Epic Real Estate Investing - Diving into Mobile Home Parks: A Conversation with Walter Johnson | 1416

Episode Date: January 27, 2025

Get ready for an inspiring and eye-opening episode of Epic Real Estate! In this exciting conversation, we’re joined by Walter Johnson, a real estate powerhouse whose journey from a childhood fascination with buildings to a thriving career in real estate investment is nothing short of remarkable. Walter opens up about his unique path and reveals why he made the bold switch from traditional real estate to the lucrative world of mobile home parks. He dives deep into the incredible benefits of investing in these often-overlooked assets and explains how trends in the market are driving their explosive growth. But that’s not all! Walter pulls back the curtain on the intricacies of managing mobile home parks—discussing the challenges, rewards, and often misunderstood aspects of this niche investment strategy. Whether you’re a seasoned investor or just starting out, Walter offers valuable advice on how to navigate the space, avoid common pitfalls, and tap into the massive potential mobile home parks present. Tune in as Walter clears up misconceptions, highlights the hidden opportunities, and shares insider tips that could help you take your real estate portfolio to the next level. Don’t miss out on this opportunity to learn from one of the best in the business! Learn more about your ad choices. Visit megaphone.fm/adchoices

This is Terio Media. Hey, strap in. It's time for the epic real estate investing show. We'll be your guides as we navigate the housing market, the landscape of creative financing strategies, and everything you need to swap that office chair for a beach chair. If you're looking for some one-on-one help, meet us at rei-i-a-s.com. Let's go, let's go, let's go, let's go, let's go, let's go.

Let's go. And please help me welcome to the show. Mr. Walter Johnson. Walter, welcome to Epic Real Estate. Thank you. I'm excited. I'm excited for today. So thank you. Me too. It's a subject I've been hearing a lot about, but I know very little about. So I was looking forward to our conversation. And before we dive in, I mean, just give me a little bit of your background. How does you end up into real estate? It's an intellectual real estate. It stems for probably childhood. I was looking at the apartment buildings and we lived in a apartment and I looked at house. I think it was eight or nine just said this would be cool to actually own, sort of speak, right? So I think it started from there.

And then I would say my late teenage years, I would say about 18, 19. I started studying about real estate, buying a lot of books and just got hooked. Got it. What was the book that hooked you? Oh, that's a good one. I know it at the top of my head, too. I still have it downstairs, actually. I'll have to get that one for you.

I will promise to mail it over to you. But yes. All right. Yeah. What it was is that I didn't have a lot of money at that time. And so I would go to Barnes & Knowles at the time in the mall in Riverside, California, and buy books, and then read them in the parking lot and they return them. But there was a few, but that particular one that I'm going to share with you is one that I kept. Got it.

Russell Wilson. I think it was just called Building Wealth. Very good. So you're from Southern Cal? Yes, I am. Very good. Me too. Oh, yeah, what part?

Los Angeles. What part of it? I've pretty much lived in every city in Los Angeles, I think. I had a wife that every time the lease was up, she wanted to go into somewhere else. Right. Kind of moved around. So I've been all the way south as Irvine and the north as La Cagnada, Flint Ridge. Okay, got it.

Yeah, so I lived in L.A. And then we moved to Riverside, so the Inland Empire area. So, yeah. Sweet. Oh, boy. Cool. So anything before real estate or is this is just like what you? you dove into. No, so it was, real estate was that passion, but I had a, I got a job at UPS in

Ontario that, yep, that I was working. So my goal was at Ontario saying, you know, I started off as a sorter, so you're sorting boxes. And my goal was at, hey, one day I'll go to the military or the Air Force. I'll become a pilot in there and then I'll give back my job at UPS because the seniority and then I'll fly the planes at UPS and, you know, you work. two or three days a week and make $200 grand a year and his union, good benefits, great company. So that was my goal. That actually didn't happen because when I called the recruiter for the military, they asked me the questions. I passed every question that he said except the last one.

He says, well, before we get off the phone, let me just ask you one more question. Do you have any braces or any metal? Oh, yeah, I just got braces. And I was so excited. And he's like, yeah, basically don't call us. We'll call you type deal. Just for braces on your teeth. Yeah. Oh, yeah.

Yeah. I remember. I was in the delayed entry program. I had to wait to get my braces off before they let me go to boot camp. Is that what that was? Okay. Yeah. But I got them off and went in and the rest was history. Got it. Yeah. So then I continued to work at EPS and I hurt my back. And I was on disability and I think it was eight months or so. Yeah, I think it was about eight months. And I learned a lot about real estate. I just had time to actually absorb as much information as possible.

about real estate. Sweet. So I know we're going to talk about mobile home parks, but most people don't make this leap from, you know, I have a, I think I want to get into real estate and jump dive into mobile home parks. How did that come about? Oh, yeah. So I moved to, so a couple of years after I started learning about real estate, in 2020,

I moved to Arizona. And 2022, I bought my first investment property. It was a single family house. And when I bought that property, I mean, I had all the fears and the jitteries, the Butterflies comes with your first investment property. And I was actually still living in an apartment building at the time. And yeah, I just bought a bed. But before that, I was sleeping on the floor.

I was saving on my money. And when I bought that, so I got the bug from buying investment properties. And then I think I was probably 25 at the time. I owned about 20-something single-family homes. I had a couple of apartment buildings, some land, but majority of it was single-family homes. And then I realized a few years later, I realized, this is not it. This is just a lot. I'm banking on the appreciation, but single family homes generally don't throw off a lot of cash flow. So it was a lot of work. And a friend of mine introduced

me to mobile home parks and I never thought about ever at all. I studied those as well, just pretty similar to what I studied when I was 19 years old. And I made a leap, probably about three years later. Got it. You know, I'm hearing a lot more about them. What are some of the key trends or factors that are currently driving the attractiveness of mobile home parks as an investment opportunity. Yeah, I think it's a cash flow. I think, I mean, it started to really take off probably about 2018, 19. And I think that a lot of people started realizing the cash flow, right? I think it was like a sleeper type of investment.

And with the internet, the exposure, I think the secret is out. Yeah. And I mean, it's not just private investors like you and myself. if I'm noticing corporations are going after them as well. Yes. Yes. And so that, well, corporations have always been going after big properties, but I really started to take a really a hit, or not a hit,

but a really noticeable fact in 2019. Yeah. I wonder what is this causing it because, I mean, they've been there forever. Is it just running out of investment opportunities like the single families are? Yeah. So the apartments and single families got retrated a lot, the fixing flips.

And then when the big institution funds was getting money, at zero percent interest rates. Well, if they can buy a mobile home park at 3%, they're still doing well. And that's kind of what the cheap money in probably, oh, 2018-19, that's when they started to. Cool. So what's your personal experience so far

investing in mobile home park? It's good. You know, for your listeners or audience or whoever sees it, let's say you buy a home and it's an investment property and you have to put down 20 to 30%, which is you. I would highly recommend it.

I know I could be creating competition, but it doesn't We're all here for education purposes, learning, financial kind of reward for what we do. I would look at a mobile park. And even if it was small, let's just say 30 or 40 spaces for that capital, to me, that is better than owning one single value. Got it. So you're saying roughly for the same amount of down payment, you can get into one, right? Yeah, absolutely.

And do you have to look for an existing one? Or can you like, what's zoning and permitting, like building your own park? Yeah, so they usually don't build your own parks anymore. The reason being city and county zoning, so it's really difficult. And somebody that does that, it's really rare. The time it takes to actually put it in roads and electrical and water, it takes forever. On top of that, the cities don't make any money. So I would highly recommend people just look for an existing one.

You close escrow and make money day one. So it's basically a fixed amount. of them then, right, that buyers are looking for. I would say probably a dozen or so are getting knocked down per year or some. So what's the method of finding these types of deals with mobile home parks? I mean, I know how to find houses. I know how to find multifamily. Do you just look up title who owns the park and that's who you go after?

Yeah, you can kind of do that as well or they have brokers as well that you can reach out to and develop a relationship with. That takes a while, right? Usually brokers actually have, you know, we would say potty listings or that, and they, that they have a listing that's not on the market, but they can sell it to one of their buyers on their list and it's gone and never hits the markets. So it's important to actually develop a relationship with brokers.

Right. Or, yeah, but you can do mailers. You can call them. And those are the main, I say, avenues of getting, or at least seeing them alone parks. Got it. Are they abundant? I mean, do they come up frequently?

Yeah, they come up. But, of course, like any other real estate or any other deal, you have to kiss a lot of frogs and do a lot of due diligence to actually find that hard. Got it. I just had a student in my workshop this last weekend, just coincidence that we're talking. She's been flipping a lot of mobile homes, right?

Not the park, but the actual homes themselves. And tell me if I understand this correctly, when you're buying a mobile home park, you're buying the land and then you're leasing the pads, right? The spaces. Correct, yes. Correct. Okay.

And then the actual person that's leasing the pad from you owns the actual home. Correct. Generally right. Very good. And then if I understand that correctly, that's not necessarily a real estate transaction. That's more of like a DMV type transaction, right? Yes, they actually have a title. It looks like a title to a car. Right. For their main home, yes. Got it. Right. I know this is a little bit out of the scope of what we're talking about. But is there a way to hunt down the title on a mobile home? Not that I'm aware of. But usually... You look up the owner of a house, the same type. Yeah, usually when you do that, if you want to buy that or sell it, some parts actually have first ride of refusal.

So that's tough. So even if you actually want to buy it. Oh, really? Oh, yeah. Like I'm signing up with a property manager with your single family, right? If you want to sell it, they typically write that into the lease. Correct. Yep.

And since park actually, they have park rules and regulations that's usually in there. But, you know, familiar. If somebody's actually flipping homes for buying mobile homes and actually flipping them, I heard people that do pretty well as well. Yeah, yeah. She's done really well. But it was kind of new to me this weekend. I was like, how do you find the title?

But I guess... Oh, so that's when you're going with that. One, you can become a dealer and buy them directly from a factory. That's actually going to go away. Two is that there's actually companies that buy mobile homes and sells them to investors, such as your person we're actually speaking to. So there are avenues to actually find mobile homes actually sell. Got it.

Okay, well, that just brought up another idea. Do the numbers work right now to where you could go buy a, new mobile home, go place it in lease a spot in your park, and then rent it out and it would cash flow? You can, but here's the kind of the kicker here. Some park owners would actually allow that. Some won't because let's say you said, hey, this is a 50 space park, but this investor wants to put 10 spaces in here. Well, you kind of create this, I guess, this conundrum because so many homes are in there owned by one particular investor.

and if they just want to move out because they got burned out or something happening in their life, then I put you in a different decimate. Right. Kind of got a single point of failure there with. Yeah. Yeah. So as a person that's probably investing in mobile homes, yes. But a park owner, I would steer away from that.

Got it. That makes sense. So from your experience, what are some of the biggest misconceptions that people have about investing in mobile home parks? I would say it's pretty similar to investing to multifamily, right? And the reason I say it is scalability, but it's a lot of more numbers than, let's say, a duplex or a single-family home or a four-plex. So I think that's the kind of a hurdle. And there's a lot more spinning plates, right? So usually in multifamily, you actually have public utilities.

And the tenants usually sign up. And at times, parks can actually have private utilities where you're actually the power company. Right? Or they'll have a well or the sewer system. So little things like that can add up to. big expenses. And also, now you're actually managing a manager, right? So usually you have a property management. They take their 8, 10, 12%. But usually in a mobile park, you're managing the actual manager, direct. Got it. Does that work kind of like a multifamily where they'll live in one unit,

stay for free and they'll manage the rest type thing? Yep. Absolutely. The kicker is that a majority of the time, what we own, the residents own their own home. So there's, you know, we don't necessarily touch that are responsible for those expenses. So that's actually a good thing compared to, let's say, single-family homes or multi-family. But here's a secret. I would say that managing and owning a mobile home park is a lot less time-consuming. So why is that? Because they own their own home.

Got it, got it. A little bit more sense of ownership. I got it. That makes sense. So as a mobile home park owner, what are some of the big risks or potentially? pitfalls that investors should be aware of when considering that. I would say the big risk is looking online and saying that's actually a good deal and buying it just because it probably has a cheap price or you can actually make money, right?

So you're like, oh, I can make $6 grand a month on this part, but it's way out in the middle of nowhere and it's 30 or 40% occupied and maybe I can actually buy homes and put them in and then I'm making $18,000 a month or so. And then I'm retired. And that's not necessarily how it goes, right? because you actually have to find the homes, you have to get permits, you have to set the homes, and you have to sell them. So it's a bigger, I guess a bigger, every lift in a way it appears.

Got it. It's just like every asset's got its own little skeletons, right? It's got its own little graveyard somewhere. It all looks, you know, look easy on the outside. I learned that from, I got started in lower income areas in the Midwest where the numbers on paper just looked absolutely amazing. I was like, oh, we can crush this. and then management of those assets was a whole other story.

So you learn that as you go on. And then when I went into multifamily for the first time, I was like, well, I already owned 40 houses. What's this? It's 40 houses under one roof, right? Right. Same thing. It's got its own nuances.

And I had to imagine mobile home parks have the same thing, right? Oh, yeah, absolutely. I mean, I was looking at one right here, and it was in Oregon, and it needs, we couldn't know anything about it. One, it was seller financing, which was attractive, but it had some zoning issues. So you get into that and you're like, you can't do anything with that. I'd imagine. So you just mentioned something, something in Oregon that you're looking at and you're in Riverside.

So you can, can you do this? I'm in Arizona. Yeah. Yeah. Yeah. So we buy in multiple states. Got it. And what does management like that from afar look like?

It's relatively easy because you have a management on site. You just go see it probably once a quarter. So got it. So your company, Sonos Capital, what do you guys actually do then? Are you just the management company? or what do you do with mobile home parks? We manage and own mobile home parks. Okay.

You got it. You manage an own. So we're a private equity company that acquires mobile home parks and we manage it own them. Very good. How many of those do you have right? The first fund was actually my capital. This is our second fund. And currently right now, we just closed on one in last May, 102 spaces.

We're closing on one here in the next three months, 382 spaces. with that 55 spaces here and 40 spaces and flat stuff, Arizona, up here. So that's what we'll have here in the next six months. Congrats. Congrats. Lots of spaces. Yes, it is. Absolutely.

Cool. So you said the first one that you did. You just did that yourself. Yes. It wasn't like I took the gamble and said, I'm going to do it myself and create another five. It wasn't that. It was, I got this.

And I said, wow, this is actually great. And it was enough money to essentially retire. and go live your life. However, they sold it a bit of, but I realized that these deals actually exist. I wouldn't say it's normal. You thought you find them every day, what they actually do. So I started studying again. I said, hey, well, there's a small window because we have an institutional capital coming in,

and they're buying up these parks. And I see that rents are actually pretty low. They're about $300 a month average, and they're actually going up. So I would say I got back in the game and said, hey, let's actually, I'm going to create a fun, which I now created before, right? The first one was just me. So I'm going to create a fund and bring on it investors and buy as many parts as possible. Sweet.

So you have a fund right now? Yep. Perfect. If someone wanted to participate in that, like what's the ideal person that you're looking for? You know, we have a lot of professionals. It's credited the investors only. So we have a lot of professionals. And what it is that they're saying, hey, Walter, I want to actually make money on my money,

but I don't know enough about mobile home parks or I don't have a time or I got into small apartment buildings or single family homes and that's just not my thing. So I'm just looking to place it somewhere to actually make my money grow. And that's understanding. I haven't looked into in a couple of years.

Have the definition for accredited investor changed at all? What does that define today? Yeah. So it's an individual that earns $200,000 per year or $300,000 to household income. or a million dollar's net worth minus their primary residence. Okay.

It hasn't changed, so that's good. They're talking about some changes, but it actually hasn't taken effect yet. Yeah, yeah. Do you see the new administration that's just taken position? Do you see any of their policies or anything impacting what you do?

No, no, not at this moment, no. I think that we're not going to have a huge pressure like we have in the previous administration regarding rent control. So they can even put away. or wield rent control over a mobile home park too, huh? Oh, yeah. Oh, yeah, absolutely.

Gosh, those guys, they get their hands into everything, don't they? You know, we can all see it. I mean, I think almost every human being can actually see that. Things just cost more inflation. And so when you look at either, you know, either single-family homes or multifamily your mobile home parks, when you raise the rents, you know, from 300 to 325, it's not a big deal. But when the, I guess the government, the city counties and states get involved with rent control, it's really hard to, I would say, maintain that particular asset because you actually need more capital.

Things cost more to put back in the park. And so that's what I think we're probably all experiencing. Got it. So if someone wanted to invest with you or what would that guess process look like, what could they expect? Yeah. So actually, we would speak around to see exactly what their goals are, see what they're looking for, right? See what their exoplanes. So we don't accept all investors.

We just don't. if it's actually a perfect fit, and not just for us, but for them. And once that happens, we show them what our passive performance is and what we're looking at. And usually they're saying, yes, well, sorry, I actually want in. We show them a few. And we leave some names out, but we show them a few investors that are, you know, making a greater return on their capital. We provide references. So it's really a transparent process.

And, you know, we don't have any, you know, knock on wood. We just haven't had any investors that complained. And they're just happy with the results. Sweet. I know every deal is different, like a range of return that an investor could expect. So they're all different. What we look for, I would say, and what we explain to our investors is that we look for two to three points spread between the cap rate and the interest rate.

And right around there, we can anticipate having double-digit returns. I would say like 18, 20% cash on cash returns. That way we're able to offer some attractive returns for our investor. So that's what you get is the owner. Or is that what the investor gets, 18 to 20%. Yeah, that's what the actual property throws off, right? We got it, got it. And then we split it based on prefer returned and cash flow.

Perfect. So probably somewhere between 8 and 11-ish. Awesome. And then do you count monthly, quarterly? Quarterly. We thought about doing actually monthly, which is great. However, as you know, tenants actually pay late at times, and we want to capture as much rent as possible.

And so it's actually better for us. And for the investors, look, we just do it quarter. Mm-hmm. Cooper, so if someone wanted to learn more, what's the best place that they should go to do that? Yeah, reach out. Give me a call in my office at 480-674-2035 and just, yeah, reach out. Just want to hear about how actual the landscape is as far as investors and what they think about mobile home parks. But I like it.

I don't see it stopping. I just see this growing. And I see that there's more room to grow as far as values in mobile home parks and rents. I like it. Good old fashion way. Just call me. Yeah, absolutely. You don't have a QR code of value.

Right, or nothing like that or some random way to reach out to me. That's 480-674-2035. Reach out to Walter Johnson if you have any questions. But just describe to me. Who's the ideal person that's listening right now that should call you? I would say the ideal person is in the person that not looking to get rich quick, looking to get rich slow, but likes education on investments. I like our investors to say, you know, you invested in this particular park.

If you actually want to have a tour or walk this property with me because I visit our parks, feel free. You know, they're passive investors. But at the same time, I want our investors to know what they're investing. Perfect. Cool. All right. 480674-2035. Yeah.

Or Walter at sonoscapital.com. Walter at Sonos Capital. It's S-O-N-O-S. Well, Walter, let's stay in touch, buddy. for being here. I appreciate it. Likewise. Appreciate you. Take care. And that wraps up the epic show.

If you found this episode valuable, who else do you know that might too? There's a really good chance you know someone else who would. And when their name comes to mind, please share it with them and ask them to click the subscribe button when they get here and I'll take great care of them. God loves you and so do I. Health, peace, blessings, and success to you.

A Metterio. Living the dream. Yeah, yeah, we got the cash flow. You didn't know home for us. We got the cash flow. Okay, only 10 more presents to wrap. You're almost at the finish line. But first?

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