33 MIN TO READ
May 2, 2022

JF2799: 4 Ways to Adapt and Expand in an Increasingly Competitive Market ft. Matt Boettinger


Matt Boettinger has been in the mobile home park space as an owner, operator, and investor for six years. Throughout that time, he worked with different groups and partners before becoming a principal at M2K Partners LLC. In this episode, Matt talks to us about the challenges he’s currently facing in the mobile home parks space and the ways he and his partners are adapting to overcome the increasingly competitive market.

 

1. Choose the Right Partners

Matt says choosing the right partners has made all the difference when it comes to his business. “I don’t think that I would be anywhere — or not nearly as far — without my current partners,” he says. “I feel like I’ve got so many weaknesses I can count them on my hands and toes, and probably yours, too!” He stresses that selecting partners whose strengths and weaknesses complement your own is the first and most important key to succeeding.

 

2. Take the Time to Talk to Owners — and Let Them Get to Know You

M2K’s marketing department markets directly to owners, but Matt says it’s imperative to get them on the phone. “A lot of these folks still haven’t sold,” he says.”They want to hear somebody, they want a good story — they want somebody who’s going to take care of their baby, right?”  During these conversations, Matt and his team are able to ensure potential sellers that they won’t knock down the park or enforce mass evictions. He says this strategy has helped give them an edge against the competition with two acquisitions so far. 

The only thing better than a phone call, he says, is an in-person visit. One of Matt’s partners recently took time to meet other local park managers and owners in the area during a visit to their Michigan and Ohio locations. “At that point, they’d rather sell to her versus some random guy out in New York that they’ve never met that probably owns about 90 other parks and doesn’t give a damn about them,” Matt says.

 

3. Make All-Cash Offers

Matt and his partners recently lost out on a deal because, even though the other bid was lower than theirs, it was an all-cash offer. In order to make themselves more competitive, Matt and his partners are in the process of negotiating with two family offices that invest with them. They have offered to pay a fee or percentage if the offices were to front the money for an all-cash offer. 



4. Consider Establishing a Lending Platform

M2K is currently working on putting together its own lending platform in order to encourage people to invest in the space. “We basically get with investors and find operators that want to buy a park that maybe is under the level of a major bank,” Matt explains. “And if they’re looking for a short-term loan, [we would] be able to package up people’s investment money into a loan, and then that will get a lot of our investors pretty good return.” 

As a backup, he says, if for whatever reason the investors stop paying and M2K has to foreclose, the company has invested along with them. This will enable them to take over the park and turn it around. He thinks the platform will appeal to less experienced investors who want to dip their toe in before taking a bigger risk. 

 

Matt Boettinger | Real Estate Background

Greatest lesson: The right partners are key. Partners aligning on goals is key. I sold two parks with two other partnerships because our goals didn’t align.

 

 

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TRANSCRIPT

Slocomb Reed: Best Ever listeners, welcome to The Best Real Estate Investing Advice Ever Show. I'm Slocomb Reed and I'm here with Matt Boettinger. Matt is joining us from Jones Creek, Georgia. He's a principal at M2K Partners, which owner-operates mobile home parks. They currently are in general partnership with seven parks, with just under 800 sites. He's also an LP in a mobile home park deal. Matt, can you start us off with a little more about your background and what you're currently focused on?

Matt Boettinger: Sure. I've been in the mobile home park space for probably about six years. I started off with a couple of different groups, a couple conglomerations of partners who wanted to get into this space, and pretty much exited all those positions last year. I sold another park in Alabama with that other group, another one in Florida... Actually, two others in Florida; one was last year, the other was the year before last. Then we just sold our third one last year with my first group, with M2K. So a lot of exits last year, a lot of unwinding previous partnerships. But right now, we own in Michigan, currently Ohio, Texas, and Alabama. It feels like a long road to getting to where I want to be.

Slocomb Reed: You know, a commercial real estate investing podcast is the only time you ever going to hear someone refer to mobile home parks as sexy... But they are way sexier now than they were in 2016 when you first started. That makes the last couple of years a good time to be a seller of mobile home park, doesn't it?

Matt Boettinger: Yeah, it does. It is funny... One of the things I remember when I first bought my first mobile home park, I was telling my parents I was all proud of myself, and my mom goes, "What are you doing?" It's funny, because she says, "What if there's a downturn in the economy?" I go, "Well, that's when we run out of poor people, I guess." It is interesting, that that's one of the benefits of it, is that it's somewhat recession resistant. So I have been at it for a little while.

Slocomb Reed: Yeah. So what were you doing before mobile home parks?

Matt Boettinger: I still have a W2, and I am an IT portfolio manager. I manage many IT projects for a company doing direct distribution.

Slocomb Reed: Were mobile home parks your first foray into real estate investing?

Matt Boettinger: Yes. I remember, it actually was a conscious choice. I went down the road of "Okay, I've got to find something..." I was always scared to do single-family to tell you the truth, and it's just kind of dumb, I don't know. Just the thought of putting all my eggs in one basket. So I ended up looking at several different sectors and it ended up being a choice between self-storage and mobile home parks. And I went with mobile home parks just because I'm sure that you know of Frank and Dave... I ended up going and taking one of their weekend boot camps, but I loved it.

Slocomb Reed: Gotcha. Most people, right now at least, they end up in mobile home parks and/or self-storage because they were apartment investors, and apartment investing in their mind got too hot, and returns got too compressed. You started looking at those asset classes when real estate investing in general was less crowded and those asset classes were less popular in 2016. I want to ask 2016 Matt why those are the two asset classes that stood out?

Matt Boettinger: I always liked the idea of the whole concept of lot rent, as opposed to owning the home and renting the home. You didn't have to worry about the toilets, the paint, and all that stuff, at least on the inside. Obviously, if you're a park owner, you want to make sure that appearances of the home are maintained on the outside. But whatever they do in their own home, if they want to punch in a wall or something like that... Of course, we don't recommend that.

Slocomb Reed: It's their wall, not yours.

Matt Boettinger: Yeah, it's their wall and they've got to fix it. Kind of the same thing with self-storage. What you find out, that's the thing - once you get into mobile home parks, you realize it's not a hands-off business, by any means. What you give up, which is taking care of the toilets, electrical and all that stuff in individual homes, you're doing a lot more hand-holding, a lot more training of tenants, you're dealing with a lot of issues that you really probably don't run into as much, at least as far as the A and B class apartments.

Slocomb Reed: Gotcha. You're saying that when your mobile home park tenants get behind in rent, they don't catch up?

Matt Boettinger: It's that, and it also has to do with when you first buy a park, because we tend to do turnarounds... And when you come in, it's just the amount of lift. You're not only fixing up the empty house, which is a good deal, it's also just all the cleanup and the enforcement of rules that probably didn't happen before, where people have three or four cars in their yards that aren't running, and junk all over the place. Just getting rid of that and getting people retrained that, "Hey, let's show some pride of ownership here. Let's turn this place around and make it a little better." Most of the heavy lifting is upfront. With the whole COVID thing, depending on the state, we ran into a lot more issues when people were not paying in certain states. There was help by the local or state government that we had to go through certain processes, things like that. Maybe they did run into that in A class apartments, but I don't think so; maybe I'm wrong.

Slocomb Reed: It sounds like you're giving me a lot of good reasons to consider self-storage instead of mobile home park right now... But you chose mobile home parks, so why that instead of self-storage?

Matt Boettinger: I'll say one thing - it's funny, because I know of two people that started around the same time that I did, and have since just kind of given up, in mobile home parks. And they owned a few, and they just said "You know what? It's just not worth it." I can understand in certain cases where people don't want to continue on.

Slocomb Reed: You chose mobile home parks and self-storage because they seemed to be less laborious than apartments. Then you told me how laborious mobile home parks are. So the question was, why then did you decide on mobile homes instead of self-storage, and why have you continued in that for the last six years?

Matt Boettinger: I still like it, I love it. My partners are great; they make it a lot easier for me. Both of them are really good, both Nick and Katrina. Katrina is in charge of operations, so she bears a lot of the brunt of dealing with all this stuff that I'm talking about. So she deserves a lot of credit here. And Nick does a lot of the turnaround; he's been in charge of going in... One of the parks we bought in Michigan was 20 or so empty homes, and so we were able to go in and redo them and all that stuff.

To me, it comes down to choosing the right partners; it makes it a lot easier than it would if I were doing this on my own, or if I chose partners who had the exact strengths and weaknesses that I do. Also, there's just the [unintelligible 00:10:50.19] looking at mobile home parks versus self-storage. Mobile home parks - you can't build them. Well, you can own a self-storage and someone will build one across the street. So there is that threat and storage of prices going down or your pricing power going down due to increased competition. You really don't run into that with us.

Slocomb Reed: Are you still buying mobile home parks?

Matt Boettinger: Trying. It's getting harder and harder.

Slocomb Reed: Yeah, that's where I'm going with the question. Because to your point, limited supply... And from the landlord investor perspective, increasing demand. So you're seeing compressing returns. When was your last acquisition of a mobile home park?

Matt Boettinger: Well, it was in January of this year... But even then, it wasn't us finding... We had JV'd with another group who were turnaround experts, let's say. That's the 400 spaces in Alabama. We've been able to buy just about one a year, but we've been really choosy. And honestly, the one in Michigan, we've more than doubled the value. The one in Texas we bought right, and we JV'd with another guy who found it and we were able to go through and get rid of a lot of the issues there. But we've increased the value there a lot, and same with our Ohio parks. So these have been turnarounds.

I think that people who are buying fully turned around, turnkey at five caps, I don't know how they make money. Especially people on our size; if you're one of these big REITs - I mean, that's a possibility, where they've got really cheap money that they're getting from insurance companies that are expecting like a 4% return or something like that.

Slocomb Reed: Matt, I like the points that you're bringing up. And keeping in mind that the Best Ever podcast is a daily podcast specific to commercial real estate investing... You know, about every couple of weeks or so we have a mobile home park specialist on the podcast. We also have a very sophisticated listener base for this podcast. So I get the feeling that a lot of our listeners are aware that mobile home parks are hot. Thank you, Brandon Turner, for telling the whole the real estate world that he's getting into mobile home parks. Thank you for making it so hard, thank you for compressing returns. [laughter]

I'd like to speculate about the future with you. Recognizing that we're talking about speculation, to your point, fully stabilized market rent, five cap, mobile home parks - and how could that possibly work? So I want to play devil's advocate and try to explain how it could work, and then...

Matt Boettinger: Maybe this will help me...

Slocomb Reed: Please be realistic in tearing me down. The whole point is to have this conversation. It's worth noting that we are recording this episode in mid-April 2022. Consumer Price Index record inflation, highest since 1981. Here's an argument for how that stabilized five cap mobile home park deal could work. While we're seeing inflation and we're seeing the Federal Reserve attempt to taper inflation with increasing interest rates, one of the things that that's doing is it's increasing the cost to borrow, making it more difficult to fund development projects. Also, making it less affordable for people to be first-time homebuyers.

While this effort from the Fed may reduce inflation, it's also making homeownership, apartment development and home development more expensive, which is going to force a lot of people to remain renters when we already don't have enough inventory of rentals for people to live in, which is going to push a lot of people downward. People who should be buying and staying in A and B class apartments, meaning those apartments are not available, pushing more people into C-class, pushing more people into mobile home parks.

It's a fixed supply; demand not only for investors, but also renters will increase. That demand increase will accelerate because of what's happening in the economy. Rents go up, and even though that five cap is stable now, the rents are so much higher five years from now that it still sells at a profit that gives us all returns to investors. Now, I'm not sure whether or not I believe everything I just said, but it is an argument that the buyer could have made when they bought it, so let's talk about that.

Matt Boettinger: Now, I agree. I think it's possible. If inflation goes up, your rent's going to go up with inflation.

Slocomb Reed: Yeah. But even if...

Matt Boettinger: I'll tell you one thing though... The people who bought at a five cap, let's say... And I'm just doing the math in my head; I'm not saying that I've got all the answers. I could be totally wrong here, I'm fine with that. But what I think gives you the biggest risk is if you have short-term debt, like a five-year debt, and you bought at a five cap. You realize, "Okay, rates are going up." Which also means that it's also going to push your cap rates up, theoretically. It's always possible, but I don't think people are going to make as much as they think they are. I think it'll be an okay return, I'm not saying that they'll be giving them back to the bank, but it's a guess. If you're buying something where there's no upside, it's a bigger risk.

Slocomb Reed: Slocomb the investor agrees with you. Slocomb the podcast host wants a juicy conversation.

Matt Boettinger: [laughs] I was gonna say... One thing that we're doing at M2K - we're trying to figure out alternate ways to stay in the market, to get other people that invest with us in the market. We started coming up with a lending platform. It's not fully baked, but we're trying to get it out there probably within the next two to three weeks. We basically get with investors and find operators that want to buy a park that maybe is under the level of a major bank. If they're looking for short term loan --short-term meaning like two years max-- to be able to package up people's investment money into a loan. Then basically, that'll get a lot of our investors pretty good return.

As a backstop, if everything goes to heck and they stop paying, and we have to foreclose - well, then we've invested along with them and we'll go in and run the park, and turn it around. So it gets people to invest in the space. Maybe the people are a little too scared or don't have the experience to do it and they want to dip their toe in. This would be a good way for people to dip their toe in. So we're trying to figure out some of these alternate ways of expanding and getting into the market more.

Break: [00:17:47] - [00:19:33]

Slocomb Reed: That sounds like it could be very fruitful. And hopefully adapting your strategy makes it easier for you to write offers that can get accepted nowadays on the deals that you can find. But to my devil's advocate point, first of all, coming from an emotional place, one of the things that I'm experiencing is that other investors are willing to outbid me because they have lower return needs, and their business model can handle lower returns than mine requires.

There are people out there, typically because they have a lot more money, or because they're not as dependent on the real estate investing to cover their lifestyle the way that I am, they're just able to afford to pay more because they need lower returns than I do. But also, I don't know that I can rationalize a scenario in which rents do not continue to increase given the current economic and global climate. If inflation goes up, rent goes up. Inflation goes down, it's gone down, but what has forced it down is also going to end up preventing the development of new inventory. Fixed supply, increased demand, prices go up. Not just for investors, but also for renters.

So let's be emotional. As angry as I am as the guy who pays for the five-cap stabilized, because that's an opportunity that, to some degree, feels like it's been taken away from investors like me... Man, while I'm not going to be the guy who does that, I'm forecasting rent growth. I'm underwriting more conservatively, personally, but I'm having trouble seeing, even if the economy as a whole goes into a recession, I think rents keep going up.

Matt Boettinger: I agree. We've definitely loosened up our underwriting as cap rates have compressed. Five years ago, I would have never paid for a seven cap; I never would have. But now, that'd be a pretty good deal these days, honestly. So I agree with you. I think another thing that can help - and this is another thing we're trying to do... We lost out on a deal earlier in the year because we had put in the best offer, and then we were basically out bid because the other bid was a little bit lower, but it was an all-cash offer.

Some of our investors, we've got two that are family offices that we're trying to negotiate with where we're, "Hey, if we look at this deal, we find a deal, can we give an all-cash offer?" And they would just basically front the money for us for a fee, or a percentage or something like that. A very large payday loan maybe. And hopefully that makes us a little bit more competitive with the bigger folks. That's another thing that can be done.

Slocomb Reed: I'm getting the feeling that our Best Ever listeners are telling us it's time to stop whining and start talking about how we're actually adjusting our analysis and how it is that we're adapting to the changing climate... So outside of relaxing your cap rate needs to adapt to the changing market, what else are you doing to put yourself in a position to write competitive offers?

You mentioned one thing - some of your investors being family offices, can they put you in a position to make cash offers? That can have a better chance of winning at a lower price point and therefore a higher day one cap rate. What else are you doing?

Matt Boettinger: We've got a marketing department basically, where we still market direct to owners. It's also just getting on the phone with them... I think a lot of times when they get these calls from folks, it's either a recording or they want to set up a call. I think it's a little warmer; a lot of these folks who still haven't sold, they want to hear somebody, they want a good story. They want somebody who's going to take care of their baby.

Slocomb Reed: Totally.

Matt Boettinger: We're just not going to knock it down or kick out a bunch of people, and all that. I know that that's helped us with two of our acquisitions where we were up against others; so it does help. Other than that, I'm not sure. Really talking with investors... For my partner, Katrina - she was up this week at our Michigan and Ohio parks and she spent a lot of the time going around and meeting other owners, other local park managers, park owners, stuff like that.

Slocomb Reed: Go direct to seller.

Matt Boettinger: Yeah. And honestly, at that point, I'd rather sell to her versus some random guy out of New York that they've never met, that probably owns about 90 other parks and doesn't give a damn about them.

Slocomb Reed: Yeah. I heard an interview of Tim Ferriss once. He's written all the 4-Hour books.

Matt Boettinger: Oh, yeah. He's awesome.

Slocomb Reed: He is, and I hope all our Best Ever listeners are familiar with him and what he's written and done. In the interview, he said that all tactical advantages in business, especially when it comes to acquisitions, all tactical advantages can be categorized into one of three groups. There are informational advantages, analytical advantages, and behavioral advantages.

So when you're making a decision about acquiring a mobile home park or an apartment building, or whatever asset, an informational advantage is that you know something nobody else knows. One of the best examples of that for us is if you can get direct to seller off market and be the first person that the seller notifies when they're interested in selling, you have the opportunity to make offers that will make more sense for you than if a deal is brokered.

Matt Boettinger: 100%.

Slocomb Reed: Now, I'm not trying to sidestep brokers at all costs. For the vast majority of commercial real estate investors, all of the assets they're interested in are going to be brokered. And that's not necessarily a problem; you need to find another advantage.

An analytical advantage is a time when you have a way of reading the tea leaves or underwriting a deal in such a manner, or you have market specific knowledge that helps you see upside other people don't see. An easy way to keep analytical advance in your investing is to stay in areas or asset classes that you understand really well.

I have no idea how to improve a lot to improve the lot rent in mobile home parks. You have an analytical advantage over me there, Matt, for sure, for example.

The third is a behavioral advantage. Some people can say behavioral advantage is just stick to your guns, stick to your numbers, don't make offers that don't make sense, and in the long run, that'll work out for you. But another way to look at it is remaining disciplined can also mean remaining in the lead generation mindset of finding all of the mobile home park owners and operators around your parks; being the one who gets in front of them demonstrates that you're the person who's going to care about their people when you acquire their property, when it's time for them to sell, but also maintaining the discipline of getting in front of deals. Whether that's getting in front of brokers or getting in front of sellers directly.

Matt Boettinger: Yeah, relationships matter. They deal with partners, they deal with owners and brokers. You're absolutely right. People have problems, they get emotionally attached to their home. People get emotionally attached to their business. They get emotionally attached to these things in life that are just 100% material, but they associate it with good times, bad times, and growing up and all that stuff. So they want to know that's not going away, that it'll live on, and that's what you want to express to them. You always want to be totally honest with them.

The whole reason why we're here is to keep your park the same way, to improve it, keep your legacy going. I think that's what you want to express when you're talking to owners, and it makes them happy.

Slocomb Reed: Yeah. Totally. And yes, I have a business partner who says that it's when times are hard that you sharpen the axe. Welcome to the Best Ever pep talk for investors.

Matt Boettinger: [laughs] Do you think this was negative? I don't know. I don't think this is negative, I just think it's realistic. These times are, I don't want to say worse, but they are more competitive than they were five years ago, six years ago. It's good to hear this kind of stuff, rather than, "Hey, this is great. You just keep doing what you're doing and get out there and it'll happen." You want to be able to keep up and know the market where is today, not where it was five years ago, and adjust.

Slocomb Reed: Yeah, absolutely. That's a good point. Matt, are you ready for our Best Ever lightning round?

Matt Boettinger: I sure I am.

Slocomb Reed: Awesome. What is the Best Ever book you've recently read?

Matt Boettinger: It's called Tribe of Millionaires. I recently joined to GoBundance Emerge, and it's one of the books that they ask that we read, or require. I'm not sure if it's required reading or they ask that we do. It's a really good book. It just talks about accountability, it talks about setting goals, accountability, just a bunch of stuff that'll make you move forward in life.

Slocomb Reed: Tribe of Millionaires - was that written by one of the GoBundance guys?

Matt Boettinger: Actually, four of them. David Osborn, Pat Hiban, Mike McCarthy and Tim Rhode; foreword by Hal Elrod. I was just reading one of his books... What is it?

Slocomb Reed: Probably Miracle Morning. He's written several others. Matt, what's your Best Ever way to give back?

Matt Boettinger: It's something I need to work on, honestly. Besides going to church and doing various church activities, I enjoy getting on the phone and just talking with people about real estate and answering questions. People who aren't quite where I am; not that I'm all that, but people who are a few steps behind maybe - I like talking to them or giving advice and things like that.

Slocomb Reed: What is the biggest mistake that you've made in your mobile home park investing? What's the Best Ever lesson that you learned from it?

Matt Boettinger: Yeah. It's interesting. We are limited partners in a park in Arizona, and we actually had that park under contract - and this was when we had just started out, or this would have been the second park that we would have bought within M2K. And it was not a turnaround, it was fully occupied and we just would have kept it; we were going to buy it at just above a seven cap, and we're just going to hold it; it was easy peasy. And we could not raise the money, and we thought that we would be able to.

It turned out that most of our investors that invested with us before really weren't interested, because they liked the returns of the turnarounds as opposed to the turnkey. So we were not able to raise the money, so we lost our earnest money, and spent all this money on due diligence and such... So we lost the earnest money, but we were able to help the current owner with some of the background and he basically cut us in for a lot of that money as limited partners. So we were kind of able to rescue a complete loss into - I don't know if you'd call it a win.

Slocomb Reed: What would you call the lesson learned from this? Is it about having better understanding of your investors and what they're interested in?

Matt Boettinger: Totally. That's lesson one. And lesson two is to increase the types and amount of potential investors that you communicate with. Those are the two keys, yes.

Slocomb Reed: Awesome. On that note, Matt, what's your Best Ever advice?

Matt Boettinger: I don't think that I would be anywhere or not nearly as far without my current partners. I feel like I've got so many weaknesses, I can count them on my hands and toes, and probably yours, too. Being a partner, you really can kind of just add to the partnership through your strengths. You basically partner away your weaknesses and other people's strengths to make up for your weaknesses. I think that that is key, at least in my life here. It made things a lot easier.

Slocomb Reed: Awesome. And where can people get in touch with you, Matt?

Matt Boettinger: You can go to our website, m2kpartners.com and you can register. I think my email is out there, too. You're more welcome to email me.

Slocomb Reed: Those links are in the show notes.

Matt Boettinger: Awesome.

Slocomb Reed: Matt, thank you. Best Ever listeners, thank you as well for tuning in. If you've gained value from this conversation, please do subscribe to our show, leave us a five-star review and share this episode with a friend who we can add value to through our conversation. Thank you and have a Best Ever day.

 

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