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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 passive investor David Shirkey about his experience in the mobile home park industry.

David is a passive mobile home park investor and has first hand knowledge for anyone who is thinking about investing in trailer parks. Today Andrew asks David about his preferences when it comes to the following: syndications and investment funds, operator due diligence and preferred methods of communication with operators. In addition, he talks about the filters he uses when he coordinates with operators on deals that he likes to invest in and discusses mistakes he’s made in the passive MHP investing arena. David also talks about a few additional passive investments he has made in alternate investments outside of the mobile home park asset class.

***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 1,400 lots under management. His team currently manages over 20 manufactured housing communities across ten states – AR, GA, IA, IL, IN, MN, NE, OH, PA and TN. 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
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• Mistakes to avoid, and more!

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Talking Points:

00:20 – Welcome to the Passive Mobile Home Park Investing Podcast

01:53 – How David got started

03:27 – David’s preference in funding

06:17 – David’s due diligence process

08:03 – What David looks for when looking at a deal

11:00 – David’s “worst” mobile home park deals

14:14 – His preferred method of communication

16:24 – Mistakes that David learned from

20:54 – Depreciation benefits of investing in mobile home parks

24:35 – Alternate investments

29:43 – Tips for new investors: choice of investments

31:19 – Important things passive investors should know about the mobile home park asset class

33:16 – How to find operators to invest through

36:10 – Getting a hold of

36:45 – Conclusion

SUBSCRIBE TO PASSIVE MOBILE HOME PARK INVESTING PODCAST YOUTUBE CHANNEL https://www.youtube.com/channel/UCy9uI3KGQmFgABsr9lUtRTQ

Links & Mentions from This Episode:

David Shirkey, LinkedIn: https://www.linkedin.com/in/davidshirkey/

David’s Email Address: DShirkey@Orbitform.com

Skyler’s Email: skyler@americandreamcommunities.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/PassiveMHPin…

Andrew Keel Instagram Page: https://www.instagram.com/passivemhpi…

Twitter: @MHPinvestors

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TRANSCRIPT

Welcome to the Passive Mobile Home Park Investing Podcast with your host, Andrew Keel. This is the podcast where you can get the education you need to invest 100% passively in the highly profitable niche of mobile home parks.

Andrew: Welcome to the Passive Mobile Home Park Investing Podcast. This is your host, Andrew Keel, and today we have an amazing guest and friend in Mr. David Shirkey, who is a passive mobile home park investor. David is the Director of Strategy at Orbitform, which is his family-owned manufacturing business. He has worked at Orbitform for over 15 years in capacities including the CFO, project manager, engineer, and as a regional sales manager.

He currently serves as Orbitform’s Director of Strategy, where he leads growth initiatives including new product lines, new services, new acquisitions, and other investments. Prior to joining Orbitform, David worked at Chrysler as a manufacturing engineer and production supervisor in several Chrysler facilities across the US. David also leads the Shirkey family office, and as part of the family’s second generation, his role within the family includes identifying and researching investment opportunities, tracking investments, financial reporting to the family, and others.

David received his MBA from the University of Colorado in Boulder and he received his BS/MS in Mechanical Engineering from Oakland University in Rochester, Michigan. David, thank you so much for coming on the show.

David: Hey, thank you very much, Andrew. That was a nice intro and I’m glad to be here.

Andrew: Awesome. Let’s jump right into some questions. How did you find the mobile home park asset class and what triggered you to start investing in this space?

David: I had gotten into the alternative investment space in about 2017. After meeting different people, I eventually met a guy named Jeremy Roll. Jeremy introduced the space to me as an idea. After having made some investments in multi-family apartments and other real estate arenas, I just started looking into the mobile home park space. After I spent a couple of hours, read a couple of documents, and watched a couple of videos back in 2017, I decided it was worth further analysis. Now, there are a lot more resources than there were in 2017, but that’s all I got started, just a reference from another alternative investor.

Andrew: Very cool. How many mobile home park deals have you invested in, to date?

David: I actually have a little map with me. Just in case you ask that question, I have a little map here. Right now, 10 different investments—2 more around the docket, for the near term—but so far 10, and one of those is a fund and the rest are all direct mobile park syndications.

Andrew: Would you mind touching on that? Do you prefer one or the other? The syndication or fund route? Do you invest in REITs? What’s your preference?

David: My preference is the single park, or specific, maybe a small portfolio investment versus a fund. I’m not anti-fund. I wouldn’t say I’m an anti-fund but maybe I’m a little more hands-on or a little more interested in the unique factors of a single MHP acquisition, but the funds are okay too.

Andrew: Would you mind elaborating a little bit on that because new people to the space might not understand the specifics? Maybe your hopes are that you can research a specific property, that tangible real estate in the market, and make your own call if it could be a home run or not, versus when in a fund, you’d just pulled in and the operators make that decision. What do you like specifically about the syndication route?

David: At first—that’s right—I wanted to dive into the details on each of the locations and each of the markets, but as I’ve gone along now, I’m just trying to work with trusted operators. For example, Andrew, if you came out with a fund, I would probably consider it because we’ve done some business together.

Actually, a sponsor that I’ve done some investing with in New York State is coming out with a fund right now and probably going to seriously consider that because they’re making a business decision to move their fundraising into that method.

I would say in the last three years, I’ve focused on the direct syndications just because I’ve been more of a hands-on investor, and I like to know the specifics of each investment.

Andrew: Got you. You made your own fund, your fund of 10 properties or 10 investments, right?

David: Yeah, you could say that. I’m not sure most or all passive investors (maybe) can do that. I feel very blessed that I have maybe a little time, and I’m able to put some attention to this. but I think a lot of passive investors might need to maybe pick one trusted operator or one trusted fund, and just deploy capital there. Not everybody can spend more time; maybe I’ve been able to in this space.

Andrew: That makes a lot of sense. What does your due diligence process look like when you’re looking into a new operator?

David: With a new operator, I’d like to just talk to them at first. I don’t do a whole lot of background checks or anything at first, just talk, and to ask questions from different angles. If you ask a similar question over a couple of different ways in a 30- or 60-minute phone call, it’s just nice to hear how people answer the same thing in different ways. And then, of course, you see who you’re connected with.

You might ask for some referrals directly from the operator, but then you also just reach out to people who you think probably are aware of them or know them. I have never done an official background check. I’ve never done an official criminal background check. I haven’t taken that route, but ask for referrals, call the referrals, and then just ask other people that you think might know them is a pretty good way. Obviously, if there’s a track record that you can verify, that’s very helpful.

Now, there are enough MHP operators who are raising money that do have track records. They’re looking for $50,000–$100,000 investors that you can get them out and check them out. That’s probably the top of the process.

Andrew: Totally. Thank you for sharing that. When it comes to deal-specific syndication, would you mind going through maybe just the top things you look into when you’re presented with the details, pro forma, or offering memorandum?

David: Usually, I just do a couple of very well-known simple things, like you do the Walmart check or you do the fast food check. Those are a couple of things to just see if it stands out. Either pro or con is a good thing. Sometimes, I’ll look for apartments or homes for sale in the vicinity, and sometimes I’ve even called some realtors. Some of the locations, if it’s a little bit more small town-ish or remote, there might not be a whole lot of listings online, but call the realtor and ask them if they know of any homes for lease or for rent. It gives you a little signal on that market.

Those are a couple of steps I take. Then, there are higher-level things. Before I would even dive into things, if it’s in a litigious state or if it’s landlord-unfriendly, you might just not even dive too far into that analysis. Of course, this is all after I feel I can trust the operator in the first place. That’s where I start, at least, is the person you’re placing a bet on. After you’re comfortable with that, you start looking more at the actual location and the park makeup, if you believe the operator can improve the place or not, or if it’s a stable versus a value-add. There are different things you got to analyze for different factors.

Andrew: Totally. Compared to our avatar investor, I would say most of them know a little bit about the space. Because I attended the same Frank and Dave Bootcamp that you did, I know that you are more hands-on. The tips that you gave there probably would take a couple of hours at most, but they could be very valuable.

Calling a realtor that has grown up and has a huge business in that town would be a great way to tell if there’s a need for affordable housing in this market. You can change a lot about a piece of real estate but you can’t change the number of jobs that are available. I love that, that’s a good tip.

Have you been involved in a mobile home park deal that went bad and if so, what went south?

David: As far as I’m aware, none of them have gone bad yet. It’s funny we happen to have an investment that happens to be one of your parks that is very close to one of the parks I invested in as a passive investor. That one is in a pretty rough town and in the Midwest. That’s been the most interesting story I’ve come across on that park investment. It hasn’t gone bad. It’s just that it’s been a little bit harder for the operator than they had planned, but it cash flowed, they’re making distributions, they haven’t had a capital call, so it’s going okay.

Andrew: I wouldn’t call that a bad deal, and I know the park you’re referencing so I can speak on behalf of that, but they bought it at a good price. It’s just a rougher park compared to the typical park you’d like to see.

David: Honestly, I’m looking at my map here again and none of those have been a disaster yet. I have one multi-family apartment investment that’s having some trouble but none of the mobile parks, at least as far as I know.

Andrew: Can you maybe shed some light on the multi-family one that went south and just what led up to that?

David: I have invested in four multi-family apartment deals, two different operators, and the one that’s having challenges is near Houston. This was this guy’s second time being in the leadership role driving the bus, and he might have got a 400- or 500-unit department, and he just went a little over his head. That was the main thing. It was just a little bigger than what he was ready to handle.

It was going a little bit shaky previous spring, and it seems maybe he and the management didn’t have a very good relationship with the tenants, and so tenants are flexing their—what do you call it—that CDC CARES Act or the CDC rent thing. If you don’t have a good relationship with your clients or tenants, you’re going to have more where they’re going to flex that ability. That’s the current acute issue that’s going on right there, but I think he’s just over his head.

Andrew: What’s your preferred communication from your GPs that you partner with? Do you have a preferred method? What are the great operators doing and then what are the not-so-great operators doing on the communication side of things?

David: I’d say quarterly is more than enough, even if there was a twice a year, one-page report, and maybe even just a quarterly email. If anything major is going on, good or bad, that would be good to know, but quarterly would be the most an operator should feel like they need to communicate, and even twice a year would be okay unless there’s a surprise. Bad news doesn’t get better with age—I just want to get it out there—and let people absorb it versus trying to surprise them after it’s been building up for a while.

It’s a delicate balance because once you’re in, you’re in. It’s not like these are liquid markets, and that’s something that a lot of passive investors struggle with maybe is you send somebody a lot of money, but you have to realize that your decisions have been made, and you probably don’t have any means of changing the direction if you want to based on the operating agreement and the structure. It’s something that you learn as you actually make investments. Again, fortunately, I haven’t had any situations where I even wanted to try to intervene or get in the way, but it’s just something you learn from maybe your job first and do a passive investment role.

Andrew: What would you say would be a mistake that you made? It doesn’t have to be a specific investment, maybe it was an entity set up or maybe too big of an investment into an operator with your first deal. What would you say to that question?

David: This is actually the same park that we were talking about before. Now, I’m only going to invest when I really know and I can verify that the mobile home parks are this operator’s full-time deal. The park in Indiana that you and I are neighbors in, I just didn’t have that as a filter, or I didn’t do a good enough job, and those guys, this isn’t their full-time deal. This is like a side project for them to try to manage this park. I applaud their efforts because I know it’s not their full-time job.

For someone like yourself, you’ve chosen to dedicate yourself to building a mobile home park ownership management enterprise. I didn’t have that as a strong-enough filter maybe when I did this first one investment. Now I want to know, is the person I’m trusting or counting on, are they going to live and breathe the MHP world and this park in particular?

Andrew: That’s a great filter there. Would you mind sharing some more of those filters, maybe just like the top few because that’s the golden nuggets that our listeners could really get value out of?

David: Number one is do I believe that their, I don’t want to say their life depends on it but their professional reputation. They’re committed to being to the MHP space would be one of the big filters. After that, now you’re getting down to some of the property attributes or you’re getting down to the operating agreement and deal structure. Again, everything is relative.

I’m not trying to say that people should get in terms they can get, but when it gets to be more than 50/50 between the LP and the GPs, it just doesn’t feel quite right for me. I do like to see a preferred return. I like to see a path that the cash is going to the limited partners before a whole lot of side comes back to the general partner, in general. There are fees and there’s a lot of work that goes into the front side of these deals. There’s a market for fees, acquisition fees, and management fees, but I do like to see a good proportion of the cash flow going to the limited partners before the general partner hits their big win on their side.

Andrew: That makes sense.

David: But one thing that’s unique that people might be interested in is there are a lot fewer really good experienced mobile home park operators that are raising money from passive investors than there are multi-family apartment building operators indicators, so people who have good operators in MHP space, they hold a lot of cards in this arena. It’s just the reality of investing in the space.

Andrew: It really is. I had a call yesterday with the gentleman that said, hey, I got $500,000 and I want to invest it before the end of the year. I need depreciation. You got a timeline there that he’s trying to save on some taxes. Would you shed some light on the depreciation benefits you’ve seen through your investments, on the mobile home park investments, and how they measure up compared to other asset classes?

David: Some mobile home parks definitely have some depreciation. I have a lot of a variety of things that I’ve invested in and when I compare the depreciation we might get from investing in a business that has a lot of capital equipment. That’s the ultimate depreciation in today’s tax world that we can write off 100% of that stuff then it comes to MHP space, depending on what’s involved in the park, whether it’s got valuable infrastructure and things that are park-owned.

I look at a mobile home park and I’m usually able to write off 25%–40% of the investment in the first year. That’s my rule of thumb, which is great. I wouldn’t say I look at MHPs as the ultimate tax shelter, but it’s a good tax shelter. There are other spaces where you have more hard costs. You have buildings. But MHPs, sometimes you have less of that versus the total purchase cost, from my perspective. Do you agree?

Andrew: I agree. I guess I’ve not been buying existing manufacturing businesses. I’m sure that depreciation is a lot different. It’s just always interesting to me to compare how mobile home parks measure up to other options out there.

This specific investor that reached out to me, one of his filters was that he required the deal that he invests in that they get a cost segregation study done. We get those done every year. That was a filter that he made sure to check off the list because for their bonus depreciation benefit, either he writes a check to the IRS or he writes a check to make an investment. That was an interesting conversation because some people invest strictly on depreciation expectations.

David: That makes a lot of sense. I’m sure for this investor also the first filter is do they believe in the investment, and how does it rank in their tax mitigation plan. People need to be careful not just looking at the depreciation factor. You can go out and invest in all kinds of oil drilling operations and mines, and then you’ll get a ton of depreciation, but you better be careful that it might not pay off.

Andrew: Totally. We talked once about the ATM investing, the depreciation available there, and how that has been a pretty good investment from our previous conversation. Would you mind sharing a little bit about that and sharing just some other alternative investments that people looking at mobile home parks should also be looking at?

David: It’s been pretty interesting because back in 2017 when I made some of my first and alternate investments and deployed capital for our overall family. ATM portfolios were one of the first things that I got involved in. People thought I was crazy, for years. But then, some people that you know in 2020 have launched funds for the same ATM portfolio deals that I told them about in 2017. I enjoyed that a lot. I’m glad because it makes you feel good. That’s been neat to see. There are a couple of well-known alternative investment syndicators that the only thing they brought out in 2020 is the ATM fund because there’s a book that no other asset classes, no price too high and cap rates are too low, those kinds of things. That’s one that’s been interesting.

I don’t want to bore anybody, but on the other side of the coin, I invested in some check-cashing machines and it’s akin to the ATM investment. You do get a great initial depreciation because it’s a machine, it’s capital equipment. You can write off 100% of it the first year and it also involves people transacting for cash. Anyway, I don’t want to bore you with that story.

Andrew: No, but that’s great. That’s the kind of stuff that people don’t initially think of when they think of making a passive investment.

David: Sure. And then a couple of other interesting things, at least from my perspective, some cryptocurrency investments and then something called life settlements. It’s different where you’re buying the death benefit of other people’s life insurance policies. That’s all another rabbit trail. But again, to me, if you’re looking for things that are not correlated to the stock market or GDP or inflation, which the mobile home park space has some of those characteristics. That’s why things like life settlements have been on my radar screen. And ATM.

Andrew: That’s awesome, thank you for sharing those. I appreciate that. Going back to mobile home parks, what matters most to you when you make an investment? If you were going to boil it down to maybe one or two things, what matters most prior to you agreeing to make an investment?

David: It’s a cliche, but what matters most is do I believe in the person that I think it’s the most important to deal with all the unknowns that might arise? That’s by far the main thing. Do I know who the person is? Do I believe that they’re going to do their best when bad things happen, or when good things happen? Because good things could happen and they might try to hide it, they might try to shelter some of the findings or something, some of the positives. That’s by far the main thing.

After that, I’ve already decided what spaces to look at, the spaces that I’m open for are MHP, multi-family. Those are pretty much the only two that are for passive investing I’m looking at these days. I would be open to industrial warehouse real estate investment but I haven’t cultivated relationships in that arena to this extent.

Back you mentioned, we buy manufacturing businesses but that’s more of not so passive, that’s more active investing. That’s our main business. Those are the only things that I’m open to right now, operating companies, mobile home parks, and multi-family apartment buildings.

Andrew: Very cool. I just have a few more questions. When you invest, do you guys choose to invest through an entity or personally? For someone who wants to make their first investment in this space, obviously, you’re not an attorney, but what would you do so that someone can learn from that?

David: The majority of our investments have been either through a holding company (LLC) or through a family trust. Again, I don’t want to bore you, but people might be interested. The only difference is that the family trust was set up basically to help us reduce the tax liability when my parents pass away. But it’s really the same. I don’t know if the trust has any liability protection necessarily, but the LLC method certainly does. Plus, it’s helpful like I’m managing investments for not just myself but others in our family. I can be the manager of an LLC holding company, then I can make all the decisions, I can sign documents, and I can do certain things like that. It helps to organize the holdings. That would be it.

Andrew: Thank you for sharing that. David, what other important things should passive investors know about the mobile home park asset class that I didn’t mention?

David: One of the things I thought it might be interesting to talk about is if you’re interested in the space, what do you do to start, what do you do to start learning about it? Probably for a lot of people, they don’t have a whole lot of knowledge or awareness of mobile home parks before they start investing. Your podcast, you’re putting out a lot of pretty valuable content for people to learn like the due diligence checklist that you offer on your podcast is really invaluable for folks.

I guess it depends how serious they’re going to be about it. Some people investing $50,000 is a really big deal. For some people, $5 million might be a really big deal. Whatever that is for each investor, […] am I going to evaluate Andrew Keel from 360 degrees? Am I going to try to figure out who this guy is? Or am I going to roll the dice?

Again, I don’t want to say what the best method is, but I’m open to people if they wanted to ask me for my thoughts. I’d be open to sharing how I went about researching the space. But honestly, starting with someone just listening to some of the well-known podcasts and now you have this one, so people could listen to yours and some others, and that would be a good starting place.

Andrew: Awesome. And last question, how could people find operators to invest through? I know that you spent quite a bit of time on this to find these operators in the mobile home park space because like you said, there are not as many of them in the MHP space compared to multi-family and other asset classes. Would you mind just sharing a couple of those ways that you found different operators?

David: You can find some lists. I don’t have any on top of my mind right now, but I know there are some ways to get a list of Alpha 100 operators, mobile home park operators. And I will say you start looking for the ones that maybe don’t look like they’re too huge. Look for operators that have between 1 and 10 parks that they currently own or manage. Some of them might have websites that have investor questionnaires on their websites. A lot of them won’t.

Depending on how intense you want to be about this, maybe you sign up for the groups that do have questionnaires for investors and see what you can learn, then email and call some of the ones that don’t and just state your interest in, ask if they ever raise money for acquisitions from passive investors.

There’s not a clearinghouse, I wouldn’t say. There are some social media groups that you could probably join on LinkedIn and Facebook, and maybe just watch what’s going on. Some people are going to laugh. Some people will be posting things like they’re bisexual, their stars are flying and dynamite shooting all around, telling, I won’t call that guy.

Maybe there are some people that are answering questions humbly but aren’t promoting or closed their next under contract deal every third day. People who are producing podcasts, people who are being interviewed on podcasts, people who are interacting on social media like those things, they’re not doing it because they’re close-minded. They’re doing it because they’re open to meeting people and talking. You might need to give up a couple of hours of your time to ask some people to talk with you, but you can make some inroads.

Andrew: Totally. That is a golden nugget right there.

David: Especially the fireworks, right?

Andrew: The fireworks, I did see that video. David, thank you so much for adding value to our listeners and coming on the show. If any of our listeners would like to get a hold of you, what would be the best way for them to do that?

David: I’m open to help people out. You can put my email address in the show notes if you want, but it’s dshirkey@orbitform.com. I’m pretty easy to find on LinkedIn. I like talking about this topic, and I’m happy to help people. You help somebody, and who knows, they’re probably going to share a deal with you down the road, too, so happy to do that.

Andrew: Awesome. Thanks again, David. That’s it for today’s show. Thank you all so much for joining us.

David: See you, Andrew.

Andrew: Hey, are you getting value out of this show? If so, would you mind please going over to iTunes and leaving the show a quick five-star review? I have a goal of hitting over a hundred five-star reviews by the end of 2021, and it would mean the absolute world to me if you could help contribute to that. Thanks ahead of time for making my day with your five-star review of the show.