Listen on Apple Podcast here: https://podcasts.apple.com/us/podcast/interview-with-andy-tallone-from-cci-investments/id1520681893?i=1000565568639
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 Andy Tallone from CCI Investments. Andy and Andrew discuss several topics related to passive mobile home park investing. Andy talks about what he thinks the perfect Mobile home park looks like, also why he likes tenant-owned homes over park-owned homes and how inflation will impact the real estate industry and mobile home parks specifically.
Andy is currently the Vice President of CCI Investments, LLC. He is a licensed California Real Estate Broker and a Broker-Associate with CCI Investments. Andy started in residential real estate at the age of 22 and gained experience in real estate auctions soon thereafter. Andy got his Brokers License in 1991 and opened Sierra Pacific Properties in San Jose, CA doing residential real estate, land deals and real estate development. From there, he moved on to Dutra Realty, who at the time was the largest independent real estate firm in Alameda County. CCI Investments currently manages over 50 Mobile home parks and has turned around over 300 Mobile home parks.
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.
00:21 – Welcome to the Passive Mobile Home Park Investing Podcast
01:25 – Andy’s background and journey into real estate
03:50 – Andy and Robert’s current parks and their clients’ parks
05:33 – The toughest hurdle for most MHP operators in the industry
09:23 – Perfect mobile home parks for CCI Investments
14:00 – Park-owned homes over tenant-owned homes
25:55 – Used homes versus new homes
30:48 – Mistakes Andy has learned from
32:16 – Pro forma
35:05 – Tips on finding good contractors
36:44 – Important things that passive investors need to watch out for
40:04 – Andy’s perfect mobile home park
48:19 – Inflation and the future of the MHP industry
52:40 – Getting a hold of Andy
53:58 – One last tip for investors
56:03 – Conclusion
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Links & Mentions from This Episode:
Mobile Home Parks for Sale: https://mobile-home-parks-forsale.com/
Andy Tallone, Phone: (925) 323-2134
Andy Tallone, Email: email@example.com
“An Insider’s Guide To Investing In Mobile Home Parks” by Andy Tallone: https://www.amazon.com/Insiders-Guide-Investing-Mobile-Parks/dp/B09PW4TWTW
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, and today we have an amazing guest in Mr. Andy Tallone of CCI Investments. Before we dive in, would you mind leaving me a quick review on iTunes? This helps us get more listeners and means the absolute world to me. Thank you for taking the time to do that. All right, let’s dive in.
Andy is the vice president of CCI Investments. He started his real estate career at the young age of 22 back in 1977 and never looked back. CCI Investments currently manages over 50 mobile home parks out of California and have turned around over 300 mobile home parks. Andy is the owner and developer of mobile-home-parks-forsale.com. He’s also the author of the self-published book, An Insider’s Guide to Investing in Mobile Home Parks. Andy, welcome to the show.
Andy: Thanks for having me. It’s good to be here.
Andrew: Awesome, man. I am excited to learn about your story. I’ve seen your name around the business for some time now. Can you start out by telling our listeners a little about your background, and how in the world you got into mobile home parks?
Andy: As you say, I started in real estate, actually in Silicon Valley, just at the beginning of the tech boom in the late 70s. I sold houses for many years. Moved around the real estate industry and sold land, commercial, recreation real estate. I bought my first mobile home park in 2004 in Modesto, California and the listing agent was the fellow I work for today, Robert Merchant, the president of the CCI.
I bought another park from him, we became friends, and we started working together in 2006. I joined the company at a time when it was just Robert and his secretary. Since that time, we’ve grown the business to a point where we have an office full of people now in our Oakdale California office running 53 parks in 16 states.
Over the years, we’ve turned around literally hundreds of mobile home parks. What makes us unique is that we manage, we run almost every park that we sell, and our focus is on operations. I’m a broker here in California, so is Robert. Outside California, we’re not functioning as brokers. We’re not licensed anywhere else. We are mobile home park consultants. As such, we focus on the operational side of the business which is what people seem to need the most help with.
It’s not that hard to find a realtor to sell you a mobile home park. What do they do at the close of escrow? Their job is done and they walk away Now, it’s up to you to figure out how to make that park work for you. That’s what we bring to the table.
When we work with clients outside of California, usually these days they bring us a park that they found online somehow or through some other means and they need help evaluating it, doing the due diligence, getting it financed, and then ultimately running it.
Since most of the parks we see today have some kind of an upside aspect to them, they need help getting that done. Everybody talks about the upside. You have to physically get that out and that’s what we do. I think we’re the only people I know of (anyway), who you can hire to turn your mobile home park around.
Andrew: Wow, and I am so excited to have you on the show because I want to learn all about that, because that is really the elbow grease that it takes. I think from my time in the business, it’s not a very complex business. There are vacant lots, put homes on the vacant lots, get them sold or rented, then you go about your business. But it is difficult. It takes a lot of persistence and maybe you can shed some light on that. You bought your first park in 2004. How many parks do you guys own now?
Andy: I myself own three parks right now. Robert probably owns, I’m going to say, 10 or 11. The bulk of the business that we do, the vast majority of the parks that we’re running are for our clients, not for ourselves. I just got asked recently, why don’t you take all the best deals for yourself? Robert, my boss, is adamant that we can’t do that. In fact, we have a sign that sits behind his office that says we never get in front of the customer.
I sold one of my properties here recently. I’m in an exchange and you know what kind of pressure that puts on you in a normal market, let alone in a market like today. There were two parts that we had in our mix that I was eyeing for myself, but I couldn’t get a shot at them until we put them out to everybody on our client list. We did that and nobody jumped, so I got my shot. Rather than us creaming the deal and everyone else gets the leftovers, we’re the ones who get the leftovers. We still make that work and it works well for me, and these parks are going to perform very well for me.
Andrew: Very nice. Andy, what do you think is the toughest hurdle for most operators in mobile home park ownership?
Andy: The toughest hurdle? Everything boils down to operations in this business. I tell people, most other types of real estate are asset-based. You buy a house as a rental property, everyone knows what the house is worth, it’s a house. You buy an apartment building, it’s an expensive improvement to that property. Compare that to a mobile home park, if you take the mobile homes off of that is nothing but cheap dirt and some underground utilities. The parks don’t get their value from the improvements as much as from the net income that they produce, and that all comes down to operations.
Management operations are everything in this business, even more so than other asset classes. The onsite manager, the guy who’s living and working in your park and doing that work every day, he’s the key to this whole thing. But someone’s got to manage that guy. We don’t pay him enough to where we’re likely going to get a rocket scientist. We’ve got to get people that are willing to do this work, that have the skills that we need—honesty and people skills and all the other things that they need—but they also need management and supervision. That’s where a lot of self-managing park owners fall short.
The onsite manager will always be on his best behavior when you’re talking to him. When you go there to see the park on your due diligence trip, he’s going to look like the greatest person you’ve ever met. He’s trying really hard to convey that image. Then when you go back home, and you’re a thousand miles away, what these managers do, and I’m not putting them down. I’m not even saying this is anything more than human nature. People adapt. Your managers will very quickly get your number and they’ll figure out what you like to hear and what you never want to hear, and what you check and what you don’t check.
I tell people, the first time you tell your manager to do something and you don’t check and verify that it was done and done right, you’re literally training him that you have a blind spot. Before long, he’ll be driving a truck through that blind spot. It gets bigger and bigger, the more that they get away with, the more they’ll try to get away with.
I’m not talking about the dishonest ones here. The honest good hard-working people, and that’s what most of them are, will simply revert to whatever their default position is. They have a certain way of doing things that may not be the best thing for you but that’s the way they’re going to do when you’re not there.
What we have to do is we have a way of doing this that is very exacting. We have a very specific way we want these things done. We’ve got to provide the leadership to that onsite manager that he needs, support, oversight, and verification. We verify almost everything that they tell us as much as possible.
We’re in California. We’re running parks in New York, the Carolinas, Georgia, 3000 miles away. So you’ve got to have good systems in place to track the activity and verify. You’ve got to have the people to do it. What I have found is that most park owners are smart people. They’re making a lot of money somewhere else and this is one of their investments. They want to be passive.
This is not a business where you can get the results and be passive. Someone has to be on it, whether it’s you, the park owner, or someone that you hire to do it for you. All we do as mobile home parks, we don’t do anything else that is highly specialized, and that’s our job to get that done, make that park run tight.
Andrew: I want to preface this. We’ve had some previous episodes on third-party management companies. I would say that the overwhelming majority have said that the third-party management companies that they’ve had just dropped the ball on one or two occasions.
I would just like to hear from you, what the perfect park looks like that would fit inside of CCI Investments management. From some of the other groups, it needed to be a hundred lots or more so that the income coming in could afford the management fees. Maybe you could pinpoint that for us.
Andy: It’s all about operations. What we specialize in is the park-owned home model. Most people in this business see park-owned homes and they run the other way. We believe in park-owned homes. We think it’s the best way to make money in this business. You’re going to make more money with park-owned homes than renting lots. That’s a general rule. There are exceptions of course.
Here in California where I’m from, where we can get $500–$800 a month space rent, there’s no real reason to rent mobile homes. In most of the rest of the country, we do a lot of business in the Southeast, the Midwest. Most of the flyover states, space rent’s about $200 a month, and it’s really hard to make a lot of money at $200 a pop.
We had to devise a system that made sense for park-owned homes. Everyone’s concerned with the maintenance of the park-owned homes. They’ll walk away from the money because they don’t want to deal with the maintenance. I use as an illustration of this is a call that I got several years ago now from a gentleman in Texas, and I’m going to use round numbers to make it a little simpler.
He says, I’ve got 100 space parks I want to buy in Texas. It’s all full of park-owned homes, a hundred park-owned homes, paying $500 a month. What I want you to do—talking to us—is to convert all those people to tenant-owned homes. I don’t want the maintenance.
I said, well, let’s look at this for a minute. You’ve got 100 people paying you $500 a month. That’s $50,000 a month in income. Now let’s say you get your wish and we sell them all to the tenants, some rent-to-own, or time payment plan, or whatever. Now you’re not getting $500 rent anymore. You’re getting a $300 trailer payment and $200 space rent. Everything’s good.
You get your wish again and in three or four years, these people start paying you off. Now you’re going down to just $200 a month space rent times a hundred spaces, that’s $20,000 a month instead of $50,000 a month. You’re literally leaving $30,000 a month because you don’t want to maintain those trailers. Let’s look at that for a moment.
That time, this was a few years ago, our rule of thumb for the cost of owning mobile homes as rentals was about $1000 per year per home and that’s not just maintenance and repair. You have to put a tag on it every year, just like you do on your car, you have to insure it. It was about $1000 a year. Today, it’s about $1200 with inflation and so forth.
In this example, it was $1000 per year per home, so that’s $100,000 a year to maintain these 100 homes, that’s roughly $8000 a month. You’re giving up $30,000 income to save $8000 in maintenance costs. You’re leaving $22,000 on the table. Now $22,000 times 12 is $244,000 in a year. What is that worth? That drops right to the bottom line, by the way, because we’d already taken the costs of owning those homes out, so that’s literally $244,000 on your NOI. What is that worth? At a ten cap, it is worth almost $2.5 million. At an eight cap, it’s worth $3.3 million.
I told this gentleman, I don’t think you can afford to do this. You’re going to give up $3 million in property value and a quarter of a million dollars a year, all for the sake of not maintaining the homes, and you’re not going to do it anyway. We’re going to do that part for you. We’ll take care of all that, all you’ll do is get the report.
Andrew: I love it. Let me step in because I’ve done exactly what that gentleman was doing a few times now, where we’ve converted them to tenant-owned. I guess there are five reasons why I prefer tenants-owned homes versus park-owned homes, and maybe you can share rebuttals on each.
When you have an apartment complex, the turnover is something that can really impact you. You’re going to have some vacancy there and so forth. In a flat apartment complex like a park-owned home community, I would assume the turnover probably is a little bit more because the tenant base is a little more fragile. Maybe it’s 40%–50% per year. Is that accurate? Or do you have better insights on that number?
Andy: It can be that high, but generally speaking, it’s not that high. You have to realize that in the types of parks that we do and what we’re interested in most is making money. Some people want these beautiful five-star parks. It’s hard to make much money with those.
Andrew: The thing about though, Andy, is financing. That’s another one of my reasons. It’s a beautiful five-star park that can get really good financing on them. That’s another reason. Fannie Mae, I think, wants 25% or less park-owned homes in order to get the best financing available for mobile home parks. That’s probably why they want those parks like that. Go ahead.
Andy: That’s certainly a very valid point, no question about it. You’re going to get better financing if you have a park like that, a five-star park, a four-star park. My point is to buy a park like that, they’re fairly expensive, and you’re going to get a probably a lower cap rate just because they’re in such high demand with institutional buyers and so forth.
Andrew: Because the interest rates are lower typically.
Andy: Oh, yes, it is. That’s right. But enough to make up the difference? I don’t think so. You’re going to pay a lot more for that park, you’re going to have it at a lower cap rate, and yes, you get better financing, no question about it. But you can get good financing now on parks with park-owned homes. I’m buying a park myself in Arizona right now. It’s almost all park-owned homes. The lender I’m using counts the income and the value of the homes. It’s just a matter of getting the right lender. We work with a small group of lenders who understand parks.
Again, you’re not going to get that preference. I get people to say, I want no recourse financing. That’s what you’re talking about there, that A-list kind of financing that you get when you have these beautiful dream parks. The reality is that most people that we work with anyway are not that kind of buyers. You need a lot of money and you need to be willing to take a low return to get parks like that.
Our goal and our clients’ goal is to figure out how to make as much money as they can in the mobile home park business. We have found that the best way to do that is with what we call working-class parks. They’re not trash, but they’re also not four and five-star parks. They have no amenities. Amenities just cost you money.
I owned the 80 space gated park in Sacramento for many years. It had a pool. Nothing but a pain. A magnet for trouble, maintenance nightmare, the state constantly regulating, making you do all kinds of things because of the pool and all these other things. We got a laundry room, machines breaking, and homeless people sleeping in. Everything you can think of.
The parks we have today generally don’t have amenities to speak of. Most mobile homes today have their own washer and dryer. We don’t really want all the extra headaches. It doesn’t make any more money having those things. It just costs you more in many ways.
Andrew: I agree. We don’t have those either in our parks.
Andy: Oh, good.
Andrew: One thing I would comment. On your Arizona park, you said it’s recourse financing. But what kind of debt? What kind of terms do you get on something like that? I haven’t explored it.
Andy: I get about 5%, 30 year […]. I’m putting 35% down.
Andrew: 35% down, okay. That’s good.
Andy: That’s the Madison Group, actually. That is a group of lenders that understands the park business.
Andrew: Nice. How long is that fixed for?
Andy: Five years.
Andrew: Very nice. To go back to the park on homes, I had a couple other things I’d love to hear your insights on. The $1000–$1200 a year per home, from my experience has been more than that. I’m sure it’s different per park. Does that include the labor to have a full-time maintenance guy? Is that part of the strategy?
Andy: Depending on the size of the park. A lot of the parks we do are 30–50 spaces, and most of those can be done with one guy. The manager can do the maintenance and so forth. The key to keeping these costs down with park-owned homes is quarterly inspections and move-in and out inspections.
What most people do and the reason that park-owned homes have a bad rep is that someone will move a tenant into their park-owned home and never go in there again until they move out four years later. Then it turns out, it has had a roof leak for the last three years, and you got a $5000 framing job.
We go in every three months and we take the list of park-owned homes. Let’s say you’ve got 30 homes in your park that are park-owned. We’re going to go do 10 a month and by month four, we’re starting over. The manager will do that maintenance in real-time. If we find a roof leak or something, he gets right out there on the ladder with some snow seal and a paint roller, and for $100–$150 we solve that problem before it costs too much damage.
Tenants are the heart of mobile homes, so going in every quarter, and they know they’re coming in. Number one, they tend to take better care of the home because they know someone’s coming in in the next three months. Number two, if they’re not taking care of it, we spot it early. Soft spots on the floor, plumbing leaks, these are the kinds of things you run into a lot with mobile homes, leaky doors, and windows. You want to catch these things early. Every three months has worked well for us and allows us to keep our costs down.
Some of these homes will hardly cost anything, others will cost a lot more. If you had one park-owned home and the heater went out, obviously, you’d bust the averages. But if you have 20 or 30 homes, some won’t need anything, others will need more. It all averages out pretty well. Today, it’s about $1200. It’s going up fast with costs these days. It’ll probably be up to $1500 a year before long, but right now, we’re taking about $100 off each month for the cost of maintaining that home.
Andrew: One thing that I’ve noticed also, Andy, is that a lot of people don’t realize that mobile homes don’t have the same size drywall. They don’t have the same size doors. They don’t have the same size windows. You can’t just go to Home Depot and get this stuff. You have to order it from a bigger distributor, typically, and it just costs more money, especially with logistics costing more nowadays. That are some of the reasons that maintenance piece is a make or break, based on the condition of the homes you’re getting.
One thing about the tenant-own homes, someone made this analogy. They said it’s like a rental car. How do you treat a rental car versus your own car? I just think when people have their own car and their own home, they maintain it better, they want it to look better, and they stay put longer. Those are some of the reasons why we like the tenant-owned home model, but I’m open to being swayed.
Andy: It’s a choice and that’s what it comes down to. Is there really a choice there? Can you find a park today in today’s market that has tenant-owned homes, that have the kind of return you’re looking for and all the other bells and whistles that you want in a park? It’s very, very hard to find today.
Andrew: It’s getting harder everyday.
Andy: It is. I have people come to me all the time, how do you find parks? Then I find out what they’re looking for. Like when they have the Mobile Home University down in Southern California. I can always tell when they’ve had one because my phone rang off the hook for about 5 or 10 days, and everyone asked me for exactly the same thing.
I’m looking for a park in a metro center with a hundred thousand or better, no well or septic, no park-owned homes, got to be an eight cap. I said, let me guess, you went to the bootcamp. Well, yeah. How do you know? You’re the 10th guy today looking for the same thing.
What you’re going to have to do, ultimately, is expand your scope a little bit if you want to buy a mobile home park today. Now you can get lucky, it happens, but luck is a hard thing to count on. More than likely, you’re going to find a park that is not in a metro center of a hundred thousand. It might have well or septic. There may be some park-owned homes. Vacancies are the pathway to the upside. That’s where the upside comes from is from vacancies.
Andrew: Some people are even paying for the vacant lots.
Andy: Sure they are and sometimes they’re not. We just did a 200 space park in Selma, Alabama for $1,100,000. That’s $5500 a space if you want to count it like that, but 105 of them are vacant spaces. The rest of them are a combination of park-owned homes and tenant-owned homes, many of which need to be fixed. You don’t get deals like that unless they have a little hair on. This one had seller financing with just $100,000 down.
Andrew: Before we get off track, let’s talk expense ratios. In a park-owned home park, what is your typical expense ratio? I’m assuming 50%?
Andy: The ideal that everybody shoots for is about 35%.
Andrew: Fully park-owned home park?
Andy: Here’s the thing that a lot of people don’t understand. Park-owned homes bring in five or six times as much income as they cost. If you look at a typical park-owned home, today we’re buying used park-owned homes and dropping them in our parks between $20,000–$30,000, all in and ready to go. That’s in the South, not in all parts of the country. We do most of our business in the South and in the Midwest.
That home might bring in $600 a month and might cost you $100 a month again, that’s kind of our paradigm. That’s about a 17% expense ratio on just that one home. You already have the park, you already got your, manager, you’re already paying your insurance and all the other stuff. Now you drop this home in.
Your park is running at (let’s say) 40% expense ratio. You start buying a bunch of these park-owned homes and dropping them in. They cost you $100 a month, but they’re bringing in $600 a month. They’re at 17%. You drop enough 17% mobile homes into your 40% park, the 40% ratio actually begins to come down because it’s a ratio of expenses versus income. If you bring in enough income way more than the costs, then obviously the ratio comes down.
I don’t want to say they’re necessarily a lower ratio than a tenant-owned park, but they could be and they’re certainly not as bad as people think. You’re going to spend more in dollars fixing those homes, but ideally less as a percentage of your income.
Andrew: That brings about my next question because I know you’re a fan of used homes versus new homes. Maybe you can elaborate on why that is and share that with the listeners.
Andy: It all comes down to bang for the buck. Until just recently, our average in the South was we can pick up a used home for between—we’re talking single wides—$3500–$8000. By the time you break it down where it’s at, move it, set it up in your park, block it, level it, put skirting and stairs, hook it up, get it rent ready, we were somewhere between $15,000 and $20,000.
The demand for homes now is so much higher because mobile homes are red hot now and people are trying to do what we do—they want to fill up their parks. The pressure on used homes and new homes is much higher today. It is getting harder to find, takes longer to get, and you’re going to have to pay more. Today, we’re assuming more have between $20,000 and $30,000 in the south to get a used home there.
I can tell you that I put 21 brand new homes in one of my parks in Georgia, my own personal park. Ordered the first ones in very late 2019. They started showing up just as COVID hit in 2020. I was paying $34,000. This is a 16×60, which is just about 960 square feet, just shy of 1000 square feet. Three-bedroom, two baths, central heat and air, nicely optioned. I optioned up the kitchens and the bathrooms, put ceiling fans, a bigger water heater and things like that. Not over-improving but important stuff.
I was getting them for about $34,000 a piece. By the time we moved them and installed them, I ran about $40,000. Now, this is at the same time when we were still putting used homes in for $20,000. I’m renting a used home in that park for $500–$550. I’m running a brand new home in that park for around $700. It costs twice as much for the new home, but you’re not going to get twice the rent. You’ll maybe get 20%–25% more rent, but you’re paying twice as much for the home.
Andrew: I think my one comment on that would be, will that used home last beyond 10 years? You’re going to have to tear that home and bring another used home in 10 years?
Andy: I don’t want to say anything bad about the manufacturer, but these homes I’ve had nothing but trouble with. Doors are improperly installed, leaky roofs, air conditioning that doesn’t work, and now I’m past my one-year warranty on those new homes that I’m fixing this stuff.
The idea of buying new homes and being problem-free, it’s a nice thought, and there are probably some manufacturers somewhere that do a great job. My opinion and from the information I’ve gathered from other people is that it’s just the way it is with these new homes. They throw them together quickly. They’ve got such demand.
Right now, that same home that I was paying $34,000 for, the client who bought the Selma Park in Selma, Alabama, he’s trying to buy the same homes that I was buying. I was getting them in eight weeks. They are now 18 months and they’re $48,000. They went up 40% in two years.
The demand is so high, labor shortages, supply chain shortages. If they’ve got a bunch of homes on the assembly line and they can’t get the water heaters or windows, that’s it. Those homes are going to sit there until they do. All of these things are conspiring to make it harder to get new homes, more expensive, and take longer, and that drives the demand for used homes up.
Some people are forced into the used market because they can’t wait that long for a new home or pay that much for them. This used home market used to be ours. We used to go and have Alabama, Mississippi, Georgia. There were used mobile homes everywhere, and now it’s getting really, really tough to find them.
We have bird dogs all through the south just looking for homes for us. We pay them up a little bird dog fee when they find a home that we buy. It’s tough. It’s not as easy as it was, let me put it that way.
Andrew: We own mainly in the Midwest, and yeah, it’s gotten a lot tougher to find used homes. That’s a good point.
Andy: Again, it’s always about making money for us. This is a cash flow business. We’ve learned through practical means by doing it, trying different things and seeing what works, that the best way to make money is used homes and owning the homes. That’s our conclusion. We can do it other ways.
Andrew: There’s more than one way to skin a cat for sure. I agree. Tell me, what mistakes have you guys made in mobile home park investing and managing? What is something that our listeners can learn from?
Andy: Some towns are too small. We’re not against small towns. Out of the 50+ parks we’re running right now, I’d say at least 40 of them are in town smaller than you probably ever heard of. We do find in most of these small towns because there are fewer people, but there are fewer housing choices.
When we do our rent surveys and our rent research in these various areas before we move in there, sometimes we can’t find anything else to compare it to. There are no other mobile home parks in that area. There are very few low-cost apartment alternatives.
In many of these smaller towns, apartments will be like Section 8 with a year-long waiting list all full. The demand is high. Obviously, it’s not as high as it would be in a big city, but it doesn’t need to be. Most of our pro forma plans are not overly blue sky. We want to keep them down to earth, keep the numbers where they’re attainable, almost no matter what happens.
If we can rent one, two, or three a month, our plans will work. We don’t have to set the world on fire to do what we’re doing. If you’re setting up a 40- or 50-space park and you’ve got 10 vacant homes, as fast as we can get them done, someone will be there to rent them.
Andrew: How do you pro forma that out? How many homes can you bring in in a year?
Andy: That’s a tricky question now. It’s hard to say because right now everything’s changing so fast and not in a good way. Up to two years ago, we figured we could probably pretty easily buy one used home a month. Again, I’m being conservative. We’ve bought groups of homes sometimes.
You’ll have a park that’s upgrading their homes, closing, or whatever. We’ll end up with 8 or 10 homes that are at a great price. Sometimes it’ll surprise us, but we don’t want to count on that. We’ve always (up until recently) figured we could do one used home a month.
New homes used to be easy to order. A few weeks, that is as many as you want. Once the pipeline is open, there’s that initial period where you happen to wait for them to build that first batch of homes. From then on, you could get them almost as fast as you want. Things are changing now. It’s tougher to predict.
Right now, the pro forma plans that make the most sense for us and for the kind of clients that come to us are parks that have a lot of vacant park-owned homes that have fallen into disrepair. Then you don’t have to worry about buying homes, the homes are already there. They just need to be fixed.
Instead of spending $20,000 or $30,000 buying a used home to put into a space, we spend on average between about $5000 and $8000 fixing them up. A $12,000–$15,000 fix is a big fix for us. We don’t spend that much money on them. We have our own crews who just work on mobile home parks for us and for our clients who know exactly what to do.
You don’t want to over improve them. I’ve had clients who say no, no, I wouldn’t do it that way. I want new kitchen cabinets. I want new fixtures. I want new this, new that, new bathrooms, all this, and a year from now, it looked like it did before we put the new stuff in. It makes more sense to fix what’s there as much as can be and take good care of it. Through quarterly inspections and the ongoing maintenance, we do that.
We take good care of our tenants, too. That’s a valuable thing that we provide to our tenants. When they call, we’re there. We get our stuff taken care of. As long as they’re paying rent and obeying the rules, we take really good care of our tenants.
Andrew: That’s great. Yeah, the quarterly inspections is a great tip for park-owned homes. If you have a maintenance crew that you could just send somewhere all throughout the south, that’s a huge help.
It’s just been tough for us to find good handyman-types that will work on mobile homes because general contractors and more legit outfits are busy. They don’t want to work on multiple homes, they want to work on single family homes. Do you have any tips on finding good contractors that work on mobile homes?
Andy: We have an economy of scale working for us. As an example, we’re running 11 parks in Mississippi. We have nine in and around Columbus, Mississippi. You get to know people when you’re doing that much business there. These people sort of came to us.
My boss, Robert Merchant, the president of the CCI is from that area. He had a lot of connections to begin with. That’s where it all started for us once we broke out of California. It was in Mississippi and it sort of flowed out from there. A lot of our crews that travel all over the country are from that area.
They’ve worked for us for a while. We took really good care of them. They travel. Let’s say you had a park with 15 vacant park-owned homes in it. The point man, the supervisor of that crew will go out first and bid those homes. Then he’ll come back, he’ll bring the crew back, he will have already picked out the best trailer of the vacant ones that they can move into, and they’ll fix that one first. That saves the owner on hotel and motel room expenses, which is normally what you have to do if a crew travels.
They’ll move into the best home of the lot, fix that up first, and they’ll just stay there for the entire project, and blow out all those other homes. Then when they’re done, they’ll put a few finishing touches on the one they were staying in, and then they’ll move on to the next project. We keep on this.
Andrew: That’s really smart. Andy, let me ask you this. What are the most important things that passive investors—we’re talking limited partners here—need to look out for when investing into mobile home parks in your eyes?
Andy: Obviously, you have to do your due diligence. In the types of parks that we do, a lot of the sellers aren’t terribly financially sophisticated. When you get into the higher end, five-star parks and so forth, they’ve got professional management. You’re probably using a software program like Rent Manager or something.
But when you’re dealing with the mom and pop, sellers are often doing their books on QuickBooks. The only thing they have is a rent roll, and it’s in a spiral notebook, and they write it every month. You have decisions to make on a deal like that. Are you going to take his word or what?
Then it kind of comes down to instinctual. We look at those parks and we’ve looked at so many. We can tell if it’s probably making that kind of money or not. Obviously, due diligence is critical.
The bottom line again in this business is always comes down to management. Who’s going to do it? The problem that we run into is that a lot of these people that are investing today are really, really smart people.
We’re in Northern California, so we get a ton of clients out of Silicon Valley. These people are naturally analytical. They really want to dig in, they want to get in, and do it. They’re smart. They know they can do anything. The problem is they’re probably too busy to do this.
They’ve got their career, they’ve got their family, their home, their life, maybe they got a dog, or a hobby. You need to be on this all the time. As soon as the onsite manager figures out that you’re not looking, he starts getting looser and looser until finally, he’s the one making the decisions on this big investment of yours.
You have to either be willing to do it yourself and do it right, which most people simply probably won’t do. I can tell you, I ran my first three parks myself, and I didn’t do as good a job as my staff does today. I don’t run any of my stuff anymore. I don’t even want to do it.
You got to get somebody who knows what they’re doing. A lot of people will simply go online and they’ll find a local property manager for that community that might be good, that they’ll run your single family, they’ll run your strip mall, they’ll run your self storage, and if you have a mobile home park, they’ll run that. They’ll run it the same way as they run all their other stuff, and they’re not the same. There’s a whole lot of moving parts in a mobile home park. You’ve got to be on that.
I think a lot of people are stuck in this old thinking that, I can’t have well, I can’t have septic, I can’t have a small town, I can’t have park-owned homes, and they put themselves in a little box, where it’s so hard to find a decent park. If they’re set on buying one, they’ll make maybe the wrong type of compromises and buy a park that perhaps they shouldn’t have, because it’s the only one they could find with city water and sewer. I’ve seen a lot of that happen over the years. You got to look at everything with an open mind. That’s the way I look at it.
Andrew: Yeah, that’s a good tip. Got to probably piggyback on the next question. What does the perfect mobile home park look like in your eyes, Andy, and why?
Andy: I’m kind of buying the perfect mobile home park right now in Arizona. There are very few tenant-owned homes. Don’t get me wrong, I’d love to have a park with tenant-owned homes, where everybody took care of their thing, paid the rent, and all that. I just haven’t found one that I can afford that makes the kind of money that I want to make.
We have tenant-owned homes with a good manager, a good infrastructure. That’s one thing that I can’t stress enough. You really got to look at the infrastructure. That’s something I should have brought up when you asked me before.
Infrastructure is everything. You don’t want to have a park you have to spend money on water and sewer pipes that doesn’t make you a dime. You want to put your money into fixing homes or adding homes. You make money on that.
I just got back from Mississippi. I looked at a park that we’re doing there. There are hundreds of dead pine trees there. They’re falling on trailers and they’re falling on powerlines. You got a huge tree service job that has to be done in that part before you can even think about fixing homes and everything. We had one fell right through the back bedroom of a home in that park. So, things like that. And then they’ve got drainage problems. If you get other parks that have old pipes underground.
One of the things we look for in our due diligence is anomalies and things like the water bill. If you got a water bill that’s going along nice and normal, and all of a sudden it spikes, that probably means there’s a water leak. If there’s one water leak, there could be several water leaks.
If you’ve got pipes that are at a point where they’re going to start leaking, they don’t leak in just one place, they’ll leak all over the place. The only real solution is digging the whole park up and putting new water lines, which is incredibly expensive. You don’t want to be that guy to buy that park. Infrastructure could be the killer in one of these deals. That’s something we look very closely at.
Andrew: Could someone pay CCI to come out and do the due diligence on an acquisition they’re looking at? Is that part of your consulting service?
Andy: That’s part of what we do. What we sell is a package of services. It’s a whole bailiwick. Let’s say you bring me a park you find online. It starts with a free evaluation. You see all kinds of stuff online and some of it isn’t what it’s being represented to be. We’ll go through it as quickly as we can. You can’t waste time if it’s a good deal. You got to get right on it. If it looks good, we recommend you go forward.
We can help figure out how it’s going to get financed. We’ll help make sure that the contract is right, relative to things you need to have in a mobile home park contract. We’ll do all the due diligence, including a trip out to the park. Our last step of due diligence is to create a written plan for the park, a two-part plan: an operational plan, which is how the park will be run, how we think it should be run, and a turnaround plan, assuming it’s an upside deal, and what would that look like. Then we tailor that plan to the investor.
At the end, he’s got to like the plan and we’ve got to like the plan. If he wants a plan that we don’t think is feasible or he doesn’t like what we say we can do, that’s a good reason maybe to consider not buying that park. There could be something there. Then we help them get ready to close, which is LLC, EIN get your bank account set up. We have to wrap our arms around that park if we’re not running it now because we want to hit the ground running on day one. When you close escrow, we take over full management, I mean everything, and we start on the turnaround plan at the pace that the investor wants us to go.
It’s a full range of services. We don’t really parcel it out. There’s only so much of us to go around. Due diligence takes a lot of time. It usually takes a trip on my part or on one of our staff’s part. It doesn’t make sense for us to just do that part of it. We’ve done that in the past for people and they don’t do what we tell them to do. The project isn’t maybe successful. They come to us later and say, hey, I’ve been running it myself. It’s all messed up. Can you fix it?
My kind of rule of thumb is it takes about a year to mess them up and about a year to fix them. Some people take two years to mess them up and then takes two years to fix them. You lose 2–3 years of valuable time their net project. A lot of times, it’s because they don’t want to pay for off-site management. They think, hey, I’m a smart guy. I’m in electronics or whatever it is, I can do anything. But it doesn’t work out well for them, and then they bring us in to kind of clean up after the fact. Assuming all that goes well, they’ve lost all that valuable time.
We try to encourage people to just let us do the whole thing. It’s not that much. Our consulting fee is due at close of escrow on any deal that we get involved in. If the escrow doesn’t close, they don’t owe the money, other than my travel. I have to get my travel back.
Our minimum fee today is $50,000. It can be more. The Selma project, we’re going to be working on that for the next two or three years. It was $100,000 consulting fee, even though it’s only $1,100,000.
Some people say, oh, that’s almost 10% of the sales price. It’s not about the sales price. We’re not acting as brokers getting a commission based on the sales price. There was already a realtor involved in that. We are the people who are going to make all this stuff happen. We have to be paid to render the service. It could be a small price, but it has to be a big job. It’s not related to the price. That’s how we get paid there.
Again, $50,000 is our minimum. If that’s too big a fee for someone, that’s probably too small of a project for us. We can deliver a lot of value, but if it’s too small a park, too small a project, that’s hard to justify that cost. I’m the first one to say it. But in a larger project with a lot of upside, there’s no better way to go.
The other way we get paid is a monthly fee. It’s a flat fee to run the park. Generally, these days, it’s running between $600–$1000 a month. Again, if it’s a big project with a lot of moving parts, it could be more. A smaller project might be less, but it’s a simple flat fee. Those are the only two ways that we get paid.
Most people in this business mark-up the mobile homes. If you had a park and somebody was managing it for you and finding homes, they almost always mark those homes up. We don’t do that. You’re going to pay just what that was.
The same thing with our laborers. Our crews, we don’t mark them up, either. They’re going to charge what they charge and you’re going to pay them. We don’t make any money there. It’s all about the consulting fee for us and the monthly. That’s how we do it.
Andrew: I think that sounds fair. That sounds really fair. Some of the other third-party management companies charge (I’ve heard) like around 7%–10% of gross. Then there’s like a minimum of $3000 a month or something like that.
Andy: And they’ll usually mark up the labor, too. I have a rental house in Pensacola, Florida. I have a regular management company running that. They charge me 10% of the gross rents and 20% over anything at work that they have to arrange. They’re going to get paid for that, too. Management can be expensive.
Andrew: It can be, yeah. There’s a lot that goes into it. Andy, let me ask you this. What does the future of mobile home park investing look like? How do you see mobile home parks fitting in with the direction of the economy is going? People have been flashing the recession sign, saying that that may happen in the next few years here. Inflation is pretty high right now. How do mobile home parks fit in?
Andy: Again, the types of parks that we do occupy a space somewhere near the bottom of the housing market. We don’t have problems staying full. Back in the crash of 08, our parks did great. In fact, we probably ended up with a better class of tenants because so many people were moving down the tenant ladder, people that used to rent a house, moved into an apartment, people that were in an apartment that moved into a mobile home. We did quite well there.
What I like to tell people is that if you look at the cost of construction today, now I’m in California. Here, if you wanted to stick-build something, probably be around $300 per square foot. It could be more. I think the national average is about $200 per square foot.
You can get a mobile home. Right now you can buy a brand new mobile home for $50,000. It’s almost 1000 square feet. That’s like $50 a square foot. Installed, maybe it would be $60 a square foot. If you’re buying a mobile home park throughout the south, it’s not that hard to find a park at $10,000–$20,000 a space. If you had a empty space at $10,000 and put a brand new $50,000 home, and there’s a $60,000 home, you’d be in at $70,000 a door.
Now if you’re trying to do apartments, apartments start at $100,000 a door, and that’s for a crappy one. You’re going to be at $200,000 a door before you know it. You’re comparing that to mobile homes that are $50,000 or $60,000 a door for brand new. If you’re doing used like we do, you’re at $30,000 a door or $40,000 a door.
I see that in many ways, the middle class dream, the American dream of owning a home is going away. Everybody likes a good economy and all the real estate markets booming. Think of all the people that grew up in small towns that are being priced out of their own home market that will never own a home there because the prices have gone up so much between investors, and people leaving big cities and moving to the smaller towns and so forth. It’s happening everywhere.
People that dreamed of owning a home may never own a home in the traditional sense. You’re going to see more and more people moving to things like this because it’s an alternative that makes sense. In these markets where we work in traditionally the South and the Midwest, what can you get for $500 or $600 a month? Maybe you’re going to get a Section 8 apartment.
You got people above and below you, and on both sides, and you got to walk down the stairs and go 100 feet to get to your car. Or for the same money, you could own a mobile home that in the south probably has 30–50 feet between you and your neighbor. You can play in a little garden if you want. You can have a pet sometimes. You can park your truck right by the front door. For many people, this is a much better alternative than apartment living. We’re priced well below renting a house in most cases. I see a future for mobile home parks.
I went to a manufacturers show of mobile homes in Georgia a while back. They’re working on mobile homes that are meant to sit on the ground rather than three, four feet up like mobile homes do. They take the axles off and somehow set them on the ground. I’m not sure how that works.
One step in instead of three or four steps. They build them in a way where they don’t look like mobile homes or essentially modulars. They put three exterior doors instead of two. Every mobile home park has two doors. You think about every house has a front door, back door, and a garage door. They’re doing all these little things, and there are literally people that are building subdivisions with this type of housing today, because it’s so much cheaper than stick building.
That’s all been put on hold since it takes a long time to get homes, but that will all come back. These markets, as you know, work in cycles. We’re in a crazy time right now. I can’t imagine it’s going to last like this forever. It will cycle at some point. When it does, I’m hoping things will turn somewhat back to normal. Of course, if these manufacturers realize people will pay so much for these homes, maybe they won’t want to go back.
Andrew: That’s what I’m worried about. You go to place an order for these new homes and they’d tell you, hey, sorry, we can’t tell you what the price is going to be. Then you keep getting emails that it’s going higher and higher. Yeah, it’s a crazy time right now. I agree.
Andy, if our listeners would like to get a hold of you or CCI investments, what’s the best way for them to do so?
Andy: Of course, my phone number is area code (925) 323-2134. My website, which I would always advise you to go see because it’s one of the best websites you’ll find on mobile home park investing, is called mobile-home-parks-forsale.com. You can reach me that way as well.
You’ll learn an awful lot about mobile home parks. I go into well versus city water, septic versus city sewer, park-owned home versus tenant-owned home, and lots of other good stuff. You just can’t find that information anywhere.
I have my new book I just published. It’s on Amazon. Perhaps, you can put a link on your site. I’d appreciate it. I can send it to you if you don’t have it.
This represents the best knowledge that I have obtained in 45 years in real estate and 18 years in the mobile home park business. It’s not very thick. It’s not a big read. It’s all good information.
Andrew: That is fantastic, Andy. If you had one more tip before we sign off for people interested in mobile home park investing, what would that tip be?
Andy: Be realistic in your expectations. The idea of this perfect park that you’re going to find that has all these nice old retired couples and living in their double wides in there, there are parks out there like that, but I don’t think those people are selling them. It’s so hard to find a replacement park today that the people that have nice parks don’t want to let them go.
That and of course, you got big institutional buyers that are gobbling up inventory like crazy. What that leaves is a stuff that they don’t like, and those are small towns, well or septic, park-owned homes, vacancies. If you want to be in this business, you have to buy a park. To buy a park, you have to find something that you can actually buy and make work.
It may not fit that perfect mold that you’ve been taught is the only way to go. You need to expand your thinking. That’s what we’re about. We make great money with parks that have park-owned homes. Well and septic are very expensive. That’s something that people don’t ever consider.
If your tenants are paying it direct, great. But a lot of times, a park ends up paying water and or sewer, and they are very expensive when delivered by the city. You got to look at all these things with an open mind.
I tell people now, are you in the business of owning mobile home parks in big cities or are you in the business of making money with mobile home parks? They say, we’re making money. Well, okay, if it’s not in a big city, then you should look at it.
That would be my best advice. Expand your scope a little bit. Don’t pigeonhole yourself into this little narrow box. You may never find anything that’ll work.
Andrew: That’s great, Andy. Thank you so much for all your insights. Thank you for coming on the show.
Andy: Thank you for having me. It was a pleasure.
Andrew: That’s it for today, folks. Thank you so much for tuning in.
Andy: Goodbye. Thank you.