I remember when I first broached the subject of selling our house and reinvesting the funds into a mobile home park with my wife.
She started laughing, and I felt stupid.
After she stopped and collected herself, I proceeded to explain to her why selling our first home and moving all of the money into another asset we would neither live in or have any experience with was a good idea.
Let's just say she wasn't immediately on board.
It took her a while, but over the course of several months she started to understand the power of putting our money to work for us. One thing that helped my case was that we had bought renovated and sold mobile homes in the past, so she already knew the power of investing and was familiar with mobile homes specifically.
Let me explain my reasoning behind wanting to buy a mobile home park.
At the time, my wife and I had a ton of equity tied up in a single-family home, which wasn't paying us anything. If we reinvested that equity into an income-producing asset, that could essentially pay for our next home by covering the mortgage payment and then some each month.
To me it was a no-brainer. In fact, I’m surprised that more people don't think of doing it.
Think of it this way: let's say you’ve had your first home that for a while and you've accrued a lot of sweat equity in the home. This may or may be a starter home in which you're going to move to a bigger home at some point. If you start using this equity to make you money each month your next house payment will be covered for essentially the rest of your life. This is the same way that I talked about how one investment property can fund your retirement.
Let's get into the nuts and bolts of how we did this and remember, this concept can apply to any investment asset, not just mobile home parks.
In this article, we won't get into the history of mobile home parks but if you're curious there's a really good video you can watch located here. Here's another great resource on the history of mobile home parks: Frank and Dave offers a mobile home University talk about the history of mobile home parks. Also, if you want a nice overview on what a mobile home park is and how it’s a fantastic investment, check out the article I wrote here.
We had reached a point where we had done all the improvements to our home and we felt that we had maximized the equity that we could control. The only way we would continue to accrue equity was through the market going up. I knew there was a significant amount of equity that was to be had in the house when we bought it - it had a partially finished basement and the area was improving greatly with the addition of a brand new local grocery chain store. The market was also at a place where I knew it was the right time to sell. Homes were still at an all-time high in the area and interest rates were low, meaning there were still a lot of buyers.
Also at this time, I began to realize that this first home was a tool for us to get to the next step. We knew that we wanted to invest in commercial real estate and a great way to do that is to buy a small asset, add value and move the gain or equity into the next size asset.
I want to stress this point. The purpose of your first house or purchase of real estate should be to build equity and move it to the next asset. Now, this won’t work in every single market and certainly won’t work unless you are intentionally adding value to the property. However, if done intentionally and thoughtfully, can be a phenomenal strategy to leveraging up to the next rung on the ladder. Too many people don't look at a home this way and they are making a mistake.
At this time, we had come to understand and really appreciate the value of mobile home parks. This all happened by way of first getting involved in the mobile homes individually. I had met an investor who focused on buying, fixing and flipping mobile homes in park and we had decided to try our hand in it. We worked with a mentor and ended up being successful in fixing and flipping three different projects. My wife took the lead on the projects and I offered support.
The concept was simple: we would find owners of homes within a mobile home park who wanted to sell. From there our first step was to communicate our intent with the park manager to see it was we wanted to do was acceptable. We established a relationship with some park managers and were given the green light. Once we executed a bill of sale for the home and recorded it at the DMV, we then called and obtained temporary insurance for the home. We paid lot rent to the park owner and got started fixing the home.
The nice thing about mobile or manufactured homes is that they are relatively inexpensive to fix. The materials are cheaper and they aren’t as big, so renovations can go a lot quicker. The challenge is finding handymen or labor who want to work on them. However, if you can find good help, mobile homes can be renovated quickly and efficiently. We had great help for most of the projects and after selling we were happy with the quick profits. The time frames were shorter and the profits were smaller than other real estate, but so was the investment and the risk.
However, after each sale I realized something. No matter who owned the home, the real winner was the park owner who continued to received a monthly lot rent each month. On top of that, here we were fixing the home and obtaining a new owner with no interruption in lot rent for this park owner. What a sweet deal for them!
This is where I really started to think about it from the investment side of things. This was way different than an apartment building. When a tenant moves out of an apartment unit they have no obligation to the unit or the building, they are simply renting the unit. Therefore, they can give notice and then be gone. This leaves a vacant unit that the owner then needs to spend money on to get ready to rent to the next tenant. While this is happening, there is no rent coming in and most likely they are spending the same amount of money to fix up an apartment unit as someone might to fix up a larger mobile home. Once the unit is rented, that tenant may stay for a couple years until the process repeats itself all over again. In contrast, once this new mobile home is sold, it’s likely that the new owner will live in this home for several years before a change is made. I was hooked.
I decided to change our plan of investing in apartments and head straight towards mobile home parks. With our new found confidence and understanding of mobile homes, we set off to educate ourselves on everything regarding the parks as an investment vehicle. I read everything I could get my hands on, starting underwriting deals, talking with investors and attending the infamous Frank and Dave boot camp. The more I learned the more I knew this was the investment vehicle that was right for us.
After a year or so of educating myself in the mobile home park space, I was ready to take action. Keep in mind, we had already sold our house at this point, and because of the tax laws for a primary residence we fortunately didn't have to pay taxes. BUT you could do it even if it wasn't your primary residence. You would just complete a 1031 exchange.
Below is EXACTLY what I did in order to land our first 71 pad mobile home park.
Hire a Team:
I knew I wanted to find off-market, direct-to-seller deals as these typically are the best assets and often provide the most flexibility in terms of structuring the sale and financing the park. In order to find these I needed to create a list of park owners in a specific area I was interested in investing. Furthermore, I needed to define my park investment criteria. Once I knew where I wanted to target and what I was looking for I was able to start building the list. I didn’t have a ton of time as I was busy during the day looking for deals for my clients (ironically enough) so I needed to leverage other people to build this database. That meant I needed virtual assistants.
There are a lot of different sites you can find a Virtual Assistant (VA) on, but the website of choice for me was located here. All of these VAs are located in the Philippines and I have had outstanding success hiring various people from this site. The hiring process is pretty straight forward and you have the option of posting a job or browsing profiles of assistants looking for a job. Unlike UpWork you don’t have to continue to manage the employee through the site. Once you find the person you can arrange communication offline and pay them however works for both parties. More on how to effectively use virtual assistants will be written later.
Build Your Database:
Once I hired a couple of VAs, I set about training them. The easiest way I found was to make screen cast videos of me doing exactly what I wanted them to do. Then I broke it up into small manageable parts and sent them to the assistants. It took a couple of weeks of daily checking in and editing new videos as things came up before I could let them go on their own. After the initial two weeks I would check their work after a few days and make any corrections/coaching suggestions as needed. It took about a month to fully train my VAs to do exactly what I needed them to do and to think like I was thinking in the database building.
As soon as we had 200-300 contacts, we started mailing. We spent a lot of time on crafting the perfect letter, targeted towards the mom-and-pop owners. Additionally, we created a personal letter typed up and sent using an invitation style envelope with hand written addresses. This is a really good way to get people to open your letter.
Thanks to the approach we took, response rate was high and we were officially negotiating with park owners! Keep in mind, the response rate will vary depending on a few factors: 1. How good your information is, meaning how accurate your ownership information dictates how many of the intended recipients are reached.
2. Your message. If you write a poorly crafted letter or send a generic postcard, chances are you won’t get a good response from it.
3. The more direct mail you send out, the more potential owners you are reaching. Quantity AND quality is important here.
Naturally, as we started getting responses from the letters, most of the deals weren’t the right fit. Finding a good deal is not as easy as sending out a few letters. After sifting through several parks and talking with a lot of owners, we finally got a lead on a great park. It turned out to be in a market we really liked already, Kansas City, and we were off. The negotiation took a few weeks, as they often do when you’re dealing with mom-and-pop owners, but it ended up paying off. We finally put the deal in contract. Now you can imagine, there was a whole lot of work to do from here, but I’ll cover that in a separate article.
As of today, we are operating this park at near full-occupancy and it is now producing a monthly cash flow significantly more than our monthly house payment is. So, in essence, we sold our home to buy a cash flow producing asset that now pays for the home we now own. Of course, we had to save more money to buy our new home, but effectively, we no longer have a mortgage payment. Win!
My situation is not unique. I followed some simple steps that anyone can follow and I was able to make it happen. You can too. All you need is the education, plan and the will to make it happen. This park will pay us every month forever, or until we decide to sell it. And once we sell it, we'll likely move the equity into a bigger park down the road.
Think big! And don’t hesitate to reach out to me for help, I’m always willing.