SHOW NOTES

Welcome back to the Passive Mobile Home Park Investing Podcast, hosted by Andrew Keel. In this episode of the Passive Mobile Home Park Investing Podcast our host Andrew Keel interviews two special guests, Jake Bond and Paras Shah of GSC Investments.

Since launching GSC Investments in 2016, Jake Bond and Paras Shah have built a thriving portfolio of over 40 institutional-quality mobile home parks, including two active ground-up development manufactured housing community projects. Together, they discuss their mobile home park investing journey and share valuable insights for building and maintaining high-quality mobile home communities that attract long-term, loyal residents in some of the nations top markets.

Join Andrew Keel, Jake Bond and Paras Shah as they dive into the strategies that set successful mobile home park investments apart. They cover essential topics like:

• The importance of providing well-maintained, affordable mobile homes to foster stable mobile home park communities.
• Effective tactics for attracting and retaining “sticky” tenants who view mobile home parks as their forever home.
• Overcoming misconceptions and biases surrounding mobile home parks and reshaping public perception.
• Navigating the impact of mobile home park rent control laws in the Pacific Northwest.
• How market education and community density considerations play a role in sustainable mobile home park growth.

Tune in to gain a fresh perspective on the mobile home park investing industry and learn what it takes to succeed in this unique commercial real estate investment sector.

***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 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 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 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 with Andrew Keel

01:00 – GSC Investments’ Origin Story: How Jake Bond and Paras Shah Entered Mobile Home Park Investing

03:40 – Getting Started: Tips on Mobile Home Park Education and Setting Buying Criteria

11:10 – Key Factors in Mobile Home Park Design: Considering Density for a Balanced Community

13:00 – Anticipating Market Trends in Specific Mobile Home Park Communities

16:00 – The Hands-On Side of Mobile Home Park  Management: Why It’s So Management-Intensive

20:18 – Valuable Lessons from Experience in Passive Mobile Home Park Investing

30:13 – Finding Your First Investment: Why Mobile Home Parks Make Great Starter Assets

32:30 – The Power of Persistence in Mobile Home Park Investing Success

38:15 – Navigating Rent Control: Effects on Mobile Home Park Investments in the Pacific Northwest

42:00 – Building Quality Mobile Home Park Communities: How to Attract Long-Term, Loyal Mobile Home Park Residents

51:00 – Shifting Perspectives: Educating the Public on the Value of Mobile Home Parks

53:00 – Connect with Jake Bond and Paras Shah

53:53 – Wrap-Up and Final Thoughts

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

Links & Mentions from This Episode:

Jake bond’s email: jake@gscinvestments.com

Paras Shah’s email: paras@gscinvestments.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

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TRANSCRIPT

 Andrew: Welcome to the passive mobile home park investing podcast. I’m your host, Andrew Keel. And today we have an exciting episode. We have two special guests in Jake Bond and Paras Shah of GSC Investments. Jake Bond and Paras Shah are the co-founders and principals of GSC Investments, which they launched back in 2016. Since then, GSC has grown to operate and own over 40 mobile home communities, including two development projects.   

Welcome to the show guys.   

Paras: Yeah, thanks for having us, Andrew.   

Andrew: Yeah, thanks for coming on. Paras, maybe you can start us out by telling us a little about your story and how in the world you ended up in manufactured housing communities and starting GSC investments.  

Paras: Thanks again for having us. Jake and I have actually known each other since 2005. We were friends before we were business partners. Fast forward 10 years later in 2015, I’m applying for grad school. I got my master’s in real estate development at USC. Coincidentally, Jake’s younger brother, John, who’s our 3rd business partner and also a co-founder was applying for the program at the same time. 

Jake and I connected us before we started the program and John and I chatted and quickly realized we both wanted to be real estate entrepreneurs. As we started the program, we were deciding on which asset class we wanted to focus on and John had reached out and suggested we look at MHC as an asset class. 

I think like most investors, I kind of had a knee-jerk reaction. I don’t know that I want to do mobile home parks but I think it’s the classic saying that some of the best investments are the ones where perception doesn’t meet reality and that’s the case with MH. 

We started to underwrite the space and for a lot of the same fundamentals that I’m sure your other guests have spoken about or your listeners know about. We love this space. For us at that time, we didn’t really have any capital backing us and so it was really the three of us putting our own money into deals and raising small friends and family checks. It was an asset class we could still compete on.  

This is 2016, the pricing hadn’t gotten as crazy as it was in 2020, and 2022, but there were still a lot of capital chasing deals. As we underwrote the space we realized you can buy communities for $500 million. You can buy communities for like $100 million. There was a pretty wide wide opportunity to compete. 

The three of us underwrote the space, we bought our first community in September of 2016. That was in New Mexico. It’s a 100 lot community and since then, we’ve just kind of hit the ground running and been heads down and focused. 

To date, we’ve transacted over 40 communities and operate north of 3000 lots as you mentioned. We do everything in-house such as property management, and asset management. We have our dealer’s license for our development deals where we buy and sell homes and we’re really excited about the space. I think there’s a lot of tailwind behind us and are really excited for the future of it.   

Andrew: I love that. Would you mind going back to your first deal? Those 100 lots in New Mexico, how did you establish your buying criteria at that point? How’d you really get educated on the asset class?  

Paras: Yeah, so we went to the boot camp, Frank and Dave’s boot camp, which is pretty popular. We read as much as we could about it and as we started to underwrite deals, we were really focused on, for the first deal at least, having a business plan that was relatively low risk, Increasing income, perhaps addressing some deferred maintenance. Public utilities were important to us.  

That was really kind of like our criteria. In terms of lot count, we weren’t as focused on that. We just wanted to get a deal done. I mean I think we probably offered 30 or 40 deals before we got our first one under contract and it was hard. Brokers, when you’re new to the space, they don’t really take you seriously. Especially today, you have a lot more capital chasing deals. A lot of new investors in the space. John put together kind of a deal deck that more or less underwrote the space and we started sending that out to brokers and let them know we’re serious. We’re not just some passive investors that are trying to buy one deal. We want to build a portfolio. We want to scale.  

Luckily enough, we were able to be competitive on our first day. I mean, honestly, we saw the listing and we offered full price and we just wanted to get it under contract. It kind of checked all the boxes for us. We were looking for positive operating leverage on day one. I think we bought that deal around an ACAP, which today, if anything came at an ACAP, we’d probably just send the money. Tell us where to send the money and we won’t even do any DD.  

But the industry changed, 180 from where it was only seven or eight years ago but that was really the criteria for us. Low-risk deal in terms of execution of the business plan in a market that was relatively geographically close to us that we can go manage the property. Low amount of park-owned homes. That was the other criterion for us and public utilities.   

Andrew: Very nice. Very nice. I love that you guys took the boot camp. I’ve been there four times. It’s just a great way to get educated and have a baseline to go off of.  

Jake, let’s pivot over to you, man. I really appreciate you joining us today. Before we hit record here, you said you’re live. You’re recording out of a manufactured home in one of the development projects you guys are working on. Maybe you can share a little bit about your background and kind of what you’re up to today and recently.  

Jake: Yeah, I’m here in Enumclaw at Crystal Mountain Residences which is a ground-up development that we launched in 2021. We started bringing residents in last summer and today we have roughly 26 homes on site. It’s a 129 lot community and it is an age-restricted 55-plus community, but fully amenitized. 

I think we got really really lucky as it relates to ground-up development and manufactured housing. As you know, the development game is all about yield on cost and the reason you don’t see more manufactured housing communities being developed these days is that, of course, everyone wants to be inside the city limits so they have access to municipal water and sewer.  

Unfortunately, in most cases, the underlying value of the land relative to the density that you could otherwise get for other uses is just more than what you could justify for a manufactured housing community. As you know, we can’t build vertically, we get no density so we have to build horizontally and that requires a lot of acreage.  

You just get to a certain cost threshold on the underlying land where your yield, where you’re providing an affordable product with lower rents as compared to apartments or condos, et cetera, townhouses, whatever it might be, where you can get more density, and you also have the ability to frankly, just charge more. That yield on cost is greater and so it just is not feasible.  

Enumclaw is a part of King County. It’s the Southeastern portion of King County. I myself live in Kirkland, which is just an Eastern suburb of Seattle. It’s about a 45-minute drive. It’s roughly 30 miles from my house. It just happens to be the very last parcel on the far East side of town before you were outside the city limits. That works. That happened to work. That location, literally you hop the East property line and all of a sudden you’re no longer in the city. You don’t have access to those resources.  

It penciled in this case, but it is a challenge as it relates to the production of manufactured housing moving forward and that is also why we see a shrinking population of manufactured housing communities around the country every year. Because the sad reality is that there is a higher and better use based on the amount of income that can be generated for an alternative use as compared to the existing use and the utilization of all that acreage.  

Andrew: I think I was looking at your website in which the average home in one of these communities sells for what? $200,000? 

Jake: Oh, I wish. We wish. When we started pursuing development opportunities, it was pre-COVID. COVID had had an outsized impact on costs related to the production of homes as well as the labor and materials to set up the homes.  

Just as an example, we’ve probably seen a cost increase of no less than 40% on our average invoice from the manufacturer for the homes that we’re ordering and we’ve seen at least a 30% increase in the cost of the setup for these homes. Now, to be fair this is kind of a five-star spare, no expense. It looks more like a single-family subdivision than it does a manufactured housing community. 

There are two different ways to approach it. There are some groups. In fact, I was just talking to one of them earlier in the week. That is kind of going for the maximum efficiency model where they’re much higher density, single section homes, zero frills, no upgrades, just the absolute cheapest product they can get. 

They’re selling homes for between $75,000 to call it $130,000 and the trade-off there is that they’re getting larger lot rents. It’s hey, we can sell you a home for really, really cheap. All of these are in the Dallas area and I think generally speaking costs in Dallas as compared to Western Washington are less and the comps are less, the rents are less for apartments, the single-family home sales are less.  

They are competing with a different product there, but do not spend one more dollar than you need to, the absolute cheapest thing you can provide and get as many homes per acre as possible where we’re being a little bit more thoughtful as it relates to density no more than six lots per acre.  

Everyone has a reasonable yard and we are also building onsite garages that are tying into the homes at the eve near the utility door.  

Everyone has a one or two-car garage. Concrete driveways, concrete sidewalks, and curbs.  

Andrew: Institutional quality type of property, very high level. 

Jake: Pit set homes rather than peer set homes, meaning that the grade of the homes looks more like your stick-built home where the skirting we’re using a concrete type skirting so it makes it look like a stem wall. There are about six to eight inches between the final grade and the belly band, which is basically the floor choice.  

It makes it look just like a stick-built home and what I would say is our customers are not people that are coming to us because we’re the lowest-priced option.  

This is like a choice community. They’re choosing a lifestyle nine out of 10 buyers are buying all cash. Unfortunately, the average cost of the home is much higher between $300,000 and $400,000 but for the most part, folks are selling their stick-built home. There’s been some type of a catalyst in their life that has prompted them to want to make a lifestyle change and sometimes that’s the death of a spouse or a separation, or simply just to the desire for a less expensive so that you can lower maintenance, lower cost, more simplified lifestyle I think on average are-  

Andrew: Real quick. Just to kind of cut you off there and sorry about that, Jake but did I hear you earlier? You said there are 26 occupied now and it’s like 120 or 125 lots? 

Jake: 129 total.  

Andrew: Would you say that that’s been one of your challenges is just the increasing occupancy or how did you guys proforma how many homes per year you would sell in that community?  

Jake: Our goal is to do 30 a year. I think that just from a labor standpoint, it becomes very challenging. We push as hard as we can to bring as many homes and set as many homes, et cetera. I think that in certain instances we become a victim of the amount of opportunity that we have.  

As I was explaining earlier, people don’t come to us cause we’re the lowest cost option. In most instances, people come to us looking to spend more money. There is a bit of frustration there because we set up these very beautiful spec homes. At least half of the people that end up buying a home here come to our spec homes, get an idea of what they want, and say, this is great. I want this exact home on that lot over there.   

Are you sure you don’t want this home that you can move into the day? No, no. I want to do a couple of things that are special. Oh, that’s going to cost you an extra $25,000. No problem. I would just want what I want.  

For better or worse, our buyers are not very price-sensitive and a lot of them are downsizing from larger stick-built homes. That’s the point I was getting to earlier in that.  

For the most part, they’re playing the arbitrage that exists between selling their stick-built home, pocketing the equity that they’ve accrued, using some portion of that cash to buy the home here, all cash, and then pocketing the surplus cash flow. 

Most of them in that transition are setting aside $200,000, $300,000, or $400,000 of cash in the trade that exists between selling their stick-built home typically somewhere here in western Washington, and buying a manufactured home in our community.  

In turn, what they’re doing is they’re lowering their maintenance costs. They’re lowering their property taxes. They’re lowering their insurance. They’re lowering their overall overhead as it relates to owning and maintaining the home. They know that they have a roof that is likely going to last them for the remainder of their lifetime. They’re not going to have to worry about replacing the furnace, replacing the roof, et cetera and they’re able to just for lack of a better term enjoy life.  

Andrew: Totally. It’s downsizing. The typical downsizing. Totally understand that model. Awesome that you guys are providing that in this area for sure in the outskirts of Seattle, which is obviously a really good, really good location for all of that. 

Going back to your guys’ story, going back to you, Paras, if you had to do it all over again getting to this point with the type of properties you’re going after and getting up to over 40 communities and a couple of development projects. What would you do differently if you had to do it all over again?  

Paras: Oh, that’s a great question and the easy answer is we would have bought everything we could have between 2016 and 2019. I think when we started looking at the space, if you had told me we would be buying deals at four caps or sub-four caps something crazy. That wasn’t that wasn’t what the space was. But now obviously investors have realized that look, this is a great asset class from just from a pure economic standpoint.  

On a risk-adjusted basis, it’s a very attractive return profile and so that’s the easy answer. We would have bought everything that we could have. I think the other answer would be that I wish we were a little bit more aware of just how management-intensive it is. I think going into this space, we had no ideas or visions of being a property management company as well so we have a third-party affiliated property management company. But we thought we could outsource management.  

You can do that in the multifamily world. You have the great stars and we have these large institutional property management companies, but in MH, if you really want to kind of scale, in our opinion, you have to kind of manage in-house.  

It’s great because it’s made us better underwriters. It’s made us better operators. We understand what to look for. But it’s extremely time-consuming. I don’t think property management isn’t like a sexy business by any means. I said I wish we were a little bit more prepared for that. That was more of a reactive choice as opposed to us being proactive about it.  

All in all, it’s worked out great. We have a great team but that’s a big part of the business. It is very time-consuming and you really have to make sure you’re dialed in on that to make sure you can execute on your business plan and run your property as well.  

Andrew: Totally. 

Jake: If I could piggyback on that, what is ironic about our background is that I came from the multifamily world, where leading up to 2016, the majority of my experience was in investing in institutional 200–400-unit apartment buildings around the country. I just remember so vividly talking with Paras and John and describing to them that this is great, but we really want to be on the asset management side. We do not want to be on the property management side. Here we are 40 plus properties later and the state of Washington, anyways, probably the largest in age property manager in the state and we would not be able to perform the way that we are and execute our business plans if we were hiring a third party option.  

There are a few third-party options and we have tried them and certainly do not mean to denigrate them at all. I think people say this in the multifamily world or other asset classes as well, but in manufactured housing, in order to provide a really tremendous experience for the residents and to be able to execute on the business plan, if you do hire a third party property manager, it’s unlikely you’re going to get anything other than simply rent collection.  If you’re looking for anything outside of that,  it’s going to be really hard to find it.  

Andrew: Yeah, I’ve had the same experience so it’s good to hear that I’m not the only one that kind of went the third-party route and then ended up having over 30 employees now and a management company that I didn’t intend to start. But going to you, Jake, you self-manage all the communities.  

Would you say that’s been the toughest hurdle that you guys have had to overcome to get to this point in regards to building your mobile home park investment platform or would you say there’d be some other things in addition to that?  

Jake: I mean, I think that you learn most from life experiences. In particular, you learn most from when you stumble. I think the hardest part about manufactured housing is maintaining the quality and integrity of the community, as well as the homes and the lots. I think that people discount or do not take into account how difficult it truly is to be effective and efficient in bringing in new homes to revitalize the housing stock and make improvements in your neighborhood. 

If you can do it, then I think that puts you in a class of your own, within the manufactured housing industry. It is probably the best way to add value, not only to your community but also to your residents. I think that a rising tide, so to speak, raises all ships, right? 

Manufactured housing communities are really no different than other neighborhoods that start to see improvements. Name your neighborhood and X, Y, Z city and we’ve seen this happen time and time again, especially over the course of the last 10 years. You have a neighborhood that historically wasn’t getting a lot of attention, wasn’t in great shape, and all of a sudden it becomes trendy and people start buying up the homes and making major improvements and or just tearing down what’s there and building something new. As that happens, it has the effect of helping everyone else around them realize some degree of appreciation.  

We have a community just down the street from Crystal Mountain here in Enumclaw called Diamond Valley, which has been a tremendous experience for all of us. We actually bought that one out of receivership kind of like on a courthouse auction, very, very rough shape when we first purchased it. I think Paras and I would both say that is the community where we cut our teeth.  

That is where we decided to launch our own property management arm as well as our own dealer. We made a number of mistakes early on. So many mistakes so long ago. I can’t even remember them but it happened absolutely. In doing so we acquired a community that had a failing water system. Not had an onsite management presence for probably a decade. Water was literally just coming out of the ground. They were losing so much water. The storm system had failed so not only was coming out of the ground, but then it was pulling up everywhere. 

Several abandoned homes. At the time we had roughly 75% occupancy in a market that’s 100% occupied. The only reason they were no longer 100% occupied was because there was literally no one there to answer the phone. Had there been someone there to answer the phone, people would have brought their homes and they would have been 100% occupied. 

We invested roughly $3 million back into that community. Our water and sewer bill, just as an example, was about $30,000 a month when we first bought the community as a result of the water loss. Once we replaced the water system and remedied the water loss our water and sewer bill came down to about $9000 a month. We immediately added $240,000 to the bottom line just through the cost reduction.  

In addition to that, today we are 100% occupied and our water and sewer bill is $14,000–$15,000 a month. On top of that, we brought in roughly 30 plus new homes. When we first took on the property, people would literally sign their titles over to us. We had multiple people who left in the middle of the night, left their keys and a signed title on the doorstep, and said sayonara.  

We’ve had other residents who were at that community previously that left and swore they would never come back and have been so impressed with the improvements we’ve made that they have actually come back. We bought brand-new homes in the community. 

Andrew: I think this is the one you posted on LinkedIn about how people can now sell homes. They have equity in their homes.  

Jake: Yeah. 

Paras: I think that’s the big thing. I think there’s somewhere out there that the equity values of these homes don’t appreciate, but to Jake’s point, the dynamics are the same as a stick built community. If it’s well located, well run, it’s clean, it’s safe, you’re going to have demand. If you’re going to have demand, then it’s going to get competitive and people are going to be able to unlock equity in their homes and hopefully trade up. 

I mean, that’s what the end goal should be. I know that we’re particularly pretty proud of that because we’ve seen that across our portfolio.  

We’ve tracked the stats and I think that’s something that hopefully the industry as a whole really tries to highlight more because we are in the affordable housing space, and this is one solution to the affordable housing issues across the country. But more importantly, residents who live in these communities, if they’re run well, clean, safe, et cetera, they’re going to be able to unlock equity when they sell. I think that’s been something that we’re super excited about and hopefully continue to be able to execute.  

Andrew: It’s a win-win. The residents are getting that equity and then it’s just really good overall.   

Jake: What I was building up to there, Andrew, I don’t know how he knew who I was, but just a couple of years ago, I had a resident in that community who came up to me when I was there working on a project and said hey, I just want to thank you because of the investment that you’ve made in this community, I’ve been able to sell my home for $175,000 and I’m using those dollars to go buy a stick built home. I never thought my family and I would be able to own a stick-built home.  

The only reason we’re able to do that is because the investment you manage the community and the amount by which our home is appreciated as a result. It’s really really cool. 

Andrew: That’s so cool, Jake, to be able to be a part of that. Then also to make it a win for your investors too, because I’m sure a lot of it had to go up. You invested 3 million into the property and I love that. That’s really cool. Going back to your development projects I wanted to make sure I asked like what would you guys do differently and what would you say are like the most important aspects? 

Maybe Paras you can talk on this point about what are the most important aspects of a ground-up deal and are you guys going to continue to develop.  

I mean, I think you said you started pre-COVID and then 2021 was this first one that you guys kind of got dealt a bad hand there with costs going up and then obviously the COVID costs of the manufactured housing have kind of stayed where the cost of the brand new housing is there. What are the most important aspects and are you going to continue?  

Paras: Yeah, that’s a great question. I think the managing of your bringing in your homes is really critical. In Washington, we’re in a pretty high-cost market. I think the other challenge that we face is, and I don’t think this is so much of an issue in other parts of the country, but there aren’t a lot of like set-up vendors. A lot of them actually, during the Great Recession, and there are other trades and so there’s a huge void of really quality set up crews.  

If you’re looking at a development project, I think you really want to be dialed in on your absorption and not being unrealistic in terms of how quickly you think you can lease up the community. I also think that the bringing in, the setting up the selling of the homes it’s extremely working capital intensive and there really isn’t a great financing solution out there for the actual setup costs. 

You can obviously for the cost of the homes with the triads and the north points and get foreign facilities and that’s great. But the setup of the homes, again, like in our particular case we are doing like all the bells and whistles and it’s five-star communities so the costs are pretty high. But our setup costs are like $150,000 and that includes your permits that include your onsite garages. 

That includes everything. That’s not cheap and you can’t finance that. That’s all equity. Then you add in the fact that we have obviously weather-related issues with the Northwest, the winters are pretty cold, so your sales cycle is shorter. 

All those things kind of snowball when you’re looking at underwriting a deal and I think that you really have to be realistic of your absorption. The cost it takes to bring in, set up, and sell these homes, rinse and repeat, rinse and repeat that’s a challenge that we face every day. 

From our standpoint, you take a step back from a macro perspective. We know once we execute we’re going to have a phenomenal asset on our hands, but what originally we thought was going to take four to five years to get there is probably going to take closer to six or seven. That could be the make or break on your deal. That’s been the challenge.  

I think that in terms of doing future development, it’s frustrating in a way because again, I think this is a real solution, one solution right to the affordable housing issue and I think we always talk about it internally for building an all-age community. This is the new starter home and they’re really great homes if you’re doing a 55-plus community, this is a great retirement community. There seems to be like from just a pure product standpoint, a great fit where you think we’re solving problems.  

The challenge is it’s just really hard to execute. Again, your lease up, it’s not like apartments, you build the apartment and your lease up is 12 or 18 months. These are long lease-up cycles and you need to find the right capital that’s patient and that’s willing to kind of go through the ups and downs with you.  

But you get to the other side of it. You have a phenomenal asset on your hand that is very very very tough to replicate. I would say we’d love to do development again. I think we gotta get through the ones that we have on our hands and get a little further down to I guess let’s say further leased up before we take on another one. But all in all, we are really excited about them.  

Again, we think that if you can develop, it’s a great opportunity to do so and solve the problem and make great returns for your investors.  

Jake: Actually had a great conversation earlier this week with a fellow MH owner who’s really focused on trying to create new legislation around that, because it comes down to what I referenced earlier on the call as it relates to feasibility and highest and best use for the underlying land. 

When we’re trying to create an affordable product at an affordable price, is it realistic that you’re going to pay the same dollar amount for the capital facility charges? For the permits? For all the things that come along with it? If they’re encouraging you to build an affordable product.  

How is it that the municipalities can charge top dollar for the same exact thing across all uses, right? But then expect to create an affordable product. Is that realistic?  

Andrew: Yeah, that’s a great question. Jake, maybe you can talk a little bit about your most recent acquisitions and it’s been tougher to get deals done the last couple of years with higher interest rates. How have you guys pivoted around that?  

Jake: I don’t know that we’ve necessarily pivoted around that. I mean, I’d like to think that we have a secret sauce, but ultimately we historically have not pursued a lot of deals that have been marketed. John has been just tremendous as it relates to creating deal flow for us and really acting almost as an in-house broker. Pounding the pavement, making house calls, going and seeing property owners, following up with them by phone, even befriending some of them.  

I think that just persistence, a lot of the deals that we have been able to close on. This most recent acquisition in Helena, Montana is a great example where it was a two-year process of getting to know the property owner. 

Getting that property isn’t comfortable for us. Then just timing as it relates to their decision to want to move forward with the sale. That’s not going to be a winning recipe for every single deal that we want to pursue.  

There are going to be some property owners who do want to market the property broadly for sale because everyone wants to get top dollar. I think that we’ve been able to create some of our own luck as it relates to finding deals that pencil and that we can go out and raise capital for through just persistence of following up with a certain property owners.  

And because of what’s been happening in the capital markets, if you look at our track record we did one deal in 2023 and the way we got that deal done was through seller financing. We can offer a reasonable price because ultimately we’re all in the yield game. Call it whatever you want to call it, I think now has been the greatest example in recent history of just how sensitive capital markets are to yield. 

When we’ve seen interest rates increase and people can get four or five percent on treasuries. I mean just globally if you look at the macro landscape, there’s significantly more money that is flowing in the credit strategies as compared to equity strategies Because in a lot of credit strategies right now, you can get 9%, 10%, 11%, and 12%.  

Now in a down market, there are going to be some disadvantages to both credit and equity, and in a down market, you’re seeing it firsthand in the office. There are a lot of lenders that are taking back assets. In a down market, maybe the point I’m trying to make is nothing is risk-free. Even if you’re getting that 10%, 11%, 12% in a credit strategy of the day, that doesn’t mean you’re going to get that forever. It doesn’t mean you aren’t going to run into stumbling blocks. Nothing is risk free.  

We were able to create a scenario where there was positive leverage going in on that particular acquisition, 2023 and then as we’ve been in 2024, to date,  there have been three deals that we’ve closed on. One is an RV park in Austin, Texas where again I think pricing was fair. Certainly not egregious. It was important to the seller who he sold to these are primarily long-term tenants so 96 spaces and only 11 of them are open for transient tenants that are in and out. The other 85 are for long-term use. Operates in some respects, the same as a manufactured housing community and again, very favorable seller financing terms. We’re not having to go to the debt markets and get debt at today’s rate.  

We acquired a really really high-end premier community in Boise, Idaho that is kind of like a redevelopment we’ll call it. It’s pretty interesting, there’s an aerial in the office that shows what the community was like when it was 100% leased. 130 lots, nice multi-section homes, nice carports. Property owner about 20 years ago decided that she was no longer happy with the way the community looked. Kicked everyone out except for one home.  

Andrew: Geez.  

Jake: Totally vacated the entire site. Got a conditional use permit to build single-family homes on 20 of the site and she sold those, they’re called patio homes, but they’re single-story efficiency homes. It’s a 55-plus community as well. Sold those on land leases and then after the city would no longer provide conditional use permits for that.  

She started bringing in really high-end manufactured homes. No different than our development projects here and in Washington Crystal Mountain and Lavender Meadows, but just ran out of steam. She got 55 of the 130 lots occupied and ran out of steam and we were able to buy at a pretty conservable discount to replacement cost and just create a scenario relative to what we were talking about, where even though we’re not anticipating enormous lease-up numbers in a very quick period of time, our yield on costs justifies the effort. 

Once fully occupied, I think it’s probably the nicest, highest quality community, certainly in the state of Idaho, maybe in the Pacific Northwest.  

Andrew: Wow. Paras, talk to me about regulation and rent control. The Pacific Northwest is known for that. Just curious how you guys look at that in your investment strategy.  

Paras: It’s a great question. Obviously, Oregon has statewide rent control Washington to date does not have rent control. 

Of course, it’s been on the docket for the last few years.  It’s something we discuss all the time internally. Jake has certainly been involved in a lot of the discussions with legislators and the lobbying groups and our viewpoint on it is let’s focus on what we can control and let’s certainly make sure our voice is heard and lobby and try to educate legislators on why we think rent control is bad. 

I think there’s enough data out there that obviously suggests that listen, it ends up driving up housing costs. reduces affordability. You look at LA, San Francisco, and New York, some of the highest cost markets in the state where they all have in common? Rent control. 

Andrew: Reduces supply. 

Paras: Yeah. Reduces supply. Obviously people aren’t going to invest in properties. We continue to look actively in Washington but it’s a risk that you have to underwrite too, and you have to figure out how to mitigate. 

Andrew: That’s what I’m curious about though. Like for your active investments. How do you underwrite around say in the middle of your game plan, that gets enacted, how would that change? 

Paras: I think we as operators try to be really conscious of our rent increases. We don’t want to go in and Jack rents day one to market. We try to get there systematically over time. I think specifically in the state of Washington, one way to mitigate it as you’re underwriting it or other markets that potentially have rent control on the horizon. One is like, make sure you buy right to the price at that risk. Two, if you have a longer hold period and you can underwrite that and hopefully you get there over time but it is a hard risk to mitigate because again, it’s out of your control and the sad reality is what happens is if it is a potential item that gets passed.  

What a lot of owners do is they start jacking rents to get ahead of it and it has this vicious cycle, which again, almost has this unintended consequence of just rising prices. It does the exact opposite of what it’s trying to do and it’s tough. I think the best way to mitigate it is honestly to buy right. 

Andrew: I think you guys are value-added investors. You’re typically not buying something stabilized and just going to plan on 3% or 5% rent increases. You’re investing $3 million like that one property that you bought on the courthouse steps. I just wonder how that kind of rent increase is justified. It’s not like you’re just buying it and that’s all you’re doing. I think you need to be able to do that.  

Paras: Yeah, and a lot of it honestly is we try to educate our residents as much and be as transparent as we can on the capital improvements that we’re making and try to show the data that look like you’re going to recognize the value of this if and when you sell the home. There’s a cost for everything. I think the other part of it that doesn’t get discussed enough is like property taxes. I mean, those have jumped 30%, 40%, and 50% on us.  

Frankly, we try to just be transparent and communicate with our residents and educate them and do the best that we can to try to offer our communities.   

Andrew: Awesome. I’d like to try to summarize to get this episode finished in like the next 12 minutes, but I have a bunch of questions I want to fly through with you guys. Jake, I’ll pivot over to you. Let’s just kind of try to get this and get them all in the last, in the last like 12 minutes here. But I wanted to ask when you bought your first property in New Mexico, the 100 lots, how has your strategy changed since then? It seems like you’re kind of fleeting to quality and more institutional types of assets. Would you agree and what other strategies or changes have you made to your strategy?   

Jake: Yeah, that’s correct. We’ve definitely moved more towards higher quality or taking on projects like the Brookview project in Boise that I described earlier. Diamond Valley is a great example. We purchased a community in Pocatello, Idaho, that is in every shape and form, the exact replica of Diamond Valley. 

Andrew: I guess, so you’re fleeing the quality in better areas. Like New Mexico, you didn’t say the MSA, but it is that and then I guess why [inaudible 00:43:03].  

Jake: I mean, everyone wants to be in strong markets, but I think that parts and I are going to prioritize the quality of the community. It’s not that we wouldn’t go back to New Mexico at all. It’s that we want it to be really high quality and we think that the higher quality communities or opportunities like Diamond Valley or this community, Golden Hills and Pocatello, where we can create high quality through improvement.  

That’s where we want to be because that is what is going to create the most value for the residents. It’s really hard, I think, to justify rent increases at a one and two-star community that isn’t seeing any improvements and frankly, just doesn’t even have the opportunity for improvement. They’re just so far gone. We’re not cigar butt-type investors, so to speak, where we’re just trying to extract as much cash as possible and move on.  

Andrew: Is the theory that those are stickier tenants in those quality communities?  

Paras: I think it’s like our view on it is, hey, we’d rather pay up for quality for a couple of reasons. One, I think you get a better tenant base. When units turn, you get a better tenant. Then two, I just think your downside risk from an investment standpoint or an investor standpoint is much lower. Then I think three, we believe that when, and if we go to sell, the quality is going to demand a lower cap rate or a higher price. I just think on a risk-adjusted basis. It ends up being a better return profile.  

Jake: I would add to that the fourth pillar is the value proposition that we’re selling. At the end of the day, we are competing with apartments. We are competing with single-family homes. We need to be cognizant of what we’re competing with  and we need to be cognizant of the value proposition that we’re selling. That’s our business.  

It is much easier to sell the value proposition, a higher quality community as compared to the alternatives that consumers have. If they’re going to rent a house or they’re going to rent an apartment or they’re going to go buy a home or a condo, it’s much easier to sell that value proposition in a high quality community than it is in a low quality community where you’ve got alternatives.  

Andrew: I think my strategy has been quite different from yours. I’m buying more C quality assets and adding value to them in order to fix the deferred maintenance mom and pops forgot about. But I’m not competing with apartments or single families because their pricing is just 3X what our lot rents are. 

Paras: It sounds like your strategy is I’m buying a C and I want to get it to B. I want to make improvements and improve the quality overall. 

Andrew: Exactly.  

Jake: Yeah, but the alternative is what happens in a down market? Because from an investor standpoint, one of the pillars of investing in manufactured housing is that you very rarely lose occupancy. You’re going to be doing things really poorly in order to lose occupancy. Whereas in a recession, I was an apartment investor in the great recession, we went from being 100% occupied to being 70% occupied overnight, and people gone. No night out of there. Gone.   

You don’t have the same type of fleeting residents in a down economy, in your manufactured housing communities, and you’re not having to go backwards on rents. Because what did we do with those apartments when we were at 70% occupancy? Let’s say one-bedroom apartments were running for $1600 before the recession. Well, now we’re renting them for $1100 because that’s what we have to do in order to retain the building.  

You don’t do that in manufactured housing. You may not be able to go up, but you’re going to stay constant. You’re going to maintain occupancy. You’re going to maintain those rents.  

In a down market where you have apartments that you’re competing with or single-family homes you’re competing with where the price starts to go down. Then you could get caught in a bad spot. I think that’s why I think we just put so much emphasis on that value proposition that exists, like hey, we’re creating value here for people that’s much easier for us to not only exhibit, but also sell. We’re not going to put ourselves in a tough spot because I think there are a lot of operators out there that have bought lower-quality communities and increased the rent dramatically because all the other communities in the market are charging that much.  

If we get in a position where the price of home starts to go down dramatically, the price of apartments starts to go down dramatically, people are not going to want to pay the same amount that continue to be in these lower-class communities.  

Andrew: Totally. I think a lot of the apartment rents are $1100 and then lot rents are like $350 or $400. It’s so much lower.  

Paras: I think as long as there’s like a 50% spread, you have a pretty good margin of safety.  

Andrew: Totally, and there’s a ton of different ways, but I love your guys’ quality method as well. Real quick here. Paras, we’ll go to you. If you were going to invest in a mobile home park deal, like a syndication passively, what would be the most important things you would look at? Just unbiased third-party investment, a new operator, what would you look at to try to ensure success?  

Paras: What I just mentioned is one of them, what’s the spread between what’s called a two-bed, two-bath apartment and lot rents. I’m trying to make sure there’s a healthy margin there. I’d want to know how they manage the properties relative to our conversation earlier about in-house management versus outsourcing that. 

Track record, that’s in the obvious. That’s super important. Then I think you want to look at well like what is the business plan here? Are they going from lot rent $300 a year to $600 a year immediately? Is that sustainable? Is that doable? And what does that look like obviously on your cap rates and your operating leverage day one?  

Obviously, right now, a lot of investors are focused on cash yield. What’s my going in cash yield? What’s my going in cash yield? I think that’s really important, but like we’re not investing in these deals for one year. 

You got to really look at it like, okay, maybe if my cash yield is low going in, what’s the story behind it. Then two, am I going to get to where I want to get within year five, within year seven. That’s been the challenge for us on some of these syndications. Everyone’s focused on one year, but it’s like guys, not investing for one year, you’re investing for 10 years. Let’s look at the whole picture but that’s some of the stuff that I would look at.   

Andrew: How about you, Jake, would you add anything?   

Jake: No. I think Paras nailed it. What you’re getting in these communities is the durability of income. Kind of like I just explained relative to what happens in a down market with other alternative forms of housing. It was painful in the Great Recession when we lost all of those residents and then had to cut our rates by 30% or 40%. That model didn’t work very well.  

If you were in a position to hold on, you did great. You weathered the storm. But I think here it’s the stability and the durability of that income in both an up market and a down market. That is the real X-factor.   

Andrew: Totally. Paras, what do you think is the biggest threat to mobile home park investing?   

Paras: Yeah, I mean, obviously legislation is one. I think that my hope is that we as an industry can just kind of continue to inform the general public of, like listen, not all communities are “trailer parks” and I think unfortunately, there still is that perception out there, but these are really quality homes. 

I think a great example is like, everyone loves modular homes, right? Modular homes are sexy, et cetera. Manufacturing homes are no different. They’re just governed by the HUD code. But for some reason, like, it just hasn’t caught on with MH.  

I just think there continues to be a public education campaign. I’m like, listen, these are really, really quality, affordable homes that people can unlock equity value and use a trade-up. It is a real solution to the affordable housing issue that the country faces.  

In terms of threat, like, just legislative risk, and then again, just trying to change the public’s perception about this asset class from both the housing perspective and just quality perspective.  

Andrew: Do you think any sort of tiny homes or 3D printing has any risk to the MHC?  

Paras: The tiny homes, we get that question a lot. I think with tiny homes, you’re looking at affordability, but you’re also looking at a really unique lifestyle and you actually look at the cost of the tiny homes, they’re not dramatically cheaper than a manufactured home. 

Unless you’re really looking for a minimalist lifestyle, that small footprint, most people would tell them like, Hey, you spend $20,000 more you’re going to get double the space. They’re going to be like, yeah, like all day long. 

I don’t necessarily think it’s a threat because again, I think it’s such a unique niche of people that want to actually live that lifestyle. It obviously has the affordability component to it but I don’t really think it’s a threat. It’s a threat. I think it’s just another subsect of kind of affordable housing.  

Andrew: Awesome. Well, thank you guys so much for coming on and sharing your model and sharing your story. I really appreciate it. Jake, if any of our listeners would like to get a hold of you guys or have an interest in investing, what would be the best way for them to do so?  

Jake: Likely through email, Paras and I can be reached either. jake@gscinvestments.com or paras@gscinvestments.com. Feel free to reach out anytime and I’ll leave you with this today. Manufactured housing is the only form of affordable housing that is unsubsidized.  

Paras: Yeah.  

Andrew: That’s huge. Awesome guys. Well, thanks again for coming on the show. Really appreciate it. That’s it for today, folks. Reminder, if you got value out of this episode, please leave us a review. Thank you all so much for tuning in.   

Paras: Thanks Andrew. Appreciate you having us. 

Andrew: Thanks, guys. Take care.