Property Management Growth with DoorGrow DGS 134: Mobile Home Investing with Andrew Keel
As a property manager, have you considered investing in mobile home parks? Not interested? Not your thing? Some people won't touch it with a 10-foot pole.
Today’s guest is Andrew Keel of the Keel Team. Andrew’s here to convince you otherwise. He talks all about mobile home park investing as an attractive and appealing asset class.
You’ll Learn...[02:00] Sticker Shock Stigma: Why investing in mobile home parks is a good idea.
[02:48] Longing to be a Landlord: Leverage other people’s money to buy properties.
[03:30] Yellow Letter: Knew nothing about mobile homes, but knew it was a great deal.
[04:00] Shoutout to Lonnie Scruggs: Learned how to make money with mobile homes.
[05:10] Temp to Forever Cashflow: Use capital to buy and manage mobile home parks.
[07:07] Three reasons why to invest in mobile home parks:
- Highest returns out of any form of real estate.
- Demand for affordable housing is off the charts.
- Supply is limited.
[12:40] Bottleneck in Business: Finding good quality deals big enough to move on.
[14:54] Boots on the Ground: Third-party property management for mobile home parks.
[18:58] Utility Infrastructure: Most important aspect and most expensive to replace.
[20:12] Tax Shelter: Mobile home park business of depreciation and improvements.
[20:57] Models: Community owners own homes vs. every home is park-owned rental.
Tweetables“Some people won't even touch it with a 10-foot pole. That artificially creates a moat to this investment class.” Andrew Keel
“I knew I wanted to be into real estate. I knew I wanted to be a landlord, but I didn't have a lot of money.” Andrew Keel
“The demand for affordable housing for this country is off the charts.” Andrew Keel
“The stigma of living in a mobile home is not as strong in the midwest as it is in other parts of the country.” Andrew Keel
“We are looking at a more scalable model to have the tenants own their homes. Then, we just have lot rent.” Andrew Keel
ResourcesMobile Home University (MHU) Boot Camp
TranscriptJason: Welcome, DoorGrow Hackers, to the DoorGrow Show. If you are a property management entrepreneur that wants to add doors, make a difference, increase revenue, help others, impact lives, and you are interested in growing your business and life, and you are open to doing things a bit differently, then you are a DoorGrow Hacker.
DoorGrow Hackers love the opportunities, daily variety, unique challenges, and freedom that property management brings. Many in real estate think you’re crazy for doing it, you think they’re crazy for not because you realize that property management is the ultimate high-trust gateway to real estate deals, relationships, and residual income.
At DoorGrow, we are on a mission to transform property management businesses and their owners. We want to transform the industry, eliminate the BS, build awareness, change the perception, expand the market, and help the best property management entrepreneurs win. I’m your host, property management growth expert, Jason Hull, the founder and CEO of DoorGrow. Now, let’s get into the show.
Today's show is going to be all about Mobile Home Park Investing. My expert guest is Andrew Keel of the Keel Team. Andrew, welcome.
Andrew: Thank you.
Jason: Andrew, before we get into this idea of Mobile Home Park Investing which, I'm guessing a lot of property managers right now are like not my thing, I'm not even going to listen to this one. I'm going to skip this episode.
Before you do that, Andrew's going to convince you that it might be a good idea.
Andrew: I'll give them my best shot. I think one of the reasons why I like the asset class so much is because of that stigma that a lot of people see. That initial sticker shock of the asset class. That's a huge part of why the industry is so attractive, some people won't even touch it with a 10 foot pole. That artificially creates a moat to this investment class.
Jason: Right. Just a little protection built in, okay. Some of them were thinking that's kind of like having a trash heap around the property. Nobody wants to come in. Maybe it doesn't look very appealing.
Before we get into that, Andrew, tell everyone about you. You've got a lot of things going on. Give us a little background of how you got into real estate investing, property management, how did all this start for you?
Andrew: Yeah, sure. I started flipping houses around Central Florida and wholesaling residential contracts. I did that for about two years. I was trying to become a landlord but I started with nothing. My parents went bankrupt when I was in college, lost the house I grew up in. I knew I wanted to be into real estate. I knew I wanted to be a landlord, but I didn't have a lot of money. I initially thought, hey, I need to have a lot of money to be a landlord because I can't afford to buy these properties. That was before I learned how to use other people's money and leverage other tools.
I started flipping houses and I got a deal through a yellow letter that I mailed out on two mobile homes in Ocala, Florida. That's just a couple of hours north of where I live in Orlando. These were nice, vinyl-sided, single roof homes that were manufactured in the mid-1990s. I could buy both of these for $2200 cash.
I was like I don't know anything about mobile homes but this is a great deal. I just knew it. I had two titles, I left that day. I gave them the cash.
I came home and got on YouTube. I typed in how to make money with mobile homes? I was like I don't know, there's got to be a way to make some cash off these things. I came across a guy named Lonnie Scruggs. He used to teach this class, and he has a book called Deals on Wheels. It talked about buying mobile homes, fixing them up, and selling them on contract to an end buyer. That's exactly what I did with those two mobile homes. I was able to fix them up, just clean them up basically. Some new paint and some new flooring.
I sold them for $3000 down and $250 a month for five years. I did that on both of them and I only paid $2200 cash for both. I was like wow! This is a great model. It's not forever cash—that was my end goal—but this is great, temporary cash.
I ended up doing that 19 more times and bought individual mobile homes through various parks throughout Central Florida. I sold them on contract. After doing that, I met some mobile home park owners. Again, I had this idea in my head that you need to be extremely wealthy to buy mobile home parks—the whole community.
Through talking with them, they gave me that epiphany of using other people's money. I could be the sweat equity that would manage the properties. That was a huge Aha! moment for me. I immediately became glued to the asset class, read every book, went to every seminar, went to the MHU Bootcamp a few times, and just became a sponge for the asset class. That was a defining moment for me—getting into that industry.
After I went to one of the bootcamps, I met a passive investor there that was just looking to invest and didn't want anything to do with the operations. He happened to be in the finance industry and worked really long hours but had a ton of cash that he wanted to deploy into this asset class.
He partnered with me, and we bought the first mobile home park. It ended up being a really huge success. After that, we ended up buying four more communities since that one went so well. Since then, I have brought on more investors from friends and family to others outside of that. We do syndications now. We aggregate money from a pool of investors and then purchase these assets into a single purpose LLC.
It's been a very awesome ride. It's been exciting. It's been blood, sweat, and tears into this at this point. Now, we're at 23 communities which is amazing and a blessing. We have a ton of people that work for us now and are awesome members of our team. That's a little about how I got into where I am today.
Jason: You never just woke up when you were a kid and said I want to grow up to do mobile home park investing.
Andrew: No, that's not how it went at all. I just kind of fell into this but I believe mobile home parks are a mode of investment for a few reasons. One of those that's really important is it has the highest returns out of any form of real estate. Right away, I was attracted to it.
Number two, that makes it that much better, the demand for affordable housing for this country is off the charts. I think you can talk to any real estate expert and they would tell you that.
Number three which is the main reason, number one, put it on the top of your list of why mobile home parks are a great asset class to invest in is because the supply is limited. Any other asset class whether it's self storage, multifamily, whatever, it's easier to develop those and get those approved.
Where mobile home parks have this stigma, there's this not in my backyard initiative where people don't want a mobile home park built right next to their subdivision. It's very hard to get zoning approved for a new mobile home park development.
Number two, from an economic standpoint, mobile home parks are loss leaders for municipalities. On average, they cost around $11,000 a year to put a child through public schooling with the cost of the school, the teachers, et cetera. In mobile homes, the owners of the mobile homes, they only pay maybe $50-$100 a year in their personal property taxes on their mobile home that they pay at the DMV just like you would pay taxes on your vehicle, or both, or so forth.
The taxes are very low, but say a family of four that has two kids in elementary school, that would be a huge loss to the local municipality every year for having that family in their municipality. That's a big reason, the supply is shrinking. On average, there's 10 mobile home parks across the country that are torn down every year. It's continuing, it's getting more than that. More and more, they're torn down and put into better land uses for multifamily and whatnot. It's very rare, if any at all, are being developed from the ground up. It's very interesting from a supply standpoint.
Jason: Are you involved in getting them developed?
Andrew: I'm not. There's lower hanging fruit in communities that are already established, to be honest. It's less expensive to go in and fix the existing infrastructure. The majority of mobile home parks, I think 80% of them, are owned by my mom and pop owners. It's not an institutionalized asset class like multifamily and self storage.
With that, you're able to come in and increase value very quickly through increasing that operating income, whether that's through modest rent increases, billing back utilities, increasing the occupancy. A lot of these communities have been owned by a mom and pop for 30-40 years. They have a lot of equity. A lot of these are paid off pretty clear.
With that, we've been able to acquire five communities with stellar financing because they're able to be more flexible since they don't have some of the restrictions that a bank would have on a mortgage.
It's a very exciting asset class. It's new to a lot of people but it's definitely a mode of investment. It's not something that you want to go to the country club and brag to your friends about. It is also very unique in that aspect because that stigma does keep some investors out of it and keeps cap rates significantly higher.
Jason: Okay, okay. The first thing you mentioned is it has the highest returns. Qualify that a little bit, compare it maybe just a little bit, let's back this up. Some people listening, maybe their ears perked up when they heard that.
Andrew: Yeah. If you're familiar with commercial real estate, properties are valued off of their income, there's the income model. Cap rates for mobile home communities are typically between 8% or 12%. If you compare that to multifamily, you're not able to get as big of a spread between the interest rate you're paying on your loan and the cap rate that you're purchasing the property for.
The cap rate is the net operating income divided by the purchase price, for those of you who aren't familiar with that. Basically, we aim to get at least a 3.0 spread between our interest rate that our loan we have in the community, and the cap rate that we're paying. If we're able to create that Delta, we can offer our investors 20% cash on cash return annually.
Jason: All right, okay. I’m taking notes. If you can offer investors that, it's not too difficult to get investors you're funding?
Andrew: Yeah. We've been very fortunate to have a lot of people reaching out to invest with us. At this point, I would say the bottleneck in our business is finding good quality deals that are big enough to move the needle. There's a lot of communities that are between 50 and 100 lots that are a good place to play in. The communities that are bigger than that offer even more economies of scale in terms of expenses versus income. Those are the ones that are getting eaten up by institutional buyers at this point.
Some of the REITs, some of the large private equity firms, are now playing in this space because they've seen high returns. They know supply is limited and demand is off the charts. They're going after those larger properties. Those are harder for us to compete with because those cap rates are getting compressed.
Jason: This is just in your local market that you're willing to work and target? Is that correct?
Andrew: We have communities all the way from Georgia to North Dakota, all the way down to Tennessee, and all the way across Pennsylvania. We're right in the center for the most part—the center of the United States. We did that for a couple of reasons, it was mainly strategy. Hurricanes primarily don't go across the midwest. However, there was a polar vortex last year, that was absolutely crazy. Hurricanes, it's protected against those.
The stigma of living in a mobile home is not as strong in the midwest as it is in other parts of the country. For the most part, we aim to purchase communities in the middle of the United States.
Jason: Got it. How difficult is it for somebody that's currently focused on single family residential, or maybe they're doing commercial, or maybe they're doing multifamily, to add this in as another business—basically another arm of their business and to work on this?
Andrew: That's a great question. First off, I think we should say that third party property management for mobile homes communities, that's like across the nation, it's basically unheard of. There's like two or three companies that do it and they're not doing it at a high level. It's very tough because it is management intensive.
Even though a lot of these communities don't own the mobile homes themselves, they just own the dirt underneath them, your maintenance costs less. There's just other reasons why it's a little bit difficult to manage these communities on a large scale because of the turnover and things like that that do happen.
Jason: You're managing just the parks, you're not managing individual rental properties.
Andrew: Correct. We get a lot of rent off the ground. Now, as a necessary evil of the business, when a home goes up for sale or say we come to own one of these homes, we have to then sell it to the tenant for them to become a tenant-owned resident and rent out the land to them.
There's probably about 20% of our total units that are homes that we've sold to the tenant on contract. They're still responsible for maintenance but it's sold to them like a rent credit program, is what we call it, where they're making payments monthly to then pay off the home. Then, eventually, they will just pay lot rent.
Jason: We didn't say this at the beginning, we probably should qualify you a little bit more by saying how many units are you over right now? How many are under management?
Andrew: We are at 1497 units right now. That's across 23 parks.
Jason: All right. How critical it is to have boots on the ground in all of these 23 locations?
Andrew: It's paramount, in my opinion. We have an onsite manager at every single location. That's typically a resident that had the nicest home, we converted them into an onsite manager. All they are is just basically an eyes and ears person that communicates with our corporate office. It keeps us abreast of what's going on in the community. That has been really important for us to just be able to understand what's going on.
Typically, we go after someone that has a fixed income like Social Security and they have one of the nicest homes in the communities. They're retired and they're home. They're like the community watchdog. They keep us up to date on what's going on. Then, our corporate office which we have 14 corporate offices, offsite management employees, handles everything from the financials, to the project management, to collections, to bookkeeping, et cetera.
Jason: Got it. These are all parks that you have some sort of an ownership in, correct?
Andrew: Correct. We only manage parks that we have ownership in right now.
Jason: Got it, okay. For those listening, if somebody has a property management business, maybe they're a real estate investor and they're wanting to get into this, what advice would you give as the first initial step?
They're looking around. They notice there's a mobile home park or two that probably could use a little love. Maybe the mom and pop owners would be willing to have a conversation. What's the first step that you think they need to be aware of? What knowledge do they need to gain first?
Andrew: Yeah, that's a great question. I would say you need to go and get educated. You need to go to the MHU Bootcamp that's offered by Frank and Dave. That's like the industry leading educational platform that teaches everything from how to find deals, how to value them, and how to manage them.
Within that class, you'll learn about the utility infrastructure. The utility infrastructure is by far the most important aspect of these communities because that's the most expensive to replace.
For example, a community that's on the city water or the city sewer is more attractive because there's less risk on that half. Versus a community that's on a well and septic. A well and septic, there's a lot more testing involved. Now, you're servicing a community that is using that water supply. You have to make sure that there's certain chlorine, certain tests done on a consistent basis, to manage that water system.
The same thing if you're on a septic or waste water treatment plant. Wastewater treatment plant can cause $500,000 to replace. You have to make sure that they're maintained on a high level. If they're not, you could be front of the bill for a very expensive project.
Jason: A lot of what makes a mobile home park work is underground is what you're saying?
Andrew: Correct.
Jason: Okay. It's not just land, there's infrastructure that's really critical underneath.
Andrew: Very, very, critical. Those are all items you're able to depreciate and we love that part of the business because mobile home parks are also a known tax shelter because of those improvements.
Jason: Interesting. You said that Frank and Dave over MHU?
Andrew: M as in Mary, H as in Harry. Mobile Home University.
Jason: Got it, all right. I thought I would make sure. Cool. What else should they know about mobile home park investing that we haven't covered so far?
Andrew: I'll just give a vague overview of it. There's a model where the community owners will own all of the homes and basically operate it as a flat apartment community where every home is a park-owned rental. That is not the model that we follow. We are looking at a more scalable model to have the tenants own their homes. Then, we just have lot rent.
There's a couple of reasons. Obviously, repairs and maintenance would be a lot less. Your expenses will be a lot less. Also, your turnover on a tenant-owned home unit is approximately 4%-5% annually where the turnover on a park owned home unit is closer to 50% annually.
From a management side of things, if you have a tenant-owned home community, you're going to spend less time dealing with turnover compared to a park owned home community. There's communities out there that have done both ways but we prefer the tenant-owned home model.
In regards to mobile home park investing, it is affordable housing. If you're familiar with affordable housing in multifamily, HUD housing, or things like that, you can deal with a lot of the same residence but there's also different classes just like in any asset class where there's very high end mobile home communities that have swimming pools, community centers, three golf courses. Then, there's communities on the lower end that are just not taken care of very well. The homes are really close together, there's a lot of older homes. We try to aim right at the middle.
We're looking at the C class parks that maybe we can bump up into a B. That's typically where we play.
Jason: Got it. All right. For those that heard all of this and still thought there's no way I'm going to touch this. There's no way I'm going to go to MHU. I don't want to do any of this stuff, but those returns sound pretty sweet. Maybe I should talk to Andrew. Maybe there's a mom and pop that's listening, they're like you know what? I'm tired of this garbage. I'm tired of dealing with this place. I want out. It's time we retire from running this mobile home park. They're like maybe we can have a conversation with Andrew.
Who are the people that you're wanting to get in touch with you? Whether it's investors, whether it's potential people that can create a deal with you? What are you interested in?
Andrew: All of the above. If there's a wholesaler that comes across a mobile home park and they want to assign it, or it's a property manager, or maybe it's someone that wants to partner on their first deal because they want to learn the operations before just jumping in with two feet. All of them should reach out to me. My website is keelteam.com. I'd be happy to chat with you. I love talking about mobile home parks, you won't have to pull my leg too hard to go on the phone with me.
Jason: I could tell. Andrew, I appreciate you coming on and sharing a little bit about mobile home park investing, helping open my audience’s eyes to that just a little bit. Maybe you'll get a few phone calls, maybe some people will get into this. Who knows? Maybe there'll be some sort of a hybrid where deals even workout. Are you looking at expanding outside the midwest at all?
Andrew: Yeah, we've looked at some deals in many different areas. Not in California but outside of that state we've looked at several deals. You have to hit a certain number of units for it to make sense for it to go to a new market. You don't just want to go after a 40 lot mobile home park in Idaho when the rest of your communities are all in Ohio or Pennsylvania.
We definitely looked at other places. I've JV'ed with people that brought me a deal that they didn't have any money but they just found this great deal. I found things like that and I'm totally open to sharing what I know on the operation side to others that bring a deal to the table.
Jason: Awesome. Andrew, I appreciate you coming on the show. I wish you continued success.
Andrew: Jason. Thank you so much for having me. I really appreciate you having me on the DoorGrow Show.
Jason: All right, cool. Make sure you reach out to Andrew if any of this sounds interesting, you are curious about this in working with him, or getting into it yourself. That was keelteam.com.
If you're looking at figuring out how to grow your property management business, I had so many calls this week from new clients that have come onboard with us. There's this common challenge that property managers tend to deal with at various stages. I've noticed that you've got that first sandtrap at about 50, 60 doors in the single family residential space where you're dealing with how do I start to get ahead? How do I create some leverage in this business so I'm not just trapped as a solopreneur here forever? How do I start getting more doors than I'm losing so I'm not just breaking even every year in terms of growth? If you're dealing with any of those kinds of challenges, we're really going to help you break through that initial barrier.
Then, there's that second sandtrap which is usually if you can break in a healthy way past 100 doors, if you haven't done that yet, talk to us. If you break past 100 doors in a healthy fashion, which means you're not just a real estate broker. That's really healthy and you've got this unhealthy property management business on the side, we can help you with that too. You do it in a healthy fashion.
Then, you'll end up usually in the 200-400 door category and then you get stuck. This is where I see a lot of property managers stuck in NARPM. A lot of property managers are struggling. There are specific things that you need to break free from that sandtrap.
Usually, the challenge is they're not getting the right thing members. They're not able to retain team members for a long time. They're trying to build and systemize the business, build a team. They just don't have a business that's scalable. Even if it were fed a lot of potential business, or a lot of deals, or a lot of leads, once they approach that 400 or maybe up to 500 units space, the business owners feel really stressed out.
They built a team usually the way a solopreneur thinks. They built a business based on what the business needs, not on what the business owner needs to lower their pressure noises through the roof. Every person that they have on their team is coming to them for everything and asking questions. First, it feels really exciting when you're small. As you scale and as you build, it feels really suffocating. You become the biggest bottleneck in the business.
If you're experiencing that, then reach out. We would love to have a conversation so that we can help you break past that second sandtrap as well.
Anyway, I'm Jason Hull over at DoorGrow. Make sure you also check us out. We've been really pumping up Instagram and getting going. Follow us on Instagram, it's just @doorgrow. Make sure you get into our community at the DoorGrow Club Facebook group. You can go to the DoorGrow Club. Just go to doorgrowclub.com.
Until next time, everybody. To our mutual growth. Bye, everyone.