Skyler is a third generation Mobile Home Park investor, we’ll hear about his story and what he has learned as he’s built and operated an investing business. If you enjoyed today’s episode remember to subscribe in iTunes and leave us a review!
Best Ever Tweet:
“Listen to everything that people say” – Skyler Liechty
Skyler Liechty Real Estate Background:
- Founding member of American Dream Communities, MH Park Advisors, and MHC Leads
- Has been investing in and operating mobile home parks and manufactured housing communities for 20 years and is a 3rd generation MHC owner and operator
- Based in Dallas, TX
- Say hi to him at http://www.americandreamcommunities.com/
- Best Ever Book: Extreme Ownership
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TRANSCRIPTION
Joe Fairless: Best Ever listeners, how are you doing? 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, where we only talk about the best advice ever, we don’t get into any of that fluffy stuff. With us today, Skyler Liechty. How are you doing, Skyler?
Skyler Liechty: Hey, I’m doing great, Joe. Thanks for having me on the show.
Joe Fairless: My pleasure, and I’m glad you’re doing great. A little bit about Skyler – he is a founding member of American Dream Communities, MH Park Advisors, and MHC Leads. He has been investing in and operating mobile home parks and manufactured housing communities for 20 years, and is a third-generation MHC owner and operator. Based in Dallas, Texas. With that being said, Skyler, do you wanna give the Best Ever listeners a little bit more about your background and your current focus?
Skyler Liechty: Absolutely. That’s a great introduction for me. Remind me to pay you after the show for that… So like you said, I’m a third-generation mobile home park owner and operator. It’s interesting, we get to talk to a lot of new people coming into this space, and when I tell them I’m third generation, they’re like “Oh man, you’ve seen it all, haven’t you?” And what always surprises me is every day we find that we’re learning something new in this space.
Currently, we’re focused on properties in Texas, in Oklahoma, Missouri and Kansas. That’s our sweet spot right now.
A little bit about my background… When I got into this industry, I focused on the operations side of things, so that’s really what’s near and dear to my heart – how these communities operate, the best practices, how we take them from where they are to where we think they should be.
Currently, we launched a couple of new business segments, so to speak. One of them, which I’m really excited about, is called MHC Leads. The focus there really is — it came out of a need that we found for our own business, which was “Hey, we’re getting a lot of people to the site to look at new homes, or pre-owned homes… How do we separate the guys and the gals that are wasting our on-site manager’s time?” And that’s really what we built that platform to do. It’s been a real big benefit for us and it’s helped us tremendously.
But yeah, it continuously amazes me to see that we’re constantly learning new things, challenges at you. You don’t think about it until you get in the thick of it.
Joe Fairless: Well, let’s talk about the operations side of the business, since that’s what you gravitate towards… Let’s talk specifics about a recent transaction.
Skyler Liechty: Sure.
Joe Fairless: Tell us about the transaction and what operational enhancements did you do in that transaction.
Skyler Liechty: Sure. Earlier this year we bought a couple of communities up in the Tulsa, Oklahoma market… And most of the deals that we’re buying are off market, so it’s working with owners. What we’ve found with those deals was when we got into it, a lot of our best practices such as extensive background checks on residents, knowing the people who are there, putting in those policies to do things like if there’s a problem with the streets, maybe you need to go in and fix the streets, or… Some of those general things that for us in the industry – we just take as “Well, of course everyone’s gonna do that, because that’s what you do.” And a lot of times what we find is people who are in this asset class come from different real estate investments. Maybe it’s single-family homes… A lot of guys come out of the apartment industry, and operationally they just run differently.
On those two communities – we’ve purchased them; one of them was a pretty heavy lift, a big value-add component… So we went in, we did about $400,000 of street work, repaved the streets, repaved the [unintelligible [00:05:04].12] So we got the bones back to where they should look. Simple things like now the residents don’t have to go get their alignment checked on their car everytime they drive down the streets. Those things we take for granted, right?
Joe Fairless: Mm-hm.
Skyler Liechty: So we did that piece of it. One of the things we learned early on in doing this is it’s really good to rebrand a community when you buy it. So you go in, and maybe it’s called Tulsa Mobile Home Park. Right away we’re gonna go in and we’re gonna rebrand it, we’re gonna reestablish it in the community, so any of the negativity with prior ownership – we kind of shut that off. And not all the time is there [unintelligible [00:05:41].23] but it gives really a fresh look at the community. So we started our rebranding —
Joe Fairless: How do you pick a name?
Skyler Liechty: That’s a great question. Me and one of my partners – we just sit with a yellow pad and go through some names that we think sound really good. This last one we rebranded from a name of Mobile Haven, we rebranded it to El Dorado Village. So to us it just really felt like it feet; that’s how we rebranded it.
And then one of the things in our asset class that’s very distinctive and different is we have huge barriers to entry, meaning you can’t just go build a new mobile home park. Most cities that we deal with do not like mobile home parks. They have this stigma with them. So we kind of had that barrier to entry with new parks being developed, which we find very good.
The other component that’s interesting about this asset class is we have the availability to essentially buy our occupancy. That’s a very interesting concept. What that means is — this particular community, we did the street work; there were 40 physically vacant home sites. So we paid zero dollars for those home sites, we go out and we’re buying brand new manufactured homes, straight from the manufacturer, we install them, and then we are either leasing them, or selling them… We’re occupying them.
So essentially, what we’ve been doing on this project is we’ve been increasing the value through purchasing new homes, moving them in, taking advantage of that vacant lot. And actually, what’s interesting about that is if you have a community with a bunch of vacant spaces, it’s actually costing you more money to have them vacant than occupied. And what I mean by that is someone’s gotta cut the grass, someone’s gotta pick up the trash, those types of things. So when we get a home there and a resident in, then some of our costs actually go down, so we have more efficient operations at the on-site level.
So on that particular property, the biggest takeaway we got after closing is residents are happy with what we’re doing, but we find that we’ve had to communicate a lot more with people, I believe, because the ownership that owned it for so long didn’t communicate with the residents. They just kind of let the asset go, so to speak. So when we came in, we had to really do a good job explaining, “It’s gonna inconvenience you, you’ve gotta move your cars, we’re gonna have street works, we’re gonna be moving in homes”, all those things. But at the end of the day, we’ve taken maybe a C+ asset, and when we’re done with it, we’re gonna end up with an A- type manufactured home community. So it’s gonna be a great place for all those people to live.
Joe Fairless: How much did you it for?
Skyler Liechty: I have an NDA with the seller, so I would put it this way – we bought it for substantially less than it would cost us to develop it ground-up.
Joe Fairless: Got it. And you said you put in $400,000 worth of street work. Will you talk a little bit more about where that cost goes, and what are the big chunks of that 400k? Because most people haven’t put in 400k worth of street work.
Skyler Liechty: The other difference about manufactured housing is when we buy a mobile home park, 9 times out of 10 the park actually owns all of the infrastructure. So we own the wastewater lines, the power meter boxes, we own the street. So in this case, all those streets are owned and maintained by the community. So that’s why when we say we put in 400k, it was overlaying all of the streets, we redid most of the off-street parking…
Again, just to get into that a little bit – typically, when we look at a community, we wanna make sure that it has paved streets. And if it does not have paved off-street parking, we’ll actually go in and add that… Because to us, that’s how a community normally looks. So that’s what was so costly about it – we overlaid all of the streets, we redid probably 35 concrete off-street parking pads; so that’s a two-car parking pad… So that’s really where most of the money went to.
Obviously, there was stuff like prepping the base, and doing those things, but visually, the biggest bang we got for that is when you drive into it, people are like “Oh, this is a community that’s being turned around.” This is a place people wanna live.
So for us, if you bring in a brand new home, and let’s say we’re gonna sell it, if someone’s gotta drive through streets that are all busted up, and they’ve got people on both sides that are just living in a way that’s not conducive to maybe what we would want the community to look like, it’s very hard to occupy that home.
So on the front-end we go in, we rebrand, we do the street works… Some communities we buy – perfect streets, and we do no street works. Sometimes there’s a lot of street work, like in this case. And then we start filling it in with the homes. And like I said, at the end of the day the curb appeal is completely changed, and most of our residents are really happy with the change. And some of them aren’t, and that’s okay, too. There’s other mobile home community parks and markets they can move to if they don’t like rules and regulations such as “You’ve gotta mow your yard, you’ve gotta pick up your trash…” Those type of simple things.
Joe Fairless: Switching gears a little bit, tell us about a mobile home park deal where you lost money.
Skyler Liechty: Okay, so everyone’s got those stories, right…? The first deal that we acquired through our equity raise arm was a deal in Missouri. We got into the deal; the deal of closing, we signed all the documents. The on-site manager said “Hey guys, I own a couple of the homes in the community.” We said “Okay, that’s fine. If you’re gonna rent them out and you’re gonna pay the site rent, no problem.” And she said “Well, actually I own about 50% of the homes in this community.” We essentially had a partner that we didn’t know about.
So in that deal we ended up buying all of those homes, so we ended up with a lot more community-owned homes than we originally thought… Which is okay, but really what hurt us in that situation – or complicated it, should I say – is whenever we are making a home ready to release (someone’s there, they moved out), what our objective is is to try and make it as close to a new-ish home as possible. Not everyone has that philosophy. So when we got into these homes, we ended up spending a lot more equity than we had planned on. So we were spending the equity, and it got to the point where as we were filling them up, we weren’t making enough progress.
Also, one of the other things that we did which was unusual is when we closed on this, occasionally again — I’m getting into the weeds a little bit, so bear with me on it…
Joe Fairless: Please do. That’s good.
Skyler Liechty: …but usually mobile home parks – their water and the wastewater is city services. Just like your house you live at – you’re gonna have water from the city, and your sewer is gonna be through the city as well.
Joe Fairless: Yup.
Skyler Liechty: Occasionally, you’ll have communities that will have well water, they may have a lagoon system to treat the wastewater, or you’ll have a treatment plant. So in this particular deal, it had a commercial-grade treatment plant, and it had a commercial-grade well. The well was actually drilled down about 1,200, so it was a pretty big operation. So when we bought it – that’s fine, we’d dealt with similar types of things. But what we found out in the due diligence, which we didn’t realize how big of an issue it was gonna be, is a prior owner had converted that into a public utility system. What that means is we became subject to the same restrictions that the local municipality is subject to. So we had to do EPA, we had this and that… And it’s very unusual to have that.
So when you have that home thing that we didn’t plan on, and you have the treatment plant that we were subject to the same restrictions that the city was, that was a deal we ended up selling the utility company and selling the park, and we took a loss on the park. We did fine on the treatment plant, but that was a deal we took a loss on. And again, we learned a lot from that experience.
One of the big things we learned is in our contract and our due diligence now we don’t just ask “Hey, how many community-owned homes do you have?”, it’s “How many people in your community own more than one home?” So we’ve kind of climbed that, so we’re ahead of it on a move-forward basis.
Joe Fairless: Is that deal the one you’ve lost the most money on?
Skyler Liechty: That is the only deal we’ve lost money on.
Joe Fairless: Oh, wow. Well, that’s awesome. That’s great.
Skyler Liechty: Yeah. It’s good, and like I said, it was our first deal. We got a lot smarter about our structure. What I mean by that is we had investors who that was the asset they were investing in, and they said “Look, we know you guys own parks, but since this is the first equity raise park (so to speak), we’re gonna put in our money; no capital calls. If there’s a problem, you guys gotta take care of it.” That was the way we did it… Which created some of those problems with “Hey, if we need more equity to go out and buy new homes, how do we get that?” Well, our investors arent’ participating with it.
So again, our structure has changed quite a bit, and I would say our biggest structural change happened November of last year. We shifted to more of an equity fund model, so investors get a lot more diversification with our dollars. So rather than having one mobile home park, they’re gonna end up with 5-6 parks in that partnership. So you always end up with a big home run, maybe one that’s just chugging along, doing about what it should, and then in between.
Joe Fairless: In that scenario, do you pay back the limited partners, or is that just risk of doing business?
Skyler Liechty: Any equity deal, all of your equity is at risk all the time. But with that said, we ended up with (in our first deal) a lot of friends and family and things like that… So we took the lion’s share of the loss on it.
Joe Fairless: Let’s talk about the fund. With the fund – what’s the fee structure that you have on the fund?
Skyler Liechty: The way that we do is pretty standard to what most people see if they go out to a private equity group, or to a family office. We do a 70/30 split with our investors. So we take 30% of the upside, and investors get 70%. And then as far as fees, it’s just normal fees. What I mean by normal is if we buy a deal, there’s an acquisition fee tied to it. We’re doing all of the management…
Joe Fairless: A percentage of–
Skyler Liechty: It varies. It’s between 1% to 3%.
Joe Fairless: What’s it depend on?
Skyler Liechty: A lot of that depends on the deal itself. What I mean by that is our fund one – we pegged it 3%. Some of the deals we are looking at require a lower fee structure, just to get that IRR number to work.
Joe Fairless: Got it, okay.
Skyler Liechty: So that’s really what on the front-end drives some of the fees. Like I said, we get a pretty standard management fee. What I would call a standard management fee – there are companies that charge as high as 10% of gross revenue of a management fee. Our fees, of all the deals we’ve done, were 5%-6% of the gross revenue.
Joe Fairless: That’s asset management or property management?
Skyler Liechty: That’s both.
Joe Fairless: Both, combined.
Skyler Liechty: Yeah, we lump them together.
Joe Fairless: Right, because you’re self-managing.
Skyler Liechty: Yeah, that’s right.
Joe Fairless: Cool. So before, you were doing individual deals that you were syndicating, correct?
Skyler Liechty: Correct.
Joe Fairless: And now you have a fund. And the challenge that I’ve thought about – which is why we have not done a fund, but I’d love to get your thoughts, because you are – is the challenge of “Okay, yes, investors, this is the type of deal that we’re buying, but can’t tell you exactly which one. Please invest in this fund.” Compared to if it’s an individual one – here’s all the details of this specific deal. Was that a challenge as you all went from individual investments to “Here’s a fund to invest in”?
Skyler Liechty: We didn’t find that to be much of a challenge, and part of it was – when we made the decision to move to a fund, we had a few deals under contract, so it made a lot of sense for a launch point, so we could kind of show “Here’s the first couple of deals that are gonna go into the fund”, so we could have that piece of the conversation. But as I’m sure you’ve experienced, we have investors that are happy with what’s happened, so they’ve moved to the next deal, and they’ve moved to the next deal. So part of it also is a level of confidence in what we can do.
To give you the other side of the deal… I can’t disclose everything about this, but generally speaking, our second deal — so I told you the first deal where we lost money; the only deal where we lost money. The second deal that we bought and sold – we took the asset from four million to a little over 14 million in about a five-year period.
Joe Fairless: Wow! How much did you put into it?
Skyler Liechty: We find in mobile home parks you’ve got the same debt opportunities that you have in the other commercial real estate… So typically, we’re looking at 70% to 80% loan-to-value on the acquisition. So our equity position is gonna be 20%-30%. As far as an IRR equity multiplier, it was about 30% each year. Again, we felt that was a home run deal.
Joe Fairless: But how much in terms of capital improvements? So you bought it for four, it appraised for 14…? You sold it for 14?
Skyler Liechty: Yeah, we sold it about six years later.
Joe Fairless: Okay. How much money did you put into it to improve it?
Skyler Liechty: Over the life of that we bought about a 1,2 million of new homes. So we brought in new homes; like I said, we bought our occupancy, so to speak. We did maybe $150,000 worth of tree work… Because again, you own all the land, you own all the trees that are on it… So we had major tree work that we had to do a couple times through the project. That was a big expense we put it.
We did a lot of street work to that deal as well, probably in the $250,000 range. We also had some additional land in the project. So we developed out about 12%, so we increased total number of home sites about 12%. So we spent money on that development cost as well. Again, that was a big value generator for us as well.
Joe Fairless: Did you get any pushback from local community members when you were developing the new home sites?
Skyler Liechty: Cities hate mobile home parks.
Joe Fairless: Yeah, that’s why I asked.
Skyler Liechty: They really, really hate it. So what we find is every city is a little bit different… And a little bit different means that the way they regulate mobile home parks isn’t standard from city to city. So some of the communities we own, the city says “Okay, you have 60 approved lots” or “You have 105 approved lots.” And even if you had 15 extra acres, the most you can have is 105. Then we have some cities that go strictly by setback requirements, meaning “How much space do you have between the homes? How much space do you have between homes if they’re back-to-back?” And in that situation they say “Hey, as long as you’re meeting setbacks, you can develop out the extra piece of it. As long as you meet the density requirement”, meaning some cities say you can have seven home sites per acre, some cities say “Well, this park’s been here since 1952, and you can have 12 home sites per acre.” Again, those are different variables in each deal.
And again, when we’re acquiring deals, something we’d like to keep an eye on, because if you have a seven-per-acre requirement, that’s typical of newer communities, and not a lot of communities get built in today’s market… So communities that were built in the ’90s plus or newer, usually are gonna have seven per acre, and you can get a full-sized home, and you can get a single section, you can get a multi-section… So if we’re doing that, we know any type of home we buy fits there.
If we’re going to a community that has 12 per acre, then you’re really restricted on the sizing of homes you can buy (new homes).
Joe Fairless: Real quick, what’s your best real estate investing advice ever?
Skyler Liechty: It pays dividends to be patient and spend your time in the due diligence, to go through all the material you’re given.
Joe Fairless: We’re gonna do a lightning round. Are you ready for the Best Ever Lightning Round?
Skyler Liechty: Ready!
Joe Fairless: Alright, let’s do it. First, a quick word from our Best Ever partners.
Break: [00:22:41].21] to [00:23:17].17]
Joe Fairless: What’s one due diligence item that you pay particular attention to now?
Skyler Liechty: Environmental issues.
Joe Fairless: Best ever book you’ve recently read?
Skyler Liechty: Extreme Ownership.
Joe Fairless: Best ever deal you’ve done?
Skyler Liechty: Probably the deal I was referencing, our home run deal.
Joe Fairless: Best ever way you like to give back to the community?
Skyler Liechty: We spend a lot of money doing community events.
Joe Fairless: And how can the Best Ever listeners learn more about what you’ve got going on?
Skyler Liechty: They can go to our website, mhparkadvisors.com, or mchleads.com. All my contact information is there.
Joe Fairless: Skyler, thank you for being on the show and talking about your experience in mobile home parks, talking about buying occupancy – basically forcing appreciation – through your own means, which is such a great tool to have, in any business, and you’re able to do it with what you all are focused on… And then how the different components of the operations that you look to enhance whenever you go into a community. So thank you for being on the show. I hope you have a best ever day, and we’ll talk to you again soon.
Skyler Liechty: Thanks, Joe. I appreciate it.
