SHOW NOTES

Welcome back to the Passive Mobile Home Park Investing Podcast, hosted by Andrew Keel. In this episode of the Passive Mobile Home Park Investing Podcast our host Andrew Keel interviews Brian Spear of Sunrise Capital Investors.

Brian Spear, Co-Founder of Sunrise Capital Investors, manages several mobile home park focused investment funds with his partner and fellow podcaster, Kevin Bupp. At Sunrise Capital, Brian is responsible for investor relations, marketing, and regulatory compliance. He earned a Bachelors of Business Administration in Marketing from the University of Kentucky, where he attended on a baseball scholarship and served as team captain.

In this episode of the Passive Mobile Home Park Investing Podcast, Andrew Keel and Brian Spear explore the resilience of past mobile home park investments, trailer park investment regulatory considerations, and strategies for navigating new manufactured housing community acquisitions with higher interest rates. They also dive into the operational challenges of managing mobile home parks and the pitfalls of entering the mobile home park asset class with uninformed optimism. Brian Spear provides insights into his current trailer park portfolio, the growth of his team and the importance of clarity in business relationships.

Tune in as Brian Spear shares valuable insights from his extensive experience in the mobile home park investing asset class, highlighting the potential pathway to investing in mobile home parks in order to achieve financial freedom.

***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 3,000 lots under management. His team currently manages over 40 manufactured housing communities across more than 10 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. Check out KeelTeam.com to learn more.

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 value-add 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

01:23 – The power of taking the initiative

06:25 – Brian Spear’s current mobile home park portfolio

08:00 – The growth of Brian Spear’s team at Sunrise Capital Investors (Mobile home park property management and investing team)

10:13 – The hurdles experienced in the mobile home park operations and property management

13:10 – Pivoting around higher interest rates when investing in mobile home parks

16:20 – Investing in mobile home parks to achieve financial freedom

21:33 – Clarity on both sides of the table helps tremendously

24:30 – Going into the mobile home park business with uninformed optimism

27:16 – Increasing a mobile home park’s value after acquisition

30:00 – Why mobile home parks will likely continue to outperform every other asset class

32:14 – Government regulation and what we can’t control

34:14 – Reaching out to Brian Spear

34:31 – Conclusion

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

Links & Mentions from This Episode:

Connect with Sunrise Capital Investors: https://sunrisecapitalinvestors.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

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 a 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 Brian Spear of Sunrise Capital Investors on the show. Brian Spear is the co-founder of Sunrise Capital Investors, and he currently manages multiple mobile home park focused investment funds alongside his partner and fellow podcaster, Kevin Bupp.

In his role at Sunrise Capital, Brian handles investor relations, marketing and regulatory compliance. Brian obtained a bachelor of business administration in marketing from the University of Kentucky, which he attended on a baseball scholarship and was voted a team captain. Brian, welcome to the show.

Brian: Yeah, looking forward to it, Andrew. Excited to jump on talk shop, man. It’s been a while since we touched base so good to see you. 

Andrew: It has been. Would you mind starting out by telling myself and our listeners a little about your story and how in the world you got into investing in mobile home parks?

Brian: Fair enough, buddy. I’ll try to give you the abbreviated version, but here goes nothing. I was born in a manger. I’ll try to tighten it up a little bit, but basically in a nutshell, originally from the Chicago land area, kind of grew up in middle white class suburbia, but unfortunately hit a little bit of a rough patch when my folks got divorced when I was 10 years old. My dad moved to Gary, Indiana, which was the murder capital of the world during the 1990s and then my mom moved to a mobile home park on the south side of Chicago. 

While Sunrise, we’ve done some pretty cool things over time. Over the last decade owned assets in 18 different states, raised over a hundred million bucks, done a lot of really neat things for a lot of folks in the asset class of mobile home parks. My first experience was mobile home parks when I lived in one at that time

I just knew from that very early age that I was going to do whatever it took, work really hard both academically and athletically to put my family in the best possible position that I could. I just wanted to give my family, maybe the best opportunity or maybe a little bit more one up than I had when I was growing up. Everybody just wants a little bit more for the next generation. I was no different. 

I just worked really hard academically and athletically. By the time that I graduated high school, graduated fifth in my high school class, had a bunch of academic scholarships. All the guys above me went to Ivy league schools and various cool things. I also was focusing on sports. I wasn’t tall enough to play basketball, wasn’t strong enough to play football, but you can be pretty much any size and shape to play baseball, figure it out and find a position there that works for you. 

I needed to get scholarship money and this was my way to do so both academically and athletically. Landed at the University of Kentucky where I ended up becoming captain of the team, not because I was the most talented guy and I’d say I could prove it to you because there was six different big leaguers on the team. I just worked really hard. That was kind of my foray. 

After college, my early 20s took a position that was going to ultimately earn me the most money. Not because I’m a greedy guy per se, but I knew that I wanted to get involved in the world of investing. In college, I literally had a negative net worth and I was in an accounting course and I learned the power of compound interest in the light bulb went off and I’m looking around. Everybody’s in there, you know, there’s their PJs, sleeping pants and whatnot. I’m looking around this auditorium in Memorial Hall Kentucky and I’m going did you guys just hear what he said? A compounding? Did you guys just hear this? 

Literally, if you just put a little bit of money away over long periods of time, I’m definitely, 100%, going to be a millionaire if all we’ve got to do is put a little bit of money away and follow a very specific plan over a long period of time.

At that point I just was hair on fire, that’s why I lost it all, trying to get involved in investing. Took a job to build piles of cash in my early to mid-20s with the intent to turn it into streams of income over long periods of time. I took a role where I was the sixth employee at a small growth company that ended up going full cycle selling for over $50 million bucks and I learned a lot along the way about how to scale companies growing from a very small shop into a pretty decent sized company. I knew that I could take my skill set and help somebody who had a great business model or fuel on the fire grow significantly and that’s where Kevin came into the fray. 

I reached out to him proactively. Loved what he was doing. Very similar to you, the podcast. I heard him talking on the radio over a decade ago. I was like, listen, buddy, I got an offer you can’t refuse, man. I love your business model. Here’s my background. I’ve been successful everywhere I’ve been. Here’s what I would love to offer you. I’m going to come down to Florida. 

I’m going to work 60, 70, 80 hours a week. I’m going to invest hundreds of thousands of dollars in your business and help you grow your business. Don’t pay me a dime. I feel like over time, we’ll be able to build something pretty neat. That’s kind of what started it. That’s what started it over a decade ago now. Crazy looking back and here we are today. Started doing deals with personal capital of friends and family. Then we moved forward with a more formal fund structure starting in 2017 and here we are to this day. Crazy world. 

Andrew: Wow. Kudos to you, Brian. I think I knew bits and pieces of the story, but you just filled in a lot of gaps. Wow, way to like, take initiative and go for it. Who better to contact than Kevin Bupp? I’m a big fan of Kevin. He’s always been there when I have questions about doing my early deals, I would reach out. Him and Frank Rolfe, they always answer the phone and would be happy to help out. Wow, man, that is so awesome. 

I wish I had the maturity to do that. Looking back, like wow, what a great plan to just say hey, burn the boats, I’ll work for you for free. Let’s just go and let’s do it. I love that. That is so cool. 

Brian: Burn the boats. I agree, man. Tony Robbins, that works. The first time I ever heard that was Tony Robbins and I couldn’t agree more. When you burn the boats and there is no other option, you find a way. What is the terminology? Necessity is the mother of invention or invention is the mother of whatever it is. You guys know what I’m talking about out there, butchered it, but yeah, undoubtedly, right.

When you burn the boats, the magic happens. The brain starts working in crazy ways, in ways that you would’ve never. Possibly imagined to put two and two together to find creative ways to solve problems to ultimately achieve the end goal and create value for everybody involved, man so love that. Yeah, great stuff. Great stuff. 

Andrew: Awesome. You started the fund structure 2017, what’s the portfolio look like at this point that you guys are actively managing? 

Brian: We’re a couple hundred million dollars at AUM right now. We’ve evolved in the manner in which we’ve managed the business over time. We’ve done a lot of buy, fix, and sell and I would say that we’ve kind of grown over time. I would say something similar to that which Warren Buffett has. 

We’ve done 15 full cycle mobile home park transactions with an average IRR North of 40%, pretty cool. Over time, we’ve kind of gone from the old cigar butt style investment business that Warren Buffett had back in the day when he was leveraging Benjamin Graham and the intelligent investor where you’re buying decent businesses at wonderful prices and evolving more towards buying wonderful businesses at fair prices, very much more like Phil Fisher over time.

As Warren Buffett evolved, that was kind of his investment trajectory and we’re not too dissimilar. We’ve kind of moved on from a buy, fix , and sell model, which there’s nothing wrong with that. There’s a lot of money to be made. But we realize that there’s a lot of problems when you do that as well. /you have to pay the tax man. You got to pay depreciation recapture. You’re then pressed if you’re going to do a 1031 into a 45-day window. The exact inverse time to buy an asset, the best time to buy, is the exact inverse is the best time it is to sell. I mean, a lot of problems. 

What we decided to do was really create a structure that allows us to buy and hold over very long periods of time with the intent to help as many people as possible generate cash flow and build legacy wealth for them and their families in a tax-efficient manner. Because that’s what I’m trying to do for my family. That’s what Kevin’s trying to do for his family. We’re going to help out as many folks as possible to do just that over time. 

Andrew: I love that. You manage it in house. What does that look like? How big is the team now? If you don’t mind just shedding some light on that.

Brian: Yeah, it has grown. I mean, wow. Over the last year, we’ve done some amazing things and rounded out the leadership team significantly. Back in the day, you’re working with what you have. When you don’t have all of the resources, you have to be resourceful. I remember back in the day where it’s me and Kevin. Back of the napkin, scratch pad, trying to make things happen. Then over time you delegate and elevate out of those roles and you hire people to do things better than you and now we have stars in their own roles in fully filling out the leadership side of our business.

We just hired a full-time CFO for multiple six figures on an annual basis, that’s already helped multiple funds get to over a billion dollars. We just hired a full time director of operations that has already helped another company in the mobile home park sector get over a billion dollars. We’ve hired stars in their own roles in those various different areas and rounded out the leadership team and they manage their own different departments appropriately. As you mentioned, vertically integrated. 

We’ve tried the third party management stuff. We actually called all the top 100 operators and wanted to see if they’d be interested in working with us in a third-party capacity. We tried out multiple, all of them failed horrifically. No need to beat the dead horse here, but nobody’s going to care about as much as yourself. Nobody’s going to try to drive value for the investors as much as you will and nobody’s going to try to provide the residents with the best service as much as you will.

Basically, as you well know, buddy, you kind of got to build it out if you’re going to do it right in this industry. That’s what precludes a lot of people from either getting to scale or b, just getting involved in the business in its entirety. 

We’re on the fringes, about 50 people cumulatively across all the various different departments. I would venture to guess a little more than that by this time, I don’t have round numbers. But yeah, we’re growing gangbusters and it’s very fun to be a part of it. As we grow, we’re just trying to ensure that we retain the culture that we’ve had at the core since the outset. That’s kind of been the interesting dynamic as we’ve continued to grow and grow beyond that first initial circle. 

Andrew: Totally, and it’s tough to do that as you keep growing. What do you think is the toughest hurdle Brian to overcome or that you guys have had to overcome in mobile home park investing specifically?

Brian: Biggest hurdle that you need to overcome when getting involved in mobile home park investing. I do think it’s the operational side of the business. We talked a little bit about it just in passing here, but in any real estate investment, there are really three things that need to happen.

One, you have to go find the deals themselves. Two, you’ve got to go bring in the equity necessary to close those respective transactions and then three, you’ve got to operate those deals. In our little world Kevin is just exceptional at going and finding transactions. He’s been doing this for over 20 years. It’s really his secret sauce. We’ve been fortunate to attract and build a phenomenal base of folks that ultimately partner with us in these respective transactions now. 

We’ve literally over time turned away tens of millions of dollars as we’ve got way more demand for the product that we were able to provide to our partners than that, which we’ve had deal flow historically.

That’s not been a limiting factor in our growth, but the operation side definitely is the bottleneck in the growth of the business, if you’re wanting to do it right. You can go buy deals, but have it be a train wreck immediately afterwards. But if you want to do it right, you’ve got to find a way to have systems and processes.

What I would share is that because of the fragmented nature of the business, it’s a niche sector. We’re not the team that’s going to say hey, I want to go buy every mobile home park in the Tampa MSA or Atlanta MSA or the Dallas MSA. Rather, we’re going to say very similar to what Sam Zell has referenced historically, we don’t buy markets, we buy deals. 

We put out a lot of material. We go directly to the owner across the board and I just have a lot of different legs and am trying to find different transactions and acquisitions to grow the business. If the deal pencils, we’ll go, we’ll go find a way to make it happen. What that does is it gets pretty thin throughout the country so you have to build the infrastructure necessary to be able to manage across 18 States.

That’s not an easy thing to do and you’ve got to have the right team in place to be able to do it efficiently. That’s been a difficult piece, but I’d say the limiting factor is and that’s why fewer folks get into it. That’s not an easy thing to do. It fails forward over and over and over again. 

Andrew: No, I can totally relate and I actually had a phone call earlier today. Operator four years ago got into the space, bought four parks, and now is immediately trying to get rid of all of them as quickly as possible because of the operations because it’s hard to manage.

It’s like a trickle effect. It starts to roll. The ball gets bigger and bigger. The problems get bigger and bigger if you don’t jump on them right away. Definitely agree with you. Operations are very tough. 

I think that makes us different from some of the apartment syndicators out there that are really doing the deals. It’s a lot like the acquisitions game. Then they asset manage the third party manager. It’s much easier for multifamily syndicators compared to actually running and operating hands-on business. I totally agree with you there. 

Brian, tell us about your most recent acquisitions in the mobile home park space and how you guys have pivoted around higher interest rates. 

Brian: Good stuff, I agree. Most recent transactions, literally, we have on our contract right now. It’s closing in the second quarter here of 2024 with a date and timestamp. It’s a property called Lakeside up in the Northeast. It’s an area of Maryland that we’ve actually been involved in for the last seven, eight-ish years. We’ve already owned it. We know the market really well, but we’ve had a lot of success there. 

Buying the deal with below market rents, feel good about this one. It’s 124 space property. Each individual pad is deeded. We feel good about it because we’re always about going in and buying with a good basis. Purchase price is permanent. 

In what other crazy alternate universe and what other sort of weird market can you renegotiate the terms of a deal after the fact, but in real estate, we have the luxury of doing so. Purchase price is permanent, but we have the ability after the deal to go back and put different financing on than that which we would have immediately at acquisition.

We always focused on buying with a margin of safety immediately at acquisition. Always try to implement as many of Warren Buffett’s tenants into the mobile home park sector as we possibly can, the way that we do business. There’s a reason that Warren Buffett, as all you guys know in the passive mobile home park podcast, he’s the biggest player in the space.

We try to buy deals with the margin of safety. This one’s a good one. We’re buying it for $6 million. The appraisal just came back a little over $9 million on the transaction. Substantive margin of safety immediately at acquisition based on how Kevin’s historically done business over the last 20 years. I’ve never seen this guy overpay for anything.

I don’t care if it’s real estate or if it’s a car, a used vehicle, a boat, whatever the case may be. Over the last decade, I’ve known the guy he’s gone on Craigslist on numerous occasions, bought a boat, he lives right by the water, his family’s a water family. He’ll go buy a boat, own it for a year or two, go out and sell it for more than he ended up paying for a couple of years earlier. That’s just what he does very very well, more than anybody that I’ve ever met in my life. 

Buy with a margin of safety and then it’s got a few good levers. Below market rents, we could recapture the lost lease over the first few years of ownership of the asset. Bill back for water, sewer, trash, still feel good about that, right? Just like you’re talking about a multifamily that’s commonplace across the board and every other asset class, but in the crazy world of mobile home parks, for whatever reason folks don’t typically operate efficiently where they bill back for water, sewer, trash. Then we have an infill opportunity here as well.

Back to the margin of safety piece briefly, we’re buying this for, I think, $48,000 a pad and some of the most recent transactions, because the deeds are individually parceled, some of those pieces of land sold for like $78,000. Even if we had to pull the ripcord and we can’t implement the business model, even if we’re horrific on those, we still feel good. Should have a good margin of safety there. 

Anyway, that’s the one we’re excited about today. There’s always stuff coming through the pipeline, but that’s the one that we’re excited about today, bud. 

Andrew: Very cool. Obviously, finding these off market deals like that, that’s really attractive. It’s hard to do. What would you say about your strategy? What, how has that changed? You said you used to go after these buy, fix, and flip deals. Now you guys are looking at more legacy, higher-quality assets, kind of like the elevation fund model. Ryan Smith, these higher quality assets, longer time horizons.

Why is that and how can our investors that are listening, why should they invest in that type of deal versus one of those fix and flip kind of maybe more secondary tertiary market deals?

Brian: Great question. Lot to unpack. If I were to try to be brief, I would say it’s not about what you make, it’s about what you keep. The style of investment that we’re providing is much more of a permanent opportunity to solve a long-term problem because most folks that reach out to us have inconsistent unreliable income streams over long periods of time. 

Even if we could solve that problem for them with a really good individual real estate investment over the course of a few years, where we get them a nice pop of cash, great, it still doesn’t solve that long-term need to ensure that I have ongoing monthly passive income that exceeds my  monthly expenses. 

Once you’re at that level where your passive income on an ongoing basis exceeds your monthly expenses, then you’re financially free. You can do what you want with your family because that’s all we’re trying to do. Buy more time with our family to live the life that we want, have time and freedom so that we can enjoy life. There’s a certain amount of time that we have on this, on this earth. We want to be able to spend our time as wisely as we can with our friends and family. 

The fix and flip model, while great in terms of a quick IRR, fair enough, it doesn’t solve that long term problem. You’re always on a hamster wheel, and the next deal is always difficult to get. How do you know that the next deal is going to be as good as the one that you just did? Prior to coming on, we were talking a little bit about the fact that there’s a lot of different syndicators out here that are facing significant difficulties in various different ways because different deals were promoted. Let’s just say different deals were promoted, value add transactions in different markets.

Maybe not every deal goes as well as you would have otherwise anticipated. Just because this deal went XYZ perfect the way that we would have thought doesn’t mean with absolute assurance that the next deal will. What I’d seen throughout the 2010 era was a syndication would be done specifically multifamily that was promoted as a value add deal. Over the course of three years, it did well. 

Then the next guy buys it and it’s a value add deal. Over the course of the next three years they sell it. Good job. Good IRR. The next deal promotes it yet again, as a value add transaction. I mean, at some point, I don’t know when the value gets extracted from that deal and it becomes stabilized, but it seems like at some point it becomes a little bit of a hot potato.

Again, at some point, somebody somewhere is going to mistime the market and they’re going to hurt investors dearly. Rule number one, don’t lose money. Rule number two, don’t forget rule number one and everything else is secondary. Focus on ensuring that you have the ability to get all the chips off the table, return the capital, and enjoy an infinite cash on cash return. Then just enjoy the cash flow these deals throw off because they have unbelievably insatiable demand over long periods of time. Highest same store NOI growth out of any respective real estate sector. 

I’m all aboard trying to operate an infinite cash flow model where we get the chips off the table and just enjoy the cashflow that they throw off. On the fringes there, there’s multiple things to unpack, but another little piece here, it’s not about what you make. It’s about what you keep. 

At the end of the day, even with that juicy 40% internal rate of return, the truth is many times you can’t 1031 out of that or you can’t find the right deal.You’re in a pressure situation. You might overpay for that next deal. Even on a 1031 exchange, if you find the right deal, you still are going to get crushed with depreciation recapture. 

Many guys don’t know that. Guys that are just getting started, if you’re doing a 1031 exchange and your guys did a ridiculous accelerated bonus depreciation on an earlier transaction. Even if you do a 1031, you can’t 1031 that piece, the depreciation recapture. 

You’re going to get hit with a 25% nut anyway. Guys don’t really fully understand it. If you can understand it to that degree where you’re trying to drive the best risk-adjusted returns in the marketplace, generate cash flow and build legacy wealth in a tax-efficient manner, all roads lead to long term hold in asset class that have outsized same-store NOI growth, i.e. mobile home parks. That’s why Warren Buffett’s the biggest player in the space. 

Andrew: That was a lot of info. I would say the fix and flip model has hurdles, like the taxes and so forth, but I think in some of these like secondary tertiary markets, the population may be staying the same, decreasing just a little bit, but it’s not like it’s disappearing off the map. 

But I think what you’re saying and what Ryan Smith was saying in his interview is hey, you buy in great markets, buy enough so you have scale. It’s easier to manage. It’s easy enough to pay a manager a good wage and then it’s just writing it out long term, like those sticky tenants that we’re kind of betting on. They actually have more demands than those bigger markets and in higher quality assets, right? That’s kind of the model. 

Brian: Well stated. I would say the caveat to what I’d referenced was that it’s obviously got to be in a solid market. If you’re in the middle of nowhere, [inaudible 00:21:28] as it were. Yeah, I mean that might not be an asset that you would want to hold into perpetuity. 

You might be able to buy with a nice margin of safety, still make the numbers pencil, still find a way to ensure that you’re able to solve problems for the onsite staff, provide the residents with a better quality of life by fixing some of the broken pieces inside of that community and walk away from that asset if it’s not one that fits the mold and fits the box of the long term ownership that we’ve kind of outlined here. But yes, presupposing that you’re in a good market. I much prefer to hold it over long periods of time.

Andrew: Awesome. What mistakes in mobile home park investing have you made that we can learn from?

Brian: That we have made, let me count the ways. We have made every mistake in the book. I could go on and on and on. Suffice it to say that as we’ve grown this business over the last decade, I’ve worn innumerable hats and I guess one way, an analogy that I would look to try to ensure that I provide the clarity is that whenever you’re going to delegate and elevate out of a role, and you’re going to remove a hat from your head. 

You have to ensure that not only place that hat on the other individual, but there is a clear exchange of exactly what should occur from the other side of the house when you remove that hat and you pass it along. Unless, that hat goes off of your head and then falls directly on the ground. As opposed to delegation, it’s more abdication and nobody gets done XYZ along the way. Just providing explicit clarity along the way.

A way to try to solve that. I mean, strategic coach Dan Sullivan, shout out to that guy, exceptional stuff. Many folks have now come to know him through Who Not How, the book that he outlined with Benjamin Hardy, a handful of years ago. He has a great set of tools inside of a strategic coach that allow you to more clearly think through these things and eloquently share the expectations for different members in the team so that they can handle those things appropriately. 

Clear roles, responsibilities, expectations, and KPIs for the individuals when they come on board. Just clarity on both sides of the table helps out tremendously amongst other things. I could keep on going buddy, but that’s a good one. 

Andrew: Finding the right people and then training them and setting expectations. I think every entrepreneur has had issues with that so definitely think that’s a good one. If you were looking to passively invest yourself into the mobile home park asset class, you can’t invest in Sunrise Capital investors, I’m talking about like, you’re looking to invest in another fund or another syndication, what are the most important things that you would look for to ensure a successful investment? 

Brian: This is good and to me, this is an easy one. We had already talked about it a little bit, but by way of example, you already kind of mentioned it. There’s a lot of guys that get into this business that have uninformed optimism that read the data, that hear the podcasts and the videos and the webinars, and understand the metrics and the insatiable demand, the ridiculous supply and demand economics, and they go, wow, I’d love to be involved in the mobile home park sector and they get involved.

But the truth is it’s uninformed optimism. There’s a really phenomenal little bell curve here that walks through the life of any respective entrepreneur, the journey of an entrepreneur. At the very beginning, you’re sold this dream of financial freedom and so much more and you have this business model, this vision, here’s where you want to go in the mobile home park sector and you have uninformed optimism and you come out the gate strong sprinting, but what happens is you get punched in the face just like Mike Tyson. Everybody’s got to plan until they get punched in the face.

Then you get informed quickly that it’s not as easy as what you would have otherwise thought. I’ve got to go ahead and manage all these properties. It’s not like I could just go be an asset manager and have a third party property management company do this. You go from informed optimism to uninformed optimism to informed pessimism and then you end up in the valley of despair. 

Let’s say you’re informed pessimism here and you’re like, okay, now I got these four mobile home parks, just like your buddy you’re talking about but I got to find a way to make this happen. I hire a bunch of people and what happens is those people leave. 

Now, all of a sudden you’ve got to find a way to manage all four of them and it’s literally you, now you’re working three, four, five times as hard as what you originally thought. You thought you were going to reach financial freedom and all of a sudden you’re working five times as much. You’re not getting paid anything and it is the Valley of despair. 

This is rock bottom and you have an option to either quit and go back to the beginning. Most people cut bait and bounce. That’s how it happens in the mobile home park industry all the time. Like you said, the guy bought four parks, he’s bouncing. He can’t do it. He just realized that this wasn’t for him. That happens all the time. You don’t want to get involved with a guy who hasn’t been through the valley of despair. 

The guy you want to invest with who has seen the valley of despair and goes, you know what, I’ve seen it all. I am now informed and I don’t care. I have informed optimism. I know that it’s going to be difficult and I’m going to do it anyway, because I know it’s the best thing to do. The marketplace needs it. The business model is extremely sound. I’m willing to go through all the nonsense, get dirt under my fingernails, make it happen, and we’re going to end up being very successful over long periods of time. 

If you continue to go down that path, ultimately it leads to success and fulfillment over long periods of time and this is where I’m going. I want to invest with a guy that’s been through the nonsense. He’s on the informed optimism side, he’s already at the success and fulfillment, because this guy’s going to cut bait and bounce. 

Some of them might make it through, but a huge percentage of them do not. You want to be with somebody who’s had a track record in the industry over long periods of time and the only way to know whether or not that investment is going to be successful and the guy’s going to stick with it and go forward is that he’s already been through the nonsense. My two cents. 

Andrew: That’s good. Somebody that’s been through the dirt, pushed through, showed perseverance, has the knowledge, has a track record. How do you find someone like that?

Brian: Conversations jumping on the phone with Andrew Keel calling it Brian. I mean, really, it’s just about networking and finding people. We’re in a beautiful environment where we have the luxury of research in this crazy internet time. We have the ability to go speak to people, network, have conversations, network amongst yourselves, network amongst all the different MHP folks, and try to just have conversations. 

I think that ultimately the truth shall set you free. Eventually the rising tide lifts all boats and you’ll just uncover that information for yourself in time. But it really is truly about going in and trying to meet people, research, and spend time with them on the phone to understand their story and if that resonates with what you intend to do and what you would like to do for yourself and your family. That’s my two cents, bud. 

Andrew: Yeah, that’s great. Brian, what does the perfect mobile home park look like in your eyes and why? 

Brian: Perfect mobile home park in my eyes has all of the levers that we can pull to increase value after acquisition. We consider ourselves the light value add operator that pulls multiple different levers to drive value over time. The low hanging fruit, we always like to call it the low hanging fruit, mid grade fruit, and high hanging fruit, is below market rents, finding deals that have below market rents we consider that a little bit more of an inevitable upside. Recapturing that lost lease over time becomes much more of an inevitability as opposed to a really difficult upside to achieve. 

Residents are often willing to pay more on a monthly basis by receiving a significantly higher quality of life. Go and fix the broken pieces and folks are willing to pay a little bit more for the right to have a better living experience. We always look for below market rents. 

The next one is operational inefficiency. We talked about it. Billing back for water, sewer, trash or just looking at the expense line item on the P&L. There’s always in our little world, in the niche real estate sector, usually something that we could do on the P&L where we’re going to be able to tweak something here and there that’s going to materially impact the NOI of the property at the bottom line by billing back for water, sewer, trash, minimizing the ridiculous salary and expense load that the former legacy owner had that he was paying himself and his family across the board in that respective asset. 

That’s mid grade fruit and then the high hanging fruit is the infill it’s bringing in new and used homes to infill vacant lots. This is like icing on the cake from our perspective. We don’t lean into that as the primary metric for us to make deals work, but if it’s there, it’s also nice to just have additional upside. The reason we don’t consider that to be the primary piece and we underwrite that as the primary piece is that.

You never really know what the absorption rate is inside of a mobile home park until you’ve actually owned that MSA for multiple quarters, get the skeletons out of the closet, and really see the absorption rate of the infill. Only then do you know that it’s definitely going to be successful. So it’s got to have all those three things.

Then above and beyond that definitely we have to buy with a margin of safety where when we go in day one, we know if we had to sell the deal the second day, we’d still be pretty good and it’s going to have cash flow from day one. Buy it with a margin of safety. You gotta have cash flow from day one. Those pieces would be a perfect mobile home park for me. I could elaborate, but I think that that’s a pretty good summary.

Andrew: The value add components and what a good deal looks like I love that. You didn’t say hey, direct bill utilities in a big MSA, all that is nice, but if you don’t have the value to add to it and you’re paying a four cap, it might not be the best deal, might not be the perfect mobile home park to buy. 

I really like that answer. It’s cool. Where do you think the future is going with mobile home park investing? How do you see mobile home parks fitting in with the direction the economy is going? Obviously rates are high right now. Some people are screaming recession. How do you think mobile home parks are fair as an investment? 

Brian: Mobile home parks. I mean, you know, having outperformed every other asset class for decades is likely to continue outperforming for the foreseeable future. There is an insatiable demand for our product, which is affordable housing. We just feel like over long periods of time, the asset class is likely to continue outperforming on a risk-adjusted basis. 

Because the beta is modest comparatively speaking, it’s a less volatile asset class. It’s just slow steady growth over long periods of time and that’s what we’re looking for when you’re going to be in the deals for quite some time. That’s what I think over very long periods of time. I think we’re still just going through a bit of a consolidation phase, right? We’re not fully consolidated. We consider ourselves deal aggregators where we buy deals, one off individuals from direct owners from mom-and-pop guys, aggregate them in a portfolio and that portfolio gets bigger and bigger. 

We had the luxury of just becoming more and more appealing to the bigger buyers on the backend who are willing to pay a compressed cap rate for significantly larger properties. The guys like Blackstone and Carlyle Group, they want to be involved, TPG. They see all the metrics associated with it, but they can’t do what you and I do. They can’t go in and buy a mobile home park for a few million bucks. The equity check necessary to close that transaction of $3 million, $4 million, $5 million, or $10 million doesn’t move the needle for them. They could care less. It literally doesn’t move the needle. 

They’ve got to cut checks that are $100 million, $200 million, $500 million and that’s why they don’t just come in in droves. They know how phenomenal the asset class is, but they can’t do what we do. We serve a need to ultimately help consolidate the industry and aggregate all these individual deals and then become much more appealing to the backend buyer.

I think that we’ll just continue to occur. More consolidation over the next decade and beyond as maybe some of the greatest generation phases out of some of those assets and some of the baby boomers, likewise, that were earliest at the game phase out of those individual assets and more professional operators begin compiling larger portfolios and holding onto them over longer periods. My two cents. That’s what my gut would say. 

Andrew: Yeah, super good fair prediction. Let’s invert for a second here. What do you think the biggest threat to mobile home park investing is?

Brian: Biggest threat, I would always say, I think that the business model is largely sound. But when I run a SWOT analysis and I look at it, the thing that we can’t control, of course, is government regulation. There are things that we don’t have the ability to control.You just don’t know what that looks like over long periods of time. 

The landlord is very rarely going to be the hero of the story in any asset class, but specifically in the affordable housing sector, the landlord is often the nemesis in the vast majority of publications out there and that doesn’t bode well. You just never know what the government’s going to do because that’s unfortunately what the majority of the masses see is those stories. 

They don’t see what actually occurs behind the scenes when folks want to bring more affordable housing to the marketplace and go to a municipality and say hey, do you guys have a demand for affordable housing? And the municipality says, yes, of course. We say, great. We’d love to build you some affordable housing, and bring some more to the marketplace. They say, awesome. Please do. I say, great. I’m going to build you a mobile home park. They say, not in my backyard. I don’t want that to happen.

Not only is it just not in my backyard, nobody wants to live next to one. Everybody brings torches and pitchforks, but also it doesn’t pencil from the municipality’s perspective. They have a lot of lip service for wanting to solve the problem. But ultimately, the majority of stories that are out there are really oftentimes skewed negatively against the crazy world of landlords in our sector.

You just don’t know exactly how that shakes out over time. I think that there may be pockets of versions of rent control and various different MSAs. It’s why you have to try to ensure that you understand the marketplace and a little bit of the political skew to see how that might shake out over extremely long periods of time. I’d say that’s one we think about. 

Andrew: Thank you for that. That was awesome. Brian, thank you so much for coming on the show. I know we ran a little long here. If any of our listeners would like to get a hold of you, what would be the best way for them to do so?

Brian: I’d say easy enough, investwithsunrise.com. We try to keep it simple, again, investwithsunrise.com. Give you a little bit of insight on who we are, what we do, how we try to help folks over time. That’d be the easiest one to do buddy. 

Andrew: Awesome. Well, thanks again for coming on the show, Brian.

Brian: Yeah. My pleasure. 

Andrew: That’s it for today, folks. Reminder, if you got value out of this show, please leave us a review. Thank you all so much for tuning in.

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