https://youtu.be/dg9iMmTewaU

Listen on Apple Podcast here: https://podcasts.apple.com/us/podcast/interview-with-brad-johnson-of-vintage-capital/id1520681893?i=1000732808274

SHOW NOTES

Welcome back to The Passive Mobile Home Park Investing Podcast, hosted by Andrew Keel.

In this episode, Andrew Keel sits down with Brad Johnson, Managing Partner at Vintage Capital, to discuss what it really takes to build lasting success in mobile home park investing.

With over 20 years of experience and $3.3 billion in real estate acquisitions, Brad Johnson has seen the mobile home park investing business from both sides — first as a mobile home park owner-operator, and now as a trailer park investment capital allocator. He also co-hosts The Alternative Investor Podcast, where he shares insights on tax-efficient and alternative real estate investing.

Andrew Keel sits down with Brad Johnson to discuss mobile home park investing from both the operator and investor perspective. They cover Brad’s journey from mobile home park operator to mobile home park capital allocator, key lessons learned, how to identify strong deals, which regions and infrastructure types are performing best, and common mobile home park investing myths.

Topics covered in this episode:

• Brad’s journey from mobile home park operator to capital allocator
• Evaluating mobile home park operators and deals effectively
• Why investing in top mobile home park management talent matters
• Types of mobile home park investors and operators today
• High-performing regions and mobile home park infrastructure types (septic, wastewater treatment plants, lagoons)
• Common mobile home park investing myths

If you want to understand mobile home park investing from both the operational and investment perspectives, this conversation is full of valuable takeaways.

About Andrew Keel
Andrew Keel is the owner of Keel Team, LLC, a Top 50 Owner of Manufactured Housing Communities with over 3,250 lots under management. His team currently manages more than 50 manufactured housing communities across 15+ states.

Andrew specializes in turning around under-managed manufactured housing communities by implementing proven systems to maximize occupancy while reducing operating costs. His expertise includes:

• Bringing in mobile homes to fill vacant lots.
• Implementing utility bill-back programs.
• Improving overall management and operating efficiencies in mobile home parks.

These strategies significantly boost both asset value and net operating income. Learn more at keelteam.com

Check out Andrew’s FREE e-book: “The Top 20 Things You Need to Know Before You Start Investing in MHPs” — available on our website: https://keelteam.com/top-20-things-learned-from-mobile-home-park-investing/

Andrew has been featured on some of the top podcasts in the manufactured housing space. Listen to his most recent interviews here: keelteam.com/podcast-links.

To successfully implement his management strategy, Andrew’s team often relocates on-site during the first several months of ownership. Find out more about Andrew’s story at andrewkeel.com

Support the Show
Are you getting value out of this podcast? If so, please head over to iTunes and leave a quick five-star review. Our goal is to hit over 500 total 5-star reviews, and it would mean the world to us if you could help us get there. Thank you for making our day with your support!

Apple Podcasts (iPhone, iPad, or Mac users): Leave a Review on Apple Podcasts                                                                                        

Want to see mobile home park projects in progress? Follow us on Instagram: @passivemhpinvesting for photos and videos from our latest acquisitions.

Talking Points:

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

01:16 – Brad Johnson’s journey from mobile home park operator to capital allocator

04:11 – Why paying up for talent early makes sense

07:26 – The mobile home park deal that got away

13:24 – The different types of mobile home park operators and investors

17:15 – Brad Johnson’s best and worst mobile home park investments

27:15 – Partnering with mobile home park operators with proven track records

29:00 – Regions with the best success rates

31:30 – Comparing septic, wastewater treatment plants, and lagoon systems in mobile home parks

34:30 – Lightning Round: Markets, myths, and profit pitfalls

40:53 – How to connect with Brad Johnson of Vintage Capital

41:32 – Conclusion

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

Links & Mentions from This Episode:

Vintage Capital: https://vintage-funds.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

---

TRANSCRIPT

Andrew: Welcome to the Passive Mobile Home Park Investing podcast. I’m your host, Andrew Keel. Today, I’m excited to welcome Brad Johnson, co-founder and CIO of Vintage Capital. 

Brad specializes in mobile home park investments, and has over 20 years of experience with more than $3.3 billion worth of real estate transactions under his belt. He’s been a mobile home park active operator, and now he is a capital allocator working in the mobile home park space. He also hosts his own podcast, the Alternative Investor Podcast, sharing strategies for alternative real estate and tax-advantaged investing. 

Brad, welcome to the show.

Brad: Hey, Andrew. Thanks for having me today.

Andrew: You bet, man. Would you mind just starting out by sharing a little of your story and how in the world you got into mobile home parks?

Brad: I randomly came across a guy, I want to say when I was in my 20s. He was a guy in Costa Mesa that owned a limo company. He owned hotels and he told me he owned residential community housing, which I was like, what is that? He was a pretty flashy guy. I’m like, well, that guy seems to know what he’s doing. 

I offered to help him with his business and do some financial analysis work, because that’s how I got into this space is I was a math guy, I was an analyst, finance guy. 

Then I figured out that he owned mobile home parks—that was his main business—and he had all these random other businesses that didn’t make any money. The mobile home parks made the money, and that was making him a very wealthy person. He was only, I don’t know, 32 or something like that. That was my first quick exposure to the space. But it always stayed in the back of my mind. 

Then I got into more institutional real estate and started working for a real estate investment bank. I’d come across these mobile home park loan portfolios and would notice that they were jetting or […] all these high cash flow yields and yet they had these low default rates. I was like, well this guy was on to something 10 years ago. 

That’s when I realized that I wanted to get out of the institutional world. I was working investment banking hours, I just had my first kid, and I have to do it now. If I don’t do it now, I probably will never do it. 

I didn’t want to go to try to raise money to go buy skyscrapers, which is what I was working on. I was working on these large deals and who is going to give me all this money as a first-time operator if I just go try to do something that a bunch of other people with bigger resumes and longer track records have already done? 

I figured I needed to do something nichey. I also am very obsessed with the downside. I was like, well, this feels about right, so that’s what I did. I jumped in feet first and started buying parks. Frankly, didn’t know what the heck I was doing but figured it out along the way.

Andrew: That’s so awesome. At one point there, I thought you were going to say that you were a Ryan Reynolds look-alike in LA or some actor. Because man, I’m telling you. You and Ryan Reynolds, you got […] there.

Brad: Well, thank you. Maybe I should have sent you some money before this. 

Andrew: But that’s really awesome. Everybody’s story of how they found mobile home parks is quite unique. Brad, if you could go back and tell yourself one piece of advice about mobile home park investing before you got started, before you dove in, what would that one piece of advice be?

Brad: Honestly, I hate to change anything because I’m super thrilled with where I’ve ended up. And butterfly effect, you change one little thing, you might not be in the location today. But in the spirit of your question, I’ll answer. 

I would pay up for talent faster. I think everybody falls into this trap of when you’re trying to bootstrap a company, there’s this period of time where you’re doing way too much as the entrepreneur. 

Like AppFolio, I was doing the bookkeeping, the tenant statements. I was doing everything because I wanted to learn how to do it so then I could manage people and know what the heck they were talking about. 

We got to the point where we had a fair amount of properties and it was time to hire, but we were still thinking in this lean, we’re going to try to get the best value we can. The sooner you can actually pay for A players, the faster your business is going to go and the fewer headaches you are going to have. 

If I had to go back, I think quality is my overarching screen today for any investment and for my own companies. Quality first. You got to pay up for quality. That’s not only in terms of talent and staffing, but I would also apply that to the assets. 

I think it’s easy to fall in love with the model. It’s really easy to say, oh, yeah, 20% IRR, or today maybe it’s a 17% IRR or whatever, and you’re like, this is unreal. I don’t care what the property looks like. We’re going to do this deal because the numbers make sense and it’s going to be a great return. But the reality is that you just have fewer headaches and fewer big surprises with quality.

Andrew: Literally an hour ago, I was talking to our largest investor. He was like, we hadn’t spoken in a little while. He says, what’s your strategy now? What are you going after? I said, quality in better markets is what the last 10 years has taught me. Because in the better markets, there’s very little turnover, if any at all. The homes basically sell themselves. Before we started recording, we were talking about how the management is one of the toughest parts of owning mobile home parks.

Brad: 100%.

Andrew: When you have parks in good areas, they require very little management compared to some of the other ones that are in more tertiary markets, that have constant turnover and churn. It’s just a lot more to manage. That’s really good advice.

Brad: It’s one of those decisions that solves five other things down the stream. I would actually tweak it in that something has to be high quality. You can actually stretch the market a little bit if it is by far and away the nicest park within an hour, because the thesis is still so powerful, but something’s got to be quality. Either the market or by far the best infrastructure in park out of a lot of other options, something has to be extremely high quality.

Andrew: Take us back to your first deal, Brad. What did you learn from it?

Brad: I’ll start with the first deal that I didn’t do, the first deal I put under contract was the deal that got away. I still am bummed about it. It was a deal in a great market in Michigan where we had this thing that was 50% occupied but a newer development. They just couldn’t infill it because of the 2008 credit crisis hit, and they never finished the business plan, but it was very clear that we could infill it within a year or two. 

Anyway, it was only a million dollars for 50 pads or something like that, but extremely good quality infrastructure. We had the thing tied up and we were two weeks from closing. I had spent a lot of personal capital. My partner had spent a lot of personal capital and diligence. 

Then the lender was like, we need two more weeks for closing. So I called up the seller and explained this. He proceeded to say, go pound sand. I have a $1.5 million offer now. He wouldn’t give us the time. 

I learned a painful lesson about dealing with lenders, putting in a lot of different contingencies into my contracts, and making sure that you thought through every different angle. That was the first major lesson in this space. Then I parlayed that to just, okay, well look. The next one hopefully will work out. 

Thankfully, the next one was seller financing, but I had a bunch of extensions in that contract and things did pop up. Had I not learned the lessons from the first one, we wouldn’t have closed the second one. 

Anyway, your first one never goes to plan. What I tell people is expect to get screwed somehow on the first one, either as the GP on your returns, the seller might do something. Just assume that it’s not going to go perfectly to plan, but just keep going. That’s what I tell people who are just getting into the space.

Andrew: That’s good. Tell us about your capital allocation business and how you decide which operators to trust before you make an investment.

Brad: The allocation side of the business is really zooming back and solving for what I wanted my life to look like, and something that I could do for the next 30–40 years in this space. Because I’m an investor at heart. I am not a boots-on-the-ground operator. I ended up having to do that. I built that company, sold that portfolio around COVID, great outcome. 

But I didn’t want to go ahead and then rebuild that company again and be in the weeds with property management. I wanted to be able to zoom out, look at the markets that I thought that I wanted to be in long-term, and diversify not only market but sponsor risk. 

So it’s been great. Been able to take the lessons of an operator and the network, and leverage both of those things with investor base and get to put a lot of capital to work in a really diversified way where I don’t have to worry about one asset causing any damage long-term to my or our investors’ portfolios that are investing with multiple deals. 

As far as selecting an operator, it’s an art. It’s a lot easier having been an operator myself, because you can’t really pull the wool over my eyes. I can ask the questions on how detailed is your operating platform? How detailed are your systems? How dialed are you from a team standpoint? 

There are a lot of two-guys-in-a-deck–type of operators in this space that just fell in love with the thesis, and I don’t blame them. That’s how I got started. That was our first deck. But the reality is that it’s not the same environment that it was 12 years ago. You do not get to just ride the wave of cap rate compression. You don’t get to just hope that interest rate decline, you’re going to bail you out, or that you are buying into this secret asset class that people haven’t caught wind of yet. 

Today, it is a pros market, as you know. If you don’t have the operational chops, if you can’t go in the weeds on your system, your platform, how you run deals, like what is your edge, what’s your operational alpha, if you can’t explain that clearly to me, then I know, okay, you’re not quite ready yet. But we want to track you. We want to see how you do, we want to help you grow, we want to help you build your business, but maybe we’ll catch you next year when you’re there.

I just know that if you’re trying to buy something from 2000 miles away and you’re like, I’m going to be there all the time and we’re going to infill 50 homes. No, we don’t have a home sales team. We’re going to use just the cash program from 21st Mortgage. They’re going to do them all and they’re going to move in 12 a month. We’re just going to hire somebody on site. We’re going to pay them $15 an hour. They’re going to handle home sales. They’re going to handle property management collection. Maybe maintenance, too. Okay. Well, we know that’s not going to happen. So that’s helpful. 

I invested with 15 different sponsors at this point, not only as a limited partner but also as a general partner, co-GP with them, and have stood up two platforms where groups have been able to go from, hey, maybe they have 10 parks and they want to bring in a large private equity company where we’ll help them get to 3x that portfolio within a couple of years. 

I’ve seen a lot, and I’ve got a sense of the different flavors of how people build their businesses and how they staff them. Then you got to match that. 

Andrew: Can we talk about that real quick? 

Brad: Yeah. Let’s go in the weeds. 

Andrew: I think that’s really interesting, the different types of operators and the different flavors like you’re talking about. I think there are a lot of investors, they get started, and they’re like, we’re going after heavy value-add, 50% vacant parks. 

Then after a few years they change that criteria of the different types of parks they’re going after. Then they graduate to better markets, institutional quality assets. Maybe you can just touch base on that. What’s the sweet spot?

Brad: A lot of groups do graduate to that. They realize that we can only run so many value-add parks, even though the value-add parks generate the highest returns, generally speaking, especially if there’s infill or some hair on it. 

A lot of groups decide that they do the calculus on a time-adjusted IRR. Or I always think of it as a hassle-adjusted or a headache-adjusted IRR as opposed to a risk-adjusted return. They realize that well, look. We’re just going to be better off from a company standpoint if we focus on maybe light-value–add, or stabilized parks that earn a 12%–13% return but not having to dedicate so much time and effort to it and staff around it.

I like those deals. I think of those as core-plus deals. Those are the equivalent of the fixed income, the bond lower risk deals in our portfolio. But I love sprinkling in the heavier value-add stuff as well because you don’t have to be reliant so much on the market. You can just drive returns yourself. You don’t have to be as reliant on the debt terms you’re going to get at refinance, or where they’re at at exit. You can literally triple the NOI. 

The groups that focus on that (I think) are just very good at pairing up home infill, like construction capabilities, and home sales with their property management. Everyone throws around, oh yeah, we’re vertically integrated. But usually that just means that we have an asset management arm and a property management arm.

Vertical integration in our industry is like soup to nuts. We buy the home, we’re a dealer, we can move the home, we can install the home, we can maintain the home, we can property manage the home. It’s literally everything. 

There are very few groups that have all of that because it takes time to build that, it takes skill, and it’s just a lot, especially finance guys. It took me a long time to get it to the point where I could oversee or knew what I was even looking at from a construction management standpoint on an infrastructure project or a big infill type of park. That’s how I think about it. 

It’s a spectrum. There’s the middle ground which is light infill, or guys that are just able to buy stuff that’s so off-market. Or maybe they have a thesis about a market that is a little bit on the edge, where a lot of groups are like, oh I’m not going to Alabama. But they’re like, no. Seriously, this market is booming. They can get an edge there. They get a lower basis. 

That’s a value-add, but it’s a lower risk value-add than obviously bringing in 100 homes which we’ve invested in parks that have done that, which is awesome, but it’s—

Andrew: Very hard to do. 

Brad: It’s a lot.

Andrew: Yeah, it’s a lot. And maybe tell me some of your best investments and what they do right. Then maybe talk about some of the ones that didn’t go well, that didn’t perform as expected. What went wrong and how can we all learn from those?

Brad: The best ones really, they bought it right. They didn’t get the steal of a century, but they bought it right. It’s a reasonable purchase. Then lots of times they have seller financing, because there was some quirk to it where it wasn’t generating enough revenue for a traditional bank to put a decent sized loan on it. Therefore, the buyer pool was constrained, so they were able to get a reasonable deal.

Then they come in and they don’t double the rent. They do it in a thoughtful, sustainable manner in addition to a big capital push. Usually, they’re improving the roads, they’re bringing in homes, they’re showing the tenants that, hey look. We’re investing in this park. There’s a new sheriff in town. We are going to improve collections, but we’re also going to give you something in exchange for the more intensive property management, and perhaps a 15% lot rent increase. 

I always say the value of this space is not the ability to take rents double or 50% within 1–2 years, which some groups unfortunately have done and gotten a better reputation of this space. 

The opportunity in this space is really the ability to raise rent in a repeatable way year-in and year-out for a very long time. Because you just do not see that in any other asset class. You cannot underwrite 10 years of rent increase in any other asset class, except probably mobile home parks if you’re buying it in a reasonable market with a fair amount of cushion to where apartment rents are.

The guys that had just crushed it, they didn’t do anything heroic. They just did the basics very well, but they took something that was underperforming in a reasonably good market. Then they just put in professional systems, set a brand new standard for the tenants, infilled on the edges, and just did all the right things. 

They didn’t do anything spectacular, but that’s generally been the best outcome. It’s been in the above average markets where they’re taking something that’s 80% to 100%. 

Andrew: It’s not 20% to 100%, right? It’s not the major ones. It’s just that top little cushion there. That’s interesting.

Brad: We’re hopefully selling next year a giant, take it from 30% occupied to 95% occupied. But it’s in the southeast. It requires a ton of park-owned homes. It’s literally a 100-home infill. It’s going to be a great outcome. You hear that, you think, oh, that’s got to be a 5x, but no, it’ll probably be a 2x return. 

Now I would argue that assuming you have that team in place that has all those skills that I talked about, probably you don’t have to rely on exit caps. It’s like, no. We moved NOI that dramatically that it’s maybe a higher probability that they were going to even pull that off, versus some guys that think they can turn around a park in a struggling market just with lot rent increases. 

But it’s not going to be a 5x. That’s a lot of time and effort and a lot of capital in those park-owned homes to bring in for a 2x. But it’s a 2x in three years, so it’s still pretty good. 

Andrew: Still pretty great. How important is it to you that an operator has their own money in the deal?

Brad: That’s interesting because this space, for whatever reason, is not as big of a convention. It’s certainly a big positive to me, but you go to other asset classes and it’s just assumed. Somebody’s going to put in 3%–10%. The GP is going to put that much capital in.

I always like to see it, but I will take it in other forms. I will take skin in the game in other forms. If you’re going to sign for homes, like there’s some infill component, you’re going to sign the personal guarantee for the homes, maybe you’re going to sign a personal guarantee on the loan because it’s a balance sheet loan versus Fanny or CMBS, that to me is skin in the game. If you sign personally, you are committed to making sure that deal doesn’t go south. So there are other forms.

I tend to think, because I know the assets pretty well, that I’m more comfortable going with an emerging manager, that maybe they don’t have the cash yet to be able to write a big co-investment. Whereas some other asset classes that I just invested as an LP, I would not do that. I would only do it if they were writing a big check because I just don’t know the asset class as well. You know what I mean?

Andrew: Yeah. It’s a little different. This is interesting. How do you verify whether the operator is truly executing on their business plan? You have a way of doing that for deals in progress?

Brad: You really are dependent on reporting. Sometimes we’ll do secret shopping. We’ll just have somebody drive the park. But it really is reporting. It’s also just the distributions that are showing up, or the first canary in the coal mine, obviously. But yeah, it’s keeping good records. It’s like, okay, we have the underwriting initially that they did—we have our version—and now we’re year three, where are we at? Where are we at versus expectations? 

Thankfully, because the asset class is so strong, 80% operators are pretty close to the initial business plans. Compare that to apartment buildings, the spectrum, the variance of outcomes is insane for apartments including just full write-offs, losses. 

In the overall industry of manufactured housing, there’ve been very few complete losses unless there was some weather event. We haven’t had one yet with existing deals, so I don’t know. Thankfully, people picked the right asset class (I think) in this space, therefore the outcomes are a little bit tighter in terms of the dispersion.

Andrew: We haven’t, either, in doing over 53 deals, and I don’t think I know anybody.

Brad: That’s fantastic.

Andrew: I think there’s something to be said there about the asset class.

Brad: But if you’re in the asset class long enough, you are going to have a zero. Something is going to happen. You do 100 deals, it’s highly likely just out of bad luck.

Andrew: Hurricane or tornado, something.

Brad: Hurricane or flood, something. I had one that was a complete loss, but it wasn’t a fund. The investors were totally fine, thankfully. There were 12 assets in the property, but I had a park that flooded, and it was brutal. 

I always tell investors, if you invest in this space in a diversified way, really hard to lose money. You almost actively have to try to lose the investor money by doing dumb things, like over leveraging things. I had a park that that flooded and—

Andrew: Was it in a flood way, like a flood zone? Or it wasn’t even in the FEMA flood map or anything?

Brad: No. It was a freak thing. It was right next to a river. I’m very nervous about rivers, even if they’re not in flood zones. It was in upstate New York. I’m not doing New York anymore for a different reason, which we can talk about. It had an ice jam. The river froze and it created its own little dam. The water couldn’t get through and it just started pouring into the park. 

It was crazy. The state said they were going to give us $7 million worth of homes to replace all the homes that got damaged. It ended up being $3 million, but that was still amazing. But even with that help, we were able to get people back in their homes, which I felt so grateful that we did. It was an insane amount of work for no return. We lost a lot of money, but thankfully like I said, it was in a fund. It’s in a diversified investment. 

That’s why I always recommend to people, unless you’re writing 5–10 checks into different properties, you probably should be in some fund structure. I just don’t like the investors who don’t know what they’re doing, who give somebody $50,000 or $100,000, and that’s their only private investment. I have a hard time with that. I’m like, well, you probably should have just put that money in the stock market. 

So I think people should invest either over a series of deals to get a little bit of spread out, because you just never know. Your record of 50 and not having a loss is unreal, but that’s just pure math. You would think something would happen at some point weather-wise.

Andrew: That’s interesting. Let me ask you this, Brad. What advice would you give a new passive investor considering their first mobile home park deal? You just gave some advice there. You’d recommend the fund over the individual syndications. But is there something else on what you would look at or what you would recommend if someone’s going to put (say) $100,000 into a mobile home park deal? What should they look at? What are the top things they should look at?

Brad: Are they buying a park themselves with a couple of people and they’re going to run it? Or are they investing as a limited partner?

Andrew: They’re as a limited partner going to be investing as a limited partner. 

Brad: I feel bad for emerging managers because it’s such an uphill climb. You and I were both emerging managers at one point. That’s tough. It’s tough to do that if this money is super precious to you, which of course it is. So unless you’re, once again, making 10 of these investments, I would probably go with somebody with a verified track record who has seen it all. 

The reality is you get thrown so many crazy things in this business on a day-to-day basis that if you don’t have a team, if you don’t have real good systems, you don’t have a standard operating procedure for every little random thing that comes up, you can get sidetracked real quick. And if you don’t have the ability to inject new capital into problem deals or raise new capital if you need to, you can lose a deal back to the lender. 

It can happen. It’s not like it’s the perfect asset class. It’s operationally intensive. It’s a good place to park money, certainly from a risk reward standpoint, but if you don’t know what you’re doing, it’s also a pretty good place to lose money. 

I would just go with track record experience. Ideally you’d want experience in that market or region as there are quirks to each different region. Each different state has different regulations.

Andrew: And let’s talk about that real quick. Which regions have you had the best success rates with?

Brad: The biggest returners have probably been in the Southeast and the Midwest. The Midwest (I feel) you have to really pick your spots, though, because we talked about just because the thesis is so great doesn’t mean you can go to some no-person town. Even if it’s a 100,000-person town or whatever, if incomes aren’t there, it doesn’t matter how affordable your lot rent is relative to the two bedroom. The income […]

Andrew: […] the hard way. We bought a deal in Keokuk, Iowa, if you know where that is. Southeast Iowa.

Brad: Yeah. I do know where that is. 

Andrew: It was the first park we sold, thankfully. We had really good timing when we sold it. It was just a really bad market and no one had $1500 to put down as a down payment for an RTO. If you don’t have that, it’s a really just depressed market and really just low quality people to choose from from a tenant-based standpoint. It just makes everything else harder—higher turnover, just higher risk. So I agree. There are still markets that you can have issues with.

Brad: Yeah, even though everything else looks great. The real problem in those markets is especially if there’s a park-owned home component. That’s the circle of death. 

If you get a newer operator that raises just barely enough money to close the deal and take their acquisition fee, and then they’re in a market like that, that is a little soft with maybe there are only 10% or 20% park-owned homes, they feel, oh, okay. This seems reasonable. 

But then you get that turnover when you start trying to do things like enforce rules or enforce collections. Then those tenants leave and then you realize, oh, that home needs a lot of money. Then the tenant base isn’t as good, so the next renter mistreats the home again. That’s a great way to just circle the drain. 

I would also tell newer LPs, they probably should for their first one, I would just go to easy mode just to get exposure to it. I would probably avoid the parks with a lot of park-owned homes with complicated private utilities. I don’t mind septic. I used to just literally, I did in my first portfolio where I was the property manager, everything was city water, city sewer. 

I didn’t know enough and was nervous about risk. I like sleeping at night. The thought of a treatment plan or even septic at that time, or God forbid a lagoon was just no, thank you. Life’s too short. 

Whereas over time, especially now that I’m not the one dealing with the issues day to day, I think septic is just fine if you have enough space. But if I was newer to the space, I would avoid those types of parks too. 

For example, I just got pitched a deal where everything looked great except it’s a treatment plant, and it’s a treatment plant on a $4 million deal. If that treatment plant fails, that’s literally a million to $2 million. It’s just not big enough. That’s a walkaway scenario. If the deal’s $10 million, $20 million, sure, that’s fine.

Andrew: To this day, I’m with you. We have septics, we have wells, but I’ve never owned a treatment plant, never owned a lagoon or sewer.

Brad: Just don’t do it. 

Andrew: They teach at the Frank and Dave Bootcamp, stay away, and I’ve heard horror stories of those going bad. One guy had a treatment plant in a barn and the barn burned down. The treatment plant was like a million dollars, like you said, and it was only 70 lots.

Brad: Oh my God.

Andrew: So there are just things that happen.

Brad: Then you got the state sending you scary letters. You got the Department of Environmental agencies sending you letters. No thanks. That was my least favorite thing is getting the surprise letter from a state agency on some random thing. Most of the time it was nothing, it’s fine, but those can be scary things. You just want pros. You want people that have seen it before. 

I always thought it was funny. You’d hire a manager and you’d get these calls like Christmas Eve, during the Super Bowl or something. Oh man, everything’s going to hell. The whole park is underwater. 

We just got an agency that they’re going to close down the park, and then you get in the weeds, you deal with it, and it’s not a crisis. We can deal with this. But generally speaking, when you’re investing, you want to go with the pros at least early, until you know what risk you’re actually taking with an emerging manager. 

I’ve invested with plenty of emerging managers, which I like doing, especially somebody who’s 30. They could be investing in this space for 30 years. That is incredibly valuable to me. Relationships compound, trust compounds. The speed at which I can invest with them compounds. That is amazing when you can find them, but you have to be able to evaluate that team. And it’s really hard to do if it’s your first check.

Andrew: That’s really good. You have to build trust over time. Here’s a little lightning round. Whatever the first thing that comes to your mind, just spit it out, all right? There are five questions.

Brad: All right, I’ll try.

Andrew: If you could own every park in one state, which would it be?

Brad: North Carolina.

Andrew: One state you would never buy another park in and why.

Brad: New York. That’s the easiest one, I think, you asked me. It was three years before we could evict somebody. Tenants took advantage of it. That state is just very anti-landlord. It’s just a fact. And it is tough to do business there on all fronts.

Andrew: The biggest mobile home park myth you would like to bust in one sentence.

Brad: That these are just cash cows. That mentality needs to get out of the marketplace. It is just like buying an apartment building. You are offering a product. You have to offer a good product if you want to do this sustainably. That’s my whole thing. 

I don’t like the 2–3 year transactions. They’re great. I have participated in them. It’s nice to get a check. But I dramatically prefer the longer-term compounding this space because of the benefits that we’ve talked about, especially the tax benefits. 

I want to see people that do it in a sustainable way where they are taking care of the assets, they’re reinvesting back into the parks. They’re not optimizing for a yield day one. They’re optimizing for a steady state yield, is how I think about it.

Andrew: I was just at Reconvene out in California, in the back of the woods. We got to talk with a guy named Azi, I forget his last name, but Charlie Munger invested with them to buy apartments. He said that Charlie went to every single apartment complex. That’s one of the things he said that Charlie was always big on reinvesting into the communities, into the parks, into the apartments. It’s very rare that you would see that. 

One of the quotes he said was profit is what comes after we take care of the apartment complex. They were the only people that were planting trees and actually doing good improvements and stuff. Everything they did was 15-year fixed debt long-term deals (I think). There are not a lot of those out there. Everybody wants that quick flip, but there is a lot of value for just holding these things long-term and just getting those annual rent increases up.

Brad: And it’s just the right thing to do. I think it’s the right thing to do for that business model. When you’re taking care of the tenants and the asset, it’s going to take care of you from a cash flow standpoint, eventually. It might not be year one, but it’s amazing how many problems you can avoid by both problem tenants and regulators by just doing the right thing for the asset at the right time and having access to capital. 

That’s the big thing. This industry got into this. These things just generate so much cash and I can buy these things on a shoestring budget. I’ll just buy more homes or improve the facilities with cash flow. Now you have to have access to capital. This industry needs to get more institutional. And you see it. You see the big private equity buyers coming into play, which has its own challenges, but long-term it’s better that there’s more capital being invested in the properties than not.

Andrew: Definitely. I remember on my very first deal, I was going to use the cash flow to infill. Thankfully, the partner that I went to was like, no, no, no, let’s just raise an amount upfront so you can utilize that. Otherwise, it would’ve taken another five years because things inevitably went wrong that we didn’t performa for. 

That’s one mistake newer operators could make is not raising enough money upfront and just thinking, oh, well the 21st Mortgage program is going to handle the infill and I won’t need to have any money out of pocket. I’m going to use the cash flow to do that. I think that’s a really good point for the listeners.

Brad: And I don’t want to sound like I’m coming down from the mountain and giving these lessons. I made all of these mistakes. I was the idiot who thought that we could just let cash flow, buy all the new homes, and upgrade the roads. It’s really short-term thinking because it’s optimizing for this cash flow yield, which you can make a better return if you just do some of these other things, reinvest in the park, then you can justify the rents. Then you can have occupancy higher, faster, but your 1–2 yield might not look that great. I don’t know. That’s my soapbox.

Andrew: When you hear mobile home park, what’s the first image that pops into your head?

Brad: Honestly, it’s the first park I bought, Cherry Woods in Kansas. It’s the image of it from above where it was a beautiful aerial. I know that sounds weird because it’s (a) a mobile home park, and (b) it’s 2D aerial of it. But the guy, his name is Randy Jackson, and Scott Jackson who is pretty famous in this industry, is his brother—we lost Scott a couple of years ago, but Randy (I believe) is still with us—he built this park and he built it right. 

He did concrete roads, all PVC, literally every home was perfectly positioned geometrically within the park. I knew from the aerial that we weren’t going to have any maintenance problems with the infrastructure and we didn’t have one. We held it for five or six years and not one problem with the infrastructure because he just did it the right way. It’s like the greatest generation. They were built a little differently. They went for quality. They didn’t cut corners. There goes back to my quality statement.

Andrew: Awesome. Well that was my last question, Brad. I really appreciate your time. Thanks for coming on.

Brad: It was great to be here. It’s always fun talking mobile home parks, especially with a pro.

Andrew: I appreciate that. My wife is always glad when I can talk with someone else about trailer parks. How can our listeners get in touch with you or learn more about what you’re doing at Vintage Capital if they’d like to?

Brad: They can go to vintage-funds.com, and we have a ton of resources. I’m a big believer in educating the space because these properties need to be run the right way. I think teaching people how to do it the right way is useful in that regard. Plus we get to meet new operators that ultimately we’ll probably invest with along the way. If we can help them do it a little bit better, that benefits us as well. So vintage-funds.com.

Andrew: Awesome. That’s it for today, folks. If you got value out of this episode, please consider leaving us a review. It really helps us get more listeners. That’s it for today. Thanks for tuning in.