Are you ready to get started in one of real estate’s hottest asset classes?
I’ve written two articles on the power, the profitability, and the downside risk protection of mobile home park investing, as well. First, I wrote on several painful lessons I learned in my early attempts at investing in mobile homes.
Then I wrote about eight powerful reasons I love investing in mobile home parks. And this article resulted in one of the most substantial outpourings of messages I’ve ever received on BiggerPockets.
The most common responses surrounded one question: “How do I get started?”
You asked for it, so here goes.
I’m speaking to a large audience. Many of you are in different places. So rather than giving you steps to follow, I think it would be more valuable for me to give you seven different paths you can take to achieve success in this profitable investing arena. You can skim the following and land on your areas of greatest interest.
Path 1: Climb the Ladder
“Don’t despise the day of small beginnings.” If you’re just starting out, a viable path may be to start out small and climb the ladder of success. Starting with a small park has many advantages including:
- Less acquisition competition with larger players
- Smaller down payment and loan requirements
- You’re more likely to get owner financing from a tiny seller
- The chance to cut your teeth on an easier, lower-risk asset
- Higher likelihood of profit and appreciation potential from a mom-and-pop seller (due to higher cap rate and opportunity to increase NOI)
- Most of the property management elements are the same in small and large MHPs
I’ve often told the story of the Dallas guy who spent his $1,000 bonus on a bank-owned duplex. He fixed it up, rented it out, and resold it for a profit. He moved up to a fourplex. Then, eight, 12, etc. When I met him 22 years into his run, he was selling his 132-unit multifamily asset for north of $11 million in 2016.
This is a doable but long and challenging path to the top. It is probably the easiest and lowest-risk place to start, and I think it will work for many BiggerPockets readers.
Path 2: Become a Deal-Finder
This path involves bringing a deal to an operator and staying on for the ride. It is a chance to get a piece of the acquisition fees, ongoing profits, and appreciation. Perhaps equally as important, you can learn the business from an experienced operator along the way.
This path may work for you if…
- You have connections to off-market MHP owners
- You have relationships with MHP brokers
- You’re willing to work a long list of MHP owners through calls and/or direct mail
- You’ve got a lot of time on your hands and can “drive for dollars” to knock on MHP owners’ doors
You could also choose the related path of wholesaling mobile home parks, but that won’t necessarily teach you the business as much as being a deal-finder who stays in for the long haul.
How much should you make? I have heard numbers like 5-10% of the syndicator/operator’s ownership share. That could equate to about 1.5- 5% or so of the total ownership in a deal, similar to a real estate commission.
Path 3: Become a Capital-Raiser
This means raising (equity) capital for an MHP deal. This is one of the most important roles in any business, and if you can do this, you will be valuable for the rest of your career.
That is, if you don’t go to jail along the way.
Let me explain. The SEC is watching. You cannot get paid to raise capital for others’ deals. Your choices are to either…
- Become a licensed broker-dealer and charge fees for raising capital
- Get a spot as a principal (owner) with a syndicator (this could mean you co-found the company or join an existing firm)
Please do yourself a favor and don’t work with any “wink-wink” operators who will give you an ownership stake after the fact based on how much you raise. The SEC will see through this arrangement in about 18 seconds.
Violation of their rules could mean a lot of money being paid back to investors, a permanent ban on you raising capital again, and, as I said, there are even some who’ve gone to prison.
Path 4: Jump Into the Big Leagues
Did you make a boatload of cash in bitcoin? Win the lottery? Sell your tech company? Get a large inheritance? Make a fortune in semi-boneless ham? Then this may be the path for you. I’m talking about going big on day one.
This is different from the first path because that path starts small. This path will require a team. You may need to hire talent. You will need to read a lot, attend seminars, and prepare yourself well.
You may feel differently, but I don’t think you should take this path unless you can give it your all. For most people, I don’t think large-scale commercial real estate investments should be done in your spare time (unless you take path 7).
Footnote: If you have a high net worth, there is a similar path you can successfully do passively—but not casually. You can sign on the debt for syndicators who are competent operators but don’t have the net worth and liquidity to sign themselves.
This is fraught with risk, and you shouldn’t go down this road lightly. And you should be well compensated, with monitoring and many controls in place.
Path 5: Get a Job
Yeah, I know. Most of you are here ‘cause you want to escape the 9-5. But I’m not talking about being attached to a desk and working for the man. I am talking about a job that gets you the education and on-the-job training to launch your career. This can also help you connect with the contacts you’ll need to succeed as an MHP entrepreneur.
So, what are some of the jobs you might want to consider in this arena?
- MHP real estate broker
- MHP lender
- MHP property manager (perhaps the easiest job to get)
- Various roles in asset management or financial analysis for a syndicator/operator
A similar path would be to get a college degree in real estate. There are a lot of degrees available these days, and I sure wish I could have gotten a degree in this arena. The world’s greatest real estate broker, Gary Keller, started out with a degree in real estate, and if you plan to go to school, this may be a great option.
Path 6: Hire a Mentor
America has long moved away from the mentor/apprentice model. But this could still be a great experience for many of you. The goal would be to find a syndicator/operator (or property manager) whom you could learn under.
Hopefully, you would have a skill that you could offer them. Perhaps you’re good at Excel. Maybe you’re a whiz with financial analysis, or SEO, or digital marketing, etc. You would offer the operator your services free of charge, and in return, the operator would allow you to hang around their office, attend their meetings and conference calls, and teach you the business.
It seems that the best situation here would be for the operator to be local. And I imagine most who do this would do so part-time, in the evening or on weekends.
Make yourself invaluable. Do a better job than the current staff. If you do a fabulous job for the operator, I’m guessing they won’t feel right about keeping you on free forever.
I interviewed a lady for my new BiggerPockets book on self-storage who took this path in 2009. After a short time working for free for a top San Francisco property manager, they offered her $1,000 per month. Then, several thousand. And eventually a base of $5,000 plus much more in commissions. She is now the top commercial leasing agent in San Francisco just a decade later.
The paid coaching path has become prolific in multifamily and other asset types, but it hasn’t as much in the mobile home park business yet. Hiring a paid coach can include a big event (like a three-day conference) often followed by regular coaching calls or webinars.
I had a great coach in multifamily, and I learned a lot there. I would never trade the $25,000 I spent for anything.
Note that this path can often include other paths in this post. For example, members of a paid coaching program often become deal-finders for other members of the group or the coach themselves. A coaching group often spins off partnerships among members, as well.
Path 7: Let Someone Else Do the Heavy Lifting
Knowing what I know about MHP and (all) other asset types, I must say that passive investing is my favorite path for the vast majority of investors. Yes, I know you miss the thrill of the chase. But passive investors typically get the majority of the operating profits, the majority of the appreciation, and all of the surprisingly strong tax benefits of MHP investing—without all of the effort and hassle.
Especially if you don’t plan to do this full-time, and particularly if you’re not prepared to build a team of seasoned professionals around you, the passive route is a great option.
One thing I’ve learned as a professional passive investor in MHPs is this: It is very hard—likely harder than you’d ever imagine—to find a best-in-class operator to invest with. Our firm has two funds that invest in mobile home parks and self-storage. We have spent two years vetting operators to invest with.
Though we really like many of them, we have only invested with two mobile home park operators so far. Our criteria are more stringent than most investors, but I would encourage everyone to take this same approach when vetting people to hand your hard-earned capital.
Here’s a related benefit to the passive investment approach. The difference between a good operator and a best-in-class operator can be surprising—even staggering. The returns for a top operator can literally be two or three times higher (or more) than an average strong operator. Sound unbelievable? We have hard data to prove it.
One of the reasons for this is superior acquisition strategies. A top operator often has systems in place to give them an inside track on acquiring from mom-and-pop operators who leave tremendous upside potential in their deals. This is particularly valuable in the MHP world where about 90% (40,000 out of 44,000) of the nation’s MHPs are owned and operated by mom and pops.
As an example, we recently invested with our operating partner in a Louisville MHP that was acquired from an owner who hadn’t visited her park in five years. This park had 50 vacant pads (out of 300+), the water and sewer were paid by the owner, and rents were 20% or more below market.
It was acquired for $7.1 million on February 21st. The operator got an unsolicited offer of $9.5 million six days later. He turned it down flat because he believes it will be worth $12 to $14 million in just 18 months by addressing the issues above.
And he will be improving the park to raise the standard of living for the residents in meaningful ways.
With about 50% debt, the $3.6 million in equity will be valued at over $8 million if the $12 million valuation can be achieved and over $10 million at the $14 million valuation.
This is the power of finding a great deal. Most operators never find deals like this. This is the power of vetting a best-in-class operator. My point is that if you’re a passive investor, it is worth it to take the time to carefully vet the person you invest with.
So like I said, are you ready to get started in this recession-resistant asset class? If so, I’ve provided seven potential paths for you to travel. You may choose a combination of the paths here or a different path altogether. I’d love to hear your thoughts.
Which path do you think seems like the most viable option?