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 mobile home park investor, Nick Najjar of ACS Communities and Elephant Capital Partners.

Nick Najjar, a previous guest on the show back in 2022, is the principal owner of ACS Communities and Elephant Capital Partners. He oversees six manufactured housing communities with a total of 295 sites. ACS Communities also holds minority partnerships in various mobile home parks across the United States and has completed over 25 mobile home park deals.

Nick Najjar leads all aspects of ACS Communities and Elephant Capital Partners, from mobile home park acquisitions and business development to the operations and property management of their manufactured housing communities.

In this episode, Andrew Keel and Nick Najjar explore the high demand for affordable housing, the in’s and out’s of wholesaling and assigning mobile home parks, and the differences in the assignment of mobile home park deals compared to other asset classes. They also discuss the use of third-party mobile home park property management. Nick Najjar shares his insights on closing mobile home park deals, emphasizing the importance of transparency, fostering rapport, and supporting the mobile home park investor community.

Join us as Nick Najjar shares his knowledge, enthusiasm, and passion for the mobile home park investing asset class on this episode.

***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:

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• Mistakes to avoid, and more!

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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

01:32 – Perspectives on wholesaling in the Mobile Home Park Industry

08:00 – Assignment of mobile home park deals versus other asset classes

14:48 – How Nick Najjar closes a mobile home park deal

19:30 – Business Management – Focusing on and delegating specific tasks

22:00 – The Mobile Home Park Industry is a volume game so you have to get creative.

24:44 – Using third-party mobile home park property management

28:30 – It’s all about trusting the system and the job

32:47 – Understanding quick value-add in mobile home park investing

37:21 – Park-owned homes

40:08 – The affordable housing demand will always be high

42:47 – Reaching out to Nick Najjar

43:12 – Conclusion

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

Links & Mentions from This Episode:

The previous 2022 episode with Nick Najjar: https://keelteam.com/post/interview-with-nick-najjar-of-elephant-capital-partners/

Elephant Capital Partners Website: https://elephantcp.com/

Keel Team’s official website: https://www.keelteam.com/ 

Andrew Keel’s official website: https://www.andrewkeel.com/  

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

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

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

Twitter: @MHPinvestors

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TRANSCRIPT

Andrew:  Welcome to the Passive Mobile Home Park Investing Podcast. This is your host, Andrew Keel. Today, we have Nick Najjar of ACS Communities and Elephant Capital Partners on the show. Let’s dive in.

Nick is the principal and owner of ACS Communities and Elephant Capital Partners, overseeing 6 manufactured housing communities with a total of just under 300 lots. ACS communities also holds minority partnerships in various mobile home parks across the United States and has completed over 25 acquisitions in the sector. 

Elephant Capital Partners is one of the more well-known mobile home park wholesalers in this space. They complete assignments of contracts, and Nick leads all aspects of the business from business development, acquisitions, operations, property management, and so forth. Nick, welcome to the show. 

Nick: Thank you, Andrew. Glad to be here again. 

Andrew: It’s been two years. March 2022 you were on the show, shared your story. We didn’t really go into a lot of the wholesaling stuff last time, but let’s talk. What has happened since 2022 with you and the business?

Nick: So much. First of all, let’s maybe not use the word wholesaling. Unfortunately, it has a negative connotation in real estate. Single family stuff, our business, it’s a little more common. It has a little more positive image. But at the end of the day, the way I look at it is strategic partnerships.

One of my best friends is a mobile home park operator. We buy parks for him. We help him buy communities, We play matchmaker, real similar to what a broker would do. That’s just the way that I like to go. We buy parks with strategic partnerships.

I’ve been buying parks. I probably bought a couple of communities since. I don’t remember how many I had then. I have six now, we got three under contract here, and a couple more opportunities for folks to buy. Maybe we’ll use wholesale because it’s easier, but I just want to prove that negative point there. I think sometimes it does have a negative spin. What do you think, Andrew? Is there a negative?

Andrew: I think it does because if you think of wholesaling and wholesalers, there’s definitely a stigma there, especially from the single family business. There are so many of them, and they can give you just a bad sound, a bad taste in your mouth when you think of a wholesaler.

When you look at it from the commercial side of things, it’s more common to assign commercial deals. Assignments are a very common thing that happens between commercial investors and brokers. I think it’s a niche as with anything. You’re playing matchmaker.

There are wholesalers that do it right, where they’re finding true value and off-market deals that actually have value add. Then there are others that stretch it and annoy us. They post the same deal that’s not really a deal in the Facebook group five times a week. You’re like, dude, if it was a deal, it would have flown off the shelf. There are stuff like that that happens that you just snore your nose up at.

For myself, we have a deal right now that we’re sending out, but we looked at this as a buy-and-hold. We fully underwrote it. We’re probably three quarters of the way through due diligence. We just decided, hey, there’s a little bit too much risk here, there are some older homes.

We were like, hey, why don’t we just send it out to our list of other operators? This may be a good fit for someone else. It’s a more stabilized deal. We want something with a little more hair on it that we can add value to, and see if we can generate some income to offset some of our marketing and labor costs for the sales team. That’s how I feel about assignments and wholesaling.

Nick: I like it. I think the word is deal assignments. I think that’s a little more professional. I totally agree with you. I think there are a lot of bad apples that make our business harder. It’s not just wholesaler guys. I think there are a lot of guys that call these park owners, and they’ll put a property under the contract. Maybe they didn’t go to the Frank Rolfe bootcamp.

They don’t know what they’re doing almost every time. Hey, I’m under contract for $4 million. The numbers just don’t make sense. Even if they pay cash, the numbers don’t make sense. I’m like, okay, I’ll call you two months.

That actually happened recently. Unfortunately, I wasn’t the one that called him in two months. A friend of mine got into the deal, and he’s under contract on it. I’m glad it’s him, and I told him that. It’s just part of the business.

Andrew: What’s funny about it is actually close knit. Mobile home park investors are a pretty small group. We had a deal recently that when someone decides to sell, it’s like, okay, it’s on. We’re in active negotiations, we’re talking with the seller, and sure enough, one of the Facebook groups pops up.

Hey, anybody interested in a deal in this city, in this state? I was like, that’s curious. That’s where this deal is that we’re talking to. Sure enough, while we’re in active negotiations, another wholesaler called this guy and now is doing the same thing, having negotiations as well. We’re like negotiating against ourselves. We also have assigned self-storage. It’s just been that parks have been getting more and more competitive in my eyes. I’m sure you’ve seen some of that as well.

Nick: I think it’s an interesting game. It’s not as easy as people think it is. We were talking about that a little bit offline. I like what you said, that is the main reason I started the deal assignments with the offset or overhead. We’ve got full-time staff, a team that underwrites our deals, and all the things that I don’t have time to do. Somebody has got to do it.

One man’s trash is another man’s treasure. I think about that all the time. I’ve been thinking about different ways we can serve smaller community owners. If you think about most brokers, only really work with maybe 700,000 purchase price and higher, because there are only so many listings that they can take. They’re specialized in our mobile home park business. I just think there’s a massive opportunity to help smaller community owners, 20 lot-, 30 lot-owners. That’s where I see us adding a lot of value with those deal assignments. 

Andrew: Right now, I think that’s a good opportunity. Strategically, if you are targeting those smaller parks and you can make it work from a management standpoint, I think you can get into these deals at 10-plus cap rates on actuals. There’s opportunity there. There are a lot of mom and pops that own those smaller parks, and it can make sense.

Let’s go back. We mentioned before we started recording how assigning mobile home park deals is very difficult compared to assigning other asset classes. We did some self-storage, and it’s metal boxes. It’s very straightforward with the product that we’re delivering to the end buyer. In mobile home parks, these are 50-plus year old assets with utility infrastructure that’s old, deferred maintenance from mom and pops, and people live on these things.

Self-storage is, just come, they drop off their Christmas decorations and then they come back a year later in November to put their lights up, and they pull it out. In mobile home parks, people live there. They’re there all the time. There are a lot of different personalities with the tenants, backgrounds, and things like that. Deals fall out a lot of the time.

We only say that on our parks that we’re assigning, there’s probably a 50% chance that it closes up until the day before closing, because things have happened and it just flakes out. Where on our self-storage assignments, it’s been very different. There’s a more sure chance of the deal going through because of the asset type. What are your thoughts on that? 

Nick: I totally agree. We have a deal that’s been under contract for how long it takes too. I don’t even know how long, probably a year. We’re supposed to close in February. In May, we’re pretty much there. We’re like, hey, the last thing on our due diligence list is inspection of septic tanks.

By the way, too, the reason it took so long, like a lot of deals, was an assumption of a seller carry notes. We had to get an attorney to get the original seller, the person holding a note to agree to consent to us buying the property, and then just basically getting creative with that structure. They want to sell, we want to buy it, how do we bridge that gap there?

We can’t put new debt. That right now, eight-and-a-quarter are bank loans that we have closed in a couple of weeks. Most deals don’t work at that number. You have to get creative with assumptions and stuff.

Anyway, long and short, we go through our thing. A week before closing, we’re like, let’s just double check the septic tank. They’re all failing literally. There are three good ones out of eleven. Eight are failing, so we’re looking to tap into the city, and then we have to call the seller and ask for price reductions. Literally, the conversation was, just so you know, you’re one tenant away from calling the EPA and shutting you down completely. That’s how bad it was.

I know you had my buddy Steve, Edel, and Justin on due diligence partners the other week. He has his deal killers that are there. They’re always there. A lot of times, you don’t even know until you camera the sewer lines or do all these things. Unfortunately, some of these mom and pop sellers and even professional operators aren’t honest. You got to check the boxes.

We’ve got another deal that we’re working on. He’s like, oh, the phase one clean. I was like, okay, just wrote it off. No big deal. I read it and I’m like, this doesn’t look right. It’s not clean. Basically there’s the gas station there, and the gas station cleaning it up. They didn’t in order phase two back at the time he bought it, because they were already regularly taking soil samples at the properties. I’m like, okay. 

You and I could probably literally come up with 50 other things that have happened in the past three years similar to that. There is always something, always issues. Before you were on too, we’re talking about operation. It’s a never ending thing, always issues. Every property has some issues. I don’t know any owner that’s like, I don’t have any issues with the property. That’s what happens.

Andrew: You manage all yours in-house, right?

Nick: About a year-and-a-half ago, we started working with Steven and David Blank of Blank Family Communities. I guess the short version of that story is I got into this business because Frank Rolfe was like, oh, it’s a great passive investment. It’s the last thing from passive. We had a couple of key staff leave. I was like, man, we had eight employees at the time. This is just not my thing.

I’m a deal guy. I went to Dan Sullivan’s Strategic Coach event. My unique ability is to do a deal. I don’t have any interest in pushing a lot of the buttons that our team does today. Anyway, they manage our communities so I’m still involved.

You have a pulse on every property. I’m sure every week you look at something, and you just have to pay attention to all the dials every week. You let six weeks go by, and I’ve seen communities flip in as quick as two months. I lose a couple of residents, don’t fill them up, lease up the new ones quickly, and you’re just like, man, what happened?

Andrew: It’s a lot to manage. You have to be on it. You have to be on the ball. It’s management-intensive.

Nick: Real quick because I told you this when we talked a couple of weeks ago. I just want to acknowledge you here on your podcast because you and I went to a bootcamp at the same time, I think 7–8 years ago down in Orlando. I remember we went at the same time and then ironically, I went back. When I went back, Frank had you up on stage and he’s like, hey, here’s Andrew Keel on six communities, he bought them in the past year. I’m like, who is this guy?

I’ve seen you grow. I remember specifically you sharing your goals, and I think you surpassed those goals now. I think it’s a testament to you. You are an amazing operator, very, very good. I get your newsletters. You’re like, we just leased up 16 homes. I’m like, 16 homes? That’s crazy. Anyway, I just wanted to give you some props, man. You do a good job. 

Andrew: Thank you, Nick. Yeah, and I couldn’t do it without the team. Like you said, I know my strength and I know what I’m good at, but there’s a lot of stuff I’m not good at. It’s just all about building that team and having good partnerships. Same with you partnering with Steven Blank and them. You got good people that know what they’re doing. That’s important.

Tell us about your most recent deal, your most recent mobile home park deal. Any recent acquisitions? How have you guys been getting deals done with interest rates being higher? You said eight-and-a-quarter on your deal that’s closing soon. It’s not easy to buy a deal. Your cap rate has to be a couple of percentage points above that to make this thing cashflow. How are you guys getting deals done? 

Nick: Our last two I’ll touch on. I think the key is finding out what the seller really wants and then getting creative to make that happen. Sometimes there are loan assumptions, usually it’s seller finance. Most of the time, sellers don’t realize their benefits of seller financing.

We had a deal negotiated at a million dollar purchase price, a good deal. Before he signed the agreement, he brought it to his accountant. All the terms solidified, and then he brings it to his accountant. He literally calls me. He’s like, hey, my accountant tells me I’m going to have $300,000 of tax liability. Can you buy it for $1.3 million now? I’m like, dude, we haven’t done a deal, man. Anyway, just getting creative to figure out what that looks like.

Our deal, we closed last November, so two quarters ago. I can’t remember exactly how it came about, but he also didn’t have any debt on it. That always makes it a little bit easier to explain why seller finance is a benefit and all that. A lot of times for these sellers, it’s monthly payments. I’ll just get out my commercial loan calculator and just throw it out, plug it in. Hey, if we give you $180,000 and then pay you $5000 a month for the next 5 years, does that work for you? That was the one.

This one, we had to get really creative with it. He was a little upside down on the deal, actually, with some of the projects he had going and owed the bank $3 million. Anyway, I can’t remember exact terms, but he was upside down on it. We were actually going to do the lease purchase, and then his wife changed her mind after we had drafted all the lease purchase agreements, and I had never done it.

Lease purchase, there’s a lot of risk to that. You don’t get the need to close these. It’s not ideal, but it was a creative way we thought we could get the deal done. Why change your mind? Then we renegotiated the terms.

Basically, the deal we have, fingers crossed, closed in about 2 weeks, we’ve been working on it for over 2 years now, $300,000 seller finance. It’s really great terms. The first payment is zero. The first year is 0% interest, second year is 3% interest only, all the way out to 8 years. We have a lot of time on this seller carry portion of the debt.

I went to the bank. Fortunately, I’ve got some really good local bank relationships that I’ve been working on and nurturing for five years now. I just asked. I’m like, well, I thought about it. I’m like, it doesn’t hurt to ask. I just said, hey, seller financing $300,000, loan to value is here, can we just do a zero downside? I can’t remember exactly how I asked.

We won’t do that. But if you put $200,000 in the property, we’ll do it. That’s how it works. We don’t have all the money that we’re putting in this deal, it’s going on the capex on the property. It’s just a matter of bridging the gap. Seller needed to sell, health conditions, just needed to get out. We couldn’t pay the amount that he wanted, but we were able to bridge that gap. We beat that. Hopefully that was helpful. 

Andrew: We’ve been trying to do a lot of seller carry second mortgages to get deals to work right now. It’s hard to convince someone to do that and be the bank. Not everybody’s just open to that. You got to have a lot of rapport, you got to build a lot of trust. 

Displaying your track record of previous deals is important to be able to show them, hey, I’ve done previous seller financing arrangements with XYZ people, and give them references to call has been one way that we’ve been able to get sellers to consider this and actually do it.

Tell us, Nick, from a high level, what has been your biggest takeaway in mobile home park investing in the last 12 to 24 months? What has been your biggest aha or lesson learned type of thing?

Nick: Real quick, I saw it on the seller carry just because you mentioned it. It’s like a little self-promotion. On our website, we actually have 16 benefits for seller carry financing. If anybody wants to see it, it’s elephantcp.com, resources. We’ll typically share some of those things with sellers if they don’t get it.

Man, that’s a really good question. There are so many. One of the things I love about this business is there’s always a new challenge, always something. I’m learning something new literally almost every day.

Yesterday, I learned that in the state of Missouri, it only takes five days to evict someone in a long-term RV park. They’re like, we’re buying RV parks. I’m like, ah, that’s cool. I like RV parks even more. I guess they’re considered a vehicle. You only have five days to move the vehicle off the property. Anyway, just little stuff like that. There are always things that I’m learning. You asked me a loaded question. What was the question? 

Andrew: I would just say your biggest takeaway from mobile home park investing. Think of the listeners. We’ve got a lot of passive investors. We’ve got a lot of active operators. I’m learning stuff every day as well, like the team and building the team. I get excited and I’m less patient, for example. I bring on a new team member, and I just overload them with stuff. I just throw them in, and they’re like drinking from a fire hose.

Now I’ve learned, it’s like, hey, I’m going to bring you in and you’re going to master. You’re going to become a Jedi ninja at this one thing. When you learn that and you’re a Jedi ninja, then we can talk about doing something else. But I don’t want you in any meetings or anything until you’ve mastered this one part of the business that’s going to add real value.

One thing that I’ve picked up within the property management company is we had people overlapping, which again, you can’t really have people segregated out into individual tasks until you have scale. In the beginning, it was me. I was opening the mail, I was putting the checks in the bank, and doing everything. But now as we’ve gotten bigger with 45 communities, we’ve been able to build out a pretty big property management company.

Another thing that people don’t really talk about is, our property management company itself does not make money every month. I know we talked about this previously, but the property management company is expensive to have payroll and all of that, but that’s a whole nother rabbit hole we can go down. 

Nick: Yeah. Our “deal assignment” businesses don’t make money either. At least for me, they’re loss leaders. We just do the assignments and just cover overhead to hit our acquisition goal.

Two things that come to mind. It is really hard to find deals, but the deals are out there. It’s all about volume. You got to look at a lot of deals. Actually, we got an intern now which is great, junior in college, she’s got a 34 as an ACT. Props to you, Will. I’m excited for you to be a part of the team. He’s going to be doing cold calling, hopefully if he likes it while he’s back at school too just to make some extra income.

Our other lead guy, Jasper, is awesome. A thousand cold calls a week is his goal, 20 contacts a day. It’s all about volume, and it’s all about looking at deals. Broker deals are always tough because it’s just very competitive, but we still are looking at those. The ones that fit our criteria, we’re underwriting and we’re making offers because you got to make, I don’t have the exact numbers, but it’s something like for every 10 offers we make, we’ll get something under contract.

It takes 100 contacts to make 10 offers, so it takes 1000 calls to get one deal, those types of numbers. It’s a volume game. I’d be curious if you know those stats for what you guys do. That’s one thing. It’s just a calling game. Their deals are out there, you just got to find them. You have to get creative to make it a win. 

The other thing you mentioned operationally, one of the biggest game changers that we’ve made in our business is using Monday, monday.com. It’s similar to asana.com.

Just recently, it was so funny because I was talking to David Blank. I was like, hey, man, I want to run EOS with our communities. I run EOS in my franchises. EOS, that’s how we get traction. We’re not getting the traction that we want, let’s get traction. Let’s run EOS. He’s like, it’s funny you mentioned that because I thought about it, and let’s try it.

Now, all of our issues are in the Monday system. Any projects and to-do’s are on Monday. Our weekly calls, we’re sticking and moving. We’re knocking them out. They’re letting me know that, hey, here’s the things that, Nick, we need your opinion on. Hey, we’ve got to resurface these rows more recently.

It wasn’t a resurface. There’s a small section of gravel rows in our communities, $1500 to fill the pothole, compact gravel, approved or not. I just click a button, it’s just easier. There are so many moving parts, so many issues. It’s just really good to put all those issues in one place, talk about them as a team if needed.

Andrew: Let’s talk about that real quick with using and working with a third party property manager, because I think that’s really good. You’re still hands on into expenses, repairs, and there’s a process for it. Tell us about using a third party manager to manage mobile home communities. There are not very many of them, but Blank Communities is one of the big ones. How’s that been? What have some of the hurdles been? What have some of the good sides of it been? 

Nick: The good sides are, at the time, I think I had eight employees, and I lost two key staff people. I only had five communities with two full time people, a bookkeeper, and our community managers. I lost the key staff. I heard about them. I saw an ad in the MHU insider. I just called Steven and we got along really well. It was a fit.

If I didn’t have my other franchise businesses, I may have more bandwidth, but I just know what I’m good at. I’m not the best at operations, but I do feel like I’m really good at asset management. I’m good at paying attention to the metrics.

I think anytime you convert management, anytime it’s new ownership, or you’re converting management, it’s about a six month thing. That first three months, just getting ready to pay the rent on time through the online payment board. Then it takes another couple of months to get everything up and going.

Like I said, I finally feel like we’re hitting our stride, but I consider myself a full time asset manager. I have full visibility into the entire organization. Every single week, I look at our weekly reports to see where our move-in and move-outs are. I see where our vacancy status is. We’ll look at our vacant units report from rent manager and see where we’re at in our Monday system now.

That’s been a big thing is tracking our progress on rehab through the Monday system, looking at every single expense every single month. We have one, it was like we were paying for gas for a couple of communities. The gas just didn’t get converted. It was a manager, but he isn’t the manager anymore. For whatever reason, somebody moved in from one of our units. It was a park-owned unit, it was vacant.

He has gas and he heard it. It’s $600 a month. Like, okay, let’s stop paying $600 a month. A lot of it is usually little stuff. Even Metron meter, one of our communities. I’m like, it’s a small community. It’s 26 lots. Why are we paying for 34 meters every month? Six lots a pop. Little stuff like that all adds up.

That’s every month looking at each individual expense. Every week, getting into Monday. We’re having these key projects and getting our vacant units moving forward. To Blank’s credit, everyone knows, but I think at this point, operations are hard, operation in any business is hard. An old park is probably a little bit harder than most businesses. I look at how easy it is to run our five magazine franchises compared to the six mobile home communities. It’s 10 times harder than the mobile home park world.

Blank does a great job. They’re professional, they’re institutional. They have a new controller which I’m super excited about. Our company has gone from okay to really good. It’s great.

Andrew: Let me ask you this, Nick. If you were going to invest passively with your own cash into a mobile home park deal like a syndication, what would be the most important things you would look for or do before wiring the money in for the deal?

Nick: It’s all about the jock. I just turned 40. We were at the racetrack on Saturday. I was talking to somebody last week. I’m raising money in a deal, and people ask me a lot of questions. I want the questions, I’m an open book. I know that that’s really important and it’s all about the jock. You got to trust the jockey. You got to feel good about the jockey. You have to rely on them.

Track record is really important. I think Justin Donald was on your show, Lifestyle Investor. I don’t know the exact terms, but I think they typically don’t bring a deal unless somebody has 10 years experience in real estate. Ten years, that’s it. Unless you’ve been doing it for 10 years, unfortunately, they’re not going to vet this deal, do their full due diligence, and all that just because they know. That’s just how it works.

I’m not investing passively. I started investing passively in other stuff outside of real estate. I’d probably run a background check. It depends how much money I would be putting in. Background check, you never know. I’ve seen stuff, especially in that group. We’ve seen stuff that comes up like, hey, we brought this deal, but our due diligence came back, and there was an issue. We’re not suggesting to move forward on it anymore.

Looking at asking questions, like what are you doing to manage? What does that look like? What are the fees? Some of these groups just make money off of fees, and then it’s all projections and fees. That’s how people get burned. People just do deals.

I’m always hesitant on funds, because when you look at those fees and you’re like, oh, wow, there’s a 2% acquisition fee, 2% asset management fee, 8% property management fee, and I’m like, oh, these guys are making a quarter of a million dollars in fees, they don’t care how the deal performs. Those types of things.

I would ask other operators. If somebody’s looking in a self-storage deal, probably close the deal by at least three other professional self-storage operators. If I wasn’t in the mobile home park space, I’d say, hey, talk to Andrew Keel and these three other people. Get their opinion on the deal. You and I both know probably within five questions whether a deal is good or not just based on the experience we have in the month.

Andrew: That’s great. I think definitely ask for help. I’ve seen some new mobile home park operators. They come across as operators, but they’re really just money raisers. That’s one thing. You should know, hey, what’s your part in this? What are you doing?

Are you actually doing asset management? Are you actually doing the underwriting and looking at the due diligence? Or are you just a capital raiser? Just meeting investors, advertising for investors, and then having a conversation about the asset class and the benefits of it. You should know if that is who you’re investing your money with, or if you’re actually talking to the operator. Just be aware of that.

Nick: One thing on that too, to give the new person credit, a lot of times they actually don’t know. They don’t know what they don’t know. They don’t know how hard it is to move and sell a used home. For us today, if there’s a market, we can’t sell a house for $200,000. We’re probably not going to take on the big infill. It’s just so hard to find used homes and bring them in.

People underwrite these deals, bringing in 15 homes a year. I’m like, where are you going to get them from? Are you going to sell 15 homes and the median home price is $120,000? That type of thing.

Andrew: It’s tough, yeah. Another thing that I think is really important is understanding a quick value. As an LP, there are a lot of ways you could look at the underwriting and say, wow, these things cashflow so great because they’re capitalizing park-owned home income. They’re the manufactured homes as rentals and using them as straight rentals. The cap rate looks like it’s a 15 cap.

But when you look at it like a bank looks at it off of the lot rent, you just basically take the number of occupied lots times the current lot rent. Say you got 50 lots at $350 lot rent, it gives you $17,500 a month in gross revenue times 12 is $210,000 a year in annual gross revenue, typically, parks from what we’ve seen been around on public utilities are 40% expense ratio. You take away 40% of the $210,000, it brings you to $126,000 in NOI.

To get a deal to pencil out right now with interest rates at 7.5%–8%, you need to have a spread above that. Your cap rate has a foreseeable path to getting to a 9%–9.5% cap at a minimum because there are low rents, you have infill, or you have some sort of value add to get it up to a 9%–9.5% cap to get a decent return. I think just understanding that quick value.

Even internally, with our underwriting, it started getting bigger and bigger and bigger. It was like, hold on guys, we need to go back to the basics. Let’s just look at the quick value. Does this deal make sense off of that? I think if more people did that, they would know, okay, this is a deal or wow, they are betting big and adding a lot of value on park-owned homes or vacant lots, where they’re paying money for the vacant lots or for the homes. What are your thoughts on that? I’m curious.

Nick: I think I totally agree with you. A couple of things that come to mind. You mentioned looking at deals. I think I see a lot of deals that have the wrong expense ratio. 

Some people say, oh, it’s direct bill utilities. It’s a 30% expense ratio. I’m like, I’ve looked at probably 300 deals, I’ve never seen it. You can’t get there. The only way you really get there is probably if it’s like a 180-site community, it’s all direct bill, water, sewer, trash. That’s even harder.

Also, the only thing I would add to that, and I think that’s great, the napkin math is great. I was telling a friend this morning, we were talking about underwriting because we underwrite all our deals. I found her, I’m like, to be honest, the only reason I really underwrite deals with a pro forma and a spreadsheet is because that’s what the banks want, and that’s where our investors want.

If it was just me buying on my own, I probably have a piece of paper and I do the exact same napkin math, and the only thing I would add to that is the end of the movie. A lot of the time, it’s like, oh, the deal pencils. We’re going to buy it at a 9-cap, get it to a 12-cap, but then you only make total investments, especially in these bigger deals. Total investments, $2 million.

You buy it for $5 million, then you sell it for $8 million, and then you put $2 million in. Those numbers probably don’t make sense, but hopefully the point makes sense. It’s not worth it. The juice is not worth the squeeze. It is worth the squeeze if somebody’s making, on those bigger deals, $120,000 in an asset management fee every year. Yeah, I would do that too if I’m not ethical. 

Andrew: You’re getting a fee and that’s how it makes sense for you. 

Nick: Beginning and the end of the movie is a big one and how much capex you need. That can make a big difference. 

Andrew: And the project management of the capex. It’s one thing to have the money and say, okay, we’re going to bring in 40 homes, but then you need to have a high level person in charge of that budget that is held accountable to staying within budget, consistently making sure that they’re saving money, and not just blowing it. It’s a lot of accountability that’s important.

Nick, let’s talk about park-owned homes. Have you bought in some parks that have had a significant amount of park-owned homes? 

Nick: Yeah, all of them. Those are where the deals are at. You had asked me earlier, one of the things you learn, I thought, you know what, that’s been the biggest lesson I think because I look at the communities we bought. One that was primarily a parked-owned home community, I think it was 35 homes. This one was 42 lots, 35 homes, all occupied. These were nineties and newer homes.

That property has been performing great. Similar community, different area, but homes in the seventies and eighties homes. We’re churning residents a lot quicker, and then it’s just a big capex. Somebody leaves the 1982 trailer, $10,000. If you’re lucky to get that thing to be able to sell it. You could probably find somebody that’ll pay rent. We don’t want renters, we want people on a path to home ownership.

The nice thing is that there are companies out there, PEP, Zippy, 21st, where if you do it right, you can usually recoup your costs for the home that you put into these homes. But when you’re underwriting deals like looking at the age of home and Frank Rolfe’s ideal. 

One of our partners came out. We did a site drive. We’d probably drove 200 miles or five communities all around. Then we drove around St. Louis, and I was telling about the ideal investment. I remember Frank, one of the biggest things I learned from his bootcamp is infrastructure, density, economics, age of home, and location. That is a park. What is the infrastructure? Is it public utilities? Is it on a well or septic? How close to the homes together? How bigger is the lot in terms of density?

Economics, for us personally, it’s $200,000 median home price, good median income, growing population. How close is it to Walmart? That’s the easiest way to look at it. Every deal I ever looked at is Walmart, how far. That’ll tell you if it’s a good deal or not typically. Then where’s that location? Age of homes, though, that’s the biggest one you have to be careful of.

Andrew: That’s good. Yeah, park-owned homes can eat your lunch. Your NOI can look great, but if you don’t have any cash flow at the end of the day because you’re investing it all back into capex to rehab those vacant homes to get them sold again, it’s just a churning wheel and you’re not making money. Nick, what do you think is the biggest threat facing mobile home park investing right now? 

Nick: Basically investing or the asset class itself?

Andrew: I think from an investing standpoint. What’s the biggest threat?

Nick: This is a passive investor podcast. The biggest thing I would look at is how people underwrite deals and the refinance five years from now. I see people that make assumptions, like we’re going to buy it at a 7-cap, we’re going to sell it at a 6-cap, or buy it at an 8% rate and refinance at a lower interest rate.

The way I look at it is just, and I don’t know if this is right or wrong, but I just assume an entry cap is the same as the exit cap. I assume the interest rate at refi is the same as the interest rate at the purchase. I’m curious. Is that a good thing in your mind, or would you even be more conservative then?

Andrew: No, I think that’s good. I think we do the same. It’s just tough to hold a crystal ball and guess what the future is going to look like. I think you have to just predict the exit cap to be the same as the entry cap.

Nick: It’s funny. I was talking to a girl on Monday, actually. She was talking to a home builder, and they’re talking about rising home costs. Something was going to add $15,000 to every home. This world is going to the Blackstones of the world owning 50,000 single family homes, and they’re renting these homes. People aren’t going to be able to buy houses. Where is it going? It is what it is.

The beautiful thing about what we do is we provide an amazing, affordable housing opportunity that it’s just great. The demand will always be incredibly, insanely high. The lot rents will always be half of what they should be, maybe even a third of what they truly should be. As an investor, you’re always going to typically make your money, raise lot rents, and increase the income that way and asset appreciation.

Talking about Steve again, I’ve learned so much from Steve, though. He did due diligence on our first four or five communities. We had a lot of mutual friends. He’s like, Nick, if I could go back and do it all over again, I’d never really understood asset appreciation, like how these assets actually appreciate over time. That’s just a beautiful thing about it. I’d say the biggest threat is the interest rate environment and general economy if I had to pick one thing. 

Andrew: That’s good. Nick, how can our listeners get a hold of you if they’d like to do so? 

Nick: The best thing is to visit the website, elephantcp.com.

Andrew: Cool. We’ll put that in the show notes. Thank you for coming on, Nick, and sharing all these golden nuggets with us. 

Nick: Always love talking shop with great operators like you, man. Happy to be here. 

Andrew: Thanks again, Nick. That’s it for today, folks. If you got any value out of the show, I would ask you, please leave a review. Thank you all so much for tuning in.