Podcast Episode #9: Winning and losing in the mobile home park market
For those seasoned veterans in the mobile home park (MHP) industry, there are a lot of stories to share. Some deals go like clockwork. They’re easy, fair and everyone comes away happy. Others involve missteps, sometimes costly ones. The one consistency is that each purchase or sale of a MHP is a learning experience. For first-time investors, or those thinking of getting into MHP ownership, hearing about the experiences of others is invaluable, but what makes a deal a win and what makes it a loss?
What a winning park can look like
The first step to a winning park is the purchase price. Compared to the market as a whole, what kind of deal are you getting? The next win is the state the MHP is in when you buy it. How full is it? What repairs do you have to address right away? If occupancy is low, you’re winning the more vacant lots you fill. If rents are below market, you’re winning when you add enough value to convince tenants to pay more without complaint. You may also need to make smart decisions about what to do with your vacant lots to make them more attractive. The answer to increasing revenue may be to bring in homes on your own to the lots and then sell them to tenants.
All of these improvements and updates come together for the ultimate win in MHP ownership, selling it. If you can improve the park enough to make a significant profit on the sale of your park, you’ve really won the game this round.
Why losing happens too frequently
The biggest drawback to MHP ownership is that people don’t talk enough about the struggles they encounter. The parks that you ultimately lose out on provide learning experiences as well. Mistakes you make with one park you most definitely won’t make the next time you invest.
One surefire way to lose out on a park is to be a stubborn owner. This is especially true when it comes time to sell your park. Every owner has their ideal price they’d like for their park — the sweet spot — but you can’t hold on to that number so tightly that you miss out on the sale completely. Park owners fail when they can’t sell a park they want to get rid of, so be flexible in pricing, even if it means taking a little less than you want.
Another way to lose is to neglect your parks. Even if you live far away from them, don’t think they’re going to come together without some kind of supervision. If you can’t be at the park regularly, at least at first, carefully vet a property manager who understands MHPs, is trustworthy and relates well to the tenants. Keep track of them, double-check that rent is coming in and that requests for repairs are being addressed. Nobody wants a park that’s on the verge of destruction, and you don’t want to own a park that gets shut down by the city, there’s no profit in that.
Where to find your own winning deal
New mobile home parks are constantly coming onto the market. If you’re new to the MHP market or just looking to expand the number of properties you own, staying on top of listings helps. It’s even better when a listing has already been reviewed by an industry expert. With listing information on the Mobile Home Park Expert website, you can see vetted opportunities selected by the Expert himself, Glenn Esterson. Check out his podcast to learn about a few currently available and then see what else is online. New listings are added regularly.
Jason Sirotin: Hello, and welcome to the Mobile Home Park Expert Podcast. I’m Jason Sirotin here with Glenn Esterson. Glenn, how are you?
Glenn Esterson: Doing fantastic. How are you doing today, Jason?
Jason Sirotin: I’m doing awesome, man. I’m really excited, now we’re officially on SoundCloud and iTunes, so I would love for everybody to go out and pound that subscribe button. My kids watch a lot of YouTube and they’re always like, “Slam that subscribe button!” But we would really appreciate you guys listening, giving us feedback. Thank you to all the people who have hit us up on LinkedIn and had such kind words to say and encouraging words for me on my journey, and it’s really cool, Glenn, I’ve got a few email now with people who are like, “I really want to get into the business and hearing your dumb questions makes me feel better.” And so I think we’re doing something really cool and valuable here, so thank you so much for giving us that feedback and, Glenn, thank you so much for all the wisdom you’ve been providing us newbies. I really appreciate it.
Glenn Esterson: Yeah. This has been a lot of fun and, really, the feedback has been great. Nobody told me at all to shut down and run away from the business, which is always a good sign, and everything that everybody has said has been fantastic, and it seems like it’s being received well, so it gives me some encouragement to want to keep spending this time with you and helping you out and getting it out into the public. I’m excited.
Jason Sirotin: Yeah, and I think we won’t know we’re truly successful until people start saying bad things about us.
Glenn Esterson: There you go.
Jason Sirotin: All right. On today’s show, we’re going to talk about … Glenn’s website has been updated and he’s got six new smoking hot deals on the website. I want to learn about a couple of them because he thinks that there are a couple that might be of interest to me or at least something that I could partner on with somebody. And then, from there, I’m going to have Glenn tell me one story about a winning deal and one story about a losing deal so that we can get that perspective on what does a winning deal look like and what does a losing deal look like and then I’ll ask some questions around that.
Jason Sirotin: Glenn, let’s first start, so on themhpxpert.com, you have six deals up there right now and you think maybe a couple of them might be of interest to me. Let’s talk about them, and I’d like to ask some questions and go through that process.
Glenn Esterson: Sure. We have six deals up right now, but we probably have another dozen deals that will be up on the site in the next week or two. It takes a minute for me to find the time to get all this stuff done, but our inventory’s robust right now. We have maybe 40 deals altogether, about 15 or so listed and the rest being off-market stuff, and there’s some highlights and low points for each of those deals. But for the ones that are up that the listeners can interact with right now, there’s a couple on here that make a lot of sense depending on where you are, as a first-time buyer or as a seasoned professional. We’ll maybe talk about one or two of each and I’ll give you some of the high points and the low points and what to watch out for and why I think it’s a good deal and all this kind of stuff.
Glenn Esterson: Let’s start with a bigger, sexier one that’s up in your neck of the woods, well, when you’re up north, that is. This one’s in Pennsylvania just outside of Pittsburgh. It’s in Pittsburgh proper, but just on the river, the Allegheny River, and it’s not in a flood zone, and it’s a 78-space park. The interesting thing about this park, just historically, is it’s never been sold before. The family that owns it, generations ago, bought from the Carnegies of all people, so-
Jason Sirotin: What?
Glenn Esterson: … [crosstalk 00:04:01] pretty fancy stuff.
Jason Sirotin: Wow.
Glenn Esterson: Yeah, it wasn’t a park back then, of course. But it’s interesting dirt, and it’s right on the river and it has 78 spaces, 75 tenants, pretty well stabilized, but the market rents are pretty low on the deal. And it’s city water, but on septic, as many things are, but, of course, sewer, I believe is available. And we’ve taken this thing out at 3.685 million, so $3,685,000, and it’s about a seven and a half cap on lot rent and you mix in some additional income that’s there, it’s closer to an eight. There’s no park-owned homes. It’s all lot rent only.
Glenn Esterson: The caveat on this deal is about two-thirds of the tenants there actually have their own cottages that are there and they live in them, some year-round and some live in there just during the warm season and stay at the river and things like that, but they own their own cottages. They’re 100% responsible for removing them when they’re done there. They don’t move. His average tenant base is something like 25 years. And it’s a really interesting park. The other side of the park is, of course, all mobile homes and-
Jason Sirotin: Wait, wait, wait. Let’s pump the brakes for a second because I got to understand this. We’ve never talked about cottages. Please explain.
Glenn Esterson: I know. That’s why I wanted to talk about it. Cottages, just like mobile homes, they often sit on somebody else’s land, okay, and that they pay a lot rent, and it’s called lot rent, to the landowner. In this case, the lot rent, at this park, is about $450 on average give or take. Some of the waterfront lots are a little bit more and some of the interior lots are a little bit less. But the cottages are about 1200 square feet plus or minus. Some are a little bit smaller, some are a little bit bigger. But they’ve been there for a long time and the tenants are extremely sticky tenants in this situation. It’s not like a tiny home community, where you have 400 square feet of space or whatever the exact number is for those things, but the tenant is going to take that with them potentially one day. They own it and there’s some caveats with it, of course.
Glenn Esterson: But this particular property, and I went back to the 2010 P&L, that’s how far back I researched the income on this thing, it is as stable as the day is long and, when a tenant does move out, it’s usually because they, unfortunately, aged out and passed on to whatever’s next, and the family, for one reason or another, will either immediately take it over and start living there or, if there is no family or the family doesn’t want it, the landlord, unfortunately, will have to tear down the home and it costs about three grand, 3500, to tear down the home. But by the time the home’s cleared out of there, he’s got people with deposits ready to move the next, newer cottage in. It’s a very desired area.
Glenn Esterson: And the tenants, what’s even more exciting about this deal, is they pay their rents quarterly. And so when you have your income source and, now, the risk of collection has gone down from 12 months of possible lates and non-collects to just a quarter, so now you’re only getting paid once every three months, so four times a year, it makes your income much more reliable and stable and predictable, and that’s always a real nice advantage to having people on quarterly rents or even sometimes annual rents in locations like this. He’s grossing about $435,000 on reoccurring capitalizable income, like lot rents and things like that, and it’s a very, very nice park from that standpoint.
Jason Sirotin: Well, can I-
Glenn Esterson: The other thing-
Jason Sirotin: You go so fast, Glenn. Hold on.
Glenn Esterson: Slow me down, slow me down.
Jason Sirotin: I know. I still don’t know what the hell a cottage is. Is it a house built with … like a shed?
Glenn Esterson: Sure. Yeah, it’s essentially a stick-built home. You’ve seen them all over the place. Anytime you’ve gone to-
Jason Sirotin: Like a state park?
Glenn Esterson: … a lot of these northeast, rivery places, yeah, it’s like a house, but it’s not set on a foundation. [crosstalk 00:08:54]-
Jason Sirotin: Okay. It’s just like they flatten out the land and then they throw something on it or they level it with bricks and stuff.
Glenn Esterson: Yeah, these are all on concrete pads. Yeah, yeah. These are all on concrete pads and they’re set on a footer or set on posts or something like that.
Jason Sirotin: So they can lift it up and move it with a truck?
Glenn Esterson: Correct, in theory, in theory, but just like somebody can move a mobile home in theory, it just doesn’t happen very often, okay. Usually, once they get there, they stay there forever until the next guy comes and puts a new one there. And they’re typically between 800 and 1200 square feet, look just like a house. In fact, my farmhouse, that I raised my family in, was only 900 square feet in the middle of nowhere and it was a stick-built home and, if I ran my car into the house, unfortunately, it would have fallen down, right? It’s not like the house I live in now, where it’s properly built. But these cottages are actually nicer than the house that I raised my family in and they provide even more space than a lot of them. And, of course, they got carports and a lot of them are on the river with their own dock and stuff like that too. It’s [crosstalk 00:10:06]-
Jason Sirotin: This sounds less like a mobile home park and more of a vacation destination rental. Is it like a cross-
Glenn Esterson: It kind of is.
Jason Sirotin: … a cross between an RV park and a mobile home park?
Glenn Esterson: Yeah, it kind of is, with the exception that the income is year-round essentially. It’s paid quarterly and the tenants are responsible for owning that spot and 100% of the maintenance for that spot for the entirety of their stay and they tend to stay for 25, 30, 40 years.
Jason Sirotin: Man.
Glenn Esterson: This guy’s owned the park since the sixties, these two brothers who are managing the park now took over the park in the sixties and some of their tenants there have been there almost the whole time, so it’s very long-term, sticky tenants.
Jason Sirotin: This sounds insane. I love this deal. It reminds me of going back to the good, the bad, and the ugly. It seems like it gets rid of the bad and the ugly. What is the-
Glenn Esterson: It does. It’s more of a blue collar vacation spot in theory because about a third of the tenants just come there to get away or whatever. They own the thing year-round, but they only come a third of the year or something like that. And-
Jason Sirotin: And you could fish right on the river. Is the river clean? I don’t know anything about the area. Is it a nice-
Glenn Esterson: Well, the Allegheny River is a big river, and I wouldn’t go swimming in it if I was you, but I wouldn’t swim in most public rivers.
Jason Sirotin: That’s true, that’s true.
Glenn Esterson: That’s just how I am. But there are some pretty boats and things like that that are down there and it is a source of entertainment and activity for the locals. But being that two-thirds of the park live there year-round, the place is well occupied and it’s full of life there.
Jason Sirotin: This deal is fire, and I’m not just saying that for the podcast. This is a deal I’d be interested in. It has everything that you want. It seems like it’s way less risky in terms of when you have the average tenant being there so long. If you want to learn more about this property, go to themhpexpert.com. You can also call Glenn at 423-483-0492. Now, Glenn, let’s talk about another one because I could ask questions about that one all day. What’s next?
Glenn Esterson: Sure. Then, let’s go over to a good first starter park for somebody who maybe only has a 100 or $200,000 to spend and is look to get into the business and wants to be somewhere in the south. Then, I got a deal just about 45, call it 55 minutes, from downtown Charlotte to the east, okay, of Charlotte. And Charlotte is a very big market, but the market doesn’t really expand very well to the east. Of all places, it doesn’t go, it’s not that way. That said, you’re still only an hour or so from downtown Charlotte. But the market is good and the rents are growing and, in this particular deal, it’s an all lot rent park. It is 40 spaces, but only has 22 tenants, and the tenants are only paying about 185 average lot rents. You have an area that, while it’s not downtown Charlotte, it’s still a good area to live in and get employment.
Glenn Esterson: You have very low rents in that area. This particular park is maybe 25, 30 bucks below market rent and you have this upside in occupancy, which I love so much, because that’s really where the value is created is filling those vacant lots. And you have-
Jason Sirotin: Yeah, you have a lot of them.
Glenn Esterson: … yeah, you have 18 vacant lots there-
Jason Sirotin: Can I ask a question?
Glenn Esterson: … that are fully plug and play.
Jason Sirotin: If you had it, we were going in and you had the capital, would putting some park-owned homes there be something that would be a good option?
Glenn Esterson: Absolutely. And the way that I would be looking at is it’s not just bringing in park-owned homes because I’m not a huge fan of operating park-owned homes, but I would go buy some homes. In my opinion, you can support a nice new home there and you can probably get some nice debt from the manufacturer or retailer on it and be able to sell that home either on an RTO-type of agreement or, probably not for cash, but on an RTO agreement or get the tenant background and credit check done and let the retailer finance the tenant, but you should be able to hit 90% occupancy there, so call it 35-ish tenants. You’re going from 22 to 35 tenants and you’re getting market lot rents on those things, and that’s going to improve the visual aspect of the park, because now you have nice new inventory, and you’re going to improve the occupancy and it’s not going to cost you too much because what it costs to buy those homes, you’re going to recycle that cash.
Glenn Esterson: Every time you sell one of the homes, you’re going to take that and redo it again with the next home, so you’re really going to be recycling that cash. It’s not a whole lot of cash output. Everything else in the park is pretty ready to go. You might want to look at buying used homes, but inventory’s a little scarce on used homes right now and, by the time you buy a used home and you move it into the park and then you renovate it, you’re probably still into it for 15 grand and, in that case, you might as well just bought a new home because the down payment’s going to be probably less than that.
Jason Sirotin: Glenn, I do have a question. It’s a little off topic, but something about this deal made me think about it. Do people who are looking to move into a mobile home park care about the school system? Is it important in their decision-making process?
Glenn Esterson: It depends, right? If I’m selling a community that’s mostly seniors, it’s not going to be that important, right?
Jason Sirotin: Gotcha.
Glenn Esterson: And there’s a lot of my communities that are senior communities. It’s all over the place. This one and the previous one are all-ages communities, however, the Pittsburgh deal is mostly seniors, right, so the school district’s not going to matter as much, but it is, in fact, in a great school district.
Jason Sirotin: Oh, that’s cool.
Glenn Esterson: This one in Wadesboro, I don’t know enough about the school district to say if it’s a good or bad one and it is an all-ages park and that is something that you want to at least make a note of when you’re doing your due diligence on that stuff. But with this particular deal, you have a high yield and you have a lot of upside and it’s a small entry point and the market is a good enough market that you’re not going to bleed out during a recession because you’re only 55 minutes from downtown Charlotte. Overall, on a deal like this, it’s got some ugly on it. The roads aren’t that pretty. They’re not terrible. They’re slightly below average. The landscape is more natural than it is landscaping and things like that, but the upside is all your infrastructure is there, it’s large lots, the tenant homes there look nice, and there’s a real opportunity to take your $440,000 purchase price and double that deal in a couple of years.
Jason Sirotin: Wow.
Glenn Esterson: I don’t think your build-out is going to cost you all that much and I think your tip-to-tail purchase to exit, if you’re a savvy investor that thinks he can learn the game quickly, I bet you you’re out of this deal in three years. I bet you you’ve mostly doubled your money.
Jason Sirotin: The last question I have on this one, Glenn, is it seems like that’s in a pretty rural area, I’m guessing, is it hard to find property managers or is that something that you’re going to want to live by for your first home? Is it better for somebody who lives close there?
Glenn Esterson: No. Well, we got management under-rigged into this deal, hiring a 10% manager, licensed, and all that jazz-
Jason Sirotin: Oh, great.
Glenn Esterson: … so that doesn’t scare us. But the smart guy who wants to save some of that management fee and really learn the business, yes, I would advise spending the first few months in that park and learning the business, and this is the perfect entrance course into the world of mobile homes. [crosstalk 00:18:39]-
Jason Sirotin: It is. That’s a great deal, under a half a million?
Glenn Esterson: Yeah, 440,000, it’s a little bite-size guy.
Jason Sirotin: Yeah, but you’re going to be hard pressed to find a park with 80 available lots for that much, right?
Glenn Esterson: 40, 40-
Jason Sirotin: 40, 40.
Glenn Esterson: … 40 available lots.
Jason Sirotin: But still-
Glenn Esterson: It’s 10,000 a pad, yeah. That’s a great deal in North Carolina. It has a good day one yield. It’s grossing about 52, $53,000 a year. The water is public water directly billed to the tenant from the municipality. It is on septic, but you’re on half acre lots and the septics are all in great condition and the flood zone, there is no flood zone there. To me, this is the kind of deal I would advise a new buyer to strongly look at it.
Jason Sirotin: It’s sexy.
Glenn Esterson: Do you want your grandma living there? No. But is it a good starter point? Heck, yeah.
Jason Sirotin: Yeah, for an investor, it sounds like it’s relatively stable. Wow, two good ones today. I’m glad I don’t have just a pile of money right now because I would just go out and start doing these deals. If you’re interested in that deal, you can go to themhpexpert.com or call Glenn directly at 423-483-0492. Now, Glenn, we’ve spent a half hour talking about that stuff, so I would love to move into our winners and losers segment, where we’re talking about anecdotal stories that you’ve been through down in the trenches where you’ve seen a deal go really well and you’ve seen a deal go really bad. Let’s start with a winner. Tell us a story about a winning deal and what that winning deal looks like.
Glenn Esterson: It depends on what you consider winning and losing and, remember, with every winner, there’s often a loser attached, right? This is still typical in our industry. There was a lot of winners in 2012, but because there was a lot of winners in 2012, there was a lot of losers as well [inaudible 00:20:40]. These winning parks were purchased from these guys that really were taking a loss. It was a really rough time for everyone in 2012, in 2011. Yeah, some of these deals were purchased really well.
Glenn Esterson: I helped one gentleman, who, yeah, I’m not going to mention names on any of this stuff, but I helped one gentleman in North Carolina, and he had bought a park very well at a really great price in 2013, but in a really hard market. And he did very, very well with it. He filled up the park pretty well. He got the park, I think, for about $700,000, got the owner to finance it. It was a 200-space park, and he began to implement upside, he owns a handful of other parks and knows what he was doing, started implementing the upside. He got the park up, the rents up from 100 and change to almost $200. I think they were 185 lot rents up from about 100. And he filled a whole lot of his vacant lots, and There was maybe 40 tenants on the park when he bought it and, when we sold it, he had about 100 tenants at the park. We did a-
Jason Sirotin: Just real quickly, was it expansive marketing that helped him fill it? Do you know what his tactics were?
Glenn Esterson: Yes. Exactly. He was in a position to bring in used homes and he brought in a lot of used homes to fill the vacant lots and then he put most of them on RTOs and would sell them to vetted tenants and get pretty good people in there. He also had a handful of FEMA homes that came in and out. Sometimes during a flood, they would bring some people in, keep them there for six months and then pull them out, and he was on that program as well, which really helped with cash flow. And so with that money, he was reinvesting back into the park and filling up more lots and his marketing was strong. He has a good reputation. He’s got a good online profile. He puts up the signs and does all the basic stuff, Craigslist and all that standard type of marketing.
Glenn Esterson: And when I got involved with him, we underwrote the deal, figured out where the challenges were, figured out what a targeted buyer would look like on this, because for every level of occupancy, there’s almost a different buyer. When he bought it, it was 10% occupied. There’s very few buyers for things like that. But when you get it up to 50% occupied, there’s a whole lot more buyers for it and some of the bridge letters were a bit more friendly on it.
Jason Sirotin: That’s super cool.
Glenn Esterson: He bought it for about 700 and probably put in a half a million bucks over the years, okay? We sold it for him a year or two ago and we sold it for 2.3, 2.4, I think it was 2.35 is what we sold that deal for-
Jason Sirotin: Nice.
Glenn Esterson: … somewhere right about there. And [crosstalk 00:23:56]-
Jason Sirotin: How many years was he in it?
Glenn Esterson: He picked it up in 2013 and so he was probably in it for about four years, four and a half years.
Jason Sirotin: Not bad.
Glenn Esterson: Not a bad return when you consider, chances are, and I don’t remember the backstory, but chances are … I do know it was owner-financed previously and that he probably only got into that deal for a few hundred thousand dollars or something and then, when he got cashed out, he did refinance it a few years earlier with somebody else. He probably had some good equity in there at some point, but not a whole lot, definitely less than a million dollars of actual cash that was put in there out of his own pocket. To sell it at that point and double your money in four years, that’s a heck of a return. It is a lot of hard work, but that is a pretty standard, typical, if you do it right and you buy it right and you follow the steps and you do what you’re supposed to do, you’re going to have probably a nice exit on your hands. Of course, he did some great timing. He bought it at the bottom or right near the bottom and sold it, I wouldn’t say at the top, but pretty close to the top. That’s-
Jason Sirotin: That’s basically a quarter million a year for his investment and his time. I want to-
Glenn Esterson: On top of the cash flow.
Jason Sirotin: On top of the cash flow.
Glenn Esterson: That thing was cash-flowing like a maniac.
Jason Sirotin: Oh, gotcha.
Glenn Esterson: Those FEMA homes, when they come in, they double your lot rent and so, if your lot rent is 200 bucks, they start paying you 400 bucks [crosstalk 00:25:32]-
Jason Sirotin: Yeah, it’s just our money.
Glenn Esterson: … because there’s some risk with having them there. Right. And so the cash flow on that thing was phenomenal. That would be a real winner-type of story, not sexy, crazy like-
Jason Sirotin: Realistic.
Glenn Esterson: … oh, you did everything right and made millions of dollars, but he did make millions of dollars and he did do everything right, but it was a C class park and, yeah, he worked his butt off and he had his team there working their butts off and the new buyer was able to walk into something pretty clean. And they had a couple hiccups in the beginning with some FEMA stuff, but once that got settled out, they’re well on their way to probably sometime during the next cycle, be able to sell that for double their money and that’s, again, it might take them six or seven years, but still not a bad payday.
Jason Sirotin: Not bad at all.
Glenn Esterson: That’s, again, a good winner situation.
Jason Sirotin: I’d take it.
Glenn Esterson: But it doesn’t happen all the time, but it is often.
Jason Sirotin: I have one question that’s a little bit outside of this, but when I was thinking about a million in four years and I know he had cash flow on top of that, but I’m wondering, first year versus second year, hours-wise, what does an owner have to put into a park hours-wise during the first year and does it decrease every year or is it consistent?
Glenn Esterson: Well, if you took me as your example, I would say it increased every year, but I was not following proper protocols, I don’t think, throughout my whole process as I was still learning the game. But for most owners, yeah, it depends how heavy of a lift. A heavy lift like that particular deal, that was a heavy lift. You’re going to expect to work hard for the first two, maybe three, years getting this thing run and getting the right management in place and getting the right systems in place and just constantly bringing in home and filling homes and vetting tenants and dealing with that. That’s a lot of work. And he didn’t probably lift a finger on the actual physical work, but he was probably dealing with, I would say, 10, 20 hours a week on that park in the beginning and, by the time he sold it, I bet you it was probably less than five hours a week. But the amount of man-hours that went into that park to get it up there was considerable, so you have to be able to have a budget for [crosstalk 00:27:57].
Jason Sirotin: Oh, absolutely. I was just thinking about from an owner standpoint side, could you do a great job at this and have other things going on? And it sounds like, with that time, if you’re like me and work 80 to 100 hours a week, you’re fine, you can put in that time. It’s not a big deal.
Glenn Esterson: Yeah. And you’re going to find the efficiencies and you’re going to get reliable people and that’s going to do a lot for you. But on your first deal, I would never allow you to buy that for your first deal, I would never allow you, and-
Jason Sirotin: Right. Thank you.
Glenn Esterson: … it would be inappropriate and you would be probably one of the stories we’re going to talk about next.
Jason Sirotin: Oh, great segue.
Glenn Esterson: It’s usually the guys that bite off too much than they can chew that end up being this other side because they see, oh, all this potential, but they don’t know how to realize it. And that happens-
Jason Sirotin: See, we’re even learning how to segue, Glenn. We’re learning how to segue.
Glenn Esterson: [crosstalk 00:28:57].
Jason Sirotin: We’re getting to that point. We have segued over to losers. All right, these, I know it’s horrible, you hate to see somebody fall, but I feel like you learn so much from the losers. Tell us about a losing deal.
Glenn Esterson: All right. It happens entirely too frequently in this business and people just don’t seem to talk about it and they want to pretend like, “Hey, this is the safest investment, all you got to do is A, B, and C and you’re going to make 10% yields and double your money and all this stuff.” But with so many people that go sideways in this business, I don’t know what the percentage is and I’m not going to guess, but I can tell you it’s a good bit of my business. And with a good story that comes to mind on that one would probably be … there was a deal in south Georgia … I’m comparing these two deals together in my head. Let’s see here. Yeah, okay, I’ll give you two little ones.
Glenn Esterson: There’s a seller who’s owned parks forever. He’s a very stubborn guy. He’s in southern Georgia, and it’s a different personality down there in general. It’s where my wife is from and there’s some great people, but there’s a lot of “I want it my way and my way only type of people,” and it makes it very hard to get a transaction done. And so he had seven or eight parks in south Georgia and, in ’15, he was thinking he was sitting high on the horse and making all this crazy money and he wanted a ridiculous number for his stuff and we said, “Good luck to you.” Well, in ’16, a tornado came through and wiped out about a third of his parks, straight up wiped them out. They’re still parks, but there’s no homes left on them-
Jason Sirotin: Oh, my God.
Glenn Esterson: … and they still look like a war zone. And to top it off, the neighborhood that they were in was already probably one of the worst in all of Georgia, and so [crosstalk 00:31:01]-
Jason Sirotin: And that’s saying something.
Glenn Esterson: That’s saying something.
Jason Sirotin: Oh, my God.
Glenn Esterson: And his lot rent at his park, some of them were only $75, you know what I mean, and he had a ton of park-owned homes and all this stuff, but the upside on this thing was tremendous, and we argued with him about pricing. Finally, he agreed to go with our pricing on a few of his parks. We did four of his parks for a million bucks and he was just highly upset about it. It was probably 150 spaces or something like that, 6,000 a pad, and I brought him offer after offer after offer on that deal and, to this day, he still owns those parks. And you know what the difference was between the offers and that million bucks?
Jason Sirotin: What?
Glenn Esterson: Less than $30,000, less than $30,000.
Jason Sirotin: Oh, so he was just being stubborn?
Glenn Esterson: He was being so stubborn, and now he still owns those and he’s still trying to sell them and he’s still stuck at these numbers that people don’t want and he keeps creeping the number back up. Last I heard, he had them back on the market for a million five, and he’s one of those kind of guys that’s probably going to end up like the guy in the second story where he bought a bunch of parks in Georgia. This was all over Georgia, but the outskirts of Georgia. He owned seven or eight, no, he owned nine or 10 parks by the time he got finished buying everything.
Glenn Esterson: He lived in the opposite side of the country in Washington and, for the first few years, did real well. He bought them right, or he thought he bought them right. He bought them right in his mind, but with other people’s money and without a lot of due diligence, and he had this one park in particular that was in eastern North Carolina and one that was in Macon. And those two parks, by the time he got me involved to sell them for him, were so decayed that the park in North Carolina, while I was getting ready to help him sell it, got shut down by the state and [crosstalk 00:33:17]-
Jason Sirotin: Was he just not taking care of it?
Glenn Esterson: He was just not taking care of it. He took his eyes off the ball. The management issues there were terrible. He didn’t vet the tenants. They were both gang-banger parks and he had massive utility and infrastructure issues because he really didn’t dig deep on it or, if he did dig deep, he just thought it wasn’t a big deal, and he was one of those stick your head in the sand guys. The previous guy was just belligerent with his expectations. This guys was like, “I’ll just pretend it’s not happening” kind of guy.
Glenn Esterson: And by the time we got done with everything, I sold his one park, he bought this park in 2012, the one in Macon, he bought it in 2012 for maybe a half a million bucks, 550, somewhere in that range, and when I sold it for him, after all the time and energy he did put into it in the beginning, and then after all the decay happened on it, by the time I got it sold, and it took a hot minute to get sold, we sold it for 475, and that’s at the peak of a market and that’s a real challenge because that’s going to leave a real bad taste and that wasn’t the only negative.
Glenn Esterson: He got out of that one, but just barely, right, but that one in North Carolina, he lost, he lost a couple other in Georgia in a very strong market near Athens, the Georgia college in Athens, UGA. And to overlook so much during your due diligence process and then to slightly overpay back then and then to use other people’s money and then to ignore the problems, you’ve heard me say before, but that’s all … you’re on a slippery slope, you started there and now you’re just sliding down.
Jason Sirotin: Well, I-
Glenn Esterson: And he ended up going foreclosure on those parks and-
Jason Sirotin: But I think this is a general problem with people in business, I don’t think it’s limited to the MHP market, it’s that there are entrepreneurs out there who think that they can just go start a business and, if they ignore their problems that they just go away. They get worse. Do not go into business if you are afraid of conflict or afraid of getting your hands really dirty, like digging in the shit dirty. Just don’t do it. Go work for someone else, get a job that makes you happy, don’t think that you can be an entrepreneur, because you cannot hide from business problems, they only get worse.
Glenn Esterson: They only get worse. I went through that with my first park. I had to grow up real quick and come to the conclusion that it was lose everything or get even more involved with the success of this thing and pull it out as best as I can. But a lot of guys, they just lose track of that. This particular guy, he started with no experience in MH and then, within one year, he owned five, six hundred lots. That’s dangerous and especially if they’re all over the place like this guy was.
Jason Sirotin: Gee. Wow.
Glenn Esterson: That’s dangerous, and it’s enticing because a lot of us … he’s a smart guy. He’s a very smart guy. He was very successful in his previous businesses. But when you take your eye off the ball and it’s a new thing and all this stuff, it can really cost you. And if you don’t dig deep during your due diligence, no matter how good the deal looks because you’re getting it for $6,000 a pad, you can have some significant troubles a couple years down the road with your utility structures. He had a waterline bust and it just went unseen for two months. It was $70,000 of water. The city just said, “No, you’re paying it or we’re shutting you down,” and that’s essentially what shut it down-
Jason Sirotin: Well, it’s pay attention-
Glenn Esterson: [crosstalk 00:37:11] unpaid water bills [inaudible 00:37:12].
Jason Sirotin: It’s pay attention and get engineers in there during the due diligence phase and know your shit, know what’s in the ground, know what the structure is, know what potential problems could arise. If you know that you have five roofs going bad, at least you can plan for it, rather them collapsing and you have problems if you own the homes. I can’t even imagine the amount of things that need to be thought about during these things. Do you have a checklist, Glenn, that we can share with people?
Glenn Esterson: Yeah. I was just going to say, luckily, we put together a pretty comprehensive checklist for our buyers, and even for the sellers to prepare themselves for knowing where they stand and what a buyer’s going to be looking for, is we got a list that’s called a must-ask questions and it’s two or three pages with just line items of questions, and you’re not trying to do anything more than record where things stand today with the various utility structures, with the various mobile homes, if there’s any park-owned homes, what due diligence is available from this guy and what you need to dig up, some check boxes of who you need to contact to make sure you’ve checked those things, the municipalities and the inspectors, and is there a phase 1, but we go through it pretty systematically and you get all the data that you can that’s available. It’s never 100% complete, but you get all the data that you can and then you at least have a starting point and you can start budgeting accordingly and you know a little bit more what to expect.
Glenn Esterson: Now, that said, you still have to dig deeper than that checklist. It is not a one and done type of thing, and that’s where getting somebody who’s already well experienced in the industry, whether they’re a friend of yours that’s a park owner or whether you’re in some kind of mastermind group or whether you’re dealing with brokers who know their game and not just some new guy broker who doesn’t really know what to tell you. And, of course, you can call me or my team and we’re happy to walk you through what we think makes sense for you to check out or let us analyze something. We can tell you some of the things to look out for and stuff like that.
Glenn Esterson: But this business, especially if you’re using other people’s money, you better take that seriously and you better dig deep and even the cherry pie parks that we have that pretty much look as pretty as anything and you’d let your grandma live there, you still got to dig just as deep. Chances are, you’ll come back with not too many issues on a nice park, but if you buy a value-add, it’s a value-add for a reason, and risk and reward is what that yield is based off of, so you have to really look into what makes up all the risk in this field and how much is that reward going to cost you to get to and how much time and things like that.
Glenn Esterson: So many people overlook that simple aspect of it, and the worst thing people overlook is, “Well, how do I exit in a worst case scenario?” And some of these guys just they’re going to be stuck with it because they don’t want to admit that they’re in the worst case scenario and that it’s going to either take them down or they just better take some money now and figure out a way to have their accountant make it useful for them to take a loss on this kind of thing. And, of course, there’s other tricks to save things as you start going sideways with buying a bad park, but a lot of it starts right from day one, right from when you start doing your due diligence on this thing.
Jason Sirotin: Hey, Glenn-
Glenn Esterson: You only get 30 to 60 days.
Jason Sirotin: … is this list something that you’d be willing to share with our audience?
Glenn Esterson: Yeah, absolutely. We have it out. I’m not sure if it’s on the website yet, but-
Jason Sirotin: Well, I think people can just email you.
Glenn Esterson: … I think it’s something that we’ll be-
Jason Sirotin: Yeah, if want this checklist, just email Glenn, [email protected] and Glenn will send it over to you and then, eventually, we’ll create a version on the site and I’ll link to it in the show notes once that’s complete, but just email Glenn. He’ll send it to you. We’re about transparency and giving people the tools that they need to be successful. On that note, let’s say goodbye for the day and, Glenn, thank you so much for everything, giving us all these great tips. Today was actually … I didn’t know what I was going to learn and I feel like I learned a lot of valuable things. I learned about cottages. I learned about good deals, bad deals, and we saw those amazing opportunities that are up on your website at themhpexpert.com. There’s two incredible listings, one that’s really great for somebody who’s been in the business and wants to get into a little larger deal and then the perfect starter. And if you want to know more about those deals, you can email Glenn at [email protected] Visit our website at themhpexpert.com and we thank you and we will see you next time. Thanks, Glenn.
Glenn Esterson: Thank you, Jay.