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 Mr. Travis Watts, director of Investor Education at Ashcroft Capital. 

Travis Watts is a full-time investor, passive income advocate and public speaker. In his role as Head of Investor Education, Travis dedicates his time to educating hundreds of investors who are looking to be “hands-off” and passive when it comes to real estate investing.

In this episode, Travis talks about what new passive investors (limited partner investors) should look out for when jumping into the Mobile Home Park asset class, what they can do to prepare and educate themselves for the world of passive real estate investing, and how to avoid one of the biggest pitfalls of all: “analysis paralysis.” 

Travis loves the mobile home park asset class and believes that it is a great way to provide affordable housing to the masses.

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

Andrew Keel is the owner of Keel Team, LLC, a Top 100 Owner of Manufactured Housing Communities with over 2,500 lots under management. His team currently manages 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

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

Would you like to see 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

01:20 – Travis’ story and his journey into passive investing and investor education

04:20 – Commit to trying out your first real estate syndication deal

07:30 – Scalability when you are a limited partner

10:36 – Venturing out into different/multiple locations and asset classes like mobile home parks

14:30 – Helping people with affordable housing solutions, mobile home parks investing

16:52 – Looking at the bigger picture, IRR potential and return on investment of your time

20:00 – The importance of doing your due diligence on the operator, general partners, deal sponsor or syndicator

21:59 – Vetting techniques for vetting real estate syndication deal sponsors

24:37 – Ashcroft Capital and getting in contact with Travis Watts

26:00 – Conclusion

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

Links & Mentions from This Episode:

Ashcroft Capital: https://ashcroftcapital.com/our-team/travis-watts/ 

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

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

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

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

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

Twitter: @MHPinvestors

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TRANSCRIPT

Andrew: Welcome to the Passive Mobile Home Park Investing Podcast. This is your host, Andrew Keel, and today we have an amazing guest in Mr. Travis Watts.

Before we dive in, I want to ask you a real quick favor. Would you mind please taking an extra 30 seconds to head over to iTunes and rate this podcast with five stars? This helps us get more listeners and it means the absolute world to me. Thanks for making my day with that review of the show. All right, let’s dive in.

Travis Watts is a full-time investor, passive income advocate, public speaker, and the Director of Investor Education at Ashcroft Capital. He dedicates his time to educating investors who are looking to be hands off when it comes to real estate investing. Travis, welcome to the show.

Travis: Andrew, thanks so much for having me. Thrilled we can make this happen.

Andrew: Yeah, I’m excited. Would you mind starting out by telling us your story and how in the world you got into passive investing and investor education?

Travis: Sure, happy too. I got the real estate bug in 2009. I knew real estate was something, years before that, that I ultimately wanted to dive into. The timing wasn’t right for me. I was going through college, didn’t know where I wanted to settle down, and didn’t really have the funds to allocate early on anyhow.

2009 was the perfect storm both in a negative and a positive way for me. It was just that rare opportunity of real estate on sale and the government’s given out a first time homebuyer credit. I started with house hacking, which is having a roommate, just bought a house for myself, had a roommate that basically covered my mortgage, and that started to give me the bug for passive income.

A lot of people are taught, including myself, buy low, sell high. There’s nothing wrong with that strategy inherently. It’s just that it doesn’t work in all stages of market cycles long-term. It’s a periodic strategic strategy. But passive income can be a lot more reliable. It can be a lot more stable.

What I found is by building up diversified passive income streams, someone can actually build lifestyle design, which is again, something not taught by really anybody, but it’s just this idea of increasing your lifestyle and how you want to live your life using passive income to get there.

Early on, I did flips, vacation rentals, single family, and in 2015–2016, I moved into syndications, real estate private placements in mobile homes, multifamily apartments, self storage, car washes, and then in some alternatives like ATM machines, note lending and things like that. At the end of the day, everything I do is a cash flow focus. Ideally tax benefits and equity upside are other components built into that model as well.

Andrew: I love that. That is so awesome. I love the lifestyle design and really starting there with the end goal in mind. When I started, I came out of college, I jumped right into sales. I was making really good money. Both of my brothers are in sales. However, I was paying a lot in tax, but at the time I didn’t consider that. I was doing okay, making six figures, but hey, I’m paying taxes. If you make a lot of money, you have to pay a lot of money in taxes.

I didn’t realize the passive side of things. It was like, I would sell and then I would get a commission check the following month and then it restarted. On the first of the month, everything restarted. Where that passive income really was a life changer where it’s like hey, these investments are paying me when I’m sleeping. It’s addicting as well. Huge fan of what you have going on there.

Would you mind telling us what you think is the toughest hurdle that most people need to overcome in order to start passive investing into funds, syndications, or any of the mentioned investments you talked about.

Travis: I’ll be the first to admit that after 6½ years of doing everything actively on my own in single family, when I first learned about syndications and I’m looking through overviews and slide decks that are suggesting maybe I could make the same or greater returns passively than I was doing actively, I was very skeptical. I thought there’s no way. This has to be a scam. Why would I go through all that work and effort if I don’t have to, basically.

I started with just doing one. Obviously everybody starts that way. I would say that right there is the biggest hurdle that I would encourage people to try to get over. Just commit to trying one deal. Maybe it’s just a minimum investment. I don’t know.

For me, I was flipping a home, one of many in Colorado, it was about to sell. At the time, I was learning about private placements. I said, I’m going to take half the equity from the sale. We’ll call it $100,000. It was going to be my gain or something like that. I said I’m going to take $50,000.

I’m going to do one month of syndication. I’m going to give it about six months, maybe a little bit more. I’m going to make sure I get paid these monthly distributions that they’re saying they do. I’m going to make sure this reporting is legitimate. I’m going to make sure that this project’s actually happening in real life and that it’s not fake.

When I made that commitment, it became real. It’s one thing to hear a podcast. It’s one thing to read a book. It’s even one thing just to hear a mentor. I was lucky to have two mentors that have been doing this 20-plus years after selling their companies in the mid 1990s. That made it the most real in my life at that point until I actually got involved.

Just take a first step, man. Everything starts with the first step. I think a lot of investors, myself included, find it easy to get caught up in analysis by paralysis. It’s like I have to know more. I have to learn more. I’m not quite ready. I’m going to read 50 books and I’m going to listen to a hundred podcasts and I’m going to go to all these conferences all before you start. I think knowing 70%, 60% of what you need to know to get started and then just take a step in that direction, whatever that means for you.

Andrew: That’s huge. Wow. Single family home investing, dealing with the tenants, toilets and trash, putting that aside, investing in a bigger syndicated deal, and getting the same returns completely passively is quite exciting. I know a lot of our listeners have started in a single family. They build a small portfolio and then they end up exiting and investing in these private placement deals. What do most people not know about private placements or syndicated deals?

Travis: Man, there’s a lot to unpack there. I think for me it was this light bulb moment of realizing how much more scalable it is as a limited partner to on one hand have 100 single family homes, let’s say actively that you’re trying to run around and manage, or a 100 limited partnership investments. It’s infinitely more scalable and more simplistic to be a limited partner.

This is the thing that I don’t think a lot of people realize, because I know I didn’t realize this, is I naively started getting on that bandwagon of one buy and hold property a year, maybe two, then one day you wake up 30 years later, you got all these houses, and you’re financially free.

But the reality is when you get to seven, eight, or nine homes, this starts to become a full-time job even with property managers. That’s what caught me off guard is I’m like, where is that passive income? Because I feel like I just signed up for a second job and I had.

For me, I didn’t see the light at the end of the tunnel. This is what I always say. Not a lot of people are like me in the sense that they were full-time active to full-time passive with a little year-and-a-half break transition in the middle. Most people are a hybrid. It’s all fun and games and good, perhaps for you, the listener, to have a couple of your vacation rentals, a couple of your single family rentals, whatever you got going on actively, but then to scale through syndications.

That’s what I taught my dad who retired with multiple income streams, but he had seven single family rentals. He knew if I had 14 of these, I’m going to be a full-time landlord and that’s not how I want to retire. That’s not the terms that I want to live on.

He stopped at seven and he started doing syndications beyond that point. Every year, his passive income continues to scale and grow. He still gets the tax advantages, the equity upside participation, but he’s never going to have to manage more than those seven properties, which for him, he enjoys doing. For me, I didn’t enjoy any part of that.

Andrew: Totally. Most people don’t enjoy that landlord life. A couple of things that I had noted here of things first time passive investors, first time investors into a syndication don’t know, is about depreciation. They get the K-1 after their first deal, there’s a negative number on there, and they’re like, Andrew, is this right? What’s going on here? That was one thing I wrote down.

Then also filing state tax returns, typically, if you’re investing in a deal in another state. Maybe you could shed some light on those if you’ve run into that.

Travis: Those are great points. One thing for me I had this other epiphany and it was that at one given moment in time before I transitioned to this passive route, I had all of my portfolio in about a 30 mile radius in one state, virtually one county, one location. I got to thinking, as great as the market is today right here right now, it’s not always going to be that way. Everything goes in cycles.

What if I was out in Colorado? What if Colorado decides to double their state income tax? What if there’s some climate change thing? Tornadoes are running through the area and destroying all my properties. What if insurance quadruples? There are all of these these risks—political, geographic.

I got to thinking, there are a lot of great markets I’d love to be in, but I couldn’t see how to realistically manage properties effectively out of state when I was doing the single family home game. One thing I love about syndication investing is I can invest with you out in Tennessee or Texas, I can do an Ashcroft deal in Florida and Georgia, and I can do some other operator up in who knows where, the Carolinas. It doesn’t really matter where I live because I’m taking advantage of great markets and people who specialize in those particular niches.

Andrew: That’s a great point.

Travis: To your point about taxes—just real quick I’ll just do one thing to piggyback on there—not only all the deals I invest in, do you get that flow through tax benefits like you were pointing out, but in a lot of ways it’s better. At least with our group, we’re doing cost seg studies on all the deals that we buy.

We’ve got this bonus depreciation, so we’re able to pass through to our limited partners, a lot of great tax advantages that when I did single family weren’t as lucrative, because a cost seg study just didn’t feasibly make financial sense to do.

Andrew: For those listening that don’t know what a cost seg study is, maybe you can just give a little color on that?

Travis: You basically hire a third party engineering firm. They come out to your property. The IRS has lifespans for different items in a property—countertops, cabinetry, light fixture, ceiling fans, door handles, you name it. We’re not talking about the land that the property’s on and not just the brick and mortar of the structure. We’re talking about all the individual components.

What happens is traditionally, say a refrigerator has a seven year lifespan. I’m just making that up for example purposes. That means traditionally you could write off that refrigerator if you buy one for a rental over a seven year period.

What Trump put into play in 2017 with the Jobs and Tax Cuts Act is the bonus depreciation, which is slowly phasing out. You could take 100% of that in years past and write all of those seven years off in the first year. This year it’s 80% and next year it’s 60%. You’re accelerating the depreciation. Now the cost seg is itemizing each of these things that I was naming out. They’re showing you how you can maximize the write-offs for each of these items.

I’m not a tax advisor or CPA. I’m not giving anybody advice. I’m just saying that there are great tax advantages in real estate. There always has been historically, but debatably in the last 5–7 years, they’re better than ever. And they’re still great this year. If taxes are what you’re looking to offset or decrease, definitely check with your CPA to see if this is the right fit.

Andrew: Totally agree. I know you’ve invested in a couple of mobile home park syndications yourself. What have you learned from these or what feedback would you have for other interested passive investors about that asset class compared to some others?

Travis: There are two things I really love about mobile home parks. First thing, I normally do multifamily housing. That’s my bread and butter, and that’s because the parallel to what I did in the single family space just really aligns very closely with that.

With mobile home parks, you’re helping people with affordable housing solutions, which we all know we’re millions behind in affordable housing in this country. It’s hard to come by. You’re just helping the average Joe find a place to live. You’re truly improving their lifestyle, their community, and the way that they live.

Obviously, rents adjust upward after you’re increasing the value on these places, but not drastically, not substantially. You’re not trying to knock out the demographic that lives in a certain community and price them out. You’re just justifying the improvements that you’ve made. I love helping in the affordable housing sector, number one.

Mobile home parks, in my experience, have had greater cash flow yield. As I mentioned, I’m a person who lives on passive income and cash flow. As I’ve looked over the years at self storage, industrial, multifamily, and mobile homes, usually I would say eight out of 10 times, these mobile home deals have a higher yield. If passive income is something that you’re looking for primarily, it might make sense to jump into one of those opportunities.

Multifamily, historically speaking, in my own experience, can have more appreciation upside. It’s not always true, but it’s the bigger overall picture play. It’s a little bit of a different model, both essential to our economy and people.

Andrew: I love that. That’s something I’ve heard a lot from a lot of our recent investors is that social stewardship side of things. You’re investing in mobile home parks. You’re adding affordable housing to the supply and keeping that asset class alive.

I guess the big elephant in the room, Travis, interest rates are high. What are passive investors doing right now? I know you’re talking to a ton of them. Why invest in a real estate deal when you can put money on a money market account and make over 5% relatively risk-free?

Travis: It’s a great point. Really the case right now for any syndication is going to be to look at that bigger picture, IRR potential. You don’t look at just the year one cash flow and then compare that up to a money market because yeah, they’re pretty comparable.

It just seems like why not take that safe bet with the safe money? But the potential is still there in my opinion, depending on what deal and what operator we’re talking about, to maybe have a double digit return in the next several years by factoring in the equity upside. Whether we’re talking mobile homes, multifamily, or anything else, there are usually three components.

There’s the cashflow side, which again with the money market could be comparable depending on the deal you’re looking at. But the tax advantages is something the money market’s probably not going to offer you, so they’re missing number two there. And then the equity upside potential is not going to be there with the money market.

That being said, the psychology as we go through market cycles and as we look at we’re going to go through a recession, or we’re not, or whatever, we’re teetering on the edge of that with the inverted yield curve and the whole mess that’s going on with the economy, is people want to exit. They want to sell. They want to sit on the sidelines. They get frozen in fear.

The reality is that cap rates have shifted dramatically over the last 18 months and I’m talking to multifamily specifically right now. All the deals I’m investing in this year in 2023, we’ve been buying at about a 25% discount relative to previous pricing.

This is the buy the dip opportunity, and we’re underwriting for interest rates to continue going higher. Are they going to go higher? I don’t know. Maybe not, maybe so. If they do, we factored it in.

If they stay flat and higher for longer as Jaypal points out, then we’ll be able to execute the same way we have in years past when we were having debt at 3% and 4%, if we just hang out here at these 6% and 7% mortgage levels. If they taper rates down in the next two, three years, this could be everybody’s early Christmas, 24%, 25%, who knows? That could pump even more equity into the deals, restart this market. It truly would have been in that instance, the buy the dip opportunity.

I’m more bullish this year than I have been in the last two years. There’s the inverse correlation that higher rates hurt valuations. That’s true. For past deals, hold tight if you can. As it’s been said, you don’t lose money in real estate unless you’re forced to sell in an inopportune time. Hopefully, you can hold through. The saying, survive until 25. We’ll see what unfolds between now and then. I don’t have a crystal ball, but it’s buy the dip time in my opinion.

Andrew: Love that, Travis. What are the most common mistakes that you see passive investors, LPs, making out there?

Travis: First of all, let me back this up with some perspective for your listeners. I’ve spent many years working in investor relations before what I do now. I skipped over that part of my story. Both with one of the largest brokerage firms here in the US, then with a startup syndication company, and then onto Ashcroft Capital. So I’ve spent a lot of time with investors. I’ve literally spoken to thousands and thousands of investors.

I would say I’m always one to promote people doing their due diligence, to really research these opportunities, to really comb through that PPM, to leverage help as needed, to visit a property maybe before you invest in it, all these types of things.

I would say most people don’t do it, and almost nobody is doing any form of background checks or anything like that on any of the operators, which I don’t think is necessarily an essential thing or something that everybody needs to do. I’m just saying in general, there’s a pretty big lack of due diligence. Just know who you’re investing in.

Why that’s important? Because you’re basically signing a piece of paper that says, look, I’m going to be in business with you for maybe 5–7 years, so the last thing you want to do is fork over a $100,000 and then realize I don’t like this person, or I don’t like how they conduct their business, or I don’t like how they’re not very transparent with me, or I don’t like how they never answer their phone or emails. You need to ask those questions and get some insight prior to investing, and try to match people up to your values as best as possible.

Andrew: What would you say specifically would be a good way to vet an operator? Like a background check. Asking the questions. They could lie to you. How do you properly vet a GP?

Travis: You can take it all the way from the detailed step by step using services like a TLO for background checks and things like that. What I tend to do is just circumvent that system a little bit. First of all, I know a handful of LPs that do that level of due diligence. I’m usually asking who they’re investing with, what they found out.

The other thing is with groups that are transacting and doing strategic business partnerships with other large firms, I’ll just name this as one example. Last year, Ashcroft, we sold a handful of deals to Goldman Sachs and we have a strategic partnership there. Before a company like that gets involved with a group like us, they’re going through their own due diligence. They don’t want to associate with bad actors in the space and things like that. It gives you a bit of a level of transparency that other people are doing that due diligence.

Ultimately from layman’s terms, I look for a track record, number one. What do you do as a business? Do you only specialize in that or do you do a multitude of things? How many times have you done it? What have the results been? Have you lost investor capital, which is not always a no-go. It’s just what happened. What’d you learn from it, et cetera.

Gut checks are important. I try to meet with people at least over Zoom. I meet a lot of people through conferences, live events, and podcasts like these, so get a feel for people that way.

I can honestly say I’ve never just googled a group and then decided I want to do a deal with them and then sent in my funds. There’s always been one, two, three conversations if not meeting them face-to-face, knowing their track record, combing through the legal docs, having word-of-mouth referrals, references, or other people I know that have invested with them, knowing they’re a transparent person or company, that they’re out there in the industry and in multiple ways, that they’re not just doing their first deal. No offense to people getting started. It’s a risk profile of mine that I tend to be a little more conservative that way.

Those are just some high-level pointers. I’m always happy to connect with any listeners if you want to actually go through some detailed checklist items, but that’s some high-level.

Andrew: Awesome. That’s great. Would you mind sharing a little bit about Ashcroft Capital and then tell listeners how to get a hold of you if they’d like to do so?

Travis: Ashcroft Capital is a group where I was first just an LP investor with them for many years, and I came on board. One of their GPs is Joe Fairless with the Best Ever podcast, Best Ever Conference every year. I came on board to help them with investor relations. Then I went into investor education.

What we do is we hyper specialize in value-add multifamily apartments in Sun Belt States. Right now that’s North Carolina, Florida, Texas, Atlanta, and the surrounding sub markets of Georgia there.

We buy garden-style, 200–600 units in size, apartment buildings. We fix them up. We reposition them, bump the rents and occupancy. We make a more institutional quality. We’re usually exiting or selling maybe three to five years down the road to institutional players in the space that are looking for more of a turnkey model.

That’s all we do. No new development, no self storage, and no mobile home parks. We just hyper specialize in that particular niche, fully vertically integrated with our own property management and construction arm.

If anyone wants to jump on my calendar, you have any questions, either Ashcroft or other, ashcroftcapital.com/travis would be the link. You can download some resources there and get a hold of me that way.

Andrew: Awesome, Travis. Thank you so much for coming on the show.

Travis: Thank you. Thanks, Andrew.

Andrew: That’s it for today, folks. Thank you so much for tuning in.