Podcast Episode #1: Starting the Journey as an MHP Investor
Mobile home parks (MHP) are a niche in the real estate market that goes unnoticed by many. While gaining in popularity in the last few years as individuals look to make a first-time investment, owning a mobile home park is pretty unique. Glenn Esterson began as an MHP investor because he needed some extra income. He learnt the business as he went along, facing the ups and downs of MHP ownership. Glenn has recently compiled his knowledge into a book, The Mobile Home Park Manifesto. Along with a companion podcast, Glenn, breaks down what you need to know before beginning to invest in mobile home parks.
Bringing interested investors in
The lure of MHP ownership is the potential return on investment, both as an annual return and when you decide to exit the property. While it may take a few years to get the park in order for a maximum payout, if you do things right, you can get up somewhere between 35 percent and 100 percent for your return on the sale of a mid-grade park. The specific percentage depends on a variety of factors like occupancy at purchase vs sale, what lot rents were at purchase vs at sale, Cap Rate compression and other improvements. The bottom line is, do things right.
Debunking a bad rep
Mobile home parks have consistently gotten a bad reputation as seedy locations that the average person wouldn’t want to call home. While there’s truth in any assessment, it’s not fair to lump all parks into a single stereotype since their quality has a wide range, based a lot on how they’re maintained. The best way, Glenn discovered, for keeping a park in the best condition is to take an empathetic approach to turning a profit. This means not defaulting to raising rents to increase profits, but working with tenants. It also means focusing on the best way to fill every lot, and providing proper on-site service.
Knowing what’s what
It’s a lot of work, owning an MHP and to be a smart investor, you need to know what you’re getting into before buying your first park.
Learn more about what that means in the first episode of the MHP Expert Podcast with Glenn Esterson and Jason Sirotin.
Jason: Hi. I’m Jason Sirotin, and welcome to The Mobile Home Expert Podcast with Glenn Esterson. This is our first podcast, Glenn, so why don’t you say hi to everybody?
Glenn: Hello, everyone. I’m Glenn Esterson. I appreciate you all being here.
Jason: So, this podcast is really dedicated to teaching people how to invest, and manage mobile home parks not only in the United States, but all over. Right, Glenn?
Glenn: It applies to all over, but we’ll mostly be focusing on the United States.
Jason: Awesome. So, the goal is, is that I am a pretty savvy investor, but I’ve never invested in the mobile home park space. Glenn and I met, and I’ve seen the things that he’s been doing, and I like his approach in terms of his ethics in the space, which I think is really important, which we’ll get into today. Glenn is just a wealth of knowledge, and he is crushing it in the space doing just a marvelous job. He’s just released a new book. Glenn, what is the new book called?
Glenn: The Mobile Home Park Manifesto. It’s based off of about almost 20 years of being in the business on a high level broker end, and a former owner.
Jason: That’s really cool. So, what can I expect to learn over the next several weeks as you and I dive in? Just top level, who is this for?
Glenn: Well, mobile home parks are a nichey little real estate product that has been unnoticed for most of my career. In the last few years, it’s become more popular. What we’ve seen people coming in from are people that were similar to me when I started out looking for either a first investment that had a higher yield that they could manage while still having a career, and a family, and all things like that.
The other aspects of the book will cover people that are on the high-end of the business that own 100 and something parks around the country, and some tips and tricks directly from them how they were able to scale up, and some of the approaches that have been brought to the table. So, the biggest focus you’ll gain learning with me is an ethical approach on earning income while working with poor people because it’s a delicate balance.
Jason: Got you. So, how did you get started in this business? It’s so niched. Did you stumble into it?
Glenn: I stumbled directly into it having no interest in investing in it when I got started. I just moved from South Florida to Western North Carolina, and I needed to have some extra income, and trying to find an investment I can afford like an apartment building or a retail shop was just out of reach for me.
I had talked to a broker who recommended taking a look at a mobile home park, and I laughed at it, and I said, “I don’t think that would be for me.”
He said, “Just come out and take a look.”
I looked at it, and I actually walked away from it for about six months. The park was full for sale six months later, and I hadn’t found anything else to invest in, and then the broker came back to me, and I decided at that point that, “Hey, you know what? This actually does make a lot of sense.” For what yield it was giving, it made me say, “Okay. Let’s do it.”
I spent a couple of years learning the business, and then one thing led to another. Here I am today. It was a roller coaster getting started. There was no real advice out there on how to get started in the business. For better or worse, I definitely took some gut punches throughout the initial process of investing, but, thankfully, with enough management over time, I was able to land on my feet, and I’ve helped now hundreds of new investors and seasoned investors continue expanding a mobile home mortgage for their portfolios. Now, I just broker full-time.
Jason: So, in this space, what is the average return on an investment? So, if somebody is just straight up looking at this as a way to make cash as most businesses do, what can they expect? Is there a range of returns? Obviously, if you mess it up, you’re going to lose everything, but what do the positive outcomes look like?
Glenn: Sure. Well, the typical type of return that I sell is going to be anywhere, depending on how you look at the investment, but if you look at all cash in versus all cash out, and you do it appropriately, you’re going to end up with somewhere between a 12% and 15% on most first investment type of deals that are a mid-grade quality in a mid-grade location.
Of course, the more primary markets and the higher end parks, you’re going to get substantially less return. Opposingly, if you take off a really big hairy deal that, as you know, all upside, you might end up seeing a much higher return. I’ve sold returns as high as 30% on current incomes before, and I’ve sold returns as low as 6% on current incomes before, but most people are getting somewhere between 12% and 15% pretty consistently. We try and push to that 15% to 18% returns without too much pushback on that.
Jason: How long does it typically take to see the returns?
Glenn: It depends. Some deals, if you’re buying a nice, clean, turnkey type of deal, where you could have absentee ownership and you have an onsite management that does solve everything for you, you don’t have to think about it. You can see in day one right out the gate 8% to 10% returns most of the time. Sometimes it’s 7% or 8%, but most of the time, in that range.
If you buy a deal like what I bought, you’re going to work pretty hard while having somewhere in that 10% return, but my goals were always to push it higher. To get to that higher return, typically, three years is what I would set your expectation for to really see the higher end of the returns, and for maximizing the investment vehicle.
Jason: So, recently, John Oliver, you sent me this clip because it’s something that you’re passionate about, but he did an exposé on the mobile home park industry talking about how these giant companies that are worth billions of dollars are now owning the homes where some of the poorest Americans live, and they’re raising the rent sometimes 30%. You sent me a letter that you wrote to John Oliver, which I thought was really great. Can you give us your stance and take on the current state of the mobile home park business, and where maybe some investors are going the wrong way, and creating a negative vibe, so to speak?
Glenn: Yeah. The episode he released actually shed a lot of light on the industry. I’m not here to say it’s accurate or inaccurate, but I am here to say that it is a perception that our industry deals with. A lot of that stems from the last, call it five years since the great recession, just for intents and purposes, ended and we shifted into a strong economy.
There’s a lot of, for lack of a better term, gurus out there teaching people ways to make more money off of a park, and capitalism is capitalism. That’s what we do. Unfortunately, capitalism, unbridled, tends to devour itself. What we’re seeing now is all sorts of new entry people, and all sorts of big money people coming in to this industry, where there isn’t a lot of sophistication yet, and have been consolidating and running rents up to points that are just very aggressive, but in still in line as compared to what an apartment might cost you.
Now, these new owners that have gotten involved, just to correct you a little bit from what you were saying is they’re not owning the homes. They actually own the land, for the most part, underneath the homes of the tenants themselves own the mobile home, which unfortunately isn’t as mobile as it should be, as it was intended to be.
So, what you’ve seen is a lot of smart guys getting into this business saying, “Hey, there’s a delta between what an apartment rent cost, and what these mobile home lot rents are, and we can capitalize on that. For better or worse, that’s what they’re doing.
My book is a lot about bringing an empathetical approach to doing this, and explaining to people that rent increases are not your only option. In fact, they should be the last option that you use before taking more money from one of your tenants. There’s other ways to increase your income on those properties without raising rents.
We talk a lot about how to achieve that type of up sign because it’s just better policy to fill your park if it’s not already full before you go and start raising rents on people that have been in these parks, some of them 20-30 years.
I had a gentleman living at my first park. He was in his 80s when I took over the park. His rent was $75 a month. Nowhere that I knew of in this country could you live for that price. Throughout the whole time he stayed with me, he ended up dying in his trailer. He stayed with me close to eight or nine years. We didn’t raise his rents. There’s no need to. I mean, the rest of the park was renting for $150 to $200 a lot rent, but for him, that little $100 bond, to us, that would mean nothing, but to him, that was every last extra dollar that he had to live on.
I could never get the mental capacity to be able to do that to people like that, and found other ways to achieve higher income, and that’s the philosophy-
Jason: Well, what were some of those?
Glenn: Oh, well, vacant lots are a big deal. A lot of parks are going to have at least 10%, maybe 20% of the lots still vacant. Filling those lots up by either buying a home and then selling it to a tenant or encouraging tenants to buy their own home and bring it to your park even if you’re paying some concessions for it. They’re harder to achieve, but it’s a better foundation for your park.
That $100 rent increase that we were talking about is less valuable to you than having a whole new tenant thing, a whole lot rent of what’s going to be $200, $250, $300 right now when you look at capitalizing that income when you go for a sale because that’s really where you make your money on these parks is by applying a capitalization rate at the end that can measure it with the risk involved and the location of the park. That’s where you’re going to see the accelerated wealth being accumulated when you go and sell.
It’s not just on the daily cashflow you’re getting out of somebody, but that little daily cash flow you’re getting out of somebody is coming out of their pocket. So, that very well might be coming away from the medicine. It might be coming away from their child support or from some other payment that they also are obligated to have, but maybe it’s on low priority than their housing in their mind understandably. So, I like this mentality of empathy on working with these types of people.
Other ways to increase incomes are anywhere from … Utilities aren’t metered. They started submetering the utilities, and they need to subsidize some of that that the tenants should be paying for, but most tenants are fine with paying for their own water nowadays. While that does come off of their finite amount of income they have, it is not as harsh as charging them, taking their rents from $150 to $250 at least in the initial time because most people understand, “Well, if I use utility, then I probably need to pay for them,” but you’re saving them money as well by not having them pay deposits and things like that that a utility company might be charging. So, there’s numerous ways to skin that cat.
Jason: Got you. So, when you’re thinking about this, before we dive in to your first chapter of the book and dissecting it, and I’m going to start my journey, I just wanted to talk about what the biggest problems that a lot of mobile home park owners face, and some of the biggest advantages that they have. Do you have any insight on that?
Glenn: Yeah, of course. Some of the biggest challenge is that a lot of these owners have right now, especially if they’ve owned a park for a while and just never quite performed as well as they were hoping, which happens all the time, a lot of it has to deal with infrastructure issues, with municipality issues, and bully landlording. There’s a lot of archaic models of mentality in this business that I think are cumbersome for an owner to get good quality tenants now.
There’s owners out there that still carry guns while they’re out collecting the rent, and people that … A good person doesn’t want to live in a park with landlords that are doing things like that. It’s just too intimidating. The reaction from the sellers or from the owners when I’ve asked them about that is, “Well, there’s a tough element of people here that know I’m carrying money.” There’s rationale there, but I think through proper vetting of tenants, you should be able to have comfort in your park and create a stabilized, uniformed policy there that it’s a safe park, and that there’s no need for that type of bully landlording or intimidation tactics in order to get your tenants to pay.
Jason: That sounds stressful.
Glenn: It is. I remember when I first started collecting rents, I’d pick up $10,000-$15,000 in cash. I would sit there and say, “Huh, I know there’s some cracker that are out in some corner and they’re going, ‘Hmm, what’s that guy doing'” It is nerve-wrecking. I think over time, when you treat your tenants well, they start to … Most of your tenants don’t want any problems. If you vetted your tenants, “Well, you’re not going to have riffraff on your park,” but a lot of owners don’t vet their tenants well, and they end up with a lot of riffraff in their park, and it’s a chicken and egg situation there.
Sometimes those parks require a big redo and the new owner might have to go through that process, but that’s some real value if it can be accomplished. Of course, there are some locations and some parks that you might find yourself saying, “Well, I don’t think I want to necessarily spend my time doing this for the next five years, so I’ll look at something else.” Those parks, those are the guys we see go sideways often.
Jason: The people who pick the shadier parks?
Glenn: Yeah, because they see a bigger yield and they say, “Oh, it’s got day one returns of 15% or 20%.” They say, “Well, all I got to do is just take out the whip and start cracking it.” Before you know it, they weren’t able to change the direction of that, and you end up having a very slippery slope.
We’ve talked a lot about time, headache, and value. Time, value, headache is a model I use for most things in life, but I really like to apply it to the mobile home industry because not every mobile home park right now or ever is a great deal, and that you should be involved in. A lot of the deals you should just simply walk away from. I like to help my guys understand which of those deals are, and depending on your risk threshold, which feels would fit with your persona of your investment style.
Jason: Do mobile home parks have a culture? You know like some neighborhoods have a culture and a feeling, is it more so, less so or just standard neighborhood stuff no matter if it’s a mobile home park or not?
Glenn: It definitely has its own personality. Depending on where you are in the country, it can be amplified. My first park, the park that I bought in Eastern Tennessee, they were an interesting crew. I remember the day that I first came out there, there was a mother sitting on her porch with her young child playing in the grass in front of the home, and the kid is walking up to the gasoline can that was sitting next to the broken down car and playing with it. The mom is just sitting there telling to knock it off, but not doing anything.
Jason: That’s a lot of effort.
Glenn: You had these types of personalities there that, for better or worse, there can be a lot of drama in these parks, but the big difference in a park that has a lot of drama and a park that does, and it’s really through the owner and the manager that are operating those parks, and the the tenant vetting process.
There’s some parks that are very sleepy and quiet, and everybody minds their own business. My park was not that way. Everybody knew everybody’s business every moment of the day, and love to tell me about it every money of the day, and, well, they tell me about it every moment of the day.
For me, it was a little too aggravating, so I eventually got a manager to deal with it who understood the personality of the park well enough, and the tenants in that park well enough to be able to keep them in line, and to help them promote a safer lifestyle, and help them figure out ways to be more productive people. For me, it worked well. I had very long-lasting tenants there up until I lost my manager, and then I lost a lot of my tenants. Go figure.
So, these are some of the complications with the personalities at a park. It’s unfortunate that a lot of the people who end up living in the lower class type of parks, who’ve had very hard lives, and they didn’t have quite the opportunities that maybe other people had, and there’s definitely a lot of medical issues, a lot of employment issues, and things like that that just make it hard for them to ever get a flip hold and by being a landlord, especially for these lower incomes types, you’re giving them at least some solid ground.
Now, it’s up to you to help them be more productive and have better jobs, and teach them a few skills, and at least provide them with nothing else but a safe place that has an owner that understands that they’re going through a hard time, and as long as they’re not being terrible tenants, that you’re willing to work them because that’s an important that not enough people are providing other people in the society that we have here.
Jason: Affordable housing is really important. People need a place to call home. If they don’t have hope, that’s when they turn to crime. That’s when bad things happen. So, it’s important that these places exist.
Glenn: Absolutely. The affordable housing crisis that we’re having here, whether it’s fact or fiction, in my opinion, it’s fact, and most people focus on low-income housing with apartments, but for a huge portion of America, even that is still unaffordable. It’s going to take one person two full-time jobs to be able to afford your standard two-bedroom apartment in almost any city in the United States.
That’s where mobile home parks really fill a void. There’s 25 almost million people living in mobile homes in the United States right now. In the parks, there’s no exact numbers, but the best guesstimate is somewhere around 10-12 million people living in mobile home parks, and that’s a lot of people that need the security blanket of a low-priced home or space to raise their family.
With all these investors coming in to this business and saying, “Hey, there’s an opportunity here,” it has put a lot of upward pressure on the price for these homes. In my mind, what I see end up happening is some regulation is going to be enacted in one fashion or another. I would think it would make sense to get ahead of the curve with that, and maybe help with these regulations in a way that still has the profitability of an investor because this business takes a high return to get an investor to want to deal with this kind of stuff. That’s an important function. Risk and reward will always be a huge piece of capitalism.
Glenn: If it gets too regulated, you’re going to see a step may happen here, and it’s going to be a negative thing, and only adds to the affordable housing crisis. Unfortunately, with the way that some people are pushing rents at all these places without adding extra value to the tenants’ lives in one fashion or another, it’s creating a bad image. There’s a lot of us here that don’t like that image, that we’re actively trying to pursue.
That’s something that I would like to get behind more and more and help my clients more and more understand the need for this, and the ethical, empathetical way to approach it. We’re still getting a high yield.
Jason: Right. So, in a way, people who have high net worths or money to invest, if they’re looking to do something that is almost philanthropic but still delivers a return on their cash, this might be a good pathway for them.
Glenn: Mobile home parks, that’s the ticket right there with that. I see tremendous value beyond this financial value of being involved in this industry. We can talk more and more about all the feel goods that we can give each other about what we’re doing, but at the end of the day, most of us would not be getting in this business if it was not for the yield.
There’s just too many other investments out there that you can get your easy 8% return on without having to try too hard or 6% return or something, but mobile homes offer and I think in best of both worlds when done correctly. I see our haves and have nots becoming more and more separated with have nots becoming a larger and larger piece of the segment.
At some point, the counties and the municipalities and the governments are going to realize that we need to expand mobile home parks, and we should be able to provide more housing for more people because right now, the mobile home park is one of the hardest ownings to get, and they’re not issuing mobile home parks in most markets across the United States. Getting real value for even an old park that’s ugly and just that zoning is creating a value for it.
Until the governments change their viewpoint on allowing mobile home parks to exist in their local community, that value for that zoning is going to, I think, retain and, if not, start rolling at some point more than it is.
Jason: Got you.
Glenn: So, it’s a lesser known fact about the industry, but that zoning is a big factor as to why this industry is really important because-
Jason: People just don’t want them. They just don’t want them around.
Glenn: Yeah. Most people don’t want to live next to a trailer park, right?
Glenn: No matter what we call them nowadays, and we call them now mobile home communities in my world, but 10 years ago, they’re mobile home parks, and 10 years before that, everybody on this planet called them trailer parks. The guy who lives next to one is, in fact, probably still calling them trailer parks. The county is saying, “Hey, we want to see a higher type of person in our county, and these things are a blight on the visual aspect of our county, so we’re going to shut them down,” or create some hard times for the people there to try and coerce them out of the home or out the park.
Jason: It’s almost like mass gentrification.
Glenn: Yeah. It really is because there’s a lot of great, small, secondary, and tertiary cities that have mobile home parks right in the middle of them. The county is saying, “Hey, we’d rather see high-end housing here.” The pressure happens, and right now, nobody is building low-end apartments. That’s just not happening. That’s too expensive. So, everybody is building these high-end apartments that a lot of these lower end income people can’t really afford to use anyway.
So, in my opinion, it makes sense to get the government and the investments behind mobile home housing and see if we can upgrade the image of mobile home housing by not being a trailer park-looking thing that they used to all be. We’re seeing that happen. We really are. We’re seeing lots of really good, smart people with money and backers coming in, and really upgrading parks right now.
I think it’s really wise. I don’t think there’s a lot of financial benefit for them doing it other than that’s what it takes to get better tenants and to get the city off your back, and eventually, you’ll be able to recoup that capital investment. With things like the opportunity zones that exist right now, it’s another really good way to deploy capital, and with the massive tax advantages and getting good yield in the meantime.
So, I think the time is right to really push this model of this empathetical capitalist model that I’m trying to promote to serve where we are in the economy and what the overall situation looks like for people right now.
Jason: I think that leads in nicely to talking. We talked a lot about the disadvantages. What are some of the advantages for investors? Could I expect tax breaks or Section VIII housing guaranteed people in the lots? Is there any big advantages other than the high risk, high reward?
Glenn: The Section VIII, while it’s a great program and it’s definitely needed in our country and should be expanded, in the mobile home business, it doesn’t really exist unless if you own a mobile home. If you own a mobile home, the first thing you will learn is they fall apart every single day. Like the car, it just deteriorates.
When I had Section VIII housing at my park in a couple of deals I own, I found it to be a little too hard to navigate with the city because every little thing prevents them from paying you rent until it’s fixed. Yes, it should be fixed, but sometimes it gets a little burdensome.
So, in the mobile home park industry as a whole, I think that most parks are going to be lot rent only parks. You’re not going to see Section VIII. So, there’s no real advantage for that. The best advantage in mobile homes is you have one of the stickiest tenant basis that America has to offer. The tenants that own their own home and put in your park, it is not uncommon to have them spend the rest of their life there.
So, if you’re cognizant of that, and you’re not too bullish on pushing rents, and just treating them like a pay stub, you could have a very well-performing part. It’s very stable, where you actually have connections with people that last decades. They tend to bring their friends along, too. Before you know it, you have a park that’s got primarily an aged residence that’s very stable, that’s neither living on a fixed income, but providing a nice income for you, and still getting them enough value that they want to stick around.
There’s some great parks in North Florida. A guy I’ve been working with for years, he’s owned this park 30 years. He’s got tenants that have been in this park for that entire time he’s owned the park. Most of his tenants, I think, is average age and his tenants was something like 18 years.
Jason: That’s crazy.
Glenn: That’s not something you’ll see at apartment buildings unless you’re talking about-
Jason: Is there escalation in the amount of rent over the course of years or does it get locked in?
Glenn: No. It grows, but in my opinion, you can only raise rents in somebody so many times before you just hurt their feelings. With that guy in Florida I was just saying, his thing is if it’s not a recession, he raises rents $10 a year. If it is a recession, he doesn’t raise rents. I think that’s a fair philosophy, but also a fair philosophy is, A, rents are only $150 here, and every other park in this neighborhood is charging $300. I can push rents to 250 today and nobody can cry for help.
That is probably more common now than I’ve ever seen before, these massive rent spikes. We’ll see how that goes, but it does seem to be the new norm. I think that’s where a lot of the pushback from things like the John Oliver episode and stuff come from is there’s justification that a raise rent is heavy, but there’s also you’re taking it off of the backs of the poor people and do you have to. I mean, I don’t know about you, but in my life, nothing’s ever gotten cheaper.
Jason: No, no, nothing ever gets cheaper.
Glenn: It gets more expensive.
Glenn: As somebody in the position to affect that, I think you have to take great responsibility and care of doing so. There’s nothing wrong with raising rents. There’s nothing wrong with it at all on space value. How you do it is going to determine if you’re successful with it or not, and how you do it is going to determine is you can sleep with yourself at the end of the day or not.
Jason: Is this a recession-proof business? Does a recession or an economic downturn hurt the mobile home park industry or does it help it?
Glenn: I’ll say this about it. If you have good tenants that are already vetting, they’re most likely not going anywhere. If they do go somewhere, you’re going to be able to fill it up really quick because more people on recession tend to downsize and move into places that offer the safety and quality that they’re looking for, but also the affordability, most importantly.
However, raising rents in recession is just so hard to do. I’ve heard stories. I was not able to do it. My park in recession was well-maintained. I mean, my tenant base stuck around until they didn’t and now we’ve just had the [inaudible 00:32:50] recession when everybody started getting jobs again and moving out of that market into a larger market.
So, recession-proof? Yes with a caveat, no with a caveat, depending on how you look at it, but the hardest thing about recessions is what the cities do to counteract the negative effects of recession. Often, cities will expand their property line, the town line to the next half mile down the road. In my park, we were outside of the city limits one day, and then the next day, we were in the city limits, and now we’re paying city and county taxes. So, that was an extra expense.
Then the city decided to … They got a grant to expand their order and searching of plants, and forced everybody in the city limits to connect. Well, that was almost $100,000, $90,000 or something like that in the capital expense. That was more than a full year’s worth of income earned by my park.
So, recession-proof? No. The park, in theory, kind of. The tenants are going to stay there, but what the cities do to counteract the recession can have a major effect on your operations and your ability to stay in business. Plus, banks tend not to loan money during a recession for the mobile home industry. That puts a lot of negative pressure on you as well, especially if you have a loan coming due like so many of us did during the last recession.
Jason: So, let’s get in to the start of my journey, right? So, over the past, I don’t know, we’ve known each other almost a year now, and I’ve watched your career grow, and really been impressed with the work that you do. I am interested in getting into the space, but I’ve never done real estate before. I don’t know anything about the mobile home park space, and I’m hoping that on my journey to learn, our audience can learn, too, how to do this ethically and profitably.
So, let’s look at the first. What we’re going to do is go through chapter-by-chapter of your book and look at this as companion content because reading the book, you have to do it. You can go to the website. Glenn, what is your website URL one more time?
Jason: There’ll be a landing page on there we’ll call podcast or if we change the name, just click around. There’s not that many pages on their currently. Find the landing page. You can download. I believe it’s the first chapter of the book for free. Glenn is doing the finishing touches on it. It will be available on Amazon soonish, and possibly digital distribution on the website or at events Glenn is speaking to.
I want to go through and start with chapter one of your book, which is why, why mobile home parks, and why is it important, and why is now a good time to get in. Convince me, Glenn.
Glenn: Yeah. So, I would probably convince you not to get in, to be honest, until you’ve understood your own personal goals and values, and your apprehension to risk because there’s a lot of it in this business. There’s no need for you to get into something that doesn’t fit with what your ultimate goals and lifestyle approaches.
If you get through that hurdle and say, “You know what? I want to deal with people that are going to have a lot of issues I want to understand. I want to deal with going through some of the municipality issues. I want to deal with all these other things because I want to add value to the have nots that are out there that we could help and provide housing, and all that kind of stuff,” then great.
There’s a real way for you to have a highly profitable situation while helping people in this business, but it’s definitely not a painless, brainless, easy-peasy type of investment. It is not like buying an apartment building. It is not like buying a triple net, single tenant net lease type of deal. It is not like buying a laundromat even. It’s a completely different type of investment with a totally different type of clientele.
So, what I tell most people looking to do the first deals is, “Well, how about this? You’re saying you want to buy this big chunky $5 million deal. How about you take a step back and just buy the million dollar deal first, the little deal that has a small return, but you’re not going to get hurt, and spend six months to a year in the industry on a smaller deal that’s got all the safe nets in, all the bells and whistles of a nice little park that will provide for an easier exit.” That way-
Jason: Can I ask you a quick question, Glenn?
Jason: So, when I’m looking at this, should I be looking locally or should I look for the best deal like if you’re shopping for a specific car? Because it seems like proximity to something like this would be relatively important.
Glenn: It is. I talk a lot about that in the book in one of the later chapters is the location. For people like me that was just getting started, it needed to be somewhere close because I needed to be hands on, and this business is going to require you to have some hands-on stuff, especially in the beginning of your investment life with it.
These parks, if you have 50 tenants and 50 people that are going to call you and tell you everything that’s wrong every single time, and if you want to pay somebody to get it fixed, hey, great, but it’s going to cost you each and every time.
So, I always recommend that, really, you should be buying your first deal somewhere close to home. I talk about a couple of rules about that. You want to be somewhere within an hour or two, that’s just far enough out of the big city, so you can get some yield on your deal, but not too far that you just go in there every time that you go there. You might have to go there three, four, five times a week in the beginning just to understand the deal.
As you graduate through the scale, the mentality of most of my investors is, “All right. I’m willing to do one plane flight, and I’m willing to go up to two hours after that plane flight.” Then that works fine and dandy if you’re near a big airport. If you’re like me, I live in Wilmington, North Carolina, and it’s a great little town, but there’s just not a lot going on out here, and the airports are hard. So, two plane flights, and a one-hour drive. It’s how I look at things.
If I was starting over again, I would still do it the same way. I will stay within an hour or two of my house, ideally within an hour, and understand that for the next six months I’m going to spend a lot of time there learning my tenants, learning the municipality, understanding my vendors, finding the right manager, understanding the upsides that I could achieve with what I have already, and get to my feet, which is like going to college before you go to medical school. You want to take that educational lesson because that’s going to be the foundation of how you do the rest of this business.
Jason: What’s my-
Glenn: A lot of the guys that I’ve worked with … I have to cut you off real quick.
Jason: No worries.
Glenn: A lot of the guys that I’ve worked with that didn’t seem to last in this business, they bought some massive deals far from home, and were chasing yield, and they said, “Oh, we’re buying this in the recession. This has to be a good deal.”
I just sold a park for a fellow that had almost 300 units. He lost his butt on it. I mean, he took a straight million dollar lost on this park, and the park was in a location that he shouldn’t have bought to start with, and he’s far from his house, and he had all these other investors involved. Nobody wanted to do the daily grind of it. They lost. It’s unfortunate for them.
Jason: Do you have to have a certain amount of grit to be in this business? Is that important?
Glenn: I think so. I think your wit and grit and your wherewithal are really going to be some fundamental things you need to possess in this industry, and if you don’t have it, this industry will either teach it to you in the most painful ways possible and you’ll get through it or it will just wipe you out in this business.
When I started off, it definitely got me close to being wiped out, where I almost lost my personal home and things like that as well because it can be all-consuming when everything goes bad all at the same time, and it probably will again for somebody here and there, and more than others at times. It can be real devastating to try and correct the wrongs that got you into that situation.
Jason: Do you think that that’s why these large conglomerates are getting involved in this space because it’s almost better to have a machine running it because of how complex and difficult it is?
Glenn: I think the large guys are getting into this business in such a major fashion now. One, because yield is no longer there on the other real estate protocols. Two, this is still a mom-and-pop industry. That means from a Wall Street type of personality that if you consolidate all of these inefficiencies between all these various mom-and-pops, you could really create a great system that will print money for you, and get a higher yield than other markets would have faced.
Now, the small guys, the guys that are like me when I got started in the business don’t really pay attention to that, but they should be. They should be saying, “Hey, how can I consolidate more mom-and-pops in the area that I’m going, so I can build some more management efficiencies, so more capital exposure efficiencies, all that kind of stuff to correct all the deferred maintenance by using one vendor in one location versus five vendors in five other locations?”
Jason: I think-
Glenn: That’s something that the big boys have done a great job at doing because one did it well, now everybody wants to do it, and we’re seeing the biggest consolidation in this industry that has probably ever occurred, and there’s no stopping it in site as far as we can tell.
Jason: I think you tapped into my narrative here, which is you asked earlier, “What are your goals? What do you want to do?” The idea of creating efficiencies and having multiple parks within a same area where I could tap in to the same property managers, the same repair people, the same landscapers, that would be the path that I would want to go down because I know that year one, year two are going to be difficult, but I know that the machine, once I get it going, is going to be easier to manage because I will have the right people and tools in place.
So, I don’t know if that’s helpful as we craft our way through what my journey should be, but I feel like that’s probably where a lot of people are going to land because you’re not a giant corporation, and not many people who would want to take this on are looking to do just a one-off thing. I think that people are looking to build many empires. Would you say that that would be a safe way to look at this as we go forward and something that’s relatable?
Glenn: Absolutely. I would say the average guy that I work with is going to buy their first field to test the water. They’re going to have that same theory in their head that, “Hey, if I can figure this out, there’s probably 10 other parks in the same county I can acquire and apply those efficiencies and save a lot of money on things, and be able to build a little empire.”
So, I tell people all the time when they work with me, “If we can get one deal done, we’ll get 10 deals done.” That’s really the goal because if you can’t … Your first deal is going to determine if you ever want to do this business again. There’s plenty of guys that aren’t going to do another deal after their first deal because they realized, “Oh, this is actual work. This is not just mailbox money,” because this is a business that, it’s like you said, it can take a solid year for you to get this thing producing well, and-
Jason: People underestimate time. People always think things are going to be easier than they really are. This already sounds something that is emotionally and physically draining.
Glenn: Absolutely. I mean, when I started doing my first park, I was like, “Oh, easy-peasy. I’ll spend 5-10 hours a week, big deal, and I’ll do everything else with my life, and I’ll just get all this crazy money.” Before I knew it, this job, this first park was every bit of 40 or 50 hours a week. It really distracted me from my other ventures at how it’s doing.
It left me with, “Oh, what did I get myself into?” feeling. Once I was in it, there’s no way out because I wasn’t going to lose, so you have to keep working, working, working until it finally corrects itself. Had I had more awareness of my capabilities at the time or more awareness of what I was really trying to achieve, I might have done something different or I might have bought 10 more of them. It’s hard to say.
At the end of the recession, I realized, “Hey, I made it through this thing and I made money. I want to get back into brokering and teaching people how to do investments and things like that.” Now, I just focus on brokering mobile home parks. I don’t buy them anymore. I like helping people create these efficiencies through my experience and know-how and tips and tricks that I’ve learned from the hundred other people that I worked with in this industry, and really create an efficiency model that will help a guy that’s starting up with $100,000-$200,000 be able to buying some freedom for himself, but it doesn’t come. It takes many years.
Jason: I would say this to people who are listening because if you’re thinking about doing this, and you’re like, “Wow! These guys aren’t really selling it,” well, the fact of the matter is that you can get sold any deal. What we’re trying to do is really tell you what it’s going to be like, but as I know from building complex businesses, wherever there’s complexity, wherever there’s that work that someone else doesn’t want to put in, that’s where the money is. That’s where the opportunity is.
Jason: So, if it sounds like we’re down-talking it, it’s just like, “No, you got to be real. You got to know that this is a complex, tough business to get in, and be in, and maintain, and if you’re not up for the challenge, don’t even get started because you’re just going to lose your money.”
I think from Glenn’s perspective, what I’ve learned is Glenn wants people to be successful because he wants to broker 50 deals with them. So, it makes total sense to not qualify somebody who’s just going to fail because then what kind of reputation do you have?
Glenn: Yeah. I don’t want to leave a sour taste to anybody’s mouth because I told them all how this is going to be great and easy and you’re going to make all this money, and then for one reason or another it doesn’t perform. I’d rather tell you upfront that this business is a gut punch. It was to me when I first got into this business. It’s a kick in the nuts everyday. You have to be able to endure. It’s very true. When you get up to these large multinational companies that own hundreds of parks, I’m sure it’s easier at least when you got on top of it.
Jason: Because the people who are doing the deals aren’t doing the work.
Jason: They’ve got guys who do that, but for the rest of us who are up for the challenge and know that wherever there’s complexity, there’s cash, this seems like a really great place to go, and I’m excited to learn more. I think you clearly articulated why mobile homes and why now. I would encourage people to read that chapter in the book. We’re going to have it up on the website, where you can download it. The web address is themhpexpert.com.
Glenn, what is your email address in case somebody wants to hit you up with a question?
Glenn: Sure. Anybody can reach out anytime. I’m an open book. Shoot me a text, an email, whatever. It’s absolutely fine. My email address is on my website, but it’s [email protected] I’m more than happy to give you my time and talk to you about what I think about things, and see if we can get something accomplished here in the next year or two with each other.
Jason: Awesome. So, next week, Glenn, what are we going to talk about? So, the first chapter of the book is about why, and we got through all that stuff. What can we expect? What can I expect to learn next week?
Glenn: Sure. So, the next thing that would make sense to talk about is really our tenants. Our tenants are really going to be the core of your business. If you don’t like working with people, this is going to really open your eyes as to some of the challenges that your tenant base is going to have, really understanding your clients and why they want to live there, and who your tenants are, and the common links between them, how to keep them in your park, and dealing with these riffraffs that you’re going to inherit or somehow get through, and the vetting process of getting good tenants. That’s going to be the core of your business. More important than anything else you do in this business is how you treat and vet your tenants. We’ll talk a lot about that next time.
Jason: Awesome. Well, thank you all for listening to The Mobile Home Expert Podcast. I’m Jason Sirotin with Glenn Esterson, and we’ll see you next week.