January 11, 2022

JF2688: 3 Ways to Eliminate Competition in the Mobile Homes Market with Charlotte Dunford

What’s the best way to beat the competition? For Charlotte Dunford, it’s figuring out how to avoid it in the first place. Focused on mobile home parks with 50 or fewer units, Charlotte’s niche-down approach has allowed her more opportunities to find and close deals in the market than she would otherwise have access to. In this episode, she shares what is most important to look for in a mobile home park deal, as well as the importance of finding your niche in any market. 

Charlotte Dunford | Real Estate Background

  • Managing Partner at Johns Creek Capital, “creating wealth through mobile home park investments.”
  • Portfolio: 24 mobile home parks acquired through syndication, value-added and flipped 1 single-family home and 1 duplex. $4.2M AUM.
  • 3 years of REI experience
  • Based in Atlanta, GA
  • Say hi to her at: https://www.johnscreekcapital.com/
  • Best Ever Book: The Ultimate Sales Machine by Chet Holmes

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Ash Patel: Hello Best Ever listeners. Welcome to The Best Real Estate Investing Advice Ever Show. I’m Ash Patel and I’m with today’s guest, Charlotte Dunford. Charlotte is joining us from Atlanta, Georgia. She’s in the private equity mobile home parks space, and her portfolio consists of over four million dollars’ worth of mobile home parks. Charlotte, thank you so much for joining us today, and how are you?

Charlotte Dunford: Good, how are you?

Ash Patel: I’m wonderful. Charlotte, before we get started, can you give the Best Ever listeners a little bit more about your background and what you’re focused on now?

Charlotte Dunford: Yes, so my name is Charlotte Dunford. I am in mobile home park private equity investment. Like Ash mentioned, under our portfolio we have currently 24 small to medium-level mobile home parks, with a total investor subscription of $4.7 million in our portfolio. We are in this — we call it a niche within a niche. Mobile home parks have been a long-ignored asset class, and we are in the small to medium level mobile home parks, which has given a smaller niche within a niche. We have a strong belief in this niche.

As I got started, I was looking into other assets to get into, such as multifamily and other commercial properties. However, at the time, when I started a couple of years ago, I’d just graduated college and I started the job for a firm and then worked in the corporate world for a year and a half. I did not have the experience needed to compete with the big boys in multifamily and other commercial properties, so mobile home parks became a really good starting point, with less competition, but more profit margin for investors like me to get into the space. Over the past year and a half, it grew to what it is today, the 24 lots, so it really just took off from 2020 and 2019.

Ash Patel: So 24 lots in a year and a half is incredible. I’ve got a lot of questions. What is the private equity piece of this?

Charlotte Dunford: The private equity piece of this is our customers are investors. We offer a preferred rate of return for each deal that we are in. Right now, it’s an 8% preferred return, and then there will be a waterfall structure. 70/30 and then there’s the next hurdle. Each hurdle is a four-point increase, so the next hurdle is 12% and then it changes to 60/40, 60 being the investors and then 40 being the sponsors, which is [unintelligible [00:03:12].23] Capital, us. Then it jumps by another 4% at 16% return, and then 50/50. It stops there.

Ash Patel: How did you get started in real estate?

Charlotte Dunford: It’s interesting, because I came to the United States when I was 16, for high school. I did not come with anybody else, I came by myself. My parents didn’t come with me, so I pretty much just had to start everything from scratch. So I figured out pretty much the whole system and went to college. Then after working, I’ve always wanted to do real estate, because where I came from in China, you actually cannot own real estate legally, you have to lease it from the government for 70 years and you have to give back. So real estate has always been a dream come true now.

At my corporate job, I used my salary pretty much to finance my first deal in single-family, and then moved on to a duplex shortly after. Then after which I felt the desire to be an entrepreneur, and somewhat, although limited, but some experience in education I got in real estate through just listening to podcasts, buying books, and actually buying real estate. It helped me launch the new venture of a full-time real estate investor in mobile home parks. I met my business partner around the same time, late in 2019, and then we started buying mobile home parks. Then it got into one mobile home park, two, three, four, and then grew into what we have today, 24.

Ash Patel: I have even more questions now. You had a corporate job for one year out of college. Why did you not like that?

Charlotte Dunford: I like the job, it’s just that I had something I wanted to do more, which is being an entrepreneur and to create, and to really create a service for people to achieve financial freedom. For me, our service primarily serves accredited investors to expand their assets and to grow their wealth. I think that idea really appeals to me. That’s something I’ve always wanted to do.

So my corporate job was great, I learned a lot from it being a business analyst. Learning about data analytics… It really helps me today in my today’s job in underwriting and sourcing deals. So I did not want to stay in a corporate job forever, because it just was not providing fulfillment, either financially or mentally, or anything.

Ash Patel: Charlotte, your first mobile home park – was that purchased with your partner?

Charlotte Dunford: No, not with my current business partner. My first mobile home park was with other private investors that I worked with.

Ash Patel: And you found the deal.

Charlotte Dunford: Yeah, I always find the deals.

Ash Patel: Okay. You find the deals and you manage them as well?

Charlotte Dunford: Yes, we manage all of them in-house.

Ash Patel: And why mobile home parks that are under 50 units?

Charlotte Dunford: Because I’m a firm believer in escaping competition. One of my favorite books of all time is From Zero to One, by Peter Thiel, a Silicon Valley investor. He is actually one of the most successful investors out of Silicon Valley. He has a really good philosophy in escaping competition, and that’s to create more profit margin. For me, I chose this niche because it avoids a lot of big boys from institutional funds to buy up really extremely competitive and heated markets and heated, big lots. A lot of them are like a small city, big communities consisting of 300 lots, 100 lots, and even over 100 lots. Everybody’s going after that, everybody’s going after this heated market, which makes small guys like us, or small guys who want to get bigger, who want to monopolize a small niche and then expand… Our job is extremely difficult and almost impossible to make a good profit margin if everybody’s chasing after the same thing.

Ash Patel: Yes, I love that philosophy, and the same applies for multifamily. But it seems like there’s just no niche in multifamily that’s not highly sought after, even under 40, 50 units.

Charlotte Dunford: Exactly. That’s because multifamily maybe is not a niche. It’s become a major market. For mobile home parks, it’s different.

Ash Patel: So now when you dispose of these mobile home parks, does it make it more challenging because there are not that many players in that arena?

Charlotte Dunford: No, actually. There are a lot of… You’re talking about exiting, right? So I’ve already sold one and am in the process of selling another one, another two actually, and one of them will be closing soon. So no, I think the players — you probably wouldn’t want to sell it to institutional buyers, because those people will probably want bigger ones. If they do buy it, they probably want a big portfolio. So that’s another thing – you can group it and sell it together in a bigger package. Actually, it’s not that challenging to sell it, it’s just you have to find the right buyer. Even in the loan approval process – a lot of people think that there might be difficulties finding a loan to finance the buyer, but we have sold a couple and both times the loan has been approved with no issues. So it just depends on the buyer that you’re going after.

Break: [00:08:37][00:10:16]

Ash Patel: Do you have to use local lenders for this type of asset?

Charlotte Dunford: Actually, for all of our deals, I would never use a lender on all of our 24 deals. It’s very interesting. We either buy cash, because they’re small, they’re inexpensive, and we have a lot of private equity; that’s our capital. We have people subscribing to this deal, so most of them are cash or seller finance. Because in the world of small mobile home parks, it’s a lot easier to get seller financing, than let’s say multifamily… Because a lot of banks don’t really want to lend on a small to medium level mobile home park; they would rather lend on a same price single-family home. That’s like a $400,000 single-family home versus a $400,000 small to medium level mobile home park. That single-family home is a lot less risky from the lender’s perspective, but they don’t want to lend on it. So that gives the buyers a lot of chances to get seller financing, because sellers know it will be difficult to get kind of traditional financing. But the landscaping is changing now, because lenders are getting more comfortable with this asset class, and you’re more likely to get more loans; but you can still buy cash and seller finance. A lot of our deals are either cash or seller finance.

Ash Patel: What percentage of the deal does a seller typically hold back in terms of seller financing?

Charlotte Dunford: I think the best deals we’ve gotten vary from 30% to 50% down. We’ve had — one of our first deals actually, we got 35% down, 3% interest rate, 30-year amortization, and a 10-year balloon. So it’s extremely attractive terms, really not bad terms, even for lending commercially.

Ash Patel: Charlotte, what do you look for when you find a small mobile home park?

Charlotte Dunford: There are a set of requirements. We have a proprietary algorithm in-house to determine the score of each deal, to make sure that it passes the system. Some of the major things that we look for is, first of all, the ratio of a… Sorry, I’m a little sick; you can tell from my voice. Tenant-owned homes versus park-owned homes. A tenant-owned home means the tenant owns the mobile home, and they’re just paying a parking lot fee to the park; that is the ideal situation.

A mobile home park is essentially a parking lot; you’re running on dirt. You don’t want to be owning the cars that park in your parking lot and be responsible for the maintenance and repairs. So we definitely want a majority of tenant-owned homes versus park-owned homes. But there are exceptions to every rule, of course, and if they’re park-owned homes, they have to be an extremely newer model; probably newer than the 2000s, or if not newer than that. That will be the number one priority, because it really adds up to the expense ratio to the already high small to mobile home park expense ratio. That’s the number one thing.

The number two is the utility structure. We definitely want something public utility, there could be a private sewer, including septic tanks, that’s probably the only thing that we can accept. Anything else will be a little bit too risky. Because for a parking lot, we’re still responsible for infrastructure, maintenance, water pipes, the utilities, we want to make sure that they have lawn care. In the common areas, you still have to maintain a lot of common area maintenance. So you want to make sure those major infrastructure expenses do not cause big expenses, because that would really bankrupt you…

Ash Patel: What are some things that most people overlook, that you don’t, when you’re doing due diligence or when you’re looking to acquire a mobile home park?

Charlotte Dunford: That’s a good question.

Ash Patel: What have you learned over the years that a lot of people don’t know and now it’s part of your scoring system?

Charlotte Dunford: Right, that’s a good question. I think a lot of people don’t pay attention to, and this is very specific to the mobile home parks industry – it’s titles, mobile home titles. It’s interesting, because mistakes have been made and lessons have been learned in this… Most people don’t know that, in a closing, the title company checks titles for mobile homes. If you’re buying park-owned homes, you really need to make sure, especially if the park-owned homes are a major component of the deal, you’ve got to make sure that you’re getting the titles of the mobile home, to make sure that the seller actually has the title to the mobile homes. And there are situations, a lot of times, when the seller does not own the homes, and they’re trying to sell you the asset they don’t own. A lot of times, this falls through the cracks, because the title company doesn’t check for the titles of the mobile home, they only check the title for the real estate, which is the land underneath.

When they say the title is clear, if you’re a first-time buyer, you probably don’t know to check the titles of the mobile homes themselves, because they’re counted as personal property. Make sure they’re transferred through a bill of sale, and in a PSA, and they have titles, and the seller has titles, and to properly transfer them to you. If not, you’re going to encounter situations where there will be people claiming titles to the home and fight you on it, and the seller doesn’t know what to do, the title company didn’t know what to do, and you’re in a [unintelligible [00:15:34].06]

Ash Patel: That is an incredible piece of advice. And you’re right, if you’re buying a neighborhood of 30 single-family homes, you’re absolutely going to make sure that you have titles to all the homes. But I can see how that’s overlooked with mobile home parks. Thank you for sharing that.

Charlotte Dunford: For sure, yeah.

Ash Patel: How do you find these deals, Charlotte?

Charlotte Dunford: Over time, we’ve accumulated tons of channels to channel those deals to us. We go on mobile home park stores, we have broker relationships that send us those deals through emails, and several different channels off/on-market broker relationships. The sellers we have relationships with, and who often… My voice is wholly ragged today.

Ash Patel: You sound great, don’t worry.

Charlotte Dunford: …who often own several parks, so we maintain relationships with them towards other deals. So we make offers regularly, to make sure that we were sourcing every deal that we have available. Everything’s for sale for the right price, so we want to make sure that we see a good deal with good infrastructure, that we definitely put that in our database and we definitely keep track of that.

Ash Patel: Charlotte, earlier in this call, you mentioned a partner. How did that partner come into your business, and what is their role?

Charlotte Dunford: It’s interesting, because I was posting on a real estate forum, and it was asking a question on ”Are there any female investors here?” So I was 25 at the time, I was a young female investor. They were asking, and I say, “Well, here I am. I’m one.” I told my story of how I came to the United States when I was 16, and pretty much only with clothes on my back, and I became a US citizen this year. In that post, I kind of elaborated on my experience, and I didn’t really do much mobile home park at the time, only one or two… And that really attracted a lot of interest, including my business partner. It sparked his interest, and he reached out to me, messaged me, and said, “Hey, I saw your post. That’s interesting. Would love to talk more.” That’s when it started, we met, then we pretty much hit it off. I’m kind of a visionary on the team, he is the executor and operational person. We’re a good team, and we doubled our size in 2021. We have more team members on our team now.

Ash Patel: Charlotte, in terms of partnerships, for anybody looking to grow or scale their business, what’s your advice? Should they take on partners or just take on more employees and staff?

Charlotte Dunford: Well, I think you have to be careful who you do business with, and you have to pick your partner carefully. Taking on a partner is not a light job and is not a decision to be taken lightly… Because you’re essentially driving a ship, you’re picking another captain, co-pilot to fly a plane or drive the ship with you.

We’ve had experiences where business partners have not worked out, and it really can sour the partnership. I would suggest that partnerships are great, just be extremely careful who you do business with. If you’re not sure, I will start with employees first and staff before joining the partnership or picking a partnership, because that is a big decision. If you can’t see yourself working with this person for 10 years, and this person is not ethically reliable, you don’t like his personality or something – it’s very much like a marriage, don’t do it. But if you see the right fit, go for it. Just be very, very careful in selecting.

Ash Patel: Great advice. Charlotte, you self-manage all of these properties. How do you do that?

Charlotte Dunford: We manage them in-house, me and my partner, like a lot of people in mobile home parks, especially for small ones. You definitely want a team locally to watch over the property. We collect the rents and we bill invoices just like any other property management that would manage a single-family home or a multifamily property. We do that just like any other property manager; the only thing different we do is that we have a local watch people, either residents in the park to watch out for what’s going on, or local contractors that swing by and see what’s going on, for a small fee. One thing we don’t do is that we don’t give free rents for people to manage our property. We don’t think that’s a good practice, and we don’t do that. We are getting a service, we’re paying you for the service, but no one’s getting free rent. That’s something that we don’t do.

Break: [00:19:58][00:22:54]

Ash Patel: Help me understand that. I’ve got an office building where I have one tenant that does the common area cleaning, does the trash, snow removal, salts the sidewalks, and she gets free rent. Why is that not a good idea?

Charlotte Dunford: Well, it’s not a good idea for us, just because rents in mobile home parks are pretty low to start with. Waiving that rent – we don’t like starting this precedence of waiving someone’s rent for service. We would rather hire the right help to get on board than someone claiming that they’re not renting, because that is one lot gone. Especially for small to medium level mobile home parks, it’s not like those lots with 100 lots, or something. If you have 20 lots and one person is not paying, that’s a big chunk. That also means that this person is not going to pay future rent increases, which is a big part of the mobile home park, because there’s a lot of meat on the bones still left.

So one person not paying out of 20 lots, that’s a big chunk of your profit margin gone. And just because it’s small and it doesn’t really make sense economically to have this person to do a little bit job, a small job for a big chunk of rent… It just doesn’t make sense.

Ash Patel: That’s a great point, because I raised rents on the other office tenants, but the tenant that is not paying rent, I can’t really go back and say “Hey, I’m raising your rent. So from zero, we’re going to 100.”

Charlotte Dunford: Exactly. If it goes from zero to 250, it’s not just going to work well with them, and it just is not a good tradition to start.

Ash Patel: Yeah. Charlotte, with multifamily, 50 units is a huge pain point, because you can’t have a full-time leasing person, you can’t have a full-time maintenance person. What are your pain points with managing remote mobile home parks? And geographically, are these parks in different states, I would imagine?

Charlotte Dunford: Yes, they are. They’re in 10 different states.

Ash Patel: So what are your pain points in remotely managing these?

Charlotte Dunford: Being remote is actually not that big of a pain point, as long as you have a local maintenance team. I think the biggest pain point actually is not related to management, but to keep up with… We’ve onboarded a compliance officer to make sure that we’re complying with each state’s regulations, permitting, registration, and foreign registration, all that good stuff. The biggest thing is that you want to make sure that you keep up with each state’s requirements in reassuring your business. Because every state has a different requirement, and that needs some digging in. Some states are easier to work with and the others; you need your business license, you need your mobile home park permit, you need to register with the tax department, you need to register with their Department of Revenue, you need to go on their portal, you need to file annual reports depending on your business size, and everything. Every single state has different requirements, so that’s something you need really to keep up with. But I think as long as you have the right staffing or right infrastructure in place, that should help you with that.

Ash Patel: If somebody moves out of a mobile home, how do you remotely show that to a new tenant?

Charlotte Dunford: Because mobile homes are owned by tenants for the most part, and we usually put in their leases to have first-round of refusal for us, so we buy their home first. So once we buy it, we can arrange a sale, hire a local mobile home dealer, or a realtor to sell it to a new tenant. In that case, we don’t really want to own the home, we can have a new owner of the home occupy the lot, and they can pay the lot rent.

So as far as arranging the sale, it will be someone trusted in the park, or a local trusted team member who is either a contractor, or a tenant, or a realtor, or a mobile home dealer that we have dealt with before to show the home. We also have the lockbox and key, we also publish that either in the newspaper or online. So mobile home parks are really a different demographic, you have to really approach it differently.

Ash Patel: Yeah. I love that you have systems for everything. Charlotte, on the deals that you’ve sold, what was the cash-on-cash return for your investors?

Charlotte Dunford: We’re actually in the process of selling two. One is about to close, the other one hasn’t. Without the final closing, I can’t say. But the one that I did sell – that was just my own personal asset, so no investor involvement. The one that’s in the process, I can’t disclose that until everything has been said and done.

Ash Patel: Charlotte, what is your best real estate investing advice ever?

Charlotte Dunford: Great question. The best real estate investing advice is, I think my advice would be taking action, ironically. Because a lot of people have a lot of advice, to say that, “Be careful with this,” and that actual advice in managing a property. With me, if you don’t start taking action, if you have never invested before, if you don’t take action, and learn, and get the momentum going, and let the momentum carry forward, you won’t go far in real estate investing. So I would really just say learn a lot and take action.

Ash Patel: Charlotte, are you ready for the Best Ever lightning round?

Charlotte Dunford: Yes, I think so.

Ash Patel: Alright. Well, let’s do it. Charlotte, what’s the Best Ever book you’ve recently read?

Charlotte Dunford: It’s called The Ultimate Sales Machine.

Ash Patel: What was your big takeaway from that?

Charlotte Dunford: Have systems for everything, policies, and procedures. Train your staff with policies and procedures.

Ash Patel: Charlotte, what’s the Best Ever way you like to give back?

Charlotte Dunford: That’s the lightning round, huh? I’m supposed to be fast.

Ash Patel: No, take your time.

Charlotte Dunford: Give back through education, through mentoring.

Ash Patel: Okay. And Charlotte, how can the Best Ever listeners reach out to you?

Charlotte Dunford: You can reach me at our website at johnscreekcapital.com. There is a contact form and then I usually respond pretty quickly.

Ash Patel: Charlotte, thank you for taking time out of your day today to share your story. Coming here from China at 16 years old, going to college, getting your corporate job knowing there is more in store for you, getting a single-family house, a duplex, then entering into the mobile home space and absolutely crushing it. I applaud you and thank you again for sharing your story.

Charlotte Dunford: Thank you so much for having me. Again, I apologize for my sick voice but I normally sound like this. Thank you for listening.

Ash Patel: You sounded wonderful. Best Ever listeners, thank you so much for joining. Have a Best Ever day.

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