607: Special Guest - Jefferson Lilly - Mobile Home Park Investing (Part 2)
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00:01
Welcome to Episode Seven of season six of the Growing Empire Show. Today I'm back with my special guest, Jefferson Lily. And this is part two of our conversation about how he grew his mobile home park investing into a profitable business venture. 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 what is the average value of a mobile home? Are we talking like 25 to 50,000? Are we I mean, I know you're in all different states. So it may be very different from state to state. But what is like a general average of the value of these homes, I would guess, around 25,000. But I thought to Yeah, we do infill our communities with brand new homes right out of the factory, those tend to sell for about 50 to 55,000. That's at the high end, at least for what we bring in, we want the houses to remain affordable, that's going to be probably eight to $900 a month payment, including the lot rent, again, comparing quite favorably to comparably sized apartments, which would be 11 to 12 $100. And of course, no shot at homeownership and reducing your living expenses there. But anything that would be at the high end for a single wide 16 by 80, that's going to be a 12 180 square foot house, three bedroom, two bath 50 to 55,000. At the more modest and of the spectrum, we would have some probably 40 year old, maybe 50 year old used homes, that might go for three to $5,000. And again, you've then got everything in between that at the bottom and in the 50 some odd 1000 at the high end. So 25 probably a good average.
02:09
And how different from state to state to your lot rents change, are they drastically different from state to state? Or is it because obviously the price of land is different, right? So I would imagine that they kind of differ a little bit.
02:20
Yes. And it's not all driven by the price of land exclusively. It's also just whether you can develop housing on it at all, or just what other restrictions, government usually places. So for instance, at the high end for us, is our property in Fairbanks, Alaska. Well, there, it's not so much government, it's just that it's enormously expensive to get anything brought up up there to Fairbanks, Alaska, the average house price and it's not a fancy house, the average house site built regular house is about $246,000. Up in Fairbanks. It's enormously expensive to get wood and nails and class up there. So there are lot rents are about $450. Contrast that with our properties down here in Brownsville, Texas, where we've got much more affordable housing. Still, I think the average house price is around 100,000. Here our lot rents currently are, I believe, about 260 a month. So that that's generally the range. California, of course with the highest generally the highest amount of government interference and restriction and silly regulations on houses. At least coastal California will often be over $1,000 a month in lot rent. Certainly, it's desirable to live on the beach. The government also does crazy stuff in California, requiring you know, an excessive amount of concrete to be poured, you know, under a house and just all all the environmental and other government interference just gets crazy anyway, so we don't actually own in California. Again, we own principally out in the Midwest, where it's a little more free markets. We just prefer prefer that to dealing with all the the regulatory environment in places like California.
04:32
Sure. So how does a homeowner actually get funding? Do they get financing? Do they typically pay cash for these properties? And what if they do get financing? I assume it's not the same as bank like mortgages, right? Because what you own on a mobile home as a title, am I correct? You don't actually own a deed you own a title?
04:52
Yes. So mobile homes have a VIN number just like an automobile and title Except for California. Title, in the normal part of America, trades through the DMV, just like an automobile. So you get, so it's chattel. It's not real estate, it's wheel estate. So it varies. Some banks will lend on mobile homes. Especially in stronger markets. Like in California, there are a couple of mobile home parks within, you know, a couple of miles of Apple computer’s, new headquarters in Cupertino. Those mobile homes tend to go for a quarter of a million dollars or more. So some banks, in markets like that, banks will finance things. There are also some specialty finance companies 21st Mortgage and Triad and Credit Human, just to name a few. But there are also some specialty finance companies that specialize in financing mobile homes. Specifically in mobile home parks, where again, the lending institution is not taking the land as additional collateral. Frankly, for tenants with greater down payment and that have been more responsible financially and therefore have higher credit scores, those tenants can get financing, say on a quarter or half acre of land, and then buy a mobile home. Put the mobile home on the land on a permanent foundation. We call that a land home deal. And a lot of banks will lend on that. They are again taking the land as additional collateral. Then it becomes just like a regular site built house. That's not what we do. We own the land. So we'll help our tenants apply for credit with some of those specialty finance companies. And then we you know that that would be generally for homes more in the 15 $20,000 and up range. For more modest older homes, if somebody really wants to get into a home and they can only you know, finance something for five grand, maybe they come up with cash, or they come up with $1,000 down and we'll finance out say 4000 bucks for them. So so it's a range, lower price stuff, we provide the rent to own financing. Typically higher and newer, higher priced and newer homes, then tenants will do it themselves. It is kind of a finance company.
07:42
Yeah. So when you buy these mobile home parks, are their homes always there? Or are you sometimes just buying land and then you're putting the homes there? Or is it a combination of both?
07:52
It's combination of both. I'd say a typical deal for us, as much as anything in this business is typical, might be say, a 100, space park. 80 spaces occupied mostly with resident owned homes. Then maybe another five homes that are abandoned, that a previous owner has not put the time or money into. And then we'll go ahead and bring in another 10 or 15 homes. And those will typically be brand new homes. We'll bring those in and get those financed one way or the other for tenants. Then the properties fall and you know, we're done. Then we move on to another property, you know It tends to take a couple of years to get a property up to 100% occupancy. But again, one way or the other, with outside capital from these finance companies, or with our own capital, we’ll make homes available for tenants. Again, almost certainly less than 1000 a month. Sometimes less than 800 bucks a month. And they're then on a path to becoming a homeowner in a reasonable number of years. The longest mortgage we have goes out about 15 years. Nobody's in debt for like 30 years in our business.
09:17
Wow, that's drastically different. Yep, traditional real estate for sure. Yep. So how does one get started? So let's just say somebody listening to this podcast, and they're like, wow, this is a great idea. I want to do more investigation. what should they be looking at or looking for? And how would they analyze this kind of deal to know if it makes sense?
09:38
So folks need to figure out what they're comfortable with. Some people want to own you know, whatever it is just within, you know, 30 minute drive of their house. That's fine. That might be a lower quality park. Who knows? Depending on where you live. So this is a very personal matter. But the way we look at it, what's important to us would be typically to buy in a, in a city and in a metro of roughly 50,000 people or larger. So generally really small towns don't work. We've bought in some 20 and 30,000 person metros, but you know, typically 50,000 and up. We're also typically looking to buy in a metro where the average house price of course, regular sight built house, is $100,000 and up. So that would weed out places like Detroit, Toledo, Youngstown, Ohio, places that are kind of rust belt, we've got to have a certain minimum level of economic health. And that's typically exhibited by the average house price being in the six figures. Not in the five. So we look for that. We also like to be within five miles of a super Walmart. Walmart tends to do their own economic research pretty well. So if Walmart has invested in building a super Walmart, somewhere within about five miles, then probably that means again, it's probably a good place that that you can run a mobile home park well. We can't fix the economy, right? We can fix the houses. We can fix the roads. We can fix the pipes. We can fix the marketing. We can fix the credit and criminal background checks on the tenants. We can fix a lot. But we cannot fix the broader economy. So we're basically looking for sort of under managed properties in at least medium healthy economies. We'd certainly love to own out in Silicon Valley. But as you can imagine, pricing there tends to be prohibitive. So again, perfectly fine to own these properties in places. We’re right now active in again, Fairbanks, Alaska, Brownsville, Texas Pocatello, Idaho, Sioux City, Iowa, places like this. You know that they aren't A-tier markets we're not buying in Manhattan or Los Angeles. But again, typically throughout the greater Midwest, second and third tier cities, we can still do quite well. And again, expand the supply of affordable housing and also make a decent return for our investors as well.
12:41
The episode will continue in just a moment.
12:45
The 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, and one 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 growing empires.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.
13:49
So would you say that this is somewhat recession proof? As far as. I mean, what what happened during COVID? Right, you've obviously we're doing this prior to COVID. And then COVID is upon us across the country across the world. Right? What happened to your business during that time?
14:04
Yeah, so recently, that is to say during COVID, we think we're losing three, maybe 5% of rents. Presumably, we'll see what the future holds. But presumably, once the eviction moratoriums are behind us, we'll be able to get caught up on most of that, and it won't be a permanent loss. But really, that that's relatively mild. Certainly compared to you know, folks, for instance, in the hotel business that I think was off 80 or 90% at the depths. We haven't seen anything like that. I actually did analyze this issue for the last real recession, the 2008 2009 housing recession and this is up on our website. But what happened there. So there are three publicly traded REITs that specialize in mobile home parks. And the three of them, from roughly the year prior to that recession to the depths of that recession, those stocks were off about 45%. Now, the underlying stocks themselves actually had their two, best ever back to back quarters, right in the middle of the recession. That was Q4 of ‘08, and I think Q1 of ‘09. So while the stock market got very nervous, and sold off those stocks, again, the underlying performance was rock solid. Those three stocks earned more money during the housing recession of ‘08 and ‘09 than they did prior. It was somewhat slower growth, but it was still growth. And then once the recession was over, growth picked up even more. So that's what happens to this business during a recession. It's still pretty good. It is the most recession resistant, legitimate business that that I'm aware of. And, you know, I had just gotten into the business in ‘07, about a year prior to the housing recession. I had my one property just there in Oklahoma City at the time. We remained 95 to 100% fall during that recession. We actually increased lot rents about 50%. Which sounds crazy high, but it was coming off $110 lot rents, and we got them up by 2010, to about 155. But still quite affordable. But it was about a 50% increase from 2007 to 2010. And again, we remained about 95% full and we actually were selling more houses. People were moving into our community even at the higher rent. So that's what that's what the experience has been both recently with COVID and going back to the last real sort of more more traditional economic recession.
17:34
And why do you think that is? Do you think it's just because people were forced to live a little bit more economically, so they started to lean toward the more affordable type of housing?
17:44
You know, as they say that the poor are always among us. There's just always, always demand for affordable housing. We saw only a couple of people sort of get bumped down, as it were, out of sight and built houses. It really just seemed to be frankly, a lot of the tenants just stayed there really wasn't that great a turnover during the last recession. Frankly, unfortunately, folks lose their job. Again, most of these folks are working at places, you know, like Pizza Hut or McDonald's, or they might be a truck driver. These are jobs that tend to pay, let's say $15 an hour, maybe 20. It's relatively easy to find another one of those jobs. You just you move from one restaurant chain to another or one trucking company to another. So even when they're recessions and people do lose their jobs, again, at least at this end of the economic spectrum, it's relatively easy to find another job. It's not as easy if you are, you know, a partner in a law firm and used to making you know, a quarter million bucks a year and you lose your job. That that might be, you know, six or 12 months before you get another serious six figure job. But again, most of our folks are making household income 30 maybe $35,000 a year. And so it is fortunately for these folks really in need. It's relatively easy to find other jobs, and most of our tenants just stayed our evictions didn't really spike up. Folks just maybe changed jobs and kept kept paying $155 a month lot rent. It just was a largely a non issue.
19:41
So we talked about a lot of the pros and all the reasons why you would potentially want to invest in mobile homes. We didn't really talk about any of the things that people should be a little bit leery of or the things to kind of stay away from. You may have touched on it a little bit when you were talking about areas that you invest in or how you identify your mobile homes. But, is there anything specifically, that you could give as, make sure you don't do this or be careful of this?
20:06
Don't make the mistake that I made with my first park. That first Park was on well water and a sewage lagoon. All private utilities. Don't do that. Maybe not for your first park. Maybe later, maybe after you got a couple under your belt, if you want to take that risk, maybe. But for a newbie, for your first park, only buy a part that is on all city utilities. As it turned out, for instance, even though we had, in writing from government, a letter stating that our sewage lagoon had been built to code. It was not. And the government then came after us after a couple years and said, Oh, you need to make this right. And that was about a $500,000 mistake. So what government tells you is not worth the paper it is written on. Yeah, go figure. So it's just not worth it. For a first time buyer. Just buy something on all city utilities, that would be your biggest expense that might get out of control. So again, if it's city, water, city sewer, you know what your expenses are. If something goes bad, those expenses are on the city, or maybe you do a little pipe repair. But it's not going to kill you. So that would be my advice. Later, if you want to buy stuff on private utilities, and you know more about what you're getting into, okay. Make sure the price reflects the risk. But I made that mistake on my first park. I survived. Again, rents or I bought the park, right. And rents are now still a little below $300. But again, we came off rents at 110. So they've gone up percentage wise, a good amount. Still affordable, but we are cash flowing. So. But anyway, so I, as I say my first park had too much potential. There were also a lot of homes to renovate. And I brought in 20, roughly 20 new mobile homes. Anyway, so there's some properties with just too much potential. And I would say stay away from that. Get get a park that's maybe got 10% vacant homes, all city utilities, that's something you can work and figure out. You'll still probably have some negative surprises, but it's not likely to to kill you. So that that would be my advice. Or you could invest in a fund like mine and let somebody else deal with the headache.
23:00
That was literally going to be that that was going to be my last and final question for you. Do you consultant, help people do this? Or do you strictly operate funds and syndication deals? How would somebody you know, start on on this if they're looking for some leadership or some professional guidance?
23:21
So I've started the industry's first podcast just dedicated to this exact thing. How to find and diligence and finance and operate mobile home parks. It's simply called The Mobile Home Park Investors Podcast, and people can find it on iTunes or Stitcher. We have about 120 some odd episodes out there. We've also done some interviews with folks that are in the business that have bought parks or designed to parks. Or will also with Jim Clayton. Who is I believe a billionaire. He sold his mobile home business to Warren Buffett about 15, seven or 17 years ago. But people can find that simply by going to mobilehomeparkinvestors.com. They'll also be linked through to our LinkedIn group. We've got over 6000 members on LinkedIn just trading tips and tricks on mobile home parks. And I also publish the industries calendar. Which people can just download into their device and see upcoming events. So that's all a good way to learn about the business. I'll also say that we also are always happy to pay out referral fees. If somebody finds an off market, mobile home park. That is to say there's probably not a broker involved but they bring us an off market mobile home park. We’re Happy to pay referral fees. We've I paid out a little over $900,000 over the last couple of years, even referral fees to folks. And they can contact us off our regular website just at Parkavenuepartners.com. Down at the bottom of that page is a Contact Us form. And at the top of that page is a link to our email list. Frankly, I don't do as good of a job emailing as I should. It's usually less than once a month. But if people want to keep abreast on our our deals and our upcoming fund here in May of this year, that's all there just at the top of the page of Parkavenuepartners.com.
25:44
Okay, fantastic. Well, I will definitely make sure all this information is located in our show notes page as well. So anybody that would like to contact you has those avenues to reach out to you. Jefferson, I really appreciate your knowledge and your expertise. And this was a really interesting topic and kind of a little bit of an untapped market, at least in my world and Pennsylvania. It's a very untapped market. So I think it was really interesting to hear a lot of your insight and some of the pros and cons and how you kind of got started and, you know. Congratulations on the the empire that you grew on your own. But I really appreciate your time and your expertise and all of the value that you're shared with my listeners. So thank you very much.
26:27
Thanks for having me on your show, Jen.
26:29
Thank you for listening to this two part segment with Jefferson Lillie regarding mobile home park investing. I hope you got a lot out of these episodes and until next time, take care.
26:40
For more information about how Jennifer can help you plan, develop and manage a strong real estate investment portfolio visit growingempires.com