NEW 2024 Interview with Daniel Weisfield of Three Pillar Communities (who now owns over 10,000 lots!)

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 Daniel Weisfield of Three Pillar Communities.

Daniel Weisfield, a previous guest on the show, is a third-generation mobile home park owner-operator. Growing up, he spent his time fixing porches and mowing lawns at his grandfather’s mobile home parks on the west coast in California and Washington. He holds a JD and an MBA from Yale University and is a licensed attorney in California.

Since Daniel’s interview in October 2020, the Three Pillar Communities portfolio has experienced remarkable growth. It has expanded from just under 30 communities in 5 states, comprising 2,700 lots, to more than 70 manufactured housing communities across 14 states, now serving over 10,000 residents with a team of 120+ employees.

In this episode, Andrew Keel and Daniel Weisfield dive into various aspects of the mobile home park industry, including ground-up mobile home park development, passive investing tips for LP’s (limited partners), why vertically integrated manufactured housing community operators are better, value-add mobile home park investment returns, regulatory risks, and the crucial role of providing safe, quiet, and affordable housing for low-income individuals.

Tune in to explore the intricacies of the mobile home park industry, understand its highlights and challenges, and gain valuable insights from Daniel Weisfield, as he shares golden nuggets for limited partner investors eager to navigate this dynamic commercial real estate investment sector.

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

Andrew Keel is the owner of Keel Team, LLC, a Top 100 Owner of Manufactured Housing Communities with over 3,000 lots under management. His team currently manages over 40 manufactured housing communities across more than 10 states. His expertise is in turning around under-managed manufactured housing communities by utilizing proven systems to maximize the occupancy while reducing operating costs. He specializes in bringing in homes to fill vacant lots, implementing utility bill back programs, and improving overall management and operating efficiencies, all of which significantly boost the asset value and net operating income of the communities. Check out KeelTeam.com to learn more.

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

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

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

Talking Points:

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

01:50 – Daniel Weisfield’s real estate journey and how the Three Pillar Communities portfolio has grown in the past few years

06:50 – Andrew Keel’s foray into self-storage investing, his portfolio, and investment strategy

12:41 – Daniel Weisfield’s experience with RV parks

15:00 – Getting more proactive with mobile home park off-market deals

17:30 – Ground-up mobile home park development

20:00 – For Sale Mobile home model and estimating potential profits in underwriting

22:30 – Vertically integrated manufactured housing community operators

25:00 – Land development skills and when to hire professional developers

27:45 – The importance of making investment mistakes and learning from them

33:00 – Investing passively in ground-up mobile home park developments

34:30 – Peace and security in a quiet mobile home park community

36:40 – Puyallup River RV Park

41:14 – Getting a fair return on your mobile home park investments

43:44 – Reaching out to Daniel Weisfield and accessing his newsletter

44:30 – Being knowledgeable and knowing who your mentors are

44:57 – Conclusion

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

Links & Mentions from This Episode:

Three Pillar Communities: https://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/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 a repeat guest on the show in Mr. Daniel Weisfield of Three Pillar Communities. 

Before we dive in, I want to cut a deal with you. If this episode adds more than a hundred dollars in value to you, which I’m sure it’s going to add way more than that, would you mind taking 30 seconds to leave a review? This helps us get more listeners and it literally lights me up when I see a new review on the podcast. Thank you for taking the time to leave that review. Alright, let’s dive in. 

Daniel Weisfield 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 is also a licensed attorney in the state of California. 

Since Daniel was last on the show, which was October of 2020, which was a weird time with COVID and everything. Since then Three Pillar Communities their portfolio has grown a lot. They went from just under 30 communities in five states and in just under 3000 lots to more than 70 manufactured housing communities across 14 states. Now serving over 10,000 residents with over 120 employees. 

Daniel Weisfield, welcome back to the show, brother. 

Daniel: Good to be here. Thanks for having me back. 

Andrew: For those first time listeners, would you mind briefly just reminding them of your story and how you got into investing in mobile home parks?

Daniel: Of course. I come from a pretty scrappy immigrant family. My mom was born on a chicken farm in Israel, so was my grandfather. They got sick of being poor farmers and they immigrated to the US around 45 years ago. My grandfather was a car mechanic. He fixed cars and I’d go help him in the summers, straighten out bumpers, go work in the paint booth, and he saved money from that and he bought a mobile home park around 30 years ago. 

My family were mom and pop operators. If a pipe broke, my grandfather was out there digging up a ditch and fixing it. I did not plan to go down that path. I went to fancy schools and I pursued a typical kind of corporate career path. 

At some point I was in my early 30s, I had our first baby at home thinking, what am I doing with my life? What am I really solving for? And I decided to quit corporate life and become a real estate investor. I decided to focus on mobile home parks because it’s such an incredible way to provide high-quality, affordable housing, really impact our residents’ lives, and also get really long term durable returns. 

Andrew: Awesome. What an awesome story. You guys have grown a tremendous amount over the last three years. I’d like to start there and talk about what your strategy has been on new acquisitions to build a portfolio of over 10,000 lots. 

Daniel: Sure. We started out in our region. I think that’s pretty normal. You start out in your backyard and we were growing in California, Oregon, Washington, Idaho, Arizona. At some point we realized we are really product experts. We really understand mobile home parks. We are not local geographic market experts so we could take this product expertise and apply it across the whole country. There’s no reason why we shouldn’t go look at deals in the Carolinas, Florida, Texas, Ohio, or anywhere else. 

Really the big unlock for us about two years ago was bringing on our new chief operating officer, Corey Wikstrom. He’s a guy who’s been in the mobile home park industry for about 20 years. An incredibly talented operator. He’s worked for three or four other mobile home park companies. He has overseen hundreds of parks all over the country, built teams of thousands of people. Once he joined our team, that gave us really the confidence to go out and start sourcing deals all over the country.

We have been actively growing in the Carolinas. We’ve bought, I think, 12 or 13 parks there in the past year or so. Actively growing in Texas, we’re now operating, I think, six parks in Texas. We invest up and down the risk spectrum within our asset class so we will buy really nice stabilized properties. We do a lot of value add, and we’re also developing some new mobile home communities on raw land. 

By the way, I should be saying manufactured housing communities. It doesn’t roll off the tongue as well so I keep on slipping back to the old nomenclature. Forgive me for that. 

Andrew: Totally, yeah. There’s land lease communities. There’s manufactured housing communities. Some people call them, call them trailer parks, mobile home parks. It’s very interesting that you guys are going up and down the risk spectrum from development all the way to buying stabilized stuff. Is this all through a fund facility that you guys are doing this? Is there multiple funds? 

Daniel: We’ve done it in different ways. We started out syndicating deal by deal. We then raised and fully deployed two funds. One was in 2020 and one was in 2022. At this point, we are back to raising deal by deal.

Our deal flow is a little bit slower right now. , partly that’s because of interest rates and pricing, and partly that’s by design. We bid off a lot in fund two, and we’ve got a lot of heavy turnarounds all at once. We realized hey, let’s not grow for the sake of growing. Let’s fix what we own, digest these projects that we took on and grow more slowly. For that reason, we’re not raising another fund right now. We’re just acquiring deal by deal. 

Andrew: That’s smart. Kudos for being able to say hey, let’s just slow it down. Let’s perfect what we have. I think all too often you see operators and sponsors get all caught up in acquisitions and just kind of fly off the rails. It’s always good to kind of just take a step back and say, all right, where are we at? That’s good. 

Daniel: Andrew. So let me turn the table on you. We know that you pursued self storage in addition to mobile parks. I think you had a realization that it wasn’t the right fit for you and you might have pivoted, which takes a lot of courage. Talk to me about that. 

Andrew: Yeah. Very similar type of situation, right? It was like we got into self-storage. We probably should have bought one or two and then just slowed down and really figured out the operations. But we kind of were overconfident and kind of ran in and bought up 11 of them in 2021.

We got really good deals buying them off market direct from mom and pops. Out of the 11, four of them just were like completely in a very tertiary market. We’ve just struggled with operations to figure out. It’s more price sensitive, kind of like a commodity versus mobile home parks where it’s more longer-term tenants that are a little bit stickier. Same type of thing. We paused acquisitions. We’ve sold some of the assets and decided to kind of move forward to focus on MH. It’s just been a better fit for us. 

Daniel: Yeah. Was it hard for you to swallow your pride and communicate that message to your LPs? 

Andrew: I didn’t think so. It’s kind of like it is what it is. I guess from talking to some other operators and some others like LP advisors, our investor updates are pretty straightforward like your NOI versus projected, your revenue versus projected, your distributions versus projected. Everybody kind of knew this isn’t going as we thought it would on these four that are kind of struggling. Not kind of struggling, like definitely we’re struggling. It was just kind of a very humbling experience.  

I go back to Poor Charlie’s Almanack and I think about getting outside of your core competency and Charlie’s always like you gotta be careful and stick to what works. I just remember what I was reading in that Poor Charlie’s Almanack where he’s like hey, don’t don’t get overconfident. I think a lot of people get over their skis and that’s a prime example. Yeah, that’s where we are at. 

Daniel: One thing I’ve observed in manufactured housing is investors in this asset class, particularly new investors in this asset class, fall in love with the asset class story and forget the first rule of real estate, which is location, location, location. Would you say that happened to you with these self-storage deals?

Andrew: I think it did. Yeah, I mean the four are in a tertiary area, but the other seven that we owned did well. We also came to realize the reason why we’re selling them off is it takes a lot of time to master operations. It doesn’t just happen overnight. When we realized hey, this is a bigger fish and we tried to hire someone that was like a regional manager at one of the big storage REITs thinking that they could kind of come in and help us establish a good management company that was for self-storage and they kind of just came in and wet the bed. It was like a very bad experience. It was like let me take the reins over.

Literally, let’s say the last year, I would say 80% of my time is going towards managing those directly. I’m managing a management company. It’s been interesting because I just think of the trade off of hey, where could I be spending this time growing the portfolio on the MH side of things and it being more scalable. Yeah, definitely a learning experience so that I won’t make that mistake again. 

Daniel: How many parks are you operating now? 

Andrew: We have 43 parks now, just about 3000 lots. When we spoke last time about your size is kind of where we’re at and it’s spread out all from the Midwest to now the Southeast. I don’t have ambitions of getting to 10,000 lots in the next three years. 

Daniel: Am I hijacking this too much? Or can I ask you another question about [inaudible 00:10:45]

Andrew: No, no, no, please go ahead. 

Daniel: In my mind, one of your strengths that I always admired about you when you were starting at least was you had a ninja operations team. A lot of people, mostly former athletes, but you’d send them out like a SWAT team to do acquisitions, live on site, turn stuff around. Are you still maintaining that as you’ve grown or has it gotten a little more corporate, a little less ninja? 

Andrew: Yeah. So we’re still doing that. We still have our Keel Team Six, our project managers. They’ll go out at least the first few weeks depending on how big of a project it is and they’ll be living on site. We have a couple of big projects going right now and yeah, we have people on site that have helped us. 

I think if a project only has like two or three vacancies that we’re trying to fill. We’ll be on-site to kind of facilitate the transfer of ownership and kind of get on our new systems with pay lease and things like that for the first few weeks and then we’ll back away and kind of manage it remotely. 

But on the big stuff, we have a project with 50 vacant park-owned homes that we just bought a few months ago. Someone’s on site. Multiple crews managing the renovations on these. Just the cost savings, it definitely is worth it. 

Daniel: Do you have physical construction and rehab people on your payroll who you send around or are you typically using contractors? 

Andrew: Using third party contractors at this point though we have like a couple of crews that have traveled with us from deal to deal just because hey, you want a bunch of work? Come up here in Michigan. We have 50 spots. Their home bases were around Indianapolis where we had several parks. It’s worked to kind of build those relationships and same with some transporters and things like that as well. 

Daniel: Cool.

Andrew: I know you guys got into a little bit of RV parks. Is that correct with part of the fund? 

Daniel: Yeah, at this point we own around 80 parks and I would say probably 10 of those are RV parks. We are bullish on long-term stay RV and we’ll continue to buy long-term stay RV which we can operate pretty much like our manufactured housing communities.

We experimented with a couple of recreational RV parks and realized that we are really not the right operators for those. Kind of similar to your self-storage story, we own one of those now in Southern California where it’d be nice to sell it, but we gotta fix it before we sell it or else we’re going to lose money.

We’ve been very transparent with our investors about that. We are in the weeds hands on working to raise occupancy, improve NOI, and do all the things so we can have a successful exit. 

Andrew: Nice. I think it’s not the best time to sell either with rates where they’re at. But earlier today I interviewed Scott Modelski, who’s like a finance loan broker, and he was mentioning the Fed’s kind of temperament and who knows where they’ll go. But some seem to think that in the next six to 12 months, there might be some rates dropping, but we’ll see. 

Daniel: One of my smartest investors tells me, you real estate GPs are all the same. You always think rates are going to drop six to 12 months from now. Which I think is actually a really good feedback and it’s true. If you look at most people’s underwriting model, it’s like, well, interest rates are 7% now, but when we go to ReFi two years from now, they’re going to be at 5%. Based on what? 

There are all sorts of indications now that even with rates where they are, we still have inflation above target, and I don’t necessarily see the Fed dropping anytime soon. Not that I know, not that I pretend to predict what the Fed will do, but I think all we can do as dumb real estate investors is accept how much we don’t know and plan for the downside. 

Andrew: Yeah, and work on operations. That’s something we can control for sure. 

Daniel: Yeah.

Andrew: Maybe you can touch on that actually, like how have you guys on your most recent acquisitions the last few years with higher rates. How have you guys pivoted around that to still get deals done?

Daniel: I’d say it’s probably two things. One is getting more proactive about off market deal sourcing. I’d say almost all the deals we’ve acquired have been off-market in some sense, but in our early years, we were relying on brokers to bring us that off market deal flow. In more recent times, we’ve gotten more proactive about going direct to sellers. 

Andrew: How have you done that? How have you built those relationships? 

Daniel: A lot of it is through industry relationships and building relations with other park owners as a fellow park owner. I did get a lot of cold calls from people who are just cold calling and don’t actually know the business. But if you can go talk to folks, hey we own all these parks in your area. Here’s what we’re doing in management. Here’s what we’re doing. How can I help you with your problems? That goes a long way. 

I think people get a phone call, hey, do you want to sell your park? And it’s typically no. But if it’s hey, we’re dealing with the same issues you are, how can we put our heads together? It’s a different conversation. That’s one thing on the deal sourcing side. 

Then secondly, I think we’ve been doing more value add and development because buying the stabilized stuff has gotten pricier and harder for us to make a pencil with elevated interest rates. I think a good example is we bought a $50 million portfolio in the Carolinas about 10 months ago now. Nine parks. It is kind of a classic class C portfolio of manufactured housing communities. We’re serving people in the workforce, mostly older single wides, not amenitized. It has some holes in the roads, you’ve got some utilities that need to be repaired, and you had about 20% vacancy. 

We are happy to take on a project like that, roll up our sleeves, we’re going to bring in I think around 80 brand new homes. Rehabing existing homes that are there. We’ve already installed playgrounds, fixed utilities, and put new roads in. We’ve deployed about $2.5 million in capital improvements so far. We love that. We love a project like that and that’s kind of where we can still, I think, compete effectively, even while we can’t buy the stabilized class A community in a coastal market.

Andrew: Totally. No, that’s awesome. Especially if you’re able to get scale with a $50 million portfolio, that’s huge and that’s really cool. Tell us about ground-up development with mobile home parks. I’ve seen your project.

Daniel: It’s hard. That’s the answer. 

Andrew: I would imagine so. I just know that project in Bozeman, what a great market, how has that progressed and what other new development projects are you guys working on?

Daniel: I’m happy to share that we have moved in our first new homeowner in Bozeman at our Cameron Crossing project. We handed over the keys last week. This is a project where at the beginning of COVID, we said hey, we’d really like to build brand new manufactured housing communities. Let’s pick a target market. 

We picked Bozeman. We found 90 acres that belonged to a farmer. I flew out there, met Mr. [inaudible 00:19:05]. He was out there on his tractor. We shook hands and made the deal. We bought 90 acres, that was alfalfa fields. I think we will close on the land in 2021. 

Since then, we got it entitled, we got it engineered, we put in all our infrastructure, we put in a sewer lift station, we built a turn lane coming off the highway, all these things now just take two seconds to talk about, but each of these things is hundreds of hours of work. That darn turn lane and dealing with the state department of transportation, each one of these things is hard and we’re finally now at the point where we have 24 homes on the ground. Our sales center is open and we are selling. So pretty exciting. 

We’re selling brand new homes in the range of $200,000–$270,000. These are pit sets with a garage and a concrete driveway, nice backyard. This is in a market where single family homes are typically selling in the $600,000–$900,000 range so we’re providing huge value. You can’t buy a condo or a townhouse anywhere close to these prices. We’re selling a brand new three or four bedroom home with a garage and a private backyard for under $250,000, it’s incredible value. 

Andrew: Totally. I guess with that, like you said, it has paved driveways and everything. How do you like infill to count on the income that’s coming from all the expenses and things like that. How do you plan for that? That would be my concern is just like, okay, how many sales are we going to have per month? Obviously, Bozeman’s booming, but how do you estimate returns around that?

Daniel: First of all, we strongly believe in a for-sale model. There are other operators who will bring in new homes and rent them out as parkland home rentals, which is a much faster way to get tenancy and to start getting income, but we strongly dislike them. 

Andrew: I’m one of them. Okay. Brought in. I think it was 40 brand-new homes. I sat on them for three months. We sold like two and I was like, let’s rent them all, let’s just get some income in here. I did that on a project. 

Daniel: You rented them all out and you probably [inaudible 00:20:28] 

Andrew: I rented all of them and we were full very quickly. But it wasn’t both. 

Daniel: Tell me about that. Were you happy to rent out your brand new homes?

Andrew: No, no, I didn’t want to rent them out. I guess my test that I had live, I didn’t go deep enough into the creditworthiness of the tenants and their ability to execute on fully buying them. We took their information, counted we had 25 leads, I think, and in a week we’re like, okay, we can sell some homes here. Well, it turns out that it’s not the best home sale market. I’m curious about your market, how you guys have estimated that. 

Daniel: We basically projected six sales a month that are based on the size of the market, how competitive we thought our product would be, and our capacity to actually bring his home in, set them up, and sell them. I think if you had an incredible assembly line for setting these homes up and an incredible well-trained sales team that you could turn on at the snap of the fingers. we could probably sell more than 10 a month. I think if we really screw it up and we are incompetent, we’ll still sell probably three or four months just because the product sells itself. 

Andrew: Because of the difference between median home price. 

Daniel: Yeah, the quality of what we’re bringing in and the price point. Those are all estimates that we had to make  before investing many millions of dollars and they are not entirely scientific, but they are based on our experience in similar markets. 

Andrew: Nice. Is it going well, we’re selling six plus a month? 

Daniel: Well, we just got our certificate of occupancy about four weeks ago and that’s what really lets us start the sale process. I think we’re ramping up to six a month. We’re not quite there yet. 

It’s interesting. We’ve had probably 40 home reservations where people put down a deposit and then ended up canceling because the homes weren’t ready yet. It’s been over the course of the past 18 months.

Andrew: And they needed it. 

Daniel: Yeah, the timeline. It’s only now that we’re finally going to start getting the moment. I think we actually have homes people can move into and buy. 

Andrew: Gotcha. Is it you’re bringing the homes in, setting them up, and then selling them there? You’re not like letting them choose a home and then bring that in. 

Daniel: We’re actually doing both. I think some of your listeners may not fully appreciate that having a vertically integrated manufactured home dealership is a key part of this business if you want to be a good operator. Particularly in a product like our Bozeman neighborhood, where this is a Class A manufactured housing community. We’re going to have walking trails and a dog park and a clubhouse that we’re targeting customers with a household income of, let’s say $70,000–$120, 000. 

We want to control the process and the quality of the product, to make sure it looks good. We are bringing stuff in ourselves through our dealership and installing it. That being said, in addition to all the inventory homes we’re bringing in, we also will work with customers to do custom home orders again, through us, kind of using our quality specifications. 

Andrew: That’s fantastic. What tips could you share with our listeners? What don’t we know about that process?

Daniel: Generally don’t believe the hype about mobile home parks. That’s my general idea. You read a lot of stuff on the internet saying mobile home parks are the best kind of real estate to own because it’s like owning a parking lot. Your tenant owns their home and they pay you a lot of rent forever and you don’t have to do any work and that couldn’t be further from the truth. 

As you know and as I know, these are communities that require very active management. Many times they were built 50, 60, or 70 years ago and a failing infrastructure requires a huge capital injection. If we’re going to keep these communities as a viable source of affordable housing for the next coming decades, it takes a hands-on operator to come in and improve them.

A lot of times you have homes that were built before the federal HUD code went into effect in 1977 that weren’t built to modern safety standards and might be nearing the end of their useful life. If you’re a hands-on operator, you have to go in, replace old homes, rehab homes, fill vacant lots, and rebuild utilities and that’s just part of the job. That’s something that you and I do every day. It’s something that I think a lot of people don’t appreciate. 

Andrew: No, that’s a huge point is active management and there’ve been other operators that have struggled because of that exact piece. When it comes to ground-up development though, is it just having that same approach, just having that hands-on process like you’re talking about the turning lane and all these different hurdles and just really trying to just have that high sense of urgency to kind of push that.

Daniel: I will say, again in my limited experience, I don’t want to pretend I’m a master developer because I’ve only broken the ground on one of these, what I’ve learned from this one project is number one, you need an expert land developer. Don’t try to learn that yourself. I’m not gonna try to learn that myself. 

There is an entire skill set that is absorbed over decades of experience of somebody who can look at raw land and say hey, how do I turn this into a built product and it requires a creative mind and a vision. It also requires an engineering and a land use mind. And so I brought in a partner who’s a master developer, he’s built skyscrapers, he’s built subdivisions, to lead our land development efforts. That’s number one. My partner and I kind of took it from raw land through concept approvals, engineering, design, and infrastructure.

Then the second key piece of these developments is sales. You better have a good process to order your homes, finance your homes, get your homes installed, get them advertised and marketed, and get them sold to the end customer, and that means getting your end customer appropriately connected with channel finance. If you are just hanging up a for sale sign and hoping people show up, guess what? 

Either they’re not going to show up, or if they do show up, they’re not going to get financed because manufactured housing financing is a very unique type of financing and so I have two full-time employees on my team who just work to get our customers financed. We’re not getting paid as a mortgage loan originator for that. We just do it as a service, as a free service to our home buyers. It helps them get a home loan and it helps us get our homes sold to qualified customers. 

Andrew: Very cool. Another benefit of scale is you have a team that you can afford to have people just hold people’s hand through that process so that’s great. 

Daniel, if you were going to passively invest as an LP with another mobile home park operator, what are the major items that you would look at to try and get comfortable with the deal? 

Daniel: Well, I’d want to make sure that the operator was like a marathon runner, a family man, extremely good looking and had an in-house Delta Team Six that he could deploy across the country. But beyond that, realistically, I would want someone who has tried and failed and learned from their lessons. 

Andrew: That’s good. 

Daniel: I think I’m a much better investor now that I have made mistakes and I have learned what not to do. If I had limited capital, like I could only invest with one operator, I’d want to be someone who’s made mistakes and can tell you about those mistakes and what they learned. 

Andrew: That’s good. A lot of people say hey look at the track record, I like that. What are your mistakes? If you don’t have mistakes, that’s a red flag. Wouldn’t you say that flag? 

Daniel: Either you haven’t been doing this long enough or you’re not being transparent about your mistakes. Because if you’re doing deals at scale, they’re not all going to be good.

Andrew: Exactly. 

Daniel: I think the mistakes probably fall into two main buckets. One is underwriting mistakes. You thought it was going to be great, but you made a mistake. You never should have bought the thing. The second are execution mistakes. There was a chance to make it good, but you weren’t able to get your act together. Candidly, we had made both types of mistakes. Both of those I am guilty of and it made it better. 

Andrew: So have I. I think every deal gets a little bit better and now I was talking with someone earlier now I had a due diligence, a debrief meeting today. We were on an active deal that we’re working on and we were able to go so granular that when we first got started we were just using the 30-day due diligence handbook we got from the MHU bootcamp. 

But now we’re going so granularly into cameras in the sewer lines and just so much other stuff that it’s like, I feel way more comfortable now because again, we have that scale, right? Where I’m sure yours is a whole nother level of scale where you can get really granular with it. But if you’re just a new operator you can figure it out, but it’s just that much harder without the additional help. What are some of those mistakes that you’ve made?

Daniel: I would say, first of all, we had made the mistake of concentrating our portfolio in markets that are not friendly to landlords. During COVID we suffered, particularly in places like Washington, where we had certain tenants who didn’t pay rent for 24 months and the government said that was okay. Actually, we’re at risk of losing one of our properties because we’re going to cover our debt service and state law said sorry. 

That was kind of a strategic mistake around where we were allocating our efforts. We have bought properties and completely underestimated how much capital we required to fix them up and overestimated how quickly we would lease them up. I’d say that was a problem in fund two, which is our most recent fund. I said we’ve got a lot of heavy projects there that we’re working on kind of digesting and fixing and basically in fund two, we’ve got 12 properties in fund two and eight of those are like heavy value added to come on all at once. We projected that we would be delivering positive distributions to our investors by month six.

That was wrong. That was bad underwriting on our part. Particularly in the case of park owned homes, you should just always assume every parking lot you look at is gonna be worse than you think. It’s always the rule. It’s always worse than you think. 

We bought a bunch of park owned homes. They all required a ton of more rehab money than we thought. Some of them we had to demolish because they were uninhabitable. We’re now working away. We’ve done the fixing and now we’re kind of reoccupying those properties. That was bad underwriting. 

Then finally I said we made the mistake of not having the right people on the ground to execute a plan. Particularly if you’re trying to infill and raise occupancy, it requires a very proactive manager. Not all managers want to sell. Some managers want to just focus on managing and execution. Nothing wrong with that. It’s just a different type of personality.

We built systems and processes to try and make sure all of our managers are doing the sales stuff and doing the occupancy stuff. But if someone’s not wired that way and doesn’t want to do it, you’re not going to get the results. It’s been amazing how we’ll have a property where we’re struggling to raise occupancy and then we switch managers and all of a sudden it’s like flicking a light switch.

Andrew: I’ve noticed that too. Same situation. We had a property in Michigan and the boots on the ground manager was a great property manager. Very diligent, very strict but was not selling well. We went to a local realtor and we said hey we’ll pay you a commission to sell our homes and the showings went off the Richter scale. 

We were getting way more applications because she had a bubbly personality. She was encouraging the call to action to fill out the applications. I agree that there’s little tweaks like that that you just have to watch and it can be game changing. Thanks for sharing those with us.

What would you say about the ground up development? What would you say if you were going to invest passively into a ground up mobile home park development?What would be the major items you’d look at to get comfortable investing in that deal? 

Daniel: Let me say something cynical. I would only invest in a ground up development in a market where the median single family home price is more than $500,000. Otherwise you’re fighting an uphill battle and it’s a lot of work and it’s hard. There’s no guarantee that people will choose your product as opposed to something else.

Andrew: That’s a really good tip right there for the listeners. Above half a million dollars for the median home price. Otherwise, that’s just not even worth it. 

Daniel: I’d be a little picky, a little facetious. I might, you might see me come back and I might do a development deal where the median home price is 400, but generally speaking, If you’re in a market where the median single-family home price is like $300,000–$350,000, there is not a huge value prop for manufactured housing, and it is a ton of work and a ton of risk, and you put a ton of dollars in the ground to develop the infrastructure. I wouldn’t mess around with development there. 

Andrew: It’s good to know. Thank you for that. Daniel, what does the perfect mobile home park look like in your eyes, and why? 

Daniel: I love that question. That is such a niche question because when you talk to me, I definitely have my garden of Eden and mobile home park in the sky. I’m going to pick one of our mobile home parks. 

Andrew: Let’s hear it. 

Daniel: It is Terra Mar Estates in Edgewater, Florida. 

Andrew: Close to my house.  

Daniel: Yes. There is a fishing dock and when you go out in the fishing docks, you see dolphins, you see manatees, you see sea turtles, you see incredible bird life. That’s my happy place. We’ve got two swimming pools there just like a wonderful serene place to live and we charge very affordable rents to our residents there. They own their own home and they live in peace and security in a quiet community with all this natural life around them. Of all of our parks, that’s the one I would move into. 

Andrew: That’s fantastic. Was that one you bought that was like a value add deal? 

Daniel: Yeah, we bought that about a year and a half ago and we are still improving it, actively improving it. 

Andrew: Awesome. Very cool. 

Daniel: How about you? What’s your fantasy mobile home park? 

Andrew: Man, fantasy mobile home park. If there is such a thing, I would say it would have to be in a market with over $500,000 median home price and be 200 lots with curb and gutter paved off-street parking direct build utilities. Then when I buy it, it’s like 70% occupied so there’s a little meat on the bone there after we take it over. You know, pie in the sky dreams. 

Daniel: I love that. Keep looking. Someday you may find it. Actually, you probably already found it. Have you found that park yet? 

Andrew: Not that one that’s that big. But we found some other ones that are really good and those Midwestern secondary markets, not the $500,000 median home price markets, but we’re still looking. Daniel, tell us about your worst performing trailer parks in your portfolio and why you think the NOI has been dragging?

Daniel: Good questions. We operate around 80 parks and we have around 10 of them on our SWOT list that we need to monitor very actively. Let me think of the one that I think I’m most concerned about. Oh, here’s a good example. Puyallup River RV park. This is what the park is outside Seattle, a very strong housing market, tons of demand for affordable housing, not enough supply. We bought it from an owner who had neglected it in 2019. 

When we bought it, there were literally people cooking meth, shooting up drugs with syringes, prostitution, all the things. We got them out of there, which I’m very proud of because I wanted to make it a community that I’d be happy to live in. I think people seeking affordable housing deserve safety and quality. 

It’s quite interesting, the drug dealers who we were evicting went to the media and talked about how we are mean landlords. evicting low-income people. Stories came out about how we were doing the wrong thing, when in fact we were totally doing the right thing.

Anyways, that is the part where we were doing a hands on turnaround, COVID happened, like a lot of tenants, like I said stuck around for 18 to 24 months, not paying us rent, and we got into financial problems. Those rules have now been lifted, so we’re now able to move out on non-payers, but we just suffered with a really flat occupancy, really struggling with occupancy to the point where I was still worried we were going to be able to make our mortgage payments. 

This is a case of a manager not being focused enough on occupancy and worrying about all the other things. We had a conversation about two months ago saying hey, this thing’s on fire, right? Red flag, red flag. We are 40% vacant. We need weekly occupancy targets and a weekly check in. 

How many leads have you gotten this week? How many showings? How many applications, how many converted? How do we follow up? Once we set that cadence thing out, that manager focused, it’s amazing, the traction we’re getting. We’re climbing three new movements a week.  

I happily have I think the beginnings of a turnaround story at this property, but we’re still not out of the woods and this has been our worst-performing property across the portfolio. 

Andrew: Out of the 10 that are on that SWOT list, is there anything in common, like across all 10 of those that you’re like that was the thing. For us, for example, we have probably three or four and they just have really high turnover, like tenant-owned homes, even high tenant-owned home turnover, high park-owned home turnover.

There are different reasons for that, that we can get into like age of the home being older, high utility costs because there’s some like unique scenarios with like propane instead of natural gas and things like that. But it’s high turnover and that’s like our, it’s eating away at our cash flow because it’s like the cap X to reinvest into the vacant homes, to rehab them and get them, get them sold again.

That’s like one thing that’s been consistent for us that we’re looking at is like when we’re buying new parks? What’s the turnover been like how long has this tenant been here? But I’m just curious about your 10. Is that something similar or is it other, other problems?

Daniel: The specific problems really vary. Some of these are in tertiary markets. Some of them are in prime urban markets like Los Angeles County and like the outskirts of Austin, some of them are new products. Some of them are old products. Some of them are MH, some of them are RV. I don’t think there’s a specific problem, but if I were to find a common thread, this is kind of philosophical: in all of these cases, things are happening that we didn’t predict.

In all these cases, we failed to have a crystal ball to predict the future, and we’re now dealing with unexpected problems. If I go back in time, the way to minimize the risk of the unknown is to buy stabilized performing properties, where there’s a very clear path about what’s going to happen.

All of these had some value at dimension. They all had different types of value at dimension, but they, that all involved risk and uncertainty and now we’re in the realm of the unknown and when we’ve bought stabilized properties, that doesn’t happen. 

Andrew: Yeah. I mean, if you want to stabilize property, you’re going to get stabilized returns, right? You’re not going to get the value add returns so there’s risk there. You’re taking a chance. That makes sense. Last couple of questions. What do you think is the biggest threat to mobile home park investing? 

Daniel: Regulatory risk. I’m on the front lines of this. We haven’t even talked about what I’m doing in California where we own two parks that are subject to municipal rent control. I have several lawsuits and arbitrations going in order to ensure that we, as property owners, can get a fair return on our investment as guaranteed by the U S constitution.

I’m dealing with rent control. I see how destructive it is. How much discord it sows between landlords and tenants like in our 78 other properties, we don’t have issues with our residents. We provide a high quality service and we charge a fair rate for it and our residents are happy. If they’re not happy they can sell their house and move on and someone else is very happy to buy their home and pay our fair rents. 

It’s only at these two properties where we’re dealing with rent control that the government has distorted the relationship between the landlord and the tenant and is telling us sorry Daniel, your costs are going up like this, but you’re only allowed to charge this much. You can’t earn a return on your capital. I’m sorry. That’s rough and I think in many jurisdictions, there’s a risk of new rent control laws getting passed which I think is misguided and I think will ultimately lead to no new supply getting built and existing mobile home parks getting converted to other land uses. That’s what I perceive as the biggest risk. I think that’s really accurate. 

Andrew: We own one property in the state of New York and it’s a very similar issue. There you’re limited on what you can do in terms of increases. Submetering the water sewer is this huge deal where you’re trying to hold people accountable for the amount of water they’re using and then there’s the collections issue where there are three tenants that haven’t paid since we bought the place two and a half years ago. The judge just keeps kicking the can down the road. 

Daniel: Okay, good. It’s not just me who’s dealing with tenants who haven’t paid rent in 24 months. You’ve got tenants who haven’t paid rent in 30 months.

Andrew: Yeah, it’s just a recurring theme. It’s definitely changed our buying criteria. We got this at like it seemed like a really steel of a deal. We’re like, okay, this is great, but it just doesn’t make sense. They’re not going to reduce our property taxes for the amount of past due rents that these tenants are not paying. Definitely avoiding some blue States moving forward. But thank you for that.

Daniel, thank you for just coming on the show again and revisiting. It’s awesome to watch your growth. I know you have a newsletter on LinkedIn that’s super informative and I highly recommend all the listeners check that out. But if any of the listeners would like to get a hold of you, Daniel, what would be the best way for them to do so? 

Daniel: threepillarcommunities.com and you’ll see a button you can click to sign up for our newsletter and our email list. That’s the best way to keep up with us and also see our upcoming investment opportunities if you are an accredited investor.

Andrew: Awesome and we’ll put that in the show notes so that you can have that easily there. What’s one last bit of important advice you would give an interested passive mobile home park investor before we sign off?

Daniel: I don’t want to give advice, man and I don’t mean that as a cop out. I mean, I’m still at a point in life where trying to do my best, know what I know, know what I don’t know. I don’t want to tell people what to do. 

Do your homework, invest in people who you think are trustworthy and you think are going to do what they say they’re going to do, are credible and will stand by their word and look for a track record and people who admit their mistakes. 

Andrew: Thank you, Daniel, for coming on the show. 

Daniel: Thank you. Always a pleasure. That’s it for today, folks. Reminder for you to please leave a review if you got value out of this show. Thank you all so much for tuning in.