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 guides us through the seemingly simple process of making a million dollars buying a mobile home park.

Did you know that by buying an 80 lot mobile home park in a good market and simply raising rents $30/ year for 3 years, you can make $1 million? It seems simple, but in this episode I unravel why this is NOT A GUARANTEE.

Andrew Keel defines what he thinks a prime market looks like for mobile home parks by focusing on things like poverty levels, population dynamics, top employers, and market rents.

Andrew talks about current mobile home park investment costs and the potential returns, the impact of higher interest rates, and what to expect if they decrease.

Andrew also highlights the significance of understanding the value of a single occupied mobile home park lot and emphasizes the importance of thorough due diligence and partnering with experienced investor operators to make a million dollars in this niche investment arena.

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 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. To successfully implement his management strategy, Andrew’s team usually moves on location during the first several months of ownership. Find out more about Andrew’s story at AndrewKeel.com.

Book a 1 on 1 consultation with Andrew Keel to discuss:

• A deal review
• Due diligence questions
• How to raise capital from investors
• Mistakes to avoid, and more!

Click Here: https://intro.co/AndrewKeel

Are you getting value out of this show? If so, please head over to iTunes and leave the show a quick five-star review. We have a goal of hitting over 500 total 5-star reviews, and it would mean the absolute world to us if you could help contribute to that. Thanks ahead of time for making our day with your five-star review of the show.

Would you like to see 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

01:50 – Andrew’s definition of a good market: poverty levels, population growth, diverse employment, market lot rents

06:55 – What you’re likely going to pay in today’s market for a mobile home park

10:14 – Interest rates are high but what happens when they go down?

14:00 – Submetering and rent increases = value add

15:00 -The value-add with self-storage vs. trailer park investing

16:49 – Mobile home parks as an investment vehicle

17:30 – The value of an occupied lot equation

19:16 – Why it is important to do proper due diligence and work with an experienced trailer park investor

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

Links & Mentions from This Episode:

Link to Google Sheet referenced in the episode: https://docs.google.com/spreadsheets/d/1Aeszo_C-bs8MPCChEIS28fQMkwvdXasPp3RFBx4_uqs/edit?usp=sharing

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

Welcome to the Passive Mobile Home Park Investing Podcast. This is your host, Andrew Keel. Today we’re going to do something a little bit different. We’re going to discuss how you can make a million dollars buying a mobile home park. That’s right, a million dollars. 

But first this show lives and breathes on reviews. If you have an extra second or two to leave this show a five-star review, it would mean the absolute world to me. So thanks for taking that time. 

All right, let’s dive in. The simple math to making a million dollars buying a mobile home park looks like this. You can buy an 80-space mobile home park in a good market, raise rents $30 per year for 3 years, and you make a million dollars. That’s the simple version of this, and I got this equation from a recent Facebook post from CRE University, which is a Frank and Dave group. Something that they put out. 

I saw this and I was like wow, that seems so simple. I wanted to do the math and share it with you all, to go through it, explain it, and talk about what could go wrong with that, and what could go right in the realistic view of that. But in theory, the simplest version would be hey, you can buy an 80-space mobile home park in a good market, raise rents, $30 a year for 3 years, and make a million dollars. 

Let’s dive in. I want to talk about what a good market is. I think that a good market from my time owning over 40 mobile home parks at this point has a large correlation to housing and to just the economy and to jobs in the area and so forth. I think a good market has a median home price over $200,000.

The way that I check this, I can actually share my screen with you all for those watching on video and on YouTube. But on YouTube, you can check this out. Typically you could type in. I like to do everything by zip code. I think it’s much more local because there are different parts of town. 

If you’re looking at Charlotte and you’re looking at zip codes, you’re going to get a drastically different median home price based on zip code. What I’ll do is I will go to Zillow or I’ll just go to Google really and type in 28117 median home price and then Zillow. It’ll pop up this little housing market page and you can find, like right here, the median home price is geez, insane over $600,000. You can type in other ones like Oviedo, Florida and see again, super high. 

I just think a zip code is a good way to look at this and Zillow has very recent statistics on this and this is updated constantly. That’s one thing that I think a good market is correlated with, is median home price over $200,000.

Another thing is the poverty rate. I will go the same way on every deal. By the way, every new deal that I’m looking at, I do these exact steps. These are my first things that I’m doing when we get a deal that’s in play, not even under contract yet. It’s in play. I’m going to look up these statistics. 

If we type in the zip code, 28117, Morrisville, North Carolina, you can just hit command F, type in poverty, and you’ll see residents with income below the poverty level in 2022. This zip code only has 3.7%, a really good area. Obviously it’s less than the whole state of North Carolina, but that’s something that I think should be under 15% or that’s a red flag. 

There’s a park we’re looking at right now in Amarillo, Texas, and it’s like 23.7% poverty rate, so it’s quite a bit higher than I would like to see. There are some other things about the deal. That’s just a red flag that I’m taking a look at, but there are other factors that make it a good deal. That’s the poverty rate. I think having a low poverty rate or having a poverty rate under 15% makes it a good market. 

Population growing, not shrinking. This is pretty important because we’ve even noticed on some of our wholesale deals if we pass on a deal, if it’s a shrinking market, people won’t be as interested and banks and otherwise will not be interested if you’re in a shrinking market.

Easiest way you can go to Best Places, come down to people’s stats. Again, I’m doing everything by zip code, go down to people’s stats, scroll down here, and generally we’ll have a 2010 population and a 2020 population. You just want to make sure that 2020 is higher than 2010. Pretty straightforward to show consistent growth over that time period. Some markets will have more than others. Some will be 1% or 2%. Others will be much more. Just keep an eye on that. 

Diverse employment is another big one. What I’ll do here is I’ll go to Google. I’ll type in the top employers in the county. Then typically a site like this will show up like an economic development or a chamber of commerce site will show up and then you can click on the top 25 employers and it’ll show you who they are. 

What I’m really looking for is just numbers, like how many people are employed at that company. I’ll dig into the company, what they do. I just want to make sure it’s not a one-horse town. 

We bought a park out in the Midwest and it was just a one-horse town. They had a meat packing plant and luckily that meat packing plant, while we owned it, didn’t have any layoffs or anything like that. But during COVID, it was this big deal because there was a lot of regulation around the food industry and things like that. It just caused a lot of riffraff. 

You want to be careful that if they stop hiring or they stop growing or they shut down that plant, your mobile home park is not going to go dead. These are just ways to check out a good market. 

Another way, a real simple version is hey, what are market lot rents? Are market lot rents above $450 a month? That is generally a good market because I think that does correlate to median home price in my opinion. 

Let’s look at the math real quick . In order to buy an 80-space mobile home park in today’s market, interest rates are 7.5% and 8% at local banks. Let me go to this tab real quick. Okay. Perfect. Much better. This is a little spreadsheet that I put together. It just basically looks at buying an 80-space mobile home park and what you’re going to pay. 

I think in today’s market for that type of stabilized asset, you’re going to pay a seven-cap. Things have gotten as low as a five-cap back in 2021 and 2019 things were really hot. I think you’re going to be around a seven-cap. The bank terms you’re going to get for something like this right now is around 70% LTV, 7.5% interest rate, 20-year amortization, and a 5-year balloon. That’s just through a local credit union type of bank.

But what I want to show you here, I’ll zoom in a little bit, so it’s a little bit more straightforward, is we got 80 spaces, $450 lot rent at a seven-cap. Assuming 35% expenses, assume they already bill back and it’s public water and sewer, which is typical for parks in our current portfolio, your estimated NOI would be this. Per year, the net operating income would be $280,800. 

Then if we take that at a seven-cap, right here, that number is $4,011,429. Let’s say you paid that for this mobile home park, 80 lots, $450 lot rent in the Charlotte MSA, which I think would be a pretty good buy. Then you raise rents $30 a year for three years, which is only 5%–6% annual rent bumps.

Your estimated NOI year one would be $309,600. Already at the end of year one, the value of that mobile home park would have gone up over $400,000. The value at a seven-cap, the same seven-cap that you bought at would be $4,422,857. 

End of year two, again, assuming just full occupancy, you kept it full, all tenant-owned homes, $450 lot rent, and you just raised it through $30. Again, in year two, the NOI goes up to $338,400. The estimated value at a seven-cap is $4.8 million and some change. 

Then at the end of year three, just raising rents, $30 again. End of year three, your NOI goes from when you bought it was $280,800 to now end of year three, it’s $367,200, which makes the estimated value, if you were to sell it at the same seven cap you bought it at, would be $5,245,714. 

Right there, same cap rate you bought it at. Just annual rent increases of $30 for three years would make you over a million dollars, because you sell it at this price. Obviously, there are other considerations like capital gains taxes and commission, if you included a broker or so forth, but dollar for dollar here, you can see where that million dollars was added in value. 

Now here’s the crazy thing. Right now, interest rates are higher. There are talks of them reducing those it’s July 26th, as I’m recording this. But let’s just say cap rates condense. Interest rates go down over the next year or two and cap rates condense for mobile home parks down to a six-cap. 

You bought that mobile home park for just over $4 million, kept it the same, kept all 80 lots occupied and lot rent started at $450. You raised rents by $30 a year for three years, and cap rates condensed on you, which you don’t have to do anything. Cap rates just went down because of the market and interest rates. 

Now, that million dollars can be added literally in one year because you had that cap rate compression, which again, you should never bet on this. This is totally hypothetical, speaking could happen, it could not, but if it does, you can see where value can go up drastically.

Just doing $30 per year increases where it’d be $30 a month increase in someone’s lot rent, by the end of year three, the value would be over $6 million for something you paid $4 million for three years earlier. If the cap rate condensed, you bought it at a seven-cap, you sold it at a six-cap, you didn’t use a broker to sell it, and you just raised rents $30 per year for three years.

Pretty cool. I wanted to compound this and see what it would do in 10 years. If you bought something in a good market, you raised rents 5%–6% per year, just $30 per year for 10 years, and let’s just say you bought it a seven-cap and you sold it at a seven-cap 10 years later, the NOI at the end of 10 years would be approximately $568,800. 

The value of the park would be $8,125,714. You bought it for $4,011,000 and you held onto it for 10 years, just raising rents by $30 per year, and you kept it full. All 80 lots are occupied. You kept the expenses around 35%, and literally at the end of year 10, the value could be over $8 million. Literally double the value of the asset. With the leverage you would have from the financing, you can see where that would just create a lot of value. 

If again, interest rates condensed to a six-cap and you bought it at a seven-cap, the value would be over $9 million for that asset that you paid just over $4 million.

It was a pretty cool exercise. I was talking with my business partner, we’re looking at selling some assets and it’s really interesting because in some of our parts, there’s a lot of turnover and we’re investing a lot of the cashflow into CapEx to fill those vacant lots, because people pulled their homes out or they need to be rehabbed or so forth.

We’re investing a lot of the cashflow into them to keep them full. Even if we do that and keep those 80 lots full and just keep up with the rent increases for 10 years, it’s still worth it to sell at the end of 10 years, even if the cashflow wasn’t great that entire hold period because of that appreciation.

This is something that’s not planned on in the forefront. It’s just nice to review and remind yourself, just keep occupancy high and keep up with your annual rent increases and operate it well. The value potential is there. That’s pretty cool. 

Let’s see, what else did I have in my notes here that I wanted to talk about? We talked about if interest rates go down, and talked about the 10-year hold period. It doesn’t account for submetering if you buy a park. This is just raising rents $30 per year, which does not have any additional expenses. Your expenses are mostly fixed. That rent increase goes straight to NOI. If you’re submetering water sewer, that generally can take expenses from (say) 45% of gross revenue down to 35%. If you buy a park, that’s a lot of value that you can add to something.

It doesn’t count for any infill on those 80 lots assuming that you bought them completely full. Lots of additional value add to be had in mobile home parks. It definitely takes elbow grease. That’s one thing I put on my notes here is like, this isn’t easy. 

This is something that to keep those 80 lots occupied is a full-time job, and to keep it managed at a high level, to make sure it doesn’t have violations and refrigerators showing up in people’s front yards and things like that, you got to be hands on with these things. 

I just think the value add potential is more reliable and easier to see versus other asset classes like self-storage, for example. When he got into self storage, bought 11 facilities, and we’ve sold several of them. We’re down to five, we have five left. 

In storage, the value add is building more square footage, which is hard to do and risky and capital-intensive, or you can raise rents to market and hope people don’t move out. But it’s month-to-month leases and this whole revenue management thing is very market dependent. 

That’s one thing we learned. You really got to buy in good markets. The storage facilities we bought in good markets did well. The ones we bought in more tertiary markets have struggled. There’s more storage coming online so that additional supply was some headwinds we faced.

I think raising rents and thinking people won’t move out is not true. Ten percent of our tenants move out every month and then we have to refill that 10% every month. It’s an ongoing operational-intensive business, just like mobile home parks. 

I think that’s the explanation I wanted to give you though, just as the value added mobile home parks are very easy to see. It’s harder to predict value add in other asset classes. The mobile home park residents are stickier and can withstand the 5%–6% annual rent increases better than other asset classes can, because at the end of the day, storage is just a metal box that they can go pull their stuff out of and be out of in a day, where a mobile home block level tie down is much harder to do that. Also, lot rents are still stupid cheap across the country. They’re way under market because of the fragmented ownership. A lot of mom and pops own these. 

Wrapping up this quick podcast, in conclusion, mobile home parks can rock as an investment vehicle and as a supplier of affordable housing, which is desperately needed in most, if not all areas of the US where we invest in mobile home parks. 

Making a million dollars is possible but definitely not guaranteed. I should put an asterisk next to that. It’s not guaranteed. Stuff can and will go wrong, including turnover on occupied lots. Those have a large appetite for CapEx funds and can eat up your cash flow. 

But you got to keep those 80 lots occupied. That doesn’t say you can do this and then let occupancy slip down to only having 70 occupied, like many of the parks we buy. You got to keep those 80 lots full because the value of an occupied lot is so tremendous. 

The value of an occupied lot, if you look at it real quick—I’ll share my screen again for those watching on YouTube—at $450 per month at a seven-cap, if you do the math here, which is basically you take 450 times 12 times 0.65, take away 35% expenses, and then divide that by a seven-cap, so the value of one occupied lot is $50,143 if lot rent’s $450. 

If you spend $25,000 to bring a home in and get it set up, and then you sell that home for less than that, it’s still a win as the park owner. I put it in here, if you spend $40,000 to bring a home in and you sell the home for $30,000, on paper you lose $10,000 because you sold that home for less than you have in it, but it still makes sense because you got $30,000 back. You added $50,000 of value to your park for $10,000 net because you spent $40,000 and you got $30,000 back out of it. You’re $10,000 in, and you added $50,000 to the asset value. It still makes sense. 

That component makes mobile home parks really just different, attractive, and unique, where a lot of other asset classes don’t have that luxury of those homes and the value of the home is really not the value. The value is the lot rent and that recurring income from that. 

Back to my conclusion here. Tenant-owned homes. People will abandon those trailers. You have to come in, rehab them, and spend money to get those titles. Home move outs. We’ve had some wholesalers come into the park we own in Indiana and Hudson, Indiana, buy the mobile homes, and then hold us hostage and say hey, we’re moving this out or you can buy it back from us for $10,000. We have to reinvest that money to keep occupancy high. 

There are things like that can eat up the cash flow, but again, keeping it full, doing those $30 per year for three year increases can be super valuable. Along with obviously you need to fix the deferred maintenance, tree trimming, roadwork, make it safe, utility repairs to fix the property’s condition and make sure that again, you got to keep occupancy high. You got to keep the water working, the sewer working and so forth. That stuff is imperative and can eat up a lot of money and ruin a budget. 

This is all why proper due diligence before making a purchase of a mobile home park is super, super, super important. Also why investing with experienced mobile home park investor-operators can help you avoid costly mistakes, like buying a park that needs all the water lines replaced or all the sewer lines replaced, or buying a park with bad electrical infrastructure, or with small lots that can’t fit homes and you thought you were going to infill all these homes, but you can’t infill them on them because the homes or the lots are so small. 

A lot of things to consider, but thank you so much for listening to this episode and watching if you’re watching on YouTube. This episode was on how to make a million dollars buying a mobile home park. Thanks so much for tuning in. Have a great day.