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 Michael O’Conner, the founder and Chief Executive Officer of mPark Partners.

Michael O’Connor, an accomplished entrepreneur and investor, brings a wealth of experience garnered from consulting with Fortune 500 companies and large government entities. He holds a Master’s degree in Business Administration, specializing in Finance, Strategy, and Operations from Carnegie Mellon University, complemented by an undergraduate degree in Mechanical Engineering from Pennsylvania State University.

In his role at mPark Partners, Michael has spearheaded the acquisition of eight manufactured housing communities across the United States. He has orchestrated the establishment of on-site management teams to manage these mobile home park communities and off-site teams to provide essential administrative support. Additionally, Michael oversees an affiliated mobile home dealership operating in Delaware, Indiana, Kentucky, and Ohio.

In this episode, Andrew Keel and Michael O’Connor discuss Michael’s Mobile Home Park Investing journey.  Michael shares tips on the best ways to get educated on Mobile Home Park Investing and the asset class as a whole. He also discusses his due diligence checklist and how they do a deep dive into septic tank sewer systems before purchasing private sewer mobile home parks.

Join us on this episode as Michael O’Connor shares his valuable knowledge with us from his time in the Mobile Home Park Investing space.

***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.

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

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

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

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Would you like to see 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

01:45 – Michael O’Connor’s early success from passively investing in Mobile Home Parks

04:52 – Getting educated: reading, jumping into podcasts, the Frank and Dave MHU Bootcamp

07:20 – The most important items on Michael O’Connor’s and mPark Partners Mobile Home Park Investing due diligence checklist

11:00 – Mobile Home Park Septic system due diligence specifics

13:05 – Rehabbing and maintaining the park owned mobile homes is the biggest thing

18:16 – Mobile Home park Value-add deals and Michael’s ideal conditions

21:26 – Dealing with troublesome contractors

23:20 – Mobile Home Park Management: remote and overseas workers, and roving on site managers

32:00 – Michael’s definition of a “nice market”

34:53 – One of the great perks about the Mobile Home Park investing market

37:20 – The worst things to do with a Mobile Home Park investment

44:27 – Reaching out to Michael O’Connor and mPark Partners LLC

44:50 – Mobile Home Parks CAN BE a very stable segment to invest in

45:30 – Conclusion

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

Links & Mentions from This Episode:

MPark Partners: https://www.mparkpartners.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

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. And today we have Michael O’Connor, the founder and chief executive officer of mPark Partners on the show. 

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 wherever you listen to podcasts and rate this podcast for us. It helps us get more listeners and it means the absolute world to me. Thanks for making time to make that review of the show. Alright, let’s dive in. 

Michael O’Connor is an experienced entrepreneur and investor with a well rounded history cultivated by consulting to, and working for fortune 500 companies. He has a master’s degree in business administration, focused on finance, strategy, and operations from Carnegie Mellon University and an undergraduate degree in mechanical engineering from Pennsylvania State University.

In his role now at mPark Partners, Michael has sourced and acquired eight manufactured housing communities throughout the United States and he has built a team that operates the communities and offers administrative support. Michael, welcome to the show. 

Michael: Thank you, Andrew. Appreciate the offer to be here today.

Andrew: Would you mind starting out by telling our listeners a little about your story and how in the world you got into investing in mobile home parks? 

Michael: Sure, yeah. It’s an interesting story, but I’ve always been an entrepreneur, always wanting to do something other than consulting to those clients you mentioned. The hard part is finding out what to do. I’ve tried starting businesses in the past. I actually have started businesses in the past. I’ve acquired businesses in the past.

Just one day, I got into a mobile home park space. We were actually looking for an office for my wife around Delaware and we were talking to a commercial real estate agent and I saw this mobile home park for sale and I thought this is interesting. We should take a look and potentially buy it.

It’d been on the market for a while so I just said, look, let’s put this aside. We need to find an office first for her practice so we’ll come back to that. It turned out we didn’t really need the office in the end. She merged with somebody else that had one, but I came back to it and I tried to acquire that property and then. That was probably around 2015 or so. 

After about six months, the deal fell through primarily due to septic issues. There are certain laws, especially in Delaware, probably a lot of other states too, where septic is a huge concern. You can’t sell a property if it has an issue. Those issues for me were insurmountable. Anyhow, after that exposure, I started investing in other people who are buying mobile home parks, and I started sourcing deals on the side. This is why I was still working in the consulting business. 

I found a property in Indiana, acquired it, and then just went from there and eventually became a full time profession for me. 

Andrew: That is so awesome. You must’ve had early success investing passively in other people’s deals, right? Or were those like syndications or were those funds that you were investing in?

Michael: I was in a fund. I put a small amount of money into a fund and at that point I wasn’t doing it because I didn’t really want the investment. I wanted exposure to the quarterly reports and hearing what these people are saying to me. It was more like a learning adventure, I guess, because I was committed to space, but yes, I did invest in a fund. By the way, the fund eventually paid off. The terms were great. 

Andrew: That’s awesome. Now, would you mind sharing which fund that was? 

Michael: It was one of the MHP funds, I think it was called. It was with Frank Rolfe. I can’t recall the exact name of the fund. It was through one of the crowdfunding platforms like Fundrise or Realty Mogul, one of those kinds of platforms.

Andrew: Interesting. That is so brilliant, though. Several of our investors are in the same bucket. They want to own mobile home parks someday. They want to get their feet wet and kind of learn as much as possible. What better way to invest money with an operator already in the space. That’s fantastic. How else did you get educated on the mobile home park asset class? 

Michael: Well, it’s interesting. Going back to the pre-story to what I just told you, my brother  had been flipping houses in the Washington DC area and he always told me, you should look into manufactured housing communities.

I thought, this is so off the wall, such a ridiculous idea. Why would ever do that? Then eventually, as I told you, I did get into space. But I don’t know, it just seemed like it was something that I heard about after I was invested in, after I found the one in Delaware, after I did some research on the internet, I learned about some of the forums online, and listened to podcasts. I just decided this is what I wanted to do. 

Quite frankly, most of the education just comes from doing it. It’s one thing to read about it on the internet. It’s a different thing to actually do it. It’s a much different thing. There’s a lot of trial with fire too. 

Andrew: Totally. Did you end up going to one of the Frank and Dave kind of boot camps at all? 

Michael: Actually, I did. I was invited to the Los Angeles one as an investor. They were extending an invitation. If I would just pay for the airfare, they said you can come out, take a look, so I did. 

It was helpful. I think from a very high level, it tells you a lot about the business. I think since then, what I’ve learned is there’s a lot beyond what they tell you. They have a way to approach the industry. It’s not the only way to approach the industry, but I’ve learned from them, but I’ve learned on my own as well.

Andrew: That’s great, and I agree with you. I think over a three day bootcamp, it’s really tough to cover everything that encompasses mobile home park investing, but I thought they do a pretty good job of covering it from a 30,000 foot view. One thing I was talking with a partner investor this morning, and I was telling him when I went to that bootcamp, they give you like this 30-day due diligence handbook. 

There’s like 50 items in the checklist and we’ve built on that. Now our due diligence checklist is over 350 items long. There’s just so many more granular things if you want to get into it that you could look at before closing on that property to try to check. A lot of it revolves around the utility infrastructure. Maybe you’d like to share a little bit about due diligence and some of the big things that you look out for when investing into a mobile home park. 

Michael: Well, I think the first thing is, and this is actually quite easy, it’s free, is just to understand that the market’s okay. When I look back and I look at all the properties we purchased, some are in stronger markets, some are in weaker markets. In hindsight, you can really see what the drivers of success are. I wouldn’t say we failed in any of our acquisitions at this point, but some are definitely stronger than others.

I think just looking at the market, making sure the housing stock is high priced, the average two bedroom and three bedroom rentals are at a certain minimum, those things are really important. For example, not that we’ve ever done this, but if you’re trying to sell mobile homes, manufactured homes for $60,000 or $70,000, and you can buy a brand new stick-built house for $40,000, there aren’t markets out there that are like that, it’s going to be hard to compete.

I’ve also learned that if you go into a market that’s a little bit smaller population-wise, it’s not only harder to find the tenants, which is what everybody thinks about. It’s harder to find the support. Finding contractors is a tremendous problem. The first thing is, it’s absolutely free. You just do your research, look at the demographics, and look at bestplaces.net, make sure the market fits your characteristics. That’s really the first step. 

I mean, due diligence, we could spend all day just talking about that. But the big thing there is, I would say it’s the utility infrastructure. We’re essentially in the business of providing infrastructure. We provide roads, we provide overhead power lines, sewer lines, and water lines. If you’re on private sewer, private wells, that’s even more of an issue. Looking into those things is absolutely imperative. 

As I told you before, the one deal that we had under contract failed after a few months, and it was because of the septic issues. We were learning if the septic system were to fail, there’s nowhere to replace it. If you need to replace the leach field, for example, you have to remove a home so you’re now removing revenues from your property. 

We’re actually looking into another property right now in Delaware. It’s on a septic system, but that’s a huge concern. It’s just making sure all the utilities are good and there’s no hidden problems. If there are problems it’s one thing to have a sewer line break and spend $3000 or $4000 hours to fix it. It’s another thing to have your package plant break and spend $750,000 to fix it so we try to avoid those problems. 

Andrew: Yeah, and it’s great to know that upfront what you’re getting into to make sure you have adequate reserves and so forth. Let’s talk about that septic system due diligence, because I’ve found it kind of tough. I’ve spoken to some other operators that said, I kind of went overboard on it, but I bought a property that has 67 septic tanks, one behind every home. 

I pumped every single one of them during due diligence to make sure there was like no leaks and just to kind of stick a camera down and kind of inspect the system and inspect the little distribution box and it was really tough to kind of tell if the leach field was working properly or not without digging down and checking it out. Do you have any tips on that? 

Michael: No, that’s difficult. In the state where we’re looking right now, there’s a law. Basically, if you’re selling a property, you have to inspect the septic tanks. The problem is there’s also a law that says, if a licensed inspector finds a problem, it has to be reported to the environmental authorities. 

This prevents a little bit of a situation here. You want to identify the problems. But maybe the seller doesn’t want to identify the problems because the leach field may be working okay, say 90% of the time. If you just let it go, maybe it will run for another 10, 15, 20 years, but they don’t want you inspecting this because now you just told the government, we have a serious problem. Once they find out you’re now on somebody else’s clock, they need to follow you. They need to make sure you’re doing this properly. You might have six or 12 months to fix it, but it has to be fixed. 

Like I said before, in some cases, if you don’t have room to put a new leach field in you’ve got to take out a home and put it there. None of us want to lose revenues or revenue capacity from our properties. It’s tricky. If you were just starting out you may want to stay away from private utilities including septic tanks, but that’s my concern is they’re just going to fail at some point. 

They don’t last forever. Depending on what the tenants do, they can really mess them up. They can flush diapers, wipes, all this stuff gets into the leach field and they clog the whole system up. 

Andrew: No, that’s a really good point. We’ve, for the most part, stayed away from private utilities because of exactly that reason. I think making sure that hey, if the leach field goes bad, do you have room to install a new one? And oh yeah, the code in 2024 looks a lot different than the code in 1965 when the park was built. Now you might need more room and that’s a really good point that a lot of operators don’t look at. If it does go bad, are you going to be able to have the room necessary to put in a new field? So good points there. 

Michael, what do you think is the toughest hurdle in mobile home park investing? 

Michael: Toughest hurdle I would say it’s just general rehabbing of homes. No, it’s inevitable, but we’re in the business of providing the infrastructure, renting the lot. We prefer not to own the physical home itself. Of course we can’t get around that. Sometimes there’s an abandoned home, you take it over, or if you want to infill the community, you have to bring in homes and then you own them until you can either sell them or rent them to a tenant until they buy them out from you. But it’s inevitable. You’re going to own the homes at some point. 

If you own them, you have to maintain them. The maintenance of the homes is I’d say by far our biggest problem. That’s not just the full rehab, but I’ll give you an example. We had a situation a couple of years ago in Ohio where we had a tenant in the home and this tenant seemed to have some kind of issues, but they kept ripping the thermostat off the wall. We would send a contractor in to put the thermostat back in the wall in January. It’s like 20 degrees outside. By law, if we own the home, we have to provide heat so what do you do when the tenant keeps ripping the thermostat off the wall and you keep putting it back?

Then finally, no contractor’s willing to go into the home because that tenant isn’t very well kept. They’re a little bit untidy and the contractor just doesn’t want to go in the home anymore so now you’re stuck. You can’t fix the home. Nobody’s willing to go do it. Then you could go get the tenant, you can go to the court, get an injunction requiring you to fix the home and your hands are tight. You can’t really do it. 

I would say by far, maintaining the homes is the biggest thing we prefer if we don’t own the home while somebody is living in it. That way we don’t have to be worried about that problem. Then if eventually the home goes vacant because they move somewhere else, they sell the home to us.

At that point, we can just send in a remodel crew and fix the whole thing up and make it new again. But just maintaining them and even hiring these remodel crews can be very challenging. You’re managing this from 700 miles away. You’re relying on what you can see in a cell phone video, or you’re relying on your property manager who may not really understand construction. You’re trying to manage these projects from afar and it’s quite challenging. 

Andrew: I agree, yeah, and I think the biggest thing you mentioned is you know finding good contractors because you’re not able to just go and hire your local general contractor to renovate, you know a couple mobile homes in your park. You’re going to have to use more of a chuck in a truck handyman type of athlete and they are not always the most reliable.

Michael: Chuck in the truck, they come, they’re good for 6 months. Next thing you know, they disappear. Don’t know where they went. I want to know where they went, but they’re just not there anymore. Hopefully, they got the project done. 

Then some of the time, depending on who you’re dealing with, Chuck takes the money and runs, you have half a project done, perhaps he insisted up front half cash and to him, that was the lottery. That was it. Your project’s over. 

Andrew: Tell us about your most recent acquisitions. How have you guys pivoted around higher interest rates? Are you still able to get deals done in the last 24 months? 

Michael: Our last deal was in 2021 so that was before a lot of the inflation kicked in. That really hasn’t applied to us right now. We are looking at a couple of deals. We have a verbal agreement on one right now. 

The way I see the interest rates going in the next year is they’re probably going to go down a little bit. But if we want to get a deal done and it’s a tough balance because the sellers, they don’t look at the interest rate. They don’t care. If the property was paid for 40 years ago, it doesn’t matter what the interest rate is today because they’re not paying the mortgage, the new buyers do, but they see it as my property is worth X and it doesn’t matter what that interest rate is. 

If we want to do the deal, most likely, we try to adjust the price a little bit based on the market conditions, but that only goes so far. The one we’re looking at right now, we’re just going to have more cash into it to keep the payments low. Ideally, it’s going to impair our financial outcome a little bit, not a huge amount, but we also have to be more conservative. 

There are certain properties that you might’ve taken more of a risk on in the past. Now we can’t do that. It’s just too risky with these interest rates. So we just need to find something that’s cash-flowing today that’s going to meet our metrics. Then hopefully the seller will agree with the price we can offer. 

Andrew: Now that makes a lot of sense. What’s your strategy? Are you looking for value-added deals with lots of infill and rehabs? Are you looking for more stabilized properties? What does your current portfolio look like? 

Michael: Sure. We like value add. We buy properties that are under-managed in some way. I’d say the value levers we’re looking for, there’s three primary value levers, if we can find them. First is if we can find a property where the rent should be some amount and it’s some smaller percentage of that, that’s the ideal situation.

For example, the market rent is $500, but the owners only charge $300. That would be our ideal condition because we could buy the property, raise the rents over a few years to the market value, and it really doesn’t take any capital investment to do that. It just takes some time. 

The second thing we like to do is find properties that have not been sub-metered. When I say sub-metering, I mean water and sewer in particular. It’s just amazing what you can do with sub-meters. You could put say $500 into a mobile home to put a meter on it with the labor included, buy Wi-Fi infrastructure, you have Wi-Fi meters. 

All these tenants who thought water was free and you start charging them for their fair share, they realize, okay, water’s not free. Your expense for water and sewer, which is huge in the mobile home park business, goes down so much. For every dollar that goes down, for whatever cap rate you’re purchasing at or selling at, that raises the value of the property by that much money. That’s the second thing.

You could say depending on the size of the part for $20,000 to $50, 000, you put these meters on, they pay for themselves in eight months, and then you’ve just added a million dollars on the price of the property. 

The third thing we like in value add is infill. Of course, that one’s a lot harder. When I first started out, I wanted to infill. It was so time-consuming. You’re doing everything, you’re sourcing deals, you’re managing the employees. Who has time to infill? One home infill probably has 15 or 20 steps with the permitting, five or six different contractors, so that was sort of a part time side venture. Now we have people who are specifically devoted to that. 

That’s a very big part of our strategy as well. It’s a little more expensive. It takes more capital to do it, but there are programs out there that help. I’d say those three anything we can find that has those three opportunities, that’s what we’re looking for. 

Andrew: Okay. Awesome. And where’s your portfolio now? You mentioned Ohio, where else? You have eight communities. Is that right? 

Michael: Sure. We have eight communities. We’re based in Delaware, but we’ve got one community in Delaware. We just bought it a couple of years ago. It’s our first one in the state. Five are in Indiana, mostly from the mid part of the state and north. We’ve got one in Kentucky, just South of Louisville. Then we’ve got one property Southeast of Columbus, Ohio. 

Andrew: Very cool. What mistakes in mobile home park investing have you made that our listeners can learn from and myself?

Michael: What mistakes, it is a trial by fire business if you’ve never been in it before, but I’d say dealing with a lot of those contractors earlier on, we were doing a lot of home refurbs and I know Andrew, you guys do this. I think I’ve asked you by email before, do you have your own crews or how do you handle this?

But I don’t know how many times we bought a used home. We brought it in. We realized it needs all this work. We hired a crew to do it, spent all this money, they did a half-ass job, if I can say that, sorry. Then you rework it, you do it again because they messed it up. You already paid them. You realize later they didn’t do the sub floor. It’s falling through. You do it again. You do it again. You do the same remodel three times in three months. Now the price you have invested in this 30-year-old home is the price of a brand new one. You could have just bought a brand new one and left it at that. Everything would have been good. That’s one big mistake. 

We don’t do so much with used homes anymore just for that reason. We like to buy brand new homes. It’s just so much more reliable. They are so much easier to infill than it is to manage and remodel projects. 

But what other mistakes? There’s countless mistakes, but it all comes down to managing these contractors. They’re difficult to manage.  I’d say that’s where most of our mistakes have been. We’ve had a few walk away, like I said, pay them half the money upfront because you can’t find another contractor. Nobody agrees to come unless you pay half up front, they show up, they take the check and they just leave right then and there that fast.

Andrew: We’ve been there as well and it’s difficult. You try to hedge your bets as much as you can, but yeah, in some of those smaller markets, it’s tough to find a good contractor.

Michael: Exactly. 

Andrew: Okay. That is awesome. What does your operation look like? Are you vertically integrated?

You manage in-house plus you mentioned the project management. You guys have some infill team members. What does that look like? 

Michael: We are mostly a centralized organization. We have community managers in each of our communities. In some cases, one community manager may handle multiple communities within the same area. As far as all the back office functions, which include accounting, finance, bookkeeping, marketing, even sales, we do that from remote. We have a director of operations who’s based in Ohio. She basically overlooks all of our managers. But she also does sales and marketing. We also have an overseas team where we’re shifting more of our sales overseas.

Actually, all the customer service is answered overseas. The people that answer the phones there. They will handle level one sales. They’ll handle all the paperwork, all the lease preparations, all the document preparations. They provide all that paperwork to the onsite managers who physically you might have to show up with a piece of paper or hand over the keys. That’s all done locally, but it’s all being directed from somebody on the backside. 

We also have a roving regional manager who travels to all of our properties. Recently, we just started to build a maintenance team. This just started about a month ago. We hired one person. He’s been with us for about a month now and it’s going well.

If this continues to go well, we’re going to expand upon that and potentially start an installation business and offer that service as a profit center. First of all, we’re going to do it for ourselves, but then eventually we may roll it out as a profit center as a third-party service so yes, I guess we are vertically integrated and becoming more so.

Andrew: Very cool. The maintenance person, are they doing like rehabs or you said you like majority tenant-owned home communities. Right? 

Michael: Yes.

Andrew:Are they that kind of stuff? Or do you have a park-owned home portfolio as well? 

Michael: We do have a park-owned home portfolio not because we want to, but  depending on the sale methodology, we may do rent to own through a rent credit program. Inevitably we’re going to own some of the homes for a period of time, but that person is going to be doing any of the minor repairs. 

If somebody calls because the toilet’s stuffed, although we like to stay away from that kind of issue, it does come up. That person will be responsible for those things, but we’re really trying to focus on him and I say him because there’s only one right now. We are trying to build a team of multiple people that have all the skills, the electrical, the plumbing, and the carpentry where they can just go into a home, spend two or three weeks there, completely remodel it, and then move on to the next one. We’re trying to find people who can help us with all the different skills.

Andrew: Very cool. Yeah, that’s awesome. Michael, let’s flip the tables here. If you were looking to passively invest into a mobile home park syndication, what are the most important things that you would look for to ensure success? 

Michael: I would say you need to find out what experience the syndicator house has. There are a lot of people who are trying to get into the business. They’ve never done it before. You, I, we haven’t been in the business for 50 years. We started out at some point so you really need to make sure that the people know what they’re doing. There are a lot of people, from what I’m seeing, there are a lot of people on social media channels.

They’re trying to find investors. For some of these people who are trying to find investors, I’ve seen on the backside, I’ve seen some of their deals that are for sale. On the one hand, they’re trying to find the next investor. But on the other hand, the portfolio doesn’t seem to be operating that well. 

Some of them, they got into the business quickly, they’re trying to grow very fast, but they’re not necessarily putting all the pieces in place. They’re not putting all the infrastructure in place to run their business. They don’t have a director of operations. They don’t have the finance staff. They don’t have the maintenance staff. Maybe it’s just a couple of guys in an office with 2000 units. That’s a bit of a concern. I think, number one, you need the experience, but number two, you need to have the resources to manage these things. They don’t manage themselves. 

People will tell you, you just hire a manager, pay him $10 per month and it’ll just run itself. It doesn’t work that way. You need people and you need a lot of people and somebody has to manage those people.

Andrew: No, totally, I agree. I wrote down when you were saying that there’s a lot of people that are investors and capital raisers, but not good operators.

Michael: Yes.

Andrew: The operators part in mobile home parks because it’s affordable housing is a little bit tougher. Have some friends that are apartment syndicators and they can hire a third-party property manager that manages 10,000 units in the market and is a very reputable source that’s going to be affordable, but also do it the right way. 

But in the mobile home park space, there’s nothing like that to get the really hands-on management you need. I believe you need to do it yourself and you’re exactly right. You need resources, you need people. That’s why hiring overseas has been so huge for us because it just gives us three times as many people compared to hiring US-based people for all these operational tasks and it just helps us go deeper. Our collections team makes probably three times as many phone calls and text messages as a single US person could do. 

Michael: Yeah, I was just joking with my team the other day, we saw how many phone calls you make per year for, I think it was for deal sourcing, it was on the website. I 100% agree with you. Everybody I always talk to, I say, it’s so much easier to run a bigger operation than a smaller one because you have your team. 

But maybe let’s say finance, for example, you’ve got accounts payable and accounts receivable. If you’re one size, one guy does all of that. Once you get to a certain size, you can have one person that just does accounts receivable and a different person that does accounts payable so you have this specialization that really helps us get bigger. 

If somebody wants to invest in the business passively, I would say you really need to find somebody who has this infrastructure put in place. If it’s three guys on social media, raising funds all day and they have no back staff, then that would concern me.

Andrew: I’m sure you had to start somewhere as did I, but I managed my first five parks myself. I can tell you one thing, our parks are way more optimized today than they were when it was just me and I was opening the mail and putting checks in envelopes and sending them out and changing ball valves under homes sometimes. 

Michael: Absolutely. 

Andrew: You’re right. 

Michael: When you do those things, you learn, okay, where am I spending my time? Earlier on I was doing bookkeeping till like midnight because there was the day job. Now you’re doing bookkeeping. It’s like, okay, I need to give this up. You give that up and all of a sudden you have all this freedom. So much more you can do so much more strategic thinking you can do.

Even things like, how do we receive mail? That was my thing a couple of months ago. I was thinking, how do we receive mail? How can we not do this? Eventually, we came up with an automated process where paper mail gets automatically scanned by a service in New York City. Then we, it comes to our Google Drive and then it goes on the server onto everybody’s computer.

Things like that are the things you have to think about when you get bigger. A lot of these money raisers, I don’t think they think about those things. 

Andrew: Yeah, it adds up and then you’re behind the eight ball because now your water bills aren’t getting paid, your water is getting shut off to your whole community of tenants, those types of things. I’ve heard horror stories that those can really happen. It’s tough. It’s a good business, but it’s definitely not easy. It takes elbow grease. You got to roll up your sleeves and there’s a lot of hands-on nature. That’s needed and the good operators I think do that.

Michael: Absolutely. 

Andrew: That’s important. What does the perfect mobile home park look like in your eyes, Michael? And why? 

Michael: Well, I like something that’s in a nice market. It’s not necessarily fine. 

Andrew: You mentioned that earlier and I just want to reiterate. The two metrics you mentioned would be two and three bedroom rents, is there a certain number? You want those over a $1000 a month or $1500 a month? You also mentioned housing prices. Is that median house price you’re looking at and just trying to get that over a $100,000 over $200,000. Is there any specifics you can give us on that?

Michael: We don’t have a limit like that, but a lot of our properties in Indiana, when we purchased the lot rents were under $200, we’re now above $300 and we take them up from there. I would say once you get lower than that, it starts becoming a problem. I shouldn’t say it’s a problem, but it’s a different operation.

If you’re in a market that’s charging $150 a month, I don’t know if that’s enough money for us to really pay our expenses and do very well. I’m sure somebody can do that if you’re geared towards that kind of a thing, but I’d say lot rents, if we’re at say $325 and up stabilized, I don’t want to say stabilized because if you can tell me this property has market lot rents of $350, but the owners are only charging $150 to us, that’s a gold mine.

That aside, I guess, physical characteristics besides all the due diligence with the infrastructure. We kind of like the parks that are a lot of single-wide homes. We’re not really into the high-end parks, the five-star with the Marina, the golf course, and the restaurant clubhouse. We just don’t want to deal with that because that’s extra service.

The one thing that’s nice about this business is I can probably go away for a year and do nothing and come back and the business would be relatively intact. Maybe there would be some attrition of revenues and some other issues. But for the most part, it would still be here. If we’re trying to sell hamburgers at the clubhouse and you don’t show up for a year, things can go bad really fast.

We don’t like the one star properties, unless there’s a clear path to make them better. The really low price for the market where you have a lot of hard to deal with tenants, with the kinds of issues they have, we don’t like that kind of thing, but we’re also not into it. The opposite extreme, the 55 plus retired people, they pay $200,000 for the home and the lot rents $1000 after that. We don’t do a lot of that either. In fact, we don’t do any of that right now. We’re in the middle. We like the three-star parks. 

Andrew: Same. Yeah. That’s what our portfolio is as well for the most part. You made a good point there, though. You said, if I go away for a year and I come back, most of the business is going to be there. It’s not going to be this mass exodus of people that just exit entirely because you have some systems set up and because it’s reliable, right? You have sticky tenants. This is where they live. This is not like self storage, you’re not storing stuff somewhere where hey, they could disappear in 30 days. It’s not an RV park where  they’re there on the weekends and then no one’s there during the week so that’s a really good point. I haven’t heard anyone say that before. 

Michael: Yeah. Even compared to multifamily, we’ve never really done multifamily, but we looked into the stats on it before, but believe it’s the average 10 years, maybe two years, which means you’ve got 50% annual turnover. If you have 50% annual turnover, I mean, for us, that would be devastating because every time we have turnover in a home, we have to refurbish it.

We don’t want to refurbish a home every two years. We want to put somebody in a home, have them stay there for 40 years. That’s our business model. That’s what we like. 

Andrew: I mean, it’s possible. That’s why we’re doing this. It works. Once they own the home, the turnover is so low and it’s because of the affordability. Lot rent is $325 a month, $350 a month. That’s so, so cheap. 

Michael: And Andrew, they can’t go anywhere because if, imagine you’re in the market, we have a property just outside of Chicago. I think the rent is $450 or $460, somewhere thereabouts. If you buy a home from us, and let’s say we did a rent-to-own, and you pay us $700 a month for three years, then we just give the home to you for free after that.

Now your rent’s not $700 anymore, it’s $468, and we transfer the title to you so you own it. You can’t go anywhere, practically, because if you want to find another home at the next community down the road, even if the lot rent is the same, you still have to buy that home. 

Now you’re back to paying $700 a month for so many years until you can buy that home or you’re purchasing a brand new home for $50,000, $60,000, or $70,000. We have those barriers to leaving. It makes it very compelling to stay for a long time. 

Andrew: Agreed. Agreed. We’ll just invert for a second in honor of Charlie Munger. If you wanted to run a mobile home park into the ground, what would you do? 

Michael: What would I do? Okay, so first of all, I’d probably stop screening tenants. We’d stop looking at their income. That’s probably the quickest way to destroy a community. You take the first tenant that comes in off the street, they’ve been evicted.

Actually, we had this happen a few years ago. The person was evicted, at least on the court records, there were 11 evictions in a year and they applied to live with us. I don’t even know how it’s possible because it takes two or three months to go through one at least, but somehow they had 11 evictions on the record. It’s simple as that. 

If you let the tenant base get such a low quality that people don’t have jobs, they don’t have reliable income. That could be a problem. 

Andrew: That’s a huge problem. Thank you for mentioning that because this is how serious it is. We switched background check providers. We were with AmRent which is plugged into Rent Manager. We switched to another one that was like this, it was like a cool new kind of add-on that they grouped in with Rent Manager as well and we started using them. 

Sure enough, our turnover started to go up and we said what’s going on here. We looked in and they were only doing a background check based on like the last five years or so instead of going deeper and they were only doing it based on the state that the person lived in national background check. 

It’s little things like that, that you don’t think would be that much of a difference, tremendous difference. So I agree. You got to screen them. I think income is the most important thing, getting their pay stubs, calling the employer hey, how reliable is this person? How long have they been there? That has just given us such a good insight.

Michael: I remember earlier on when I was doing everything, including the sales, we would look and somebody would come in and say, yeah, I run my own contracting company. Here’s an example of a check I just got from the client and it looks good, but that’s hit or miss. I mean, that’s great to be in your own business and to drive your success. But from a landlord’s perspective, it’s horrible. You can’t prove that person’s income. A lot of it, they take under the table. It could be that they take a lot of under the table where they just don’t have the income, one or the other.

Either way, that can be very disappointing if you let those people come in. Number one, once they’re in, you have to go through a legal process to get them out. That takes time. Secondly, when they leave, the home’s probably not the same condition as when it came in so now you’ve got to put a bunch of money into refurbishing it. A lot of this goes away if you just have some minimum standards. 

Andrew: Totally agree. I just had Frank Rolf on the show and he mentioned driving through a park and if you see a lot of like contractor vehicles, like a lot of trucks and Joe’s handyman on the side, you see the majority of the tenants are those type of residents, roofers and things like that, it might not bode well in the end because again, inconsistency of income. They’re, they’re busy during the summer, but in the winter, they’re, they have no income because there are no roofing jobs. That’s an interesting perspective that I totally get it. 

Michael: Yeah, that makes sense. 

Andrew: What do you think is the biggest threat to mobile home park investing? 

Michael: I would say it’s local government. We’ve had situations where the local government, they might either like you or dislike you and usually you can determine that pretty quickly, but a lot of them don’t understand the grandfathering laws for real estate in our country and they try to exert pressure where they’re not really allowed to. 

I know there’s a bunch of Supreme court cases on this, where a local government will say hey, look, your setbacks are only eight feet between your homes and the new code is they’re 10 feet. When you take out that mobile home, because eventually some of them have to be demolished and replaced so they tell you when you take it out, we’re not going to issue a permit to replace it unless you meet the new setbacks, but it’s impossible to meet the new setbacks because the lots are already there. They’re already spaced apart so many feet. 

Usually it’s illegal for them to do that, but either they don’t know it or they don’t care. I think usually they don’t know it. The problem is, if they don’t know it, you have to educate them and it’s not an easy process. It could take litigation. At a minimum, it could take just hiring an attorney to help educate them that what they’re doing by denying this permit is illegal and that’s a huge problem. 

We faced that where we’ve had to spend $5000 for a one-day meeting with an attorney with the building department, just to explain to them that you are in violation of the state law by not issuing this permit. Eventually, they came around, but that took six to 12 months to get them to issue the first permit. 

I’d say it’s that a lot of them. A lot of them look at the zoning ordinances and the zoning changes, it changes all the time. But the fact is when the property was built, perhaps 50 or 60 years ago, they may not have had the zoning. In most jurisdictions, if not all, we are a grandfather to that date, but the local bureaucrats don’t know that a lot of times they’re not educated in this. They know how to issue permits. They know how to read their code. But they don’t have an intimate knowledge of property laws in the United States. That’s a huge concern. 

Andrew: Yeah, no, I completely agree. We have a park, and the local building inspector just does not like trailer parks and every little thing, he exacerbates it and just makes it this huge hurdle. It’s like all of your smoke detectors are not wired, they’re battery power, you need to update all of that. 

It’s just like he over-exaggerates every little thing and we have to accommodate because he’s the guy that’s going to give us this ridiculous occupancy. I think it’s been a hurdle, but there’s people like that too, that just have this stigma of oh this is a mobile home park. This is a trailer park. We want to make it as hard for them as possible because we want this whole area redeveloped into multifamily apartments and it didn’t happen.

We’re just there to preserve the housing stock and they don’t really like that so they’re going to make it a little bit harder for us, which is bad. 

Michael, you’ve shared a ton with us. Thank you so much. If any of our listeners would like to get a hold of you, what would be the best way for them to do so?

Michael: Probably the best way is to call the office. It’s at our website at mparkpartners.com and just ask for Mike. Simple as that. 

Andrew: Awesome. What’s one last bit of information or important advice you would give an interested passive mobile home park investor before we sign off. 

Michael: Oh boy. I would say that this is a very interesting segment of real estate. It’s probably the most stable segment there is. Just looking back a few years, we went through the covid pandemic revenues didn’t drop, or if they dropped, they dropped a couple percentage points. If you’re investing in something like a couple, multi families in New York City were very famous in that they went completely vacant overnight. Hotels went almost vacant overnight. Offices had a serious turn back on the revenues. But in manufactured housing, we have never seen anything like that. It’s very stable. 

Andrew: Love that. Yeah, that’s awesome. Well, thanks again for coming on the show, Michael. 

Michael: Excellent. Thanks, Andrew. 

Andrew: That’s it for today, folks. A friendly reminder for you to please leave a review if you got value out of this show. Thank you so much for tuning in.

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