SHOW NOTES

Welcome back to The Passive Mobile Home Park Investing Podcast, hosted by Andrew Keel! In today’s episode, Andrew sits down with Patrick McDonald and Nick Cebula, co-founders of CMG Parks to discuss their journey in building a 30 property mobile home park and RV park portfolio across six states, providing affordable housing for nearly 2,000 residents.

Patrick McDonald and Nick Cebula, both alumni of Washington State University come from backgrounds in medical sales management and financial planning. Together, they leveraged their expertise to launch a specialized real estate investment firm focused on value-add mobile home park opportunities in the Pacific Northwest.

In this episode, you’ll learn:
– How Patrick McDonald and Nick Cebula transitioned from traditional careers into Mobile Home Park investing
– The unique challenges and opportunities in the Pacific Northwest Mobile Home Park market
– Why legislation, rent control, and park-owned homes can make or break a mobile home park investment
– The one big factor that allowed all three—Patrick McDonald, Nick Cebula, and Andrew Keel—to break into the mobile home park investing industry (and how you might have it too!)

If you’re looking for insider strategies to scale your mobile home park portfolio, this episode is a must-listen!

Andrew Keel is the owner of Keel Team, LLC, a Top 50 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.

Are you getting value out of this show? If so, please head over to iTunes and leave the show a quick review. I have a goal of hitting over 500 total 5-star reviews, 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 review of the show.

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 with Andrew Keel

03:04 – Why success in mobile home park investing takes time—and how having a supportive spouse can make a difference

07:20 – The importance of real estate education before diving into mobile home park investing

08:22 – Challenges with sub-metering utilities and dealing with below-market rents in Mobile Home Park investments

10:00 – Why park-owned mobile homes require skilled contractors and strong market fundamentals for success

15:17 – Finding and acquiring mobile home parks in the Pacific Northwest—opportunities and challenges

24:30 – Understanding timing and realistic investment timelines for scaling your Mobile Home Park portfolio via infill

32:00 – The key qualities of successful Mobile Home Park operators: business acumen, experience, and sufficient capital

38:19 – Navigating rent control laws and legislation affecting mobile home parks in certain blue states

40:36 – How to connect with Patrick McDonald and Nick Cebula for insights and investment opportunities

41:22 – The best advice for aspiring investors: “Just jump in!”

41:45 – Closing thoughts and final takeaways

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

Links & Mentions from This Episode:

CMG Parks: https://cmgparks.com/

Nick Cebula: nick@cmgparks.com

Patrick McDonald: patrick@cmgparks.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. I’m your host, Andrew Keel. Today, we have an exciting episode planned for you with two special guests in Mr. Patrick McDonald and Nick Cebula, co-founders of CMG Parks. 

Patrick and Nick have built an impressive portfolio in the mobile home park space, owning and operating 30 mobile home and RV parks across 6 states, and serving nearly 2000 residents. With backgrounds in medical sales management and financial planning, these Washington State University alums combined their expertise to create a specialized real estate investment firm focused on value-add mobile home park opportunities. Welcome to the show, Patrick and Nick.

Patrick: Thanks for having us.

Nick: Excited to be here. Thanks, Andrew.

Andrew: I’m excited. We connected on LinkedIn and excited to learn more about your story. Maybe you can start there and just tell us a little bit about yourselves, how in the world you got into mobile home park investing.

Nick: Patrick and myself met in college through mutual friends. At the time about six years ago, we were working in our corporate positions. I was in medical sales as a regional manager, and Patrick was in financial planning. 

We knew we just wanted to passively invest in multi-family real estate or just real estate in general in the Puget Sound area where we were living at the time. We purchased a couple of duplexes and small multifamily. 

We were looking for our next purchase and stumbled upon a small mobile home park, 13 spaces, that was about 5 minutes from where we were both living at the time. Did a little research and the more we looked into, the more positive things we found and advantages.

The returns on it blew anything that we had looked at out of the water, so we went ahead with that purchase and kind of cut our teeth just by doing everything on-site for those first six months. Within those first 3–6 months, we knew that’s where we wanted our business to go. 

We started looking at selling off the small multifamily and the duplexes, and rolled that into… what was the second purchase?

Patrick: Montana. We found a park on Craigslist out in Great Falls, Montana.

Andrew: Craigslist? Wow.

Patrick: Yeah, Craigslist. I think it was back when you could still find deals on Craigslist. I don’t think that exists anymore, but yeah.

Andrew: Dude, that’s amazing.

Nick: So we just started selling off all the other stuff and rolling it into parks, had a couple of home runs that sold within the first 18 months of us buying them, and then just snowballed into what it is today.

Andrew: Wow. When was that first park that you said, that was about how long ago?

Patrick: That was 2017 when we purchased that one.

Andrew: 2017, so same as me. I bought my first park in June 2017. I’m curious from when you found that first 13-lot park to going all-in and deciding hey, this is it, what was that timeframe? For me, it was in 2015 (I think) I was like, all right, I want to buy a mobile home park. Then it took all the way to 2017 to get organized and get ready to do that.

Patrick: I can’t remember the exact stats. We both quit our corporate jobs in March 2020 and went full-time.

Andrew: When COVID time.

Patrick: Yeah, right at COVID. It was perfect timing actually. Actually, I think Nick milked his job for eight months.

Nick: Technically, I was on furlough at the time. Not a lot of medical procedures that were happening, but it helped kickstart and give us that kick to essentially go full-time. Once we did and we both committed to it full-time, within the first three months (I think) we had six or seven parks under contract.

Andrew: It just grew tremendously. I’m curious, at what level did you feel comfortable leaving your jobs? Was it a certain number of lots? Was it a certain amount of cash flow? What was the deciding factor there?

Patrick: I don’t think we felt comfortable leaving our corporate jobs, but I remember thinking we both didn’t like our corporate jobs anymore, so it was good timing. 

Both of our wives work, so a lot of hats off to them for floating us for the first year or so. We had eight parks that were cash flowing okay. It definitely was not replacing our corporate income, but the combination of having that cash flow, having a spouse that worked, and frankly not living outside our means, allowed us to take a step back for a year or two and then get to where we are today.

Andrew: We just became best friends. Can we just pause for a minute and talk about spouses that work and help support the bill? That’s exactly how I did it with my wife. 

Literally, she had a consistent income and I was out there just rolling the dice on this trailer park thing that my dad was like, you probably shouldn’t do that, Andrew. You went to college. You don’t need to be doing that. And here we are, it worked out, so hat’s off to your wives for doing that and allowing you to do it.

Patrick: That’s why they married us, right?

Andrew: Hey, I’m telling you. You guys are onto something with this mobile home park thing, so that’s really cool. 

Patrick, let me ask you first about this one. If you had to do it all over again, what would you do differently?

Patrick: Do it sooner. That’s everybody’s answer. I think quitting our job sooner, definitely I would’ve done if I had to do it over again. Obviously, it’s scary to let go of a paycheck and jump into something. But I think after we did it, we never looked back. 

Like Nick said, we had six or seven parks under contract in that first six months. It just took the free time that we needed in order to expand. So do it sooner, have faith in the process, and just take the leap, really.

Andrew: Love that. Nick, same question. If you had to do it all over again, what would you do differently? 

Nick: Everyone says buy more. We wish we would’ve gone a whole lot more in 5–6 years ago. But I think maybe scale larger, quicker too. We didn’t know what we didn’t know, so we started with 13 and then we moved to 25, and then we went to 50, and then we went to a 150-space RV, and that was our scale. But at the time, we’re doing it with friends and family capital. So maybe move to outside partnerships, private equity, and try to scale a lot larger, quicker.

Andrew: That’s good.

Patrick: Just to add to that, I do think it was scary moving from 13 spaces even to 50 and then up to 150. But when you look back, it’s almost the same amount of work. You might as well just do the 150 from the get-go versus trying to piece together 50-pad parks.

Andrew: Totally. Did you guys go to the Frank and Dave Bootcamp? Or how did you get educated before you bought your first couple of parks?

Patrick: I can’t remember the forum. It was a Mobile Home Park Forum or something. We did a lot of reading there. Of course, we went to Frank and Dave. I think everybody goes to that and should go to that. That’s a good Mobile Home Park Investing 101, so we did that. 

Then a lot of the benefit of having our first park being 13 spaces and so close to both Nick and I, was that we were on-site once or twice or three times a week actually doing the property management, digging the ditches, understanding how sewer and water lines work in parks. Just getting that exposure from doing it was very helpful.

Andrew: That’s awesome. Tell me about that 13-lot park. Was that a value-add deal? Were you infilling? Sub-metering? Was it that type of project or was it pretty stabilized? 

What are the projects you’re looking at now? Are you looking at value-add, 150 lots that need a bunch of infill? What’s your buy box like now?

Nick: I wouldn’t really label it value-add as much as some of the projects that we’ve taken on since then. Thirteen spaces, I think there was one vacant home that had actually been previously sold to our purchase, and they were going to be remodeling it. But really metering back, and then rents below market. 

Not too heavy of a lift, but since then we’ve done a little bit of everything. We’ve done infill projects. We’ve taken on the two-star dilapidated communities with a bunch of junk. We’ve taken on portfolios that have 100+ park-owned homes in them. Really, we’ve done a little bit of everything, and I don’t think there’s necessarily anything that we’re afraid to take on at this point.

Patrick: Private utilities, we’ve had to replace full septic systems. We’ve had to re-plumb countless linear feet of water lines and things like that. Where we’re at today, of course we all would want that 100+ pad park that all you have to do is raise rents. 

The reality is you don’t come across those very often. Our sweet spot is some level of infill and divesting of park-owned homes. That’s our sweet spot. We have a really good sales team and that helps.

Andrew: Tell us about that. That’s one area that I personally have struggled with, is buying fully park-owned home parks and converting them, and how do you pro-forma that to go. Because some people don’t want to do an RTO-type of arrangement. Some people prefer to rent. What tactics or strategies have you used to do that?

Patrick: I think the first thing you have to look at in a park that has a ton of park-owned homes is the quality and age. Anything pre-HUD is difficult to sell. Well, you can’t really sell with a loan. You can’t go out and use 21st Mortgage or Triad to sell that. You are using a RTO in that strategy or cash. That’s the first thing we always look at. Obviously, we want newer 80s–90s builds that have the pitched roof that’s ideal for park-owned homes. 

The biggest thing in having a large portfolio of park-owned homes is having a good contractor, somebody that can actually flip these homes and get them ready. As much as we want to sell to the residents that are already renting those homes, that happens 20% or 25% of the time, so a lot of times it’s giving notice, getting the renter out, remodeling the home, putting it on market, and selling it.

We’ve learned a very tough lesson over the years on spending too much on remodels or using a bad contractor, and that can really put you in the hole. So really going in eyes open on what things are actually going to cost. You can get into the nitty gritty on the type of siding homes have and things like that, but it’s really just understanding what each home on average may cost and what you could sell it for.

Nick: It’s also being conscious of the market too. if you’re going in and you’re knowing that there’s a large portfolio of park owned homes that you need to divest from, you’ve got to feel pretty good about that market and the demand. And not just the demand in that market, but also for the specific product that you’re selling. 

If it’s a large amount of older two bedrooms, it could be much more difficult than (like Patrick said) the 80s and 90s, and making sure that you have three-bedroom homes for all-age communities.

Andrew: That’s huge, Nick. That’s something that I think I even have overlooked, is understanding the difference between the number of bedrooms that a home has, and how such a big difference it is from the demand for a three-bedroom to a two-bedroom or a one-bedroom. It’s just such a steep drop-off. That’s a very good point. Good job.

Nick: And that’s not something that we just look at for divesting of park-owned homes, but also for infill. When we first got started, maybe we were a little naive on the two versus three, but nowadays we pay very close attention to the size of these lots, and make sure that not only is there a space to get a three-bedroom, but that there’s also ample parking room too.

Andrew: That’s smart. What do you think has been the toughest hurdle that you guys have overcome to get to this point? You’re right around 2000 lots. Tell me about that process, and what was the hardest part about getting to this spot?

Patrick: I think every person you interview that’s an operator has a similar sentiment to property management. We all started this thinking it was going to be a little bit more passive than it is. The reality is a lot of our time is spent growing a property management company. 

I think that has been our biggest hurdle back then and continues to be our biggest hurdle today, is just scaling that and making that at least semi-profitable so that you can keep the lights and doors open. 

We’re a pretty lean team in general, but we’re still doing a decent amount of property management and helping the team out in that regard. Just the whole property management ownership and growing that piece of the business has been a challenge, and I think will always be a challenge.

Andrew: What does your operation look like now? You’re a property management company because you guys are vertically-integrated. You have your own…

Patrick: Yeah. We have about 10 corporate employees here in Seattle that work in our office. And then we leverage virtual assistance. I think that’s huge. That’s become a bigger piece for us for low-end like bookkeeping tasks, and property management tasks like lease renewals and things like that. So we have four of those folks. 

Then we have probably 40 or so people, boots on the ground, that are at the parks. I would call them regional managers that manage multiple parks, to area managers that maybe only have one or two parks, to park managers, to helpers. Altogether, we probably have 50 or 55 employees at some level.

Andrew: Very nice. And your portfolio, have you guys sold anything or you still own some of those early on parks in addition to the new stuff?

Nick: We’re starting to get rid of some of our smaller stuff at this point, that were purchased early 2020–2021. I think to date we’ve sold four communities, so not a lot. Our most recent was actually this last December.

Andrew: Nice.

Patrick: We still own the 13-pad park. It’s down the street from us still and our baby. 

Nick: We like to use it for people that come and visit when we do training for new managers in our corporate office because it is five minutes down the street. We can just run down the street and walk around with them, point things out and use it as a bit of a training.

Andrew: That’s awesome. Very cool. Tell us about the portfolio, where it’s located, the different states you’re in, the size of the communities, which are RV, which are MH. If you don’t mind.

Patrick: We have about 30 communities in total, 20–22 are MHP. The other eight or so are RV. We do primarily extended stay RV parks. We do have one transient resort-style park out in Montana which we could get into, but it’s really not our favorite thing. That’s more of a hospitality play and that’s something that we’ve learned after buying it. 

We’re primarily in Washington. We just recently bought a park in Oregon. We’re in California, we’re in Montana, Idaho, and North Dakota. 

Like Nick mentioned earlier, in the beginning we used a shotgun approach to buying parks. Any park we can buy, we’ll do it. It didn’t matter where it was. Now we’re a little bit more strategic on where we purchase parks. They either need to be around existing portfolios or at least have scale in a new location to make it worth it. 

North Dakota’s a good example of a state we went into last year, but that had 400 pads, so it made going to North Dakota worthwhile. I think we’re just chasing bigger deals at this point of our career. Like I said earlier, the 50-pad park is the same work as the 200-pad park, so it just makes sense.

Andrew: That’s good. How do you guys find these deals?

Nick: We do a little bit of everything. Obviously, creating relationships over the last few years with the brokers in our regions has paid off dividends. We do a lot of direct marketing. We have campaigns that hit on all aspects, whether it’s postcards, ringless voicemails, emails, texts. 

We both have a little bit of a sales background, so that part I don’t think we’ll ever go away when we’re talking directly to park owners. For the larger, maybe more desirable properties, it’s always going to be much more competitive. That really plays an important role in having those relationships with those brokers.

Patrick: We’re still sending out postcards with our family photo on it, so that we can pull the heartstrings of some of these older mom-and-pop owners.

Andrew: That’s fantastic. And do you guys get some calls off of those? Has it been pretty successful?

Nick: Today, I would say more than half of the properties we purchased have been direct-from-owner off-market. Now granted, as I said, that’s becoming maybe a little bit less now as we’re focusing on the larger portfolios and communities. But we’ll still continue to do it for sure.

Andrew: That’s fantastic. Tell me about the strategy, the Pacific Northwest, notoriously known for having some blue state landlord tenant laws and things like that, how you guys get comfortable with that, and what role rent control has in your just dashboard, what you’re looking at and so forth.

Patrick: We’re not naive that rent control is not in Washington yet. It’s very close to being in Washington. For the last few years, it’s been a hot topic and almost gotten passed, so for the last few years we’ve underwritten to some level of rent control. Our neighbors to the south in Oregon have statewide rent control. It’s 10%, but it’s 7% plus CPI, so we’ve underwrote that level of rent control here in Washington. 

I would say we’ve transitioned, not away from Washington, but we’re looking at other places outside the Pacific Northwest more and more because of what’s happening here locally. There’s a pretty good chance that rent control passes in 2025 in Washington. 

Combine that with already pretty tough landlord tenant law in terms of evictions and things like that, it makes the state a little bit less desirable for us to invest in, which is unfortunate because we live here and part of the reason why we got into this business is the mission of affordable housing. And it’s frustrating to see the people in power just be naive to what rent control can do to communities. 

It’s not to say that we’re not going to invest in Washington, but we’re very strategic and we underwrite that rent control number.

Andrew: Got you. I think a big part of it’s just knowing ahead of time what that is. We bought a park in New York a couple of years ago. We underwrote the expected rent control and the rent increases that we could do, but just the pushback on evictions and the pushback on just other regulations from getting an operating license to just getting the power turned on, just all of these additional requirements and permits and things that were needed makes it way less friendly to do business there.

I’m sure it’s similar to where you guys are at, but I think your strategy makes sense. North Dakota, I own in North Dakota. Is that in Bismarck? 

Nick: Yes.

Andrew: That’s where we talked about. On LinkedIn, I think I saw you guys. We own there. Hopefully, the population increase keeps booming in Bismarck.

Nick: That’s where we have over 100 park-owned homes there. It’s been fun, but I think today in less than a year, we’ve sold 30+ homes there, so it’s going well.

Andrew: That’s great. Wow. That’s awesome. And you’re using 21st Mortgage and some of these other chattel lenders to get cashed out of those sales?

Patrick: Yeah. One of the other avenues that we do when we go into a market is typically reach out to the credit unions that land on manufactured homes. For whatever reason, Bismarck has four or five locally, so it’s been a blessing out there to find lending.

Andrew: Wow. That’ll finance your tenants to buy the homes that you’re selling in the park. 

Patrick: Yeah. 21st is probably the best option. The one reason is that they use past rent payments for a down payment. That’s typically a resident’s biggest hurdle to purchasing is coming up with 5% or 10% down. Having the ability to use past rent payments has been huge for us out there.

Andrew: That’s awesome. Well, you’re going to have to send over those lists of credit unions because I think I could utilize some of those. 

Patrick: Yeah, you bet. 

Andrew: That’d be awesome. Tell us about your most recent acquisition, what that looked like, and obviously with higher interest rates, it’s been a little bit tougher to get deals done, so how did you guys pivot around that and get the deal done?

Nick: Our most recent was actually an extended stay RV park in Oregon, our first community out in that state. This started probably close to 8–9 months ago when we first started communicating with the owner through a broker, so it was listed off-market.

Beautiful park, super clean, 120 lots. They did more of a hybrid where they were doing a mix of transient and extended stay, but a lot of contractors. There are a lot of data centers that are going on in this area in Oregon. 

But like you said, the interest rate environment obviously has changed quite a bit, and in just looking at the rates and where things are coming in at. We essentially did have that conversation that led to owner carry. 

After a couple of months of going back and forth with that, they committed to doing favorable terms on an owner carry, and we were able to get that to the finish line here in December. Things are going well right now and that was our last purchase.

Patrick: I would say, from the beginning somebody told us to always create two offers when you’re making an offer on a property. One the cash out with a loan and the other doing a seller financing. Obviously, there are tremendous benefits to a seller if they don’t have anything that they’re going to roll into to do seller financing. 

We’ve always had our offers have two different scenarios in it. The last 18 months, those scenarios have become more prevalent. People are picking that seller financing to get the number that they had in their mind, versus the number they could get if we were to use traditional financing. 

In fact, the last two parks that we bought both in December were seller financing parks and at favorable terms, like 4% interest, interest only for 3 or 4 or 5 years with 20% or 25% down. We’ve learned to have those conversations with the seller and manage expectations when we offer on parks.

Andrew: Super smart. I love that strategy. Did either of you do any wholesaling or single family home flipping or have any background in that before you—

Nick: Not single family, no, but just through our direct-to-owner marketing, we’ve come across a fair amount of deals that had a lot of meat on the bone and were pretty strong. We’ve done a few wholesales of mobile home parks here and there in the last six months to a year that’s tailed off as we’ve scaled. Before getting into parks, we hadn’t done any flips or any wholesaling, but just naturally through finding some good deals, we’ve done a couple of those in the past.

Andrew: That’s awesome. What do you think is the best strategy right now moving forward? What are the types of mobile home parks you’re looking to buy based on what you’ve learned from that 13-lot mobile home park all the way to now? What does that ideal perfect mobile home park look like?

Patrick: Obviously, the environment has gotten tougher, both from higher interest rates and just manufactured housing in general, being the new shiny toy that private equity and institutional capital want to play with. We’re definitely seeing (I would say) less deals overall or less attractive deals maybe than we were a few years back. 

We’ve got to a point where we are looking for the bigger, at least 100+ ideally 200+ lot parks. We did take on private equity last year, which has opened our buy box to go after bigger deals. That’s something that we’re really driving towards is buying these bigger deals, and Bismarck’s a good example of 400 lots that we bought out there with private equity dollars. 

Now we’re still value-add. We’re still looking for the park-owned homes, we’re still looking for the infill, we’re still looking for the parks, maybe an established or REIT may not buy. So the value-add’s still there, but we’re definitely looking for bigger. We’re not really interested in the 30-pad park anymore.

Andrew: Very cool. And tell me about that. How did you get connected with a private equity firm? And before then you were just using mom-and-pop or you were using friends and family money that was just internally how you were purchasing stuff?

Patrick: We’ve done a little bit. In the beginning, it was just Nick and I’s money that we saved up, and that only went so far. I think that went to three or four parks. Then we got connected with a good buddy of ours that did multi-family syndication. He was like, hey, our investors would like some current cash flow, so we did a few, four or five parks with him, and that taught us the ropes of syndication. 

Then we moved on to friends and family dollars, and that’s great. But that’s probably what keeps us up at night the most is managing parks that are friends- and family-owned. That makes Christmas and get-togethers weird when they aren’t going well. 

A couple of years ago, we knew we were never going to be the Brandon Turner that can go out and get $100 million from retail investors, so we were trying to think, okay, where do we go next? We started to look into institutional and private equity capital, and we just started having meetings. 

It was a good time because we weren’t as big as we are now, but we had probably 18 or 20 parks. We had done a couple of turnarounds. We had done some full cycle parks. So we had a bit of a track record that at least got our foot in the door with private equity. It probably took 12–18 months of just sending deals to multiple private equity shops, talking to them, letting them understand how we underwrite deals, how we look at things. 

Then one finally hit and that was Bismarck out in North Dakota. That’s our only one; we would love to do more. But depending on the private equity shop, they have different buy boxes that they need to hit in their fund. It’s challenging in that aspect is finding the right fit for the right shop.

Nick: And timing around that as well. Making sure it’s at a point where they’re actually putting out capital.

Patrick: Some private equities are raising, some are deploying, some are on hold, so it just depends.

Andrew: Very cool. Kudos to you guys because I know there’s extensive background they have to run on you, and you have to have the right track record and so forth.

Patrick: They didn’t look at our high school and college days, I don’t think so.

Andrew: What mistakes in mobile home park investing or operations have you guys made that our listeners can learn from?

Nick: I think as I mentioned earlier, we were a little naive on the two- versus three-bedroom and size of lots when we first purchased communities that needed infill. Maybe a little naive on specific markets, too, where you needed to either sell park-owned homes or sell new homes. Looking back on fewer purchases, they just require a lot more hands-on and more time. 

I guess we’re a little more conscious now of how heavy a lift the project is. When you have a handful of parks and three of them are stabilized, you can really focus on one or two, versus now where you’ve got 30+ communities and you’re doing infill in some level at all of them. Purchasing the two-star park that needs new roads, new utilities, infill, and just all of the above, we may turn those away now.

Andrew: I think the lower hanging fruit. There’s lower hanging fruit elsewhere that can get you those returns without so many man hours of construction work. So I totally agree. And it’s hard, though, because like my post, Patrick, that you mentioned on LinkedIn, you find these deals, but they have literally 5000 tires. It’s a small mobile home park but it’s in a great area, the median home price is over half a million dollars, and I think it’s only 18 lots. But there are literally 5000 tires on the property and it’s just completely abandoned. 

I was like, you know what? I’m sure I can clean this up. But then you dig into it and you’re like, wow, this is such a mess. It’s a lot of work when you could buy that 50-lot park that’s full and just raise rents $30 a year and do just as well, so that’s good.

Patrick: Everything takes longer than you think, right?

Andrew: Totally.

Patrick: It’s like, oh we can infill 20 homes a year here, and the reality is you get 3 and you’re like, okay, we’re way behind now.

Andrew: You have to have the manpower to be able to handle that type of stuff.

Nick: And we’ve heard enough horror stories on development to know to stay away from that.

Andrew: Same. There’s been some other people on the show that just the timelines like you were saying, they’re just always twice as long as you think they’re going to be. I’m not that brave. I’d rather just stick to cleaning up the existing parks. 

Any other mistakes, due diligence or anything, that comes to mind that you think would really help a first-time mobile home park buyer or operator?

Patrick: We’ve definitely made some mistakes. I would say get all your reports done, like have a phase one, probably a good idea to have a survey, probably a good idea to have a zoning report. 

Now you’re going to spend a little bit more upfront, but you’re going to know everything upfront. And if anything ever goes south, especially if you’re taking on investors, you can point to these reports that protect you a little bit. We haven’t always done that. We do it now, but we hadn’t always done that. I would say that’s a big learning. 

I know one park we own right now. It’s two years later after we bought it, we realized there was a, not an environmental issue but an environmental testing well on there that we had no idea. If we just would’ve done a phase one, we would’ve discovered that. 

Just being intense on your due diligence and the reports (I think) has been a big learning lesson.

Nick: Pay attention to code. We learned the hard way in a specific park. Your roof load has to be 40 pounds versus standard 30, after we had already brought a home in to sell. Looking at all the details as far as setbacks and replacement for homes, and if you’re in a place that gets a decent amount of snow, looking at roof loads and all those things.

Andrew: That’s good. You would think that the manufacturer would be, hey where’s this home going to go? You got to meet the roof load. So it shouldn’t just all be on your plate, but good to make sure you’re aware of that. Interesting. 

I’ll open this one up to you. We’ll start with you Patrick. If you were going to passively invest yourself into a mobile home park deal or a fund, what are the most important things you would look for to try and ensure success?

Patrick: I think the first one I would just look at their operational track record. Have they owned before? Or are they an apartment syndicator that’s now getting into manufactured housing? You want to see some track record or success in manufactured housing if you’re going to invest with them. 

I would ask them how they manage parks. I think most of us in the industry are vertically integrated, but I think there are some that outsource some of their management. And if you’re doing a turnaround park, management companies are just never going to give you the same amount of detail to attention that you might do yourself. I’m wondering if they manage or not themselves, I think is huge. 

In today’s world, I’d look at the states that they’re investing in, like you mentioned earlier. The West Coast is tough to invest in now, and I think there are some legitimate legislation risks investing out here. I know that’s not maybe good for us and I’m shooting myself in the foot here, but I would definitely look into that too in certain states.

Andrew: That’s a good insight there. Nick, how about yourself?

Nick: Taking a close look at the business plan, if that operator (hopefully) does have experience. But if it’s maybe not to the level that you’d like, making sure that that business plan is attainable. 

How many homes are they looking to infill a year? How high and how quickly are they raising rents, divesting of park-owned homes. All these things that get you to that stabilized 3–5 year plan, and making sure that it is attainable. Ask yourself those questions and what risk can pop up to slow that process down.

Andrew: That’s a good point. I’m curious, what do you guys think, in a turnaround project, are the biggest risks? Is a big infill project a lot more risk because of the execution risk? Is a park-owned home conversion, that probably adds some risk because of that turnover and unexpected move-outs? What other things would you say are bigger risks that passive investors should be aware of? 

Patrick: I think in the two scenarios you just talked about, divesting a park-owned home and infill, making sure that the operator has either raised or has enough capital to make those projects happen. 

The last thing you want is to infill and move in 10 homes and all of a sudden you’re not selling. You’re moving to a rental model which is going to delay the sale of those homes. Maybe you can do a rent-to-own or convert them to owners in a year, but you’ve used up a healthy dose of your capital doing that. So just making sure that you have the right amount of dollars to do those strategies (I think) is very important in that scenario.

Nick: If you feel good about the market between those two, I think that infilling is a much higher risk than divesting in park-owned homes. At the end of the day, you can continue to rent and selling, again, as long as the home’s in decent shape, it’s three bedroom, the park looks good, you can sell your $20,000–$60,000 homes much easier and more creatively than you can bringing in a new home and having to need to sell to $90,000–$100,000. And you can do so much quicker. 

Between those two, we definitely prefer the divesting of park-owned homes to infill, and we know that if it’s an infill project, we’re going to be pretty conservative on how many we do a year.

Andrew: That’s good, and I think that one thing that just came to me is, things cost different prices, different locations. The cost for infill for you guys, maybe $50,000, $60,000, $70,000? The cost for my portfolio, which is mostly Midwest-based, we usually budget $25,000 for a used home from a dealer. I think just being aware of that, too. Do you guys do any infill with used homes or just only new?

Patrick: You’re lucky you get to do that. Most of our infill is all new. The Pacific Northwest is weird. We don’t have a bunch of Lonnie dealers or anything out here. It’s a different world, so most of it’s been new.

Nick: We’d done some of it in the past and it went okay. That might be stretching it a bit where we brought in used homes. There’s a mobile home, a mover actually, that just had access to these homes that people were replacing. We brought them in and then you quickly realize, oh, the siding is rotten and all these things need to be done. And before you know it, now you’re flipping a home that you’ve brought in, and you’re into it just as much as you’re going to sell it for. 

You’re into it $40,000–$50,000 when you’re looking at yourself saying, I just as easily could have brought a new home. So we quickly moved away from that model. And then like Patrick said, just access to inventory. You just don’t see a lot of good used homes floating around out here in the Pacific Northwest.

Andrew: That makes a lot of sense. To circle back, Patrick, making sure that the operator has enough capital going in to execute the business plan is so huge. I’ve seen time and time again, operators try to just say, oh we’re going to fund this off of cash flow. We’re going to use the first few years of cash flow to get X, Y, Z done. That’s just trying to hit a moving target. Would you guys agree?

Patrick: Yeah

Andrew: Yeah.

Patrick: I would almost side on raising or allocating more capital to park-owned homes and infill than you think. Whatever budget you have, just double it.

Nick: Twice as long.

Andrew: Yeah, it’s definitely difficult. Nick, what do you think is the biggest threat to mobile home park investing right now?

Nick: With us, that’s pretty easy. It’s legislation around rent control. We’re seeing some pretty crazy things being proposed right now on the West Coast. You’ve already seen it in California where it’s really threatening the existence of manufactured housing in the future. 

When you can only raise rents at CPI or 1% or 2% a year, I don’t have to get into it, but as you know, there are so many items that come with that that will just fail to exist. Without a doubt, in our environment and our neck of the woods. That’s the biggest risk.

Andrew: Patrick, how about yourself? Other than legislation, other than regulation, are there any other risks or threats that you see?

Patrick: I think if you’re in bigger MSAs, the threat of redevelopment of parks is out there. I think that’s becoming less and less as people realize that the returns on these parks are worth keeping them. I think if the United States as a whole can loosen up regulation, maybe be more similar to Texas in terms of developing parks. But if we don’t, I think the supply is just going to continue to go down, and that’s not good for anybody.

Andrew: Exactly. And I think adding more supply is a better avenue for getting more affordable housing available, instead of implementing rent control just time and time again. 

Patrick: We’ve been telling our representatives that, hey if you want affordable housing, we have a bunch of lots you can move homes into and we’ll definitely make them affordable housing. 

Capping a mobile home park at 7% is pretty impactful, versus a downtown Seattle condo that’s $4000 a month. Seven percent on $4000 is probably more than enough, but 7% on $500 is just really not enough to keep up with the expenses of running these.

Andrew: Totally. Insurance, taxes, everything. Everything’s going up, so totally agree with you. 

Well, this was awesome, guys. I really appreciate learning about your story. If any of our listeners would like to get a hold of you or check out CMG Parks, what’s the best way for them to do so?

Patrick: We have a website, cmgparks.com. You can go in there, you can snoop on our portfolio, but there are a couple of links to sign up for our investor portal. We still do retail investing from time-to-time and we also do co-GP opportunities. If retail investors want to participate on our side, we do that too. That’s the best place.

Nick: At cmgparks.com on the investor portal at the top right. Then if you ever want to reach out to us directly, nick@cmgparks.com or patrick@cmgparks.com.

Andrew: Cool, and I’ll put that in the show notes so you can find them there. What’s one last bit of important advice you would give an interested passive mobile home park investor before we sign off guys?

Patrick: Just do it or just invest.

Nick: Pull the trigger. You’ll hear it in all kinds of podcasts. You won’t know until you get that first one. But you can only listen to so many podcasts and read so much the scene. Once you get that first one yourself, then you’ll figure things out. It’s not too difficult.

Andrew: Awesome. Cool. Well, thanks so much again, guys, for coming on the show.

Nick: Appreciate it.

Patrick: You bet. Thanks for having us.

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