Paul co-founded a staffing firm where he was 2x Finalist for Michigan Entrepreneur of the Year. After selling to a publicly traded firm, Paul began investing in real estate. He has contributed to Fox Business and The Real Estate Guys Radio. Paul is the author of Storing Up Profits – Capitalize on America’s Obsession with Stuff by Investing in Self-Storage and The Perfect Investment – Create Enduring Wealth from the Historic Shift to Multifamily Housing. Paul is the Founder and Managing Partner of Wellings Capital, a real estate private equity firm.
Here’s some of the topics we covered:
- The Different Kinds of Investing
- Mobile Home Asset Class
- The Advantages of Mobile Home Multifamily
- Having VA’s Work To The Team’s Success
- The Disadvantages of Mobile Home Parks
- Financing A Mobile Home Park
- Having Success In Self Storage
To find out more about partnering or investing in a multifamily deal: Text Partner to 72345 or email Partner@RodKhleif.com
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Full Transcript Below
Intro
Hi. My name is Rod Khleif, and I’m the host of “The Lifetime Cash Flow Through Real Estate Investing” podcast. And every week, I interview Multifamily Rock Stars. We talk about how they built incredible wealth for themselves and their families through multifamily properties. So hit the “Like” and “Subscribe” buttons to get notified every Monday when a new episode comes out. Let’s get to it.
Rod
Welcome to another edition of How to Build Lifetime Cash Flow Through Real Estate Investing. I’m Rod Khleif, and I’m thrilled you’re here. And I’m super excited about my interview today. It’s a friend of mine, Paul Moore, who was on the show, God, about when I started this thing back in 2017, I believe. And Paul has been involved in all sorts of different asset classes. He’s in multifamily. He’s in mobile home parks. He’s in self-storage. He’s got his own podcast called “How to Lose Money”, which is an awesome title. I think I was on that show once.
Paul
Yeah.
Rod
Yeah, I was? Okay. Yeah. So, anyway, and he’s interviewed all the time. And I’m excited to have you here, brother.
Paul
It’s great to be here. Thanks, Rod.
Rod
Yes, you bet. So maybe you could just elaborate on that pathetic history I gave on you and just talk a little bit about your history and what you’ve done and what you’re up to, and then we’ll take it wherever we want to take it.
Paul
Fantastic. Well, I worked at Ford Motor Company for five years, and then I have my own company for five years. I sold it to a publicly traded firm in ’97. And Rod, I thought, I’m a full-time investor now. And I thought, you know, I’m going to be like this cool investor, put it on my business card. But I wasn’t. I found out later I was a speculator through and through. And I found out the difference between investing and speculating. Investing is when your principal is generally safe and you got a chance to make a return, like a lot of the stuff you do in the real estate realm is in that realm, and then speculating is when your principal is not at all safe and you’ve got a chance to make a return. And I swung for the fences. You know, I played double or nothing. And I lost a lot of money. And I made a lot of money, too. But I found out the difference between investing and speculating as I got into, you know, flipping houses, flipping waterfront lots, doing some ground-up construction. Bad idea to be a builder if you don’t know how to build. But another story. I was trying to figure out over those years how to get involved in commercial real estate. And about ten years into that, we built a multifamily facility in North Dakota for the Bakken oil boom, did another one next door, and did a Hyatt hotel, which didn’t go as well as the multifamily. And so I decided to stay in multifamily. Last show I was on, we talked about my book, “The Perfect Investment”, and that was about apartment investing. And that’s still selling pretty well. And since then, like you said, I’ve diversified into these other asset types.
Rod
No, fantastic. Well, before we started recording, we chatted about where we might take this today. And, you know, it’s been a long time since I’ve had my friend Kevin Bupp on the show who’s got his “Mobile Home Park” podcast. And we’ve talked about mobile home park. So I think, let’s talk about mobile home parks today. You know, it’s been a while, and I think my listeners–you know, it’s absolutely multifamily. It’s a different type of multifamily. So let’s talk about, you know, maybe a case study of a deal you did. But what I’d love to do is outline the potential benefits and the potential pitfalls. And, I happen to know them because I studied mobile home parks for a long, long time. I never pulled the trigger, and I should have, but I didn’t. So I know a lot about the asset class. But let’s have you tell it. Yeah. Take it wherever you want to take it. Yeah.
Paul
Absolutely. Well, when I had a little cashback in the late 90s, I looked at a mobile home park and I thought, you know, I wouldn’t want to deal with all of the hassles there. And, you know, I’m glad in retrospect because I would have been a Mom-and-Pop operator. Mom-and-Pop operators are what makes this such a great business. And here’s why. There are about 44,000 mobile home parks in the US, and very few people have even officially counted that number. So they’re not sure exactly how many there are. But about 85% to 90% are run by Mom-and-Pop operators, which means it’s a very fragmented industry. Now, unfortunately, 93% or so of large apartment buildings are run by companies, and often not always. Often those companies leave very little value on the table. They’ve done the dog parks, they’ve done the upgrades and all that. And Rod, I mean, you’re an expert and you and your students are experts at finding those deals that do have intrinsic value, that does have money left on the table. But I honestly didn’t find that when I was in the apartment realm, I wasn’t doing a good job finding those. But in the mobile home park realm, it’s very hard not to find those because like I said, over 85% are Mom-and-Pop operated. That means these operators don’t have the desire or the knowledge or the skills or the resources to upgrade their parks and increase income and maximize value. Rod, let’s face it, they don’t have to. Cap rates have already compressed to the same level of the rest of the commercial world, including apartments and self-storage. They’ve already compressed so much. And these people are getting offers for literally double or more than double what they ever dreamed they could get, even just staying mediocre.
Rod
Right.
Paul
And so, a lot of these–and they’re not all mediocre, of course, but a lot of these Mom-and-Pop run mobile home parks can be acquired and there’s a lot of upsides left. Now, some of the reasons this is such a great asset class are the tenants are really sticky, which doesn’t mean they wear Velcro suits. So I’m not one to judge. The tenants typically stick around. I mean, if you raise their rent, let’s say it’s a $300 rent and you raise it by 4%. What’s that? $12? So you raise their rent by $12. What are they going to do, spend five or $6,000 to get their home moved down the street to save $12? Or if you raise it 10% by $30? I mean, again, we’re not trying to gouge anybody. But what I’m saying is people generally don’t move these homes. 93% to 97% of the homes stay where they were originally placed. They’re not really mobile, so the tenants are sticky. Number two, a Princeton study said mobile home park rents have not kept up over the last five decades with other types of rent. So they are often underpriced. A lot of times, the Mom-and-Pop owner lives in the park. They’re friends with other people. They don’t want to raise rents. Another thing they don’t want to do is they often don’t fill vacant spaces. It’s a pain to fill a vacant space. And often these are already cash cows. And so they’re like somebody moves out or maybe a tenant, you know, destroys or burns down their trailer. Well, they just leave it vacant. Well, that is a huge potential upside for a buyer. Another one is utilities. Believe it or not, a lot of these Mom-and-Pop owners, Rod, pass the utilities. They don’t pass the utility costs back to the tenants. They pay them. There’s a huge upside in that. And so mobile home parks, according to the studies I’ve read, are the only asset class that has a diminishing supply and an increasing demand every year in the US. I mean, as you and I–I think we might have talked about this before. 10,000 people turn 65 every day, but about six in ten don’t even have $10,000 saved for retirement. A lot of them can afford to trade in their home equity, though, for a mobile home park lifestyle where they get their own yard, they get a short walk from their car to their door. They don’t have to share a wall with somebody, especially during these pandemic times. People value that. And they get a place for their grandkids to play. And they’ve got the flexibility now to travel and a very, very low cost compared to other forms of homeownership or even some leasing. So it’s a great asset class and we’re really glad to be investing in it.
Rod
No, I love it. You know, you were talking about the official count. You know, it’s funny. Again, it’s triggering some memory for me. At one time, I had eight virtual assistants, six of them I was only paying a $1.93 an hour and they were happy to get it. These are Filipino and what I had been doing was literally going on Google Earth and identifying mobile home parks because they’re misclassified all over the country. They’re hard to find. And so literally I had them working full-time on this and they would put geocoding over the top to find out who the owners were and, I mean, we created lists in almost every state and just never pulled the trigger with it. But, you know, it is kind of–and they’re not building it. Nobody wants a mobile home park in their backyard. The opportunity to have one built is like nil. And you’re right, they’re not going to move. I mean, you could raise the rent more than that. You know, most of these people can’t pay five, $7,000 to move their home. You know, you can get a lot of hate. You know, I know operators that have raised the rents too much and they make– to cover of the paper. So you’ve got to be realistic and reasonable. But, yeah. And so, do you still believe it’s still 85% Mom-and-Pop, or do you think that shifted because it’s been, you know, high demand? I know of, you know, the guys over bigger pockets. My friend Brian Murray and Brandon.
Paul
Brandon Turner. Yeah
Rod
Brandon Turner. They’re in the mobile home parks as well now in a big way. And in fact, I shared my list with them, actually. Brandon is a friend and so is Brian. So, do you still believe it’s that high or do you think there are that many Mom-and-Pops left?
Paul
You know, there’s going to come a day just like the day the last World War I veteran died, you know, years ago when the mobile home parks– the better mobile home parks are all gone. They’re snatched up by professional operators.
Rod
Right.
Paul
And of course, when that day comes or even approaching that day, we’ll be looking at other asset types, like RV parks, which we already are. But now, I don’t think we’re anywhere near that.
Rod
Okay.
Paul
I mean, speaking of the misclassified, I was part of a 200-lot mobile home park acquisition in Fairbanks, Alaska. It wasn’t even on Google Earth. It was actually misclassified on Google Earth as an RV park and sand and gravel pit.
Rod
Wow. Yeah. I mean, what my VA’s would do, again, I had six of them working for under $12 an hour. That’s the power of virtual assistants. But they would literally fly around. Excuse me, got something in my throat. They would find a mobile home park, and then they would fly around in the air and look for others just by identifying the mobile homes. And then we would geocode them, find them and list them. And we’d find mobile home parks that have never been– that weren’t on any list.
Paul
Right.
Rod
And, you know, it’s a very powerful way to do it. Let’s talk about the potential pitfalls with mobile home parks. You know something that you’ve got to watch out for because I know a lot of them are dated. So you want to speak to that a little bit?
Paul
Yeah. So the one in Fairbanks, Alaska, is a good example of that. I mean, the mobile homes were all brought in during the– what was it? The pipeline.
Rod
The oil?
Paul
Yeah. The oil pipeline. I’m forgetting the name of it. But anyway, the Trans-Alaska-Pipeline. The Trans-Alaska Pipeline was built in the late 70s when you and I were kids. Those were all brought in then and they were rough. And that made me nervous. I mean, literally, the coldest city in America. And so that is certainly a potential downside because, in Alaska, it’s very hard to replace those homes. I mean, for the 50 vacant lots in that 200 lot mobile home park, it’s very hard to replace those. So that’s one. Number two, I mean, a related one. Right now, it’s very hard to get mobile homes in general. The Covid supply and demand crunch has caused it to be sometimes eight or ten months, even for experienced operators to get mobile homes. If you’ve got to fill 50 slots, one per month, you know, you might be waiting eight months to get your first one. And so that’s another potential downside. Another one is one of the upsides is what you said, and that is the cities and counties aren’t allowing more, which helps supply and demand. I mean, for the people who are in the business already. But a downside is they might do everything they can to oppose you. So, like, for example, if five of your lots have, you know, the homes hauled away, like the place I was mentioning earlier in Fairbanks, the local authorities might try to make it difficult for you to put new homes on there. In other words, they’d like to see you go away.
Rod
Right.
Paul
And sometimes they even cut deals with developers. Like, look, you take that mobile home park out and you, you know, open that up for apartments and we’ll let you have this development. You know, it’s kind of a deal they try to cut up as zoning level.
Rod
No kidding. Wow.
Paul
Yeah. So that’s another downside. Another one is the bad press. Now, this is a really interesting story. We invested in a deal in New York state. New York is one of the States, as you can imagine.
Rod
I won’t step foot in there as an investor. The Blue States in general. I mean, it’s not a political thing. Why? Why deal with all that regulation? It’s just brain damage.
Paul
I get it.
Rod
It’s low-hanging fruit elsewhere. But anyway, I’m sorry I interrupted. Please continue.
Paul
No, I get it. We don’t step foot in California, so for the same reason, even though I’ve got two family members there.
Rod
Right.
Paul
But, okay. So this operator was raising rents on mobile home park pads, by 1% to 2% a year typically. And that’s all they needed to do to fulfill their business plan. Well, the state of New York got mad at some mobile home park owners there, and they passed a statewide restriction that you could only raise rents on existing tenants by 3% a year if I’m not mistaken. I think it was 3% a year unless there was inflation, then you could apply to go up to 6% a year. Well, guess what? He was only doing 1% or 2% as it was. I think he said the average is one and a half. Now he said, well, since everybody knows the limits, three a year. I just went up to three. So he’s actually making more money from this downside. But I don’t think it would always work that way. Now, when he brings in a new tenant or a new mobile home, he can do it at market rates. You know, the current going rate. Of course.
Rod
Okay.
Paul
Other downsides are, you know, investors have been looking down their noses at mobile home parks for years. But I would say this, invest where–I mean, live where you want and invest where it makes sense. And for a lot of people, this makes sense.
Rod
Oh, no question. Well, there are some other downsides I want to mention.
Paul
Yeah.
Rod
You know, a lot of these parks have antiquated systems for utilities. Like maybe they’ve gotten a sewer plant or they have a pond is even worse where they’ve got a sewer, literally it’s a Lake that they dissipate sewage into or they’re on like maybe one well, one septic for numerous homes that are very dangerous. And so, you know, that’s an area that you want to be really, really careful. If you’re looking at a mobile home park, if it’s got a sewage plant, you better have somebody who knows what the heck they’re doing, evaluate it, and look at the remaining life. Because if it goes out, your park out of business, and so, that’s a real problem. If you’re on a well and that well has a problem, you’ve got a real issue. And I know Kevin, my buddy I was mentioning earlier that’s got a mobile home podcast. He always has a secondary option, like city water, and city sewer. He budgets that in the event he has to have it as like a fail-safe in situations like that. And so at least that’s how we used to operate. It’s been a while since I’ve talked to him about this, but, you know, so the infrastructure is another area. You want to be really careful that you’re not going to encounter that with multifamily so much. Yeah, you might get some, you know, piping that needs to be replaced or sewage, you know, that’s got roots in it and whatnot. But you’re not going to have like a, you know, some of these sewage plants are extremely expensive, like, you know, 100,000 plus. So that’s a factor. The other thing, you know, and I don’t know, just out of curiosity, because again, I’ve been so far removed from this for about almost five years now. What about the insurance risk? Because I got to tell you, you know, I remember when Charlie, Hurricane Charlie hit Sarasota. Not Sarasota, actually, Port Charlotte. That was the largest single-family homeowner down there at about 360 houses down there. And it was like a bomb went off. But where it really looked bad was the mobile home parks. I mean, you don’t survive a storm like that in a mobile home park. And tornadoes and things of that nature. In fact, I had a tornado hit one of my apartment complexes and destroy it. But, I mean, that sort of a storm to a mobile home park is devastating. Can you insure around that? And if so, you know, what does that look like? I’m just curious.
Paul
Yeah. So the best-run parks, as to your earlier point, are on public water and sewer, usually.
Rod
Right.
Paul
And that’s why I think people need training. And that’s why the stuff you do for apartment owners is so valuable, because, I mean, I get these questions on bigger pockets all the time. Hey, this mobile home park down the street went up for sale. I think I’ll buy it, and it’s like– but they don’t even know at all. They’re like, what should I learn? Well, it’s like, well, don’t buy it, first of all, because you need to go get some training pal. But, anyway, trying to be nice–
Rod
Right. And, you know, if it’s under 40 spaces, you’re going to manage it. Okay.
Paul
Yeah. That’s right.
Rod
So I can’t even think of more brain damage than you could possibly imagine than doing that.
Paul
That’s right.
Rod
Yeah, I get students are like, hey, I can buy this 20 space park. I’m like, listen, unless you’ve got, you know, some sort of a management solution, I would run for the hills. But, yeah.
Paul
Yeah. Good. I mean, in the same way, a professionally managed park usually not always has a vast majority of those mobile homes in the names of the individual owners.
Rod
Just land rent .
Paul
Yeah. So they’re pretty much leasing infrastructure. By the way, we should talk about the tax benefits of that later.
Rod
Okay.
Paul
Anyway, the infrastructure, leasing the dirt, the sidewalks, the curbs, the gutters, the parking lot, the street, the pool, the community center, those things, you know, I mean, again, are not typically as damaged by a hurricane as you know.
Rod
Right.
Paul
But if you lose all your tenants, that’s a real problem. So we like to see, you know, operators get business continuation insurance where they’ll be insured, you know, for let’s say, 18 to 36 months while people, you know if those things get destroyed. But that is definitely a risk, especially with a supply and demand issue with getting new homes out there to replace the old ones. But of course, the individuals should have their homes insured. And of course, they might not.
Rod
Because very often they don’t. But, yeah.
Paul
I know.
Rod
You know, this 101 unit complex we have in Beaver Creek, Ohio, I get a call, it’s like, yeah, it’s been destroyed. This is just a few months after we bought it. Luckily, nobody died. A couple of people had to have surgery. No kids got injured, thank God. But all 101 families had to move. Now, the positive to that is, you know, we rebuilt it and we got $650 rent bumps, which is a $12 million instant increase in value. So, you know, there’s a positive to that. But it was a bit of a nightmare dealing with it. And when I dealt with Charlie here, you know, not to digress too far, you know, it took us 18 weeks just to assess the damage. Forget getting going on. There are people here without power for months. It was insane what the impact of that storm was but one of the hardest things I’ve ever had to deal with. But anyway, so, those are the pitfalls, we talked about the advantages. Now, financing is another pitfall. Correct? With mobile home parks because it can be more challenging to get financing on a park. Can you speak to that a little bit?
Paul
Yes. Professional operators are now able to get these almost exactly the same Fannie and Freddie agency debt that you’re getting for apartments. And so, that one thing that helped with that is Sam Zell, America’s largest and arguably most successful real estate investor. He has 158,000 mobile home park pads, a lot of them in your state.
Rod
Wow.
Paul
And as a result, he’s made it very common. He’s institutionalized mobile home parks if you will. Financing is fantastic. In fact, some of the Fannie Freddie debt comes with two potential refinancing opportunities and the– all the way up to five years before the end of the term. So if it’s a 12-year term, you’ve got seven years. You can refinance twice at the same rate to pull equity out for the–
Rod
It is called a supplemental with the Fanny program. Right. Now, back when I was evaluating this, I know that to do Fanny, you had to have curbs. You had to have paved streets and a lot of mobile home parks that, you know, don’t have that. I don’t know if that’s still the case or not, but there are some, you know, for conforming loans like that there are some restrictions, I’m sure. Still. But, okay.
Paul
And one of the cool things about this, a lot of the Mom-and-Pops think I can’t sell my place. I’ll have to own or finance it. I don’t want to own or finance. When you come in as a professional operator and say, no, you don’t. You got an edge.
Rod
No kidding. Well, that makes sense. Wow. Okay. Well, so that’s mobile home parks, guys. Now, again, you know, I wouldn’t buy anything under 40 units. I would make sure you check the infrastructure like we just discussed. Ideally, have public water and sewer, make sure the electrical is not horribly out of date, and, you know, you’ll find parks where a lot of the– homes are park owned, and that is the lowest. I want to be careful how we articulate this. That is the toughest demographic you’re going to encounter as a renter. Okay? As a landlord. And so, you know, I’m going to tell you that those homes get beat up, you know, very often. They need a lot of work. And the ideal business model is typically– correct me if I’m wrong here, Paul is to take a park-like that and start converting those to lot rent, try to get people to buy those homes, and put them on lot rent. Would you agree with that statement?
Paul
I’m suppressing a smile because I like to say that my worst three investments ever were in mobile homes.
Rod
Yeah.
Paul
My best investments ever have often been in mobile home parks. And those parks run by a professional property management team always do what you said. They always try to convert the park-owned homes away from park ownership to the individual tenant ownership. You’re absolutely right.
Rod
Right. Okay, so I know you’re also in self-storage. Now, this is a, you know, multifamily podcast, but let’s take a few minutes and talk about why you like self-storage. And I know that you’ve got a book now. Is it on Amazon?
Paul
Yes, it’s on BiggerPockets on Amazon. It’s called “Storing Up Profits”.
Rod
Right. “Storing Up Profits”. So talk about what you like about self-storage. I’ve got students that have thousands of self-storage units as well. I have not put my toe in that water yet, but my partner has done a bunch of it. Also, tell me why you like it.
Paul
Well, I’ll say one thing that I think multifamily operators and mobile home park operators should consider adding some self-storage to the vacant land if they can’t get approved for more apartment units.
Rod
Yeah.
Paul
I mean, it doesn’t take up any parking–
Rod
We actually, were looking at that. Yeah, we were actually looking at that with an asset in San Antonio.
Paul
Great.
Rod
We haven’t pulled the trigger on it yet, but anyway, continue. Okay.
Paul
Yeah. So real quickly, they’re recession-resistant. Self-storage has come out of Covid as the top-performing asset, according to the New York Times and Wall Street Journal. The prices of the rents are inelastic. I mean, if I’m renting a $1,000-a-month apartment from you, Rod, and you raise the rent 6%, I might, you know, leave before I– well, probably in these days I wouldn’t. But in general, I might leave before I commit to another $720 a year. But if I’m renting a $100 month to month self storage-unit, you raise at 6%, I’m not going to spend a weekend, get a U-haul, my friends together to move my junk. Excuse me, my treasures down the street to save $6 a month. There’s a high switching cost. Like I said, moving the stuff, it captures inflation well, since it’s a month-to-month lease, you could actually raise rents 12 times a year. They are fragmented as well. About three-quarters of the self-storage units are done– are owned by independent operators. Two out of every three of those are Mom-and-Pops with one facility. One thing I really love is the fact that a lot of Mom-and-Pop owners just view these as little metal boxes that sped out cash. They view it kind of as a passive investment, but really, to do it well, you need to be actively involved. You know, getting the value adds out. You know, selling locks, boxes, tape, and scissors, and renting U-Hauls out of the front if it makes sense to, you know, adding units. Taking that six acres in the back and progressively graveling or paving it to put boat and RV storage. There’s a lot of work and doing it right. And this is what we love about this industry.
Rod
Interesting. All right. So again, the book is “Storing Up Profits”. Paul, it’s great to see you, brother. I really appreciate you coming on the show and sharing some wisdom. It’s been a lot of fun going a little back and forth on this, and the–so mobile home park, self-storage, and I know you’ve done multifamily as well but this is fun to talk about something else on the show. And it’s good to see you, my friend, and let’s stay in touch, buddy.
Paul
Great to see you as well. Thanks, Rod.
Rod
Take care.
Outro
Rod, I know a lot of our listeners are wanting to take their multifamily investing business to the next level. Now, I know you’ve been hard at work helping our warrior students do just that using our “ACT” methodology which is Awareness, Close, and Transform. Can you explain to the listeners how they can get our help?
Rod
You bet. Guys, we’ve been going nonstop for three years building an amazing community of like-minded people, and our coaching students which we call our warriors have had extraordinary results. They’ve purchased thousands and thousands of units and last year we did over 1000 units with our students. And we’re looking to grow this group and take it to the next level. We’re looking for people who want to follow a proven framework that’s really step by step and then leverage our systems and network to raise equity, to find and close deals, and to build partnerships nationwide. Now, our warrior community is finding success in any market cycle. So if you’re interested in finding out more about how you can become more of our incredible network and take advantage of the incredible opportunities that are coming very soon, apply to work with us at “MentorWithRod.com” or text “CRUSH” to “72345” and we’ll set up a call so you can check us out and we can check you out. That’s “MentorWithRod.com” or text “CRUSH” to “72345”.
