BiggerPockets Real Estate Podcast - 111: A Unique (and Profitable) Real Estate Niche You’ve Probably Never Considered with Jefferson Lilly

Episode Date: February 26, 2015

In this episode of the BiggerPockets Podcast, we dig into a real estate niche that, until today, you’ve probably never considered. However, after listening to this entertaining and informative show with guest Jefferson Lilly, we think you’ll be a believer! Join us as we dive into the world of mobile home parks, and learn numerous reasons why a park might be a better investment than either single family or multifamily real estate. Whether you’re looking for a great, low-barrier first time real estate niche to invest in, or you’re simply looking to expand your growing portfolio — don’t miss out on wealth of knowledge covered in this episode! In This Episode We Cover: How Jefferson got started with value investing Why you should emulate Warren Buffet How he began investing in mobile home parks What you should know about the views on mobile homes in America Insight on helping people move from one asset class to the next The ins and outs of how investing in mobile home parks works How Jefferson got a half million dollar line of credit How he got a 50% increase in the affordable housing program Discussions on income streams for mobile home parks What you need to know about LLCs for mobile home investing How to find value in a mobile home A great explanation of “cap rate“ The essential duties of a park manager How Jefferson raised funds for his investing Why you should use outsourcing & streamlining to manage your business And SO much more! Links from the Show: Trivia Email BiggerPockets Calculator Suites TulsaEstatesMHP Website BiggerPockets Forums BiggerPockets Blog Craigslist ParkStreetPartners Fund Odesk.com Elance.com Dropbox SquareSpace Stripe.com Books Mentioned in this Show Rich Dad Poor Dad by Robert Kiyosaki The Snowball: Warren Buffett and the Business of Life by Alice Schroeder Tweetable Topics: “A key point is the ability to think broadly and use OPM — other people’s money.” Share on Twitter “It’s about helping people moving from one asset class to the next.” Share on Twitter Connect with Jefferson Jefferson’s Main Website LillyandCompany Learn more about your ad choices. Visit megaphone.fm/adchoices

This is the Bigger Pockets podcast, show 111. It's a win for us as a landlord. It's just a great business to be in when you run a mobile home park. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing, without all the hype, you're in the right place. Stay tuned and be sure to join the millions of others who have benefited from BiggerPockets.com. Your home for real estate investing online. What's going on, everybody?

This is Josh Dorkin, host to the Bigger Pockets podcast here with my charismatic co-host, Mr. Brandon Turner. The crowd goes wild. That they do, that they do. How you doing, Josh? I'm good. I'm good. How you doing?

I'm good. Life is good. It's raining again. Yeah. I almost crashed my car this morning. Did you really? Yeah. Tell me.

It was like a snowstorm. It was icy. The roads were horrible here in Denver, and I started going down this hill and hit the brakes. And just they didn't even lock up. I just couldn't stop skidding. Didn't matter what I did. So whacked into the sidewalk and almost hit a sign. And then a second later, almost hit a bus.

So I'm glad that didn't happen. Let's just put it that way. And especially glad because my daughter was in the back. Oh, yeah. Well, you know, I'm glad you're here. I'm glad you're okay. Thanks. You're a good guy.

It's not true what they say about you. It's not true what I say about you. Not true what you say about me. All right, today on the show, we have a really cool niche that we've never covered before. And it's going to be kind of exciting. So before we get to it, let's go over our quick tip. Today's quick tip. Yeah.

All right, guys. So quick tip is we've got this suite of calculators now on the bigger pocket site. We've got a landlord buy and hold calculator. We've got a flipping calculator and a wholesaling calculator. So whether you're interested in buying and holding flipping or wholesaling properties, these calculators, These calculators are designed to help you evaluate opportunities and determine if they make sense. And, you know, one of the nice things about them is they all print out these cool reports that you could bring to lenders or give to folks that, you know, you might be wholesaling to. Lots of great stuff.

You could check those out at biggerpockets.com slash calc. That's biggerpockes.com slash C-A-L-C. There you go. All right. And finally, before we get to the show, I want to do our weekly trivia question like that. Oh, yeah. Was that the new jingle? That's the new jingle for trivia.

I see you put a lot of time into it. Yeah, you know, I paid a lot of money for it. All right, last week on the Bigger Pockets podcast, we spoke with Glenn McCrory, who talked about his unique strategy of buying rental properties for group homes and other hassle-free businesses. And he also mentioned in the show that his first property was a condo he bought for who in his life. He bought a condo for someone who was that for. So if you think you know, send an email to trivia at BiggerPockets.com for your chance to win the digital version of my book, the book on investing in real estate with no and low money down. And I think you'll like it.

So do it. Fabulous. Awesome. Awesome. All right. Let's get to the show today. We've got a man who is, you know, really, really smart guy. He's got a great background in startups and, you know, went to a great Ivy Lake school. And now he's investing in mobile homes. Weird, huh? No, it's not that weird. Actually, it makes a whole hell of a lot of sense. Stick around and listen. There is a lot of learning to be done in this show. So today's guest is Jefferson Lilly and his niche is mobile home parks. We delve really deep into the economics of these things, why they make sense, why they're being ignored and shouldn't be by most investors, and why you might want to consider becoming an investor in mobile home parks. So with that, why don't we move forward to the show?

Again, this is show 111 of the Bigger Pockets podcast. You can check out the show notes at biggerpockets.com slash show one-one. and you may have questions for him because this is a little bit high level. So go ahead and ask them. And lastly, if you have not yet already jumped on iTunes and left us a rating or review of the Bigger Pockets podcast, we ask that you do that. It definitely helps us get the word out, helps let other people know what you think about how we're doing.

Some people really hate us. But most of you guys think we're doing all right. So do leave us a rating and review if you can. You've upgraded how to buy properties. But did your insurance get the memo? When investors start scaling, insurance can't be an afterthought. Most policies were designed for a single property, not multiple rentals, LLC ownership, short-term stays, or properties mid-rehab.

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investors are obsessed with bonus depreciation. It lets you take that rental property or commercial building you own and depreciate most of the cost against your income legally, 100% IRS compliant. That's instant cash flow improvement. Cost segregation guys is the number one firm nationwide, specializing in identifying these faster depreciating assets in your property. They've completed tens of thousands of studies across all 50 states from remote cabins to apartment complexes. So if you own investment property, this is a no-brainer. So visit costsegregationguise.com slash BP for your free proposal and find out how much you could save this tax season. Here's the thing about traveling.

If you buy food at the airport, a burrito, salad, bag of peanuts, you start wondering if you should have opened a savings account for snacks. So wouldn't it be great if you could actually earn money while you're traveling? Well, you can. Airbnb has something called the co-host network. While you're away, you can hire a vetted local co-host with hosting experience to help take care of things, communicating with guests, preparing your space, managing reservations, everything runs smoothly while you're off making memories. Your home might be worth more than you think. Find out how much at Airbnb.com slash host. With that, let's bring him in. Jefferson. Welcome to the show, man. It's good to have you here.

Thank you. Great to be here. Awesome. All right. Today we are going to talk about your unique strategy of investing, something that we have not had anybody on the show. I don't think anyway from the very beginning who does this particular niche, even though it's a fairly common niche to get into, just not very popular on BP apparently or maybe we just don't

care. So today we're going to talk about it. Wow. Way to start it. Okay. So when reading the notes today that Hillary, who's kind of the one who prepares the podcast stuff, like just reading the notes today, I'm like convinced that. like where what you're doing I want to do and I don't even know anything about it yet I'm I'm just

convinced that this is cool so why don't he's got a nine hundred ninety seven dollar course and you guys there we go there we go I've got a bank account that you can wire your investment too I'll get there all right so let's talk about first of all how did you get into the idea of real estate what did you do before like how did that become come about yeah so I had worked most immediately for about nine years in high tech I live here in the Bay area and had worked at a couple of different startups but I don't also always been an investor. I think I bought my first stock when I was 17 and my dad had to co-sign the trade ticket. This is, I'm old. This is way back before online trading. I remember tickets.

Yeah, exactly. You'd have to run them to the window. Yeah, exactly. I used to work at a brokerage. That's why I. Oh, did you? Perfect. Perfect. So I, basically, I came out of the dot-com bubble with a worldview that basically Warren Buffett was right about personal finance. And I know it's never a quite black or white, but I had done some other dot-com investing, which hadn't worked out terribly well. One of those startups that I had worked at had gotten sold to a large public company that I think I recognized I was more lucky than smart there. So I just wanted to do more value investing and try and emulate Warren Buffett to the very best of my very limited abilities. I'm not in his class, but I'm a big fan. So I started looking around to diversify out of the stock market and

figured I would buy some real estate and thought, as Buffett espouses, you know, stay within your circle of competence. I've always lived in a house or an apartment building and I thought, well, why don't I buy an apartment building and fix it up a little, probably bump the rents, make it a nicer place for the tenants. I wasn't going to be the guy to, you know, swing the hammers and put in the new kitchen counters, but, you know, figured I would be the general contractor and improve a multifamily property. And then just in looking like at Luebush, loop net in doing a search on multifamily, I would see, you know, 99 apartment buildings at an eight cap, eight and a half cap, not here in the Bay Area. I knew I'd be buying out in the greater

Midwest. And there would be one trailer park at like an 11 cap. And I thought, that's absurd. I'm not buying a friggin' trailer park. And I delete the search and do it again, Omaha, Nebraska, Lubbock, Texas, Peoria, Illinois. Wherever I was looking, there was this one in a hundred multi-family property that was a mobile home park that would be yielding two, three, four hundred basis points more, a dramatically higher cap rate. So at that point, I started thinking, well, why don't I look into this business and learn something about it? I wasn't going to live in the apartment building anyway, and these are multifamily. And so I did some online research and started buying every book and tape out there, basically. Started talking to folks kind of, you know, in my world and

found a few other folks that owned mobile home parks or maybe had a parent that did. So I kind of built up an unofficial advisory board of about 10 guys. And it took me about a year and a half from the time I first got interested in the space until I actually closed on that first property. I was still, I wasn't looking full time. I was still working my day job. But I just realized that this business makes a lot more sense to get into than apartment buildings or single family. And we'll certainly talk about that. But that's kind of how I transitioned into it.

I still worked my day job for about the first year that I owned my first mobile home park. And I'm now up to five properties and closing on a sixth, I think, in about two weeks. But after that first year, I could see that that third startup that I was at wasn't doing terribly well. The first mobile home park was doing reasonably well, but I was putting no time or money into it. So I transitioned and started doing mobile home park investing full time. And that led to a consulting gig with a high net worth family here in San Francisco that owns a really gorgeous, very high-end property fairly near the water. And then it led to my second park. And then I've now, just over the last little over a year, formed a partnership. And we are now acquiring properties

with other people's money, as it were, we're now raising a fund to acquire more properties. So it's taken on a life of its own from from just sort of thinking it would be initially a passive good but passive investment and now for the last seven years I've been doing it full time. Wow. Wow. That's great. That's great. And you, I mean, you, you know, you were a consultant back in the day. You know, you worked at some pretty decent companies. I mean, to jump ship from, from, yeah, I mean, a pretty solid income, I'm guessing, I'm assuming, to get into mobile home parks. gonna, you know, really?

Like, who the hell would do that? So that's why this is really interesting. I mean, you're this guy who's seemingly got everything going for him and you stop cold turkey. What went wrong? Yeah. No, like, mobile home parks. Josh made this joke before the, we first was recording something about like, you know, mobile home parks and meth addicts.

And that is the instant, right, that is the instant reaction we all have. We think, oh, you know, meth or mobile home, we got drama and problems. Except the people who listen to the. show that are living in mobile home parks right love you that doesn't apply to you guys no but like that is the natural american reaction to that i mean why is that why is that wrong you look what are your thoughts on that yeah so you know there's a big dichotomy between perception and reality and that's really the crux of why there's profit opportunity here above and beyond apartment buildings or single family house because maybe the bottom you know two or three percent of mobile home parks would be your worst

nightmare of drugs and police activity. But for the overwhelming majority of mobile home parks, that's just not what happens day to day. And you'll never see a news story, you know, with someone standing in a trailer park and saying on the nightly news, you know, hey, all the rent came in on time today. The kids down at the end of the street are playing with their tricycles. And this lady's planting begonias in front of her mobile home. And nothing happened today. Okay, back to you. You're never going to see that story. You never see the reality, the overwhelming reality of mobile home parks. These are decent folks. Most of them own their own mobile homes. They've stepped up out of, for instance, being an apartment renter, where of course they would otherwise never build up

any equity in anything paying rent forever. And so they now at least own their own mobile home. Many of them are on a path in the long run to owning a regular site-built house. Mobile home Park may be a place that they live just for five or ten years while they save money for their bigger dreams. And we're very proud to help them along their path in life. But again, most mobile home, I would challenge any of your listeners to just at random, you know, just Google on your phone, you know, mobile home park, just drive into whatever is your nearest mobile home park or two or three and see what it's actually like. It's highly unlikely you're going to see prostitution or hear gunshots or whatever. And there's a study that came out. I'm not going to cite it, be able to cite it

exactly. He was done, I think, by a professor at Northwestern. And it just came out in the last couple of years. And it proves conclusively that there is no difference in crime rate in mobile home parks versus site-built home neighborhoods or apartment neighborhoods. So there's a gap between perception and reality. That's great. We benefit from a lot of investors eschewing this asset class because they have the wrong perception of it, again, the reality is that it's a perfectly fine and we think really excellent asset class to invest in where, frankly, other than the cash flow, very little happens. There's very little drama. That's great. And you know, what I love hearing from you, again, you know, one of my goals with bigger pockets is to help

spread the message that we real estate investors are good people. We're here to try and help people with their lives. And you said something earlier. I'm going to misquote you, but you said, you know, we're happy to help these people as they move their way up from one asset class to the next is, in essence, what you said. And I mean, your attitude and your theory about these people and the way you speak to protect them and, you know, really stand side by side with them says a lot. And I think, you know, you're a great spokesperson for mobile homes and people who live in them. And I think that's fabulous. And frankly, you should be all over the place. speaking on behalf because I mean I think it's great and you know investors get a bad rap

at the end of the day and so I really love to hear that from you can we transition a little bit to how does this work you know yeah you know okay an apartment building I go and I buy a building I own all the units in the building and people come and they rent out each unit and there's open space and all this stuff right yeah well what happens in a mobile home park you said there are people who own their own mobile homes within the property. Explain to us the whole big picture of what these things are. Yeah. Few more moving parts with mobile home parks than either single family house investing or apartment buildings. So probably most of your investors, sorry, most of your listeners inherently understand that if they buy an apartment building,

say with 75% leverage and they buy it right, they're going to do well, right? You've got recurring revenue stream. You've levered up 75% loan to value. You've got depreciation that helps you generate, at least in the earlier years, you know, helps you generate a return tax-free. Mobile home parks have all those benefits. We typically are buying mobile home parks with about 75% leverage. We've done as well as 80. Actually, I'm sorry, I did one park with 100% bank financing. I put down zero, but that's unusual. I want to talk about that in a minute. Yeah, okay. But it's fairly standard to be able to get 75% loan to value. You do have depreciable assets, right?

Even though you typically wouldn't have bricks and mortar the way you would with a single family house or an apartment complex, you still do have roads, signage, fencing, water and sewer infrastructure in the ground. So we're typically able to depreciate between 60 and 80% of our purchase price, and that's in line with apartment complexes. So we've got all the same benefits as apartment investing. Here's where it gets better. Unlike with apartment investing where if you own an apartment complex, you're responsible for repairing all those toilets and leaky roofs. In our business, we typically don't own the mobile homes. So we don't have the maintenance expense. When you look at like most publicly traded reits and you look at their R&M line repair and maintenance,

probably 60 to 80% of that goes to the actual four walls of all those apartment complexes. It's relatively inexpensive to maintain the land. You do occasionally have to repave. You have to mow the lawns. You do have to run a, you know, a rotor router through the sewer pipes from time to time. But the bulk of your expenses in real estate are on and in those four walls. And in our business, we, at least in the long run, we don't own the homes. We've just purchased a property in Tulsa.

It's called Tulsa Estates. The website is Tulsa Estates, mhp.com. People can see there that we've got houses for rent-to-own. So we've renovated a number of the houses. We've renovated about 10, and we are putting those out on rent-to-own contracts. We're helping those folks own their own house. Most of the rest of the people already owned their own home when we bought the property. we've also got on that property again we got 75% loan to value from a bank we got about another half million dollar line of credit to acquire another 20 mobile homes there are roughly 20 vacant pads all the infrastructure is there the water sewer telephone all that comes up out of the out of the ground in the lot so it'll be it'll be a very economic for us to buy these additional 20 homes probably over the next year and a half bring them in and also put those

on rent-to-own agreements. So that property started with around 60 homeowners. We're going to end up with 90. So we're going to have about a 50% increase in affordable housing there. These folks will own their houses probably and on average five years, maybe six years. There's no 30-year mortgage in our business. So we help people become homeowners quickly. They're getting out of apartments in that market in Tulsa that would run 850 to 900. We'll get them into a house for about 650. and in five years, they'll be down to just paying a little over 200 in lot rent. So that's a huge decrease in their cost of living. We help them become homeowners.

So how does that, I mean, I obviously love that strategy, but how does that play into the idea of a bank who lends 75% loan to value, and then you're selling off the assets that that bank is secured by, right? How does that play into that? Yeah. So that property had relatively few other homes that the bank took as collateral. And actually, I think the details of that deal, was that the bank really just took the land.

So the land had enough value that the bank, I don't even believe, took those homes as collateral. I've got one, well, the deal that I paid nothing for, there was 100% bank, bank finance. That deal, the bank has taken the homes and the land. And there, I've just got a very good working relationship with that bank. And as the tenants pay off the homes, and we've had a few pay cash up front, I just move that cash right through to the bank. I pay down the loan. they issue the tenant a lien release and we sell them the house.

So it works for us, the tenant, the bank. It's a win, win, win for everybody. I love that. That's great. That's great. Well, so, you know, you collect lot rents. You collect, you know, cash on rent to own, right? Yes.

What other income streams come with a mobile home park? That's, those two are it, principally. Okay. I know some other folks will try. Actually, and the deal we're close. on in, I believe, two weeks does come with some self-storage about 50 units. That's somewhat unusual, and we like that property principally because it's a mobile home park. We're happy to take the self-storage with it. But we don't, for instance, build self-storage. We don't put in

Coke machines, vending machines. We tend not to get into other ancillary businesses. In the long run, we just want a parking lot. We'll maintain it as a safe community. We'll keep the common area grass cut. We'll take care of the land. We want folks to be homeowners. And so we typically don't get into other ancillary businesses. That definitely feels more like simple to manage. You don't have to deal with all that drama. What about laundry machines? Do all the units, like they have their own laundry? Do you have laundry? Great question. Yeah. So the history here is the business kind of grew up after World War II, when a lot of GIs that had been housed in trailers on Air Force bases in the U.S. during World War II, they were able to buy those houses or maybe even were just given them for free.

And they went into what had been trailer courts, which were more transient. I don't mean that negatively. They were for folks on vacation that would pull in. Of course, trailers back in the 40s and 50s were so small they could be towed behind ordinary cars. Of course, now they're large. They've got to come in with a big toter like a semi-tractor trailer. But back then, yeah, so a lot of the old old, what are now mobile home parks, started as trailer courts and they had laundry because people would pull in for a weekend or a week and need to do laundry. Newer parks may not have a laundry facility.

And actually, none of ours do. But if, if and I assume when we buy one that has laundry, we will honestly probably close the laundry facility. they tend not to make money. They tend not to be metered. And so most landlords don't really know how much electricity the machines use and how much gas, especially if they're gas dryers, how much gas is used. So it's very difficult to be in the laundry business. If we were to stay in it, we'd turn it over to somebody like Webb and just have them pay us

a hundred bucks, a couple hundred a month, and let them have all the headache of reimbursing us for utilities. and then they get to sort all the quarters. But we don't do. But it's another business to be in laundry. It's a bad business. Yeah, that's what I do right now. I split mine with a company up in Seattle.

They come down, they manage it. There's even their signs on top of all the washer and dryer that says, if there's a problem, please don't contact management. Call this money. Yeah, I don't, I never think about it. I just got to check for usually $300 to $400 a month. Oh, good for you. It comes in every month.

And like, now granted, I would be surprised. Like, I'm curious of how much my water and electricity bill is going up because of that, because I don't meter them separately. See, you don't have meters on it. Yeah, so you might be losing. But I might be, but I don't think so because I mean, am I, yeah, I'd look into that. Yeah, I looked into it. Yeah, I got to look into that.

But that said, one of the things I feel about the laundry is that it helps get good tenants that stay for a long time. Now, do most, I don't know if that's like that in a mobile home park, but my assumption is like, if I lived in an apartment complex and I constantly had to drive three miles ago and, you know, wash clothes, I probably would always be thinking every trip, I'm going to, find a new place to live. This is irritating, you know, six times a week. I don't know, do maybe that's not the case? Do they have washer jars in the units at all ever? Typically, yeah, these folks are more stable than apartment dwellers. Most apartment folks turn over about 50% a year. They'll stay in apartment building roughly two years. We have tenants that stay at least five years

on average. So the turnover is much lower. These folks are more stable. We think they've generally got better jobs. And so they tend to own their own washer dryer. They'll just bring it right into the mobile home. Most all mobile homes sort of from, I would guess, the 1960s and 70s forward, actually have hookups in the mobile home for washer dryers. Certainly the newer homes all do. That's what we infill our properties with or nice new, large homes, almost 1,300 square feet homes. So there's plenty of room to have washer dryer there. So most tenants do. So it's not a big inconvenience in this business to not offer a laundry. Apartments are a different business. Sure. That's great. You know, I think that's funny that like you make a good point. You said it

earlier and you said it again now, how like apartment, people oftentimes think of mobile homes, like we said earlier as like that's where the meth people live or that's where the ghetto is or whatever. Well, it's a step down from the apartments is what a lot of people think. It feels like, yeah, but after when I, when I think about it, I'm like, actually you're right. The people I know in a mobile home, they went from an apartment to a mobile home to be more secure. Everybody I know that's in, and when I think of all the mobile home parks in my area, they are all really nice. We don't have a single junkie one that I know of in my county.

At least, you know, maybe they're hidden out in the woods somewhere. But I don't know. I don't know why that has never occurred to me in my entire life until this podcast, that I think that's actually a step up from apartments, not a step down. You were waiting to meet Jefferson. I know. There we go. So some mobile home park owners do rent mobile homes.

Now, we don't. So we notice there's a big difference between folks that come, but I used to, you know, I've made every mistake in the book and we can talk about a couple, a couple of them. We won't have time for all of them. But I used to rent mobile homes and I've always rented to own. And I've seen it firsthand myself that what you really want in this business are folks that can come up with about $2,000 down on a house and, you know, then can still afford roughly the same 500 to $6.50 a month rent to own. payment. But again, those are the folks that are more stable. They're going to have their own washer dryer. They're going to take better care of that home. They're going to plant the proverbial, you know, begonias in front of the mobile home. So you know that home is never leaving the community because they've

got their flower bed right in front of it. They show real pride of ownership. It's a win for them. It's a win for us as a landlord. It's just a great business to be in when you run a mobile home park correctly and don't rent to, you know, just anybody. Hey, Jefferson. So I got a whole slew of questions. I'm going to jump to a couple that I written a while ago. How is the value of a park determined? I mean, is it literally just, you know, you're adding your lot rents, you know, run it at some multiple and you can determine it from that. I mean, with a multifamily, you can buy a distressed multifamily that's got some vacancy rate and, you know, acquired for less money because you've got all these, you know, openings. And I'm assuming it's similar with with a multi-family. family. You know, you've got 50% of the lots rented. So you bought, you know, this, this property at some kind of discount. You go in, you get them, get them all rented out and suddenly the value of your property is worth more. Is that kind of the basics? Yeah. The moving parts, principally, are that you've really got two businesses. One is the land, which we like to think of as a parking lot. And the other

business is the mobile homes. So we always, for instance, acquire a property with two LLCs and ideally will take title to the land and a land trust. That's a separate discussion on asset protection. But the land itself, you know, needs to be valued using a cap rate. And in the Midwest, where we buy sort of 16, 17 states in the greater Midwest, we're typically paying a 9, 10 cap rate for most of those properties. A lot of mobile home park owners will combine in all of the income from the houses. You don't want to do that because the mobile homes, if you, you cap the income from them, you could end up paying $20,000, $30,000 for a house that's really only worth $5,000 or $10,000. So we look to, we run test ads and we've got to feel for what the mobile

homes are actually worth in that market, what we can sell them for to a new tenant. And that's typically between $5,000 and $20,000. So we value each mobile home separately just based on what it's worth in that market. You know, a 1980 two bedroom in and around Los Angeles is going to be worth certainly 20 grand, maybe 30, that same house out where we're buying in Tulsa and Kansas City, Oklahoma City, you know, might only be worth a couple thousand. But you value the homes separately, each home, and then you figure out what the P&L, you might have to do some forensic accounting and separate out the numbers, but whatever the land itself earns, that's what you would apply in the Midwest, typically a nine or ten cap rate to.

That's how you come up with your value. Okay. And I'm going to ask you before, I'm going to ask you to explain cap rates a tiny bit for just a second, quick and dirty. Before I do that, anybody listening, if you guys have questions about the stuff that Jefferson or any of our guests are asking, we, bigger pockets, we've got thousands and thousands of articles written answering things like, hey, what's a cap rate? And the reason I bring this up, I was talking to my uncle the other day and he's like, hey, Josh, I love your show. But you don't ask all the detailed questions. Like you let them talk about cap rates, but you're going to ask what it is. We explain that on show 16 and 50, so on and so forth.

But anyway, for folks listening, if you jump on our forums, biggerpockets.com slash forums, or if you jump on the bigger pockets blog, biggerpockets.com slash blog and search for cap rate. You'll find answers to questions that you might have about things that our guests are talking about. I think you had mentioned NOI. What is NOI? How do you find it? We've talked about that. We've written about it.

We've done videos on it. So if there's something that you find that you miss, just make a note of it and do a search and you'll find it. With that, jump really quickly on how the cap rates work, the mechanics, if you don't mind. Cap rate simply means the yield on your investment. So if there's any kind of real estate, mobile home park, shopping center, anything that yields, say, $100,000 a year in profit, also known as net operating income. And somebody wants a, 10 cap or a 10% yield, that means you just divide 10% into that 100,000. That means they're going to want $1 million for that property. If you bought it outright, no debt, you pay a million for it.

You're going to put $100,000, 10% in your pocket every year. If you can negotiate them down to a, now here's where it goes in the reverse. If you negotiate the price down, say, the cap rate to a 20-20 cap, well, that same $100,000 to now have a 20% yield means you, you know, you'd buy it at $500,000. Your same 100,000 profit into a 500,000 purchase price is a 20 cap or you're earning 20% on your money. Most properties trade in the Midwest around a 10 cap, which means simply you pay 10 times the annual earnings or another way to think of it is you're going to get a 10% rate of

return on your money every year. Yeah, that was great. Yeah, that was great. I mean, because that's kind of a topic that people use that word a lot, cap, but a lot of people don't even know what it means. So I think that is valuable. We probably should do more of that asking people to explain that. Oh, yeah.

Very cool. Test ads. Do you want to ask them? I know you and I chatted. Done what? Well, I'll ask test ads. You talked about using test ads. And I didn't quite follow it.

I'm guessing you put advertisements in the paper to figure out what kind of rent you would get on a potential purchase. Is that what you're doing? Good heavens. Newspapers sound like they cost money. Why not use Craigslist? Whatever, you know. I'm old. Josh is old. Oh, man. Boy, okay. All right. We'll take a lesson from an old guy like me, and I'll tell you about Craigslist. So, yeah, we'll put up ads on Craigslist for the homes in a community just to see how well they pull. In this business, mobile home parks, we want to see roughly 20 responses per week. Could be email, could be phone call. We turn over all those leads to the current owner of the park. This is something we do during about one month. month's worth of diligence when we've got the property under contract. And again, we're doing

diligence to see if we want to go through with the contract. But during that month, one of the many things that we do is we'll run a test ad. Rarely do we get, you know, 17, 18 responses and we're kind of on the fence about a deal. What we find is we either, over the course of a week, we'll get two or three responses, in which case it's clearly a deal we don't want to do, or we'll be getting 30 and 40 responses a week. We bought a second park in Tulsa about five weeks ago, smaller one. That one had over 60 responses in a week. That's about the strongest we've ever seen. So that just tells us how easy it's going to be to get some of those homes filled. If, for instance, we buy the mobile home park and it comes with some vacant mobile homes that need, you know, three or five thousand in repair,

we just need to make sure that once we sink the money into those homes, and certainly when we start buying and bringing in homes from banks that maybe have foreclosed on the homes, we'll bring those in. Now we're looking at more like a $20,000 investment. We need to make sure we can get those homes moved in about 30 days. And as long as we're getting 20 some odd responses a week, we're pretty confident we'll be able to get those homes moved quickly. So are these ads basically saying, hey, owner finance mobile homes available in this part of town, boom, that's it?

Exactly. Yeah, just put what the town name is, says mobile home for sale or rent. We'll include some photos inside and out. We'll write in, depending on the house, could be as little as 500 down. Most of them are 1 to 2,000 down. And then just what the monthly payment is, which typically ranges from about 495 to 695 a month. So it's a very simple ad. We'll typically have, again, our phone number in there. And between email and phone responses, we're looking for ideally 20 responses. are more per week. That's great. Really, really, really clever idea. And that actually, I think, applies for the purchase of apartment buildings as well. I would assume, you know, like, hey, you see this building that's 50% vacant. Maybe it's not because the owner is an idiot and doesn't know how to take care of it. Maybe there's no demand for apartments in that area. Yeah. That's great.

I love it. I love it. How do you find mobile home parks? I mean, they're not just throwing up mobile home parks on Craigslist usually. So what do you do for that? Typically, they don't, but that free park that that I got zero down, I got it off Craigslist, believe it or not. Let's hear that story. Let's hear that story. Okay, so this is not typical. But yeah, so I look on Craigslist. I also look on eBay. I actually bought my first park off eBay. The more recent parks I've done, I've done the normal way through brokers. And brokers really are, it'll ebb and flow. But right now this year, for the last couple of years, brokers have been the better source of deal flow. These are commercial brokers, right?

Commercial brokers, yeah. Okay. So that deal, I saw it on Craigslist. It was fairly near the first park that I bought in Oklahoma City. So I went to my bank and I said, hey, you know, do you like this deal? I think it makes sense. It's also in a very good, well, really, almost all of Oklahoma City is quite strong, sort of five, five and a half percent unemployment.

This was in a town with particularly high average household income. So the bank said they liked it. And actually the bank had come to me because I had built up a relationship with them for about four, four and a half years. They had come to me and just said, Jefferson, borrow money. You can buy mobile homes to infill your existing park. If you find another park, we'll lend on that. So that was how that deal came together. My bank that I had a longstanding relationship with, obviously never missed a payment with them.

We do the whole business. All the rents go into their bank. We pay all the expenses out of their bank. They see the whole business happening right in front of them. They were then comfortable lending 100% loan to value on that second park that I bought, which is just about a 20 space park. Not huge, but to get it for free zero down was a pretty good deal. Well, that's a great reason why we always tell people to develop those relationships with your banks.

Even if right now you don't, even if people listening to this don't have a single property yet, You know, there's nothing to say you can't go and start establishing relationships with banks. You know, let them walk with you on your journey. And yeah, you never know, like, you build that relationship. They'll come to you and let you do a zero-down loan or zero. And that's awesome. Love it. It's one of the key.

I mean, seller financing is also great, but just understand that if you get seller financing, virtually no seller is ever going to come to you after four years and say, hey, you've made every payment on time. Why don't you borrow more money from me? Yep. You know, so banks, you know, there's pros and cons to seller carry. and bank financing, but that's one of the key ones, pros for bank financing, is that if you treat a bank well, probably the bank will treat you well. Unless they're one of the big, big, big banks.

Right. This is a small bag, about 180 million in assets and all the people that work there and own the bank all have the same last name. You know, it's been in the same family since like 1950. Because, I mean, that does not apply to the major banks. They don't give it. Wells Fargo, City Bank. No, not so much. Yeah, yeah. So I want to jump back a little bit and then you know, keep going forward here. You had talked about due diligence earlier. And then just now you had talked about looking at the income in the town, the kind of the general income level.

So my question is, what other forms of due diligence are you doing besides demand for the property in trying to determine if this is a property that you would want to purchase? Sure. So I can spend about two minutes and get a very clear insight, actually probably closer to one minute, get a very clear insight into whether it's a property I want to buy. So what I'm looking for, first and foremost, is to see that it is on city water and city sewer, as opposed to, for instance, being on a well and septic. You just have no idea whether either of your private utilities, water and sewer, are really working correctly, and government can come along and cause all sorts

of problems for you. So first off, we just, you know, we weed out probably between a third, maybe even towards half of all of our deals just because they're on private utilities. Interesting. Okay. We'll make an exception if the city water and city sewer line runs immediately in front of the property. But we, we, we, but generally that's not the case. Generally, these are stranded properties and they're even a, certainly even just a thousand feet away is too far. And, and usually, you know, you're five miles to the nearest city water and city sewer. So we weed out a good amount of deal flow right there. Once we're actually in diligence on a property, we run those test ads.

We also go on site. We want to get into as many of the mobile homes that might convey with the sale. But there might be none. The smaller Tulsa deal we closed on five weeks ago is just a parking lot. All the homes are owned by residents. There's nothing to get into. We'll want to meet with the manager. We'll want to understand how they've been marketing the property. What we typically see is that there's no website for the property and they're not advertising on Craigslist. We've even bought properties, believe it or not, that have no sign out front and that are not listed in the yellow pages. So we love that. When a property is that badly marketed that really the only way to find it is word of mouth, you cannot even look it up online on the yellow pages or in a physical old, you know, old yellow physical book. That's all a very good sign for us.

We're happy to pay, you know, nine or ten cap rates on properties that are that poorly marketed because we know by putting up a website, by getting it listed on Google Earth, by getting it in the yellow pages, all that's free. We're going to have dramatically more traffic. There are two kinds of real estate investors, those who have reviewed their insurance and those who think that they have. Most don't realize their coverage wasn't built for how they actually invest. Vacancy periods, rehabs, short-term rentals, or LLC held properties. These gaps surface only when filing claims. That's why investors work with NREG. They specialize exclusively in real estate investors,

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Amazon gift card. That's bill.com slash bigger pockets. Let me ask you this. So we've had different apartment investors on the show before, and we talk about this a lot, and Josh mentioned it earlier about the cap rates,

and you talked about, well, let me, so if you were to improve an apartment complex to bring in more income, you raise the value. If you were to drop the expenses on an apartment building, you raise the value

because it's based on the return on an investment, essentially, like the cap rates. So how does that apply to this business. I mean, how do you raise income and lower expenses? Sure. So our large Tulsa property both had lot rents that were below market. We're never the highest. We don't try and take advantage of folks, but we will raise rent to be where our competition has rent. So this is the Tulsa Estates, mhp.com property. People can check that out. The nearest competitor had lot rents at two

240. They actually had an inferior location to ours. When we purchased that property, lot rents were 180. So we've taken them halfway. We've taken them to 210. But that's still, what about a 15% increase? And probably in another year, we'll take them another 15%. So that property, we will have over the first 12 months, about a 30% increase in rents. That goes a long way to the bottom line. At the margin, of course, that's all pure profit for us. There are no, you know, incremental managerial or insurance or maintenance costs when you just raise rents. So, but we've also given back to the tenants. We've repaved that community. We've kicked out two sex offenders. And there were four burned out mobile homes that really were safety hazards for, you know,

kids playing in the park. The previous owners were classic mom and pop. They were very bad. operators. They just weren't taking care of, you know, again, even basic safety issues like those abandoned homes. So we've hauled out four houses. We've put some money back into it. And, you know, but we think it's fair that we'll raise rents over a year or so to be where the competition has rents. And again, we'll certainly reinvest in the property. So that's the revenue line on expenses. There's some problems with water leaks and we are getting those patched. So that will encourage conservation and lower our water bill. That's the right thing for the environment. It's the right thing for our P&L. It's nice when the environment and profits line up. Do the tenants pay their own water,

or do you pay the water? Typically, tenants will, it works one of two ways. Either tenants do have a direct relationship with the water company. That's the way our park in Kansas City works. Or tenants will have a relationship with us. We'll put the meters on the houses and we receive a master meter. There's one giant meter from the city right at the edge of our property line. And so with those meters on each house, we then bill back the water at cost. We're not making a profit on the water. So that's the way actually most parks, probably 75, 80 percent of parks would be master metered. And that's upside because, as was the case, actually with the free park that I got, the water meters, well, many of them were broken. So there was good upside there in just spending, I

I think it was three or four thousand in new water meters, and that helped to reduce the annual water bill by about $7,000. Wow. So I'm getting, you know, spend four grand and get back seven grand a year forever. You know, that's like doing real estate at 150 cap rate forever. I wish I could be in the water meter business, you know, not the mobile home park business. If I could just collect all the savings on water meters, that's really the best thing. That's funny.

It's small dollars, but profitable to do that. Right on, right on. Hey, so we talked about park managers. Yep. If everybody owns their own house, why do we need a park manager, right? So what does a park manager do? I'm assuming when you buy the property, the managers there, and you probably bring in your own team regardless.

But maybe you could kind of fill us on the park manager component of all this. We actually almost always keep our manager. We've found them so far to be reasonably good and competent. So we keep them. We'll train them in the ways we do things. We find, for instance, a lot of previous owners may not be advertising the houses, may not even have a little sign, one of those little bandit signs in front of the house that says, you know, for sale or rent.

So we'll buy those for the manager. we'll train them in how we want things done. So to answer your question, what our managers do then is when a house may come available. And although we don't own most of the houses, we do budget that we'll probably always own maybe 10% of them. So our business may look like 90% parking lot, 10% apartment building. That's still pretty good. But so they will show those houses. They're typically not doing the repair work.

That's a mistake. other park owners typically make is they try and have the manager both manage and do the sheet rocking and painting. It's rare, not impossible, but rare that you would find anybody with the skill sets to do both the white collar, you know, rent collection, sign the lease type of work and the blue collar sheet rocking and paint work. So we typically take that away from them and we'll hire in a crew as needed to do the repair. But they would take photos of the house. They would maybe supervise what the repair crew is doing for us. And again, they're then depositing the rents, the lot rents that come in. They're depositing those into the bank. So it's not a full-time job.

It's an VC job and something that a manager can do in their spare time around whatever is their full-time job. Are they typically somebody who lives in the park? Yeah, and I think all but one of the cases. Yeah. So you want somebody that's vested in the community. You find your managers in this business, by driving through the park and looking to see who has the nicest house might not be the newest, but it's painted, the lawn is cut, there's not a car up on blocks. They're probably driving a car that might be five years old and not 10 or 15. And we just knock on doors when we need to replace a manager. And again, we typically have a manager that comes with the property.

But that's how you find your manager. You look for someone with pride of ownership. they'll almost want to do the job for free. Now, we pay them. But someone who shows that kind of pride of ownership is going to be fired up about saying, hey, I get to be the manager. Okay, well, the guy down at the end of the street that does have a car up on blocks, you mean I get to tell him to take his car down and fix it or have it hauled off.

Now, you know, we don't let this get personal with the managers, but we'll back him up and say, yeah, here's our form and here's what you do to serve that person with a notice that they have 30 days to get that car down. off blocks. So we've got a manager that's motivated and that's the kind of person you want. I love that tip. And I'm assuming you come in with your policies, the rules of your parks are probably standardized and cars on blocks don't go. And just because the previous guy led it, we don't. And if you don't like it, get the hell out. Yes, we say it a little nicer than that. It's very rare. I'm a New Yorker. I'm not a nice guy.

Right, right, right. Yeah. But yeah, we back up our managers. We provide polite notices. But we have, it's rare, we have had to evict a couple of folks, and this is out of hundreds over the last eight years. We've had to evict just a couple for rules violations. It's pretty rare. And especially if you're actually investing in the community and you're, you know, paving roads. Something else we do is we put up house numbers on all the mobile homes. And that helps first responders find the house when they know that house number 17 has, you know, somebody in it has had a heart attack. A lot of previous owners haven't numbered the houses. And you can't find house number number. So anyway, we do safety improvements like that. And then tenants know that we care. We're not there to be their friend, but we're a responsible and better owner landlord than the previous guy or mom and pop were. And we find folks respond quite well to taking the occasional car down off blocks. It's rare. But yeah, folks will respond well when they see a landlord that cares. That's awesome. Yeah. I mean, I love that tip about you're saying about the find the person who with the best pride of ownership. I mean, I'm thinking of my own property.

like my apartment complex. That's probably how I should have found my resident manager is doing it that way. So next time I need one, I'm going that route. But, um, all right. So something you mentioned way earlier and we just kind of glossed over real quick, but you mentioned raising a fund. And I want to talk about like, what is that like, because that's something that applies to all investors, whether you're a mobile home park or not. But what does that mean? And why would you do that? I mean, what, what's that like? Why are you going that route? Yeah. So the bottom line is, you know, with my first couple deals, frankly, I've outgrown my limited personal. personal capital. I'm not Warren Buffett, so I do have to use OPM, other people's money.

So those first three deals that we did were all done deal by deal. We did retain a securities attorney, paid him almost $10,000 to put together our offering document for those first three deals. We've paid him now almost another $10,000 to put together what we think are almost identical documents to raise a fund, but we want to make sure we do it right. So we have registered the fund with the SEC. This is a proper 506 reg D fund. So, for instance, I can talk to you about it here on the phone, on Skype. We can advertise it.

We do have to only take accredited investors, folks with a million dollar net worth or $200,000 a year in income. But I can put in a little plug here that information is on our website, parkstreetpartners.net backslash fund. and people can invest. So, excuse me, we've raised, oh, well, it's been about 30 days now, not too long, but we've raised about a million dollars so far. We have our own mailing list of a couple hundred, maybe closer to 300 folks now. And then some of the folks that invested in our first couple deals have also re-upped and invested in the fund.

But we can now advertise it widely. I've got the largest mobile home park investors group on LinkedIn, which is simply called Mobile Home Park Investors. You can just Google for it or find it right off LinkedIn's homepage. We've got about 2,300 folks there. So we've gotten some interest from that group and folks have invested. The minimum investment is 50 grand. We're trying to raise $5 million. We'd love to find a high net worth folk person or family office to write a seven-figure check for us. So far, we've gotten a lot of six-figure checks. about 50,000 up to 500,000.

But anyway, so the way to do it right then when you're tapping into OPM is to get a proper securities document written. When you're just doing friends and family, and if it is, you know, again, your uncle, your college buddy and you're kind of pooling together, maybe 100, maybe 200,000 to do your first mobile home park deal or whatever real estate you're into, you know, you can just write up your own operating agreement yourself, you know, your own gentleman's agreement, form an LLC for a hundred bucks and go buy a property. So you can make it quite simple. We just chose to go the more formal route and retain an attorney both on, again, the first deals and then now on the fund.

Okay. Great. So one of the things that I was told up front when we were going to chat with you was that you were doing something kind of interesting with your business. You were doing a bit of outsourcing. So, you know, you weren't super involved in the day-to-day. What is that? mean? Explain what exactly you do. What are you outsourcing? Philison. Sure. So as I mentioned earlier in the podcast, I transitioned, obviously, from being an employee to now being an owner. And the biggest mind shift or perspective change that I had to go through all one of the couple was that, you know, when I was an employee, I was working to make myself as relevant as possible to the business. I was taking on more work. I was working long hours. But I was always

I was never looking to replace myself. I was always looking to be hugely relevant and important to that business. When you own your own property, and I would say probably really for most any business, even if you're an entrepreneur not in the real estate business, you have to make yourself completely irrelevant to the business. So I started out, for instance, for the first four months, doing my own QuickBooks. I think there was some value to learning that, but I've now outsourced that. I found a company over in India that I hired, I believe, off odesk.com, which is now part of elance.com.

Really? I didn't know that. Yeah, they merged somewhere about a year ago. Yeah, I knew that. Josh, come on, where you been? Where have I been? I don't know. I had no idea. Anyway.

We love Odesk. I mean, we use it all the time. Yeah, great. So those guys in India, and it's an accounting company, it's not literally an individual. But I pay them about $7 an hour, which, which I think is quite reasonable for bookkeeping. I had been all across the board. I had paid as little as $2 to someone in Bangladesh that didn't work out.

I had paid $50 an hour to someone here in the U.S. that was even worse than the $2 Bangladeshi. So I bounced around a bit. But for instance, so I've outsourced the accounting there. They have read-only access to my bank account. They can't write checks, but they can go on. Their daytime is the middle of night, my time. They can see all the rent that's come in.

they can see all the expenses I've paid. They can keep my QuickBooks up to date. So that's outsourced. As I mentioned earlier, a lot of our managers have day jobs, because this is not a full-time job managing a mobile home park. So what happens to a phone call when it comes in during the day? Well, folks can press extension one, and they'll get through to a lady that we have.

She lives in Tennessee. She's a stay-at-home mom. So all our properties have calls that roll over into her. cell phone and she can then deliver information to folks that are calling in during the day. We use Dropbox, for instance, to upload photos of all the houses. So she's up to speed on which house in which community is available. She can describe it to someone that's interested. She's actually the lady that does our marketing.

So she'll post those photos up on Craigslist. I don't do that. My managers just all they have to do because some of them aren't entirely computer illiterate, they simply send an email to her and say, hey, house number one, two, three is available. And within 24 hours, she's got it posted up on Craig's list with photos, link backs to that property's website, the whole thing. So that's just a couple of things that we've outsourced. That's great.

Can I dig in a little bit longer on one thing you mentioned there, accounting? And I'm doing this for a personal, you know, reason, because that's what I do. So, like, we, you know, my wife spends a lot of time on accounting. Like, she does that a lot. And she doesn't mind it too much. But we've talked about that before on the show and I've talked about finding a bookkeeper. And we kind of have one now. But how does a person in India manage your books?

I guess that's what like I feel like when we do our books, like every like a couple minutes when like my wife's doing them, she has to ask me like, hey, do you remember what this was for? Or how did this work here? We have to like talk about things. How does that work with somebody who works overnight? So we have some email back and forth explaining transactions. it's certainly not daily, and it does get to be a little more intense at the year end. But I'm able to put into, at least our bank accounts, I'll put into the notes section of the check that goes out to a vendor. I'll say, hey, this is sheetrock for house number one, two, three.

And then our bookkeeper can see that written in the memo line of the check. And he knows, oh, okay, sheetrock, we capitalize it. And that's for house number one, two, three here in, you know, the note. Noble Estates, Mobile Home Park. So that answers a lot of questions, just that I'm putting notes in the memo line of the check. And then whatever else isn't clear, he gives me, shoots me an email. We rarely talk on the phone. Or he'll also be somewhat in contact with our CPA, who's in Massachusetts, who's a, you know, obviously proper U.S.-based CPA, very familiar with U.S. tax law.

So there you go. That's how we handle it. That's great. You know, one of the holes that I found, and we're. we're dealing with this, is with credit card. You know, you'll get a purchase, you know, say you need some supplies, you need something from Amazon. Well, great, I'll get something on my credit card statement saying Amazon.

And, you know, the bookkeeper is like, hey, what the hell did you buy for $742? And so then, you know, the nice thing is to be able to go through like a Gmail to be able to do a search for 742. You know, whatever it is. And it'll pull up, oh, yeah, this is what we bought. So that's kind of how we deal with the credit card situation. And here's a little tip for people. We love using our credit card because we get points on our credit card.

And that's always a nice little bonus for your business. You know, get a really good points credit card and build up some free trips as your company pays for lots of stuff. Yeah, it is. And just to talk briefly about credit cards, here's a little, one of my little tips, one of my little tricks is we've got, currently a PayPal link on our websites so that our tenants can pay us rent. What we find is that if they're really having troubles holding it together in a month, that they will have a relative that will say, sure, here's my credit card. So they can just pay us with that credit card through the PayPal link. Now, we build our websites with Squarespace. Squarespace has just formed a partnership

with Stripe.com, which is a PayPal competitor. And that actually gets the money directly into our bank account as opposed to just into the PayPal account. So we may switch over, but we found that helpful and probably most any landlord out there with, with, you know, with, most of any landlord in apartment complexes or single family housing would probably find that helpful. It's free to add to your website. And it does help folks in need get you paid. So yeah, cool. And we use stripe for, for our payments and used to use PayPal. And I, I am ecstatic. to not be with them and I'm ecstatic to be with Stripe.

I mean, great, great service. Fantastic. Well, listen, I mean, great, great, great stuff. I don't know, I'm walking away like, oh, man, okay. I know. My brain is spinning. It's going nuts. We've got our next segment of the show that we're going to get to

and almost done here, which is our... It's time for the fire round. All right, these questions come straight from the bigger pockets It's forums, which people can access by going to biggerpockets.com slash forums. And I will say this. If you're not on the forums every day, I think you're missing out. I think there's just something awesome about the people listening to this. Just by engaging, even if you don't feel advanced, just engage on there.

A couple times a day, answer a question, ask a question, whatever. Anyway, off my soapbox. Number one, can you wholesale a mobile home the same as a regular property? Well, we sell the homes either for cash or on what we call rent credit, agreements. So I think that's what that listener would be meaning by wholesaling. Maybe. I mean, yeah, I'm not even sure. I think they're probably looking at more from like a single mobile home. Like, can they find a good deal and then assign it to an investor or something? But that seems kind of weird. And mobile homes are kind of a purchase from my understanding,

similar to vehicles, right? There's a title that passes with a mobile home versus, you know, that's just a different process. Yeah. There's a VIN number. And other than in California. They do title transfers through the local state's DMV. DMV, yeah. Yeah, exactly. So banks, of course, like with a car loan, we'll take them as collateral. And sure, I guess you could flip them.

We've had a couple of guys offer to find us houses and flip them, wholesale them to us. So far, those guys have gone radio silent on us. So it might not make too much sense for them. I don't know. We do find deals, you know, on Craigslist and we buy wholesale from folks like Green Tree and Vanderbilt that are specialty finance companies in this business.

So we don't have a huge difficulty finding houses ourselves, but we're certainly open to paying referral fees to folks that might have mobile homes for sale. Right, right on. What about the maintenance? Is maintenance more or less are the same with the mobile versus a single family? I think it's pretty comparable. This is, again, a difference between perception and reality. We use almost all the same materials, paint, carpet, sinks, you know, refrigerators. We're using virtually all the same materials in our mobile homes that go into site-built houses. We just go down to Lowe's and Home Depot.

We're typically buying off the contractor's desk. But we're buying all the same stuff that folks are putting into apartment buildings and single-family houses. It's just not that different of a business from a repair and maintenance standpoint. Right. Okay. Cool. Would you be, that's an interesting question. Would you be more comfortable being over-leveled, or under leveraged in your investments? I would be more comfortable being over leveraged. I'm pretty confident in what I do.

And between, again, just putting up a website or advertising the property on Craigslist, doing some expense control, bumping rents, I can pretty quickly improve a property's NOI, you know, 30, 40 percent within maybe the first six months at the most. So even if I've gotten in, well, like that, one property at 100% loan to value, it's relatively easy in this business to get your, you know, your debt service coverage ratio up even towards two. A lot of banks will look, of course,

to get in at a 1.2 debt service coverage ratio. But, you know, we can improve it from that relatively easily. So we'd probably be more comfortable being over levered. And, you know, I've been through a down market. I bought my first property in March of 07 when things were still good. And by that summer and into 08, you know, the wheels came off, the housing market. Well, not with my mobile home park. We stayed full. You know, I bumped up the rents a bit, you know, another 10 bucks a month or something. So this is a fairly recession-proof business. And so I would be pretty confident and air to the side of being over levered. Cool. There you go. There you go. All right. Last question. I'm new to real estate and have lots of student loan debt. Can I still invest? And if so, how should I do it?

Yeah, the nice thing about this business is it's got a really easy on-ramp. By that, I mean you can get started with relatively little capital. Although I advise buying the land and buying a mobile home park, it is possible to get started just buying a mobile home. Some park owners that, again, may not be the best operators and investing in the homes, they might even give you a house for free or for a thousand bucks. And so if you can hang some sheetrock and paint, put a little sweat equity into it, you might be able to get that home fixed up, sold off on a note, take $1,000 down, get your money back there and create a note of, you know, three, 400 bucks a month income. We advise owning the land.

So maybe you want to do a land home deal where you've got a mobile home just on its own quarter acre or half acre. But you can get started in this business for much less capital. And of course you can always partner. We've seen folks partner, you know, and raise 20, 30 in equity capital from someone else. And again, they're the ones that then goes, finds the property, does the rehab. So you don't have to have six figures to get started. You could probably get started with four.

And maybe even for zero if you can find somebody. Like through your local RIA, you know, your creative real estate group that probably meets in your local town, you know, you can find somebody there to help you get started. And so I'd advise partnering. I love that. Great. Awesome, awesome stuff. All right, well, let's move on to the world famous. Famous for. All right. These questions we ask everyone, and I know you've heard them before, but let's go number one. What is your favorite real estate related book? And why? You know, as simple as it is, I really like Robert Kiyosaki's rich dad, poor dad. It just made so many things, you know, even more clear around prioritizing your spending, saving money, getting into real estate, look at what you get with depreciation, you know, what really is an asset, what is good debt versus bad debt. And so I recommend his book and a couple of others more general

investment, but for real estate, I always recommend his books to folks that want to get started in the business, whether you're doing, he advocates more sort of single family housing, but really any kind of real estate, if you follow the advice in that book, I think you'll be thinking clearly about your investments and be rewarded for reading that book. Fantastic. Fantastic. What is your favorite business book and why? I really like Alice Schroeder's Snowball, which is the biography on Warren Buffett.

I could see a trend here. Yes, there we go. A little obsession with Mr. Buffett. Admiration. But anyway, yeah. So, you know, what that book conveys is both the human side of Buffett. He certainly paid a price with his family for, you know, spending every evening with his nose in annual reports of publicly traded companies looking for investments. It made him look very, I think accurately, made him look very human.

He's not perfect. He's an excellent investor. But, you know, I think his kids may have missed him a bit growing up. So it was nice to see that personal side that the man is fallible, clearly accomplished. But, you know, nobody's perfect. And then Alice does a good job of laying out his evolution from being a cigar butt investor. That would be where he would buy a company that maybe was near bankruptcy, but, you know, the assets, of course, were worth more than the liability. It had positive book value.

You know, and he would take one last puff, if you will, off the company before it would go away. He evolved from that from buying fair businesses at good prices. he evolved to being a quality investor, and he now buys good businesses at fair prices. I've seen the similar evolution. My first deal was not a cigar butt deal, but it was more of a fair mobile home park that I bought at a good price. What we're buying now in our fund are good mobile home parks at fair prices. So we've evolved similarly. Fair enough.

Fair enough. Cool. What about hobbies? What do you do for fun? Gads. Well, you know, I used to collect flasks, you know, little sort of liquor flasks that you would have carried around in your coat pocket. I've got one that looks a lot, that's designed to look like a book. So I've got it up on my shelf. I've got one that was supposedly given to Julia Child who had done some work for the OSS during World War II. At least that's what the eBay listing says. Who knows if it's true, but it only cost me 100 bucks. But, you know, honestly, I'm a new dad. I've got a wonderful little nine-month-old, almost 10-month-old little son. And so thank you.

So that gives me a lot less time for hobbies. And to our earlier point, makes outsourcing all the more important so I can spend a little more time with him. That's great. Love it. All right. My final question of the day. What do you think sets apart successful real estate investors from those who give up, fail,

or never get started? I would say a key point is going to be the ability. to think broadly and use OPM, other people's money. And maybe I'll make up a term here, OPL, other people's learning. I got started in this business, as I alluded to, by building up an advisory, unofficial advisory board of about 10 guys that were in the business. I spent a lot of time running deals by them and they would say, yay or nay, or maybe they didn't know, but, you know, Jefferson, the key issue is X. Find out this issue about this part. So, Learning from people that way was a huge leg up for me.

And then again, more recently, now that I've outgrown my capital base with my first two deals, to now be raising outside capital, helps me to lever my existing learning. So I think those two things. I'll leave it at that. Fantastic. Fantastic. Well, sir, you are a loquacious man who has lots of wonderful things to share. It's fabulous.

Lots of great advice. here. Before we let you go, I guess here's a chance to tell us where people can find out more about you. I know you had mentioned the park site, but do you guys have a site for your business? Yeah, so the Park Street Partners.net website is our primary site. I've also got my lily and company.comnet website. There's certainly some overlap there. You can check out the resources on both websites that'll help folks find other books and articles and things. things to read to learn more about manufactured housing, also known as Mobile Home Parks. There's more information about our partnership there and our backgrounds, my partner, Brad

Johnson and myself. And then again, you'll see a link there, parkstreetpartners.net slash fund. That tells you more. That's actually where the offering documents are for our fund and two very good videos. I've been on television earlier this year and been on stage at a real estate investors conference. So those two quick videos, I believe they're. both less than six minutes, clearly lay out our investment thesis. So they're a quick and easy thing for any interested parties to watch and learn more about us and about the business.

Fabulous. Great. Our Jefferson, thank you so much. Really, really, we do appreciate it. And, of course, if people have questions, they want to ask you. They can do that on the show notes page at biggerpockets.com slash show one-one. That's show 11. And thanks for being a part of the show and for being a part of our world.

appreciate it. Thank you for having me both. Thank you both. Thank you. Bye-bye. All right, guys, that was Jefferson, Lily. Once again, big thanks to him for coming on the show. Lots and lots of really high-level great information about mobile home parks and other things, you know, other information that you can use regardless of your strategy and regardless of your niche. So hopefully you enjoyed that. I totally want to be a mobile home park investor now. It happens after every show, but now I really want to get into mobile home parks, right? But you live in Podunk, Washington. So, you know, for all practical purposes, are a mobile home park investor without the mobile home car.

Oh, funny guy, funny guy. Yeah, yeah, yeah. I like the stuff. Yeah, smart guy. I could, yeah, I need to pick his brain some more. Maybe we'll have him back someday. There you go. Good stuff.

Well, again, big thanks to Jefferson. And thanks to you guys for joining us, for listening. We really appreciate you. And you've been a part of our problem. Yes, well, there we go. Really nice. Really nice. Pick on a guy who has a problem.

There you go. Yep. All right. Anyway, if you're not already on our community, join BiggerPockets today at BiggerPockets.com. Get involved. You know, connect and just start engaging with us in our little corner of the real estate world. We hope to see you there.

Thanks for being a part. Thanks for listening. And we'll see you next week. Listen up. And I'm going to just. to the battle on because I haven't slept in five days. So thanks. I'm Josh Dorkin. Signing off. You're listening to Bigger Pockets Radio, simplifying real estate for investors large and small. If you're here looking to learn about real estate investing without all the height,

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