Interview with Walter Johnson of Sonos Capital

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 Walter Johnson of Sonos Capital.

Walter Johnson is the founder of Sonos Capital, a real estate investment firm specializing in mobile home park investments nationwide. Walter began his career in finance at Security Mortgage Corporation back in 2004. Established in 2016 in Phoenix, Arizona, Sonos Capital uses unique Section 8 and other uncommon strategies to increase NOI in manufactured housing communities. Walter Johnson also serves on the board of the Manufactured Housing Association in the state of Arizona and leads initiatives for affordable housing in Mesa, Arizona after being appointed by the Mayor himself.

In this episode, Andrew Keel and Walter Johnson dive into various aspects of mobile home park investing, spanning from the market conditions during Walter’s early years of investing in Mobile Home Parks to future projections. Walter unveils his unique business model for Sonos Capital and also emphasizes the significance of proper education in the mobile home park asset class. Walter Johnson of Sonos Capital, also shares insights into his personal learning journey within the mobile home park sector.

Walter’s clear passion and excitement for the Mobile Home Park Investing industry are evident as he shares valuable knowledge with us from his time in the 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.

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

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

Talking Points:

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

02:23 – Never take an opportunity for granted and always be reliable

09:00 – How Walter Johnson used to get Mobile Home Park deals and how he does now

17:11 – Walter’s current mobile home park portfolio and what they’re looking at right now

18:08 – Making a decision on whether or not to buy a Mobile Home Park is the toughest hurdle

19:32 – Higher interest rates don’t necessarily matter

20:45 – Don’t ever think you know more than the mobile home park managers who are there everyday

24:21 – Important things to look for in mobile home park operators and deals

26:54 – Trailer parks versus mobile home parks

27:40 – Walter’s Mobile Home Park buy box and his unique business model

32:53 – Government regulations and legislations aren’t helpful to the mobile home park community

34:56 – Getting in touch with Walter Johnson of Sonos Capital

35:30 – Education in mobile home park investing is important

35:52 – Conclusion

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

Links & Mentions from This Episode:

Email Walter at: Walter@sonoscapital.com

Walter’s office: 480-674-2035

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. Today, we have a very special guest in mobile home park operator, Roger King, founder of Kings Unlimited LLC.

Before we dive in, I want to ask you a real quick favor. Would you mind taking an extra 30 seconds and heading over to iTunes to rate this podcast with 5 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.

 Roger King oversees a diverse portfolio of real estate valued at over $50 million. His portfolio is located across 13 states around the United States, and he has a strong emphasis on mobile home communities scattered across 8 of those 13 states. Roger, excited to welcome you to the show.

Roger: Andrew, thank you so much for having me.

Andrew: Would you mind starting out by telling us a little about your story and how in the world you got into manufactured housing communities?

Roger: Like many investors, you start somewhere else. I started as a musician and got out of music college, started investing in real estate because I saw the benefits to certain lifestyle attributes that I wanted to develop over my career. It started in Orlando where you’re based. 

Then I moved to California, got involved in some real estate projects out there and some companies. When the crash hit, losing everything, I started my own company, wholesaling, then fixing and flipping, then private lending, and building some homes.

Around 2015, I started to really see the fix-and-flip market and the luxury home market, that I was also focused on building homes. We were slowing down. Things were taking a lot longer. I could see the writing on the wall. There’s a recession about to hit any day now. What can I invest in next? What can I jump into that’s also going to do better in a downturn in the economy? 

Obviously, mobile home parks became a major focus. It did take me a while to pivot and get my head around everything. But in 2018, I had some partners. We bought our first park in April of 2018 outside of Oklahoma.

Since then, we’ve bought 15 parks. We exited that first park last year. I don’t think we did very well on it, but we still profited $500,000 after 5 years. A solid base hit after really starting doing a lot of dumb things. This is me, I’m an experienced investor. My other partners, they’re experienced investors. We still made just some stupid mistakes, but it’s part of the path.

Andrew: It happens. We’ve all been there, and we’re excited to dig into those so we can learn from those mistakes. Tell us about your current living situation. You live in Puerto Rico. We were talking before we started recording here. Maybe you could just tell our listeners a little bit about the why behind your living in Puerto Rico.

Roger: The why is, I don’t know if your viewers can see my screen behind me. If not, we can insert some B-roll from my back patio. I live on the water. I grew up in the Sarasota area, Florida, a little South of Sarasota near the water. I always loved the water. But living in Southern California and Las Vegas for a few years, I really missed living near the water.

I have a bunch of friends that have moved down here. There are obviously some major tax advantages to living here, and I have the ocean right behind me, literally 40 feet from my back patio. I realized that there’s such a healing component to being this close to the water. My dog and I, Daisy, go to the beach a couple of times a week.

It’s the complete picture for me. I’ve always wanted to live on the water, I’ve got a bunch of friends that live here, and there are some major tax advantages. In no particular order on any particular day, I would say they all jump back and forth with one another. It’s paradise, and I absolutely love it here.

Andrew: I love that. I love the lifestyle investor. Lifestyle investing and what matters most. I was just fishing Poor Charlie’s Almanac with Charlie Munger. They just did a new rendition of that. He’s talking about prioritizing what your purpose is. The purpose is not to just have all this money. The purpose is to have time freedom, and be diligent about that. I think I just love that. I love that you’re doing the same thing. 

Talk about those tax benefits, man. Everybody has this little trick up their sleeve. What’s the tax benefits of living in Puerto Rico for real estate investors like yourself?

Roger: Without going into the minutiae, because there are a lot of different things, the overarching view of it is, if you can create a company that manages and exports a service back into the United States, even Spain, or Columbia, you can structure it so that that company gets paid from those various investments. 

My Puerto Rico LLC receives money from the investments that I’ve set up in the states. As a manager, I have to manage those investments. That’s my business that I’ve exported.

That money comes into me, and that’s my income, personal Roger King income. That then is taxed at a certain rate. If you make over $3 million a year taxable income, you pay 4%. What I described is state and federal. If you make under $3 million, you’re paying 2% state and federal. It’s not technically state and federal, but that’s the tax rate for all of your taxes.

There are other fees you have to pay throughout the year. You have to donate some money to local charities. I believe that’s $10,000 a year. Some of the prices are higher here. I bought a Jeep because I thought having a really high tire when it floods during the hurricanes. Buy a Jeep.

I don’t need to have a luxury car. There are a lot of potholes. I’ve had a few luxury cars and dinged them up pretty bad on potholes, so I thought of a Jeep where I normally would pay $39,000 in the states. I paid about $62,000 for it. There’s an import tax that does impact your actual bottom line.

To me, if I’m paying 2% on my state and federal, I think I’m doing great. I wonder how long it’s going to take me to pay off my condo here. There’s no capital gains tax. A lot of the crypto crowd moved down here and reorganized everything so that their assets were here in Puerto Rico. Then they would sell those assets, just get liquid on some of their crypto holdings. That was capital gains tax-free.

Sometimes there are some property tax incentives if you buy a property here. One place I looked at, there was no property tax for five years. There are a lot of benefits. Again, there’s the sun and the moon. I’ve never taken this many photos of sunsets before. I’m amazed. 

But you talk about that lifestyle, and it’s taken me a long time to get here. I just turned 56 a month ago, and I’ve been here for about a year-and-a-half. At 55, it’s doable. It’s not always immediate, but that was always a focus of mine. How can I live because of my real estate investing? Mobile home parks have definitely helped in that regard.

Andrew: Let’s circle back and talk about mobile home parks. Fifteen mobile home parks, your first one is outside of Oklahoma. What in the beginning got you interested? How’d you get educated on mobile home parks as an asset class?

Roger: I definitely talked to a lot of people, certainly in Southern California where I was living at the time. I talked to some people down in the San Diego real estate investor clubs. Joe—I haven’t talked to him in years—was talking with me for a bunch of different times about how he’d bought a bunch of mobile home communities and how great they were. 

I thought, someday that’s where I’m going to get into because I think it’s a really great asset class for the revenue that’s generated when the economy tanks. I think that these parks can fill up faster than an apartment complex. Historically speaking, they have. Historically speaking, they’ve done better than multifamily. I know that a lot of what I had gone through was just really understanding the business model. 

Then I knew with my history and with the right partners that we could jump in, collectively figure it all out. Maybe not as fast as or as sharp as we were thinking we were, but we knew that we could figure it out whatever happened. And we did, obviously.

I think it was a really good first park. I don’t know that I would buy something so far away from the city center. We learned that the MSA was a critical factor when you’re looking, even doing due diligence. How far away is it from a major metropolitan, an MSA? What minor metropolitan area? Figuring out those parameters was really helpful prior to going into it.

Andrew: What would you say, Roger, are those parameters? Obviously purchasing one near an MSA. But how do you know a good MSA versus a not good MSA? Was this park outside of Oklahoma very rural, out in the middle of nowhere?

Roger: It was. It’s not a bad place by any stretch. It’s just that the amount of people looking for a place to live was so constricted because of the distance from Oklahoma city. That was one of our big problems. We bought it.

Andrew: How far away was it from OKC, if you remember? How far of a drive would it be away?

Roger: Ninety minutes.

Andrew: Okay, got you.

Roger: Yeah. Again, a nice little town, but we didn’t have the turnover. If somebody moved out, it would take weeks, if not months to rent that same unit. We bought the park with 142 spaces, and only half of the spaces were full. 

We were thinking, hey, we’re just going to manage it better, and we’re going to fill in those other 70 spaces or whatever. We’re going to quadruple our blah-blah-blah, and it just didn’t happen all because of our distance from Oklahoma City. There just wasn’t enough influx of potential tenants.

Andrew: Got you. That makes a lot of sense. Thank you for sharing that one.

Roger: Huge mistake.

Andrew: Tell us, what do you think is the toughest hurdle to overcome in mobile home park investing?

Roger: The toughest hurdle right now, and I believe it’s changed, I would say if you’re buying a park and your intention is to fix it up, reposition it. The majority of our work is contractors right now. When we first started, we were buying new homes for $28,000. That same home now I think is $45,000, maybe $48,000. How do you tweak that budget?

The margins have gotten a lot smaller, but I’d say if you’re hiring contractors, finding the right people is a really difficult process right now. That may change, but I don’t see it changing in the way we needed to, or certainly not as fast as we needed to.

I’d say the other thing is if your plan is to sell the homes to an end user, and you have a tenant on home and you’re just collecting the lot rent, getting them qualified has been more difficult, so there becomes a seller financing aspect to how you hold it. 

If you spend $25,000 or $30,000 to fix it up, and you can only get $2000, $3000, or $4000 as a deposit down payment, then you’re still upside-down with some of your cash. That’s something to really consider.

Andrew: That’s a really good point. I don’t think this is talked about enough. It’s a capex-intensive business. We own some self storage facilities, and it’s very minimal capex. The buildings are there. It’s just sheet metal buildings, but we were looking at our KPI dashboard.

In some of our communities this month, they cash-flowed $8000, but we had $20,000 in capex, because a wholesaler came in and was trying to buy this home from one of our tenants that was selling.

We had to come in and buy that home from the tenant before the wholesaler bought it and moved it out. We’ll recoup that, but like you’re saying, we spent $20,000 cash to buy that home. Now we’re going to sell it but not for $20,000 cash. It’ll be a rent-to-own type of arrangement. I think that’s not talked about enough. So thank you for touching on that. That’s important.

Roger: Sure. Yeah. If you’re in it, you know it. My business partner, Brandon, talks to a lot of other people that are CEOs, of people that own companies that own 4000 spaces, and they’re all dealing with the same stuff. How do you rent it out? Getting it marketed. Facebook Marketplace is a really challenging area to post a vacant home for rent or for sale, because they don’t want you to do it for some reason.

Andrew: It’s just the scalability of it. That’s another great point. If you can’t have one person posting 12 homes in 12 different states on Facebook marketplace, your account gets flagged and they shut you down. 

What we did is we have our onsite managers do the postings, but then you’re dependent upon them to respond to people in a timely fashion, to actually attend the showings. You bring up some really good points. I agree, those are some hurdles. 

Let’s talk about the last few years, rates are high. How have you guys pivoted around interest rates being higher? Have you been able to buy some new acquisitions?

Roger: Oh yeah. We were fortunate enough to have built some relationship with our lenders. They knew our ability to execute, to turn the projects around. I think that that’s an important part of it. 

I would also say, it’s not been an easy road these last two years with lenders. We had a lender that we were working on refinancing for eight months. Then they said, hey, you’re about three weeks away. They took it back to their board and the board said, we’re not lending anything anymore.

Andrew: Oh, my goodness.

Roger: Yeah, so start the process over. We had bought some owner financing properties that way. The sellers were like, hey, you had three years to get this thing refinanced. We’re like, look, we’ve been trying. Some unhappy moments there, some stressful moments, and some frustrating moments. It’s like, guys, look, if your board is even remotely thinking that you’re not going to be lending, please give us notice. Common courtesy.

I think that the pivot really has been more not into buying or reflecting on operations per se. I think it’s a mental thing where we just have to get more resilient. We have to realize that it’s not going to go as fast as the lenders telling us, and they’re going to ask for an ALTA survey the last week before you’re supposed to close, even though you’ve got 15 emails from the last four months saying, no, we don’t need an ALTA survey.

I think that resilience and just being prepared for the unexpected is a really critical and emotional tool that we have to develop. Brandon and I talked about it. How do we see the world right now? Things are challenging. That’s not going away. We have to get stronger.

Andrew: How would you say specifically, you guys did that on the last two acquisitions? Have you bought anything in the last year?

Roger: Yeah. I think we closed the day before Thanksgiving over in Chicago. That’s the example of the ALTA survey. We got very frustrated, both at the seller and at the lender. Guys, you can’t just keep stacking these things on or twisting what you’d agreed to. I think there’s a bit of a callous that gets developed initially.

Andrew: My question is more about the dynamics of the deal, the numbers on the deal. If your interest rate is 8½ percent on the debt, are you getting the seller to hold a second note, are these seller finance deals, or are these value add deals? How are you getting deals to pencil out with rates being so high?

Roger: I think that’s more a factor of we have to find a shorter-term loan that will recast in a few years. It may be an interest-only period. They’re going to want to hold some capital back, so we may need to deposit. We’ve had a deposit capital with the bank so that they could do a draw payment to us, so that they could feel more comfortable.

Again, that’s a last minute thing that they sprung on us. We just realized that there’s nothing we can really do in this climate. When rates are that high, we’re just going to have to suck it up. In terms of our diligence, I think on our first part, we had an offer for $3.7 million, and we’d bought it for $1.5 million four years before.

Brandon and I were like, you know what, let’s wait until it gets to $4 million, then we’ll sell it. I realized, gosh, we got our greed glands going, because we ended up selling it for $2.5 million. Had we taken that offer for $3.7, it’s a different world. It’s a different project.

I would say, during your due diligence phase, adjusting your targets if you reached a target. One of those targets is I want to exit this so I can 1031 it into another property. Let’s really evaluate. If we hit the target, do we stay, or can we continue to improve it? I think we missed the ball. That’s part of it too.

Andrew: I’m sure a lot of sellers feel that exact same way. Back in 2021–2022, it was the prime time. That was the peak. We were selling some self storage, and it was the same thing. We missed that peak by a year.

Tell me, Roger, what is your mobile home park investing strategy? How has it changed from that first deal outside of Oklahoma city? Are you buying deep value-add 50% vacant projects? Are you buying more stabilized stuff? Are you buying anything you can get your hands on? What does that strategy look like and why?

Roger: It was buy the 50% and just try to do everything. The first park, we did that. The second park was probably 65% occupied. That has actually turned out to be probably our best park so far that we bought six months later in Kentucky.

We bought a bunch of the small ones, the 10 or 15. Those just become too management-intensive. When you can’t find a good manager, it becomes a really thorny situation. We’ve continued to reassess, how are we buying these things? We no longer want to buy those properties that need a heavy lift. We don’t want to spend our time doing that anymore. We want to have 70%.

Actually, last year, Brandon and I went through this whole process of, what do we want to do next? What is our criteria next? We’ve written it all down. We’re like, okay, does this park fall into our criteria? Yes, except for this. Okay, so why spend our time? It doesn’t make sense anymore.

I think we’re getting much more discerning with those experiences. We’ve got a good park, we’ve had a not so good park. We’ve had some small parks, we’ve had some big parks. Through our own trial and error, our experiences, and our self-evaluation, I’d say that we’ve become more discerning on, do we want this particular thing? And what does it look like to get out? 

Both Brandon and I love the idea of holding these things forever, but it may not make economical sense if somebody’s offering us 2½ times more than what we paid, because the market is crushing it.

Andrew: Is it going to take 15 years in cash flow to hit the proceeds that you could get now?

Roger: Exactly.

Andrew: It’s a good exercise to go through. How many years of cash flow is this if I sold today? That’s a game changer. That’s interesting. What is that deal criteria for you guys right now?

Roger: I haven’t looked at that list. Let’s do this. Let’s put it in the show notes.

Andrew: We could do that. Deal criteria in the show notes. Ours is above 50 lots, public utilities within 40 minutes of an MSA that has at least 50,000. What you circled on is something around 60%. It has to be at least 60% occupied, so it’s cash flowing day one. Any listeners out there, if you find a deal like that, send it to me before you send it to Roger, okay?

Roger: Or send it to us.

Andrew: Send it to both of us. Yeah, exactly.

Roger: I know that a lot of your listeners, viewers, are passive investors or wanting to be passive investors. I would say that if you’re looking at mobile home parks as an investment vehicle, if you’re a doctor or whatever, you’re a 401(k), or you’re a self-directed IRA, who wants to participate in this, I think that you need to partner with people that have already gone through a bunch of these growing pains, because there are a lot of people that have been around for a year-and-a-half. They look really great on camera, but they haven’t gone through some of the challenges that a lot of these longer-term investors have.

I started in 1996 as a real estate investor. I know, Andrew, you’ve been around for a long time as well. I don’t even know how long. How long has it been?

Andrew: Since 2011 is when I got into single family stuff, but mobile home parks was 2016.

Roger: So even longer than me and I honor that. I think that that alone really helps an investor know that while nothing is guaranteed, it mitigates the risks that are inherent in every investment. I think it’s super critical. I honor your time and your pain suffered.

Andrew: This is completely random, but my wife and I just started watching this NASCAR show. There’s this guy named Denny Hamlin, and he’s pretty good. He was in the front at this race. I forget where it was, but he was in the very front. Things were getting choppy up there.

He’s a veteran guy. He’s got over 50 wins. He was in the very front. He knew that for the NASCAR series, he couldn’t crash. He needed the points by finishing. He literally went to the side. He went all the way to the back. A little while later, big crash happened.

It’s like that spidey sense to know, hey, this guy has experience. He knows when things are choppy up there, to know to get out. I think that is what you’re pointing at here. Experience matters. If you’ve been in a lot of deals, you’ve been in a lot of parks, you’ll know when to sell one, because you just get a spidey sense that something’s off here, that the people that we’re getting that are applying or not the quality we’re hoping for.

There’s just a variety of, we’re not getting enough leads off of our marketing. Something’s going on here. It’s probably a good time to come to the back and let things settle. That was a good point there. 

What else? If you were going to invest passively into a mobile home park investment fund or a syndication, what else would you want to know? What matters most as a passive investor?

Roger: If the experience is one aspect of the general partners, I think a limited partner, if we’re talking about a syndication, has to understand what the ethics are of that general partner. Is this the kind of guy or gal that’s going to not do what they have to do to take care of you? Your money is on the line.

Somebody’s degree of ethics is such a criteria for me that if there’s a hint through a conversation, or obviously Google searches, background searches, which are all things that everybody needs to be participating in, and if that can’t be explained, and if there is some weird spidey sense in your gut when you’re talking to this person, just walk away. I think you’re listening to the right thing when you walk away because there’s something amiss.

You want to obviously verify if any of these things are true because the Internet sucks in large part, but I think that the ethics are hypercritical for anybody’s decision-making when they’re looking at it. They could have all the experience, but if they don’t care about you and your 100,000 or 200,000, man, bad news potentially. I think that that’s a really important thing for passive investors to really figure out.

By the way, if you’re going through that process and the word passive investor, I don’t think when you’re going through due diligence that that’s passive at all. I think that’s your participation, and it may be limited to just those types of things when you’re about to invest. I don’t think that that’s a passive investor. 

It’s not that I have a problem with the word passive investor, but I want people to understand that passive investing isn’t fully passive. It isn’t just, I hope, here’s my money, good luck. It’s, am I making the right decisions? Am I making the right choices by asking the right questions?

Andrew: There’s a responsibility there to do your due diligence ahead of time, just like we do before we buy a park to make sure, hey, am I getting what I think I’m getting out of this? That’s a great point. 

Roger, what mistakes in mobile home park investing have you made that we could learn from? You mentioned buying too far away from an MSA. If you had to put together two or three more just real quick bite-sized mistakes that we could walk away with, what would those be?

Roger: Sewer lagoons. Don’t buy a park with a sewer lagoon, unless, of course, you have it budgeted that you’re going to tie into the city sewer and water. I would say if you’re joint venturing with somebody, you want to make sure that your roles and responsibilities are already lined up. If there’s a problem and somebody isn’t meeting those responsibilities, what action can be taken on behalf of you or the other partners? I think that that is critical.

I would say that having a property manager that is really overseen for the first six months, not hard in the approach to them, but just really following up and making sure that your responsibility is to rent and sell these. If that’s not the top of your list because you’re too busy with other things like street cleaning, then you’re the wrong person. I need to have income. The specifics for the manager have to be ironed out day -10, 10 days prior to closing on the park.

Andrew: Those are great. Thank you for sharing those with us. I think those are awesome. I would have to say just to piggyback on that, the onsite manager can make or break a deal. If you have a good onsite manager, it literally will be 50% less headaches because they will just think about solutions instead of just throwing problems your way. That’s a big one. 

Roger, what does the perfect mobile home park look like in your eyes and why?

Roger: I bought it in 1994, they’re all brand new units, and it’s 500 spaces. It’s got a spa, and it’s in a wealthy area in Malibu.

Andrew: Perfect. That’s good. Would it be on city utilities?

Roger: Absolutely, yeah. Yeah, for sure. Yeah, city utilities because it just reduces your costs. That’s what I would like.

Andrew: Cool. What does the future of mobile home park investing look like? Obviously, rates are high right now. What do you think is coming in the next 12–24 months?

Roger: I think that the prices are going to start to increase, because the interest rates are going to drop. I don’t think it’s going to happen this quarter. I don’t think it’s going to be a significant drop or drops this year. Maybe a full point by the end of the year, probably three quarters. It seems reasonable. They’re trying to do the soft landing thing. If they did a three quarter drop, man, that’s going to explode the prices.

What does that mean? That means that people that are sitting in cash right now have a really great opportunity to find the right operator, if they’re not the operator. 

If your listeners are looking for the right operator, looking for the right areas, maybe they want to have it within an hour or two-hour drive from where they live so they feel they can just drive by once a quarter or whatever, some of my investors like to know that they can do that. Obviously, you have to put ground rules on that process. 

I would say, find out what’s most important to you in a mobile home park. Mobile home communities are changing, so find out what’s most important. You need to have mostly 6% preferred return and 8% preferred return. What’s your targeted IRR? What’s your exit strategy? How many times have your general partners done this?

Those are all the criteria and more obviously that you want to start pondering by asking yourself, what’s most important. Okay, what else is most important? If I could have my favorite park, what would it be? Those are the things that I would say, get ready to start investing in some properties because there’s stuff that’s going to happen pretty soon.

Andrew: This is something I tell my acquisitions team all the time. You’re just a day away from getting a phone call. People say they don’t want to sell, but then life happens. Life events happen, and then things become more urgent. My strategy is a long term compounding benefit. I’m going to own these things 20–30 years.

I think if you have that model looking at the next 12–24 months and saying, we’re pencils down, we can’t get deals to pencil out, it’s too short term. If you’re looking to buy something, fix it up and flip it, maybe that’s not a good time. But for a long-term approach, interest rates are going to go up, they’re going to go down. It’s going to happen. Just expecting that and over the long term, you’re going to be just fine.

Roger: You’re talking about high interest rates. My father started investing in 1980 in that town, Englewood, Florida. Interest rates were 16% and 18% in 1980. He is still invested. Tens of thousands of investors still made money on those properties they were buying at 18%. If the strategy is 10-, 20-, 30-year holds, whatever, you’re not going to stay in the loan that long. You’re going to stay in the property. Massive mind shift for a lot of people.

Andrew: Huge, huge mind shift right there. That’s huge. What’s the biggest threat? If we’re playing devil’s advocate here, what’s the biggest threat to mobile home park investing right now?

Roger: Insurance costs. They’re just astronomically bad and getting worse in certain communities in certain states. In California, they’re leaving. The major name carriers are taking off. Florida, same thing. Last year, I saw a bunch of exits from the state from carriers. All the name insurers are leaving because they just don’t want to pay up.

The ones that are staying, the smaller carriers, may not pay out on your $2 million claim if a tornado or hurricane hits. They’re just going to charge astronomical amounts more than what you’ve pro forma’d. Astronomical. How do you take a park where it’s been paying $11,000 a year and suddenly you wake up with a bill for $45,000? It happened. It happens every day right now. It’s tough to make those things work. I think that’s a major problem.

Andrew: That is a major problem. We don’t own any in Florida, but we have looked, and that’s just such an interesting dynamic. I know a lot of multifamily apartment complexes have seen astronomical increases in their insurance costs. 

But from a mobile home park perspective, if you’re not insuring the homes themselves, and you don’t have a lot of buildings, what is causing the pricing to increase so much on your policies?

Roger: What’s causing it? I would say greed more than anything, because they can. If an insurance company says, hey, we want to triple our premium, okay, they can.

Andrew: That’s interesting. We haven’t seen that in the policies that we own. There hasn’t been an astronomical increase, because again, there’s not a lot of property that we’re insuring. We’re not insuring buildings, apartments, and things like that. We’re just insuring the utility infrastructure. Anyway, thanks for sharing that.

Roger, this has been an awesome talk. I’m just super grateful that you took time away from the beautiful Puerto Rico beach in the background to hang out with me and hang out with all the listeners here. If any of our listeners would like to get a hold of you, what would be the best way for them to do so, Roger?

Roger: Go to my website, rogerking.com and sign up for my newsletter. I sent out a newsletter every Thursday. It’s The REI Evolution newsletter. Really, it’s designed for investors who want to just understand what’s going on. They want to understand the different factors of property. They want to understand tax implications. They want to understand wealth growth and just a whole host of things every week. It’s all curated.

I’m really excited. We just actually launched it last week. Episode two comes out today or edition two. I don’t even know what I’m calling it. Rogerking.com is the best way. You can find me on all of the social media handles, of course, which I think you’ll probably put in the show notes.

Andrew: Yup, we will make sure to do that.

Roger: Awesome. Thank you. Andrew, it’s been a pleasure for me. Great questions, and I love the focus on the mobile home parks and the passive investor. Thanks for inviting me into the community.

Andrew: Totally. To piggyback on that, if you had one last bit of information, one last bit of important advice that you would give an interested passive investor before we sign off, what would that be?

Roger: You have to get into this particular sector. I think it is a high growth sector over the next couple of decades. Affordable housing is not going anywhere. It is excelling up in terms of growth. We have to have homes for people that can’t afford the $3000 a month apartment building or apartment unit. So $700–$1000 a unit, I think that’s a sweet spot for a lot of people in our country. Figure out how to do it and get it done.

Andrew: I love that so much. I was at the gym a couple of days ago, and there was a guy getting out of his car. It was a gorgeous Rolls Royce, the fanciest Rolls Royce I’ve ever seen. It was an older gentleman.

I said, hey sir, sorry to bother you, but what should I be doing to be able to buy one of these someday? He thinks a second. He looks back at me and he goes, take lots of chances, kid. He gives me a salute, he walks off, and it was just like exactly what you were just saying. You got to jump in, you got to take a chance, you got to get in a deal.

Even if you’re a passive investor investing and you’re just putting money in with another investor, you’ll learn so much, and you’ll get your foot in the door instead of waiting and having that analysis paralysis where you’re just, oh, I’m going to wait and buy my own park. I’m going to do it. I’m going to do it. Then it’s 2–3 years later, and you still don’t have a deal. Jump in with an operator that you know, like, and trust, and take the risk. I love that, Roger. Thank you for sharing that with us.

Roger: Right back at you. Thank you, Andrew. I appreciate it.

Andrew: That’s it for today, folks. Remember, please leave a review if you got any value out of this show wherever you listen to your podcast at, and thanks again for tuning in.