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Interview with Frank Rizzo of Stone Capital Investors and MHP Exchange

Listen on Apple Podcast here: https://podcasts.apple.com/us/podcast/interview-with-frank-rizzo-of-stone-capital-investors/id1520681893?i=1000644530439

SHOW NOTES

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 interviews Frank Rizzo, co-founder of Stone Capital Investors and the MHP Exchange.

Frank Rizzo has over 20 years of experience in real estate as a broker, owner, and syndicator. For the past decade, he has been active within the Mobile Home Park asset class, acquiring and re-positioning over 20 mobile home park communities and over 1,500 lots. Frank has previously been elected to serve his local real estate board as director and later served as President of the Staten Island Board of Realtors. Frank Rizzo is also the host of the MHP Exchange Podcast.

In this episode, Andrew Keel and Frank Rizzo delve into Frank’s distinctive business model within the Mobile Home Park realm, characterized by substantial VALUE-ADD components. Since embarking on this path in 2013, Frank has thrived in the mobile home park industry, crafting vibrant communities from trailer trash beginnings, cultivating a strong organizational culture, and ensuring the discovery and retention of ideal on-site managers. His journey in mobile home park investing has been rich with learning experiences and invaluable lessons, many of which he shares with listeners today.

Andrew Keel is the owner of Keel Team, LLC, a Top 100 Owner of Manufactured Housing Communities with over 3,000 lots under management. His team currently manages over 40 manufactured housing communities across more than 10 states. His expertise is in turning around under-managed manufactured housing communities by utilizing proven systems to maximize the occupancy while reducing operating costs. He specializes in bringing in homes to fill vacant lots, implementing utility bill back programs, and improving overall management and operating efficiencies, all of which significantly boost the asset value and net operating income of the communities. Check out KeelTeam.com to learn more.

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

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

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

Talking Points:

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

00:50 – Frank Rizzo’s background and journey into the Mobile Home Park asset class

04:00 – Learning how to operate a mobile home park from a distance, remote management

06:08 – Frank Rizzo’s first mobile home park deal and buying Mobile Home Parks in 2013

09:15 – The importance of culture and maintaining mobile home park community rules

13:00 – Building roads and deep value-add situations within mobile home park investments

16:00 – Getting comfortable with the variables when investing in mobile home parks remotely

23:18 – Frank’s unique mobile home park investing model

27:00 – Quality mobile home park managers

31:00 – Lightning round questions

36:00 – Getting a hold of Frank Rizzo

37:40 – Look at your business plan- mobile home park investing

40:00 – Conclusion

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

Links & Mentions from This Episode:

Stone Cap Investors: https://stonecapinv.com/

The MHP Exchange: https://themhpexchange.com/

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

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

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

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

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

Twitter: @MHPinvestors


TRANSCRIPT

Welcome to the Passive Mobile Home Park Investing podcast. With your host, Andrew Keel. This is the podcast where you can get the education you need to invest 100% passively in a highly profitable niche of mobile home parks.

Andrew:  Welcome to the Passive Mobile Home Park Investing podcast. This is your host, Andrew Keel. Today we have a very special guest, Mr. Frank Rizzo, co-founder of Stone Capital Investors and the MHP Exchange.

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.

Frank Rizzo has over 20 years of experience in real estate as a broker, owner, and syndicator. For the last 10 years, he has been an active mobile home park operator. During that time, he has acquired and repositioned over 20 mobile home communities accounting for over 1500 lots.

He has also been elected to serve his local real estate board as a director and then later served as president of the Staten Island Board of Realtors. He’s also the host of the MHP Exchange podcast. Welcome to the show, Frank.

Frank: Thank you, Andrew. Thank you for having me.

Andrew: Excited to dive in here. Would you first start out and tell us about your story and how in the world you got into investing in manufactured housing communities?

Frank: That’s a great question. As most people from New York City, investing in a mobile home park is very far. We actually have one mobile home park in all of New York City. It’s in Staten Island where we’re located. I got involved right by accident.

I was representing a family who owned multifamily buildings in Brooklyn, and it’s a typical first generation success story. The father was an entrepreneur, owned a bunch of small businesses, didn’t have a 401(k), took his money, and bought multifamily properties in downtown Brooklyn, whether it’s an eight family, a 20-unit building, a 12-unit building. Over time, having lost a step, he ended up with a hundred percent occupancy, but a 45% credit loss.

When they came to me, they were about to lose. They were facing foreclosure on a number of assets, we restructured some of their holdings, and they were looking to relocate down to North Carolina. The family was so happy with our services that they wanted me to help them find another asset to replace the income stream that they were going to be missing.

As I was doing a search for them, the assets that kept coming up as being the highest yielding opportunities were mobile home parks. Not knowing anything about the mobile home parks, finding out a little bit more about the space, and doing some investigation on it, I made a recommendation to them that you should really 1031 into this space. We found an asset in South Georgia, so this is something that I thought would work for them. The father’s answer to me was, I’ll only do it if you stay in the deal and you run it for us.

I got a crash course on running a mobile home park from it and operating it from a distance by staying in the deal with them on that first opportunity. From there, I just fell in love with the space. Now it’s the sole thing that we look to do and focus on.

Andrew: Wow. It must have been a successful venture down there in South Georgia. Would you mind telling us about that first deal and maybe some of the hurdles you faced? How in the world did you get educated? You were just thrust into the asset class by accident, which is how a lot of operators get into the space. Maybe you can tell us about that.

Frank: Sure. One of the challenges that we had and we still have, a lot of the information to find out about mobile home park or mobile home investing was very fragmented. There wasn’t one single source to go to. At that point, there wasn’t that many brokers who were knowledgeable in the space. You really had this void. But from what I could find was you were in a very fragmented industry that’s still very mom and pop dominated.

One of the things that stuck out that was when the residents own their homes, typically, you have the stickiest resident in any real estate asset class. When they own their homes, at that point, the average occupancy for that tenant was 17½ years. They would only leave if the place was dirty or if the place was unsafe. To me, that’s something that you could do from a distance with good systems in place.

Those things stuck out right off the bat. As you look further, we found that there were some distinct tax advantages into doing that, learning what a rent-to-own option was, and how you can move some of those park-owned homes to a rent-to-own model. Over time, mitigate some of that variable expense from the maintenance. Those were things that really resonated with me.

I think the biggest hurdle was getting the team on the ground and learning how to operate it from a distance. I built my business being very hands on. That’s where we came up with, hey, I’m not hands on. I’m not local, but I’m still very hands on. You still have to maintain that touch to that resident throughout your ownership of it.

Andrew: Totally. Yeah, super important. How many lots was that first deal? What was the utility set up?

Frank: Great question. It was 91 lots. It was city water, city sewer, which made it a lot easier. We were acquiring it from somebody who had got into the space, and he was distressed. He was not an operator, but he had bought a couple of parks, grouped some investments together and, he had gone bad across the board.

A key component here was that there was some seller financing debt. The debt was willing to be transferred over to the new owner. We could come in and assume the mortgage that was on the property, and then deploy the additional money that we had to make improvements to the homes.

We had about 48 homes that were on site. At that point, there was only 24 residents there. We had a huge opportunity to fill up the vacant homes by making some improvements. We focused initially on getting those renovations, making those homes market ready so we could bring people in at a market rate.

At that point, we were in Warner Robins, Georgia, which had just started to turn the corner. For those of you guys that are not familiar with Warner Robins down in southeast Georgia, it’s a great market with a military base, air force base, that’s a big driver. It just started to pick up really economically in that area. We got in there at exactly, I believe, the right time before the market really accelerated. The utility setup was key for us because it gave us less variables for us to deal with on our initial purchase.

Andrew: That was 2014, 10 years ago?

Frank: That was 2013.

Andrew: 2013, wow. I think everybody listening wishes that they got into the space in 2013. What was it like buying mobile home parks back then? Is it really true what they all say that you could get a 10-cap all over the place?

Frank: At that point, 10-ap was the market. Initially, you were looking at a minimum 10-cap walking in straight across the board. Because there wasn’t that much competition, especially for sites that needed work, you would get a financing that would be willing to be assumed by a new purchaser. Today, you might not have that leverage, but back then we did. That really helped us to take on that project, because we were able to acquire that debt, and it was at pretty favorable terms to get it reset at that point.

Andrew: Totally. This is a huge turnaround project. This is max value add for your first project, 91 lots and only 24 occupied, right?

Frank: Correct.

Andrew: You were the manager. You were the guy that was going to go get your hands dirty, help rehab these homes, and bring in homes. Tell us about that. What did you learn from that process and maybe what mistakes did you make being that’s the first park?

Frank: What we learned from that process number one was, you’ve got to make sure that you have a good team on the ground. We were fortunate that we got an on site manager who lived in the community next door. We were able to have somebody who was really eyes on the ground that could make sure that the culture was there. By offering real value in the community, we were able to fill up those vacant homes really quickly.

We were able to get people from different parks that saw the changes that were being made. Inside of 12 months, we filled up almost all of those vacant homes. The absorption rate there was phenomenal. We could see an acceleration of increasing the rents, because it was a great product to have. We were able to offer value. We were being very active and proactive about community rules, what we allowed, what we didn’t allow in the park.

It’s there where I really learned that culture is so important. It’s not just renovating the home and leaving it there, it’s that you have to lead first by making the improvements. You have to maintain community rules, because that culture is so important in keeping that emotional connection with the resident and the community. If you allow someone to come in and put their car up on blocks or to become a junk collector in their lot, that’s going to impact your other residents, and they’re going to notice. That one bad apple can literally spoil the bunch.

Andrew: Totally. Let’s talk a little bit more about that. Are you familiar with the broken window theory?

Frank: Yes.

Andrew: It’s the same thing. One broken window will lead to three more, and it’ll lead to trash and crime. It’s been proven. Let’s talk about that. Lead first and maintain the rules. Did you do all this remote?

Frank: I did all of this remote. Obviously, technology has gotten a lot better even in the last 10 years. You’re able to do more things remotely because you can track, you could get pictures and videos, and see exactly what’s happening on the ground. Make no mistake. I was down on the ground frequently, but I live in New York and I’m operating it from a distance.

This being the first community I was involved in, didn’t even have the infrastructure, the setup that we have now and the staff that handle what we do now, but it gave me a crash course of realizing that this can be done remotely. We can build out a platform without having necessarily to be right next door.

Andrew: Yeah. Impressive. especially on your first deal. I remember my first five deals. I’m super hands-on, and I moved on location and lived in a house in one of the parks while we were going through that rehab stage, the first four months of ownership. I don’t know, maybe I’m a control freak, but I just wanted to be able to see, be there when the contractors were working, and make sure they weren’t slacking. Obviously, videos and stuff help, but there’s nothing. I haven’t seen a way to not catch everything without being on site, but that’s impressive.

Frank: Even to this day, on the major capital improvements, we want to be down when it happens. I always tell people, there’s two great days. Your favorite day is obviously the day you close on a new deal. You’re super excited. The next best day is the day you’re doing the roads.

I always love being down there when the roads are getting done, because it becomes a community event. You see people come out of their homes, and I’m sure you’ve experienced this. People watch that, especially when you have a community where the roads have been such disrepair. It impacts their lives. They’ve got to go around, they’re driving on the grass, they’re doing everything to avoid the craters. When you do that, it becomes a community event, and you get to meet everybody.

I’ve always found that the community is thankful and appreciative. I love being on site for whenever we’re doing roads. We make it our business to show up and be there, because I don’t want to miss.

Andrew: This is how big of a control freak I am. In any project we’ve ever installed new roads, I’m always there with a ruler measuring to make sure that I get my three inches of asphalt, because I don’t want to get screwed over. That’s not cheap, that’s so expensive. If they do a one inch layover on the top, that stuff’s going to be potholes again in six months.

Everybody loves the new black top. It’s a big win. How has your strategy changed, Frank, since 10 years ago, since this first value-add project? Are you guys still looking for more value-add projects like this that you manage remotely? What’s your new approach?

Frank: Andrew, it’s funny. We have this internal conversation all the time. We trend towards deep value-add opportunistic situations. I always like to tell people, I might not have a lot of hair on it, but my deals always do.

For us, the more challenging it almost is, the better. Maybe it’s just how I started in the business looking at distressed situations that it’s tough for me to come into a fully stabilized community and play the rent acceleration game. We like to go in there knowing that we’re adding value and taking on projects that maybe a lot of other operators would shy away from.

We’re getting set to close on a property actually tomorrow in Jacksonville, North Carolina. It’s 47 sites with some expansion opportunity, 37 homes that are there on site. The first time we were down there, literally, we saw five drug deals in 10 minutes.

We talked with the owner, we left, we came back, there was a drug raid at the unit that we saw the drug deals happening. We’re closing on it tomorrow, knowing full well that we’re going to have to go in there and do a complete removal of probably two thirds of the residents and start over, because the good people there are staying inside, and the bad people are outside taking over the spot.

We know if we go in there, we can implement a strategy where 12 months from now, the good people will be outside, and the bad people won’t be in the community anymore. We’ve tended to focus on opportunities like that. We think that by doing that, we can add value for the resident and for the community at large. That’s where we’ve tended to focus.

Andrew: Nice. Public utilities, private utilities. How’s that one set up?

Frank: This one’s a mix. We do have public water, but we have private sewer. As we’ve gone on where, originally, we started out, obviously you want public utilities. That is one of the boxes we look to check. But as we’ve gone on in the space, you get more comfortable with some of the variables that you’re going to be faced with. If there’s a well, septic, or private wastewater treatment plant, it comes down to your acquisition.

We realize that there’s a discount to each one of these different variables. If we’re buying right, we can assess that risk, knowing full well that this is the situation we’re going to deal with, but there’s not one silver nugget. It’s easy to say I just want city water, city sewer. But as you know, you’re in the space across the country. If you did that, you’re going to shy away from a lot of good opportunities out there. We like to keep ourselves open if we could buy right.

Andrew: Yeah. I looked at a few deals last year that had wastewater treatment plants. After talking with the operator, the guy that handles the wastewater treatment plant, I just couldn’t get comfortable with it just because of the costs. I was asking him worst case scenario, everything goes bad in here, because it’s at like that. It’s a 50-year life expectancy and it’s at year 40. What’s that going to look like?

Again, it doesn’t mean it’s going to happen. It’s been maintained well, but it could easily be $500,000 to a million dollars to replace one of those things. That’s just scary.

I would say in Jacksonville, North Carolina, for example, we looked at a park. I buy value-add stuff too. We looked at a park that had a well system. I was talking with Ryan Norris who is up in that area, and we were going to buy it together. During due diligence, we contacted the EPA to get the testing results. Two years ago, they found radon in the ground.

Little things like that that people just need to be aware of. If you do your proper due diligence, you can avoid it. But with private utilities, you’re opening up Pandora’s box for all these things that could potentially go wrong. That’s why I just prefer the public utilities. How have you guys overcome some of that?

Frank: Like you said, just there. It’s in the diligence. You have to make sure that you not only speak to the operator of whatever that that treatment facility is, but you speak with the county, and you know what the rules and the regulations are going to be for that system. In the event of worst case scenario, what is my fix? How do I get there? And what do I need to do to operate that system? That’s part of the process.

You have to take that into your cost from the beginning. In doing that, walking downstream, and you get more comfortable with it, obviously you want the seller to pay for it now. Here’s where it is, this is where the discount we need to market based off of the scenario you have, and getting yourself comfortable with how that’s going to operate. Even if it’s a septic system, how that’s going to lay out? Of course in our portfolio, we have a number of septic systems, which quite frankly, took me a little while to get comfortable with.

Andrew: What’s the secret? What’s the secret to due diligence on a septic system, because I haven’t figured it out yet?

Frank: You know what, you have to ask a lot of questions. You have to make sure that you’re comfortable with how the county health department is going to look at putting in a new system, their life expectancy, what’s going to be grandfathered and what’s not, and what their setbacks are going to be. Like you said, if it goes bad, this is what it’s going to look like. I’m going to be here, and I’m going to have to do this.

A lot of these parks have a mixed system setup. Figuring out where you have to put your field lines, how much space you need. That’s a whole project in itself. In doing your due diligence and making sure that you’ve checked off your boxes, you can eliminate some of those concerns or hurdles.

Andrew: Do you pump the tanks?

Frank: Not personally.

Andrew: When you do due diligence, do you pump the septic tanks to drain them, to check it all out and make sure there are no holes in the tanks and stuff like that?

Frank: You could buy a park that has 80 septic tanks. You’re not going to pump all 80 septic tanks. We’ve acquired parks that had septic tanks that had multiple units there. That one you’d want to pump out, see where there might be any problems, and do some investigations on those lines.

If it’s a one to one ratio, and you’re not and you could tell from the ground if there’s leaking or not, you’ll see that pretty evidently. We do a testing throughout there. We do get it inspected, but to pump out each individual lot, that we don’t do. I don’t think you could do it. I don’t think it’s absolutely necessary, but we do keep the septics on a maintenance program.

These systems, like anything else, it’s like anything else. Even if you have some sewer systems in these parks and how they were put together, you have to make sure that you’re pumping out those sewer systems at those connection points on a regular basis, because you can have issues there. Like anything else, you have to maintain it, you have to know where the pressure points are, and you have to make sure you’re watching it. That’s one of the things that I’m sure you’ve picked up along the way.

Andrew: Only by making mistakes. I’ve had to replace a lift station, if you know what one of those are. I’m just super cautious now. We pumped 67 septic tanks on a park that we bought just to get them inspected, shove a camera in there, and make sure that there’s no holes in these old plastic tanks. But there’s a lot to it.

That’s what people need to realize. If you go with a guy who’s buying his first trailer park, there’s more risk there than going with a seasoned operator like yourself or myself that has been around the block, has made mistakes, has learned from them, and has better due diligence processes.

Moving on from that, because the septic tank convo is not really engaging, let’s talk about the last few years with higher interest rates. How have you guys pivoted to get deals done, or have you been on the sidelines? What’s your acquisition pipeline been looking like?

Frank: The last two years, and I credit my team, we’ve been very disciplined. If things are in our buy box, we’re super aggressive. But as prices accelerated, we’ve had more exits than acquisitions, quite frankly. We looked at some of the opportunities that we were in. As we underwrite them to a five or six year timeline, we realized that we had some values in year three that we underwrote to year five.

When we looked at the timeline, we said, if we don’t maintain these levels, we might not see them for a while. We hit the exit button, because our business plan had been fulfilled quite frankly. We have seen in the last 12 months, a little bit more opening up in the market, but it’s being diligent.

Deals come back to you over time. It’s being consistent in the follow up, because we’ve seen more deals fall through, and that helped us in the last 12 months, pick up what we felt some really good opportunities just by being persistent and being able to close. That’s been a key component for us.

Typically, when we’re buying these, essentially, one star communities, we’re not going in there with debt day one. We know we’re going to go in there, we’re unlevered or with some seller financing. That hasn’t held us up on the buy, but usually our first exit is to refinance after stabilization. We just feel that as the asset has to get hold, and we know that there’s going to be a transition period. We don’t want to have the extra stress of financing holding us up as we’re turning that community around.

If we know that we’ve got to exit like in this recent example, 20 residents probably have to find another place, because they’re either non-paying or non-conforming. It’s tough to put debt on there and then maybe violating a covenant. We’ll rather come in there, buy it with cash, and then as we stabilize the community, we can look to recapitalize.

Andrew: You have a very unique model, Frank. I don’t think I’ve met anyone else that does deep, deep value-add like this. My model’s more mid value add. I like stuff, 60%-70% occupied. I can come fill that last little bit of vacancy, infill, or do some rehabs or sub meter, water, sewer, and do some general improvements. That’s the base hit that I go after, but it seems like you’re going after these heavy lifts.

I love how you’re coming in, buying them cash and rolling your sleeves up to do the work. I think if you really step back, I think you have less risk, because there’s so much room to go up. If you’re buying these things, your basis is so low. Every dollar you’re spending, you’re doubling it on the value you’re going to get out of it. I think the biggest risk is just in your execution. Maybe tell us about your team. What does your team look like? Do you handle the property management in-house?

Frank: That’s a great question. The first deal we did where we syndicated, which was after the deal we did in Georgia, raising money from here was like pulling teeth, getting people from New York to want to invest in Jacksonville, Alabama, and we hired a property manager. We said, look, let’s be super conservative. Let’s hire a third party manager. We hired somebody in that town that was very highly rated, managed a number of different apartment complex and single family residents. We thought we were going to be very comfortable with them. Within six months, they fired us.

Andrew: People need to hear this. Yes, you can get fired by your property manager.

Frank: I got fired. Essentially, we were not getting the traction we anticipated. We knew that we were going to have to come down on the residents. We hadn’t had any new residents in there. Work was super slow. You know this, Andrew, there’s just not a lot of quality property managers in this space. It’s not that they’re not quality property managers, they just don’t have the core competency of being a manufactured housing community manager. It just takes a different skill set.

Andrew: There are some out there like blank family communities. I know my friends over at Three Pillars on the West Coast, they’re starting to third party manage, but certain assets, not deep value add in the heart of Alabama. They’re going after stuff that’s more stabilized and is easier to manage. Your apartment property managers are just not equipped to manage mobile home parks.

Frank: They’re not. Their process is completely different. Their typical customer has got different expectations, and they couldn’t create that community. We would come down. We would go down ourselves. We let out the community ourselves. We would take in applications. We screened everybody ourselves, and we would go down, show the units as crazy as that sounds, and we built our business doing that.

From that point, we said, if we want to control the product, we’ve got to control the process. We do all in-house management. We took everything in-house. As it turned out for us, we had somebody on staff who was here on a student Visa and had to go back a home to Kosovo, because her mother got sick. She still wanted to work for us, and she had been in our office for almost a year.

We built an overseas admin team over the last few years, which I think really became a differentiator for us. Now when we go on site, we have an overseas, not an overseas VA. We actually have an overseas office that handles our onboarding, our customer relationship management, handles our maintenance issues and our sales and marketing. We handle that in-house, but we handle that from our office over in Kosovo.

We have about nine people there that work for us. The executives are here. We have, obviously, our team at Stone Capital. On site, on-site managers, you get a good manager, they could do two or three communities, and then our roving maintenance teams that work in hubs so we can move them around as needed in different segments as we’re getting some of the work done. We’ve layered ourselves.

Andrew: That’s huge. I have a team overseas as well. I did it by choice. You did it by accident, but I think that’s huge. I don’t even know where Kosovo is, but that’s really fantastic. You have a whole office of nine employees over there.

Frank: Correct. The difference being is that in this space again, your resident, they own their home. They have their largest asset in your property. They are just as vested, if not more vested in that community, but they want to feel that attachment from the owner. If they feel that attachment, they’ll stay. If they don’t feel that attachment, they will leave. I think you’ve seen that in the last few years. That’s been the differentiator between some operators and some people who just got in space, bought parks, raised rents, saw people leave, and they couldn’t understand why.

Andrew: Yeah. I’d like to do something fun here, Frank. Let’s do a lightning round. I’m going to ask some questions, you just fire off just real quick answers, and we’ll just go through this, because we’re running out of time.  The first question is do you guys own in New York state?

Frank: No.

Andrew: Okay. It seemed like you’re tenant-owned home based, but tenant-owned homes versus park-owned homes?

Frank: Tenant-owned homes.

Andrew: Do you guys do a rent-to-own program to get them to convert them over?

Frank: Correct.

Andrew: Okay. Passive investors. We’re talking LPs that are looking to invest in syndications. What are the most important things that they need to look out for when investing into MHPs?

Frank: I think they need to know the experience and the business model of whatever operator or sponsor they’re going to invest with. I think that’s super critical and where they’re going in that business plan. What’s their turnaround plan? In your instance, where’s that transition period of where that community is going to really start to take off and take a life of its own?

They’ve got to have a clear vision for that, and they’ve got to have a clear vision for what their strategy and plan for that site is. It shouldn’t just be, hey, we buy the park and we raise the rents. I think that’s a bad business plan. I think that we’ve seen that. I’m sure you’ve seen that in the last few years as this industry has become a little bit more trendy. That’s a bad business plan, and I don’t think that’s something that you could back up and sit in markets or economies where things are transitioning.

Andrew: Totally. If you were going to invest passively into another mobile home park operator’s deal, what would be the number one thing that mattered most to you?

Frank: The operator. I’d want to know that you have an experienced operator, that had multiple exits and entries, has a business plan that works, and has a team that’s standing behind it.

Andrew: Would you invest in a first deal operator like someone’s first deal?

Frank: Great question. People invested in my first deal. I do believe that you do pay it forward, but it’s knowing where that person’s vision is. What are you going to do if things go wrong? In our first deal, when things went wrong and that property manager fired us, my partner, Eric and I, we were driving 17 hours to the park taking shifts, driving, spending the weekend, driving 17 hours back to get things done.

If they have that type of commitment to making sure that the end result is going to be the same, that’s somebody that you back, whether it’s the first time or the hundredth time. But if they don’t have that passion, I think that would be the big differentiator for me.

Andrew: Agreed. What’s coming in the next 12 months?

Frank: We see the opportunity pipeline starting to open up a bit. Especially as people, you have to reset their rates, or they realize that their expectations haven’t hit. I think you’re going to see some deal flow increase. Last year was tight across the board. I think we’re starting to see that take up.

I think from an operator acquisition point, I think you’re going to find some good deals over the next 12 months. I think that if you’re waiting, if you own a community and you don’t know where you’re going with it, and you’re kicking the can down the road because you think that the rates might go down, you might as well get out now while you have the chance. If you don’t, I think it could be treacherous waters ahead.

Andrew: I hope you’re right. What does the perfect mobile home park look like in your eyes and why?

Frank: I think midsize market, probably 50,000-150, 000 people in the MSA. I think we have some vacant home park-owned homes on site. I think you got third generation, multi generational ownership who aren’t really looking at it as an operator, looking at it more as an income stream, or you have somebody who maybe purchased the park not knowing what they were buying. I think that’s our perfect scenario, and someone who’s like, I need the surety of getting out now.

I’ve had people come in. A lot of people kick the tires. They come in, they see it. Once they start peeling back the onion, they get scared. I think that’s our perfect bread and butter. We’re not worried about walking into a situation where you have maybe some unruly tenants or things have gotten out of hand. We feel we have the capacity and capability of getting into there and working that out.

Andrew: That’s awesome. What’s the biggest threat to mobile home park investing in your eyes?

Frank: I think across the board, our biggest challenges is the labor pool, because on the ground, you need your team to implement. You got to make sure that you have a good team in place that can implement what you’re doing, especially if you’re operating remotely.

I have to compliment our team. I’m sure you know this, Andrew. You’ve scaled out into multiple states. You can only do that, because you have strong connections with the people around you. Our team is vested into what we’re doing. They work hard, and I think that’s the key. You want to make sure that the people downstream buy into your culture and realize what you’re trying to do.

We focus on making that community better. When we walk in, that’s our motto. We make communities better. If your people are on the ground, they’re your ambassador. They have to be telling your resident that this is what we’re looking to do and getting them to buy into the changes and improvements that are being made.

Andrew: I love that. Frank, how can our listeners get a hold of you if they would like to do so?

Frank: A couple of ways. You could go to our website at stonecapinv.com. That’s our company. You could do that. You could follow us on the mhpexchange.com, where we’ve created a platform where there’s opportunity, news, education, and hopefully you find us entertaining. You get a little bit of everything in one platform. You could check us out on the mhpexchange.com, where you could get some information on the podcast, you could see some recent deals, and you can find industry news as it happens populate there as well.

Andrew: Super cool. What is one last bit of advice before we sign off here that you would give an interested passive investor, an LP that’s looking to invest in somebody’s deal that we don’t know? What would you tell them would be the number one, most important thing that you’d tell them?

Frank: Take a look at the business plan that’s being put forth. Understand where they’re creating the value. I spoke with somebody from a company. They bought over a hundred communities in the last couple of years, and they did it with the idea of, hey, I could just raise the rents. People own their homes. All of a sudden, they’ve had a lot of people leave, they fire their entire operations staff, and now they’re resetting the organization from there.

Understand the business plan and where they’re creating value. If they’re not leading first, or they’re not creating value for the resident, it’s tough to get the resident to stay, even though it’s a sticky resident in general. Know that business plan and get a comfortability with that and on the execution of that.

Andrew: That’s huge, because there are business plans out there that are raising rents. Hey, I’m going to raise rents a hundred dollars this year, a hundred dollars next year, a hundred dollars year three. I just feel like those are just shady business practices. There’s a moral issue there.

Also, a lot of our investors don’t want to invest in that kind of value-add. They want social stewardship. They want to keep the affordable housing. It’s like a duty that they’re investing in this, not only for the returns, but to keep that affordable housing there instead of it getting redeveloped into something else. So thank you for stating that, Frank.

Frank: Andrew, we believe in that. We look at it this way. If you’re a resident, doesn’t have a problem if the lot rent goes up, but the roads are done, the place is clean, the junkers have gone out. But if you’re just looking at them like, I’m going to just constantly take, take, take without giving back, nobody wants to be part of that process. Nobody wants to be part of that platform. That’s one of the key things that I think is the beauty of this business in this industry, but it’s something that any investor should look at.

Andrew: Definitely. Thank you so much for coming on the show, Frank, and congrats on your success.

Frank: Andrew, thank you for having us. I appreciate it, and I appreciate it being on. Continued success to you and your team.

Andrew: That’s it for today, folks. Thank you so much for listening. A quick reminder for you to please leave us a review if you got value out of the show. Thanks again for tuning in.

Hey, are you getting value out of this show? If so, would you mind please going to itunes and leaving the show a five star review? I have a goal of hitting over a hundred five star reviews by the end of 2021. And it would mean the absolute world to me if you could help contribute to that. Thanks ahead of time for making my day with your five star review of the show

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Andrew is a passionate commercial real estate investor, husband, father and fitness fanatic. His specialty is in acquiring and operating manufactured housing communities. Visit AndrewKeel.com for more details on Andrew's story.