Don Spafford is a partner at Happy Camper Capital, which syndicates RV resort vacation campgrounds and marinas. In this episode, he shares why he primarily focuses on investor relations despite his financial background, how the build-to-rent and campground asset classes fulfill different needs for different investors, and how his passion for helping people has shaped his real estate career.
Don Spafford | Real Estate Background
Partner at Happy Camper Capital, which syndicates RV resort vacation campgrounds and marinas. He is also a senior accounting analyst for a financial services company.
GP and LP of 800 build-to-rent doors with a 650+ door deal upcoming
850 rentable campground spaces and a mix of some other holdings
Based in: Idaho Falls, ID
Say hi to him at:
Best Ever Book: The Win-Win Wealth Strategy by Tom Wheelwright
Greatest Lesson: Do your due diligence.
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Slocomb Reed: Best Ever listeners, welcome to the best real estate investing advice ever show. I'm Slocomb Reed. I'm here with Don Spafford. Don is joining us from Idaho Falls, Idaho. He's currently a senior accounting analyst for a financial services company. He's also a partner in Happy Camper Capital. Happy Camper Syndicates RV resort vacation campgrounds and marinas. In his current portfolio, he is a GP and LP of 800 build to rent apartments, with another 650 on the way. And with Happy Camper Capital, they have approximately 850 rentable spaces and a mix of some other holdings. Don, can you tell us a little bit more about your background and what you're currently focused on?
Dan Spafford: Sure. Thank you, Slocomb, for the warm introduction. My background is based in finance and investment science, portfolio management; this kind of goes with that financial analyst position... At some point in the past, while I was pursuing those degrees, my plan was to become a financial advisor, a wealth manager type position, and after the 2008 crash, that kind of changed my perspective on the stock market perspective... And I started looking into other things that are out there. My wife became a realtor around 2011, and that's kind of when my eyes were opened up really to investing in real estate, and learning how to do that.
At that point, we lived in Omaha, Nebraska, and moved to Idaho in 2015. And once we got here in Idaho, that's really where I got more motivated to figure it out and get things moving. I understood that real estate was the best way to really build income, to help someone reach financial independence more quickly than just trying to save up millions of dollars in an IRA, or something. So that was what really motivated me to really get started and going.
So a fourplex was my first property. I purchased it in 2017. And then a couple more about a year and half later, and then I eventually got into some other projects, like you mentioned, some development projects, and eventually Happy Camper Capital.
Slocomb Reed: It sounds like you're also currently a GP with an apartment syndication group?
Dan Spafford: Yes, that's correct.
Slocomb Reed: Gotcha. So why are you doing both? What needs are they filling for you?
Dan Spafford: I got involved with the built to rent projects before I was with Happy Camper Capital. So that kind of just came about through -- we'll say a series of events, I guess. That came about through networking, and possibly as it came up, this group had approached me a few years ago to invest with them in that project they were doing the time. At that moment, I turned them down, because I was pretty much finding better deals on my own than what they were offering. Then came early 2021, they pushed me again with a new project they had going, that was much better for returns... And by this point, I was much more involved myself in commercial real estate, and networking with other syndication deal sponsors and other investors, so when this new deal came up, they approached me about it, and it looked good to me that as compared to what I was seeing elsewhere. I pretty much offered to them if they'd be willing to let me help and join them, and provide some kind of value to their team, and be part of what they were doing. So I liked what they were doing and where things were going.
So I guess, lucky for me, they agreed to let me give that a try, and I came on as an investor relations [unintelligible 00:04:08.14] with their team to help more or less obviously raise capital for the team, but I also did a lot more of the marketing aspect, the deal packets and things like that ;things that they weren't really experts in, because they were developers, and had pretty much relied on their family and friends prior to that... So they didn't really do much as far as marketing materials. They told their friends and family, "Hey, we've got a deal", and they would give them money.
So coming to the outside investors that I was dealing with - well, that needs a bit more than that. So I put some things together, and got things going with that, and the timing worked out that their very next deal that came up was this huge development project of about 800 doors here in Idaho Falls. So I got to be involved with that, and that was essentially my first syndication I was really involved with, at any level. I was a small GP share on that, but it's some experience. We have another project coming up soon as well in Texas...
So with build to rent - they're great, but also at the same time they do take some time. You're going from ground up, nothing, so it can take a few years really to get anywhere with that. It's not like an instant, overnight thing, and it cash-flow, and whatnot. So knowing those projects were gonna take some time, I was looking for something else to do in between. So I was still really focusing on multifamily, trying to get involved with some other syndication groups, or to find my own deals to either syndicate, or JV on, or something... And really, I wasn't having much luck with any of those things, and not finding any deals that for me stood out as the high-end returns I was looking for. I knew there had to be something more than just the average deals that I was seeing.
And just in that search is how I came upon campgrounds. I heard on a different podcast -- I listen to a lot of podcasts all the time, so one I listened to about a year and a half ago mentioned campgrounds as an investment option, which myself, the same as most of the people, had never heard of that before; I didn't know you could do that. So I started learning more. I went to different webinars and meetup events that were discussing this topic, and being where I live in Idaho Falls, we're about an hour and a half from Yellowstone Park, so it's a big camping area. People come here from all places to go camping, and [unintelligible 00:05:54.28] in the parks, and hunting, fishing, boating, all those things... So I saw there was an opportunity there, that I could somehow get my foot in the door with somebody who is in this space and may want to buy something here. My wife is a realtor, so we could help with the purchase if needed... I can be the boots on the ground, take pictures and video, and all that kind of thing... And then just doing that is where I eventually met my partners, who had just closed on their first deal and were looking to grow their team and do more.
We got connected and discussed my goals, and their goals, and their vision, and where things were heading... And of course, discussed the returns that these campgrounds get, which is really what caught my attention initially. So things went from there, and they were pleased with what I had already been doing at that point, and my personal goals, and things I was looking to do. So they invited me to join them, and be part of Happy Camper Capital, and so I did that.
Slocomb Reed: Nice. I do want to ask you about those returns in a moment, but based on what you shared already, I kind of have three questions I want to ask, or three topics I'd like to cover. First, it sounds like as a general partner, you're primarily involved in investor relations. Is that true with both build to rent and Happy Camper?
Dan Spafford: Primarily yes, that's correct.
Slocomb Reed: Don, I'm making some assumptions here that I either want you to validate for me, or tell me where I'm wrong, for the sake of our listeners... You have a background in financial analysis. That seems like it would translate well to investor relations. Given that a lot of passive investors either have a similar background or are looking for that sort of expertise from the general partnerships, the operators that they are investing with... And I know you said you helped with some marketing materials as well, and creating a presentation package for potential limited investors... Is that as natural a segue as it seems, to go from financial analysis to investor relations and syndicated commercial real estate?
Dan Spafford: Not really. Most likely not. So initially, like I said, because of my background, I was trying to position myself as somebody to help with the analysis part, do the underwriting, and things like that. That seemed to be more of a natural fit, to use my skills and talents, we'll say... But I kind of discovered that didn't like it. It's of course been what I've done for much of my whole life, I guess, but the funny thing is, I'm very much an introvert. I've never been the social speaker, or life of the party type person. I'm usually the one that's quiet, and [unintelligible 00:08:08.17] myself. But I quickly discovered, as I started talking to people about these deals I was doing, especially when I was just starting with that build to rent one, it was my first really experience with this - I came to realize that I actually enjoy talking to people, even though, again, I'm an introvert and in a normal situation I would not even probably start a conversation with somebody I didn't know... But having a purpose, if we're here to talk about real estate investing and the benefits that it brings about, and how it can help someone change their lives really, as it did mine, that gets me excited, and I enjoy doing it. So I kind of quickly realized that, surprisingly, that's what I enjoy doing. So I kind of more gravitated to that role, just because I enjoy it, but also then, as you mentioned, the background does come in handy, to try to explain people how the returns affect them, how their work overtime, look at different situations, scenarios, like say if you want to invest $100,000 in some other deal, versus one of these deals, I can show you the differences it's going to make over time for you, so you can make the best, most educated decision on where to place your money.
But I think for most people, typically -- most I know of anyway, that are in some type of financial background, say accounting or some type of analysis, like myself... And of course, I'm making a very big generality here, but most of them, I'd say, are probably more introverted as well, and that's why we kind of stick that analysis thing, so we kind of depend on ourselves. So yeah, for most people it's probably not a great fit per se doing investor relations, but I've found that for me it works.
Slocomb Reed: Why is it that it works for you, Don?
Dan Spafford: I think it's a few things. One is I do enjoy helping people; that's always been a big part of my personality and my background in general. I like helping and giving back. And this provides me a way to help people. It's people like myself five years ago, when I bought that first property; I was in, I'd say, horrible financial circumstances, but I knew that real estate was my best chance to change my future. So I can now use my personal experience along with my knowledge and understanding to help somebody else that may be in a similar situation realize that this could also be a solution to help them and change their future. So we've had several people, first-time investors, that have decided to invest with us because of those things - I'm able to help them understand and see and discuss scenarios and situations that can over time help them get to their goals more quickly than some other way of doing it.
Slocomb Reed: Nice. You were saying when you were first approached by syndicators of apartments that the deals they were presenting to you, you were actually finding better deals on your own. What did your investing look like before you were involved in a built to rent syndication, and how is it that you were finding those deals?
Dan Spafford: So again, prior to that, I was mainly buying these fourplexes, and some other small multifamilies that were typically getting, let's say, between 40% to 60% cash on cash. And that was just fine; these were great, great deals.
Slocomb Reed: Oh, wow.
Dan Spafford: Yeah.
Slocomb Reed: When was that?
Dan Spafford: This was between 2017, 2018...
Slocomb Reed: And where was this?
Dan Spafford: Between Idaho, where I bought that first fourplex, and then also in Arkansas was where I was finding these deals initially. So this is kind of -- you know, if you think about that time, it was kind of early on, where there was this big wave of real estate investors getting into the field, I guess, and starting to over-inflate prices because of demand... But that first fourplex I bought, it was initially listed on the MLS, didn't sell, the owner decided to list it himself, For Sale By Owner; I found it on Craigslist for sale. It was as-is at that time, it was a great deal. Even then it met the 1% rule based off the income produced, and I knew even then it was under market rent, so I could turn that around, increase the rent and make a great deal of it.
So those are the type of deals I was finding. That one I found on my own, just searching through Craigslist. And then the ones in Arkansas, I got connected with some other agents and wholesalers in the area, and these were a couple of off market properties that were brought to me... And as far as, again, the returns, they were more or less kind of similar in that range, but at least 30% plus cash-on-cash to start off with.
So when the development group first approached me about this project they had - at the time I think they were offering a 12% return, or something like that. Again, it wasn't bad, but I was like, "Well, if I'm getting 30% or more, why would I accept 12%?" So I looked at it from that perspective; and I would have no control over it. So it didn't look as appealing to me at that time.
Slocomb Reed: Don, if you were getting a 30% to 40% cash on cash return, does that assume you're selling the property, or no?
Dan Spafford: No.
Slocomb Reed: Okay. So a 30% to 40% cash on cash return without sale - why would you go do anything else?
Dan Spafford: That was my thoughts. So I wasn't looking to do anything else. But as time went on, more competition entered the markets, I was now competing with multiple other offers, hard to find those great deals; even the sellers knew that their property was worth more... So the deals I was finding were not as enticing, I'd say. And the ones that I did make offers on, I usually always got outbid by somebody else. So it became more difficult to find those unicorn deals, or whatever. So that's when I started looking into other options, like what else is out there.
It just so happened that actually before this other project came my way for that built to rent, I actually got involved myself in my own development project with a partner to build a five-unit commercial strip mall. So that came about as well, an opportunity that arose, and I saw the opportunity there to seize on it. So we acquired this land, and got the plans in place and everything, and started on process to do that. And it took a long time. We'll get into it later, in some of your lightning round questions, but definitely, it's been a learning experience. After a year and a half of preparing and planning and everything else, we finally broke ground a couple months ago now at this point, and it should be completed by early 2023.
So these opportunities just kind of came up. Again the build to rent thing... And when they approached me, early 2021, with the new project they were doing at that point, and they were now offering about a 30% annual return on that, I was like "Okay, this is now more in line with what I want for my criteria anyway, and I'm not finding anything else that's as good now anyway, so now it makes sense to do this." Even though there's no cashflow front [unintelligible 00:13:40.03] after the properties are built and sold, and then you get your returns after. It works out to about a 30% annual return. So I was like, "Yeah, that sounds good to me." So that's kind of where I got involved, and saw where things were headed, and what they were doing... And just in general terms of what was happening in the market in 2021, it seemed to me like build to rent was the smart way to go anyway. If you were trying to do something else as a value-add play, you'd still have to probably overpay for the property to begin with, because you're competing with everybody else that wants to buy it... Whereas you're building new, you don't really have any competition; you just find great land somewhere, and then, of course, get everything in place, have those right connections for construction and whatnot, but in the end, it's much more profitable after the fact.
Slocomb Reed: As well the opportunity to buy small multifamilies at 30% to 40% return dwindled, as properties appreciated and other people found the well that you were drinking from. You've sold those properties the,n I imagine, correct?
Dan Spafford: The two in Arkansas I did, yeah. The one here in Idaho I still own. I refinanced it early this year, in 2022, and pulled out well over $100,000 from the refinance, and it still cash-flows as good as it did before I refinanced it, because the interest rates were lower; it works out about the same. So it cashflows well, and I was able to pull out much more capital than I put down on it; when I bought that property, I only put 10% down, and so I was able to get a lot more out of it and reinvest that into more properties.
Slocomb Reed: Don, you have very aggressive return expectations, which I love. I'm an apartment owner-operator in Cincinnati, Ohio, primarily BRRRR investor. I buy the deals that I can buy well below market value, because I have the team that can force the appreciation. So I imagine your very high return expectations are the reason why you are involved in build to rent, and then campgrounds, as opposed to traditional apartments indication that has 8% preferred cash on cash return with an of IRR 15% plus. Thinking about build to rent and campgrounds and marinas as high cashflow investment vehicles within commercial real estate, let's make a quick comparison of the two. What would make one better than the other given an investor's goals?
Dan Spafford: Sure. And this is a great point that comes up often with the calls I'm on with peopl..e. Which is why I like being in both of these, because it gives me two different options that I can offer to people, depending on their needs. So with the built to rent, obviously there's no cash flow upfront. So those are ideal for those who don't necessarily need cash flow now, but do want a great equity multiple within a few years, and with the potential to have infinite returns as well in that property. So for example, a project like the one here, if we're going to build it up, it's going to maybe take two to three years to get that fully built and then rented out, to start seeing really any cash flow. And then after that point, it'll be refinanced or sold possibly; but let's say it's refinanced, and then people get their capital back, plus some equity on that, and then also the infinite cashflows after that. So those are great for those people, again, that maybe have maybe high net worth, that don't even need cash flow at all, they don't care about cash flow, they just want to keep building wealth over time. Whereas the campgrounds are great for those who need cash flow now. They produce very high cash flows. Typically on our average deals we're targeting a 15% average cash on cash, and then with a 2.5x, 3x multiple over that five-year hold, which works out at about a 20% plus IRR usually. So again, that kind of gives you both sides of that. So if you're looking for an equity multiple, you can still get that great with campgrounds, but you're also getting that upfront cash flow right away.
So people like myself, you know, a few years ago or whatever, my focus was always cash flow first. That was my primary goal. I needed the cash flow to help overtake my W-2 income. So people in my position who are now trying to get to that financial independence sooner than later, these campground deals are a unique opportunity to get that great cash flow, as compared to other, say, multifamily, like say that maybe it's 8% return. So that's why I have both of these options, that I can say "Hey, do you want cash flow now, or do you just want that equity multiple later?"
Slocomb Reed: How do the hold periods compare for these two strategies?
Dan Spafford: So the campgrounds we typically have an average hold period of about five years. We may exit sooner if we hit our goals for the IRR. We hit like a, say, 21% IRR in year three, then maybe we exit year three. But we always plan for a five-year hold, to make sure we have time to hit those numbers, and do everything we do. Because those campgrounds are still like a value-add play; we're taking them and make them nicer, and improving them, expanding out usually, building out more sites, increase the income of the property, and of course, the value; very similar to what we do with multifamily, in some degree.
With the build to rent, there's of course a bit more flexibility in there, depending on the things that happen; especially right now with supply chain issues, that may slow some things down. But especially the size of these projects, which are 650+ units, they're done in phases. So we'll say each phase is expected to last about two, maybe three years or so. You get, say, about two years to get it built up, another year to get it leased out, and then after that third year, we would probably refinance at that point to pay back the investors, and likely stay on for infinite returns depending on the deal structure. And that just for each phase; so if there's phase two, then you could then roll that into the phase two, or be out and be happy.
So it's kind of a shorter timeframe with the built rent, if you're looking to be in and out within a few years, if that's your goal, whereas with campgrounds it's kind of more about a five year hold.
Slocomb Reed: And with build to rent, when is it that you're giving them the option as to whether or not they would stay in a deal for phase two?
Dan Spafford: It depends on the deal, I guess, at the end of the structure. Usually, ahead of time we'll know what the plan is, if they would be or not be to have that option... But it may come down to near the end, if we decide that we may need more capital for that phase two -- because usually, after phase one, we'd say that the value the property is well enough itself that it would more or less provide the backing that the bank's gonna want to see to provide the loan for phase two or phase three.
If there's a need, I guess, for more capital at that point, we would give people the option, when it's time to cash out, say "Hey, do you want to receive your capital distributions now, or would you like to just roll that into phase two, and essentially multiply those returns?" Up front [unintelligible 00:21:31.10] expectations that there may be the possibility to do that, but no guarantees.
Slocomb Reed: Gotcha. That's pretty compelling stuff. Don, are you ready for our Best Ever lightning round?
Dan Spafford: Yeah, let's go for it.
Slocomb Reed: Awesome. What is the best ever book you recently read?
Dan Spafford: The one I've most recently read is "The Win/Win Wealth Strategy: Seven investments the government will pay you to make" by Tom Wheelwright. It's a tax book. So with my background, I do actually enjoy reading tax books and strategies that are available to investors to utilize, because it gives me extra tools in my tool belt, I'd say, when I'm talking to somebody that may not be aware of something they can do. I'm like, "Hey, well, you can use this strategy, or do this thing to set up your LLC in this way", or whatever, to provide them value. Of course, I tell them, I'm not a CPA or tax advisor, so I'll say "Don't do what I say, but just be aware of these things that are out there. You can talk to your person about it." But that's a book that I enjoy. I like the books that he writes.
Slocomb Reed: I do, too. I'm a fan. What is your best ever way to give back?
Dan Spafford: As I mentioned earlier, a big part of me and my personal beliefs is I do like to give back. So I do a lot of donating, just in general. I donate at least 10% or more of my gross income, and I do lots of service, I provide to groups or things that happen in the community. Ideally, long-term, my wife and I are both on this together that we would like to eventually at some point do something more for not only our local community, but other parts of the world. So I don't believe you mentioned it, but I lived in Argentina for two years, and my wife is from Paraguay... So think of them as maybe a third world country per se, but there is a lot of poverty in those areas, and I've seen a lot of it firsthand... And so it's always been a goal of mine for the past 20 years, that at some point when I'm able to do so, I would like to do something for those areas, to not just give donations and things, but to do more, to provide some type of work environment, to put in a factory, or whatever it may be, to provide jobs that can provide a real income to the people there, and help them improve their own personal situations, their family situations, and help improve things in general in those areas.
So that's our long-term goal, is something like that, at some point, when we are able to... I do think giving is a big part of what everybody should do, some sort of way to give back, service, or donations, whatever may be. I think in the long run, it provides more to you than what you give.
Slocomb Reed: Absolutely. Don, in your commercial real estate investing career, what is the biggest mistake you've made, and the best ever lesson that resulted from it?
Dan Spafford: Probably the biggest mistake -- and luckily for me, I'd say even my mistakes have never been anything horrible. But going into that first development project that I got involved with, this five-unit strip mall... So early on, when we acquired the land and worked up their plans and ideas, everything seemed great upfront... But neither myself, nor my partner had ever done anything with development before, so we had really no idea what we were doing. I just saw this as an opportunity, and I can't pass up on a great opportunity. So we got involved, and got things going, and right off the bat the bank said, "Yeah, great. No problem, we'll give you a loan." And then when we got the builder already, and everything's ready to go, the bank comes back and tells us that we needed to get some LOIs from our potential tenants before they could approve the loan. Lke, "Well, you could have told us months ago, so we could have worked on that, instead of getting the builder and everything in place."
So that kind of put a setback, and we had to go back now and work to get these LOIs... And this was near the end of last year, so kind of, again, this time of year with the holiday season, Thanksgiving, Christmas things, it was not easy to get those right away upfront... And we ran into some issues with, I guess, local businesses that are not as willing to sign an LOI without seeing a building there, and knowing that something is coming, as opposed to some of those national companies that have no problem, because that's typical, standard process.
So these are some things that we ran into, that we were not aware of, and didn't understand, that kind of put a hold on a lot of things. And because of those delays it caused, since then a lot of the materials prices have gone up, and so our cost to build this project inflated by probably, I'd say, 40% or so from one initial bid we got to build it, to where we finally started breaking ground. So it definitely put a setback on our overall expectations.
So what I learned from that is essentially when you're going to start on a new project that you have no experience with, as much as that seems like a great plan and idea to do, it's probably best to find a partner, or nothing else, somebody you can consult with, that can help you to know what you're doing, to not make mistakes or missteps that can set you back later on.
Slocomb Reed: That's definitely helpful. And on that note, Don, what is your best ever advice?
Dan Spafford: So for me personally, again, what really I think set me up to have the success I'm having now was just networking, getting out there and getting known, and being known by others. So I think everybody that listens to this is probably familiar with the term that people invest with those who they know, like and trust. So if I'm not known by anybody, how are they going to like or trust me? So for me, it was a big mental hurdle for me initially, again, being an introvert... About early '20 to '21 I really forced myself to come out of my shell and start being much more active on social media, going to networking events, whether it be online and in-person... You know, just for that purpose of people getting to know me; it was my whole goal. It was like, if I find partners or deals along the way, great; but ideally, I needed to have people know who I was, so when I did have a deal I could present to them, they would know me enough to like and trust me to invest with me.
So I think networking is a huge part, no matter what you do. If you're raising capital, looking for deals, any of the above, having that network of people that you can rely on, that you can say "Hey, I've got a question about this or that", you can have someone you can call and contact and ask questions about, and obviously if you need help with deals, they can help bring capital to the project as well, or whatever you may need. So networking is definitely key to really push yourself past more than what you can do alone.
Slocomb Reed: That's great advice. I'm always a fan of networking, Don. Thank you. Best Ever listeners. Thank you as well for tuning in. If you've gained value from this episode, please do subscribe to our show, leave us a five-star review and share this episode with a friend that you know that we can add value to through the conversation we've had today. Thank you, and have a best ever day.
Dan Spafford: Thanks, everybody.
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