Podcast Episode #11: Tim Kelly Talks MHP & POH To TOH

Tim Kelly:
Outstanding. Super excited to be here to chat with you guys, as always, man. This is awesome.

Jason Sirotin:
Thank you so much. Tim is a real estate investor on many different levels, has done a bunch of stuff which we’ll get into later in both the traditional space and the mobile home park space. If you want to learn more about Tim, you can go to thetimothykelly.com or activedutypassiveincome.com. But guys, what I would like to do is just set up, Tim, can you tell us a little bit about what you’ve been doing and how you got into the mobile home park space?

Tim Kelly:
Yes, absolutely. So I currently am still active duty. I’m in the Navy. I’m a senior enlisted chief petty officer in the Navy, currently stationed in Pensacola, Florida. I came here to be a water survival instructor due to my rescue swimmer background, and help teach pilots and air crewmen how pretty much not to die if they get ejected from their aircraft. And now I have the opportunity to educate our pilot students on engine systems and ethics and leadership and mindset and personal development. So that’s what I’m doing as my daytime thing. And my side hustles all revolve around real estate investing and real estate investing education.

Tim Kelly:
I love everything about it. I’ve grown immensely as a person since I dove into this niche. And I quickly went straight for the multi-family asset type due to multiple reasons, and we can talk about that if you want later. So then I got really good at it. I focused on it, and then quickly fast-forward just about a year after I got into it and had a little bit of success, I was approached by the team and the founders of Active Duty Passive Income where now I’m a team member, I’m a part of the C-suite, I’m an owner of this amazing community, this amazing platform where we educate and bring active duty reservists, vets, and their spouses together to help them understand how to achieve financial freedom through real estate investing.

Tim Kelly:
So that’s what we’re doing. We have a best-selling book. Right now it’s free on our website. We have a podcast. We have a massive Facebook group that’s growing every single week. So a lot of my time is spent educating others but we’re also still actively doing deals. We have two deals under contract right now that we’re about to close out with the same Active Duty Passive Income team that is educating. And education is our primary focus, but we’re also doing deals together to show the community how to do it, that you can do it, and we’ll just walk them through the process. So we’re having a lot of fun doing that.

Jason Sirotin:
Tim, so first of all-

Glenn Esterson:
That’s great, and adds … Sorry. I was just going to say, it adds a nice safety net to the guys that you’re working with because you’re putting your money where your mouth is and helping them learn the same steps in the process as you’re going through or have been through with the current active deals that you’re actively sourcing. I really like that idea. That’s a really great thing you got going on there, Tim.

Tim Kelly:
Yeah, I appreciate it. There are a lot of great trainers out there, and some call them gurus, who maybe did a couple deals and now they’re educating people on how to do it. Things are constantly evolving and changing and being updated at it. I think that’s one of the coolest things that we do, is we are actively doing it. We are involved in what we’re teaching. We actually practice what we preach. We do have a great amount of experience throughout the core five guys who are part of Active Duty Passive Income. Three of us are still active duty, two are vets. We all have our own real estate investing experience and knowledge, and now we’re bringing it all together and we’re still doing deals. But yeah, that’s what also makes it special, man, so I’m glad you recognize that.

Jason Sirotin:
Well, I want to know, just because I know sometimes listeners will be like, “Hey, where’s this podcast?” So tell us what the name of the podcast is and what the book is called so that people can easily get it.

Tim Kelly:
Yeah, absolutely. So again, the platform is Active Duty Passive Income. You can just go to activedutypassiveincome.com. Also, the podcast is just called Active Duty Passive Income. You can even type in military real estate investing. That’s going to hit the podcast. I mean, we’ve grown a lot. Over the last year, we’ve interviewed Robert Kiyosaki, [Derek Sutton 00:05:12], Tom Wheelwright, Grant Cardone, Elena Cardone, Nathan Brooks, some pretty high level people in the space. And we’re really excited to bring on people who are still active duty who maybe just did their first deal, because those stories to us are just as special as interviewing people like Robert Kiyosaki.

Jason Sirotin:
Absolutely.

Tim Kelly:
So, that’s our podcast. Then our book is actually a best-selling book. It’s called Military House Hacking. You can go on Amazon and get it for $7, $8 bucks, or you can just go to our website and download it for free. A lot of the entry level concepts that we discuss are house hacking using your VA loan. One of the best benefits for military that seriously just aren’t being taken advantage of enough; you could buy a four-plex with your VA loan, 0% down. You could even now wrap rehab costs into that loan like I did on my primary residence that I’m living in right now, at each duty station, and seriously just start catapulting your wealth. Every time you permanently change station and move, you could buy these small multi-family assets and really while you’re learning about [inaudible 00:06:22] and investment. So a lot of the stuff we do is tailored to people using their VA loan, house hacking using their VA loan, and then we obviously have the advanced level, single-family investing and multi-family investing, and we have coaching and mentorship and stuff like that, too.

Jason Sirotin:
I mean, I love that you’re-

Tim Kelly:
But yeah, man, Military Real Estate Investing is the name of the book.

Jason Sirotin:
I love that you’re giving it away, the book away. And I also love the fact that you are really showing people some of the behind the scenes stuff that they might not have taken advantage of that is sitting there for them to use, where they can grow their wealth while serving the country, which is really cool. So thank you for doing that. I think that’s going to be very valuable [crosstalk 00:07:02] to these guys and gals.

Tim Kelly:
It really is. I mean, we all know, and a lot of the reason how we all came to this point in our lives is that there’s no financial education, period, in our society, in our school system. So in the military, it’s almost even worse because you go through boot camp, you say, “Hey, invest your money in the TSP,” which is the 401(k) version for the military, “and go do your mission and go to work and follow orders.” That’s kind of the mindset in the military, and that just doesn’t work because once you get out of the military, what’s going to happen? What are you going to do? Not enough people focus on setting themselves up.

Tim Kelly:
So obviously, we teach some higher level multi-family investing with syndication and how to put these larger deals together. But we do a lot of foundational basic financial foundation stuff. One of our best free resources is an ebook that I wrote called, How to Establish Your Financial Foundation. So you can start investing and so you can start building wealth. So we have a free VA loan mastery course, that free book. We have our free Military House Hacking book. We have all kinds of cool free stuff because that’s where they got to get, really, their financial foundation established first before they can really start diving into the higher level investing stuff.

Jason Sirotin:
That makes-

Tim Kelly:
Well, we love doing it. We love preaching and talking about it. Super passionate.

Jason Sirotin:
That makes sense. So you mentioned something early on that sparked my interest. You said the real estate process changed you, and that it had such a positive effect on your life. Can you maybe tell us about … Because I know for me, I’ve never really been into real estate until I met Glenn. Then I’ve been on this journey trying to learn about it. So what was the spark for you, and why are you so passionate about it?

Tim Kelly:
I think the reason why is because the more content that you listen to, audio books, podcasts, the more books that you read, you realize that the same principles that will help you be a successful real estate investor are the same principles that will help you be a success, period, just in life, as a family person, as a father, as a mother, as a philanthropist, as a leader in whatever industry you are in, obviously as a better provider, as a better husband and wife, whatever it is. Because we’re all encouraged to just grow as a person.

Tim Kelly:
And I just got addicted to that. The more I read about real estate, the more I read about the successful people, what they did, how their behaviors, their habits, and what they do, and it was just a pattern of they are growth-minded. Not just being awesome at real estate, and learning and being experts in real estate and subject matter experts in whatever asset type they’re going after, but having that success, growth, and abundant mindset, and developing those habits, that will directly apply in all facets of life.

Jason Sirotin:
Agree, agree.

Glenn Esterson:
Yeah, it’s absolutely true. Absolutely true. So this is a good point to pivot a little bit and hear about your journey into mobile home parks, and tell us a little bit about some of the issues that have come up since you’ve been an owner in the business. And we would like to tie this all in with some of our last discussion about park-owned homes and some methods that maybe you thought about deploying on how to convert some of those homes, and whether you’ve tried yet or not? We want to see if we can hear your thoughts on that subject. So Jason, if you don’t mind letting Tim talk a little bit about what got him into mobile homes and some of the challenges and successes he’s had so far?

Jason Sirotin:
I’m dying to know. Hit it, Tim.

Tim Kelly:
Yeah, let’s do it. So I was quickly drawn to multi-family investing. Then when I first explored and I guess discovered real estate investing as something that I was able to do, I went horizontal across all the different asset types from flipping to wholesaling to single-family rentals to small multi-family rentals to large multi-family apartment communities and commercial, and stuff like that. Then I dove into that. I dove into multi-family, stuck in the apartment community niche for a year or so. Then at that point, that’s when CAP rates were starting to squeeze about two years ago or so, and about one and a half, two years ago. And we’re like, “Look, there are deals out there, but they’re getting harder and harder to find.”

Tim Kelly:
Then I just stumbled across the mobile home park space due to my constant personal development and wanting to learn more and networking with the right people and surrounding myself with like-hearted and like-minded people. And I’m like, “Mobile home parks. Let’s skip over this stigma that they have of being trailer parks that are ridden with criminals and people who you don’t want to own property with. So let’s dive into that.” So I just educated myself on it, read a couple books, listened to a bunch of podcasts, read a bunch of articles, networked with a bunch of people who did it, and then that’s what we honed our focus on from that point forward.

Tim Kelly:
So I just had an interest and I’m like, “Look, you can get much higher CAP rates, you can get higher returns, and there’s less people in this space because of the stigma.” We can go over the whole list of advantages of why mobile home parks. But that’s how it got started, because we were just shifting, we were looking for other ideas, and then I stumbled across it and we just dove in and never looked back, and I [inaudible 00:13:16] it’s definitely my favorite asset type, 100%.

Jason Sirotin:
Can you tell me a little bit about why it’s so great? [crosstalk 00:13:22] What drew you?

Tim Kelly:
Yeah, of course. Glenn, I’m sorry. Did you have something to say, Glenn?

Glenn Esterson:
Yeah, it ties in with Jason’s question. Because of all those advantages that you were seeing, it got you into your first park. What was that first park like and what was reaffirmed with you about how great some of the business is, and what wasn’t told to you about how hard some of the business was with your first venture into mobile home parks?

Tim Kelly:
Oh yeah, man, I mean, the first venture, we’re actually in the process of getting it sold right now. And there’s definitely more lessons learned and headaches and the heartache during that process than what a lot of people like talking about. So we could dip into both. Some of the advantages are that, A, there’s lessons about your competition. I think a lot less, about a year ago, when not as many people were searching for other asset types other than the apartment communities. But there’s still a lot less investors that are investing in mobile home parks compared to other multi-family asset types, so that’s huge. And a lot of that is due to stigma. A lot of people think that it’s only trailer parks, due to how our media conveys that whole idea of criminals and drug activity and people you just wouldn’t want to deal with. But that’s simply just not the case.

Tim Kelly:
It’s the most affordable type of housing. And everybody knows that we’re in super scarcity mode and we’re in a bad time and we’re in an affordable housing crisis, I guess you could say. [crosstalk 00:15:12] And that is the best, right, solution to the affordable housing crisis, is to provide the most affordable housing. And lot rents are just ridiculously low. They have been slowly going up, but they’re still ridiculously low. And you get your own home. And we are able to provide clean, safe housing for people who might have lower incomes and in lower-income areas, which will result in better morale and more pride of home ownership and all that stuff.

Tim Kelly:
But I mean, there are so many other benefits, especially from an economic standpoint. When you just own the ground and you have a whole park full of tenant-owned homes, they are homeowners. They take better care of them. Plus, just from an economic standpoint, the owners, we don’t have to pay for the utilities, we don’t have to pay for taxes or insurance on the individual units themselves. It’s just us collecting lot rent, making sure that the grounds are clean and safe, the signage is nice, and the grass is mowed or the snow is shoveled in the snowy climates. So it just makes more sense. There’s a higher profit margin from what we’ve seen.

Tim Kelly:
But the first deal that I did, like I said, it was a 27-space park, just a small, starter park. And we got into it with a bunch of promises that were made to us that we were going to get a bunch of mobile homes from these two other parks that were being completely repositioned and, let’s say, a total of about 200 pads. So there was about 50 nice homes that were going to come out of those two parks and they were going to put all brand new homes in there and completely reposition and jack the lot rent up high. So the promise was basically we were going to get all those homes to fill up the 27 pads, and that just simply didn’t happen. We didn’t do the right amount of due diligence and we didn’t walk every single unit that we said that they were going to [crosstalk 00:17:19] us and give to us. Of course.

Tim Kelly:
And then I think the biggest lesson learned, and now it’s part of our due diligence process, is to make contact with and introduce yourself to city hall and let them know exactly who you are, what you’re doing, what your plans are before you go in there and try to reposition the asset without them knowing. You’re going to need their help, eventually. You know what I mean? [crosstalk 00:17:45] So they … Go ahead.

Glenn Esterson:
Just to cut you off all rudely and whatnot, it’s something we talk about a lot on here is getting friends with the city as quickly and as early into the process as you can because they can make your life a lot harder than you want it to be. And if you’ve pro forma-ed out all these big expectations and are banking on them, if you haven’t discussed it with the city first, you can often learn real hard lessons in there. And everything you’re saying about the negatives and the challenges of first-timer mistakes is what I harp on a lot with this show and in my book, because that’s the one thing people just don’t seem to talk a lot about. And so many otherwise good owners who just make a few rookie mistakes and they just say, “Never again am I going to do this business because it was really, really hard.” Or they start going sideways or something like that.

Glenn Esterson:
So I’m glad that didn’t happen to you guys on that because your deal sounds an awful lot like my first deal, the 30-something space park I had in Tennessee, where I forgot to talk to the municipality, I didn’t walk all the park-owned homes, and I didn’t do all those things. And once I was knee-deep into it, I started realizing, “Uh oh, I should have known to do that,” but nobody told me and there was nothing to tell us about doing things like that. So I’m glad my audience base is hearing it also from another veteran, and hear that it is important to talk to the municipality. It is important to understand each and every one of those park-owned homes you’re taking over because, like you said, it could be a little rough that first year.

Tim Kelly:
Yeah. And I mean, especially for this particular deal, in a tertiary market where the city hall will consist of essentially your mayor, your city inspector, maybe an economic development rep and maybe a few other employees that we actually haven’t met yet, but the city council will make all the decisions, they’re the ones that approve it, and we actually had to go in front of them and plea our case. The main reason was because the other parks in that area were actually owned by slum lords, and they were okay with that criminal activity and they were okay with having that stigma be real in their parks. And they assumed we were just another set of slum lords coming in and we were going to allow criminal activity to happen, so they just assumed that.

Tim Kelly:
So the city inspector was all over us … And that’s probably one, because in order to move trailers in and out, you need the city inspector in your back pocket. Then the economic development, you need to have a good relationship with the economic development rep or whoever’s in the zoning, planning, economic development, know those people or that person, build a relationship with them, just be real with them, just follow up and be genuine, because they just automatically assumed we were those slum lords that were going to allow the criminal activity or whatnot. And obviously, they don’t appreciate that. They’d rather have the affordable housing crisis solved in their community. And that’s what we were trying to do, we just didn’t tell them that before we bought the park.

Glenn Esterson:
Right.

Jason Sirotin:
Guys, I want to-

Glenn Esterson:
Jason, what were you about to say?

Jason Sirotin:
Yeah, I want to do a slight derailment because this is something I’ve been thinking about for several episodes now. And then bringing up the city council and all that stuff has brought it back. But I know, Glenn, you’ve said that starting a new mobile home park is virtually impossible. But I feel like if you are doing these steps and making inroads with the people that are making the decisions, is it not worth fighting for the right park and the right place and build your own thing where you can set it up the way that you want so that it’s the most efficient? And then secondarily, through both of your experiences, is there a layout and a plan that works the best to run parks from a maintenance standpoint? Are those things that you guys look for? I know that’s very loaded and a lot.

Glenn Esterson:
Geez. Yeah, it’s not that it’s impossible to get the A-OK to move forward on a new development, because they do happen. I mean, we’re working on a bunch of them out in the Southwest right now. But in the South, it’s very hard, and the costs of redoing a park that has the zoning is sometimes very prohibitive. We’re doing a couple redos in Macon, Georgia, Warner Robins area of central Georgia. And it’s a redo, so they’re going to have to go through new setback rules, and stuff like that. But they can come out to be profitable, beautiful things that the city will get behind. Trying to convince the city in the beginning is sometimes hard. In the last year or so, we’ve had a lot more acceptance of our industry, especially with the help of what’s-his-name in Congress? Ben Carson, who, for better or worse, is kind of the guy heading up the manufactured housing charge right now, along with MHI, which is our industry’s main lobbyist and regulation and promoters of mobile homes in our industry. A great organization. They’re doing amazing things.

Glenn Esterson:
And with this last year or so that’s happened, we’ve seen more willingness to look at development of mobile home parks as the solution to the housing crisis. And we’ll see where that goes, but it’s still very, very hard to get these guys on board. Because like Tim was saying, he comes in to a new town, and immediately, the town’s just going to assume you’re going to be a slum lord because you’re buying a slummy trailer park that you’re trying to turn around. And if you’re a good old boy type of network town, maybe it flies, maybe it doesn’t fly. In my town, the moment I took over my park, which was an okay park, it wasn’t disgusting when I took it over, but they immediately started harping on me just like they did with Tim about, “Oh, now you got to do this. Now you got to do that.” And it becomes very restrictive and very hard to make a buck and operate and provide a nice house and all that stuff with the limitations that are usually put upon you. So [crosstalk 00:24:42]

Tim Kelly:
The other biggest thing, too, from a higher level from the city is it’s a huge tax revenue hit for them compared to if they built an apartment community there, let’s say even a small apartment complex, 20, 30, even 50, 60 units; how much more tax revenue they would get compared to if it was just a mobile home park where the taxes are almost nothing. And imagine the liability that they have. Let’s say each one of those units is a three- or four-family, maybe two kids. They got to put the kids through school. The city’s paying for the schooling, but they’re only getting a fraction of that in tax revenue. So they don’t like it for that reason and they would rather have an apartment complex there where you’re paying way more taxes. So they just see it as a liability even though it solves the affordable housing crisis. It’s kind of like a double-edged sword. So existing-

Glenn Esterson:
Very good point.

Tim Kelly:
… developments, they love when people go in there and say, “Hey, look, I’m going to improve this already existing mobile home community, improve the tenant base, improve the look, improve the homes for the community.” If they’re not already zoned for a mobile home park, it’ll be a lot difficult for that reason, among the other reasons that Glenn mentioned.

Glenn Esterson:
Very good point.

Jason Sirotin:
You blew my mind.

Glenn Esterson:
Yeah, that’s a very good point.

Jason Sirotin:
I never thought of that.

Glenn Esterson:
And to answer the last half of the question, well, to now get back to your comment here, that it blows your mind on it, I mean, it’s always follow the money, right? Always follow the money. And if a town’s pushing against it for one reason or another, follow the money and find out why. And Tim’s answer there is probably a very legitimate and real reason for a lot of the small town distaste for mobile home parks, even though a large portion of their population might be living in them. But to get back to the original second question you had there, there is, in effect, an efficient way to lay these things out and to do them. And in the Southwest, they’re doing a marvelous job with just very, very efficient solutions with very beautiful looking parks as a final product.

Glenn Esterson:
And there are mobile home guys and developers that have developed plenty of parks and knows the best practices, if you will, of what that looks like. But each location and each different geography, mountains and flatland, you’re going to have different setups. We’re actually looking at bringing online an RV park that is parceled out individually, so they’re kind of like permanent lots that would be individually deeded. And the way that this park is being built, and that’s in Virginia along the Blue Ridge Parkway, and on that park, the infrastructure solutions that had to come into place to fit it into the mountains along the Blue Ridge Parkway with all the environmental stuff that would be obvious about developing next to the Blue Ridge Parkway and the Appalachian Trail, all come into play.

Glenn Esterson:
And it’s expensive and it’s consuming. But in today’s technology world, with people as smart as they are, they’ve come up with some really grand solutions on these things. And maybe in time, we start seeing more of the effect of Ben Carson allowing or encouraging people to consider more mobile home parks in the city. Maybe the government gets involved and subsidizes it, because that would be a huge boon for development for mobile home parks. And we’ll see where that goes, but they can definitely be built [crosstalk 00:28:22]

Jason Sirotin:
I wonder if Ben Carson owns stock in a mobile home manufacturing company. When you’re talking about following the-

Glenn Esterson:
I’m not going to speculate. I don’t know on that one.

Jason Sirotin:
You know, but what’s funny-

Tim Kelly:
I wouldn’t be surprised.

Jason Sirotin:
Right, that’s what I’m saying. When you started saying that stuff, Tim, I was just like, “Holy shit. Yeah, nobody’s going to want to build these. Why would they?” You got to put two kids through school? That’s not cheap. You could build … And if you’re a poor town, I was like, “Oh, well, I’ll just go to a poor town that needs housing.” But then it’s even worse for them, because they don’t have a lot of tax revenue. They’ve got very small amounts of people. That’s insane. So-

Tim Kelly:
[crosstalk 00:29:06] Yeah, I mean, it really depends on who’s in the local office because they might have an investor mindset. They might understand that, “Look, this is really the most affordable type of housing that people need,” even though it’s a big tax hit, even though you can’t stack mobile homes on top of each other like you could apartment units and get the density of people and get as many people in to the units. But the average apartment complex unit is over 1,000 bucks across the nation, when the average lot rent is less than $300. It’s $300 now. It might be about $300 now. But think about the difference in that. I mean, mom and pops just have been afraid for years to raise the rents through the fear of vacancies.

Glenn Esterson:
Well, I have a few facts that is actually right on this topic. And it just goes to really discuss how bad this housing crisis is. I mean, there’s more than 11 million Americans right now paying more than half of their salaries towards their monthly rent. That’s a 30% increase over the last five years. 15 million children live in families with incomes below the federal poverty level. And in order to afford a modest two-bedroom apartment just about anywhere in the United States, an average person needs to earn a wage of $20.30 per hour. In six states, you have to earn more than $25 per hour. And a very disappointing but obvious thing that happens with this kind of stuff is there’s 50,000 veterans are homeless in the United States right now, with about 1.4 million considered being risk of being homeless.

Jason Sirotin:
Geez.

Glenn Esterson:
It’s a terrible fact, all these things. There’s only 28 affordable housing solutions for every 100 extremely low income households. So this is where we really fit in and where we’re really relying on people like Ben Carson and organizations like MHI to be able to get some more zest for our industry so we can have better developments, nicer looking developments, more affordable developments to come in and help with this crisis. And that’s a whole, probably, other topic and podcast we could go on and on and on about. But with what we are right now, the solutions that are in front of us with looking at these deals and how we can help with some of the affordability issues is with our parks that we’re buying that do have park-owned homes.

Glenn Esterson:
And hopefully, you’re smarter than me and Tim on our first deal and not inspect them, and you actually go through and inspect these things, is really trying to look at how to convert these homes as an affordable option for your renter tenant, and have them become a lot renter tenant, which would give them much more stability and be able to keep them at the wages that they’re earning, be able to actually have an affordable housing option. And converting these homes is a big part of the solution right now, in my opinion. And we touched on it in the last episode, but I’m very curious to hear if Tim’s gone through any conversions yet at any of his parks, and hear what your thoughts have been on that.

Tim Kelly:
Yeah, absolutely. And all those statistics that you just mentioned, if I’m not mistaken, I learned about those in your book that I wrote. And I just want to make sure that everybody listening to this has actually got his book. Glenn, it’s available now, right? [crosstalk 00:32:56]

Glenn Esterson:
It will be available, we’re hoping, the end of November. It might be the first week of December, somewhere around there. We’re in the final third of the production of the book. I never knew it took this long. It only took me a month to write, but it’s taken six months to fix.

Tim Kelly:
Yeah. Luckily, I was able to get a sneak peek at it. And, man, I am super excited for the release for everybody to be able to read that. You guys need to get your hands on it. So if you’re even remotely interested in the mobile home park space, that is just an all-in-one playbook. So yeah, I just wanted to mention that. So converting park-owned homes to tenant-owned homes is what a lot of investors and mobile home park owners want to do because, as you mentioned before, you’re shifting the liability, a lot of the maintenance costs and the utility costs to the tenant so they can actually pay for that they consume and what they own, and they own their own home.

Tim Kelly:
I think the best way that we’ve found, especially in the tertiary and the outer edge secondary market, is essentially you either are gifting units to the tenants and promoting them, like, “Hey, you either come up with a very small down payment, maybe 1,000 bucks or 500 bucks, and you will own the own home, but you have to agree to pay the higher lot rent.” And that is a great way to increase lot rents but have it not too unbearable for the tenants, to where then they own their own home. Maybe in the contract there could be, “Look, you have to make sure within the next five to six months, it’s rent-ready,” because they might not be rent ready homes. There’s so many different ways to do it, and every deal is so unique. And we talked about this before the show, there’s not one best way to do it. It all depends on the previous owner, the tenant base, who you inherited. If you’re inheriting new tenants, really, what kind of jobs do they have? What kind of skills do they have? And really, what their income levels are.

Tim Kelly:
But I think one of the best ways to do it is if you have decent homes that are rent-ready, kind of on the lower end, maybe like late ’80s or early ’90s model homes, where you require like $1,000 as what I would call a down payment, they would own the home for 1,000 bucks. You’d give them the title. And then they would essentially just pay the higher lot rent. And that’s how we actually did it on one of our parks. And it seemed to work out because we’re almost full on occupancy at this point on that one.

Glenn Esterson:
That’s my favorite way to do it, too. It’s the simplest way. If you’re afraid of going through the courses and getting licensed, it’s a fair way to do it. You’re gifting a home. You should still have a license. But from what I understand, this one, in many places, hasn’t had much pushback. And the gifting of the home, while it might sound counterintuitive to gift a home for $1,000 to somebody, or even just give it to them for free, which I’ve done plenty of in exchange for a better lot rent, actually saves the tenant money. It puts more capitalizable income into your rent role, which when you go and refinance out, is going to come into play and you’ll get a better value out of it. It removes all of the maintenance and all of the additional things like insurance and taxes. And really provides an excellent way to create permanent tenants in your park.

Glenn Esterson:
You are going to go through a learning curve with it, and there is going to be some tenants that give it back to you. But with proper safeguards put into place, as Tim was just saying, having it rent-ready in six months if it was a handyman special type of home, things like that can really protect you and give your tenants some protection, save them some money that you might be griping about giving up, but it works often, mainly, like what Tim was saying, with these older homes. I would have said probably mid-’80s and earlier works probably best with it, because you often get them at a fairly inexpensive shell value in your purchase. The newer homes, important, if they’re new, call it 2005 or newer, it’s probably not the best model to use. You’ll probably say, “Glenn, you cost me too much money on that one,” and that’s not what I’m trying to encourage.

Glenn Esterson:
It’s a solution, at times, with older parks that are heavy POH, that that’s how you would kind of convert them. If you have new, expensive, nice homes, it’s best to really go get licensed and then go owner finance those things and turn the debt over that way. But with some of the older parks, it tends to work really well. The challenge for some buyers hearing this, they’re going to say, “Oh, well, if I do that, I’m going to lose my cash flow. And if I’m trying to flip this thing, how quick can I get out of this thing?” And you can’t do it in one year, okay? No buyer’s going to pay you a premium on those lot rents after one year.

Glenn Esterson:
So you got to let it season a little bit. If your park’s 50/50 lot renters and park-owned homes, and your lot rent’s only $250 and you’re giving homes away for a new $400 lot rent or something, again, it’s not really going to be received well by the buyer base if you’re trying to market it for sale. But if you let it season for a couple of years, the banks will, most of the time, capitalize all that income. And over those couple of years, you have to start putting some pressure on your lot renters. So when you do that, you do it fairly, you do it ethically, you give them reasons why it makes sense, and you help them have a safe environment that you’re adding to the quality of their life with each rent bump. But you’re getting a huge bump in capitalized income by converting those park-owned homes either way, so-

Jason Sirotin:
Hey-

Glenn Esterson:
… you have to … Go ahead.

Jason Sirotin:
Well, I have a question, just a thing that comes up, is fair is so relative. What does it mean to you to be fair? Is it like market value? How are you determining what’s fair for them and for you?

Glenn Esterson:
It’s a delicate balance, and no two deals are going to be the same. Even if it’s me doing it on two deals in the same town, it’s still not going to be the same. And what I’m trying to see as my end goal with what I’m looking for either from a refinance or from a sale price, or even just balancing it on the time/value headache scale, is what is going to be the best solution for everyone involved here, and how much pain am I going to go through to get there? So if I have an entire park, like my park was a 30-something, 29-, 30-something pads, and it was all park-owned homes, after years of struggling to maintain those homes, and these were all junkers for the most part, ’80s and ’70s and stuff, it made more sense for me with the headache and the work and the time I was putting into maintaining those homes to turn them over and get slightly above market rents that I wasn’t getting quite yet. I think I was able to move my whopping $75 and $135 lot rents to about $200 or $225 by giving a free home and letting it season for a year or two, I think I had to let it season for.

Glenn Esterson:
So to me, that felt fair. To my tenants, it felt fair, because your park-owned home tenants, let’s say they’re paying $500 a month or $400 a month, whatever the number is, and now you’re giving them a total rent that’s going to be less than that, most of the time, they’re going to agree that’s fair. Now your lot renters who are used to paying $75 are not going to feel that it’s fair that you’re taking them to $200. So you’re going to have to build in that value for them and you’re going to have to let them know that that is where the park’s going but you’ll work with them over three, four, five years to get them up to what that market level is. And it’s a longer process, and I don’t want to teach people how to just ram a rent spike down somebody’s throat. If you’re going to do it to your lot renters who’ve been good to you, do it fairly and over time, and add value to their life while you’re increasing their rents.

Glenn Esterson:
But the guys you’re giving the homes to, they’re going to see it as a great value right out of the gate and are probably not going to say too much about paying a $350 or $400 lot rent when their park-owned home rent was maybe only $500 and the market rents where they are are maybe $300 for lot renters. So they’ll probably be okay with it because they got a free home. That said, you got to make sure that you have a tight agreement so they don’t just take the home and leave out of the park and do something silly like that. And there’s definitely caveats to [crosstalk 00:42:06]

Jason Sirotin:
Well, yeah. Do you think it goes both ways, though? Do you think that there’s a lot of people maybe in this space who see that these homes are going to need work soon and are like, “It’s better if I just give it to them and let them deal with the problem”? Does that happen?

Glenn Esterson:
That’s what I did at my park. That’s exactly what I did at my park with a lot of my tenants, I said, “Hey, look. Nobody’s going to be able to rent anymore. So if you want to own the home in an as-is condition, that’s fine.” Some guys, I made some critical repairs for. But for the most part, I’m handing you a home that you’ve been living in, you know what it’s like, here’s a free title, and your lot rent is this and that’s what your payment is now. But with the homes that the guys left, I would just run … in my stupid little small town that was 3,000 people, I did ads in the local paper, classified ads, saying, “Handyman special, $500 gets you a title,” kind of thing and would do that, essentially. And people would come in and improve it. And most of those tenants today, this is 10 years later now, are still there in that same park with a new owner.

Jason Sirotin:
Yeah, that’s a really good idea.

Glenn Esterson:
So for me, it made sense, because if I’m only making $100 or $200 on top of my lot rent or on top of my proposed new lot rent, then I’m really just making nothing a year on those homes. And every two or three years when I’ve got to turn them for a rental, I’m losing all that money [crosstalk 00:43:39]

Jason Sirotin:
Yeah, absolutely.

Glenn Esterson:
So for me, it made a lot of sense. And I’m not the bright guy that came up with this idea. It was my 85-year-old property manager that came up with the idea and had seen it work at a few other parks in our area that he had helped with. So that’s how I learned about it and said, “Oh, that’s an interesting way.” And especially at this point in this last three years of this cycle, I’m seeing it be done on monster scales. There’s a great group that bought a bunch of parks in a really poor town in North Carolina along the 95 corridor, and they bought thousands. It was like 1,500 spaces in a matter of a year or so, with like 1,000 park-owned homes.

Glenn Esterson:
And they converted all of their parks from $150 lot rents to $350 lots rents with almost no pushback. And they gave the free homes, and now they have beautiful communities. They’ve dumped millions of dollars into these communities to make them look nice. And all these tenants now, two years later, are still there in those homes in a nicer-looking community, paying essentially what they were paying before, maybe a little bit less than they were paying before, after getting the home and moving up the lot rents and things like that. And now it’s a functional community.

Jason Sirotin:
So guys, we are almost out of time for today, so I want to touch on something that we were talking about with Tim early on. And Tim, that was really why this kind of investment is really good for active duty or people who’ve gotten out of service. Why are these investments … Why do you feel so good about them?

Tim Kelly:
So I mean, what you talked about, really, the specifics of mobile home communities. But just to ensure that we touched on really the big why, is because being in the military, there are characteristic traits, mindset traits, work ethic traits, that are embedded into our DNA, especially the longer you serve, that transition very, very well into business and investing. And I’m talking about high levels of work ethic, grit; we’re extremely gritty. Leadership, and just being able to work with a team, team work, and there’s just so many great characteristic traits that we learn being in the military, especially if you serve for a while. You’ve gone up the chain of command. You lead people and you’ve been all around the world, experienced all these different cultures. Because of that, you have a massive advantage in business and investing.

Tim Kelly:
So that’s what I really wanted to clear up first. But mobile home parks, a lot of times, it takes a little bit more humility than assuming that all these investments are just going to be passive, like you could just invest a bunch of money into a park and have someone else remotely manage it and operate it for you, and then you’ll be good to go and then you’ll start building massive wealth and get rich. But clearly, that’s not the case. You’re going to need a little bit more flexibility to go visit the park, to understand and, like I said, go approach city hall. Tell them who you are.

Tim Kelly:
And if you share with them that, “Look, we are military or we are active duty, or we’re vets, this is our plan,” you show up, that right there will put you at another massive advantage. And being able to just get on site and really understand that you might have to be the one personally putting in work inspecting the grounds, walking the park, getting to know the tenants, getting to know whoever’s going to be collecting your rent. So I think just in general, being in the military, having that military experience and background will give you the upper hand in business and investing. But even so in mobile home parks, too.

Jason Sirotin:
Yeah, that makes complete sense. That mindset is huge. Tim, Glenn, thank you guys so much for your time today. If you want to get ahold of Tim, you can reach him at thetimothykelly.com. That’s his main website. And he’s also on activedutypassiveincome.com. And you can reach him at [email protected]. And you can reach Glenn at themhpexpert.com or [email protected]. I had a complete brain fart there.

Glenn Esterson:
There you go.

Jason Sirotin:
And what’s your phone number, Glenn?

Glenn Esterson:
Give me a call anytime. 423-483-0492.

Jason Sirotin:
Tim, thank you very much. Glenn, thank you very much. Gentlemen, it was really a great conversation today. To the audience, thank you. Keep staying tuned. Send us your questions. Hit us up on LinkedIn. Leave comments, share, and do all that fun stuff. Thanks so much.