Podcast Episode #19: MHP Action Steps
Today, Jason and Glen return to discuss MHP action steps. “We closed three deals this week,” he says. “We’ve been closing a deal about every ten days or so.” This isn’t unusual, either. For the park owners that have sustained, there’s been no shortage of competition.
The guys attribute these deals to the durability of the MHP industry. Rent collections are almost 100% what they were pre-pandemic. In short, the work has only picked up! This inspired Jason to start searching for his first deal. That said, let’s explore effective action steps for entry into the industry.
Action steps for your first MHP deal
Step 1: Create A MHP Database
The first step Glen advises is creating a database. Most counties have at least some presence of mobile home parks. Create a list of each, and familiarize yourself with them. This can help you identify a park that best suits your interests. There are even opportunities to barter leads with other developers or brokers.
Step 2: MHP & Municipalities
The next steps involve figuring out how you’re going to manage your park. Who’s managing the day to day operations? Who’s filling what role? Be intentional about structuring your team. Everyone adequately fulfilling their roles can help ease municipality restrictions. You could very well face several denials before a successful approval.
Glen recalls one such instance in Eastern Tennessee. “They absolutely did not show me ounce of love. The only thing I got from them was violations because my grass was too high.. Anything they could do to ruffle my feathers.” The same goes for a recent property in Pittsburgh. The biggest takeaway: networking with municipalities helps to lessen these restrictions. Relationships can come in handy, but don’t bank on them.
The most important of the action steps
The best advice is just to get started. “Don’t be lazy,” says Jason. Start reaching out to necessary contacts and building relationships. Glen recommends tools like Google Earth to “give you an edge over competition.” Going this far in depth can help you prepare and narrow your interests.
Patience in your action steps
The mobile home park industry can take a considerable amount of time to break into. Introductory, reputable park deals can take “3-5 years” to close. Most sellers aren’t looking for the fast sale, but rather for buyers that are diligent. Focus patience on being a principled, trustworthy buyer. The rest will eventually fall into place.
After you find your dream MHP
After you find your desired park, learn the details. Instead of focusing on price, “you should already know how many… tenets, homes, and vacant lots there are.” Seek out the value of the property, and get a feel for the owner’s position. Building a relationship here can also help you in the long run.
There’s no time like the present. If you’re looking to join the mobile home park industry, contact us today! The Mobile Home Park Expert is committed to helping you get starting. Check out the Mobile Park Expert Podcast for more breakdowns and information!
Hello and welcome to the Mobile Home Park Expert podcast. I’m Jason Sirotin joined by the mobile home park expert himself, Glenn Esterson. Glenn, how the hell are you?
Living the dream, buddy. Hope you’re doing excellent.
Yeah, man. It has been a wild pandemic. We have been very slow in our podcasting, so we do apologize, but we have just been really, really busy. Surprisingly Glenn, you have been just on fire, rapidly, like crazy busy, right?
Crazy amount of deal flow and activity and helping people out, evaluating their parks. We closed three deals this week. Some were tiny deals, some were midsize deals, and some were big deals. For the last six, eight weeks, something like that, we’ve been closing the deal about every 10 days or so. That’s been pretty exciting. Our deal flow is through the roof right now. We’re seeing this not necessarily happening all around the markets, but for all the good parks and the sellers that are out there right now, it does seem to still be a pretty competitive environment. The lower quality stuff has a little less desirability, it seems right now, but the higher quality stuff is definitely trading.
It’s exciting to be a part of. It’s just testament to how resilient the manufactured home communities really are, especially with collections being for the most part within 95% of collections from 12 months ago. That’s a pretty stout number. I mean, obviously there’s some caveats there, but pretty exciting stuff. From a busy standpoint, I couldn’t tell you that I was working any less than I was pre-COVID. I’m still looking to take a breath. We were just hoping to rent an RV and go cross country with the kids. With this new COVID outbreak, we had to rethink our plans, unfortunately. It’s an interesting time, to say the least.
Yeah. I like that people are still doing business. I like that business is continuing. I mean where people can do business, they’re doing business and trying to keep the machine going. I’m just very hopeful. I thought now actually is maybe a good time to really start investigating and finding my first deal. So, over the past couple of weeks, I’ve been diving into sites, looking at listings. Glenn sent me a few. A couple of my other buddies who I’ve met through Glenn have sent me a few. I thought now would maybe be a good time, Glenn. What exactly are the steps I should be taking with finding my first deal? I know we’ve talked about very broad, but when we talk about action steps, what should I be doing?
It’s going to be different for a lot of people, and we can go in a couple of directions with this. For you particularly, I know exactly what you’re looking for and you need headache-free and you need not to think about it and you need something that’s going to give you a nice return, but also allow a lot of depreciation, and after tax type of losses, where you can take some good losses on your taxes. You’re a little bit more unique in the fashion that you’re not chasing yield per se. You’re definitely not trying to do a heavy lift.
For somebody like you, it’s actually a lot easier to find a deal because there’s a pile of them if you’re willing to work with brokers, because that’s the kind of thing that brokers will typically have a lot of. But if you were saying, if you didn’t know me and if you were trying to find your own deal and you’re all the way up there in New Hampshire and saying, “Geez, how do I get a deal?”
What I’ve been working with a lot of guys is teaching them the first steps of what to do. I talk about it in my book a lot. There’s some true, true, true first steps that we talked about on this podcast before. You need to figure out the municipality that you want to work with. You need to figure out your management, and you need to figure out your debt before you go wasting anybody’s time trying to buy any kind of park, because if you don’t have those three things figured out, you might go a little sideways right out the gate. Most people like to put the cart before the horse and go find the park and to figure out the rest of it. I don’t necessarily agree that’s the best way.
The way that we do it and the way that, if you’re methodical about what you’re doing, what I would suggest is first creating a database of all the Mobile Home Parks in your county or your tri-county area, or some MSA or two, that you have a strong interest in. You’d be surprised how easy you can find every single park. If you just spend enough time on Google Earth, and if you limit your radius to fairly small areas, you can drop pins on everything and then scroll into it and then go research the county records and going through the various places you can track things down with. You can use a LexisNexis type of search, and build yourself out an MSA or two.
In most counties, there’s less than 100 parks. In some counties, there’s more, but most counties are going to have less than 100 parks. You go through and you figure out all the stuff that’s relevant to understanding that park, the location, obviously, but then the seller information, phone numbers, all that stuff. Then you start calling them. You’re starting to ask these guys. I like to look for mom and pops that have owned these parks for a long time that might be at a depreciation, and trying to think of how their tax benefit from real estate is coming close to ending on this thing and what are they going to do to recapitalize that type of income.
When I started creating my database, that’s how we started. Now Charles, on my team, Charles DeHart has taken the database to a whole other level. It’s like science fiction now, but it’s awesome. He has yields all the way down to the second cousin’s second wife kind of thing. It’s pretty interesting what you can do with the data.
For you guys getting started, if you just grabbed the 30 most relevant bits of information and tracked all that down, and then give that seller a call, you can have a real discussion with them. I really advise picking up the phone and calling these guys because you’re getting to probably get a better deal than any broker is going to be able to give you. However, you’re going to be taken on some additional risks by not having protection from a broker who understands the industry, or maybe a mentor that understands the deal. If you’re just winging it, good luck. I don’t recommend it.
If you’re not just winging it and you know what you’re doing, picking up that phone and calling that seller. He unlikely wants you to bother him, but if you have a real solution for him and he’s not being peppered by you by ridiculous questions and consistent asks… I would say a lot of these deals, especially early on in my career, were made by going down and meeting with these people, having conversations, setting a meeting, going down and talking with them, and just trying to be two guys talking, not making it a business transaction, just trying to get to know each other and understand what each other’s goals are and see if you can get your personal goals aligned with his.
It’s a long way to get there, but a bunch of our clients and friends that are in this industry and did exactly that, and they got themselves 10 to 12, sometimes higher, percent caps even with that. I can’t deliver you that. Most brokers will never be able to deliver you a return like that, because we have to take best interests in mind, especially if it’s a listing and things like that. If you do decide that that sounds like a pain in the butt, you could always then work with a broker.
Brokers like me, and I’m sure a handful of my competitors are out there, we got lots of scouts out there looking for deals. We don’t mind, at least I don’t mind. I don’t know about other brokers. This is an invitation for anybody that’s serious and wants to work a market, especially if it’s a market that I’m not in. I don’t mind sharing a little bit of the database with you and maybe you can keep the things that work for you, and then you kick up information, and things like that, for me.
I’m sure other brokers do similar things, but I have a few guys out there that kick us up a lot of stuff. It’s pretty excellent. It’s a pretty excellent program that way. That saves you some of the headache of being haggled with by the broker. Of course my intention would be to sell you a park if you ever picked one up-
Right, of course.
… and then try and do some business with you that way. But there’s numerous ways you can go about creating this database and getting to your first deal. It’s just how much headache do you want to deal with and how much risk are you willing to take.
Going back to the first three steps, which I can’t understate enough is, man, you guys have got to figure out how you’re going to manage this thing, maintenance wise, on-site management wise, third-party management wise. Is it just going to be you and your friends, just working your butts off at the parK? That’s fine, but you need to understand how you’re going to do that, how it’s going to be practical, what your carrying costs are really going to be because for most owners right out the gate day one, you’re not always going to have the cashflow you anticipated right out of the gate.
Often times, things change a little bit as you get right up to the finish line. You want to be prepared for that. You want to know that municipality in and out. You want to be best friends with that municipality in and out, because they’re going to give you a hard time if they don’t like you. If you ever have an ask of them, then it’s better to have that relationship upfront. You’ll learn early on if that’s a municipality if you want to dip your toes in with. Some municipalities are real tough. We just had a deal in Pittsburgh. [crosstalk 00:10:22].
It sounds like having a bad municipality is a lot like having the worst neighbor, but they own you.
[inaudible 00:00:10:35]. Yeah, it’s absolutely obnoxious. I owned a park in Eastern Tennessee and that municipality just absolutely hated me, just hated. I wasn’t local, even though I lived one county over, but on the North Carolina side. They absolutely did not show me one ounce of love. The only thing I got from them were new violations about grass being too high and all of this, anything they can do to ruffle my feathers.
When it came time for me to have a big ask with them, even after getting my park all cleaned up, and not problematic for them, it was still very much denied and no love given. We just did a deal in Pittsburgh and that municipality, what a pain to get something done with. Man, that was a real process. As you get into some of these towns, often, there’s this old boys’ club kind of thing going on in the municipalities. It can make your life just miserable trying to do something with them.
In a way, it sounds like they could be greased.
Yeah, you would think.
If they’re good old-
I’d have to figure out [crosstalk 00:11:42].
… if it’s a good old boys’. Well, that’s what I was going to ask is, how do you get legally in the back pocket of the municipality? Maybe it comes back to being just a steward of the community. Maybe you have to prove it and earn it.
Yes and no. It’s a little all of that. Some counties just are miserable, and no matter what you do, you ain’t one of them, that’s going to be a problem. However, with the proper setup, if there’s grease to be applied, it’s in the beginning, like most things, going in and handling objections and that uncomfortable conversation right out the gate and getting to know them like two guys talking. It’s always nice to show up to a place with some food and drinks for people, and they’ll usually sit there and talk to you. If you make nice with them and you continue making nice with them and you continue to live up to the promises you’re telling them you’re going to deliver in that town with this park and the cleanup and the blah, blah, blah, then maybe they become very receptive to you. I have tons of stories, very receptive municipalities for people that do a good job and act appropriately. But the same person in a different town might not get the same reception. [crosstalk 00:12:55].
That’s why that’s important. That’s why you should be having conversations, right?
That’s why I told people municipalities. Yeah. It should be one of your first three steps. If you want to deal with these people for the next seven, 10 years, however long you’re going to own the park, it’s a big question. Then the management, the management, the management, the management, and then the finances, how are you going to finance this thing? If you’re going to go sweet talk some seller in for this great conversation and tell him what he wants, just to give them a contract he thinks he can live by, to then in three months pretty much stick them up and say, “Hey, I need to owner finance this thing now because the financing I thought I had fell through.” Boy, that’s going to really hurt the relationship. It’s really going to hurt your credibility, and things like that.
The financing upfront is important. For the syndicators that are out there, getting all that worked out up front, figuring out the approval process up front, what’s it going to take to give your seller something you can stand by. That’s hard. And the guys that are using their old straight money, it’s going to be even harder than ever for you guys using your own money to start winning deals in this future cycle that’s coming.
I really recommend the tactic of cold calling and meeting directly with owners, and trying to strike a deal, because those [inaudible 00:14:21] caps, they’re getting fewer and far in between. If yield is your goal and you need that yield because you’re using your own personal money, that’s a hard thing to be competitive right now. [crosstalk 00:14:33].
I want to ask you, because I’m modifying these steps a little bit based on what I’m understanding is important. I want to see what you think of my pitch. Here’s what I would do. I would look at areas I was interested in, areas of the country that were convenient for me, or were in a growth market that I was interested in. Then I would look at the number of parks that are available in a specific area. I’d be targeting in to try to find what towns and municipalities are options for me.
And then, because the relationship would be so, so shitty, if it’s bad with the municipalities, my step would be making friends with them and making sure that we’re going to have a good relationship and that everything is not pulling teeth. It’s not a pain in the ass. Then, I would go meet with the park owners, if it checked that box. What do you think?
Exactly, exactly. I mean, that’s how I would look at it. Like I was saying in the beginning, don’t put the cart before the horse and definitely don’t waste a broker’s or an owner’s time with getting all hot and heavy on a deal, just to find out you can’t live with what the municipality is going to be like for you.
You can’t be lazy about it.
Yeah, you can’t be.
You’ve got to make the calls and try to interact and engage. I think the hardest part about that thing is doing that as the start, just jump in there, get on the phone. You can tell real quick within an organization by talking to two or three people, how their culture is internally, and how they treat matters. If they’re respectful and they’re interested in economic growth, versus somebody who is not returning your calls, is hard to get through, is rude to you on the phone. You don’t want to deal with people like that. Screw that.
A good intro to some of these mom and pops is, “Hey, I’m looking at buying some parks. I’ve been talking to the municipality and I can’t quite get a feel of how they’re going to be. What’s your opinion of the municipality in this area?” You can always strike a conversation with the seller that way pretty easily and then see where it goes from there. There’s lots of ways to get a good handle, getting some real feedback on what that headache is going to look like. You’ve just got to be a little clever and you’ve just got to think it through.
I would really suggest. I lived in New Hampshire, and Boston’s near me, and then I’ve got a few other big cities near me, but I don’t know where to go. I would say, look at a few MSAs or counties nearest to you, and look for what has the best growth, which ones have the highest home values, which ones have the higher average two-bedroom rents, and start narrowing it down to a handful of counties that you can use as a target.
It really doesn’t take long to find these things on a Google map. If you just type in Mobile Home Park in Google, you’ll see the thing every other person will see. Most of the people stop there. But if you go on Google Earth and scroll in and just go left to right, county line to county line, top to bottom and just dropped pins along the way, which is exactly what I’ve done for years now, you can dig up lots of parts that other people aren’t calling. That can give you some edge over your competition, maybe actually help you find some of these higher cap deals that have some juicy value add left on it.
The more we talk about it, it sounds like buying a mobile home park is like dating and then courting the family.
Really good parks-
It’s a slow process.
Yeah. It really is. From the time I typically meet somebody for the first time and have a call with them, or whatever, to the time that that seller has transacted with me and is signing the closing papers, it’s not unrealistic to think that could easily be three to five years. Often, we try and get these things in under 18 months and sometimes the sellers are ready to rock and roll right when you call them, but my average client is at least three years from the time I talk to them to the time they’re ready to pull the trigger on the deal. Because it takes that much time. They’re looking at offers. They might not be telling me about the offers they’re looking at, but I know they’re getting offers. I know they’re considering it.
Oftentimes, they are discussing those offers with me and I’m trying to find a way to beat those offers. That takes a minute to develop, especially the mom and pops who is worried about legacy, is worried about, “Hey, I’ve developed this park or I’ve owned this park for 30 years. I know my kids aren’t going to really handle it properly. They have other goals and dreams. I want to sell, but I can’t just walk away from this thing. I need an exit figured out. I need a buyer who’s not going to drive me nuts. I need somebody who’s going to take care of my tenants afterwards and not just oppress them heavy on rents.”
That’s the kind of conversation you get. If you get into a conversation like that with a lot of these old timers, man, it really does pay dividends. It builds trust and they start talking to you and maybe, just maybe, you get to do a deal with them.
Yeah. Once you find that honeypot, the thing that you want the most, the deal you want, what is the next best step? I know I want it. What do I do?
Yeah. I typically don’t like talking pricing with people out on that first few conversations, unless they’ve got a number they want to throw at me. I typically don’t like talking about price. And I know most people want to figure out what the price is at the gate to see if they’re even a player. I say you did it wrong. I say, you should already know how many things are at that park, how many lots, how many tenants, how many homes, how many vacant lots, all that stuff. You should have already underwritten yourself based on your model, whatever your model is that you’re using, and then have some ideas of ranges.
And then, while you’re talking with them, you’re asking questions about, “Who are your favorite tenants? How long they’ve been here? Who are your problem tenants? What are you doing about them? What are your collections?” You can do those, but you don’t pepper on like an interview. You just work them into your conversations. You’re mentally making notes about what to update your model with. When you start understanding the upside of the deal, because a lot of these owners, they want value for this upside. They just do. You have to be able to have that conversation with them in a way that makes sense.
Digging into things like that, that aren’t necessarily price specific, but about where the value and opportunities in this deal, where the seller sees it, and then adding it all up together and figuring out in your head what does the seller really want. Is it his number, or is it peace of mind, or is it a tech solution, or is it this, or is it that? And then, start asking more about those kind of questions, and then probably following it up after a day or two of going through things and re underwriting stuff.
And then, going back to the seller with, “Hey, from what I understand, this is what you’re looking for. You didn’t tell me a price, but this is where I’m at.” You can hedge, but every time you hedge, you get less of a chance of getting a positive reaction. I just often say, go in at your best foot or at 95% of your best foot, and see if you can make a deal worth with the guy at that point, because then you probably have enough trust to have a conversation about price and isn’t just me versus you.
Because you can lay out all the facts he gave. You can lay out what your goals are. If it’s a legacy thing, you can reassure them that you’re not going to give them $100 rent bump down your tenants’ throats in year one, and get him more confident with these things, where the delta between his price and your price maybe gets resolved because it makes ultimate sense in the deal to put you as the next guy who owns the park, as far as the current owner sees it. That’s what you’re looking for. That’s how to really negotiate with these sellers, in my opinion. The underwriting should come first. Before you talk to them, you have Google. You can just get on there and count how many lots are vacant and all that stuff.
You can make a call to the office and figure out what their going lot rents are, and you can get all that stuff going. That’s what I would really recommend. Start with the review of the areas. Then you move into building a database, then you sort your database by who you think is the most likely candidates to trade and meeting the criteria of what you’re looking for. And then, you just target those 10 to 20 owners for the next 12 month. You’re going to get a deal.
If you did it through a broker, great. If you did it on your own, you’re probably going to get a better deal than the broker would have given you. But, there’s also benefits, as we all know, if you’re using brokers. I know a lot of you guys are trying to get a deal on your own right now, which I fully encourage as long as you do it smart.
How long after I make that offer am I looking at, till I can close, if I’ve already had my loan queued up and all that stuff, or my financing in order?
Sure. Well, the loan won’t get queued up really until the very end of the whole due diligence phase, because the banks, they take a long time, if you’re not getting seller financing, of course. Typically, as a buyer, you’re going to want to ask for as much time as you can. You might have to use extensions and you might have to pay for those extensions, but you’re going to want to try and buy as much time on the due diligence as you can.
As a seller, he’s trying to get you to have the shortest amount of time as possible for your hard money before your due diligence period expires and your money goes hard, it becomes nonrefundable [inaudible 00:24:59] money. Most deals that we do as brokers, 60 days is a typical deal. Right now with COVID, we’re running more like 75 to 90 days, just because travel and inspections, and stuff, is just harder to coordinate right now.
If I was a buyer in today’s market and I didn’t have to be uber aggressive on my approach with the seller to get his deal, I’m assuming we’re talking about a C quality type of deals, smaller type of deal, under a million, or maybe under a 1.5 million, or something, 100 days is probably what I would be looking from my initial offer, knowing full well, they’ll probably just want to cut that in half, but that’s probably where I would go, and then find out what’s important to them. Is it the amount of time it takes to close? Or is it the amount of time that my money goes hard? Because maybe I can let my money go hard in 30 or 45 days with a caveat or two of finance contingency, and stuff. But as far as everything else we can do, they’re [inaudible 00:26:02] more or less bought into the deal.
But again, if you’re trying to get your finances still worked out and you’re not trying to ask for more time once you’re under contract, right now in COVID, I would say 80 to 100 days is a reasonable initial request on an ask. With a broker, it’s probably going to get shut down. With an owner, it might not get shut down. If you’re in a competitive market, if you tried buying a deal in Boston, you’re not going to be able to do that kind of offer. You’re going to have to do an offer that the money is probably hard in 15 to 30 days, and that you’re closing in 30 to 60 days.
That’s that type of market, but that’s anywhere in the country. Any of those high-velocity markets with a lot of action, you’re going to have to move faster. But if you’re doing secondary, tertiary markets, it’s, like I said, 60 to 100 days, 80 to 100 days, somewhere in that range is probably a reasonable time to go from start to finish.
Gotcha. All right, Glenn. Last words of advice. You’ve given us a lot of tips to get through there. To that person who’s sitting at home, who’s been thinking about it and using Corona and all this stuff as an excuse not to get started and exploring, what do you say?
I think those who have excuses will always have excuses. I think most things in life, if it’s important to you, you make it happen. For the guys on the sidelines that say, “I only got $100,000 or $200,000, or might not even have that much money,” oh man, I would say the same thing my dad used to tell me all the time, “Where there’s a will, there’s a way.”
Often, you might have to start small. I started with a 30-something space park. It was to the last penny I could do, but it was enough and it worked. I learned my lessons and I made my money, and all that stuff. You probably don’t even need $100,000 dollars to get into a lot of deals. You can probably get into a nice deal for probably $50,000 if you know what you’re looking for.
I would say, if you haven’t found a deal and if you’re not trying to find a deal, then your excuses are probably what’s getting in your way because there’s a lot of deals out there to be found. But the first step really is, have a call for action in your own personal life, “Hey, this is something I want to do. I’m going to go find 20 targets and I’m going to investigate these 20 targets and I’m going to make the best offer I can on any of them that I can make an offer on.” See if you can do it, and then figure out where it goes from there.
It’s about taking that first-
Start with the beginning.
Yep. It’s about that first step. Glenn, thank you so much. If you want to learn more about Glenn and what Glenn has going on, please visit theMHPexpert.com. You can email Glenn at [email protected] Glenn, how can people call you?
Of course, they can always give me a call. My cell phone 423-483-0492, or you can call our team number and talk to any of my excellent agents that are all around the country. That’s 720-MHP-4-YOU, MHP4YOU.
On behalf of Glenn Esterson, I’m Jason Sirotin for the Mobile Home Park Expert podcast. We will see you next time. Thank you.