, we don’t want to end up on the 6:00 PM news. Nobody does for those reasons. Obviously, we take each market at a time and the overall situation of how low the rents are, but we really try not to go up any more than $50 or $75 a year on rent. Sometimes it’s less than that. Sometimes it might be $35 in the first year and then $25 each year after. We try to be very sensitive to the overall situation.

We’re running a business, obviously, we are. Costs for everybody are going through the roof on everything, so your project needs to be viable, but we try not to push the envelope and hurt anybody any more than we have to.

Andrew: Yeah, same here. It’s crazy because apartment rents just keep climbing and there’s no remorse there. On the mobile home park side of things, there is this stigma around raising rents to market.

Ryan: If we have a vacancy or infill of a vacant lot, that one is fair game. You can set your price at whatever you want for a new incoming tenant, but we certainly try to be sensitive to those existing residents.

Andrew: What does the perfect mobile home park look like in your eyes and why?

Ryan: One that we just sold for like ten times what we paid for would be great. We have a pretty standard buy box. That 100 lots or larger. We want public water and public sewer. We don’t want to deal with any private utilities.

We want a solid SMA so 100,000 people or more within a 10-mile radius. We want that population to either have been steady, preferably increasing significantly over the past handful of years and that 20%–30% vacancy. We need that value to add components. We’re not out there competing with the institutional buyers for these turnkey 4% return parks. It just doesn’t fit our profile.

We’re pretty dialed in on our criteria and what we want, which is something that we weren’t originally. For people that are getting started in this business, I think our net was way too wide. We are looking at pretty much anything and everything. From 30–50 lot parks with good septic and wells, which people do well with those and we just don’t. We realized quickly that we didn’t want to buy anything with private utilities, but it was taking up a ton of our bandwidth just trying to underwrite.

It wasn’t until we really dialed in our criteria to what I just mentioned 100 lot park, public water, public sewer, and the population statistics. That weeded out 80% of the noise in our world. We were able to actually focus on what we knew that we wanted to buy. Your criteria will be different for everybody, but we knew what worked for us and we were able to just run much more efficiently, especially on the acquisition side when we just quickly got to a no on a lot of the properties that were coming across our desk.

Andrew: That’s very smart. What do you guys underwrite to? Do you have an end-of-year one or an end-of-year two type of cap rate that you target?

Ryan: You have to bring on some of our underwriting team members to get that far into the weeds. I’m pretty far removed from the day-to-day at this point. I know that cap rate going in really matters, but not that much because we know we’re going to change it immediately, either through the management efficiencies or infill.

Our general projected returns, we’re projecting typically a five- to seven-year hold in a 16–20% IRR over that period in a7–8% pref. Again, that varies depending on what we’re doing. The reason we like the fund model is that if we put five or six properties in one fund, there may be a mix in there of properties that we couldn’t buy individually. Maybe you do go after a more stabilized one. The infill potential isn’t there, but it’s a great market. The chance for appreciation is there, but the overall returns are so low that we couldn’t buy that on our own.

If we blend that with one or two other more value-added parks, there still have to be good buys but something that’s more value-add that cash flow in early years is not there due to the capital intensive nature of a turnaround. If we can blend different profiles a park and achieve our overall fund level return, we love to do that. It gives us a lot of flexibility and buying power because we go after parks that we know a way that in no way we could or want to buy on their own.

Andrew: That’s smart, having a fund that can balance out is very beneficial.

Ryan: It allows us to diversify more as operators and it’s a lot less risky for the LPs. You’ve got diversification over multiple properties, markets, and different profiles.

Andrew: Totally. On the infill that you guys target, are you paying for the vacant lots? Do you pay for some of that? I get that question a lot from other operators.

Ryan: Generally, no. If the lot is not generating any income, it does not affect the underlying. We’re not going to pay full price for a lot that’s not generating any income. Do we sometimes pay a small premium for that because we realize the potential? Sure. That goes into the mix.

What I really get a good laugh at a lot of the time is you’ll buy a park and it comes with 30 extra acres that you can double the size of the park. They’ll try to price it on that. Number 1, we’re not in development or anything and there’s a lot of money to make in that and it’s not just what we do. We’re definitely not adding any value at all to additional development acreage, except for very specific examples. The vacant lots are worth something, but we don’t price them as if they were fully occupied and functional.

Andrew: Got it. That’s the same with us. There’s lower hanging fruit out there buying from mom and pops and adding value than developing new because it’s very expensive and just an easier base. Ryan, I’m very thankful that you came on the show. If any of our listeners would like to get a hold of you or Open Door Capital, what is the best way for them to do that?

Ryan: Our website is probably the best way to do that. It’s odcfund.com. You can email me at ryan@odcfund.com. I’m on most of the social media. Facebook and Instagram if you want to see mostly non-real estate-related stupid things that I do during the day. You can catch me at any of those spots.

Andrew: Awesome, Ryan. Thank you so much for coming on to the show.

Ryan: I appreciate you having me, man. Thanks so much. It was great chatting with you.

Andrew: That’s it for today, folks. Thank you also much for tuning in.