Transcript

00:01

Welcome to Episode Six of season six of the Growing Empires Show. Today I'm here with my special guest, Jefferson Lilly, so he can share how he turned mobile home park investing into a very profitable business. So stay tuned.

00:16

Welcome to Growing Empires hosted by real estate entrepreneur and trusted investment advisor Jennifer de Jesus. Growing Empires provides insight to building wealth through passive income producing real estate investments for those who want to build and manage a more profitable real estate portfolio.

00:35

So welcome, Jefferson to the Growing Empires Show. I'm so glad that you're here.

00:39

Thank you, Jennifer. Great to be here.

00:42

Absolutely. So let's kick off this episode about real estate investment strategies with you sharing a little bit about the work that you're doing now and how you made a name for yourself growing a mobile home park empire.

00:55

Empire is a generous term. As I say, I may not be Donald Trump, but I am Donald Chump. Yeah, so you know, I got into this business because I was looking for some more stable income. I had worked the, and I've been in it now about 14 years. But the previous 10, I had been working in high tech out in Silicon Valley. That's how I ended up out in San Francisco. And I went through the .com boom and bust and semi resurgence and was really looking for, again, some passive more stable income to sort of evens out the the stock options and the NASDAQ generally. And so initially, I thought I would buy an apartment building. That was sort of the obvious thing to buy, you know. I try and follow Warren Buffett to the best of my limited abilities. He always advises staying within your circle of competence. So, you know, I had lived in apartment buildings. I figured therefore, it was my circle of competence. I certainly didn't know anything about office or retail or, you know, farmland anyway. And then just in researching apartment buildings, basically searching for multifamily apartments, you know, I would find 99 apartment buildings. Maybe at, you know, an eight cap, and this was going back to 2005 pricing. And then there'd be like one mobile home park at like a 10 cap. And which is to say priced lower. And you know, and I thought, well, that's absurd. I'm not buying a friggin trailer park. Are you kidding me? I would delete the search and you know, do the search again in Peoria, Illinois. Lubbock, Texas. Ames, Iowa. Madison, Wisconsin. I was looking generally throughout the greater Midwest. I knew I was not going to find reasonably priced real estate in San Francisco. Anyway, so after getting hit over the head, I don't know, you know, 5 or 10 times with these mobile home parks that kept popping up at random in the multifamily listings. With that I then finally decided, you know, maybe I should look into this. They seem to be priced lower. I guess it's multifamily. You know, let me look into it. And so then, you know, I ended up reading kind of every book and tape and going to seminars. I built an unofficial advisory board of about 10 guys that had all owned mobile home parks. And I would just bounce deals off of them. And they would say, well, hey, Jefferson, this is a good deal, or this is a bad deal. Here's why. Or just like, hey, this deal I don't know. But you know, the key issue is x, you go figure out issue x with this deal, and then you'll know you know if it's a good deal. So I you know, I can learn some from books and tapes. But I tend to learn best from just having conversations with people and kind of experiencing things myself. So anyway, so I spent looking part time I spent sort of a year, or little over, looking. Finally found a deal, got it closed, and I still own that deal. That's out in Oklahoma City on the south edge of that Metro out near Norman, where OU is. And then I you know, I still so I still was working in high tech for about another year. And I could see that, frankly, that last third startup that I was at was not doing real well. But my mobile home park seemed to be doing reasonably well. I was putting virtually no time or money into it. And I decided to do it full time. And one thing led to another. I did some consulting for some high net worth families that have interests In mobile home parks, I bought a second mobile home park, and then starting now about seven years ago, I started raising outside capital and then bought my first Park. It was then really my third Park, but the first with outside investors and did another and another three or three of those deal, buy deals, and then raised my first fund back in 2015 have raised two more since then, and I'm now getting ready to launch my fourth fund here in April of 2021. So it's sort of taken on a life of its own. Again, I was looking originally for an apartment building, and I ended up here and mobile home parks, you know, part plan, but part just dumb luck.

05:48

So today, we're going to talk about generating wealth with mobile home parks. And I've asked Jefferson to join me to share his wealth of knowledge and secrets that he's picked up over the years. I want to jump right in and just ask a quick question. So what made you ultimately decide mobile home parks versus the multifamily investing?

06:08

So what I discovered was that mobile home parks are more like a parking lot than traditional multifamily, which would be apartment buildings. The implication there is that we generally don't own the mobile homes. Which, of course means, we don't own those proverbial leaky toilets and leaky roofs. So that lowers our repair and maintenance budget. We do still have a repair and maintenance budget. But, it's just focused on the land. So, of course, we deal with plumbing, that's probably plumbing on stops is probably our number one operating expense. We occasionally you know, are fixing potholes, we have to mow lawns. Our properties up north, we have to plow. But still, all of that land related repair and maintenance, generally runs 5 or 6% of our gross rent collections. That compares quite favorably with traditional multifamily with apartment building investing. Where, and I've never owned an apartment building. But my understanding is that most apartment building or single family house, you know, owner operators are typically spending 15 to 18% of rents on repair and maintenance. So our repair and maintenance budget is about 1/3. Obviously a lot lower. We don't have to maintain those proverbial leaky toilets and leaky roofs. So that's one thing that makes it, for me at least, a more compelling asset class than traditional multifamily. The second issue around tenants owning those leaky toilets and leaky roofs is that it's it's generally around $5,000 to move a mobile home. These are not RV, again, these are mobile homes, they're tied down, they're put up on piers, they're anchored down into the ground. And they have really permanent connections to the electric gas, water and sewer. Just the same as a regular site built house. So because it's so expensive to move a mobile home, they in fact, rarely move. So that means your tenant base is far more stable than the traditional apartment building world. My understanding is that apartment tenants tend to turn over about every two years, which is to say you lose about 50% of your tenants every year. In our world view, that the tenant is really the mobile home. If an actual tenant, of course the person has to leave, they'll typically sell that house to someone else. Which is fine. Of course, it's their property. Someone else moves in and they pick up paying the rent where the first tenant left off. So the mobile homes might only move out of a park say every 20 years. It varies across the country. But let's just say it's every 20 years. So that means our turnover, our tenant turnover, is more like 5% a year. That compares, again, quite favorably with traditional apartment building investing with 50% tenant turnover. Plus again, our tenants tend to have filtered themselves out of apartment buildings. They actually want to own something. Which is wonderful. Might not be a house as nice as you and I live in Jen but, but they own that house. And frankly, when you enable somebody to own something, they're likely to take much better care of it. Somebody that might have been even a poor, very disrespectful tenant in an apartment building, doing damage, being careless, what have you. Again, you give them a shot at owning a house. And then of course, reducing greatly their living expense from 1000 or more a month renting down to say, 3 to $400 lot rent only because they're going to own that house. You give them a chance to own something and greatly reduce their living expense. And lo and behold, they start behaving better, and they start taking care of those homes. So anyway, that's another implication there for giving people an actual chance to become a home owner. Which is what we focus on. Again, we're certainly a for profit fund. But we we absolutely have a social mission. Which is to help people become home owners, and stop getting caught in, in, you know, never ending rent only cycle of being in an apartment. We want folks to actually own their own house and live for a lot cheaper than they can in an apartment building.

11:28

So it sounds like it's a almost like an affordable housing model. But for ownership versus for rent.

11:34

Yeah, mobile home parks are the only really naturally occurring affordable housing in existence. The only other stuff that exists is of course, when government gets involved. Government puts up condos, apartments. Government rents them and then government traps people being renters forever. And then other than that choice, there's mobile home parks. That that's it, there is no other affordable housing for folks. And we're the only again really sort of natural, naturally occurring affordable housing. And we, unlike government, we actually enable people to own their home

12:18

Very cool.

12:20

The episode will continue in just a moment.

12:24The best investments with the highest potential for a solid return always start with the right real estate purchase. But it's not just about a flips potential margin, or how fast you can ready a property for leasing. It's about creating a future of financial stability for yourself and for your family. One that supports the lifestyle that you want. If you're an active investor, and purchase, renovate and lease your own properties, and you love the process, the chase and the returns, you're in the right place listening to the show. Especially this season, because we're talking about a deep dive into how to purchase the best property for you. However, if you're more of a passive investor, one who wants to diversify your stock portfolio with real estate, but you don't want to get involved in the active management of those properties, you're also in the right place, as we serve both types of investors. To gauge where your real estate investment tolerance sits and what would be the best fit to grow your income with real estate, I invite you on a call with me. To book your call visit growingempires.com and click book a consult. That's g-r-o-w-i-n-g-e-m-p-i-r-e-s.com and I'll help you choose the best real estate model to help you achieve your real estate investment goals.

13:27

So am I correct in saying that you essentially own the land? Yes, you're responsible for the utilities to the land.

13:36

That that varies. Sometimes Yeah, we're master metered. And then we'll typically bill tenants for what they use. But yeah, the utility companies are often looking to us, obviously a more credit worthy entity, to to pay those those water bills and sometimes electric and sometimes gas. But, typically, it's just the water bills that we’re directly responsible for. But yeah,

14:03

And then, and then you're responsible for common area kind of maintenance. Grass, snow, plowing roads, whatever that are in this community or this area.

14:14

Coming to you live, as it were, from our property, one of our properties here in Brownsville, Texas. So we've got a common area, we've got a big rec Hall, where the tenants have bingo and a talent show that my wife just sang in last Saturday night. They do breakfasts. They do church. But we're helping to maintain all that. There's also a pool here that we maintain. Shuffleboard courts. And we will probably install a Jacuzzi here. But yeah, so we maintain all that. Cut the grass in the common areas, fix potholes take care of that. And then tenants are just responsible for their lot, which mostly means they've got to mow their own grass.

15:00

Okay, and what they pay then to you is that lot rent or that. So how long are these leases on these lots? Are they permanent? They're essentially these are like leasehold estates where it's like permanent land leases. Like they never go away, or is there a term to these leases?

15:16

Yeah, there's a term. And will most of them tend to be month to month, sometimes we’ll sign a six month term. But yeah, it doesn't quite work like things do, as I understand over in England, where the royal family owns the land, and people sign a lease for their site built house for like 99 or 150 years or whatever. It's not quite, it's generally month to month, or a six month lease. So in that respect, it's far more similar to say apartment buildings.

15:48

Right? So but it sounds like you don't really have to be worried about them moving right? Because they genuinely stay on site. So even if the owners change, the mobile home is still there. It's still a lot. You're still getting a lot rent, essentially.

16:04

Yeah, like we just our other property, about a mile and a half from here. Just met a lovely lady there a tenant who actually invited my kids and me into her house, her parents had bought it. This is a 55 and older community. Most of our communities are all ages. But what we happen to have here are seniors communities, but her folks bought that house brand new in 1980. And then they've since passed away. She and her husband have now taken it over. They're probably in their 70s. It's an immaculate house. They've taken good care of it. They show pride of ownership and hopefully their kids will take it over. But it's gone at least 40 years now so far, 41 years in the same family. Anyways, that's that's a wonderful thing to see when when when families really enjoy homes and and take care of them that way. Even through the generations.

17:04

So like I know, in this area in Pennsylvania, so completely across the country to some extent from some of your locations. Here we have mobile home parks. And so some of them are owner occupied mobile homes, and some of them are landlord owned mobile homes, where they actually then rent out the mobile home. So in your in your experience, like because you're doing the affordable housing model, are you strictly going after owner occupied mobile homes, versus somebody that would then lease that home out. So a landlord buys the mobile home, and then they lease it out to somebody else.

17:38

So we've bought both kinds of communities. The second property I bought actually was about 90% park owned community park owned homes. That's what we call it, also known as P.O.H Park Owned Home. But we put those homes out, then on rent to own contracts. We told our tenants, hey, no rent increase. If you're willing to start taking care of your own repair and maintenance, you can own this house in say, 36 to maybe 60 months. And so we've sold most of those homes to tenants. That's always our goal. We generally do prefer to buy properties where residents already own their own homes. We call those R.O.Hs resident owned homes. But we'll buy both. But then, as you might imagine, Jen, renters again, turnover with far greater frequency than people that are owners. So even if tenants reject us and say, No, we want to remain a renter, that's fine. We never evict a renter. I mean, other than of course, if they don't pay their rent. But we would we would never just wholesale evict folks that are renters. But they'll naturally turn over in probably two years. And then as those mobile homes come back to us, we'll then own that. We'll probably put three to five grand back into them. Fixing them up. Getting them to code. And then again, we'll put them out on a rent to own agreement. Again, only looking for folks that want to step up out of renting and become homeowners. So in the long run, we build communities of homeowners. That that's our goal. Homeownership.

19:30

That's really awesome. That is really awesome. So what do you do when you have somebody that doesn't pay their rent, their lot rent anymore? What's the, what's the recourse on that?

19:41

You know, so if they're in the house that we're renting to own to them, then it's a regular eviction. They simply haven't paid. If they own their own house, it varies more by jurisdiction. But, we do still go through with an eviction. The variance is then whether the house has to be removed from the property. Anyway, it's very rare that you actually have to do that. Frankly, most folks that own their own house will be able to beg, borrow and steal and come up with, say 350 bucks to pay lot rent. Because again, if we do evict, we get a judgment against them, we can put that judgment on the house, and ultimately take the house from them. That's almost never happened. I've been in this business 14 years. There have been a couple of people that have just signed over the house to us. And as you might imagine, these tend to be houses worth between zero and a couple $1,000. I've never seen anybody, like buy a new house for $50,000 and then default on it. Anyway. So it's just so rare that that ever happens. That somebody that again, has been financially responsible enough to own their own home. It's just very rare that they then suddenly can't pay a lot rent. We have been working with folks throughout COVID helping to ensure they are introduced to local government and private organizations that can help them meet rent payments. We certainly have helped folks, you know, apply for new jobs and things like that. It's just very rare that that anybody again that owns their own house ever can't pay the lot rent. So, and again, if it's a house we own and we're trying to rent to own it to them, and they don't pay, it works basically the same as an apartment eviction. We give them proper notice, of course, but that's the way it goes. It's it's always heartbreaking to see. Oddly, it seems to be folks that like within the first year, if they're gonna, if they're going to default, it almost always happens like within the first year. There hasn't been a rent increase. Nothing has happened and they just, something bad happens to them. They don't have a financial cushion. And frankly, they tend to spend their money often on on other things other than rent. Anyway, so that's the way it works. It doesn't. It's unfortunate, it does happen. But but it is fairly rare that that happens with anybody that that's a homeowner.

22:32

Okay. Make sure you tune in next week where I continue my conversation with Jefferson Lillie about his mobile home park empire. Until next time, take care.

22:44

For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio, visit growingempires.com