On this episode of the InvestFourMore Real Estate Podcast I interview Frank Rolfe. Frank has been investing in mobile home parks for decades and with his partner Dave Reynolds has the 5th largest mobile home park portfolio in the United States. Frank started buying mobile home parks while attending Stanford, because he had to start a business for school. He did not realize buying mobile home parks would become his career and an awesome business. Over the years Frank has learned how to find mobile home parks that are well below market value, improve them, and then either keep them for cash flow or sell them.
How did Frank Rolfe get involved in mobile home parks?
Frank was going to Stanford when he was required to start a business for school. Frank started a billboard company, which he eventually sold. After he sold his billboard company, he decided he wanted to start another business and one of his billboard customers offered to sell Frank a mobile home park. Frank knew nothing about mobile home parks, but thought there was potential in this deal, because it took almost none of his own money. The mobile home park owner was willing to provide 30 year seller financing with only $10,000 down. Frank admits he was a little naive at the time, but he was able to turn the park around. The park was not making any money due to horrible management. There was little maintenance being done and rent was hardly collected.
Frank brought in new management, made the park look nice again, and started to make money. Frank went on to buy another park that was mismanaged and turned that one around as well. Frank owns mobile home parks all across the country and has sold many parks for millions more than he bought them for.
How is Frank able to get great deals on mobile home parks?
The majority of mobile homes parks were created in the 1960’s. The government gave some huge tax incentives for starting a mobile home park at the time. In later years those tax advantages disappeared and many cities started to frown upon mobile home parks. Cities do not like mobile home parks because negative connotations that sometimes come with them, but because they make less tax revenue from them. The value of a mobile home is very low and with each mobile home taking up a lot, the tax revenue is much less than stick built homes or multifamily properties. There are very few places you can develop a new park at now.
Many of the current owners of mobile home parks, developed the parks decades ago and own them free and clear. Many of those owners live in other states and may not have the best management in place. There is opportunity to buy the parks cheap, improve them, and sell them for a profit or keep them.
How has Frank been able to buy mobile home parks with very little of his own money?
Another benefit of mobile home parks having older owners, is that they may prefer seller financing. When a mobile home park is owned outright without a loan, the capital gains taxes can be outrageous when the owner sells. If the owner finances the property, they may save on paying taxes and get a higher return on their money than if they stuck in a CD or money market.
What makes a good mobile home park operator?
One thing Frank mentions on this podcast, is that mobile homes last much longer than people think. If you maintain a mobile home, many of them will last just as long as a house. Although the mobile homes can last a long time, many of the models from the 1960’s and 1970’s have become obsolete, because of their floor plans with small rooms. As a park owner you do not have to constantly replace the mobile homes and in many cases you do not own the mobile homes, just the land under them.
The number one goal of a mobile home park owner is to make sure as many lots as possible are occupied. It can cost $5,000 or more to move a mobile home, so once you get an owner to place their mobile home on your lot or purchase one of your mobile homes, it is rare they will move. Of course once someone is renting a lot from you, you have to make sure you collect the rent.
How can you learn more about mobile home park investing?
Frank has written multiple books on mobile home park investing and created courses as well for those interested in learning the business. You can reach Frank here.
Transcript
[INTERVIEW]
[00:00:58.7] MF: Hey everyone, it’s Mark Ferguson with Invest Four More. Welcome to another episode of the Invest Four More Real Estate Podcast. Today, I have Frank Rolfe on who is an expert in mobile home parks and I’m excited to talk to Frank because, as you know, I invest in rentals, I have flips, I am a real estate agent but I’ve never invested in mobile home parks.
I know a little bit about mobile homes as in how they work but I’m really excited to see how he has invested in them and become one of the largest, biggest mobile home park owners in the country. He’s got parks in 25 states right now. So Frank, thank you so much for being on the show. How are you today?
[00:01:36.6] FR: I’m doing great, thanks for having me here.
[00:01:38.3] MF: Yeah, it’s a pleasure. I love to start out with a story of how you got started, how you got into this business. I know from reading about you, it sounds like you didn’t exactly know what you’re getting yourself into when you started with mobile home parks but maybe you can tell us a little more about that.
[00:01:54.5] FR: Sure, quick synopsis, I went to Stanford at California. I got out a year early, I was going to get an MBA, had to start a business for a year because back then, that’s what you put on your application for business school. I somehow got the weird idea from someone to build billboards. I did well at it, never went to business school, build the billboard empire up, sold it to a public company, which is now Clear Channel, in 1996 and then I needed to find something else to do because I was too young to do nothing.
So I started calling people with other businesses to see how their business worked, see if I had any interest in it and one person on my list was a property owner where I had built two billboard signs, a mobile home park in Dallas called Glen Haven. So I called up the owner of Glen Haven and right there on the call he said to me, “You know what? Why don’t you just buy Glen Haven from me and you can learn all about it yourself first hand,” and I said, “Well, I don’t know anything about Glen Haven,” and he said, “Well, I’ll make you a deal you can’t refuse. I’ll sell you Glen Haven right now for $400,000 with $10,000 down and I’ll carry the balance for 30 years,” and clearly, you can’t not do that deal.
So that’s how I got into it. It’s that random, it was just like it could have been a muffler shop, it could have been a Wendy’s, it could have been anything but in this case it was a mobile home park and that called out in Dallas and he just literary made me an offer I could not refuse. So that’s how I got into business, it wasn’t any great planning. The only reason I even called the guy to begin with was the simple fact that when I was in the billboard business, billboards if people are not aware of are regulated by the US government. In fact, they’re one of the last federally regulated industries. Trucking used to be, not anymore. Airlines used to be, not anymore.
Billboards still are and so when you’re in the billboard business, you have to build billboards in certain zonings and so you start noticing zonings because you look at zoning maps all the time. I had noticed that I never ever rarely saw the MH zoning for mobile home park in Dallas, which is a pretty large place. So I knew there had to be value. I mean I was an economics major in Stanford, I know supply and demand and the supply of MH zoning was very, very small and that’s why I thought it might be valuable and that’s one of the reasons when he made me the offer, I couldn’t refuse. I took it because obviously some industry I would have said still, “Nah, I don’t even want it based on those terms.” But the mobile park home thing had kind of intrigued me but that’s how I got into it.
[00:04:34.8] MF: Wow, that’s pretty awesome that you fell into it that way. I find a lot of real estate investors that happens to them as well. I’m curious when you were going to Stanford did you have an idea of what you want to do when you’re in there or you just know that you wanted to be in business in some form?
[00:04:49.6] FR: No, when I was in Stanford my goal was I wanted to be an account executive at an ad agency and you might say, “Why the heck do you want to do that?” Well, when I was in high school, I was able to wangle a, I guess, I wouldn’t call it an internship and I’m not sure what you would actually call it. It was during the energy crisis and I was hired by the president of an ad agency to fill up his car with gas. That was actually my job.
So back then during the energy crisis, the lines at gas stations could sometimes be two hours long. So I know people don’t probably remember this but those from that era will. So at any rate, I get this job and I just think that working at the ad agency is the funnest thing of all time. I fill up cars with gas, I run what’s called the stat machine. Later in the summer I was actually writing ads and doing crazy stuff and I just think it’s the funnest thing ever. So that was my original goal, was I wanted to work at a big ad agency.
[00:05:48.8] MF: Okay, very cool and I graduated from the University of Colorado with a finance degree obviously not the same as Stanford but yeah, they taught me at school to “get a corporate job, go the whole route of building up your career, promotions and hopefully then some day you’ll retire”. But I happen to fall under real estate because my dad was an agent and I couldn’t find a job out of college. So I’m really happy that happened to me.
[00:06:11.3] FR: Well you know if you look at most people whatever they initially plan for is not what they end up doing. I don’t know the national statistics on it but it seems to me, other than those who go into medicine, people rarely stay on the same career path. I know lots of people who have law degrees who don’t practice law. I know people who are CPA’s that don’t do accounting. So life is pretty random. I think the key item is you’ve got to be able to spot what is an opportunity from what is not an opportunity and sometimes you find out what is an opportunity is not what you originally thought.
[00:06:41.0] MF: Right, exactly and I talk to a lot of lawyers who hate their job. They stick to it because they’re supposed to do it.
[00:06:47.1] FR: I think it has all to do actually, I didn’t know. Are there any who liked their job? I don’t know.
[00:06:50.0] MF: I don’t know either, they seem very grouchy, all of them so.
[00:06:53.0] FR: They do, very unhappy people sometimes.
[00:06:56.2] MF: Awesome. So when you bought this first mobile home park, what was it like jumping into this brand new business and what challenges did you face?
[00:07:04.7] FR: Well it was initially on paper terrifying, right? So the guy makes me this offer I can’t refuse and I agreed to buy it and then after the call, I said, “Oh my God I’m going to be killed,” because my only experience with mobile home parks was with what I saw on TV like the movie Pink Flamingos and Griffin of course, by the things in the past, it looked kind of scary. So I thought, “Oh man I’ve got to go get a concealed handgun license.”
So I went down and I did that, I bought myself a nice pistol and loaded it up and put it in my pocket and showed up at the park and I soon learned that most of my stereotypes were completely wrong at the park. One thing that it was not and that was scary, I think I don’t know why I was so obsessed with the idea that I had my personal safety an issue, but that was definitely not the case.
So pretty soon after I got in there, I learned most all of the ideas I had of the industry were stupid. I started morphing into where I am today. So I no longer carry a gun. I no longer are terrified to go into a park. Basically, a mobile home park is just like any old subdivision. It’s just the homes are much smaller and the people typically are lower income earning but to me, it’s a much more safe environment than for example an apartment complex.
[00:08:17.9] MF: Right, that makes sense and I know there are quite a few mobile home parks around here and I’ve had some friends who’ve lived in them, been there quite a bit and the same experience you’ve had. I mean obviously there’s danger anywhere you go but it’s not like you can’t ever go into one for fear of your life that’s for sure.
[00:08:35.5] FR: Well, it wasn’t like that mobile home parks are, being someone who grew up in single family subdivisions I like the fact that it is just one story and then it’s got probably low density and you see what is going on around yourself, which I don’t get that impression when I go to apartments. But anyway, going back to your initial challenges, the initial challenges of Glen Haven was to make it positively cash flow. That’s the reason the guy gave me such a great deal on it was in fact, it was negatively cash flowing. So the initial premise was I was going to figure out why it was screwed up and fix it. So that was the early mission and that’s what I initially completed.
[00:09:13.4] MF: So why was it messed up? What was going on with it that was causing that negative cash flow?
[00:09:18.5] FR: There were many problems. One problem was that the guy wasn’t collecting the rent. He had a manager who was effectively a drug addict. I won’t give you his name so I won’t get sued for slander but I mean the guy was basically the worst manager of all time and the only reason why he was there is the guy who lived in California didn’t want to come out and find a new one. I think at this point he was burned out because I think he had a run of really bad managers.
And because he had a bad manager and actually the product itself was very bad. I mean not a lot of maintenance going on, almost all the homes are rentals. So he just wasn’t collecting the money he should be collecting. So he billed X in a certain month, sometimes he only collected half of X because he had such a hardscrabble tenant base of literally carnival workers and every unemployed or underemployed screwball, you can imagine that it was hard to get paid.
The other problem was he had some insane costs that he had brought upon himself. I’ll give you an example. One of the craziest ones, which was a huge fix because when I started off, Glen Haven was negatively cash flowing about five grand a month and fixing just one item half-ed it. What he had done is he had 83 lots and he was providing cable for free to all residents for no reason. I think probably the manager conned him into this one right?
So when I called the cable company I found out number one, they’re not giving him any bulk rate at all. He’s paying the full household residential rate for every lot. So back then it was like $30 something dollars a month and then the other problem was they were billing him for cable even on his vacant lots. So he had 40 vacant lots, he was getting billed on every single lot as though everyone was occupied. So I then found out the contract, I was on month to month.
So I basically canceled the contract, wrote everyone a letter saying, “You don’t get free cable anymore,” and got virtually no pushback and that one single item saved the park about $2,800 a month. So it took out half of my deficiency. The rest of it basically was just a combination of collecting the rent and then filling some of the vacant mobile homes he had. So it was not a super duper difficult turn around by stretching of the imagination but that’s about it as exciting a story as it was.
[00:11:45.1] MF: Well I guess it shows some of the issues in absentee owner house and you have to pay attention to your investment but that’s crazy because they were paying for cable on vacant lots. That’s tough to miss out on that one. He was just not paying attention to anything at all.
[00:11:59.7] FR: Pretty much, yeah that’s correct.
[00:12:01.2] MF: And then you did pretty well on that park. It sounds like you ended up turning around and selling it a few years later?
[00:12:06.6] FR: Yeah. What happened was, I got that park turned around and then having a turned around park, now I knew something about the business. Of course, you’re going to buy another one, right? Because that’s just human nature. So the second park I got, I bought it for $60,000 with $5,000 down and that guy carried $55,000, which was insane because it was a roughly 15 space mobile home park and a brick three bedroom, two bath house all for $60 grand.
[00:12:39.8] MF: Wow.
[00:12:40.3] FR: Yeah, the reason that one was so cheap was that seller had inherited it and he did not even have a rent roll. So he was not even billing the people rent because he wasn’t even really sure who they were and he didn’t want to mess with it. It’s scared him. You know a lot of mobile home parks things all tie back to the stigma that people have about the industry that they’re scary, right? So this guy inherits this mobile home park and he’s like, “Oh my gosh I’m afraid of that.” He just dumps it because it scares him.
So I did that deal then I segued out to East Texas and bought I think it was 52 space park. Then another one after I think was 73 lots and then my fifth park was at Oklahoma City but I followed the same basically business model on each one. All seller financed, all very little amount down and basically all broken and then I fixed them. So it was kind of like the guy buying broken I don’t know what? Vending machines or something, and then fixing them. Then I would move onto the next one. But that was how the business began.
Going back to Glen Haven, I held Glen Haven for roughly six years or so. I ended up selling Glen Haven for $1,525,000, which is not a testament to what a genius I am but simply the ability of the industry to find things that are hugely underpriced. I mean Glen Haven today is probably worth at least twice what I sold it for just because of the increase in rents over time. But at any rate, yeah that was the early story of the industry and then, of course, today we own around 230 mobile home parks. So we’ve beefed up substantially.
[00:14:15.3] MF: Wow, that’s pretty impressive. That’s a lot of parks to manage. I really am interested in how you said all of your parks are leased in the beginning were seller financed, low money down, that’s a dream for many real estate investors to find houses or apartment complexes like that. Do you think it’s easier to find that opportunity in mobile home parks? Because, like you said, people are scared of them, people just want to get rid of them when they’re inherited or start to have problems.
[00:14:41.4] FR: No, the reason they are seller financing in the park business is it really all falls back to the mom and pop sellers. Most forms of real estate, you’re talking to not the original builder, but somebody who’s at least one person more in. So in this business, there are roughly 44,000 mobile home parks in the US. There are probably still around 40,000 of those are owned by the original moms and pops because our industry is young enough and most of the original builders are still alive and still own the crazy things.
So to carry financing, the first thing you have to do is you have to own it free and clear and that’s what most sellers in our industry have is they own them free and clear, so that’s item number one. Item number two is the fact that if you are a mom and pop seller, carrying a paper is really typically a fairly smart thing to do. And let me explain why because a bunch of people will say, “Ah that’s the biggest lie I’ve ever heard.” No, it’s not.
Here’s how things work: if you own a mobile home park and you’re a mom and pop and let’s just model this in mid-air. Let’s assume I buy your mobile home park for a $1 million. So I give you $1 million cash at closing and I go out and get a bank loan. What happens is you pay your capital gains, your personal property tax, there’s recapture, all kinds of stuff. So you’re not going to walk away with a million, you’re going to walk away after tax, I’ll be generous and say that’s $700,000, right?
And then you take that $700,000 and you go to AG Edwards and you say, “What can I get on my $700,000?” And right now, they’d say, “I can get you 1% CD, which will pay you $7,000 a year,” and you say, “Oh my gosh, that’s terrible. What else do I have?” “Well I have a slightly riskier item here that pays 2%,” but when you get beyond basically around 2%, all your invested options get pretty hairy.
You go into all the junk bonds and stocks and sketchy stuff. So most moms and pops won’t do that. So let’s say you’re getting 2% on the $700. So you make 14 grand a year. Now let’s say and the other example you carry the financing. So I buy it for a million dollars, you say, “Give me 20% down.” So I put a down of $200,000 and you pay your tax on that, and stick that at AG Edwards and let’s just assume that yields nothing just to make it simple.
So you now have $800,000 investable because you don’t pay your income tax except for the money as you receive it. So that’s one interesting item on seller carry and then what happens is, let’s say you offer that seller 6% interest. So now he’s making $48,000 a year with you and he was only making $14,000 with AG Edwards, so it’s a huge swing.
Now you might say, “Well wait a minute, though, why doesn’t mom and pop just spin down the money? I mean you’ve got $700,000 in the bank, it only makes $14,000 a year why don’t they just spend an extra — pull and extra $40,000 a year out right? They won’t live 20 years,” and that sounds right and everything for the modern generation but the problem is these are people what they call the greatest generation and they never touched their principle. Their idea on principle is the principle goes to their heirs, but they don’t touch the principles.
So basically what happens is they won’t do that. They won’t subtract it, they’re going to live on whatever that principle yields and in many cases, the only way they could afford to live is if they carry the paper on it. So it’s actually a win-win. It’s not a fake, it’s not a fraud, it’s not something that people try and talk old people into doing it. It’s just a fact. If you really look at the numbers most people would rather carry it than take it for cash.
[00:18:25.2] MF: No that makes sense and plus they’ve got collateral. They’ve got the park to back up that note where if they’re investing in stocks or bonds…
[00:18:31.3] FR: You’re exactly correct, right.
[00:18:33.3] MF: …you’ve got nothing.
[00:18:33.9] FR: That’s right, so let’s say of the park home goes bad, you don’t make your payments what happens? They get the park back, which they have already operated for decades, so no big deal. So they keep your down payment and then they’re sold again, maybe the best thing that ever happened to them. If they invest in something screwy like John Deer and John Deer tanks, you’ve got nothing.
[00:18:55.2] MF: Right.
[00:18:55.6] FR: So any way you cut it, they;re just better off carrying it.
[00:18:59.2] MF: No that makes sense to me. I know there are so many people that want to get into real estate with low money down and obviously, that seems like a pretty good opportunity if you know about mobile home parks I imagine of course.
[00:19:10.9] FR: Yeah, let me say one more thing about low money down because it’s been our experience, we’ve done collectively, my partner Dave Realms and I have done about 12 zero down deals but where zero down deals come from is not where people think they come from. It’s not mom and pop saying, “Hey take over my park for zero down.” That all falls under a thing what we called “bonding”, which is when mom and pop like you and therefore want to basically help you and so that’s where it comes from.
So if you really want to get zero down deals, the best way to get that is to bond with moms and pops. Spend time with them, talk to them, it can be on the phone, it can be in person because when you’re 85 years old money is not the most important thing in life to you. You like to do other stuff. You like to help people, you like to have fun and many of these moms and pops they would rather forego the normal down payment to have more fun and to help you out. So bonding is the key ingredient, in our opinion, to getting those zero down deals.
[00:20:15.6] MF: Right that makes sense. I’m curious, on the history of mobile home parks, you said they are relatively new compared to most real estate in the US. Was there a certain time period where they really took off and they built most of them or has it been a slow progression where they keep building them?
[00:20:31.0] FR: You are exactly correct. Most of the mobile home parks that you see, that I see floating around up there were built, by far the majority were built in the 60’s. The main reason for that is the government had a program and those parks are called HUD parks and they were built probably the medium is 1968 of that grouping and so the government offered very attractive rates. If you build a mobile home park to their specs, they would finance, it was like 90% for 4% interest rate fixed or something. A lot of moms and pops built during that HUD program.
So by far the majority of the parks we own were built in the 60’s and there were still a lot built in the 70’s and pretty much ended by the 80’s and by the 80’s what happened is that most cities passed laws that you could no longer build mobile home parks in their city and in fact today, you pretty much cannot build a mobile home park in any city in the United States. There are only about 10 parks in the entire United States built per year. So the window pretty much closed in the 80’s.
The first parks that we own in age, which are like parks like you would think of a park with roads and pads and stuff, those are from the 50’s but the actual industry dates all the way back to the late 20’s, but from the 20’s to the 50’s, it was just very hard scramble. It was like a parking lot with some gravel in it and they didn’t often have utilities in them. I mean all the early mobile homes, the whole species came from what are now known as RV’s, right?
The whole concept of trailer park refers to “travel trailer” and those travel trailers often, well many of them have no bathrooms. That’s why if you look at the photos of the parks in the 20’s or the 30’s, they had one communal outhouse-like bathroom. It wasn’t an outhouse, although in many cases it really was because there was no sewage line to connect to, but it was a much more rustic camping kind of a feel. And then by the 50’s it was way more legit. You had roads, you had water, you had sewer on the lot, power.
The oldest movie on the industry is The Long, Long Trailer with Lucy and Ricky. I don’t know wifi you’ve ever seen that? It’s from the 1950’s and the last mobile home park cameo appearance with a movie was Elvis Presley’s, It Happened At the World’s Fair in 1968 and that was the hay day of the park business. Here you have Elvis, which is a national icon living in a mobile home park in that movie. But yes, that was pretty much the era. So the era of the parks you would typically buy today, the earliest would be from the 50’s and the latest would be from the 80’s.
[00:23:21.8] MF: Okay, no that makes sense because you never see new ones built now and I was wondering, I assumed it was the government and cities trying to keep them from being built but it’s good to get the history on them.
[00:23:33.6] FR: Well the reason why you can’t build them anymore is not because it’s the stigma. A lot of people think, “Oh well, it’s because cities hate trailer parks and trailer park people.” I mean sure, they are not excited about it, right? Any city would rather have a big mansion neighborhood than a trailer park. But what really happens is the trailer parks are lousy money makers for the city because if you look at a typical trailer lot, let’s say that lot is assessed for $30,000. Let’s say the home is assessed for $10.
So for $40,000 let’s say you’re in Missouri at a 1% tax rate, the tax is $400 a year but the person in that mobile home let’s say has three kids and the public school system will, in most markets, that’s $15,000 a year just a public school cost and then also you tack on fire and ambulance and police and all that jazz and they’re just getting cremated in these parks. So that’s the key reason that cities hate them is their extreme users of city services but they pay very little tax. So as a result, you’re never going to see them. People say, “Well yeah but after the micro housing trend won’t people then change up what they’re doing?” And the answer is they won’t.
[00:24:45.8] MF: Right that makes sense. Very cool. So when you own a park when you’re operating it, what are some things to watch out for and some pitfalls that can happen? You mentioned by owning the mobile homes versus renting them out, are there some certain guidelines you would have people go by when they own a park?
[00:25:04.3] FR: Okay, with that question, what are they key management issues or what are the key things you would worry about?
[00:25:10.1] MF: Yeah, I know you have some coaching for mobile homes, students and teach people how to do this, what are some of the key points you teach people when they operate a park and what to watch out for, how to best run those parks?
[00:25:21.6] FR: Sure, well first off let me tell you there’s basically four instruments on an instrument panel of a good park. An operator just like on your car, you have RPM, gas gauge and that kind of stuff, temp gauge. With parks, you’ve got four big meters. I’ll say what the four big meters are, which will help explain what the management issues are.
Your first big meter is collections. In fact, that’s the biggest meter on your dashboard and that is simply because when you have a product line that is basically built on people who don’t earn a lot of money, obviously collections is key because if you don’t have a lot of money, you’re always robbing Peter to pay Paul and paying your bills and you have to stay at the top of the stack. So we know in every park, we have our resident has enough money to pay the rent because our rents are not very expensive but we have to make sure that they prioritize us at the top. So that’s the first big meter you have right?
The second big meter is occupancy, you want to keep all your homes, all your lots full, now the good thing we have, the weapon we have over most people is the fact that it cost about $5,000 to move a mobile home from point A to point B. So our customers really can never leave, at least their homes can never leave. So that’s nice, so our occupancy is very, very stable. But still, you’ve got to make sure that all the homes stay occupied and the demand is huge. So if you have any vacant, it’s your own fault because there’s enough demand in the US to fill virtually everything. So that’s the second big meter we have.
The third big meter we have is water sewer and that’s because the single biggest line item in a park owner is water sewer. So if you have a mastery of that, you’ll do well. Even if you’re not good at managing the costs of anything else, even if your manager is running amuck buying extra packs of highlighters, it doesn’t matter as long as your water sewer is on budget. Fourth item is called property condition and that basically means that the park is clean and safe and well run. Now we don’t hold our staff to a super high standard.
I was in the audience of a speech once by someone from the Ritz Carlton hotel chain and they said that they give a $2,000 variance to every manager per day to make the customer happy. Can you imagine that? $2,000 a day? Wow. So basically every employee at Ritz Carlton has the ability to comp your room or comp anything if they want. So a strange industry we’re in because we’re just trying to help people get by at low cost. It’s all about affordable housing. If the road has some potholes, you fix the potholes, you don’t run out and repave the road.
So our form of property condition means that it’s functioning, that it’s clean, that it’s safe, that are common areas are great, has a nice entry. But it’s not like you’re probably used to in property condition of many other things because we’re not, as I tell people, to get Ritz Carlton quality of service, you got to pay Ritz Carlton prices. Our people don’t pay that.
[0:28:29.4] MF: Right. I’m curious, with some of this parks that were built in the 60’s or 70’s, a lot of the mobile home is going to be 40, 50 years old now. Are park owners going to have to replace those mobile homes if they’re owning them? If they’re maintained right, will they last? What about that side of the business?
[0:28:46.0] FR: It’s a common misconception that these homes are — that they wear out, that they have a shelf life like a car. The industry kind of did that to itself because it used to be like a car. In fact, many mobile home sellers, dealers used to be car dealers. So they would tell people, “Oh you have to trade that in after so many years.” That’s bunk. What is a mobile home? A mobile home is just like your house; it’s two by four’s, it’s metal, it’s resins, it’s plastic and then it’s sheathed in metal, it’s not going to die. There are no moving parts in it, it’s not like an engine on a car. So they really never wear out.
The big thing we see in the homes is when you’re in the 1960’s or 70’s homes, those can over time become obsolete just because of the floor plan because the bedrooms are very, very small. But the 1980’s though and on, the rooms are fully fine and we don’t really see any obsolescence in those whatsoever. Basically, the home from the 80’s on will live forever. The homes prior to the 80’s, they can live forever, it’s just, does layout of the home meets what people are looking for today?
[0:29:44.5] MF: Okay, that makes sense. Yeah, there is definitely an idea in the real estate industry that mobile homes, manufactured homes don’t last very long, that’s for sure out there. So good to hear that side of it. Operating it is obviously huge part of your income and finding that operator provides an incredible amount of opportunity because their income’s not coming in. How do you find your mobile home park? Are you just kind of — and I imagine they’re not all listed for sale when you’re finding this mobile home parks, are you just kind of looking for parks in areas you want to invest in?
[0:30:15.1] FR: Well let me tell you, finding parks for sale, easier than you think right? When you’re not in the industry, you think, “Well, I wouldn’t even know where to find one.” First off, if you go to mobilehomeparkstore.com you’re going to find at any given moment about a thousand listings. It typically rents from about 1,000 to 2,000 listings right there online. Now many of those parks are not what you want to buy. Probably 75% of those have horrible issues, either a terrible market or bad infrastructure or some other mess.
But of the 25%, those are all decent, that’s just a matter of negotiating price on them. That’s where most people begin. The other place you find is if you go to mobilehomeparkstore.com, there’s a tag, you’ll see, that says “brokers” and you’ll find there are about a hundred mobile home park brokers out there in the US and you contact each of those people and you’re going to find a lot of listings that are not online, which we were to call pocket listings.
So if you have a hundred brokers, and they’ve each got three pocket listing, that’s about another 300 listings. Those are where most people begin. Now, once you’ve identified the certain market you like or let’s say you just want to look at parks in your own backyard, the end people traditionally do a combination of what’s called cold calling or calling up the seller by phone or you can do direct mail or you could do what we call a drive-by, which is where you actually pull into the park and talk to the owner. There’s a lot of different options out there but it’s a lot easier to scale up parks to look for than you would think.
[0:31:41.9] MF: No, that makes sense. You have parks in 25 states. Why did you expand out so much? Is that for diversification, is that just for opportunities you’ve found? How do you expand out so far?
[0:31:51.8] FR: What happened is you’re always better off with a great deal that’s far away than an average deal right behind your house, right? We acknowledge that we never said on day one, “Oh yeah, well, we only want to buy a mobile home park within a 30-mile radius of where we live.” That being said, for anyone who is listening to this, that’s easy for us to say, we’ve been doing this for 20 years. For most people, and we’d be lying if we didn’t admit we did it ourselves, you typically want to be somewhat near where you live because otherwise, you start to feel like you lose control.
If I had to fly somewhere, I feel like I’ve lost control, doesn’t matter what it is right? It’s a different kind of a deal but if you’re going to drive somewhere, at least give yourself the benefit of going let’s say three or four hours out from your house. Because if you had a mobile home park four hours from your house, you could leave at eight in the morning on a Saturday, you could be there by noon, you could leave at three in the afternoon and be home by seven. So you’re still fully within your control, not as scary as flying.
For Dave and I, we both started out doing that and so we went out there and we bought parks that were almost literally in our back yard. My first park was 15 minutes from my house. Dave’s first park, he moved into the park to learn the business. But pretty soon, if you go to a three or four hour rule, if you draw a radius around where you are, that’s already going to put you in several states where I am in Missouri, it puts you in six states, where Dave is in Colorado, it puts him in four states.
So that’s how you kind of start becoming an interstate thing, right? Then over time, as you start growing your empire, you start realizing, “Hey, I don’t have to really drive here, I can also fly here or I could two-day drive here,” and that’s how you start expanding more. The main reason you expand like that is you’re always try to find the best deal you can on the market at that moment and if it’s, again, nine hours from your house and it’s great, you’re way better off buying that than something that’s like 30 minutes from your house but it’s average or awful.
[0:33:54.5] MF: Yeah, that makes sense to me. I imagine too that the ultimate way to run a business is when you’re not in the business doing all the work yourself. So if you find a decent park, the work is probably in finding an awesome manager and teaching them how to run it and once that’s done, it kind of runs itself for the most part.
[0:34:10.9] FR: Yeah that’s correct. Real estate is one of those weird things where it’s all about the buy, right? I’ll give you the example, I don’t know if you ever read the book, I think it’s called Dave’s Way, it’s a story of Dave Thomas, founder of Wendy’s. If you read the book, what’s striking is that the guy could take a terrible buy and turn it around through basically making smart moves and hard work.
So in the book, here you have Dave Thomas who is a manager of a barbecue restaurant, a complete dead end job of a barbecue restaurant in a small town, right? What happens is, the owner of the restaurant tries to open a fried chicken restaurant down the street and he goes bankrupt. So he had this building sitting there, gathering dust, has all the kitchen equipment. Dave Thomas who realizes his career is at a complete dead end, he will never proceed beyond managing this derelict barbecue restaurant says to the owner of the barbecue restaurant, who also owns the chicken thing, “Can I take over the chicken restaurant?”
And the owner’s like, “Dave, why would you want to do that man? You’ve got a nice job at the barbecue restaurant, why would you want to take over the chicken thing?” He’s like, “Well, I just want to have my own restaurant.” The guy says, “I’ll tell you what. If you can turn the chicken thing around, the minute you pay me back what I have in the chicken thing, it’s your.” That was the original business agreement. So he goes down the street and people did not realize this but he was the originator of Kentucky Fried Chicken. I didn’t know that I thought he was Wendy’s.
[0:35:42.6] MF: Right.
[0:35:43.9] FR: Yeah, but he’s the guy that invented the red and white barrel, the whole thing. He invented the idea of the chicken and the coleslaw, the mashed potatoes and gravy, that was all Dave Thomas, right? So he takes this completely bankrupt business and he reformulates it and makes a success of it. The only reason I’m telling this long winded story is you can’t do that in real estate, right?
Real estate is about location. Lots of things, you can’t fix, you can’t change location. You can’t go out and take your property in the bad location and make it a winner because of the bad location. It’s very critical, in real estate you buy it right on the front end because you can’t fix it, you just can’t. No matter how good a manager you are, if the property has — if the lots are too small, if the water sewer is failing, location’s terrible, you can’t make it any better.
So it’s absolutely critical that you buy stuff that’s really good on the front end. If you buy good stuff, you’ve locked on a profit the minute you close. If you buy bad stuff, you’ve locked on a loss and you close, it’s bad, it’s got that much finality to it, which means that you’ve probably got to really know what you’re doing because you can’t just jump in there and fix it. I was very lucky on Glen Haven.
Glen Haven could have been a disaster, I didn’t know anything about Glen Haven at all. I just jumped in there because of $10 grand down, non-recourse, I could always give it back if I didn’t like it. Fortunately, Glen Haven had some good things about it. The location was not great, it was on the wrong side of town but it was on the interstate highway, but you had enough good stuff to have a happy ending. But you’re exactly correct, you got to buy it good on the front end or you’re going to get killed.
[0:37:18.2]MF: All right, I definitely want to get into some of the things you offer and how you help people but one last question I have for you here is, you know you said you sold Glen Haven, you’ve got 230 parks now. How do you decide if you’re going to sell one or keep it?
[0:37:29.1] FR: Everything we have in life is for sale. I know this sounds cheesy but other than our family and dog, everything is for sale. That’s how we look at life, both Dave and I. So in other words, if I go to the grocery store and someone comes up to me at the grocery store and says, “Hey, I really like your car. I will give you X for it,” and if X is more than I think the blue book value is, I’m going to sell it, right? Because it’s just an asset. All assets should always be for sale. They buy, they sell, they trade, doesn’t matter what it is and mobile home parks are no different.
So basically when you own a mobile home park, you frequently get offers to sell it. Just minding your own business, you’ll get a call, you get a postcard, whatever. Warren Buffett a few years ago wrote in his Berkshire Hathaway letter to the shareholders, a story about some real estate he owns. He owns apparently two pieces of real estate besides his house in Omaha. He owns a strip shopping center across from New York University and he owns a farm, don’t even know what state it’s in.
The strip shopping center frequently gets calls. People will call up and say, “Hey Warren Buffett, I’ll buy that strip center from you right now for whatever, $5 million dollars,” and Buffett’s letter said that the point is when someone offers you something, if you don’t sell it, you just bought it. If someone offers you $5 million for that strip center and you don’t take it, you basically just bought it for $% million because you could have had $5 million for it if it makes any sense?
So that’s kind of how it works. If someone offers this more for a park than we think it’s worth at that moment, we’ll sell it and will then go out and buy another mobile home park and do it again. We’re very fluid like that. We do not have a single mobile home park, however, nice it might be, that we say, “Nope, that’s not for sale.” With us, everything’s for sale.
[0:39:20.1] MF: Yeah, that makes sense, I sold a couple of rental properties this summer and people are like, “Why are you selling your properties? They’ve gone up so much in value and you’re still getting good returns based on what you paid for them.” The same concept, well, I can’t look at what I paid for them, I look at what they’re worth and what I can do with that money that I get back from selling them now if I reinvested it into something else.
[0:39:39.6] FR: You’re definitely correct. There is a mobile home park in Dallas that — talked to the guy who manages it, it’s got about 70 heirs because it was built by five business guys in the 60’s and over time, they’ve had kids and grandkids. So there’s like 70 heirs in this deal, and they get good offers to sell it all the time at way more than it’s worth. But they can’t ever take any of the offers because the 70 heirs can never agree to it. That’s a terrible position to be in.
Basically, the general attitude on anything, you should never have a not for sale sign on anything. You don’t have to have a for sale sign on everything but if someone calls you and the offer’s good, you should pretty much take it. I can’t think of an example where somebody went broke taking a profit, there’s even a quote on that somewhere. But it’s a stupid concept, the same things aren’t for sale.
I’ll give you one quick analogy. The Plaza in New York, a couple of years ago, sold for a million dollars a room, which is the most that anyone’s ever paid for a hotel. It makes no sense. It was a foreign buyer and it’s stupid, everyone knows that’s stupid, it’s crazy. But people would say, “Oh man, I wish I owned the plaza hotel, it’s been a winner since 1890 or something.” Okay, that’s true but for every Plaza hotel in America, how many abandoned hotels can you think of in the bad part of town? I can think of a zillion of them.
There’s a hotel in San Angelo, Texas. You go into San Angelo, right downtown, there’s an abandoned high rise hotel. It used to be a Hilton, sitting there, gathering dust, has no income whatsoever. That’s what typically happens when you own things for a long period of time, right? So you should never say, “Hey, my property’s not for sale,” because there is a moment in every asset’s life where it was the optimal time to sell and if you say, “Oh I’m not for sale,” you’ll never catch that opportunity basically right?
[0:41:29.0] MF: Nope, makes sense to me for sure. All right, awesome information on the parks, the histories of the parks, operating them, buying them, selling them. Now, you also help people go through this whole process, so you can tell us a little bit about how you do that, how people can get in contact with you?
[0:41:44.9] FR: Yeah, you bet. Basically, Dave and I back over a decade ago started writing for our amusement, little books on the industry. Some of them were goofy like I wrote one once on The 50 Dumbest Things I’d Ever Seen a Tenant Do, but over time, people liked these little books. So we kept compiling them and compiling them. They were stories of parks we’ve bought, lessons learned, we segued it into trying to, for the first time ever, come to grips with the actual financial modeling of a park and what makes it successful or a failure. And so we ultimately took all this junk and put it in one big bundle that we called The Mobile Home Park Investor’s Home Study Course, that’s one product we produced.
We also produced A Guide to Due Diligence and again we wrote for ourselves. In fact, we use that still to this day ourselves. So it’s kind of like Army Surplus. We also knew a live event several times a year called the boot camp where we actually take people out in the field and walk around mobile home parks. It’s part classroom, part in the field but what all these things have in common is they’re totally based on fact, we do everything we do for our own amusement. We keep it very fact based which is kind of unique there for most people, our stuff is, we try to design like a college course and it’s always been a hobby.
So basically we have fun with it, we have no subject we can’t tell the truth about because it’s something that we do because we like doing it. People may not realize, don’t know why they would anyway, but I think Dave and I are both frustrated, potential college professors because all the way back when I was at Stanford, I was, believe it or not the youngest ever faculty member of Stanford and what happened was, I was the teaching assistant on a class on public speaking and the regular professor did not come back for whatever reason, so they let me co-teach the class as a junior.
Then when I got out of Stanford I kept on teaching public speaking at SMU in Dallas for 30 years approximately. So Dave did the same thing on accounting out there in Colorado so we’ve always loved teaching. Teaching is fun, if you do something, it’s always fun talking about it and showing people how you do it but that’s what our education stuff is about, it’s basically, it’s about honesty and factual — it’s just a different deal and I think people respond well to it because they can tell that it’s no BS and that we really enjoy doing it. I mean I, as a hobby, literally every day, sit down and write for probably about an hour a night about what’s going on in the industry and because we have so many parks, it’s always easy to have material because we own about 23,000 lots at this point. So there’s never a shortage of things to talk or write about.
[0:44:45.8] MF: That’s great. I do the same thing, I write all my articles for my blog in site and it’s fun for me to write and it helps my business too because it just solidifies what’s in my head and makes me plan things and it holds me accountable too. So I love doing it.
[0:45:01.8] FR: I agree, I mean for those who have never taught something, it’s so much fun. I think the reason a lot of teachers seemingly happy in their jobs is because they really would do it for free, don’t tell anybody. But it’s just fun showing people how to do stuff.
[0:45:16.8] MF: Right, I completely agree and I was surprised when I started writing that when people started saying, “Wow, this really helped me.” Like, “Wow, I actually helped someone do something, this is really cool.”
[0:45:27.1] FR: I totally agree.
[0:45:29.2] MF: Great, well Frank, you’ve done an awesome job, we’ve been talking for a while here. If someone’s wanting to get involved in mobile home parks, do you have anyone tip or one thing that they should start out with to get involved?
[0:45:42.2] FR: The starting spot on anything you’re going to do, and it doesn’t matter whether it’s mobile home parks or collecting cars or really anything, is learning about what you’re doing. There’s the old saying, “Think like a man of action and act like a man of thought.” Thinking and learning and not taking action that never works. But equally as dangerous as taking action without knowing what you’re doing.
So if you’re interested in mobile home parks, I would voraciously read and learn everything you can about mobile home parks because I’ve always noticed in life that the people who do the best are the ones who know the most about what they’re doing. So if you don’t know how things work, you won’t know what is an opportunity from what’s not an opportunity, you won’t know what flaws you can fix from what flaws you can’t.
The big tip would be to just get out there and learn. Take some time to learn something. I’m one of these people like, if I buy something that you have to assemble, I never read the instructions. I just grab a screwdriver and I put it together and I’ve had some huge mistakes doing that in the past. I remember, I once assembled a complete piece of furniture from IKEA only to find out I’d done it backwards. I put the front on the back and the back on the front. That was after not only had I screwed it all together but I put all the plugs in it to stop you from being able to take the screws out, right?
So don’t follow my example on that. If you’re going to do something, learn — learn, learn. Read the instruction manual, that’s how you save yourself from bad endings. Benjamin Franklin who never owned a mobile home park, but back in the 1700’s wrote that due diligence is the mother of good luck. It’s true. The more due diligence you do, the more you read, the more you learn, the better the ending always turns out to be.
[0:47:40.8] MF: Yup, I wholeheartedly agree with that. Thank you so much for being on the show Frank, I’ll have a link to your site. If people want to get in contact with you, they want to check out some of your books, or your coaching programs, we’ll put all that in the show notes so they can find you. Any parting words here before we end it?
[0:47:58.7] FR: Well I first off want to thank you for having me on here and also want to give encouragement to people listening to this who are thinking of going into real estate. I don’t know where you can do as well in any other use of your time than real estate. I see so many options for people, I see so many commercials and books and magazines of different things.
Real estate is by far your best shot at getting where you want to get as far as financial independence or a second income stream. Numerous reasons, the first American millionaire was John Jacob Aster in real estate. Real estate, it has a lot of really neat dynamics. It’s easy to get leverage on it, there’s a lot of opportunity in it, it’s always in demand, it’s not a luxury, it’s a necessity. So I think you’re on the right path just being on here listening to the concept of real estate and mobile home parks in specific because there’s just so much opportunity.
There are so many things out there that you can’t do much with. I see people all the time who go into multi-level marketing, selling Mary Kay or vitamins or something. Those are all beat to death. There wasn’t any opportunity there to even to begin with. In the real estate sector, you see all the time, people who go out and they do it and they do well with it and it’s just because it’s such a better business model, it’s got so much more opportunity. I guess my parting word would just be, just keep doing what you’re doing, learn about real estate and if you apply what you learn with a fair amount of effort, you pretty much always will succeed.
[0:49:39.1] MF: Yup. We live in a country where it’s one of the easiest places in the world to buy real estate, to get loans, our government treats it so favorably with taxes, we are really lucky to be in this country and be able to invest in real estate here.
[0:49:54.6] FR: Yes, I totally agree with that. You could not pick a better spot to be in real estate than the US if you travel outside of the US, which I’ve done in the past, you’re amazed at how different it is in other countries than it is here. In other countries, there’s virtually no opportunity, the real estate is horrendously expensive, the system’s often very corrupt. Here the opportunity is abundant and it’s just a matter of you taking initiative to get out there and do it.
[0:50:22.7] MF: Yup, I fully agree. Well, Frank, thank you so much for being on the show, I know I learned a lot, really opened my eyes on something about mobile homes, parks, the history, how to make a profit on them and also the opportunities they provide. So thank you for being on the show, I really appreciate it and I think hopefully we’ll talk again soon.
[0:50:40.5] FR: Great, thanks for having me.
[0:50:42.6] MF: All right, thank you and have a great week.
[END]
