July 21, 2017

JF1053: Pros and Cons of Mobile Home Park Investing #FollowAlongFriday


Time for an update on Theo’s deals, and hear about Joe’s recent hit and run incident in Dallas. We’re answering a few listener questions today. And of course, as the title says, we’re talking mobile home park investing. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!

To learn more about mobile park investing, visit the following:
-JF161: How to DOUBLE the Value of a Mobile Home Park: https://joefairless.com/podcast/jf161-
-JF956: Why He Traded Billboards for MOBILE HOMES!: https://joefairless.com/podcast/jf956-
-Why Mobile Home Parks Are The Best Real Estate Investment In The U.S. Right Now: https://joefairless.com/mobile-home-pa…

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Joe Fairless: Best Ever listeners, welcome to the best real estate investing advice ever show. I’m Joe Fairless, and this is the world’s longest-running daily real estate investing podcast. We only talk about the best advice ever, we don’t get into any fluff.

We’re doing Follow Along Friday today… Happy Friday, Theo.

Theo Hicks: Happy Friday to you too, Joe. Every Thursday, technically…

Joe Fairless: Yeah, I guess technically it’s Thursday, but when it releases on the podcast it will be Friday, so we can pretend…

We’ve got a lot going on today, and we have a really educational episode based on our experiences today. Normally, this show is all about interviewing guest, but on Fridays we talk about our entrepreneurial endeavors, and we’ve got a lot going on…

Theo Hicks: We have a lot going on…

Joe Fairless: You’re closing…

Theo Hicks: I’m closing in exactly two hours and four minutes.

Joe Fairless: You’re closing in two hours and four minutes. We’re gonna talk about that. We’ve got a question on investing in mobile home parks, and the differences with that and apartment investing; that was a question from someone last Follow Along Friday, so we promised we’d answer it.

Then I just came back from Dallas, on a trip looking at the property we’re purchasing, and doing secret shopping… Shopping with sales comps — or the rents comps rather, so we’ll be talking about that. How do we wanna kick it off?

Theo Hicks: Well, do you wanna talk about your updates first and we can then transition into mine?

Joe Fairless: You’re the one closing in two hours and three minutes now… What’s going on with that?

Theo Hicks: Yeah, so we’re closing. Just as a refresher – three four-unit properties, and the total purchase price is $660,000. I saw as the banker was wiring that money today, so that was fun.

I’m actually gonna go to Marcella’s office to do the close [unintelligible [00:04:03].11]

Joe Fairless: Your girlfriend…?

Theo Hicks: My girlfriend. We didn’t know if we would be closing today. I didn’t know we were closing today or tomorrow until about [10:30] last night, for, again, as I’ve been saying multiple times on this podcast, mostly for seller side related reasons… But we’re officially scheduled to close, we’re excited, and we’ve got our [unintelligible [00:04:21].25] and we’ll see how it goes.

Joe Fairless: I think you told us the last week – you got into all the units?

Theo Hicks: We’ve seen all the units, finally

Joe Fairless: You’ve seen all the units.

Theo Hicks: Actually, it was interesting, because the one that we didn’t see was the nicest unit there was; it was beautiful. They redid the hard wood floors – all the units have hard wood floors; some of them are kind of beat up, and [unintelligible [00:04:39].16] hardwood underneath them, and I was like “I wonder what it looks like when it’s redone”, and in one of the units the floor was redone, and I was like “Wow! This is gonna look really good if we redo these floors.”

It also had the original wood paneling in the kitchen, which is kind of old school, but… When I’d originally seen it, I was like [unintelligible [00:04:56].16] we’re gonna paint over this”, but I don’t know why — the contract between the paneling and the floors just made that room look bigger and it just made it look a lot more nicer, so we’re gonna keep that [unintelligible [00:05:06].01] all the keys. I’m really looking forward to it, it’s exciting.

Joe Fairless: One thing that I’ve done since last time we talked is I’ve read a John Grisham book called The Whistler. At the end of the book there is the lead-in to the next book that he has written – it’s a genius marketing play – and that book is I think Canary Island or Camaro Island (something like that). In the first part of it they do a heist… Bare with me, this is relevant to what you’ve just said. They do a heist, they steal Scott Fitzgerald’s (author of The Great Gatsby) original manuscript from Princeton University.

Some of the members of the crew who stole it are sophisticated, and what John Grisham writes about with these characters is that a lot of people think about the plan to commit the crime, in this case – I’m not likening this to your real estate transaction – but not a lot of criminals… And one of the criminals in the gang, he escaped out of prison. Not a lot of them think about what do they do afterwards? And they’re talking about how one of the gang members and the people who stole this stuff escaped out of prison, but he had a plan for what to do afterwards.

As real estate investors, that can be the case with us too, where we focus so much on the acquisition, and then it’s like “Okay, whew! Now what…?” and we don’t put as much focus on “Okay, what do we do now that we have it?” So my question to you with that long lead-in is you’re closing in two hours and two minutes – what do you do immediately after?

Theo Hicks: The next steps — I’ve got a little note that I’ve typed up that we’re gonna tape on all the residents’ doors, to essentially just notify them that I’m the new property manager… Again, we talked about that – I’m not the owner…

Joe Fairless: You?

Theo Hicks: Me, I’m the property manager, for the owner, Marcella. [laughs]

Joe Fairless: With your phone number, your e-mail?

Theo Hicks: So we won’t do my phone number, we’re gonna do my e-mail, because we set up – thanks to your podcast, the interview with the founders of Cozy.co… We’re gonna use that as our portal essentially, and instruct them on how their rent is going to be collected. So that will be through e-mail.

We’re kind of concerned just because some of the residents are on the older end, and they might not have an e-mail, so we’ll have an option… I’m not sure how we’ll do it exactly, because we don’t want to give them a second option, as everyone just takes that option instead of doing the e-mail. I’m gonna figure out how to word that. But essentially, just lining up how the rent is gonna work, and then also our plan for increasing the rents, since all the units are month-to-month and they’re all way below market rent. We’re gonna explain how that process is gonna work.

Joe Fairless: Oh… [laughs] On the initial message you’re gonna —

Theo Hicks: Yeah, we’re coming in hot!

Joe Fairless: Oh, my god…! What are you gonna say?

Theo Hicks: We’re going to say that — depending on which building… We’re doing one in one month and the second one in the third month, and then the next one at the fifth month, so that we’re scattered —

Joe Fairless: Are they next to each other?

Theo Hicks: Yeah, they’re all next to each other.

Joe Fairless: So one building – the people there are gonna be talking to other people in the buildings, you realize that…

Theo Hicks: I don’t.

Joe Fairless: They will. 1000%. You’re not isolating one building by messaging it. They’ll all know.

Theo Hicks: I plan on telling all of them that we’re planning on raising their rents, so they’re all gonna know; it’s just I’m not gonna do them all at the exact time. I guess if you think there’s a potential for there to be a mass exodus, then I’ll probably not do that…

Joe Fairless: Well, I don’t know about a mass exodus, but I know they’ll all know. One message to one building – just assume that all three buildings will receive the same message, and in distorted form. It won’t be the message that you convey, it will be something more sensationalized…

Theo Hicks: Seriously… Well, the plan as of now is to start with — because actually one of the buildings has a vacant unit, so we’ll go in there and take pictures of that and list it online… But the goal is to start with that building, raise the rents of that building, and then do the same with the second and the third building… But I wanna let everyone know upfront that it’s going to be coming, so there are gonna be repairs, and if they wanna leave, they can leave.

We don’t necessarily have an issue with them leaving, because we have enough to cover the mortgages regardless, and our goal is to just break even the first year, while we’re kind of transitioning people out, and then start cash-flowing afterwards. So our expectations are breaking even this year; if we make a little bit of money – great, but if we don’t (which is what we expect), then it will be perfectly fine.

So I guess in a non-linear fashion, that’s my plan for now. And then there’s a lot of other smaller things that we’re gonna do too, like buy certain things for landscaping… Some of the people are storing stuff in the basement, so we’re gonna tell them in a note that they can’t do that… So a lot of small things you wouldn’t necessarily think about.

Basically, whenever I went there for viewing, I took notes of what I needed to say these people based off of the unit and based off of the building, and that’s what we’re gonna put in the note. The only thing I’m worried about is, again, getting everyone’s e-mail for Cozy, and making sure that we can collect rents that way, just because I was doing some research and as far as I can tell if you want to have a direct deposit set up, you have to give them your account information and your [unintelligible [00:10:04].04] and I’m not sure if I’m comfortable doing that.

Joe Fairless: Well, it should be an LLC…

Theo Hicks: The business account, yeah.

Joe Fairless: Yeah, if you have an LLC, right?

Theo Hicks: Mm-hm.

Joe Fairless: If they don’t have an e-mail, they might not have a checking account too, that’s the other thing… You might have to work around that.

Theo Hicks: The backup plan – because my friend owns a similar property in Pleasant Ridge, and as new tenants come in, he uses Cozy… But for the existing tenants he has them slip a check under — I’m not sure exactly where he has them put the checks, but I know that in one of the buildings there’s like a storage in the basement that I can use for storage, storing lawn mowers, and stuff… So I’ll have them put — people that cannot pay via Cozy…

Joe Fairless: They’ll have to reach out to you.

Theo Hicks: They’ll have to reach out and we’ll set up something for the time being. But for the plan is for most of the tenants to be gone, and put new ones in there. Hopefully, when we get the new ones, they have checking accounts. Just because the rents are so low, I don’t know if people are gonna be willing to–

Joe Fairless: So just to speak clearly though – it’s not necessarily the people who are there, it’s the rents that are currently being paid, right? So you don’t have anything against the people…

Theo Hicks: Oh, no, not at all. I’ve seen all of them, they’re all nice people.

Joe Fairless: Okay, I just wanted to make sure that’s coming across correctly. So it’s not necessarily the people, it’s just you need to raise the rents, therefore it’s likely they’re not gonna be staying – you don’t think, but we don’t know, based on what the rents will be raised to.

Theo Hicks: It’s all speculation, but assuming the rents are so low and they’re gonna be raised like $150… They’ve been there since like 2003; I don’t know why the guy didn’t raise the rents before. But I looked at the comps, and based off of the only units that have one-year leases – based off of those rents, which I still think are below market rents, we can get a lot more for those units.

If everyone leaves — I think overall the mortgages are $3,600/month for all three properties… The bank to make sure we can cover that with our salaries, but worst-case scenario we’ll be able to cover that, and obviously it would suck, but the plan is not to have everyone leave; the plan is to have the people that are close to market rents take that $50-$100 bump, and then the ones that are like $200 below market rent, I’m assuming they’re going to leave. It’d be awesome if they paid the increase in rent, because I wouldn’t have to worry about cleaning it up or anything like that, but… So that’s the plan, but obviously it’s gonna change.

Joe Fairless: Are you doing anything to enhance – it’s okay if you’re not, but I’m just asking… Anything to enhance the living experience for current residents?

Theo Hicks: Yes and no. The only “renovation” we plan on doing is in the common areas in one of the buildings the carpet isn’t replaced and is running old, so we’re gonna have to replace that. I guess that’s something that might enhance the experience of some of the people that are living in some of those units. There’s a couple units that people are for sure 100% smoking in there, because the entire common area smells like smoke; in the lease it says explicitly you cannot smoke. At one point as we were looking at the units, we walk into one of them and a dude was just sitting on the couch with a cigarette lit, he’s like smoking [unintelligible [00:13:07].17]

I’m like, “Alright, well obviously you can’t do that”, so we’re gonna have to very strictly enforce the no-smoking policy. If they smoke, Marcella wants to evict them straight up, but I’m think I’m gonna tell them not to smoke anymore first, and if they break the rules, then we’ll evict them. But definitely I’ll give them the benefit of the doubt, I’m not just kicking people out on a whim. We’re also gonna do landscaping.

Joe Fairless: Got it, okay. I would highlight that you plan on doing some improvements within the buildings, and then working on the landscaping too, in that note that you write. That way it’s not a complete punch in the gut, it’s more “This is what we’re doing, and because we’re enhancing the landscaping, and just the normal cost of doing business, we will have to increase… We’d love for you to stay, but this is what it’s gonna be.”

Theo Hicks: That’s a really good idea. I definitely don’t wanna just word it with “Hey, we’re taking over the properties and we’re going to raise your rents because of reasons…” That’s a very good point, to say what we plan on doing to the property to enhance their experience, and then also explain the fact that “Hey, market rents are increasing, so we’re gonna go ahead and bump these rents up.”

I think I should mention that they’re actually not gonna be at full market rent right away [unintelligible [00:14:19].12] I’m actually kind of giving you the benefit of not increasing it all the way, because you’ve been there for so long.”

Joe Fairless: And one other thing you can do is you can mention the average cost of moving… Because storage, truck, deposit for your new place, taking things from place to another – all sorts of costs, and if that’s $1,000, then does it make more sense to pay $100 extra, which is $1,200 over the course of the year, versus $1,000 right now, and then be in another place that might be in a similar situation.

Theo Hicks: Yeah, and probably paying similar or higher rents, too. That’s a really good idea. I didn’t think about that, so I’m glad you brought that up… And mentioning why I’m raising the rents, besides just me wanting to do that, or just because the market says so, because they’re not really gonna understand that.

Joe Fairless: Yeah, think about it from their perspective, for sure.

Theo Hicks: Yeah.

Joe Fairless: Cool. Alright, let’s see… I went to DFW, visited the property we’re purchasing and visited the rent comps. I was involved in a hit and run at one of the rent comps I was seeing…

Theo Hicks: You were?!

Joe Fairless: Yeah, they hit me and they ran.

Theo Hicks: Was it your car, or…?

Joe Fairless: I had a rental car.

Theo Hicks: You didn’t tell me about this…

Joe Fairless: Yeah, I didn’t tell you about this… I just visited one of the rent comps and was not impressed at all, and I was in the parking lot of the rent comp, on my laptop, taking notes, and I was literally writing “This was very unimpressi–” and right before I finished writing “unimpressive” my car jolts and I’m like “What the heck is going on?” I look behind me and there’s a a gentleman in a four-door white vehicle, and he looks at me, I look at him… I’m like, “What’s going on?” so I’m moving my laptop off my lap, and I look at him, he’s just backing up slowly, backing up slowly… “Okay, I guess he’s parking over there…” [unintelligible [00:16:14].16] just takes off! [laughter]

Theo Hicks: Seriously…

Joe Fairless: But it was indicative of one of the experience I had at one of the rent comps, and guess what?! This rent comp is $200 more in rent than what we are currently charging, and [unintelligible [00:16:27].21] less in rent than what we are projecting to charge. The reason why it was a terrible experience – and I’m glad it was, because that helps us, if they’re charging more – is as soon as I got to the leasing office, the leasing agent was fun, the staff was fun, but the walk from the leasing office to the model unit, you have to pass by three pit bulls.
And again, I’m not against pit bulls. If they’re well-trained, just like any dog — you get bit by more smaller dogs than larger dogs, just the larger dogs hurt and they get in the news… But nonetheless, they’re intimidating, and especially when they’re attempting to climb over the fence to eat you. That’s what they were doing, and you have everyone who’s looking at this apartment community, you have to literally walk by three pit bulls, and it’s not a fence with boards that cover up the dogs, there’s like slots in between, like little iron bars, and they’re right there, and they’re probably three arm swings away from you… So it’s really tight quarters. And plus, there’s like pounds of poop; it was terrible, because it smelled so bad.

It’s 100 degrees in Texas, and after you pass the three pit bulls that try and eat your face off, then you go into the model unit where there’s a toilet seat that’s missing. They have a little backyard area, the grass is up high. There is a bag of trash in the backyard area, and the level of renovations aren’t nearly what we’re gonna do… And it was a great sign.

Theo Hicks: That’s an amazing sign, yeah.

Joe Fairless: If they’re charging $200 more than we are right now and we’re projecting to be underneath them, I think we’re in a good spot. So I went there and I went to our other rent comps in [unintelligible [00:18:10].05]. There’s one rent comp very close to us that is doing the same level of renovations that we’re planning on doing, and they’re getting a little bit more than what we’re planning on getting, so I anticipate us being about third in terms of total rent cost in the market… Which is great; that’s where I wanna be. I don’t wanna be first; second – okay, maybe, but third is best.

Theo Hicks: And is the first the pit bull place?

Joe Fairless: Yeah.

Theo Hicks: That’s strange.

Joe Fairless: It is strange. And by the way, after the pit bull place I asked where the pool was. They were like, “Oh, it’s right outside.” I said “Okay.” I go outside, it’s literally [unintelligible [00:18:46].20] and they’re literally like chomping at your arm. I didn’t even go in the pool area because I was afraid of them. And again, I’m not against pit bulls or rottweilers… I had a rottweiler in college, too; sweetest dogs ever. These were very protective, and it’s not a good sign. So that’s that…

One thing that I did hear regarding the pit bull thing was this owner intentionally allows aggressive breed dogs because no other apartment community in the submarket – or not that many – have them, therefore he’s able to bring people in who have it.

Theo Hicks: Interesting.

Joe Fairless: I have mixed feelings about that. That was the trip. It went well. I visited the property multiple days, visited the rent comps… Everything checked out. You don’t want anything to surprise you on those trips, and what I do is I focus on stuff that I can’t google or accomplish with a phone call. I can see maybe pictures of the renovations that the comps are doing, but I wanna go see it myself and experience it myself, and that’s what I did.

Then other than that, we have just been focused on starting due diligence… One lesson I learned from the tour of the property we’re buying – I was talking to the property manager and he said that our property is 70% or so one-bedrooms, and usually that’s in my mind a downside, but he said where rents are at two-bedrooms, if you can qualify for a bedroom, then you’re also looking at buying a house… Whereas the one-bedroom rents are at a place where you’re not at the level of a mortgage for a house, and it’s right in the sweet spot, plus the resident profile that we’re in within our submarket is primarily singles, 25-40 single moms, single dads, that sort of thing, so it works out pretty well. So yeah, that was the trip.

Theo Hicks: I think it’s pretty simple, but how do you determine the demographics – single mom, single dad, 25-40…? Is it based off of market research, or based off of your secret shopping and asking who lives there?

Joe Fairless: It’s just based off of knowing the area. I bet you could tell me who’s the typical person who lives in your neighborhood, what’s their background, how old are they, do they have kids or not…? I can tell you the same thing about my neighborhood, and I can tell you the same thing about all of our properties’ neighborhoods. Yeah, we look at data, but…

Theo Hicks: You get a feeling for it walking around…

Joe Fairless: Yeah, you know your area… We have a property that is a mile and a half away, it’s 90% one-bedrooms and it’s over 300 units, and we’re 96% occupied, and we’re doing incredibly well… So that’s an indicating factor of the demand for one-bedrooms. Then we also have three other properties – not including the one we’re buying – within the same area, and all of them have someone one-bedrooms (just not that heavy) and the one-bedrooms lease really well.

Theo Hicks: Cool. That was an interesting point about the two-bedroom being someone who could potentially qualify for a loan [unintelligible [00:21:53].26] whereas the one-bedroom, they’re probably not there yet, so they need to rent a property [unintelligible [00:21:58].05] “I might rent, I might buy…” I think that’s interesting, I didn’t think about that.

Joe Fairless: For developers that’s what you have to be careful about, because you’re building stuff brand new, therefore you’re gonna have to charge more, and the rents that you’re charging – you really have to have a convenience factor for living at your community versus buying a house, otherwise why would you live in the community versus buying a house? That’s why I’m not a fan of developments, and people have tried to talk to me about doing development…

I did a test run three years ago or something; we didn’t even get it under contract, but I spent nine months of my life trying to learn the process, and risk versus reward I’m not a fan of it, but hey, people make bunches of money on it, but they also could lose bunches of money, as with anything. It’s just more risk, and I don’t like it.

Theo Hicks: Okay, so those are our updates. Do you wanna transition into talking about the difference between…?

Joe Fairless: Yeah, did we hear the question? Was there a question?

Theo Hicks: Yeah, so it was based off of our video last week; his name is Zach, and he wants your opinion on mobile park investing versus apartment investing. We kind of wanted to make it more educational, listing the pros and cons of mobile park investing, as opposed to apartment investing…

Joe Fairless: Alright. Well, let’s see… You can make money in any type of real estate investing; I know that, I’ve interviewed people who have made it in distressed notes, apartments, mobile homes, office retail, parking lots… I interviewed that one guy with parking lots – that was fascinating. So really, it’s not a matter of — and I know you didn’t ask this specifically, but I just wanna set the stage… It’s not a matter of “Can you make money in it?”, it’s a matter of “Do you want to be in this business?” That’s really the question, because someone has made millions and perhaps billions of dollars in every single type of real estate asset class.

So that’s the first question – do you want to make money in this business, versus other types of business? I personally have not gotten into mobile home parks. The reason why is because I wasn’t as familiar with them as I was apartments. When my parents divorced when I was in fifth grade I lived in an apartment with my mom, my brother and my sister. Then when I moved to New York City, I lived in an apartment for ten years, so I was more familiar with apartments. I had never lived in a mobile home, therefore it just comes more naturally to me to invest in something that I know.

When I went to a Rich Dad, Poor Dad seminar, when I had the a-ha moment of going larger, they said that you’re not gonna get rich on single-families, you need to do something larger, like mobile homes or apartments. They said this in (I don’t know) 2006 or 2007. They were on it, they knew what they were talking about, and that’s when I decided to focus more on apartments. Actually, that was in 2010, because I already had one house that I bought in 2009. Now, as objectively as I can look at it, I will tell you the pros and cons as I see them, and then I’m gonna give you some resources to listen to experts and read more content on it, because I am not an expert on mobile home and park investing, because I’ve never bought a mobile home park, I’ve never lived in a mobile home, and I have never analyzed a deal, but I have interviewed guests who have experience; a couple of my buddies do very well in the business.

So three pros – and there are more pros and there are more cons, but here are the three I came up with. A pro is low competition among other investors. Not that many people are investing in mobile homes, and there’s a reason why, and I’ll get to that on the con side… But not that many people are investing in mobile homes or manufactured homes, therefore there’s less investors chasing those deals, and it’s likely that you’re gonna come across a less amount of people. Now, you might come across the same investors on every deal that you’re competing against, but there’s gonna be less of them.

Two is they cash-flow really well if they’re operating successfully. I think you can say that about a triple net lease for sure, and some other types of asset classes, but that’s a second thing from what I’ve heard – not [unintelligible [00:26:33].18] from what I’ve heard they’re cash cows. And three – and this is key – they’re a favorable asset class in an economic downturn.

Theo Hicks: Yeah, kind of like storage units a little bit, too…

Joe Fairless: Kind of like what?

Theo Hicks: Storage units.

Joe Fairless: Yeah, exactly. You get evicted from a house, you got to a nice apartment; you can’t afford the rent on the nice apartment, you go from a class A to a class B to a class C… And before you go to a class D apartment, you’re gonna be considering the mobile home. I would prefer to live in a mobile home versus a class D apartment. After mobile homes, you’re hitting the streets, or you’re doing extended stay living at a motel, or something. So it is the last line of defense for living situations, and I believe in an economic downturn all the mobile home investors are throwing a party.

Theo Hicks: And there’s a fourth one – I wonder how the maintenance compares to apartments or single-family homes… I could imagine that the person who occupies the mobile home is taking care of everything. I can remember from listening to one of those interviews them saying something along those lines of “Once they sign the lease, it’s not necessarily a set-it-and-forget-it, but you don’t have as much going on as you do with a lot of other properties.” I’m not sure how the plumbing works or how [unintelligible [00:27:59].29] but I can imagine it being a little bit lower maintenance costs for the investor than an apartment. That’s just a thought.

Joe Fairless: Yeah, the goal for all my mobile home park investor friends is to have the resident buy their mobile home. That way you’re owning the lot and they’re leasing the lot from you.

Theo Hicks: I remember that.

Joe Fairless: That way it’s getting closer to a triple net lease. I wouldn’t say it is that by any means, because of one of the cons I’m about to mention, but yes, agreed… That would be in the pro section.
The cons – well, you have lower competition, so that’s good, but then the reason you have lower competition is there’s limited supply, and it’s decreasing. You name five cities that have a meeting on how to increase the amount of mobile homes parks in their city, and I’ll give you 100 bucks. You can’t name five cities that are intentionally looking to increase the amount of mobile homes they have. They might be looking for affordable housing, maybe apartment communities or something, but I don’t think you’ll find that. There’s a limited supply, therefore they’re tough to find.

Second is that the collections are going to be very challenging because of the resident profile, just in general. Resident profile is paycheck-to-paycheck. If they get a flat tire and they have to call someone to help them out or pay for a tire — I mean, just paying for a tire could be $50 or $100, or whatever they are… That might not allow them to pay the rent for that month. They’re living paycheck-to-paycheck, so the collections are gonna be tough, and I don’t think you get the same tax advantages with investing in an apartment community that you would compared to mobile homes. I think they’re treated differently.

I tried to call my accountant right before, and I didn’t get a hold of him; I just missed a call, so I think he called me back, but I’m pretty sure you don’t get the depreciation pass-through that you would on an apartment community. So those are the three.

Theo Hicks: You know, I’m pretty sure this kind of goes under 1) limited supply… You kind of said that they don’t build mobile home parks anymore.

Joe Fairless: Yeah.

Theo Hicks: That’s the reason why there’s no increase, because they just don’t build them anymore, so… I know some of the mobile home park investors were using that as a pro, and saying that the supply is never going to change, so the only thing that can change is the demand, and the guy that was talking said that works in his favor; you’re all competing for a limited supply of mobile home parks, because they’re not making any more mobile home parks. If you make more apartments, then the limited amount will go down, but if you don’t, the demand will stay the same for the mobile parks. That’s kind of how he explained it to me.

I’m like, “I guess that makes sense, because they’re not building any” and that’s kind of one of the main reasons why. I think it was — I don’t know why, but I always forget his name [unintelligible [00:30:54].16] I think he mentioned that when he was presenting at the Best Ever Conference, about “The supply is staying the same, or is actually decreasing, so that helps with the demand and the rents and things like that.”

Joe Fairless: Yeah. On that note, in terms of people and episodes I recommend checking out – one is Jefferson Lilly; I interviewed him on episode 161… Way back. That was PT (pre-Theo). [laughter] Episode 161, titled “How to double the value of a mobile home park.” Then another episode with Frank Rolfe, episode 956, titled “He traded billboards for mobile homes.” These two episodes will be linked in the show notes.

Lastly, we’ll link to an article Frank Rolfe wrote after he did the interview with us, and it’s “Mobile Home Parks – Best Real Estate Investment In The US Right Now.” Clearly, his is one side of the story… There’s is cons to everything; it doesn’t address the cons, but if you wanna see more pros about investing, then there is that article that you can check out. These will all be linked in the show notes.

Theo Hicks: Cool. Alright, so we have a listener question from [unintelligible [00:32:06].24] here quickly. The question is “In your syndications do you have passive investors invest directly as limited partners of a holding LLC, or are they investing as members of an LLC that is in turn investing in the holding LLC?”

Joe Fairless: They have ownership shares in the LLC, which owns the property. Then we do have another layer of protection above and beyond that – we have a limited partnership above and beyond that. But the LLC, the entity that they’re investing in, they have ownership shares in that, and that’s the entity that owns the property.

Theo Hicks: Okay, so you’ve got an entity that owns a property and they own shares in that entity, and that’s all they’re investing.

Joe Fairless: Yeah.

Theo Hicks: Okay.

Joe Fairless: And I just wanna clarify… They are limited partners – the way our attorneys have structured it is they have zero liability, other than they do risk the money they put into the deal, obviously; that’s always gonna be at risk. But other than the funds they put into the deal, they have no liability. If someone trips, falls, dies, drowns or whatever, or sues us because it’s a cloudy day and they thought it’d always be sunshiny over the property, then they have no liability. It would go to the insurance. But if anyone’s liable, it’s the general partnership.

Theo Hicks: Okay. I think the second question goes with what you were mentioning beforehand. He says “Likewise, is your asset management LLC a direct managing member of the holding LLC, or is there a layer in-between?”

Joe Fairless: It is a direct managing member. The asset management LLC that we have is different for every property, because that isolates every property so there’s domino effect. Every investment is unique, and our LLC – that is the general partner within the larger LLC.

Theo Hicks: So is there an asset LLC and a holding LLC for each property, or is there a holding LLC, but over all the different asset LLCs for each individual property?

Joe Fairless: There is one LLC — there’s an LP… We really need a diagram…

Theo Hicks: I was thinking the same thing, we need a white board…

Joe Fairless: Yeah, and maybe we’ll do that some time, but… There’s a limited partnership, and then there’s an LLC that owns the property; investors have shares in that LLC, and then we, the general partners, have our LLC that is in the general partnership, and that’s where the asset management is.

Theo Hicks: Okay, that makes sense. Is that like your Ashcroft Capital, is that what that is, the asset management LLC?

Joe Fairless: It’s unique to the property, because everything needs to be unique to that property.

Theo Hicks: Okay, so you have multiple LLCs for each individual property, and you have another holding LLC, another asset management LLC.

Joe Fairless: Yeah.

Theo Hicks: Okay.

Joe Fairless: Because it’s important that every investment stands alone, and they’re not connected together. Otherwise, if Armageddon happens, they’re all connected.

Theo Hicks: Okay, so there’s the answer to your question, Sam. There’s a couple of miscellaneous things to end with… We have our basketball results… No one guessed it correctly this week.

Joe Fairless: No… 13 to 8, Theo won, so… Congrats, Theo. I’m kind of pissed. [laughter] My moves haven’t been — whatever. I’m working on my threes, I think that’s where I need to go.

Theo Hicks: If anybody has any tips for how Joe can beat me —

Joe Fairless: No, I don’t [unintelligible [00:35:29].16] Yeah, if anyone has any tips on how to grow taller, then please let me know. [laughter] But you wouldn’t beat Muggsy Bogues…

Theo Hicks: No, no…

Joe Fairless: So clearly there’s some things… It’s not about being tall, it’s about figuring out the other ways around it. Although Muggsy can slam and I can’t… I can’t dunk.

Theo Hicks: Yeah, he can dunk.

Joe Fairless: I can’t dunk. Yeah, that’s true.

Theo Hicks: I can’t really dunk either, but anyways… As always, subscribe on iTunes to the podcast, and leave a review so you can be that feature review of the Follow Along Friday. This week the review of the week is from Jerry. He said:

“Very good information. I took away a start because the background music is very distracting, which makes the audio poor and is not used appropriately. It is just random and makes it difficult to hear what the speakers are saying.”

Joe Fairless: Good to know, I’ll look into it. I wish I knew which episode he was referring to… And perhaps it’s all of them, but…

Theo Hicks: I think I know what he’s referring to. I think in some of the episodes you’ve got the introduction music where you have it playing when you’re talking, but in some of the episodes it goes longer, when you say “Can you tell the Best Ever listeners a little bit more about your background and what you’re focused on?” – it still goes in some of the episodes, and it’s very difficult to hear what the person is saying.

Joe Fairless: Yeah, we’ll get that addressed.

Theo Hicks: I think that’s what it is.

Joe Fairless: That’s why we do this, baby. A focus group, I love this. Thank you, Jerry, I really appreciate it. I’ll take your four out of five stars and I will implement this feedback so that future episodes are even better. Always looking to improve. I sincerely appreciate it.

Alright, I enjoyed it… Best Ever listeners, I hope you have a best ever weekend, and we’ll talk to you tomorrow.


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