Listen on Apple Podcast here: https://podcasts.apple.com/us/podcast/interview-with-mobile-home-park-operator-daniel-weisfield/id1520681893?i=1000493750723

SHOW NOTES

Welcome back to the Passive Mobile Home Park Investing Podcast, hosted by Andrew Keel.

On this episode of the Passive Mobile Home Park Investing Podcast, Andrew talks with mobile home park operator and syndicator: Daniel Weisfield. Today they talk about investing in mobile home parks and what passive investors should look for.

They also discuss Daniel’s success in the business and the hardest parts about the mobile home park business. Daniel also discusses his top pieces of advice for new investors getting into the trailer park 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 1,400 lots under management. His team currently manages over 20 manufactured housing communities across ten states – AR, GA, IA, IL, IN, MN, NE, OH, PA and TN. His expertise is in turning around under-managed manufactured housing communities by utilizing proven systems to maximize the occupancy while reducing operating costs. He specializes in bringing in homes to fill vacant lots, implementing utility bill back programs, and improving overall management and operating efficiencies, all of which significantly boost the asset value and net operating income of the communities.

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

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

• A deal review
• Due diligence questions
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• Mistakes to avoid, and more!

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

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Talking Points:

00:19 – Welcome, Introduction to Daniel Weisfield

01:31 – Daniel’s background

04:56 – The hardest part about the business

06:38 – How Daniel is changing the stigma/psychology of “trailer parks”

09:30 – What passive investors should look for when investing into this asset class 13:11 – Daniel’s greatest mistake as an operator

16:04 – Daniel’s biggest win so far

21:12 – Successful value add strategies

23:30 – Selling homes in new lots

25:52 – Daniel’s true value proposition as an operator

29:04 – Having skin in the game

35:20 – Daniel’s vision into the future

37:50 – Daniel’s terms for passive investors

39:35 – Property management team set-up

42:30 – Getting a hold of Daniel

42:55 – Thanks and see you next week

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

Links & Mentions from This Episode:

Three Pillar Communities Website: https://www.threepillarcommunities.com/

Daniel Weisfield’s Email: info@threepillarcommunities.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/PassiveMHPin…

Andrew Keel Instagram Page: https://www.instagram.com/passivemhpi…

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 the highly profitable niche of mobile home parks.

Andrew: Welcome to The Passive Mobile Home Park Investing Podcast. This is your host, Andrew Keel. Today, we have an amazing guest, Daniel Weisfield.

Daniel is a third-generation mobile home park owner-operator who grew up fixing porches and mowing lawns at his grandfather’s mobile home parks on the West Coast in California and Washington. He has a JD and an MBA from Yale University, and he is a licensed attorney in the State of California. He is also a licensed manufactured home dealer in California, Oregon, Washington, and Idaho. Impressive. His research on real estate and housing in general has been published in the New York Times, the LA Times, and the Wall Street Journal.

Daniel, welcome to the show.

Daniel: Thank you so much, Andrew. I’m really glad to be here.

Andrew: Awesome, dude. Would you mind telling us a little about your background, how you got into the manufactured housing business, and chose to follow your grandfather’s footsteps?

Daniel: Yeah, absolutely. Let me give a little background on my family. I think I’ll start there. My mother was born on a chicken farm in Israel. I told my grandfather he’s really a farm boy. He came to the US with nothing, $100 and a suitcase kind of deal. He needed to make bucks so he started buying wrecked cars in a junkyard, fixing them in his backyard, and selling them. Eventually, he saved enough money to open a body shop. And then save enough money to buy a mobile home park around 1980. By the way, he’s 89 years old and still living. He’s still with us, so much that he’s become a hero and a mentor for me.

In the summer, since I was a kid, I helped him in the body shop, paint the cars, whatever it was. Then I’ll go help him with the mobile home park—mow the lawn, paint the fence. He was a very hands on owner-operator. He really embodies the American dream—came here with nothing and ended up building real wealth by owning cash from real estate.

That was my family background. I didn’t think I was going to be a “trailer park” guy when I grew up. Guilty to use that term. I had other professional dreams, I worked as a US diplomat. I got a law degree, I got an MBA. I worked in the corporate world. I had the chance to do some really exciting research on affordable housing that got published in national publications. It was nearly 3-4 years ago, I was working at my W-2 job, and I was thinking about real estate all the time. I realized I wanted to be an entrepreneur and I realized the opportunity in manufactured housing. I realized that the thing that my family does which I thought was really unsexy, not that interesting—I realized the crucial role it played in society. I realized that if I’d have a running start if I got into this, because of my family’s background.

That’s really what motivated me back in 2017 to leave the 9:00-5:00, leave the corporate job, become an entrepreneur, and start Three Pillar Communities. Our mission from day one was a two-part mission. We have a mission to our residents, and to our investors. The mission is to provide safe, reliable housing to our residents, and safe, reliable returns to our investors.

Andrew: I love that. That’s fantastic.

Daniel: Thank you.

Andrew: How long have you owned mobile home parks? How long was it then that you started Three Pillars? How many properties have you bought during that time? How many lots do you have, too?

Daniel: Great question. At this point, we are a top 50 operator in the US. I think we have about 2700 lots, if I remember it correctly. That number always fluctuates. It’s still more than 2500 and less than 3000. We own 30 communities in five states. We do all of our property management and asset management in-house. That’s really important because we have about 50 employees, creating value up in the communities. We started the company in 2017. Since then, we’ve acquired 18 parks. On top of the 18 we’ve acquired, we manage 12 others. We’re managing a portfolio of 30 parks.

Andrew: Very nice. Wow, that’s fantastic. I’ll jump right into this since you have very much so a lot of experience in the operational side. What would you say is the hardest part about the business in your eyes, Daniel?

Daniel: Do you mean on the operational side or kind of more broadly?

Andrew: I want to say on the operational side, because a lot of our day-to-day headache is operational. What do you think?

Daniel: Yeah. For me, in operations, the biggest challenge is changing the psychology of residents when we buy parks that’d been neglected and we’re trying to determine the place that people are proud to call home.

I believe that owning mobile home parks requires a partnership with the owners and the residents. We come in with our value and plan to pave the roads, spread up new signage, and bring a new home. We’re going to make this a great community that people are proud to live in, or proud to raise their families in. It requires a partnership with the residents. They got to be on board. You can pave the road and put up new signage all day long, but if they still have 6 junker cars on their lot and 10 pitbulls running around, you can’t have a nice community.

There’s the iron fist and the velvet glove. You got both of those tools that you’re using in order to create influence. You can’t just hammer people with an iron fist. That is not the way that people get on board with the program. It’s very much about the resident psychology thing. Maybe there’s purpose in neglected trailer parks for the past 30 years. Things are changing. We needed to get on board if we wanted to be a part of this process.

Andrew: Yeah, I think that’s huge. What have you done to do that—and had success doing that—to change that psychology?

Daniel: That’s a great question. I can think of two parks that are really good examples. One is Serene Terrace Mobile Home Park in the Seattle market in Lynnwood, Washington. We love the Seattle market. Great job growth mostly driven by tech, lots of population growth, a very strong housing market, lots of housing demand, not enough supply. It’s the structure of the market we love.

We bought Three Pillars Mobile Home Parks for $10 million in early 2018 from the family that had owned it for 50-60 years. I’m sure you’ve seen it all the time, right? Grandpa built the park back in the ’50s. When he built it, it was a great retirement community, for 55 and up. They had the fishing derby. They had the clubhouse. They had the billiards room.

The kids in here, they don’t really know how to manage parks. Things went downhill. It’s been neglected. Now you’ve got a bunch of old 1970 […] with no paint on them. The lake for the fishing derby is full of weeds. We bought this, and it’s a turnaround right?

How do we get residents on board? First of all, you need to call them. Even though we buy parks, we’re still meeting. We treat them like people. We get pizza and drinks or cookies and coffee, whatever it is. Hey, come here, we shake hands. We meet them. At least we shook hands before Coronavirus. I don’t know if we shake hands right now, but we used to shake hands.

We meet everybody and we explain. Like I said, this is a partnership—what we’re going to need, we’re going to need you to do. Additionally, we invest in the community in a way that impacts the residents. They had a residents association. They were doing great stuff like running a food pantry for other senior neighbors who can’t get out of the house and couldn’t get food. We said, we’ll support that. We can voluntarily contribute a couple hundred dollars a month to your resident’s association. We want you to be doing these kinds of programs. We want them to know that we’re on board creating this sustainable community, that kind of thing.

If they’re still suspicious, they want to talk is talk, talk is cheap, right? This guy’s the real deal, he’s going to improve the park. Is it true? When they see you starting to pave the road, put in the new homes, upgrade the landscape—that’s where it clicks, and they say, alright, these guys are doing their parts, we got to raise our game also. That’s where you got the people.

If you got those drug dealer residents or other folks, they start realizing, maybe this isn’t the place I want to be anymore. These drug dealers tend to like neglected parks where no one’s watching. When they see that we’re watching, sometimes they just don’t care and move on.

Andrew: Yeah, which is exactly what you want. A lot of our listeners are passive investors or interested in investing into the asset class. What would you say are the most important things that passive investors need to look out for when investing into this asset class?

Daniel: It’s a great question. I’ll probably approach that from a pretty unique point of view. I set my strategy different from a lot of the other’s indicators and a lot of responses in the asset class. My strategy is different from your strategy. Let me explain my strategy first. It’s to explain where I’m coming from on this. Then, I’ll translate that to advice for a passive investor.

Our strategy is focused on buying great mobile home parks in great markets and holding them long term. That’s the basic model. That’s how I found—my family came to the US with nothing and they built real wealth. I think the best way to build long term wealth in real estate is to buy great assets, fix them, improve them, do that work, and then hold them long term. In my view, there’s no reason to sell because you can harvest that value great by doing cash-out refinancing.

I personally don’t want to sign up for a 5 year fund life or a 10 year fund life. I want to be in the business to own that for the next 50-100 years. As you know, they aren’t making a lot more of them. There’s limited supply, there’s rising demand, they’re hard to find. Once you find them, I don’t want to get rid of them. I want to build a portfolio.

Based on that strategy, we care a lot about the markets we invest in. I’m not looking to go to weak markets with flat population growth or declining population growth, try to buy a 10-cap and get a 15% or 20% cash-on-cash yield. That’s a great way to get cash flow, that’s a great business. There are people who do that very effectively.

This is my advice to passive investors. Sometimes the mobile home parks forget the first rule estate which is location, location, location. They get fixated on the asset class and think, oh, it’s a mobile home park. Every mobile home park is good so I’m going to go buy it at any market in the middle of nowhere because it’s a mobile home park. That’s a strategic mistake. For me, the good advice is to follow the first rule in real estate. Take markets you believe in and that have strong affordable housing demand. That might be a famous market like Silicon Valley or Seattle, or maybe a market you never heard of but it’s got a university or a meat packing plant or no one bought houses there for a while. It depends all on the supply-demand perspective. That’s my first piece of advice.

Second of the advice is go with operators who must be in line with yours. If you’re trying to maximize cash flow and you want a five year hold, great. There’s really good operators for that. If you’re looking at where you’re allocating your money across your portfolio, and you’ve already got stuff in tax or stocks and bonds, it’s a little more volatile and higher growth, and you’re seeing mobile parks that are long term stable passive income, then you might go with operator more like me who has a super long term hold strategy.

Andrew: Yeah. I love that. Those are great pieces of advice right there because everybody is looking for something different to diversify that portfolio. Typically, when people come to mobile home parks, they’re seeing it as an alternative investment. It’s not as mainstream. It’s becoming more mainstream but as part of that alternative category, it gets that more high risk tag put on it. But like you said, great markets, location, affordable housing need, it’s a great, stable investment as well. Thank you for sharing those.

What would you say is one of the biggest mistakes or incorrect pro forma projections that you’ve made as an operator?

Daniel: Puyallup River RV Park. Seattle market. Great market, we thought the deal was great. Roughly 40 space RV Park. It’s on septic. It’s on a well. It’s not a luxury deal. Again, it’s a market with massive demand for affordable housing and none left supply, it’s close to jobs, and it’s a deal we believed in. We bought this thing about a year ago understanding that maybe there was going to be some issues with the tenant base, we knew we’d have to do aesthetics upgrades. We buckled up, we […] turnaround. I did not anticipate that we’d need to replace 3/4 of the tenants who were involved in a drug raid.

There are folks who are letting people come into their homes to use their home like a bathroom. There is a sweet little lady who was a really cute little lady, and she pulled a gun on our manager. Legally blind person, holding a gun, pointing it at my manager. We expected a turnaround but I think unless we had done deep surveillance, people of acquisition, we would have no way to know the extent to which there was a cultural problem embedded in the tenant base.

Again, we’re responsible operators. We work with tenants. So we say, hey, if you can get with the program, we want to make this a great place to live. This is the part where you go to the tenants who don’t want to get into the program. We missed our budget projection big time. We were telling our investors, hey, we still believe in the deal, believe in the location, we’re glad we bought it. We’re not paying distributions for basically a year. Every dollar we earn we need to reinvest in fixing this place.

Andrew: Yeah, but with your long term strategy, that’ll be recouped, I’m sure. Very quickly. It’s not about the first year, right? It’s about 20 years from now, what that property is worth.

To piggyback on that, I’ve definitely had similar deals. I bought a deal in the center of Dayton, Ohio which all the numbers showed Dayton was doing very well. There were only 15 occupied out of the 50 lots. Same type of situation. The 15 were there for a reason. It was not the highest quality of residents. Like you said, you got to filter through people. The bottom feeders, they kind of get the picture. They filter out on their own as you start to make improvements. Like you said, keep an eye on things. I’ve had a similar experience.

What would you say is the biggest win you have in the business so far or maybe the best case study? I’m sure for every loss, there is a win to match it.

Daniel: I hope for every loss, there are 20 wins to match it. That’s more of what I’m shooting for. The deal that I’m proudest of is our Renton Highland Manor deal, also in the Seattle market. I know I’ve mentioned a lot of Seattle deals. We’ve actually invested in California, Oregon, Washington, Idaho, Arizona. It’s the reason why most of the deals that I’m mentioning are from up north.

Renton Highland Manor to me is a classic Three Pillars Communities deal. This is what we’re all about, and I’m so proud of it. It was a neglected mobile home park. The prior owner actually bought it because he wanted to tear it down and build a Jimi Hendrix museum there.

Andrew: Jimi Hendrix.

Daniel: Jimi Hendrix, the iconic rock-n-roll guitarist. He’s from Seattle, and he is buried in the cemetery in Renton, Washington. This park was already across the street from the cemetery. The owner was kind of an eccentric real estate guy. He loves Jimi Hendrix. He wanted to buy the park, tear it down, try to build a five story rock-n-roll museum. The city said no, so he had the park and he held it for 10 years. He wasn’t a mobile home park guy so he neglected it. What happened is weeds started growing, the tenants knew nobody was watching, there were potholes in the road, and it started getting trash piling up on the tenants’ lots.

When we looked at the park, it was a neglected urban park. I think the market saw it that way. Most people would see it as a trailer park, a junkyard. We saw it as a diamond in the rough. There’s a massive need for affordable housing in the market. It’s just providing affordable housing for families who are in the workforce. In-place rent only bought it for $450. That’s a market where even with a studio apartment, we’re looking at $1200 minimum. If you own a two or three bedroom apartment for a family, you know you’re looking $1800 or $2000.

We just saw so much runway to improve the community, make a great place for these families, and raise the rental but still provide a great value. I don’t feel guilty about raising rents if we’re providing great value relative to other options in the market.

About the park, we had a meeting for all the residents. I speak Spanish pretty well. We did the meeting in English and Spanish. People brought their kids. We had coffee and cookies, and we said, hey, let’s do this. Let’s make this a great place that you’re proud to raise your families in.

We paved the roads, built a new parking lot. People park in the mud, we paved it. We put up a new entrance sign. We brought in brand new homes. I feel really proud for what we’ve done for the residents. In terms of our investor mission, it was a homerun for us.

We bought it in December 2017. Our purchase price is $3.25 million. We just refinanced it in June, about two months ago. Two and a half years after we bought it, it appraised at $5.55 million. The value increased 70% since we bought it 2 ½ years ago. We refinanced out our entire purchase price—not just our equity investment but refinanced our whole purchase price with a 15-year loan, fixed rate around 2 ½%.

Andrew: Oh, that’s fantastic.

Daniel: I mean total win for our investors. In terms of our mission to residents, I feel really proud of.

Andrew: Yeah, and you should.

Daniel: I’m really curious to hear your stories as well. What are your wins? What are the parts you’ve worked on where you feel really proud of what you did with the residents, and really proud of what you did for the investors?

Andrew: It’s very similar to you. The neglected park, the owner was an absentee owner. Same exact kind of story that your park has. It feels good because I’m sure there was some sweat equities, some hard earned stuff you had to go through in that project. The win at the end of the rainbow is that much sweeter. Mine would be—I have a park in Ohio. It’s an 80 lot park. When we bought it, there were only 40 tenants. After we bought it, we had to evict 10 of them that were just not paying and not getting on board.

We got it at a great price, seller-financed, same type of situation. I actually moved in with my whole family for two months into a house in front of the park, and did everything. From bringing in homes, redid the roads, redid the whole well system—drove the new well. It was some of that hard work that made that deal even sweeter when we were able to refinance and hit a homerun. I love it.

I would love to hear about the value-add. A lot of our listeners come from investing in other asset classes like multi-family or self-storage. They’re not really familiar. There are similar business models like add-value, refinance, hold forever in perpetuity, right?

Besides obviously just increasing the aesthetics and raising rents, what value-add strategies have you implemented and have been successful with?

Daniel: For me, the single biggest lever we can pull to upgrade the parks is upgrading the housing stock. That means pulling out the junkers and putting in new, attractive and energy-efficient manufactured homes.

By the way, the function of the markets where we operate. We don’t have vacancies. You mentioned a park you bought. You bought an 80 lot park, I think you said 30 or 40 tenants. You have to get rid of 10 of them. You got a lot of vacancies upside. You’re filling lots.

In the markets where we operate, the market vacancy rate is zero, basically. I very rarely buy a park with a vacancy lot. For us, we are proactively creating vacancy. What I mean by that is, I don’t want that 1960s single wide to stay in that park and keep on trading, trading hands, trading hands. I don’t want to be sitting there in the year 2050, still holding these assets, with that same 1960 junker still sting there.

You can look at both sides. On the one end, maybe that house is high quality. It works, it provides a home, it’s a roof over somebody’s head. It could keep working the next 50 years. On other hand, it’s not up to current safety codes, it doesn’t meet our aesthetic standards. The biggest way to really create value in real estate is to upgrade the housing stocks which sits on top of it.

That’s why we’re very proactive with manufactured home dealers. I have two people full time on my staff who are just running our dealership. I’m a licensed dealer in four states. I’m a distributor for 6-7 different factories. We spend a lot of time and a lot of effort proactively trying to buy the old junker homes—pull them out or demolish them. Put new homes in for some of the new residents.

Andrew: That’s great. From a number standpoint, how does that work? You’re buying a home, one of those 1960 or 1970 models. You’re hauling it out. You’re incurring that cost. Are you able to sell? I would assume, with the market demand, you’re able to sell the homes in the new spots, cash. Just make money on the deal or breakeven, how does that work? What does the number in the new lot room look like?

Daniel: Those are great questions. Typically, in most of our market, the new home sales are not a profit center for us. It’s something we do basically on a break even basis in order to improve the underlying real estate and pricing our markets higher. I mean our costs are higher but then our sales costs tend to be higher.

This might surprise some of the operators in the Middle West and the Southeast. Typically for us, we get a double wide into one of our parks with a minimum $85,000 in cost. The home is $60,000, all the factory doors. We’re spending $2500-$3000 per half of the home—there are two halves—to transport it. Then, typically at least $20,000 to get it set up with nice curtains, stairs on it. Up to $30,000 or $35,000 for the setup.

Depending on the location, we will put in an air conditioner and other features. Typically, at least $85,000 in it and we’re looking to sell it at least at breakeven. We work really close to residents to get them to finance and approve to buy that home. We love cash buyers. Sometimes, we have cash buyers. We also have a lot of families in the workforce, who have $10,000 saved, $20,000 saved up. We work really actively with them to get them financing for the rest.

By the way, on that point, there’s actually a racial equality dimension to this. There is none that I really believe in strongly as an American. We’re all here. We all believe in equal opportunity in this country. A lot of our customers are people who come from Latin America—typically in Mexico. They live here, they work here. They’re productive members of our economy in the workforce. They got big cash savings. They got steady income, but some of them might not qualify for provisional financing because they don’t have a vitalscore. We have a lot of these customers. We work closely to try to get to help them through the financing process, and we’re also developing some in-house financing tools that typically cater into that demographic.

Andrew: That’s fantastic. That’s very cool. What would you say is your true value proposition as an operator? What makes you stand out? Would it be the markets you target? Would it be the team behind you? What would you say is that value prop?

Daniel: Great question. I would say we know what we’re good at. What we focus on is only the mobile home parks and RV parks in the Western United States. Within that narrow sand box—basically the five states where we’re really strong operators—we would do a wide range if the deal make sense. It’s a differentiator for us. Some people only do […], turnarounds. They look at each deal, deal by deal and say, do the economics make sense on this deal? Let’s just be creative. I’ll do a demographic turnaround RV park that I mentioned which is going to be a total home run for investors once the value add is done and also pay $10 million and up for a really nice senior park, with a gated community and a pool in the club house if the economics makes sense.

Strong focus on our product type, strong focus on that specific market region that we’re good at, creativity when we look at deals, and then really strong operations. I’ve assembled an amazing team. We do everything in-house. Like I said, we’re manufactured home dealers. We’re doing property management in-house. We’ve done a really strong tech-enabled management platform. Going deep to create value on the assets.

The last piece is taking care of investors. I really pride ourselves in our quarterly reporting. It’s not just the financial statements—the narrative of what was going on inside the property, substantiate with pictures. We want to share out what we’re doing, both the victories and the challenges we face. I think that creates a lot of trust with our investors. People in our communities are not just some no name investment company. They know Daniel, and they know my partner, Yoel. We’re out there, working hard spreading different values in assets.

Andrew: I love that. That’s a little about my company as well. If anyone follows me on social media, they see me under mobile homes. They see me turning off water valves. They see me installing homes and installing skirting. I encourage people to do that because we’re very hands on. I would say you’re younger in the grand scheme of things along with myself. I’d say a lot of passive investors, they want to invest in guys that have energy and are out there, being hands on. Kudos to you for doing that. I got a lot of respect for you and your partner for being hands on like that.

Daniel: Thank you. I would say you set a great example. I love the content you put out or show that you do that stuff. I imagine when you started out, you were a partner. You didn’t have that team, but now you’ve grown. You’ve built a team—people underneath you. It could be doing the skirting, get underneath the homes. You’re still out there doing it. It’s core to your values. As an investor, you got to be close to the asset. That comes true loud and clear.

Andrew: Yeah, you have to be, man. For investors, a lot of them like to see that the operating partner has skin in the game. Do you invest money in deals? Do you roll in an acquisition fee? Do you put skin into the game, I would say?

Daniel: Yeah. We do put skin in the game in every deal. I would say the amount is what’s material for us. What I mean by that is sometimes investors, they want to make sure that the GP is at least 10% skin in the game. I’m like, look dude, I got student loans and a mortgage. If I was a super high networth guy with a private jet, maybe I’ll be putting that cash in. What’s important is I got student loans and a mortgage.

A big part of my sweat equity is the fact that I left my corporate job to do this and staked my reputation on this. I got my friends and my closest family in the deal. That’s my skin in the game. I’m not going to let the deal go south. Maybe I am putting in $20,000 or $25,000 into a deal which isn’t necessarily huge dollars in the eyes of some of my investors, but it’s material for me.

Andrew: Hey, at least you have something. I think that’s huge and like you said, it’s not necessarily the dollars that you’re sacrificing to put into the deals. I think that’s super powerful.

Tell me about how you deal with getting financing on deals. When I first started, I didn’t have a balance sheet big enough so I had to bring in partners. How do you guys deal with signing recourse? Do you get all non-recourse? Who signs recourse on the debt if it is?

Daniel: It’s a great question. It’s funny, I get pitched by mortgage brokers all the time. A lot of mortgage brokers want our business. Mortgage brokers have an important role in this life. They provide a ton of value, but at the same time, I believe one of my core job descriptions, one of my core job duties is to understand the capital markets and understand the higher spectrum of lending options that are out there so I can make informed investment decisions.

Just to build on that, we have a tiny park, 10 spaces in the Portland, Oregon market. We bought it at a super clean, 1980s instruction, city water, city sewer, great location. We’re like, alright, we’ll buy a ten spacer. We already had other things there. Incremental effort.

We bought it for $700,000 in 2017. It’s now worth about $1.3 million.

Andrew: Wow.

Daniel: Yeah, just the market appreciation, capital rate compression. It’s a really great deal for us, so I’m looking to refi. This is a tiny deal, right? We’re only going to get probably a $700,000 loan size. I spent about three days on the phone, calling probably 40 lenders. Throwing every banking credit to even try to figure out what’s out there—how am I going to get the best deals for my investors? It’s actually surprising. I’ve discovered some diamond in the rough that I didn’t know existed. I’m looking that on this tiny deal, a local bank will give me a 70% loan-to-value, five years interest only, fixed rate around 3.5% or 3.75%.

Andrew: Wow, that’s amazing. A number of local banks did that. Five years, interest only.

Daniel: Yeah. Exactly. At a sub 4% interest rate. We got a full leverage. My point is even on small deals, I spend a lot of time shopping debt. I think it’s critical. To answer your question, we are willing to sign personal recourse, which I think just proves our skin in the game. I believe in this asset so deeply. I believe their risk is so low, I’m willing to put my bank account and my personal house on the line. That’s how much I believe in these deals.

We’re willing to sign personal recourse. That said, a lot of our deals do qualify for agency debt, Fannie and Freddie. That’s not a recourse debt and some of your listeners may know or may not know some of the cheapest long term debt you can get.

It’s amazing how I think the government and bank lenders understood that manufactured housing is an incredibly low risk asset that performs no matter what’s going on in the economy, whether the ‘08, ’09 recession, whether it’s COVID, our tenants are into the game. They’re in their own homes. They’re paying rents. These loans perform. They perform an important social mission of providing affordable housing.

I just refinanced three of our parks with Frannie and Freddie during COVID. Three cash refinancing. On average, we’re looking at 15 year, fixed rate debt. The best rate I locked was 2.96% for 15 years fixed. Insane, right? Some 3% debt for 15 years fixed. Seventy percent loan-to-value with 12 years interest only. On the non-recourse side—even on recourse—we spend a lot of time shopping.

Andrew: I love that. I just spent three days—similar to you—creating a whole spreadsheet of banks for a specific market. We also got quotes from a loan broker and looked at the options that they can provide. In some of our markets, there’s only a handful of banks that’ll even open their doors to mobile home park operators. Just finding those handful of lenders can be difficult and it takes a lot of phone calls to make those. I do the same thing that you do. I applaud your effort instead of just opening the door to a loan broker and saying hey, get this thing funded. It takes a little more elbow grease.

Daniel: I’m curious to hear, you said elbow grease has paid off for you. If you’ve gone to a loan broker to get quotes, then you’ve done the leg work yourself to call every local banking credit union, did you find that the step you came up with was better than what the loan broker offered you?

Andrew: It was. We were able to get better amortizations. These little credit unions that you were mentioning, they were more flexible than a nationwide lender that has deals that have to fit in a certain box. Definitely, we’re able to secure some better terms through those little mom and pop, little hole in the wall banks. They’re very flexible. They are recourse, but at the same time if you’re using it as a bridge lender just to get in the door—add the value and then refinance—hopefully it’s like an agency solution. They could be great options.

Daniel: Great.

Andrew: For sure. Where are you going to be in 10 years? How old are you now? What’s your endgame goal with your career? I know you mentioned earlier you want to hold these assets long term. You still seem to continue to acquire assets. What does that look like for you in the future?

Daniel: I’m 35. I feel so blessed. I love what I do. Before I got into parks and before I started Three Pillar Communities in 2017, I never had this sense of calm and happiness and sense of purpose that I have now in my career. I also did a lot of other things. I got a law degree, I got an MBA, I was a diplomat. I worked at McKinsey doing management consulting.

There’s always like, oh, what’s the next thing, what’s the next thing going to be? I got into parks and it just checks every box for me. I’m providing something important to society. I feel really good providing high-quality housing for residents. I’m an entrepreneur. I’m my own boss. I’m building a company based on home values. Finally, financially, I really believe in these assets. I believe it will create long term wealth for my investors and for myself.

This just checks every box. I feel blessed to be doing what I love this much. For me, the game plan is mobile home parks until I’m 60, 70, 80. I don’t know when I’m going to stop. I love it. The plan is to keep building and long term hold. Our plan is not to sell our private equity or to IPO or something like that. We’ve got great investors who love working with us. They understand this is a long term hold strategy and so, I hope they’ll be sitting here 40 or 50 years from now. Great portfolio, great communities that our residents are proud of, and a really good operating team who continues to add value to the assets.

Andrew: I love that, Daniel, that’s huge. I’ll never forget we bought a property. It was actually in the Memphis Metro. I was walking through it in due diligence. I just remember having that feeling. This is a new area and I haven’t spent a lot of time in this market. But once I was in a mobile home park, it was this calming feeling. I’m like, okay, there are things that need to be done here A, B, C and D.

It was just a satisfying, calming feeling of understanding and knowing what you’re doing. I love it. I love your vision. I love how you’re thankful and blessed because I feel the same exact way. I can relate.

For passive investors, what terms do you typically offer? What does that look like? What do the GP splits look like? Is it front-loaded, back-end, kind of waterfall? What do those look like so that investors have an idea what to expect.

Daniel: Yeah. It changes every deal. Deal by deal, we look at what makes sense. One important thing to point out is we syndicate deal by deal. We don’t have a fund. I give the flexibility to set the right terms for each specific deal. Typically, we’ll do a 2% acquisition fee upfront, 2% of the purchase price, and then the preferred return to investors ranges between 5% and 7%. Depending what the deal will support.

We set that pref based on what’s the year one yields—what’s the cash-on-cash. It’s going to generate 5% cash-on-cash, put in 5% preferred return. Again, there’s a […] element here. We’re not buying 10 caps and do a 50% cash-on-cash return. In our markets, market rate per mobile home park ranges from 3 1/2-6 cap. Depending on the deals, there’ll be a cap between 5% and 7%. Beyond that, there’s promote or profits play. After we pay investors at their preferred return and give them their capital back, that’s when we start getting paid. Typically, it’s 50-50 although sometimes it varies depending on the deal.

Andrew: Yeah. I like guys how you do that. You got to work for it. You don’t front load it. It’s, hey, you are going to get your money on the back-end of this thing when you make the improvements and you add the value. I have a very similar structure so kudos to you on that.

Daniel: Thank you.

Andrew: How was your property management team setup? You have acquired a few employees, which you say you have around 50 employees right now.

Daniel: That’s right.

Andrew: Okay. What would you say about that? Could you maybe give us some insights into how that’s setup?

Daniel: Sure. I can give you these five functions within our company. Number one is acquisitions in growth and investors relations. That’s typically all me and my partner handling that at this point. We don’t have any employees handling that.

The second big function is property management. On my headquarters team, I have a director of property operations as well the regional manager who reports to her. They oversee all of our on-site managers at the 30 communities. We’ve implemented Asana now, I don’t know if you use Asana now or any other task management tool. It’s a great online tool to make sure that we’re very clear on what’s the task, who’s accountable for it, when it’s going to get done by. If that didn’t happen, what’s the escalation? We have too much stuff going on email or word documents, now we got a really good cash management system to make sure we’re staying on track and actually creating value in the property management function. That’s the second function.

The third one is home sales. I got two people full time bringing in brand new homes and getting results. The fourth function is finance and administration. That’s four people in the headquarters team. Account payable, account receivable, bookkeeping, HR, that stuff. Then, the fifth function is business analytics. We just made a great hire. Somebody who has a business degree, has an experience in the financial world, a very sophisticated hire. She’s been giving us another set of hands to all those strategic projects we always want to do and all the analytical projects. Now, we have somebody. Instead of getting to the bottom of the list, oh, Ruby can help us. Calculate our utility recapture analysis across the parks, figure out by looking at the data where we might have a water leak, or where we spill back when they were asking for a discount. She really helps us with our investor reporting. I’m really excited to have this new business analytics person on our team.

Andrew: I love that. What do you guys charge for property management?

Daniel: We do 5% of gross revenue.

Andrew: Okay. Just for a lot of past investors listening. There’s no third property management company that you can easily rely on that’s professional, that manages mobile home parks or RV parks for that matter. In multi-family apartments, there’s a lot of third parties that are very good at what they do. You can rely on them, but in the mobile home park sector, there’s not really any consistency there based on several markets. There’s no nationwide provider that I know of. That’s very impactful that you’ve built a good team and you have some very good systems there setup. I really appreciate all of the value you added today, Daniel. Thank you so much for coming on the show.

Daniel: Thank you so much. Thank you for having me.

Andrew: I really appreciate it. If listeners want to get a hold of you, Daniel. What is the best way for them to do so?

Daniel: Two ways. One is to go to threepillarcommunities.com and click on the operator’s little box. You can put in your email address and get our email. Feel free to do that. Second way is by email, you can email info@threepillarcommunities.com.

Andrew: Awesome! Thank you again for coming on. That was very valuable. Thanks everybody for tuning in. Enjoy the rest of your day.

Daniel: Thanks for having me. We’ll talk soon.

Andrew: Hey, are you getting value out of this show? If so, would you mind please going over to iTunes and leaving the show a quick five star review? I have a goal of hitting over 100 five star reviews by the end of 2021. It would mean the absolute world to me if you could help contribute to that. Thanks ahead of time for making my day with your five star review of the show.