Listen on Apple Podcast here: https://podcasts.apple.com/us/podcast/interview-with-alex-ramirez-of-lucky-communities/id1520681893?i=1000574799754
Welcome back to the Passive Mobile Home Park Investing Podcast, hosted by Andrew Keel. On this episode of the Passive Mobile Home Park Investing Podcast, Andrew talks with Alex Ramirez of Lucky Communities. Alex and Andrew discuss Alex’s strategy when it comes to investing in mobile home parks. They also touch on Alex’s experience in the hospitality industry and how he journeyed into mobile home communities. Alex and Andrew also talk about the future of the mobile home park industry given the uncertainties in the economy, the opportunities mobile home park investing presents and they give advice to new investors.
With his partner Zach Kupperman, Alex co-founded Lucky Communities.They have a combined 25 years of experience in the housing industry. Alex oversees all company and park operations. He is responsible for property management, tenant management, acquisitions, underwriting, facilities, human resources, and deal origination. Alex previously founded the real estate firm CSM Realty, a real estate development and management firm based in New Orleans, Louisiana specializing in boutique hotel and multi-family assets.
Andrew Keel is the owner of Keel Team, LLC, a Top 100 Owner of Manufactured Housing Communities with over 2,000 lots under management. His team currently manages over 30 manufactured housing communities across more than ten 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.
Andrew has been featured on some of the Top Podcasts in the manufactured housing space, click here to listen to his most recent interviews: https://www.keelteam.com/podcast-links. In order to successfully implement his management strategy Andrew’s team usually moves on location during the first several months of ownership. Find out more about Andrew’s story at AndrewKeel.com. Are you getting value out of this show? If so, please head over to iTunes and leave the show a quick five-star review. Thanks ahead of time for making my 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.
00:21-Welcome to the Passive Mobile Home Park Investing Podcast
02:00-Alex’s journey into mobile home park investing
09:15-The hospitality business and boutique hotels in 2020
14:17-Lessons from the hospitality business
25:21-The hardest value-add component in mobile home parks: infill
26:27-Value-adds in Alex’s current acquisitions
28:40-The best opportunity or strategy in mobile home park investing right now
32:36-Mistakes Alex has made in mobile home park investing
35:50-The most important things passive investors need to look out for when investing in mobile home parks
37:59-Alex’s perfect mobile home park
39:00-The future of mobile home park investing
41:39-Getting a hold of Alex
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Links & Mentions from This Episode:
Lucky Communities: https://www.luckycommunities.com/home
Alex’s Email: firstname.lastname@example.org
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/
Andrew: Welcome to the Passive Mobile Home Park Investing podcast. This is your host, Andrew Keel. Today, we have a special guest in Mr. Alex Ramirez of Lucky Communities.
Before we dive in, I want to ask you a real quick favor. Would you mind taking an extra 30 seconds and heading over to iTunes to rate this podcast with 5 stars? This helps us get more listeners, and it means the absolute world to me. Thanks for making my day with that five-star review of the show. All right, let’s dive in.
Alex is the co-founder and CEO of Lucky Communities. Alex and his partner, Zach Kupperman, bring a combined 25 years of experience in operations and development in the housing industry. Both founders were born and raised in New Orleans and continued to reside in the Big Easy with their families.
When Alex’s mom immigrated from Colombia in the early 1980s, her first home was in a mobile home park, making this yet another reason why Alex is so passionate about the space.
Alex, we are excited to welcome you to the show.
Alex: Happy to be here, Andrew. Thank you for having me. I’ve listened to your show for quite some time now since the beginning. It’s an honor to be here with you, man.
Edward: Yeah. It was great meeting you at the MHI Congress & Expo in Orlando here back in April. I’m glad we were able to connect. I think this will be an awesome interview, so our listeners can learn more about you and Lucky Communities.
Alex: Absolutely. I’ve been in real estate investing on my own or with partners for the past 10 or 12 years, but I think relatively speaking, I’m a newbie to the mobile home park space. We founded our company in 2021, so MHI, when we met, was my first experience at that particular conference.
It was great. It was great to meet people from all over the country, particularly from the industry. No doubt, it’s true what they say about folks in the industry itself that everyone’s friendly and willing to lend a hand. It was a great experience.
Edward: That’s awesome. Alex, maybe you can start out by telling us your story, how you got into manufactured housing, and how you came up with the name Lucky Communities.
Alex: I’ve always known that I wanted to be in real estate. Growing up, I was always around it. My parents were able to put together a small portfolio of townhomes. They were the type of folks that put their sweat, blood, and tears into it. They did it the old-school way without any leveraging, saved up their money, and did all the work themselves. I knew that there was a better way of doing it. My parents pushed me to find a better way.
Just taking a step back from that, I was, as you said, born and raised in New Orleans, Louisiana. If you guys have never been here, come on down. It’s a great place. The hospitality is second to none.
I left for school, went to Rhodes College in Memphis, Tennessee, spent my four years there, and after that, lived in DC working for equity residential as a leasing consultant. After doing that for maybe three or four years, I moved back to New Orleans.
This is now 2009. I wanted to be part of the revitalization efforts after Katrina especially knowing that it’s my home city and as well that I wanted to be part of the real estate revitalization. Prior to Katrina, New Orleans was always known as a brain drain, if you will. No one ever came back.
I never expected to come back, but after Katrina, a lot of young people saw the opportunity to come in and make a difference. I wanted to be a part of that, so I moved back home and started working for the New Orleans Redevelopment Authority. We were tasked with, essentially, those privately owned properties. There’s a program called Road Home. It was a statewide program where the state bought back those homes from private citizens who weren’t interested in coming back into the state or in our case, the city of New Orleans.
Instead of just letting those homes as dilapidated property just sitting there and privately owned, the state bought them back. We were then tasked in terms of working with the different neighborhoods to come up with a disposition plan. I did that for about a year, but I’ve never been someone to really do well in a large corporate environment. I’ve always known that I wanted to go off on my own.
At about the end of 2010, the start of 2011, I moved into ground zero into one of these neighborhoods that had pretty much all abandoned properties and I did the opposite of what any smart investor should do. I moved into the nicest home in pretty much ground zero where I was surrounded by vacant properties. This was before I had my wife and before I had kids, so it was just me. I was like, you know what, I’m just going to get in there and see what happens.
As anyone knows, it’s hard to get into real estate as a young entrepreneur with very little income. I took $5 with an FHA loan, bought my first property, and then started calling up folks who owned the properties next door that were abandoned. That led to a business there where I founded CSM Realty. I was able to buy abandoned properties. This is again 2010 after Katrina and the bubble. Things were just sitting there.
At that time, I picked them up for little to nothing. Once I started renting those properties, I started looking into the short-term rental industry as well. Again, this was before it was saturated with the listings and popularity that we see now, so it did really well, especially in New Orleans where it’s a city that takes in a high amount of tourism but the man was there.
That got me into the hotel business. I started developing boutique hotels in that same area of New Orleans, which is Mid-City. I met some great business partners along the way.
Then, fast forward to 2019, all of a sudden, we have three boutique hotels. I’m finding myself in a position where I’m spending the majority of my time managing hotels which was never the plan. It just happened.
One of those investors that we had in the hotel brought me a mobile home park field. I knew nothing about it. I looked at the numbers and that was it. I never looked back at that point. That’s 2019.
In terms of new business, that’s what I focused on. 2020, the pandemic hit. Now, we’re playing defense with a hospitality portfolio. No one knows what’s going on. Andrew, you remember those times. It feels like a long time ago, but it was maybe two years ago and we literally had no answers. Literally, the world stopped turning.
We play defense. Thankfully, the PPP programs saved us. Without it, a lot of businesses wouldn’t be here today. Frankly, it’s hard to imagine how the economy would look without those programs.
2021 came along, and then we started ramping up again with the mobile home park ambition. That is where we founded Lucky Communities. That is the long answer to the history of where I come from.
The name Lucky you asked, we know we wanted to have a different name. There are a lot of great companies out there. There’s Eagle rocks or Blackstone. You have a very specific name to your name or to your company as well, but the reason it made sense for us is because for us, the act of getting lucky is a mindset. The harder you work and the more focused you are, the luckier you get. In any books that you read about these successful entrepreneurs, you’ll find that they got lucky after they put in the work. For those two reasons, we decided to stick to the name, and Lucky Communities was born in 2021.
Edward: I love that. That is awesome. I love the origin of the name there. That’s super cool. Tell us more about the hospitality business. Do you still own those boutique hotels to this day? How are they operating now versus when you started them? I can only imagine being March–April 2020 and owning three boutique hotels.
Alex: It was wild. The biggest fear was that because we were boutique and small, we thought we’d be left out of the recovery protocol because frankly, we understand that the first guys to be saved are the ones that are too big to fail.
We didn’t know what was going to happen, but as a team, I have some incredible partners. One who is my partner here at Lucky Communities was a lawyer by trade and just knows how to dig into these programs, get there, be proactive, and understand what we need to do.
It was a scary time. It certainly was. I don’t think we’ve ever seen anything like it where money just stopped flowing. At all levels, money just stopped. It was an incredible time.
Fast forward to this day, we did sell one of those hotels. Thankfully, it did well. The reason it did well was because of the location of this particular hotel. It was very well centrally located. If you understand hotel investors and developers, there’s a lot of pride that goes into ownership of these properties, so they’re willing to pay a premium.It’s hard to forecast the exit of a hotel because there are certain investors who will pay a premium to be in the business, but thankfully, we did okay.
We have the other two that we still manage and operate. Those are doing well. As we know, the economy is still very strong. Once we were able to survive the pandemic, people were itching to get out, especially to a city like New Orleans. But we’re all about that social aspect, having a good time, letting loose, and all that. I still got those, but in terms of new business, it’s all mobile home parks moving forward, at least for me.
Andrew: Wow, I’m just thinking, did your reservations just stop completely? There was zero income? I assume you have loans on these boutique hotels where you were talking to lenders, trying to get delays on your mortgage payments, and all that kind of stuff. I’m just thinking I would be in panic mode.
Alex: It was. Just like you said, we’re on a bunch of different channels. We’re on Airbnb and booking.com. We have a whole network of systems that handle revenue management.
I just remember seeing those […] come in with cancellation after cancellation after cancellation. It was incredible. It literally flooded the inbox. But thankfully, we were all in it together. We have very good relationships with our lenders, so they did defer payments for quite a bit of time. I think we probably did it for up to a year as a matter of fact. That’s why having those relationships is very important.
Again, the PPP program helped a lot as well. That brought in quite a bit of cash that we needed to just stick out. We were playing defense for a while. Had it not been for the pandemic, we’d be a year into or further into where we are now with Lucky. But look, at the end of the day, if you have the will to survive, it’s not going to come to you.
There are no handouts. You have to go and understand that you have to be creative. That’s how we handled it, but certainly, it was a scary time.
I already wanted to pivot towards mobile home parks before the pandemic, and then once the pandemic hit, that just cemented. From a risk level in terms of the asset class and investing to just the level of headaches, management, nature of the beast in hotels, amount of overhead to hit to just get a piece of the profit, and amount of work to do, that is unbelievable. It’s a lot of work.
Edward: Yeah. I can only imagine. The reason I’m digging into the hospitality side of things is because I think you as an operator—if I put my LP hat on—have been through a crisis on the front lines, and you’ve come out relatively unscathed. I’m sure you and your partners had any up cash until the PPP funds came through. I think that says a lot about you because you made it through and your credit is intact because I know you’re doing other deals. I think that says a lot about you as an operator.
Alex: Thanks for that. I appreciate that. Thinking back, it’s interesting to have these conversations because on a day-to-day basis, you’re just go-go-go and you have very little time to reflect. But to your point, looking back at how we were able to handle that, it truly took a team effort. It was a moment where everyone came together from the lenders to even the vendors to the government pitch then. It was a moment where we all came together and said, look, let’s figure this out. How are we going to be able to survive?
Edward: What would you do differently, Alex? Is there anything looking back that you maybe learned from and would change? How many rooms are these boutique hotels?
Alex: These are about 20 rooms. We have an F&B component to it as well. I’ll tell you, one of the things that we did well in terms of adapting because you have to adapt to the situations is one particular hotel, The Drifter Hotel in Mid-City, New Orleans.
We have about 20 rooms there and we have an incredible F&B system there. In fact, I would say about 70% of our income for that particular asset comes from the F&B side because we’ve been able to create an environment and experience for our guests. There are a lot of locals that come to the hotel to take a dip in the pool and have a drink. We did well making it a very well-designed hotel where once you go in, you kind of forget where you are and you enjoy the experience.
But all that to say is that once we were able to open back up, we pivoted from just a system where we let everyone and anybody in with an admission cover to a reservation system. By doing so, we were able to limit the number of guests that came in.
If you look up The Drifter Hotel, you’ll see that it can be quite a bit of a party scene, but we pivoted from that since the density had to be less to more of high-quality. We essentially elevated the drinks that we’re offering and spent more time on the quality of beverages that we’re making. We increased the prices on those. We’re able to better manage the density, bring down the amount of staff that had to be there at a given time, therefore reducing the labor costs. Then, instead of folks paying $15 to be there the entire day, people were paying $15 for a two-hour reservation.
If you remember, at that time, when someone takes something away from you like an experience and when someone tells you you can no longer get together, socialize, or go to a pool in a social aspect, it becomes very valuable. When we were able to do that in a safe way in terms of respecting the COVID rules, it became a place that everyone wanted to come in.
Our income actually improved. Our bottom line improved because of that pivot there, so that was an interesting thing. That was a very good learning experience. It’s actually something that we’ve kept around because it’s just easier to manage from an operating perspective.
Edward: That’s super cool. I don’t know that much about the hospitality industry, but I can see when we talk to sellers that we always try to create that fear of missing out and that sense of urgency. It definitely creates action. That’s what we try to implement in our cold calls.
Let’s flip over to mobile home parks now. Tell us about Lucky Communities. When did you guys buy your first mobile home park? How many are you up to today? What type of parks are you guys buying?
Alex: We formed in 2021, so we’re still a relatively young company with very ambitious goals. We have our hairy, audacious goals.
Currently, we’re at 250 lots here in Louisiana and Alabama. That’s a total of 5 parks, on average about 50 units per park. The southeast is our main market. Even within that market, our sub-market currently is Alabama and Louisiana. Being from New Orleans just makes it easier to manage as well.
In 5 years, we say this number and a lot of times, folks find it hard to believe without a doubt, but we want to be at 10,000 lots in 5 years. That is proven to be very difficult to achieve, especially with the current expectations of sellers out there about what these properties are worth. It’s a challenge, but we’re going to see how close we can get.
Edward: Yeah. Just in a year, getting up to that many lots is quite an accomplishment. I assume you just left everything hospitality behind and said, hey, I’m all in on this asset class.
Alex: Yeah, 100%. I have an operations manager that handles the hospitality assets that we still have, the two hotels as well as the long-term, single-family rentals, and the short-term rentals that we have. We still have a decent portfolio there and were able to hire a good operations manager. They handle all that, but we’re not focused on the growth on that side.
I think the hardest thing for any business is trying to manage it and grow it. Managing isn’t hard if you’re happy with the status quo. You come into the office, you open up your emails, and if you have a good team, you know what to do. You have a good process and you know what to do. The hard part is balancing that with the growth side because going out there, finding new deals, getting them under contract, and then negotiating all adds up. That is certainly the challenge.
Edward: I totally agree. I remember when we were just starting out, the management income wasn’t covering enough for the team we needed, so I was using the cash flow for my first few deals to fund the management company which can be difficult. Maybe you could tell us a little bit about that. How have you guys set up operations? What does your property management team look like?
Alex: That’s very much the case for us. We were probably overstaffed right now with the understanding that we’re trying to grow ambitiously. I’ve done this a few times now in other asset classes where I’m literally just chasing my tail all day long. It’s hard to do that, so we’re trying to set ourselves up for success.
In terms of what we stand for or what we believe, the way that we get to our ultimate goals is by following our three Os. That is being process-oriented, being people-oriented, and then also being tech-oriented. We try to leverage technology as much as possible.
I think this is an industry that’s a bit antiquated. There’s plenty of room to improve those operations with technology, with Zoom such as this, with Slack, and with Rent Manager in collecting rents digitally. There’s no reason to not leverage technology. That’s something that we try to utilize to our full extent.
Then, we also have being people-oriented. I think that’s incredibly important. This is a people business, so whether you’re dealing with sellers on the acquisition side or whether you’re dealing with tenants, you have to know how to deal with people. As long as you treat people with respect, you’re always going to have a positive outcome.
I think you’ve probably seen this, Andrew, where tenants have a lot of complaints and there are certain things we can’t do about it to help them, but I’ve learned that if you’re willing to lend an ear or build a team that can lend an ear, that’s all they really want, to be heard. A lot of tenants in our industry are not heard. They’ve been ignored by society. That’s been one piece of the key to our success.
Then, just the process. This isn’t rocket science. If you create the right processes, document them, and repeat them over and over, you’re only going to get better.
We try to leverage those three things and we do so by trying to hire the right people and having them work internally. We take away as much as possible from what we call the resident concierge on the ground level and focus on the team in-house that we have at our headquarters to be able to handle the bulk of the administrative stuff. Those are folks that we really focus on training to a high degree.
Andrew: How many people are in that team?
Alex: Right now, we have about 12 full-time employees.
Andrew: Awesome. That’s probably a lot for 500 lots.
Alex: It is, but we’re closing on another 50 lots here in New Orleans in the month of July 2022 and we have another 600 lots that we’re looking to finalize negotiations with right now. We know it’s coming. We just want to make sure we have the right pieces in place so that when it does come, we’re ready.
Andrew: Yeah. Kudos for that. What would you say is the hardest value-add component that you’ve come across thus far in mobile home parks?
Alex: The hardest value-add from what I hear because I haven’t done it yet is the infill process. I haven’t done it because right now, just with the problem of the supply chain, I’m shying away from the type of deals that need a high level of inflow right now because we frankly lack the experience. We understand that it’s taken a long time to get homes and the homes themselves are expensive at this point compared to how they were about a year or two ago.
I don’t know if the price of these homes will come down, but from listening to your show and from other people, it sounds like currently, the manufacturers have quite a bit of leverage, so they can pick and choose who they work with. They’re probably prioritizing those folks who they have history and experience with right now.
Andrew: What are some of the value-adds in your current acquisitions? Are there vacant homes? Is there building back a water sewer? What type of value-add have you done?
Alex: We’ve been fortunate enough to find off-market deals where there is a high level of tenant-owned homes. The biggest issue is that they’ve been poorly run. We’re in situations where, frankly, just the culture of the park needs to be changed. They pay cash whenever they want, some mom-and-pop don’t care, they don’t have a loan to service on a monthly basis, and they keep terrible books.
When we took over this park, that’s what the residents and the tenants are used to. The biggest challenge is coming in there and just educating the tenant quite frankly in the Lucky way and the way that we operate.
No one likes change. Every time you buy a park, everyone is suspicious of what you’re going to do. Our top priority is to go in, make folks feel comfortable, and have them understand that we’re here to help them even though there is going to be change. Part of that culture change is also coming in, enforcing the rules, and having folks fix up their homes.
If you come into some of these parks when we initially purchased them, they were missing skirting. They were not painted. You had broken windows. Part of what we do is come in and enforce those rules.
I went to Frank’s boot camp. It was a great experience for me. I completely agree that even if you allow your residents to borrow money or even grant money to get some of these small projects done, it’ll go a long way. We call that the HIP program—the home improvement program—where we come in and if you need paint, $500 to get something done, or labor, we will supply you with whatever it is you need because at the end of the day, it’s a team effort and it’ll pay itself back in the curb appeal of the asset.
Andrew: Totally agree with you. That’s a great program. Where do you feel is the best opportunity or strategy in mobile home park investing right now?
Alex: Good question. The strategy I think right now is being patient. Don’t do a deal for the sake of doing a deal. You can lose a lot of money that way. Everything in life, there’s a balance. If you overanalyze, you’re going to get caught with paralysis of analysis. You’re never going to get anywhere. But if you jump in too quickly without dotting your Is and crossing your Ts, then you can end up with a deal that in the long term won’t work out. That’s the worst of all situations because you’re going to lose money and you’re going to lose time. That said, what we’re seeing is that obviously, there’s a lot of private equity and institutional money now into the space.
I thought I was a genius when I saw this first deal in 2019. I got into the space only to discover that the cat was out of the bag. That’s becoming more and more the case as we progress, but for us, with a strategy where we essentially centralize all of the operations, going after smaller parks that are not desirable for the PEs and institutional money has been a good opportunity for us even coming down to the 30–50-unit parks because we’re able to essentially create a portfolio of these smaller parks and operate them at scale through our internal and centralized operations and by also leveraging that technology.
By the way, we’re long-time holders. If it was up to me, we’d hold on to these properties for life for the cash flow, not necessarily for the exit, but at the end of the day, you got to perform your end and you got to make sure it all makes sense.
If we were to exit, I think it would make sense to sell the entire business with the operations because it’s already intact to manage the smaller properties throughout the southeast. That is a strategy that so far is working for us as we’re finding more opportunities. But we’re always ready and willing to strike once a bigger deal comes along. We’re just trying to be patient as well as just picking the low-hanging fruit that’s out there.
Andrew: Sure, so 30–50-lot parks. What are you looking at utility-wise? Are you buying private utilities? Is there a specific setup that you look for?
Alex: Yeah. In a perfect world, you have all public utilities, but particularly here in Louisiana, I’ll tell you, the parks with oxidation ponds are very popular. By popular, I mean they’re just everywhere.
For a long time, I’ve tried to stay away from those because of what Frank teaches. Clearly, they’re just not desirable. In Louisiana, it’s something that is manageable. While we try to steer away from those parks that have private utilities, it’s definitely not a deal killer. We’re learning the system and the processes. We’re creating those relationships with DEQ and DHS so that we stay compliant with everything.
In a perfect world, we have water that’s directly billed by the city. When I find some of those deals, I pay a little extra for those. If you don’t have to deal with the water at all and if it goes directly from the tenant to the city from a billing perspective as well, I love that.
Andrew: Definitely. What mistakes have you made in mobile home park investing thus far that maybe some of our other operators that are listening could learn from?
Alex: I think hindsight is 2020. Back in 2020 or the late part of 2020, there were a few deals that we were looking at that we passed on. Again, it was a hard time to make moves. We’re still playing defense. But there were certainly some deals that even then were right for the taking.
I’ve approached those sellers again, and they’ve sold the properties already for up to 50% more than what I could have secured them for just two years ago. It’s wild. But at the same time again, hindsight is 2020.
Frank is incredible. Like I said, I did the boot camp. I’ve learned an incredible amount from him, but I would say that the cap rates and valuation tactics that he talks about may be just a little bit antiquated because you just can’t find those types of deals anymore.
Just like any deal in any other asset class, you have to perform the project. If you want to get into the game today, you have to pay for a little bit of the upside. What we’re finding is that you’re not going to find these deals that are trading for an 8% cap rate on current income, at least that’s not what we have found. Andrew, maybe you’ve had better luck, I don’t know.
Andrew: How do you find your deals, Alex?
Alex: We have an acquisitions team as well. We have an acquisition specialist whose sole job is to cold call. Her job is to simply make contact with that person and try to make an appointment, but once we have confirmed that contact information, it is then my job to go and reach out to that person to build rapport. If they’re not ready to sell today, then hopefully they will be a year or two years from now.
It’s crazy because I’ll follow up every three months and what I’ve found this past month is that quite a bit of those leads are already under contract for an absurd amount of money.
It’s a hard pill to swallow when you’ve been in touch with these folks and then you call them and they’re like, oh, yeah. Some will disclose the numbers, some will not. Those that do disclose the number make you feel better because I just don’t know how you cash flow off of those numbers. Again, when we validate our deals, we’re looking at cash flow more than anything else.
Andrew: Sure. What are the most important things passive investors—we’re talking limited partners here—need to look out for when investing in mobile home parks?
Alex: That’s a good question. I think understanding the assumptions on a proforma even from a very high level. I’m not saying you need to be an expert—you’re an LP—but you should know the basics. If the projected return on your money is heavily weighted on the exit versus the cash flow, then it may not be realistic because we all know there are a lot of very savvy GPs out there who know how to manipulate the numbers and make a return look good.
Proforma is only as good as how realistic it is, so I would advise them to take a close look at how those numbers are being derived. What is your cash-on-cash that you can expect on an annual basis versus an exit two years down the line? Is it realistic? What is the appreciation in that price from now to two years from now? Like I said, some of these deals are going for 50% more two years later in terms of what I have found, but it’s just a risky move.
Aside from that, I would say make sure that the communication is there. Make sure that they’re willing to answer your questions and that they’re willing to spend the time with you. At the end of the day, it’s all about the trust factor. Do you trust this individual? It’s hard to understand the numbers if you’re not an expert in finance, but if they have a proven track record and you trust this individual, then at the end of the day, the numbers are what they are. If they’ve delivered to you in the past or they’re delivered to your colleagues, then most likely, it’s going to be a good operator.
Edward: What does the perfect mobile home park look like in your eyes and why?
Alex: Perfect mobile home park, man, do those even exist? I would say all tenant-owned homes would be fantastic. I think I mentioned a direct water bill with the town or the city where you don’t have to worry about the water at all. It’s not on you in terms of having to bill back or debate those bills with your residents.
The third would be maybe if they’re not eligible for Fannie and Freddie or some sort of agency at the acquisition, then do they have the potential to get there for the reposition? Especially as interest rates continue to climb, if you have a product that you can safely secure with Fannie and Freddie who will undoubtedly provide lower interest rates, I think that would be the perfect park.
Andrew: Let’s talk about that a little bit. I think the economy is changing. Obviously, inflation is still pretty high right now and the stock market’s not doing so well. What do you think the future of mobile home park investing looks like? What steps are you guys taking now to hedge against maybe a rocky next couple of years?
Alex: Good question. I guess that’s one of the reasons I like the mobile home park space. I think there’s a lot of potential there. Why? Simply put, it’s just supply and demand. We can sit here and analyze the economy from many different angles, but just like Sam Zell so famously continues to state, it’s all about supply and demand.
We know that the demand for affordable housing isn’t going anywhere. It isn’t going anytime soon. It’s only been exacerbated by inflation. Meanwhile, prices of real estate including mobile home parks continue to go up.
I’m not sure if you saw the Bloomberg article regarding Biden’s administration’s desire to fire up the housing factories. That was very interesting to see. If we could work on the supply side like the administration wants to and frankly, a lot of people want, there’s a lot of room for growth. If we could find a way to have Fannie and Freddie buy these mortgages from the homes that our residents are trying to buy, that would very clearly lower the interest rates and not treat them like the chattel loans and the type of interest rates we’re getting there.
If we’re able to somehow incentivize local governments to allow manufactured homes from a federal level, that would certainly help. We need to just continue to ease restrictions. I think we’ll get there.
In terms of an industry, I think it’ll take some time, but in the meantime, the demand is there. We just got to work on the supply side to reach that equilibrium because we’re far from it. But if you have patience and you’re willing to find the right deals, then investing in mobile home parks in itself is a way of hedging against inflation. Investing in real estate in general.
Edward: Very cool. Alex, if any of our listeners would like to get a hold of you, what is the best way for them to do so?
Alex: They could reach me at email@example.com. You can also look us up on our website, www.luckycommunities.com. I’m happy to talk to anyone in the industry. Obviously, I can go on and on about this stuff, so feel free to reach out to me anytime.
Edward: Awesome, man. Thank you so much for coming on the show.
Alex: Thank you, Andrew, for having me. This has been a pleasure, man. Keep doing what you’re doing. I love it.
Edward: Appreciate it. That’s it for today, folks. Thank you so much for tuning in.