Are you having trouble finding good deals? On this episode, I'm going to shine a light in a dark room we are all facing together, and tell you how I find diamonds in the rough.
Mid Month Wisdom Sep 2018
I'm going to experiment with what I call "Mid Month Wisdom" which will be quick episodes to hold y'all over until the next full episode. Let me know what y'all think!
What You See From The Front Lines Part 2
In the second part of this two part episode, I reveal game changing knowledge that I learned from that front lines that I wish I had starting out. I also detail out what happens in the stages of competence.
http://archimedesgrp.libsyn.com/what-you-see-from-the-front-lines-part-2
What You See From The Front Lines Part 1
What does MHP ownership look like from the front lines? In this first part of a two part episode, we will discuss my first 90 days living in a doublewide and operating La Costa MHP. This humbling experience provides my answer to "What do you wish you knew when you were just starting out?"
http://archimedesgrp.libsyn.com/what-you-see-from-the-front-lines-part-1
Before Your LOI
On this episode, I'll detail out crucial activities that need to be completed before you send your LOI to the seller. We will discuss debt, equity, legal, and miscellaneous closing items you need to be aware of prior to putting your offer in writing.
Broker Sam Kline Interview
Rock star broker Sam Kline joins us today to offer a different perspective on MHPs:
http://www.gastongazette.com/news/20170818/meet-sam-kline
Sam can be reached at: 704-266-5039
sam.kline@cbcmeca.com
http://archimedesgrp.libsyn.com/mhp_irl-broker-sam-kline-interview
What Will Break
No matter what you do, things are going to break at your mobile home park. On this episode, I give you actionable advice for how to plan for and address these issues both during due diligence and during ownership.
Perseverance
How do you fight through those tough bouts and plateaus? Listen in for some examples of tough times we faced that we pushed through.
Due Diligence Nightmare
Imagine your worst fear coming to life. We experienced exactly that. Thankfully, we lived to tell the tale. In this episode of Mobile Home Parks In Real Life, we will discuss the gritty details of how a due diligence slip up almost sunk us on our first deal.
http://archimedesgrp.libsyn.com/mhp_irl-due-diligence-nightmare
Spousal Buy In
How do you get your spouse's buy in? In this episode of Mobile Home Parks In Real Life, Ryan and his wife Jennifer discuss the difficulties of an entrepreneur and his skeptical wife. This raw interview details the emotions felt at each step of the way during a 3 year progression into the industry.
Endgame
Why Our Partnership Works
Partnerships are a normal aspect of business. Some fail while others thrive. More often than not, they dissolve. I've witnessed it a few times in the industry. It appears to work for a few years and then all of a sudden it falters when disagreements emerge. It's easy to mask differences when the team is winning.
Ryan and I have shared many successes and disagreements over the years. We are young in the game and could potentially face the same dreaded fate. However, we are a great spot today and worked through several difficult decisions.
A few things that have helped us maintain a strong partnership.
- We are brutally transparent about our feelings and thoughts. We don't have to filter information. Just say what you feel. Honesty is more important than our temporary emotions.
- If we are at a stalemate in terms of a decision, we reach out to our mentors to help guide us in the appropriate direction.
- We both appreciate responsiveness. Our communication styles match.
- We have complementing skill sets. Ryan is better at operations while I love structuring deals.
- We make fun of each other regularly to keep each other accountable. Humility is critical.
- We started as friends. We knew each other for 11 years before Archimedes. There was no rushed screening process.
Ways to Make Money As a Direct Investor
There are multiple ways to make money as a direct investor in the real estate.
1. Fee structure - receive a fee to find/operate/develop deals for others
2. Flip structure - buy, improve, and sell
3. Cash flow structure - buy, improve, and hold
In the mobile home park industry, the conventional wisdom is to choose the third one. In most instances, it makes sense. Returns can be staple and juicy.
However, when starting out with little capital, it forces you consider all options to move forward towards your ultimate goal. In the first few years of business, the majority of our income comes from the fee structure. This provides capital for us to purchase more deals to hold long term. We take a hybrid approach to put food on the table and capital in our bank account while building to our ultimate goal.
In conclusion, use all tools available in order to get where you are trying to go.
Tiny Home Fallacy
Occasionally, I get questions about tiny houses and their effect on the industry. In my opinion, it is a component but not a replacement of the current manufactured housing environment. It is a niche product.
Several of our families in our parks are multi-generational and have many children. For example, three bedroom homes are more sought after than two bedrooms. Single-wide homes are less desirable than double-wide homes. Space is king if they can afford it! I struggle to live in 300 sq ft by myself, let alone with 3-4 other people. There will be a segment of the population that fantasizes about the minimalist lifestyle, but I don't think it will proliferate throughout the industry. Maybe I'm wrong.
One area of growth could be aging seniors. Throughout history, we have witnessed a growth of space. Single-family houses are considerably larger today than a few decades ago. People yearn for more and the working class is no different.
The Value of Learning Spanish
One of the more invaluable skills I've learned in this industry is the ability to speak and understand Spanish. Even a basic knowledge of the language can pay large dividends.
This past weekend, I toured a used mobile home with an owner that didn't speak any English. My Spanish is muy malo, but I was able to communicate and understand the critical information to make a quick decision. "¿Que es el precio?" y "¿Tienes un título por la traila?".
Several months ago, we purchased a property that had over 20 vacant homes, some needed extensive repairs. In less than 45 days, we sold off all vacant mobile homes by leveraging our Spanish skills. This alone added over $500,000 in equity.
The Hispanic population in the US is one of the fastest growing ethnic groups and likely to continue for decades. In our portfolio, several of parks are mostly Hispanic. In general, they are some of our most loyal, industrious, and financially-predictable residents.
The Long Game Philiosphy
At the beginning of the year, we publicly announced our goal to close $20mm worth of transactions. Today we stand at $625k, embarrassingly far away from our initial goal.
The year is far from over, but Ryan and I strongly believe in transparency. We are still hunting. This deviation speaks to many failed attempts to purchase parks that never materialized. Entrepreneurship is hard even in established industries like real estate.
On the contrary, we have no capital to place within a specific time frame. We can focus on strong, cash flowing assets that fit our defined strategy. We don't mind sleeping on blow-up mattresses in communities for the next 5 years to make this work [our one year blow-up mattress anniversary is next month :)].
Our advantage in this industry is patience.
I'm of the view that the participants overbidding for properties today will not remain tomorrow. Interest will fade some. Attractive opportunities will arise for those that wait patiently and watch fervently.
The Hardest Form of Upside
Vacant pads are the least attractive form of upside in the industry. Sellers often market their properties as value-add by quickly filling up lots. There is a reason they didn't capitalize on the 'easy' money.
Moving in homes requires a few things to take place. First, you might need to obtain a dealer license, which can be quite an arduous process. Second, you should decide on new or used homes. Not all communities can support new homes due to appearance and tenant creditworthiness. New homes are backlogged by several months due to demand. Used homes are scarce and usually overpriced once you factor in setup and rehab costs. Then, non-recourse financing is hard to come by. Mobile homes are considered personal property and therefore depreciate. In some loan program, the landowner signs personally to backstop the loan for the tenant.
The solution I see most larger players utilize is a lease-option or rent-to-own program where the operator holds the paper on their books. It isn't perfect but it can expedite the vacant lot fill up process if you have the capital. Another alternative is to partner with a mobile home lender and place the loan with them. While ideal, I've had little success with these types of programs. Not all locations are created equal.
Your mileage may vary.
Sources of Our Closed Deals
In a frothy market, deals are hard to come by. Yet more investors flood the market each day. However, people are still closing lucrative deals.
What's the secret?
There isn't one. For the five deals we've sourced and closed, one strategy hasn't panned out better than another.
Here is our breakdown:
Deal #1 - Broker Deal
#2 - Mailer Deal
#3 - Cold call Deal
#4 - Cold Call Deal
#5 - Business relationship
Hit all avenues with continued persistence, opportunities will likely come your way over the long-run.
Best of luck
Podcast Launch
Ryan Narus, my business partner, recently published a podcast to give his perspective of mobile home parks. We love the industry but feel many things are left unsaid. In the first few episodes, Ryan discusses end game, spouse buy-in, and a due diligence mistake.
Hope you enjoy.
If I given you any value in the past few months, please check it out. https://lnkd.in/eW5emNa https://lnkd.in/evZnUSf
Lack of Thought Diversity
After many conversations with new investors and operators, I've noticed a similar trend. This industry suffers from the lack of thought diversity.
A few educators and operators have done a fine job of generating interest in the space. New entrants are all looking to execute the same business plan. However, it's difficult to gain an advantage following your competitors' blueprint. After a year of turning around multiple assets, there are several things left unsaid. In fairness, I started the same way and still share some of their views.
One of the largest misconceptions about the industry is the ease at which operators can manage multiple assets from their bathrobe. It can happen, but it isn't how you will likely start out. Unless you find a darling, most lucrative opportunities, in this environment, are value-add. Operations is where the money is made, and it takes a tremendous amount of work to get things moving in the right direction.