On today’s episode of Ritter on Real Estate we get together with Kevin Bupp to hear all about what he’s learned over the course of his twenty years of investing in real estate. Kevin is the founder and CEO of Sunrise Capital Investors, a company that invests in mobile home parks, parking lots, apartments, offices, and single-family homes all across the US. Kevin has also spent years sharing his expertise through the Mobile Home Park Academy, educating investors on how to identify, acquire and grow exceptional returns on investment in the unique asset class of mobile home park investing. He is also the host of the popular podcast Real Estate Investing for Cash Flow. In our conversation with Kevin, we talk about how he first got into real estate and why it’s so important to take action when an opportunity presents itself. He also expresses his gratitude for finding real estate at such a young age and reflects on how it changed the course of his life. We dive into the unique nature of investing in mobile home parks, why it is Kevin’s favorite asset class, and how it differs from investing in multi-family properties. Tuning in you’ll hear Kevin outline what he looks out for when acquiring mobile homes and how location and demographics factor into his decision-making process. We had a fascinating conversation with Kevin and we’re sure you will find it every bit as eye-opening and informative as we did. For all this, and much more, join us today!
Key Points From This Episode:
- Introducing today’s guest Kevin Bupp.
- Kevin shares how first became enthusiastic about real estate.
- How Kevin was mentored in real estate by the father of a woman he dated in college.
- The importance of taking action when you are given an opportunity.
- We hear from Kevin about why mobile home parks are his favorite asset class.
- The key differences between investing in mobile home parks and multi-family units.
- The lack of third-party management companies that specialize in mobile home parks in the US.
- The challenge this poses to scaling your investments in mobile home parks.
- The necessity of building a property management company when doing scaled investing in mobile home parks.
- How private equity investing in the mobile home park equity class has affected the industry.
- Kevin discusses when selling is justifiable as an investment company.
- How Kevin factors location and demographics into his decision when investing in mobile homes.
- What Kevin has observed with rising rent costs and the popularity of mobile homes.
- The benefits and risks of mobile home park investing.
- We hear about Kevin’s keys to success.
Tweetables:
“I always like to joke and say that real estate kind of found me, I didn’t find it, right? So, I can’t take all the credit for having this huge desire and then ultimately diving into it.” — Kevin Bupp [0:02:33]
“You have to ultimately build out your own property management company. So, you’ve got to be able to scale and build a property management company, simultaneously, while you’re building your investment company.” — Kevin Bupp [0:16:02]
“You’ve got this weird period of time, where you’re probably feeding the beast, the property management company, in order to scale that business and get past that pivotal point.” — Kevin Bupp [0:16:20]
“There are more mobile home parks that either get redeveloped or shut down for one reason or another every year, then new ones that get brought online. And so, we have this finite supply. That’s a problem when you have increased demand in a particular asset class.” — Kevin Bupp [0:18:42]
“We’ve found that most of the folks that live in our community who own their own homes were your long-term renters prior to buying and now can somewhat live the American dream of homeownership even though they don’t own the lot itself.” — Kevin Bupp [0:27:55]
“The allure, I think, to a lot of folks that live in apartments, if it’s not an affordability issue, it’s the allure of not being held down or stuck to one place for a long period of time.” — Kevin Bupp [0:30:15]
“What’s more important than the actual track record is what is the plan B in the event [that] something doesn’t go as planned with that particular property? Financially as planned with that particular property. Do they have a plan in place? And if so, what is that?” — Kevin Bupp [0:36:33]
Links Mentioned in Today’s Episode:
—
If you enjoy the guests and content please subscribe and leave a review. Your reviews matter and each one has a major impact on the success of the show!
Interested in Investing Alongside me in our next multifamily deal?
Contact me at kritter@birgeandheld.com.
My operating partner, Birge and Held Asset Management have a twelve-year track record creating sustainable wealth for over 2000 investors through high-quality multifamily investments.
Thanks for listening!
—Full Transcript Below—
“KB: I think the question that most folks are going to ask is about the track record. But ultimately, I think what’s more important than the actual track record is what is the plan B in the event something doesn’t go as planned with that particular property, financially as planned with that particular property? Do they have a plan in place? And if so, what is that? I want to know what the fallback plan is, and also if they’re financially capable of carrying the weight and the burden of pulling that property through any of those variables that might come up.
[INTRO]
[00:00:31] KR: Welcome to Ritter on Real Estate, the show about how to passively invest like a pro. On each episode, I interview real estate experts who give their top investing advice, strategies, and tools that break down the insights into practical steps to avoid the pitfalls and make better investments. I want to help you passively invest like a pro. This is Ritter on Real Estate, and I’m your host, Kent Ritter.
[INTERVIEW]
[00:00:53] KR: Hello, fellow investors. Welcome to another episode of Ritter on Real Estate, where we teach you how to passively invest like a pro. Today, I’ve got a very special guest. I think I say that mostly, but I really believe at this time, because I’m excited to have Kevin Bupp on the show. Kevin, I’ll read more about you and then I’ll tell you about my own personal experience.
So, Kevin is the founder and CEO of Sunrise Capital Investors which invests in mobile home parks, parking lots, apartments, offices, and single-family homes all across the US. He’s got 16 years of experience in educating investors to locate, acquire and create higher than average returns from the wildly misunderstood niche of mobile home park investing. He shares his expertise through the Mobile Home Academy, and also is the host of the Real Estate Investing for Cash Flow podcast, which has become one of the hottest real estate podcasts on iTunes. And that’s exactly how I found you, probably five years ago, was through that podcast when I was really, really getting ramped up and really immersing myself in real estate. I think your podcast was one of the first that really got me going. So much appreciated. Thank you for helping set me on this path.
[00:02:02] KB: Absolutely, Kent. Thanks for having me here, man. Excited to be here.
[00:02:05] KR: Yeah, this is great. So, Kevin, you’ve accomplished your time, right? I mean, just reading through your bio, but give the folks some background on kind of where you started and how you got to where you are today.
[00:02:17] KB: Yeah, absolutely. I need to update that bio. I think it’s over 20 years now. So, I got my star – yeah, it’s a little dated, but it is what it is. So, leading into the story, how I got started, I bought my first property at the age of 20. But ultimately, I always like to joke and say that real estate kind of found me, I didn’t find it right. So, I can’t take all the credit for having this huge desire and then ultimately diving into it. It was it was brought to me by a gentleman who ultimately became my mentor. The funny story is that it was a girl was dating while I was in college. It was her mom’s boyfriend. So, his name was David, and David was a local real estate investor and I got to see him, get to know him after I go visit my girlfriend at her house and he’d be over there every once in a while, and we just chatted and got to know him a little better.
Ultimately, formed a friendship and found out what he did. He was a local real estate investor, owned for the most part, single family and small multifamily properties, was a buy and hold guy, he had a number of rentals and he lived a very different life than what I had growing up. I mean, we never went without, had great parents, always had a roof over our head, and again never realized that we were any different than anyone else. But ultimately, he drove a little bit fancier car, dressed a little fancier, and seemed to have a lot of flexibility in his day to day life.
My parents were at work, 9 to 5, Monday through Friday, and David would happen to be around random days of the week, right? So, I thought that was pretty neat. Long story short, David invited me. I think he maybe saw a 19-year-old at that time, a kid with no direction. I didn’t know what I wanted to do. I was going to school, going through the motions, but I didn’t really know what I wanted to do. I didn’t know what I wanted to sink my teeth into. So, going to school, tending bar part time.
Anyway, David invited me to a three-day workshop down in Philadelphia. His partner couldn’t attend with him. So, I went, didn’t know what I was getting myself into. But ultimately, I knew it was like a $5,000 workshop and that he was inviting me and just basically asking me to pay for my own hotel and that was it. I’m like, “That’s kind of a good deal.” And I went and I met a lot of folks that were doing a lot of deals, flipping Houses, for the most part, wholesaling houses. They weren’t really in the rental model. It wasn’t what this bootcamp was about. But ultimately, I was just very intrigued by folks that I felt were very similar to me. They weren’t any smarter. They just knew something I didn’t know at that point in time. And they were doing deals where they were making $20,000 and $30,000 a pop and they were doing dozens of those a year and that just that just amaze me. In any event, came back from that, was overwhelmed, excited, and I knew that if I didn’t have – I knew if I didn’t take action, which I didn’t know what the next steps were really, but I knew if I didn’t actually dive into it, that I would ultimately lose interest, get back to normal routine and would forget all about.
So, I basically went to Dave and I offered my services to him. He was about 25 years older than I and so I tried to figure out where I could add value to him and his business, in his life and technology. It was kind of it and aside from just helping him with the technology side of his business, create a little bit more efficiencies, I basically did whatever he asked me to do. I was meeting with contractors, I would go pick up supplies, I would draft documents, deliver documents, get things signed, anything he asked. So that, ultimately, I could be around him. So, that’s what I did. I basically spent about nonstop outside of going to school and, again, tending bar in the evenings, I would be at his office around the field, probably 40 plus hours a week, as much time as I could be around him and just basically absorb as much as possible.
And then at the age of 20, I bought my first property and that was kind of the start of it, single-family home, and I didn’t reinvent the wheel, I just basically, I utilized the same system that David had taught me. Again, I wasn’t trying to fix it because it didn’t seem broken and that’s what I did. My early 20s, I basically accumulated quite a significant portfolio of single family and small multi family homes. Just did that all the way up until 2008 and that was kind of a pivotal moment, I guess, you could say, it’s a nice way of putting it, of really shifting my direction, moving forward and ultimately got me to where I’m at today, as far as more involved, much more involved pretty much entirely involved the commercial real estate, with today an emphasis being on mobile home parks, and also parking lots. So, again, try to give you the condensed version of the story there.
[00:06:42] KR: Gotcha. Yeah, you just squashed 20 years down in a few minutes. I appreciate that.
[00:06:47] KB: There are lots of lessons, lots of failures, lots of good, bad and ugly, things have happened in those 20 years.
[00:06:53] KR: Well, I mean, the thing that really sticks out to me is, one, you have this opportunity come up and you take advantage of it. I think so many times, we can be presented with opportunities and because you’ve got your head down, kind of in your day to day or whatever, these opportunities just pass us by. So, you presented this opportunity to go to this conference, you realize what an opportunity that was, and you just jumped at it. You didn’t know what it’s going to lead to, but you just jumped at it. So, one, just taking action and then two, just isn’t it amazing? Like one experience can change your perspective and change your mindset and send you on a totally different path, and look at what all that’s that’s led to today. So, I think that’s pretty incredible.
[00:07:38] KB: No, it was a pivotal moment of my life. That’s really my rich dad, poor dad, and my real dad wasn’t poor. But yeah, it was very much 9 to 5, had a 401k, really didn’t have any investments out of that, outside of that at all. They didn’t own their home, but had lots of liabilities and just really looked at money in an entirely different way than that of David. So, it really was my rich dad, poor dad story and that really led me down the path, not just the real estate, but David had a background in sales. So, he was very much this is like back in the day of cassette tapes. He was very much into like your self-help, like Zig Ziglar and all those greats. Basically, gave me a pile of, again, I think CDs were prevalent then, but like gave me a pile of like old cassette tapes and books, it was like, “Here, man. This will come in handy as well, divulge this information, when you have free time, and I think that it will carry the right direction in life.”
So, anyway, it was a huge proponent of self-help, and just trying to better myself, both as an individual and as a business owner.
[00:08:39] KR: I think you’re so fortunate to be exposed to that so early in life, right and be able to set on that path. I mean, I have similar background growing up and very blue collar. My mom was a schoolteacher. Dad, he was kind of a lower level employee. We didn’t make a ton, but everybody got by and we were always happy. When you have that – but the thinking about basically, there was no investing, it was just saving, right? It was all about saving, saving, saving.
[00:09:09] KB: If there was a leftover to save.
[00:09:11] KR: Right. And then making sure you got enough set aside, to drive down to Florida to do that vacation, and we do things like that. But yeah, just the total mindset shift of this idea of investing and using your investments to kind of pay and supplement your income versus just saving, and trying to build up a pile of cash because it’s just totally different. So, I understand what you’re saying, coming from that mindset and having that shift and that kind of rich dad, poor dad story.
[00:09:39] KB: I didn’t know there was a different way. I think that’s the challenge is, you know, I view myself as lucky because I was exposed to and I wasn’t looking for something different, right? I didn’t realize maybe later on in life I would have, but at that point in my life, I didn’t realize that there was something so drastically different than that of what I grew up with. I just had never been exposed to it but I’m very grateful for David coming into my life and showing me a new a better way, a better path.
[00:10:06] KR: Yeah. Now, for your podcast and the academy and everything you’re doing, you’re showing others that better path. So, I mean, that’s the reason that I started this podcast right, same place similar is like, man I found out about this in like my early 30s and was like, “Holy crap! What did I know about this 15 years earlier? I’ve been doing this the whole time. I didn’t even know this way of operating kind of working outside the normal system existed.” So, yeah, the more people you can get in and then tell about, the better.
So, you mentioned that you invest in or you’ve invested at least in all types of asset classes. But what’s your favorite asset class?
[00:10:45] KB: That’s a great question. I’d say for the past 10 years, going on 10 years, it’s really been mobile home parks, and it’s still a favorite asset class today. I will give you full transparency that as a GP, I’ve owned just about every type of real estate. But even today, as an LP, I’m invested in multiple other asset classes. So, this isn’t a mobile home parks are a better conversation. I think they definitely carry their own weight in comparison to a lot of other asset classes, but I love self-storage. I love medical office. I do have some stuff in the office space, which is still doing fine today. Retail, not a huge fan of it today. But I don’t have any investments. But I think that you can make money in just about any type of asset class, right? It’s all about what is what is best aligned with your overall philosophy and ultimately what’s going to help you achieve your goals really, because the real estate, it’s just a vehicle. And there’s lots of different types of vehicles but which one is best suited for you and your business model.
So, mobile home parks have been that. And aside from mobile home parks, about a year ago, we started purchasing parking. So, parking lots and parking garages in downtown central business districts and tourist destinations. So, I’d say those two now are our favorite and they have a lot of similarities and they complement one another quite well.
[00:12:07] KR: Interesting. That’s really interesting. So, a lot of the listeners, we spend a lot of time on, we do diverge from time to time. We spend a lot of time focused on a multifamily on this show. So, tell me a little bit about what are the differences between investing in a mobile home park versus investing in a multifamily asset?
[00:12:27] KB: Yeah, I mean, there’s lots of similarities. I mean, they both are multifamily for all intents and purposes, they are multifamily properties. The mobile home park, I mean, I think some of the big differences is that there’s standalone individual structures, these mobile homes, and there’s a couple different types of ownership models that exist out there. Back when most of these mobile home parks were built, the majority of parks that are out there in the world today were built in between probably the ‘50s, and the ‘70s. Like that’s when the portion of them were built. Back in the day when they were built, it was kind of a build, and they will come. A developer goes and puts the infrastructure and put the roads in, and then ultimately, the end consumer, the homeowner buys their own mobile home, and they move it into that community.
So, that park owner doesn’t own the mobile homes. Their responsibilities to maintain the infrastructure. So, the water, sewer lines, the roads, and the lighting, common areas and things of that nature. So, in that original model and that still exists today, there are some hybrids, but you’re comparing that original model and we own many parks where we don’t own any of the homes inside that park. I think the big difference with multifamily is the operational intensity of the day to day, right? Because we’re not fixing plumbing, we’re not fixing ACs or roofs or doing make readies or anything like that. Ultimately, that’s the homeowner’s responsibility. So, our only job is to keep the park looking good and enforce the rules, fix any infrastructure problems that occur.
Now with that being said, the model kind of evolved over the years and some park operators or owners have chosen to go a slightly different path than the original where they don’t own any of the homes. So, I think where there’s become a lot of similarities is in models where you actually own the mobile home. So, there are many parks that we own today where we own a portion, a small portion of the units inside that park. So, we’re responsible, they’re rentals, we’re responsible for maintaining the roofs, maintaining the HVAC system, and all the mechanicals that go with that unit. So that’s a much more similar model to that of a multifamily. And again, I’d say that’s probably the more common model today in the park space, where there’s a majority of the homes are owned by the homeowner. And then a smaller minority is actually owned by the park as either rentals or rent to own, some type of creative financing strategy.
But other than that, I mean, they’re both multifamily, but they have a lot of similarities and a few things that are different. I’d say the only big thing that sticks out and it really comes to when you’re looking to get into mobile home park space, if you’re looking to get into this business and you’re looking to build some scale and I’m going to compare it to like multifamily, looking at larger complexes, 100, 200 plus unit complexes. In the multifamily space, the common path for a lot of investors is to, whether they’re syndicating or buying themselves, it doesn’t really make a difference is to utilize a third-party property management company to manage that larger asset. And there’s no shortage of third-party management companies across the US that specialize in managing multifamily assets. That is not the case in mobile home parks. There are a couple handfuls of management companies, most of them are regional. There are a few that are nationwide, but not many that have a great reputation, and not many that ultimately would do, probably a better job than what you would do yourself.
So, that’s where the scaling challenge comes in, whereas with multifamily, you could go by 2,000 doors, and they’re all off to a property management company. You’ve got to ask the management’s responsibility. But like to buy 2,000 units of mobile homes, you have to ultimately build out your own property management company. So, you’ve got to be able to scale and build a property management company, simultaneously, while you’re building your investment company and that becomes – there’s a certain point to where you got to make hires in the property management side, and that business is not profitable until you get to a certain scale.
So, you’ve got this weird period of time, where you’re probably feeding the beast, the property management company, in order to scale that business and get past that pivotal point.
[00:16:28] KR: Man, that’s really interesting. I’m glad you brought that up, because that’s exactly where I wanted to go, as I was going to ask, how do you manage these mobile homes? So, that’s a great explanation. So, as you build out that management structure, are you hiring people that live on site? Is that what you’re looking for, because of the less operational intensity? Or are you still bringing folks in, that maybe don’t live on site, and still manage?
[00:16:54] KB: Yeah, both. So, every one of our communities has an onsite property manager, community manager, whatever you want to call it. I’d say half of them live on site in the community and the other half live off site close by, and we have an office there. They come into work out there in a day. So, they handle things such as, you know, notices being handed out, rent collection, just general rule enforcement, ensuring that residents are keeping up with their yards and just repair their homes and things of that nature.
But then on the property management side, and so that’s at NASA level. And then on the actual property management side, we actually have a full-blown staff. We’ve got an asset manager, we’ve got a, called a regional director of property management, someone that oversees all those onsite property managers, and then bunch of back office staff that makes those wheels spin on the property management side. So, it’s not much different than that of a multifamily, because most multifamily is you’re going to have some type of onsite leasing agent or assistant property manager. You’re going to have someone there, unless it’s a really small asset, but we’re talking 50, 100, 150 doors. You’re going to have someone, a presence there on site that’s going to help manage that day to day.
[00:18:06] KR: Gotcha. So, from the from a mobile home perspective, as you’re looking at the market now, and you guys are obviously still looking to acquire, I mean, where is the mobile home market? I guess, what excites you about it? What also worries you about it if you see things coming?
[00:18:25] KB: Yeah, that’s a great question. I’d say one of the big exciting things about this industry is that it’s grown in popularity. And on the flip side of that, that’s also one of the downsides I see. There’s a major supply demand imbalance with mobile home parks. It’s the only asset class that has a diminishing supply. So, there’s more mobile home parks that either get redeveloped or shut down for one reason or another every year, then new ones that get brought online. And so, we have this finite supply. That’s a problem when you have increased demand in a particular asset class.
So, we’ve seen over the past year, cap rates have compressed, south of that of multifamily. Comparatively speaking, if you take some of the secondary markets across the US and look at a B class multifamily to a B class mobile home park, and similar size and scale, there’s a good chance that mobile home park probably will trade at a slightly lower cap rate than that of that multifamily.
[00:19:17] KR: Wow, I didn’t realize that.
[00:19:19] KB: Yeah, there’s been a lot of private equity that’s come into this space, lots of institutional capital, and the likes of Blackstone, Carlyle Group, those guys, when they go somewhere, and they get into a sector, they’ve got to be able to deploy hundreds of millions of dollars in order for it to make sense for them, right? So, their cost of capital is very different than that of your eye. They got a different source of capital. So, that’s definitely driven cap rates down. It’s driven an increased demand for again, this finite supply. So, it’s a good thing that those folks have come into the space, it’s added a sense of legitimacy to our industry. It’s also, created banks to become aware of our sector whereas you know, maybe 10 years ago, it was a little bit of a challenge to get financing. On some, maybe less than perfect mobile home parks, you had to like literally go through 15 lenders to find one that even understood the asset class, that’s very different today.
So now, there’s no shortage of lenders that will lend on both fully stabilized mobile home parks as well as turnaround assets. So, I think that’s really only, that awareness was only created from the larger players stepping into the space and making everyone else aware of it. So again, it’s kind of a good thing and a bad thing, because they’ve created a lot more competition, made a lot harder to find deals that tend to pencil out for groups like us. But yeah, it’s again, kind of a flip flop there of pro and con of those big guys coming into the space.
[00:20:43] KR: Yeah, it’s great if you’re an owner, and cap rates are being compressed around you. It’s a little more difficult if you’re looking to buy. So, if you have both, you got to weigh both sides.
[00:20:54] KB: Yeah, we don’t ever consider ourselves sellers. I think everyone should always consider selling at the right price, right? There’s always a price that makes sense, even if your plan was originally to hold for X number of years, there’s always a price that it should be able to justify you divesting of that asset. But generally speaking, we’re buyers. We’re buyers and holders and we have sort of a few things over the years that don’t necessarily fit our portfolio today, or where we think our portfolio is going, and maybe smaller assets or markets that we don’t really want to expand our footprint in. However, over the last, I guess you could say months, we sold a few assets that we had never intended on selling only because the prices – we could we could realize 12 years’ worth of gains immediately. How do you not justify selling? I don’t see the path to where, what the sales price is today, what someone’s willing to pay for it, I don’t see the path of how they’re getting there. I don’t think the value is what they think it is.
So, in that instance, and that’s not saying there’s not better operators out there, there are surely folks that can skin that cat in a more efficient manner. But in those couple instances where we’ve sold, I struggled to find any sense of sensibility of the prices that are being paid. So, I’m sure you’ve seen it in the multifamily as well. Anyway, with that being said –
[00:22:21] KR: But yeah, I mean, what you said, you essentially got an offer you couldn’t refuse. When that happens, it’s just the smart business person is going to take advantage of that. If you can lock in those gains, I mean, that’s a no brainer. Yeah. I mean, we’ve seen the same thing on the multifamily side. I mean, it’s way more similar, I guess, than I understood. As far as what’s happening from a [inaudible 00:22:40] standpoint, what’s happening with competition, the limited supply and outsize demand. I mean, there’s just a lot of similarities there. So, you said you’re maybe not struggling, but it’s more difficult in the current market to find deals, as you said, penciled out. So, when you’re looking at a deal, like what are you looking for, what makes that deal pencil out for you?
[00:23:04] KB: Yeah, I want to know that we can ultimately find a logical path within the first two years to somewhere between 8% to 10% cash on cash returns. And then that we can see, again, a clear path over our term of ownership to a 16% to 18% IRR, assuming that the market is a good market, and assuming that we’re comfortable with the asset itself size and and the demographic that we serve and what have you. But as far as from a financial perspective, that’s what we’re seeking, as far as returns are concerned and that’s what it’s kind of looks like for us. But it’s got to be a really clear path. It can’t be a well, if this goes exactly right and that goes exactly right over the next three years, there’s a good chance we’ll get there, right? Because there’s a lot of variables.
I think we’re going to see a lot of variables here over the coming years. What we don’t know, we don’t know, as far as rates are going to go. I know that the Fed keeps saying they’re going to keep them low here for the next couple of years, but really hard to bank a business strategy on that.
[00:24:04] KR: I think that makes a ton of sense. I mean, so you’re really looking for things similar, again, kind of to the multifamily space as far as return profiles. I mean, I think that’s really interesting. I think the one thing that I know that you kind of alluded to, you said the operational – I don’t remember the exact word to used, but essentially, there’s less operating expenses on a mobile home park, for the most part. Especially if folks own their own homes. So, I imagine you’re typically getting, you’re seeing a better kind of NOI, better income for the same amount of value. Is that true on a mobile home?
[00:24:39] KB: Yeah, that’s a good way to put it. That’s a good way to put it. I’d say the average mobile, again assuming that the mobile home park, the owner doesn’t own any of the homes and assuming that there’s nothing weird with a lot of mobile homes you’ll find are rural areas that have self-contained wastewater treatment plants to handle the sewage. Those are very expensive to operate. They might be running on a well system. Those are expensive to operate. But assuming that’s got municipal utilities, getting all the homes are owned by the residents, the homeowners, you’re going to run somewhere between – I’ve seen them as low, maybe it’s like a 30% expense ratio of gross. It’s in a higher tax area, maybe 35% or 40%. So typically, where your typical multifamily, it’s probably going to run at like 50% or 55%.
[00:25:19] KR: Yeah, I’d say like 10% higher than that. So yeah, there’s some value there. I’m glad you brought up rural markets, because I know that’s where a lot of these mobile home parks are located. I know one thing that as multifamily investors, we have gotten more comfortable with, but have traditionally been uncomfortable with these more rural markets, where you find these mobile home parks. So, how do you guys – I guess, what do you look for in a market? How do you become comfortable with maybe a smaller population size?
[00:25:47] KB: Yeah, and we won’t buy in a rural market. I mean, there are parks in rural markets, but for the most part, like we’re buying in similar areas prior to that of where you’re buying. We’re not going to buy out in the middle of nowhere. A lot of parks were built, if they were built 50, 60 years ago, they were built to what was back then maybe the outskirts of town. Maybe it was outside the city limits. Well, in the past 50 or 60 years, that city has grown and more than likely now that the mobile home park is now in the city limits, and surrounded by development, which is, again, why there’s this finite supply, because parks that have a much higher and better use today. Developers purchase them and whether they build a high rise or multifamily property or some other type of commercial project, that deems it necessary to tear that mobile home park down that, again, was once kind of on the outskirts of town, but now it’s in a path of progress.
So, as far as like, just like from like a minimum standpoint, we want a population of at least 100,000 MSA, and that’s a really small MSA. But that’s kind of like an absolute floor of what we’re seeking. We want to know that there’s job growth, right? Not just stagnant, but like we want to see that there’s active job growth happening in the area. Jobs drive the demand for housing. So again, lots of the same things you guys look for in the multifamily space that we’re looking for, and a lot of times we’re serving a very similar demographic. Most of what we have found is that a lot of the residents we serve had historically been renters, apartment renters for their entire life whether they’d had been renting for one decade or three decades, what have you, and not at the point in their life where they’ve got the the money for wherever they the mark they live in to actually buy a a stick built home. They don’t have the credit and they don’t have the down payment to buy a stick built home but they want to have their own home. They’re kind of sick of having a neighbor above them, below them, beside them, having to walk from the parking lot in the rain to the the entry of the apartment complex.
In a mobile home park, they can have their own little standalone unit right there. They don’t own the land, but they own the home. They can put Christmas lights out. They can have a little covered carport area so they don’t get wet when they walk in from the rain. And then they don’t have Susan next door vacuuming at 2 AM in the morning that they can hear. But we’ve found that most of the folks that live in our community who own their own homes were your long-term renters prior to buying and now can somewhat live the American dream of homeownership even though they don’t own the lot itself.
[00:28:13] KR: Yeah, that’s really interesting. I was thinking, I actually thought you’re going to go a different place. But that’s an interesting idea of folks that yes, as you said, that stick built home as prices continue to inflate and that becomes out of reach, this is a great opportunity for people to own their own home and I hadn’t thought about it that way. But I see a ton of value there. Where I thought you’re going to go, and what I was going to ask is, have you seen in markets that have like, extreme rent growth. I mean, there’s markets where rents are growing at 8% to 10% a year, are you seeing people that are like priced out of apartments and kind of moving maybe to a mobile home as an alternative which could be a cheaper alternative?
[00:28:54] KB: Absolutely. I always say that you take any market, pick any of the markets, you guys have apartments and they own apartments, and I will guarantee – we’re talking about an apartment large enough to house a family of four, right? So, either a two or three-bedroom apartment, I guarantee that the mobile mobile home park of the similar quality in the same market is going to be the cheapest option of housing for that family of four. It doesn’t mean that it’s the lowest quality, and at any given market across the country, and this is assuming that you’re not going to cram a family of four into like a studio apartment, right?
[00:29:33] KR: Right. Reasonable size.
[00:29:34] KB: I’m talking like yeah, it’s got to be like apples for apples, a two-bedroom, two-bath apartment, to a two-bedroom, two-bath mobile home in a similar quality park with similar amenities, swimming pool or things of that nature. You’re going to find it the mobile home park is inherently cheaper than that, or better value than that of the apartment. So, I guess you could say the one downside if there is any as with an apartment, you have a little bit more flexibility as far as transient nature. And so, you know, whether it be a 12, or what have you lease. I mean, you can kind of just get up and go thereafter. Whereas if you own a mobile home, it doesn’t mean you can’t sell it, you can surely sell it. But like you have that burden of having to sell the home. If you decide that you want to move out of the community. You either sell the home or you can move the home, move the home to a different community. But you don’t have that same flexibility that you might have in the apartment.
So, the allure, I think, to a lot of folks that live in apartments, if it’s not an affordability issue, it’s the it’s the allure of not being held down or stuck to one place for a long period of time.
[00:30:34] KR: I mean, it sounds like a lot of positives to mobile home investing. I appreciate you educating me on it. It sounds like as an investor, you’re able to get similar returns, but on a product that actually is more affordable for more people, which I think is really attractive.
[00:30:49] KB: Well, yeah, absolutely. And then some of the other big benefits as you’re speaking to, maybe the flexibility that a tenant has in an apartment, in a mobile home park, that equals a lot less turnover. So, they own that home. Normally, they become very sticky. They stay for a long period of time. We’ve got tenants that live in a few of our parks have been in for 35 years. They own their home. And then ultimately, what occurs is if they decide that they do want to leave, again, they’ll either put their home up for sale, which is more common, or they can move that home. If they move that home, it’s pretty expensive to move it. If they’re moving it locally, they’re probably going to spend $4,000 or $5,000 to move it and reset it. So, what most folks do is they just ultimately turn around and sell it.
So, the cool thing about that is, is that while they have that home up for sale, they’re continuing to pay lot rent. They find someone, a prospective buyer, that buyer gets qualified by the community, we do a background check, make sure they’re not you know, a criminal or sex offender or anything like that. They get qualified, they transact that sale. New owner moves in, takes over the responsibility of that lot rent. So, there’s never a downside or down period of time, to where you’re not collecting rent. So, you don’t have that gap of revenue, that you might have an apartment that you’ve got move out, maybe it takes you a couple weeks to make ready, a couple more weeks to market. So, you got a month, maybe two months in worst case scenario of no revenue net, that particular unit. So, that doesn’t exist in any mobile home park to where the resident owns the actual home itself.
[00:32:15] KR: Gotcha. It sounds it sounds really compelling. So, what’s the downside of mobile home park investing?
[00:32:21] KB: Yeah, it’s a great question. I think one of the – and I don’t know, it’s never anything –
[00:32:26] KR: Maybe it’s a risk.
[00:32:28] KB: Yeah, more of a risk than anything else. I mean, obviously, throughout the US, there are different areas that have different natural disasters that occur. In Florida, we get hurricanes down here, the Gulf Coast, we get hurricanes. Out West, you get earthquakes or in the Midwest, you get tornadoes. So, I’d say tornadoes are probably the biggest of all those risks. If a tornado rips through a mobile home park, more than likely, it’s probably going to do a lot more damage than that of an apartment complex. Where the challenge comes into play is both would experience vacancies, if a tornado came through. However, with a mobile home park, you’ve got physical units that are owned by these individual tenants. There’s no guarantee that they’re going to bring that home back in.
So, what happens a lot of time, there’s two different instances that typically occur. Number one, like all of our mobile home parks are listed. FEMA has got an ongoing list. Our parks are listed in any given market that we own on FEMA’s list, so that if a natural disaster occurs, such as a hurricane or a tornado, and it wipes out tens or hundreds of homes in that area, they got people that are displaced and need some sort of temporary housing. What FEMA does, quite often, pretty much every time, is in a mobile home park or an RV park, that infrastructure, most of the times underground. It doesn’t get damaged. The water lines don’t get damaged. The sewer lines don’t get damaged. So, that is the quickest path for temporary housing is by FEMA basically, manufacturing a bunch of mobile homes and putting them back in these mobile home parks.
So, that typically occurs and then there’s a path to purchase those homes down the road once the folks move out what happened. So, that’s something that we are signed up with, in every market that we’re in. On the flip side of that, we’ve got loss of income or the business interruption insurance that would essentially pay us for up to 18 months if we experienced a severe loss. But really the big challenge is getting those lots reoccupied. Again, not get banking on FEMA to do it. If you had to do it yourself, more than likely you’d have to go probably buy a bunch of home inventory and bring it in and then turn around and sell it to reoccupy that mobile home park quickly. You could wait for natural infill to occur for people to move a home in but more than likely, the faster path would be, and it’d be very capital intensive, would be to go purchase. Let’s say you lost a hundred homes and the folks aren’t moving back in, go purchase hundred mobile homes, bring them in and then create a sales program to find new residents to purchase a move in.
I think that is the biggest risk and it’s if you own parks in Florida, every time a hurricane, every time the weather channel is following a hurricane, that’s what you think of. And we don’t own anything in Florida today, but we’ve gotten stuff. Most of the time, it’s been inland like Central Florida, but even Central Florida gets impacts from hurricanes. They get high winds or tornadoes that whip up and things of that nature. And I can tell you that there’ve been sleepless nights here over the last five years, when we go into Florida of, I just don’t want to have to deal with this tree falling or homes getting ripped out. Obviously, your folks possibly being injured, what have you. But I think there’s that type of risk, pretty much anywhere you own in the country, maybe up north, the biggest risk is like you get eight feet of snow. It’s not as bad as a tornado or hurricane or an earthquake, or wildfires out west. You get wildfires you get to deal with as well. So, in any event, that’s the biggest one and biggest risk in mobile home parks.
[00:35:39] KR: Gotcha. So, it sounds like you watch The Weather Channel maybe a little more closely than the rest of us.
[00:35:46] KB: Yeah, I do.
[00:35:47] KR: Well, I appreciate you sharing. I mean, there are risks with everything, right? So, I appreciate you sharing those. Risks are all about how you how you mitigate them. It sounds like you guys have taken steps to do that and that’s interesting. It’s pretty creative. So, I appreciate you sharing those things.
Well, Kevin, it’s been awesome having you on to share so much value. Before I let you go, love to take you through our keys to success. I’ve got four questions I want to ask you. First one is, what is one question that every investor should ask their deal sponsor? So, like, if you only got one question as an investor?
[00:36:23] KB: Yeah, that is a great question. I think the question that most folks are going to ask is about the track record. But ultimately, I think what’s more important than the actual track record is what is the plan B in the event something doesn’t go as planned with that particular property? Financially as planned with that particular property. Do they have a plan in place? And if so, what is that? I want to know what the fallback plan is, and also if they’re financially capable of carrying the weight and the burden of pulling that property through any of those variables that might come up. Because you and I know that not every deal goes as planned, some exceed expectations, and some never meet expectations. So, what is that plan? What’s that look like? And ultimately, how are they going to execute on it?
[00:37:08] KR: Yeah, that’s a great point. Our head of underwriting, he has a quote that I love, he said, “All pro formas are wrong.” Every underwriting is wrong. You can either be wrong in a good way or wrong in a bad way. So yeah, I appreciate that. What’s Plan B? And how do you manage the downside risk? What are you most proud of in your career?
[00:37:29] KB: That’s a great question. I think just generally speaking, I’ve got young kids, and I’ve got a wonderful wife and I attribute the flexibility, I have to spend a lot of time with them and to – quality time with them. And really, if I just worked the normal 9 to 5, or just you’ll hustle, the normal W-2, probably wouldn’t have that. I see that is a somewhat of a resentment from a lot of folks that realize later on in life, that they missed a lot of quality moments with their family. So, I can only attribute that quality time, my family to my career in real estate.
[00:38:03] KR: Yeah, I really appreciate that. I mean, that is really what set me down this path too, of wanting to be around when my kids grow up. So, I 100% get that. What is one book that everybody should read?
[00:38:14] KB: The Go-Giver. That’s what comes to mind. It’s probably the one I’ve gifted more than any other book to friends and associates and employees. It’s short, concise, and it’s very impactful.
[00:38:26] KR: Absolutely. And then what is your number one key to success?
[00:38:31] KB: Full integrity. Do what you say you’re going to do and do it right.
[00:38:36] KR: That is the most important thing. Really what matters, it is. I mean, we talk about who your sponsor is going to be, or who you’re going to trust with your money, you’ve got to have somebody that has integrity.
[00:38:48] KB: Absolutely. Without integrity, nothing else really matters.
[00:38:51] KR: That’s right. Absolutely. So, Kevin, I mean, man, thanks for coming on. This has been awesome. Like I said, avid listener of your podcast. So, this is cool for me to have you on and kind of come full circle here. If folks want to want to get a hold of you, and they want to learn more about what you’re doing, how can folks reach out to you?
[00:39:10] KB: Yeah, one of two places, best place to go, either for a company side of things, you could learn what we’re doing om the mobile home park or the parking space, you can go to sunrisecapitalinvestors.com. And then as far as me personally, if you want to just get a better sense of who I am and the things I do and listen to the podcast I host, you can go to kevinbupp.com. So, either one of those also has a Contact Us page. So, if someone wants to reach out, just go ahead and fill out one of those forms and ultimately, it makes its way back to me.
[00:39:37] KR: Awesome. Once again. Thanks, Kevin, and have a great rest of your day.
[00:39:40] KB: Kent, thanks for having me, man. It’s been a lot of fun. Appreciate you having me on.
[00:39:43] KR: Yeah. Awesome. It’s been my pleasure.
[END OF INTERVIEW]
[00:39:45] KR: Thanks for listening to another great episode of Ritter on Real Estate. Hit the subscribe button and make sure you don’t miss out on the content that will make you a better investor. Also, visit kentritter.com for articles, videos, and tools curated just for passive investors. Until next time, this is Kent Ritter with Ritter on Real Estate. Now, go out and invest like a pro.
[END]