SHOW NOTES

Welcome back to the Passive Mobile Home Park Investing Podcast, hosted by Andrew Keel. On this episode, Andrew talks with mobile home park owner and operator Ben Braband from Saddleback Valley Communities. Ben share’s the motivating reasons for his career shift from Los Angeles, California police officer to manufactured housing community investor. Ben shares his mobile home park investing journey to 5,000+ lots and he also talks about the changes he has seen in the manufactured housing space during the course of his 17 years in the business. Ben candidly shares invaluable lessons on deal hunting, mobile home park management during recessions, his park-owned mobile home strategy, and early mobile home park due diligence blunders.

Ben’s current portfolio consists of 46 Parks in 9 states. approximately 5,200 lots and 1,150 POH’s. Ben is a past president & current Board Member of the Rocky Mountain Manufactured Housing Association. Prior to entering the Real Estate space, Ben was a Los Angeles Police Officer & a Naval Intelligence Specialist. Ben enjoys traveling, spending time with his family, boating, off-roading, attending rodeos & cheering on the Denver Broncos.

***Andrew Keel and Keel Team Real Estate Investments (Keel Team, LLC) do not endorse any interviewee. This interview is for informational purposes only and should not be depended upon for investment purposes. ***

Andrew Keel is the owner of Keel Team, LLC, a Top 100 Owner of Manufactured Housing Communities with over 2,500 lots under management. His team currently manages 40 manufactured housing communities across more than 10 states. His expertise is in turning around under-managed manufactured housing communities by utilizing proven systems to maximize the occupancy while reducing operating costs. He specializes in bringing in homes to fill vacant lots, implementing utility bill back programs, and improving overall management and operating efficiencies, all of which significantly boost the asset value and net operating income of the communities

Andrew has been featured on some of the Top Podcasts in the manufactured housing space, click here to listen to his most recent interviews: https://www.keelteam.com/podcast-links. In order to successfully implement his management strategy, Andrew’s team usually moves on location during the first several months of ownership. Find out more about Andrew’s story at AndrewKeel.com

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

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

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

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Would you like to see mobile home park projects in progress? If so, follow us on Instagram: @passivemhpinvesting for photos and awesome videos from our recent mobile home park acquisitions.

Talking Points:

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

01:25 – Ben’s real estate origin story and his first mobile home park purchase

05:44 – Understanding the nuances of the manufactured housing industry

07:23 – Mobile home park education in 2006

09:50 – Mobile home parks during the 2008-2010 recession

12:00 – Ben’s current portfolio of mobile home parks

13:29 – Ben’s perfect mobile home park looks like this!

18:45 – Recycling equity $

21:00 – The shift in capital dynamics: Then vs. now

23:15 – Uncovering opportunities through word-of-mouth networks

28:00 – Ben’s strategy with park-owned homes (POH’s vs. TOH’s)

32:00 – Evolution of Ben’s mobile home park investing strategy over the years

37:29 – Secondary and tertiary markets versus primary markets

40:20 – Weak due diligence and making bad assumptions!

47:14 – What does the future in mobile home park investing look like?

48:56 – Getting in contact with Ben Braband

49:18 – Conclusion

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

Links & Mentions from This Episode:

Ben’s email: ben@saddlebackpro.com

Saddleback Valley Communities website: https://saddlebackpro.com/

Connect with Ben Braband on LinkedIn: https://www.linkedin.com/in/ben-braband-5661519

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

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

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

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

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

Twitter: @MHPinvestors

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TRANSCRIPT

Andrew: Welcome to the Passive Mobile Home Park Investing podcast. This is your host, Andrew Keel. Today, we have an amazing guest in Mr. Ben Braband from Saddleback Valley Communities.

Before we dive in, I want to ask you a real quick favor. Would you mind please taking an extra 30 seconds to head over to iTunes and rate this podcast with five 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.

Ben’s current portfolio consists of 46 mobile home parks across 9 states, which is approximately 5200 mobile home park lots and over a thousand park-owned homes. Ben is a past president and current board member of the Rocky Mountain Manufactured Housing Association. Prior to the real estate space, Ben was an LA police officer and a naval intelligence specialist. Ben, we are excited to welcome you to the show.

Ben: Thanks, Andrew. Good to be with you.

Andrew: Awesome. Would you mind starting out by telling our listeners your story and how in the world you went from being an LA police officer to getting into manufactured housing communities?

Ben: Sure. It was a windy path. It wasn’t a straight line by any means. I had a passion for real estate at a pretty young age, going back to literally junior high in high school. I knew that I wanted to get married. I got married fairly young at 19 and wanted to have a family.

The only thing I knew about real estate was an uncle, who was either driving the coolest car or trying to borrow money from my parents who didn’t have any money. Even though I was very passionate about real estate at a young age, I didn’t pursue it. I went with what I thought was a more conventional path, something more stable.

I ended up in the military and in law enforcement. Even while I was on probation with LAPD, I was looking at real estate and ended up participating in a program called Officer Next Door, where I got to buy a HUD home at 50% off. From that point on, even while I was a young police officer, I was starting to do flip homes.

I did a lot of fix-and-flips. I actually did some spec home building and got introduced to manufactured housing through that process, where I was basically buying lots. Instead of stick building spec homes, I started using multi-section manufactured homes. That led me to get a dealer’s license in 2002 or 2003. We were PIP setting double wides and then building site built garages.

We even stucco wrapped them, so they looked very much like a traditional stick built home. They were priced similarly and did that for a number of years. That’s the introduction of manufactured housing, but that’s a don’t-kill-don’t-eat business. I was looking for more passive and/or recurring income, and that’s how I ended up making my way into the park business.

Andrew: Wow, what a fantastic story. Was all of this on the side while you were a police officer just doing all the fix-and-flips in addition?

Ben: Yeah. I finally made the move out of law enforcement and to this by getting my real estate license. I was literally a retail real estate agent and doing all my real estate activity on the side. I had about a three-year period where I was full time real estate, but I was a real estate agent earning commissions. I use those commissions, chunk money, to buy some rentals but a lot of flips, and some of the land that I bought and ultimately developed, and later duplexes, triplexes, and apartment buildings, 20–30 unit apartment buildings and things like that.

Andrew: Wow, that’s fantastic. Would you mind telling us about your first mobile home park that you bought, how’d you get educated on the space, and how that deal came together?

Ben: I actually had done a fix-and-flip in a mobile home park. That was a big lesson for me, because even though it was profitable, there were a ton of aspects or things about that deal that I didn’t understand in terms of the dynamics of a mobile home park. I had been looking for a park for probably a year-and-a-half before I ultimately purchased the first one. I was doing the classic looking in my backyard and looking at deals that I could afford, which was not a lot.

Ultimately, I went one state away. My first park, I purchased in 2005 in New Mexico. It was a 42-space park. I bought it for $450,0000. I put down $200,000, and the seller carried $250,000. I made about every classic mistake you can imagine, mostly due diligence, things like electrical infrastructure, sewer lines. But mostly the mistake was around the assumptions that it would take to fill those roughly 20 vacant lots.

It’s very capital-intensive. It took about twice as long as I thought. Ultimately, it was a big success story. I made a ton of money on the park and held it for quite a long time. That was my first one and certainly learned a lot from that one.

Andrew: Wow. That is fantastic. Where are you based at now?

Ben: I’m actually in San Diego. The concentration with most of our back office in our teams in Colorado, I lived there for about seven years before moving here. Most of the organization is still based out of Colorado. I still have my ranch in Colorado as well. The plan was going back-and-forth between San Diego and Colorado, but I don’t get back to Colorado as much as I’d like.

Andrew: Very cool. That is awesome. What do you think is the toughest hurdle to overcome in mobile home park investing?

Ben: I consider this business really simple and straightforward, but at the same time, it’s not easy. I think a lot of people don’t understand the nuances. I think there’s a lot of assuming that it turns out to be more complicated, because the concept is super simple. You own the dirt, you rent the space, people own their home. In the traditional sense, it’s pretty straightforward. The only thing perhaps more straightforward would be a parking lot.

All that said, the day-to-day operations and the nuances within the industry are a lot more complicated, financing, regulation, misunderstanding with a lot of local governments. I think those things become challenges that surprise people. Particularly, if they look at my first park, it’s 40 spaces, there are 20 vacant. I’m going to plug in five homes a year, and the park is going to be worth so much more.

The journey from filling that park, which I ultimately did, took literally twice as long, probably twice as much money. All kinds of things came up along the way that I just had no understanding of, even having owned apartments and things like that prior to. I think it’s just the learning curve. It’s totally achievable. Certainly, I don’t want to dissuade anyone. I think it’s one of the best things you could get into.

You just have to persevere. You have to get educated and learn from as many people as you can prior to taking those lumps yourself. When you take them, you’ve got to take them in stride, learn that lesson, and then don’t repeat the mistake.

Andrew: Totally. How did you get educated? Did you go to the Frank and Dave boot camp? Was that around?

Ben: It wasn’t around at the time. Actually, at the time that I got involved, I was there when Frank and Dave met. Steve Case and Corey Donaldson used to host Mobile Home Millions events. They had one in Anaheim. I think it was in 2005 or 2006. There was one in Austin a year or two later.

They were pretty large events similar to maybe SECO now, a little different bent. There wasn’t a lot of education happening at the time. Lonnie Scruggs had his deals on wheels. Things like that were out, but there wasn’t a ton of education going on at the time. That was the group that was providing some education.

They hosted similar boot camps to Frank and Dave’s today, where you’d meet at a park. You’d walk with the owner of the park in a two-day intensive. I did participate in those, in fact all over the country. I went to Georgia, Texas, Oklahoma, and all over.

Basically, I guess that’s one thing. I was never afraid to invest in the education. I would fly anywhere. I’d pay the $300 or $500 to attend, or even a couple of thousand. I did a lot of that on a regular basis. I don’t regret one dime of it or one minute that I spent doing it.

Andrew: Totally. Same here. I’ve been to the boot camp four times, and I don’t regret it at all. I’ve learned something new every single time I’ve gone. The networking at those events is fantastic as well, so I highly recommend that.

I want to circle back. You mentioned Lonnie Scruggs. I’m not sure if you’re familiar with my story, but that’s how I started. I was a Lonnie dealer around Central Florida. I just found Lonnie on YouTube talking about deals on wheels. That was the only education I could find online back when I started, which was 2015–2016. That’s fantastic. When did you buy that first park, the one in New Mexico?

Ben: That was 2005. That’s my first park. I bought two others within 12 months of that first one. I had a three-park portfolio within a mile radius of one another. I guess it was about 180 sites collected, and then we had about 100 apartment units in the same town. We put together a 300-unit portfolio between the parks and the apartments in that market.

Andrew: That is so cool. I really wish I was getting into the spot in 2005. Maybe I would have waited until 2008 to jump in. What can you tell us about owning mobile home parks during the Great Recession, 2008 through 2010? How did the parks perform and that kind of stuff?

Ben: I was really fortunate. I cut my teeth on those first few parks in 2005–2006. When 2008 hit, unfortunately, I had a ton of friends in real estate in general that really took some hits. I actually was able to make my biggest stride. I went from 300 units to about 1100 units in 2008–2009. It was because of a large acquisition that I wouldn’t have otherwise even had a shot at. The seller wouldn’t even have spoken to me, given my size and lack of experience, but there was nobody else at the table.

The things I could tell you about operating during economic hard times is: (1) opportunities are likely to present that you may not have otherwise seen. (2) One of the biggest challenges is credit constrained, and that was certainly the case at the time. Lenders were afraid to do anything. There’s price discovery to the downside throughout the entire journey, and that lasted several years, I was able to make a couple of big acquisitions between 2008 and 2012. Those were great moments.

In terms of the park performance, we actually saw a significant increase in demand. We already had good demand. But at the time, the big story was, unfortunately lots of foreclosures and people losing homes. Part of the dovetail into our park-owned home strategy is we were able to attract a lot of those folks who were being dislocated and offer home ownership, but also offer rental options in the interim.

I think that the takeaways were be prepared, be liquid. There’s a good chance there’s a lot of opportunity in those moments, but you’re going to have challenges that you may not otherwise have seen over the last five years primarily regarding your capital stack. That was my experience at the time. That’s what I’d anticipate, should we encounter that again in the future.

Andrew: That is fantastic, love to hear it. Maybe tell us a little bit about what that portfolio looks like now. Where are most of your parks? What does a typical park look like size-wise, et cetera?

Ben: We still have a big presence in Colorado. It’s our biggest initial acquisition. We bought 750 units in one deal in Colorado. Since then, I’ve added several additional parks. We’ve also moved into Arizona pretty aggressively and then also Wyoming and Utah.

I had a pretty big presence in Kansas. However, it’s my first disposition in nearly 20 years. I don’t own anything in Kansas anymore, but we’ve also operated in Missouri and Oklahoma. I have a portfolio up in Maine of about a dozen parks. Basically, that Western Colorado, Arizona, Utah, that’s our sweet spot.

In terms of individual deals, I prefer to buy portfolios where possible. The big strategy for me is getting a foothold somewhere and planting a flag that’s large enough to support the way that we operate and then bolting on around it. I really like clustering and concentration. I don’t like the shotgun approach.

We’re not the group that’s going to buy every deal that hits the market. If we don’t already have infrastructure in that market, it has to be a large-enough deal to move into it and also compelling enough. These days, we’re really just building out around where we have higher comfort and have infrastructure.

Andrew: Very good strategy. What does that perfect mobile home park look like for you guys?

Ben: The last park I just bought this past month or in August here is only 52-space park. We’re not exclusive to a 200-space park. But the perfect park, I suppose, would be 150–200 sites, public utilities, not a ton of common areas or amenities, strangely enough. The other thing that’s probably a response that you don’t hear a lot is we’re really looking at whether the strength of the community itself.

I think it’s an intangible that people miss is, if it’s a tight knit, close-knit community, they tend to do really well, and you can build on that. Beyond that, we’re really looking at the market. Supply demand is a big one. People talk a lot about median income, diverse employment, and things like that. Those are all super critical in terms of our criteria. But in terms of parks specifically, we’ve done really well with 150–200 space parks, particularly if we can have 3 or 4 of them in a market. That’s what we’ve done.

Andrew: Tell me about that. You said the tight-knit community, that’s something that you look for. What does that look like?

Ben: We’ve had some communities that were physically, everything was great, public utilities, nicely amenitized, good condition (sort of) in terms of the infrastructure. But it was really difficult in some instances to get resident buy-in. We believe in the philosophy of we put our foot forward first in terms of cleaning up communities. We never have come in and raised rent just right on acquisition.

We really come in and try to understand the market, where we fit within the marketplace in terms of the offering that we have in comparison to the competitors, and then if it needs improvement, or there are deferred things, we address that. Then we look at our street rents and market rents.

In some cases, we’ve done all of those things, and we still don’t get the reaction and the response from the community. It’s almost like there’s some ingrained bitterness. I can’t say that this has happened to us a ton, but I mentioned it because when the opposite occurs, and you move into a community that neighbors look out for each other, they’re looking for win-win situations with management and ownership. Those are just so much more fun.

It’s not that the others can’t be profitable, but you’re swimming upstream the whole time. Winning hearts and minds takes a lot more time than people realize. It takes the right on-site folks on our team. It takes us doing a lot of outreach in terms of backpacks, back to school, barbecues in the park, and movie night.

I really emphasize that, because I think it’s really critical going forward that what we’re offering is not just shade and shelter. We’re trying to build strong communities that are going to withstand the tough times and frankly help look out for the neighbors and for our assets as well. That’s just something you don’t hear discussed enough, in my view, but it’s really a big differentiator between a strong asset and one that is profitable.

Andrew: That is fantastic. We’ve had several operators on here, and I don’t think anybody has mentioned that dynamic, which is really, really cool. Is there something you guys do in due diligence to try to tell if the community is going to be one of those tight-knit communities, or if it’s going to be more of an isolated type of community?

Ben: It’s really challenging because it is an intangible, and therefore any metric or quantifiable data is hard to come by. It’s really what I consider the guerrilla part of due diligence, where you’re walking the park, you’re talking to the folks, you’re understanding. It’s easy to read Google reviews or easy to read some of the naysayers. Some of that is to be expected, you’re going to encounter it virtually everywhere.

It’s easy to believe when you’re buying a deal that the previous ownership or management was just bad. Sometimes that’s the case, but a lot of times, they’re not as bad as they may be made out to be. It doesn’t mean that we’re not going to try to do better in every instance.

I guess the answer to your question is we do all those things. We read reviews, but the big thing that we do differently is we’ll talk to as many of the existing residents as we possibly can, face to face, during our multi-day due diligence on site.

That’s tricky, too, because the manager, the owner, a lot of times, they’re trying to steer you away from those conversations, particularly if the reviews and the property is not the way that it should be. Also, I would say you have to take those with a grain of salt, too, because you’re going to find people who are just looking to set you up for don’t raise rent or leave us alone.

Really, when you find the more genuine, authentic folks who are just trying to get through life and live in a respectable community, they shine through. Listening to that and having your ears open for that, I think, is really all you can do in terms of that.

Andrew: That’s huge. I couldn’t agree more. That’s your customer. That’s who you need to make sure is going to be someone that you want around. That’s huge. Very cool. Thanks for sharing that. I want to circle back. Do you do syndications like one off syndications, or do you have a fund model?

Ben: No. I’ve never really raised outside money. We’ve recycled equity, and I had a small stable—I still do—handful of LPs. Our structure is really, really simplistic. It’s me as the sponsor GP and operator, and then I have literally a handful of folks that we collectively have been growing together for 25 years in real estate. Some of these folks were with me at my fix-and-flip single family home stage.

What we’ve done as I moved into this space, they let me get my toe wet a little bit and figure some things out, and then they followed me. The reason I’ve been able to do that and grow the portfolio to its size is some of these folks were high net worth people. They’re family offices. I’ve not gone out and raised funds, I haven’t done private placement memorandums. They’re generally me and one partner or me and 3–5 people, and they’re generally all repeat LPs. It’s a very simple structure.

We also have paced ourselves around that strategy. I’ve had opportunities, many instances for institutional capital partners, and/or I’ve watched a lot of my peers raise a ton of money and really scale and grow dramatically faster. I’ll be honest. I’ve, for a brief moment, regretted given the increase in value and everything that maybe I should have done that. But at the end of the day, I’m a simple guy. I have more than I need, and I really liked the simplicity of our structure.

I’m not really beholden to anybody. I’m taking my responsibility to my LPs and my capital incredibly seriously. I’m happy to have grown over a slow period, what I consider to be responsibly and safely. I don’t lose sleep overnight that I’m going to lose any money or any of my partners will. That’s how we’ve worked over the last couple of decades.

Andrew: Thank you for sharing that. Almost 20 years, you’ve been in the space. That is absolutely fantastic. There’s not many people that have been on the show that have been in the business that long. There’s been an influx of people around 2015 or so that came into the business, but you were ahead of the game 10 years sooner. We always hear about what deals looked like back then. Was it all every deal was a 10 or 11 cap when you first started looking?

Ben: No. Honestly, maybe an eight or nine was probably today’s five or six realistically, but the same things happened there. The juggernauts of the day were ARC. Today, you’ve got RHP, ELS, and Sun. A lot of these folks do a phenomenal job, but their equivalents existed at that time as well.

What a lot of us had that were starting out was secondary and tertiary smaller deals that didn’t interest the bigger folks. No doubt you have more consolidation today, and certainly a lot more participants and entrants. The difference though is the capital. Back then, your available debt was dramatically different. Today, Fannie and Freddie have the biggest share. CMBS was just a few years before that and still has a decent share. But back then, there were a lot more local and regional banks.

Fannie and Freddie and insurance companies would really only do what they consider to be five star type, top flight stuff. We always look for the value-added stuff. The way I would describe it is it had more value creation potential. They would describe it as hairier, unstable, or distressed.

The debt and available capital for stuff like that was dramatically different than it is today. While cap rates were higher, so was the cost of the capital, or lower LTVs and just a little bit more conservative underwriting. I think that was some of the big differences.

The competition level and the stuff we’ve seen, the euphoria over the last few years, certainly didn’t exist from 2008–2012, but it ramped up from 2012–2015. Like you said, 2015–2016, things really got juiced up. From then until probably 10 months ago, we were just on a crazy upward trajectory. Firstly, I’ve seen a bit of a cool off but not enough to call a change in direction, but certainly a change in pace or sentiment from at least 2015–2022.

Andrew: Totally. Same with us, there are still sellers. How do you buy most of your deals? Are they mainly listed deals?

Ben: The first big deal that I mentioned, strangely, the first deal I bought, I bought off a LoopNet, direct seller listed as park. That was my first deal. The other two, I found word-of-mouth. When you’re in a market, you go meet your “competitors.” We just put the buzz out there, we’re in town, and we’re looking to grow. Funny enough, our manager talks to their manager, and the next thing you know, we’re talking to the owner.

We’ve done that a fair amount. But really, lately it’s been broker relationships and/or word-of-mouth. That big deal I bought, I actually found it in the LA Times. I still find and buy deals, occasionally. They’re listed on the MLS. Somehow, some way they’re not listed with a big broker. They may not even be on mobile home park store or one of these other places.

There’s still a little bit of turning over the rocks. But generally speaking, our deal flow is pretty conventional. Sometimes we get a call before it hits the market or before the OM is published. Those relationships with brokers that we’ve cultivated for a long time. They know that we don’t tie deals up. If we put it under contract, we have every intent and ability to close. Once or twice we haven’t, but everybody involved understood why.

Generally, we don’t kick tires. We’re not just sending LOIs. We don’t cold call. But again, we’re fairly opportunistic. We have pretty tight criteria in terms of geography. We like to buy a few deals a year. We end up with fits and starts, where we’ll buy five parks. Then two years later, we buy three more. We’ll have literally a two-year gap in between. Usually, what we’re buying in between is bolt-ons, things within the market that we’re adding on.

That’s also a bandwidth issue. One of the lessons I learned early on is, particularly if you’re trying to do a lot of value add, especially occupancy upside or infill parks, it takes a lot more time, energy, and resources than people might imagine.

I’ve seen people come in and buy a whole bunch of stuff, and they were probably strong acquisitions, but then they’re unable to execute. They end up struggling, and they end up with debt maturity concerns or just stuff that they’re really not comfortable with their own pace and progress. We’ve learned those lessons the hard way. Not to say that we pass on an opportunity, but we gate our growth around our ability to digest it and do a good job of executing on it.

Andrew: That’s huge. I was at MHI in Vegas, and there was an institutional capital guy that approached and said, hey, I want to write you a check for $50 million to buy a bunch of mobile home parks. I said the same thing. I was like, that doesn’t sound feasible, especially right now. I think it’s a personnel thing.

I don’t know about you, but we manage in-house. To be able to trust all the people that you would need to onboard to be able to scale that quickly, it’s just too much stress that I wasn’t ready for. Do you guys manage an in-house brand?

Ben: Yeah. We have a management company that’s a sister entity, if you will, that I own and operate. Everything that I buy, I manage. At the same time, I don’t do any fee-based management. If I don’t have an ownership stake, I don’t manage for others. That’s how we operate.

I would echo exactly what you said, the last two years, in particular, have been incredibly challenging with labor, talent, and building our team. Even prior to that, the time that it takes to get a good maintenance tech or home tech in our case, or community manager up to speed, I think it’s a six-month minimum journey. Really, it’s a couple of years before they’re what I consider good at their job.

Scaling is challenging, it’s exciting. But the people are one of the biggest challenges, attracting and retaining the right type of talent. Without them, I think if somebody was a coupon type guy, yield guy that was looking to really just get a 7%–8% yield on their money, that’s one thing.

If you’re looking to buy deals with a lot of upside and particularly infill projects, or frankly, anything with deferred maintenance, I think people dramatically underestimate the timeline and the resources required to turn those around. For us, you can’t pile too many of them together, or you start to fail.

Andrew: Let’s talk about the park-owned homes, because I’m not an advocate of park-owned homes. I think it has a lot to do with the markets that we’re in, which are mainly secondary, tertiary markets throughout the Midwest. Other markets, people are able to rent park-owned homes for $1500 a month. Tell us about your strategy with park-owned homes and why you guys have chosen to go that way.

Ben: The strategy really came out of necessity, frankly. Our portfolio in Maine, we bring in maybe 20 new homes a year, and we don’t keep any of them as rentals. To your point, each market is unique, and we’re able to sell those homes at cost or a very small margin. We can do it at a pace that makes sense.

The reason that I say we’ve embraced the park-owned home model and it was done out of necessity, is we’ll buy 750 spaces that have 350 vacant lots. If you just really extrapolate out the sales model, and let’s say you have five-year money, and you’ve got a sales model exclusively, if you’re doing a phenomenal job, and I’m not saying that this can’t be done better, but four homes a month, that’s a lot. Fifty homes a year is a pretty strong pace.

If you think about that and then look at your underlying debt, especially if you assume that the first six months, you got to get your house in order to get your team put together, you’ve got to get a dealer’s license in the state. You’ve got to get your funding available. Six to 12 months, you’re not bringing in new homes. You’re likely dealing with existing inventory, abandoned homes, and things like that.

You’re really starting this process at the end of year one. If you say, okay, even that pretty wild four-home per month absorption rate, you’re going to fill 200 vacant lots. I would say that’s twice as much too aggressive. In other words, two a month is probably more accurate. Of course, market-dependent, of course it depends on the price of the home and the other inventory in that market.

My point is, we had to fill a lot of lots quickly in order to be able to take out our acquisition debt. We typically use pretty creative funding to close some of these deals that are considered distressed or not eligible for Fannie or Freddie or even CMBS money. We have a clear goal in terms of occupancy. One of the only ways to accomplish that was through a faster absorption rate, which in our case, most of our markets have proven to be rentals.

Initially, I’ll say we started with a lease with a purchase option, not a rent-to-own. There’s a distinction. But nonetheless, we were attempting in the early years to mirror ownership. We really want it to be the traditional we’re going to own the lot, so you’re going to own the home. That presented some challenges that we discovered later in that process. Nonetheless, the exclusive sales model was just not going to be fast enough.

Over the last 15 years, we’ve learned a ton of lessons. We operate our home entities profitably. It requires more personnel, it’s a higher touch business, it’s more effort. It’s not a high margin business, but we look at it holistically. If we’re creating $40,000–$60,000 in value every time we take a vacant lot and make it performing, we’re okay with the additional effort that it takes for a relatively small return to get there.

What I’d say, too, is these are phases for us. There’s an iteration or lifecycle of the deal. Ultimately, we’ll sell off the bottom 10% or 20% of the home portfolio, and we’ll work towards your more traditional park. However, for us, that could be a 10- or even a 20-year journey. In the meantime, we’re going from 50% occupancy to 90%-plus, and we’re doing it profitably. We’re doing it at the pace that the market will absorb.

Andrew: Patient, slow and steady, which I think is totally realistic. The market we’re finding, we have one property where we have 15 vacant homes right now that we brought in, rehabbed, got them ready to go, but the absorption is we sell maybe one or two a month, and it’s just taken longer. It’s not like you’re going to be able to sell all those in a single month. The market is not that many people looking for housing.

Ben: I think the other big piece, to,o, is, if you look at it as all equity, let’s say a single wide, they used to buy them for $22,000 for a 1676. Today, it’s more like $65,000–$70,000. The point is, if you’re using all equity, and you were buying park-owned homes as opposed to buying more parks and real estate, I think that it’s going to break down pretty quickly, the strategy. You’re not going to want to put your equity into the homes.

However, if you’re using leverage, and in our case, that’s roughly 80%, so it may be a 20% downstroke into the home piece, which we also usually recycle that through various refis and things like that, you end up with actually a reasonable rate of return on your 20%. It’s creative to the overall value creation of the whole deal.

For us, that’s how we look at it. As a standalone business, would I go buy park-owned homes in someone else’s park? Never. That’s not my business model, and I wouldn’t advocate it. Frankly, I wouldn’t advocate the strategy for anybody who’s not comfortable with it.

For us, the way that we capitalize that effort, and the way that we recycle our equity and improve the debt on the park-owned homes over a 5- or 10-year period, has worked really well for us. Honestly, I don’t know how we would have done it in some of these markets otherwise.

Andrew: You said you had 5000 lots and 1000 park-owned homes. A thousand park-owned homes gives me a little heartburn right away, but then it’s like, oh, well, that’s only 20% of your portfolio. You still have a lot of tenant-owned homes as well. That’s fantastic. I appreciate you sharing that with us. Really interesting.

Has your mobile home park investing strategy changed at all through your years in the business? Your first park obviously was a big value add. Are you still looking for those types of projects?

Ben: I still like the value add, because in terms of acquisition criteria, everybody seems to have a hurdle in terms of rate of return. But the thing that I personally look at primarily is equity growth multiple. I’m more interested in my coverage ratio and having debt that I can sleep with at night.

Going forward, I’m looking for deals that can create a lot of value, whether that’s increasing rents, whether it’s submetering, utilities, whether it’s been more efficient with expenses. More often than not, the deals that seem to line up for me are big infill or vacancy play issues in addition to those other things, those other levers.

We tend to have focused on that type of stuff. I guess what I would say is, in the past, it’s easy to fly anywhere in the country. In the past, I’d fly to Alabama, and I’m from California, or I’d go to Illinois. What I’ve learned is that there’s nothing wrong with that. But for me personally, in terms of changes, it’s not so much the deal criteria itself in terms of the physical park or the return requirements. It’s really more around, even though we’re very comfortable operating at a distance, we really want to stick with this concentration strategy.

Where I’ve seen people have problems is, and we’ve experienced it ourselves, we have one park. Even if it’s 80–100 spaces, being able to have that park operate at 40%–45% OpEx ratio, have the right onsite folks, and throw enough profit and value creation potential, is tough. Especially if you go down to a 40- or 50-space park, even if it’s a phenomenal 11 cap acquisition, and it’s a great, great deal, they’re hard to pass. In the past, I wouldn’t pass up on those and today, I do.

It’s really funny because early on, I had a limited partner who was a higher net worth guy, and I was a small time guy. I didn’t have any money at all when I started. I would take him deals where I was like, we’re going to make $50,000 on this in 4 months, single family flip type thing, and he wouldn’t do it. I had a track record of doing it. It was super predictable.

Of course, there’s risk in anything, but in my mind, this is a slam dunk. And he would tell me no. I get so frustrated because I’m like, and I don’t know why you don’t see this. What I’ve learned over the last couple of decades is, something can be a great deal for somebody doesn’t necessarily mean it’s a great deal for you. It’s not because it’s not going to produce a great return. But for me, my time is more valuable to me than making an extra $1200 a month.

I don’t mean that in any kind of sleight. $1200 means a lot to me. However, I’d rather move into deals where I can create millions of dollars or tens of millions. More importantly, I’d rather do it within my personal life balance, where I’ve got folks who I’ve worked with for a decade who are going to execute for me. I don’t have to go out and try to solve a problem on one lot and afford the space park eight hour flight away.

That’s a change. I wouldn’t have said that even probably 12 years ago. I guess as you get older, you evolve. That’s one of the ways I’ve changed in terms of criteria.

Andrew: Yeah. Thank you for sharing that. What do you think about secondary, tertiary markets versus primary markets at this stage?

Ben: It’s really funny. I’ve focused on those primarily in my whole career. It was again almost out of necessity. When I go into those big core markets and big MSAs, they were crowded out. I made my way into a few of them. What I found actually is that I didn’t enjoy the experience as much. The reason why is because we’ve had the most success.

Again, this is referencing vacancy upside. In some of those larger markets, there’s a lot more supply. Not only is there more competition, so you’re getting bid down in terms of cap rates and you’re paying more. But in addition to that, you have more supply or more potential new supply that comes into the market.

Most of the secondary and tertiary markets that we move into, there’s one common denominator in that supply constraint. As long as you have diverse economic drivers, and you have a supply-demand imbalance, that’s actually what my preference is. I would rather go into a 60,000 population market than a 2 million population market in most cases. The underlying reason if I had to articulate one factor, it’s the supply-demand imbalance.

If I was borrowing a park that was full, and I was really just looking at long-term market rent upside, then I probably would have a different perspective. The predictable, attainable value creation for us has come in secondary and tertiary markets that are somewhat ignored or excluded from larger operators criteria. We get a better going-in price. We also can get market share, so we can dominate and/or dictate street rents in a way.

We prefer to draft behind one of the bigger guys, let them be the bad guy, and we still have a competitive advantage drafting a little behind them. But nonetheless, having market share, we’re in a market with 1300 spaces, and we own 900 of them in one case. It’s not a bad position. That’s the part of the strategy that we’ve learned along the way and embraced.

Andrew: Awesome. Thank you for sharing that, Ben. It seems like you guys are very strategic, and I like that. I consider your model very similar to ours. There’s a very easy upside here. There are vacant lots, fill the 20 vacant lots, and you’re going to add a tremendous amount of value. For every dollar you spend, you’re typically doubling it. That’s really awesome.

I love that you’re fighting for the secondary and tertiary markets as well, because there are more mom and pop owners typically I found in those markets. All of our deals have been bought off market through cold calling. That’s where we’re able to find better deals.

Ben, what mistakes have you made in mobile home park investing that you think our listeners could learn from?

Ben: The better question is, what mistakes haven’t I made? Going back to the first park, missing a ton of stuff on due diligence. That’s the classic response. It’s a good one because you don’t know what you don’t know. Anything substructure can bite you and it tends to be expensive.

The thing that I would say that I think is actually probably more powerful for people to understand is bad assumptions. We usually did a pretty good job even early on in terms of assessing the market. Our due diligence was weak in the beginning. We’ve made a ton of mistakes there and learned a lot.

The thing that actually hurt more than that was bad assumptions regarding how capital-intensive things were and how long it would take. Typically, in the early days, we were wrong by 100%. If we thought it was going to be $300,000, it was $600,000. If we thought it was a two-year journey, it was probably four or five.

The reason I point that out is because that thing can lead to big problems with your capital. It can put you in a bad spot with your debt. And worse, if you’ve created expectations for your LPS around your budget, your pro forma, or your execution, that’s a tough spot to be in. Thankfully, when I learned those lessons, I had one partner who was very understanding. We were along the journey together.

He knew that it was a learning curve. Neither of us enjoyed those being wrong in that way, but we owned them together, even though I was the operator and ultimately the one who made the mistake. Trying to get tighter on those assumptions and avoid the urge to assume that you can do so much better than industry standard, I think, is a pretty valuable lesson to learn as early as you can in your career. It was a big one for me.

Andrew: That’s great advice. Back to the due diligence piece, because I’ve made mistakes as well, I always say at the MHU boot camp, you get this 30-day due diligence handbook as a starter point, but there are so many things. Really, the big important stuff, I’ve learned from trial and error just by doing, learning, and finding out things that have changed.

I think it started at 50 bullet points. It was our initial due diligence checklist. Now it’s over 300 bullet points long, because we just learned something on every deal to make an extra phone call or check an extra item. I’m sure you’ve done the same.

Ben: A hundred percent. Sometimes it’s stuff that you’ve never encountered. You’ve done 100 parks, 80 parks, or whatever, and there’s still something new that comes up in some municipality that it wasn’t any of the books, and you didn’t encounter before.

Being able to handle those blows and figure out solutions, persevere through that, that’s the differentiator between folks who wash out and people who figure it out and ultimately are successful. They’re tough to work through in the moment.

Andrew: Definitely. Ben, I just have two more questions for you. What would you say are the most important things that passive investors need to look out for when investing into mobile home parks?

Ben: They really need to understand, in my view, their deal sponsor, and the GP, track record, referrals. History is really important. I also think that a lot of people don’t understand what they’re signing. As crazy as that sounds, as an LP, you’re going to see a lot of documents, maybe a PPM, maybe an operating agreement. These things seem boilerplate. They seem like legalese, but I’ve seen a lot of people get twisted up with one another over just different expectations.

Sometimes it’s not even fraud. In extreme cases, that’s what happens. But in a lot of cases, it’s really just a misalignment of understanding. For me, if I was putting my money alongside someone passive, I’d really want to know who that person is, their track record, what their focus is going to be, because a lot of groups raise a lot of money, and they go buy a lot of deals. It’s really, really difficult to maintain focus across that, especially when you’re growing so quickly.

I’m taking away nothing from any of those folks. Some of them do a phenomenal job, and they’re really safe, probably investments for folks. But if I was putting myself in those shoes, I dig in more and take personal responsibility. Even though I’m going to be passive, on the front end, I would put in a lot more effort than I see a lot of people do to understand what I’m getting involved in. That’s a big mistake for those who don’t.

Andrew: Is there anything specifically that you would do to try to vet that operator?

Ben: I think track record is a big deal. It’s hard because some of the folks don’t have a ton of experience. And I didn’t, either. I don’t think it was a bad bet. However, if somebody’s criteria would have been, we want to see that you’ve done this 20 times, they wouldn’t put their money with me.

I’m not trying to be critical of anybody, but I think the track record probably is the thing that you could lean on the most. What I’d look forward to is not just all their wins, but what happened when you encountered the tougher stuff? In 2008, I had a ton of friends who tossed keys back to banks. It was a common practice I never did.

Probably my worst real estate deal I ever did was five single family homes, brand new homes, in Gulf Shores, Alabama. I didn’t know anything about the market, but I had a bunch of money that I needed to put to work. It was called the Go Zone at the time, the Gulf Opportunity Zone.

The mistake I made there is I leaned more into the tax advantage, and less into my diligence in the market and the deal itself, and it burned me. I probably had a $4000–$5000 month negative carry on something that started out being a $4000–$5000 month positive carry. I only highlight that, because it wasn’t okay for me to turn the keys back into the bank when it got tough. The reason is because, first of all, it’s against the way that I think about things, but not being a Pollyanna that happens in the Big Boy world of investing.

I didn’t do it because my reputation and my ability to borrow, going forward, would have been forever. It hurts. I think that if I was looking at track record, I’m not just looking for everybody’s wins and show me your 14% or 16% IRR. Show me the deals that didn’t work out and how you manage it. How did you minimize losses? How did you work through it? How do you turn it into a win?

I don’t think that’s a common question. I don’t think you can show me an operator anywhere that has any track record that hasn’t hit a rough spot. Not necessarily a loss, but something that could have been or something that was a surprise. How did you manage it?

Andrew: That’s great advice, Ben. Thank you so much for that. Last question, where do you see the future of mobile home park investing going? Obviously, interest rates are pretty high right now. There’s a possibility of recession talks. What do you think?

Ben: I’m very bullish on the industry in general. I think that sometimes we’re our own worst enemy, and we shoot ourselves in the foot with headlines of crazy rent increases and stuff like that. At the same time, there’s a ton of deals out there that are way under market, and they need to come up in order to remain viable. There’s a balance between that comment.

Generally speaking, I think the business is a phenomenal space to be in. Even today, I’d buy about one this month. I still would be a big advocate for people looking at it, the opportunity. I do think it’s going to get harder to do what we do primarily because of government intervention. We’re in a tough spot because some of the folks that we’re dealing with have limited resources. There’s more and more pressure put on those.

It seems as though the public sector looks to us on the private sector to solve some of those societal issues. I think that they’re going to continue to look at things like rent control and all other stuff that’s going to make our life, frankly, more challenging to do what we do. That said, I think there’s going to continue to be demand. I think that there’s no other form of detached housing that can compete with us. I think we’re a huge solution to an even bigger problem.

I think there’s a lot of headroom in a lot of places, especially some of these secondary markets. You can still offer an incredibly compelling value proposition to the consumer while still making a tremendous amount of money. I think that looking at it from each of those participants’ angles is key to doing it successfully long-term. Think of it from the consumers perspective, as well as ownership. If you do that, there’s a lot of reason to be really excited about the business, in my mind.

Andrew: I totally agree with you. Ben, thank you so much for coming on the show.

Ben: Yeah, absolutely. It’s a pleasure, a lot of fun.

Andrew: Awesome. If any of the listeners would like to get a hold of you, what would be the best way for them to do so?

Ben: Probably email. I’m on LinkedIn. You can find me there, but also just ben@saddlebackpro.com. That’s my email. We don’t sell anything or offer any services. We really don’t even take outside money, but love talking about the business. If I can help anyone, I’m happy to do that.

Andrew: Awesome. Thanks again, Ben. Really appreciate it. That’s it for today, folks. Thank you so much for tuning in.