Most real estate investors never even consider buying mobile home parks.
Which is why they’re so profitable.
Brian chats with Doug Harvey, a renaissance man who works a full-time job, invests in real estate (including mobile home parks), and even serves as a local city councilman. Doug explains how he earns 18% returns on his mobile home park, and doesn’t gloss over the challenges either.
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Brian: Hey, guys. Happy Tuesday, this is Brian Davis here from Spark Rental, and I am joined today by Doug Harvey a Special guest. We are going to talk about mobile home parks today in preparation for our free webinar that we’re hosting on Thursday. Put a link to that in the show notes as well, so you guys can reserve a seat for it. Doug thank you so much for joining us.
Doug: Hey, I’m glad to be on. Thanks for having me.
Brian: Absolutely. So, by the way, Doug is actually joining us from baggage claim at an airport as his flight got moved today. So, you know, we’re kind of winging it today. Doug’s joining us from the airport. So, you know, this can be a casual episode today. So, let’s jump right in and talk about the mobile home park that you own. It’s a smaller park if I understand you correctly. Is that right?
Doug: Yeah, this is one that I stumbled across. See back in 2017. So it was near some other property that I own, and it’s one that I’ve kind of heard about. I think I saw an ad on Craigslist and just digging into it, and so I was able to pick it up as part of a combo of owner financing and brought a little bit of cash down. But I sold five units and some small. It was also you’re trying to figure out, hey, this is different. You know, you may have done single-family buy and hold, and it was like enough to dip my toe in and kind of figure it out and see if I liked it. And it was something that definitely like to get more involved in as I’ve learned more about it.
Brian: All right. So how much did you end up paying for this mobile home park?
Doug: That’s when I end up paying one hundred and forty-four. I listed it as a combination of an owner note as well as some cash. And so that was one hundred and thirty. That was the seller that started about ten thousand down to it. Makes for great cash on cash returns. These were all Park homes originally, so we’ve done a version of converting to tent, it’s still one that we’re still trying to get over to that now. And then we also have one that we replaced, that we actually had some damage during a hurricane. We actually put a new unit in actually finished most of the detail on it this last, probably week or so. And yeah, so we’ve had a little bit of different adventures there as far as what we’re working on and had a little bit of taste of a bunch of different processes along the way.
Brian: I’m sure, well, you know, just to show that no matter what you invest in, there are always risks, right?
Doug: Yes, absolutely.
Brian: So, this property, the one that you had to the mobile homes you had to replace or do extensive repairs on, that was one that you still owned at that point. You had not sold that to the tenant yet.
Doug: Correct. This is one that’s still on. So, when I bought this park, it had the guy that had purchased originally, with the exception of one of the units it all had long term. They were tenants that he had when he had bought the park three years ago. They were still the tenants when I bought it. And up until when this hurricane came through in 2020, they were still the same tenants. So, you just didn’t have any problems. You always want to take good care of them and dealt with any kind of problems for the ones that we were still owning ourselves to being the park owner just because people just didn’t like change like, say, you’ve got a good long-term tenant. But I said the tree came through, so we had a hurricane that actually reached I’m in North Louisiana, which is probably the four or five hours from the coast and because people are losing out to New Orleans, but we’re probably five hours north as far north as a hurricane and never went with those kinds of winds. And that’s very damage. And when it was actually a tree that we had identified had already scheduled with a tree cutter to get it taken down. But this didn’t quite happen in time, so we had to deal with that. And it was also just a learning opportunity there because whenever we this was a unique sized lot. So, this was a 60-footer. Most of your single lines are probably 70 six, 80 foot is what we think about. So, when it came time to find another one, it was actually hard to find one that length. So, I kind of thought a little bit going forward what standard length look like as far as what I thought about going into what’s going in the future. So actually, finding one that fit in that little light was actually a little bit of a challenge.
Brian: Did insurance cover that replacement?
Doug: Yes, actually, it was one of those things to where there was so many claims going on, and I had a good carrier. I sent four or five pictures of it and it just kind of took out the back corner. But it was an older trailer and they sent me a check for replacement cost and just moved on. Yeah, a lot of times we don’t have great insurance stories.
Brian: Yeah, yeah. I’ve heard plenty of insurance horror stories, but I’m glad that that one worked out for you.
Doug: Yes, it worked out well, had a good carrier and just was able to follow that part of the process, just finding the next one. I said realizing we didn’t have a standard size unit and what that challenge would be was obviously a lesson for us going forward from there.
Brian: Makes sense. So, tell us about what kind of returns you’ve been earning on this park so far.
Doug: Yeah. So, whenever you know, I think a lot of us went through some of the versions we heard on bigger pockets or insert your favorite real estate piece here, like, hey, we want to end up at around $200 a door and. Yes, and you know, you’re accounting for all your capex and things like that, but whenever you go to the point where you’re converting over to turn it on homes, you get rid of a lot of your expense. And that being said, you know, you’re converting notes and you’re factoring that in. But where when I think about like a cap rate, so like in my market, if I’m buying a single-family home, my cap rates are probably in the eight percent range. And that’s probably pretty steady for a single-family. I mean, I’d like to if I can build some value add, I can push to 10 or 12 percent. But if I’m buying something that’s like almost retail ready, I’m probably getting around eight percent. But like on mobile home park, like this where we didn’t actually put much value at in this was more, we just gotten the right acquisition position on it. We’re somewhere in that 18 percent range.
Brian: Wow, which is a great return.
Doug: Yeah. So, I said, when you have long-term tenants, it was due to either of those moves in the utilities where you can submeter them. That’s an opportunity. One you’ll find that prices haven’t moved in years. You know, you’re not longer accounting for even things that you just ordered on property taxes or what you’re pay in the yard guy to take care of the park in that scenario. So naturally, every other version of life passes on those costs, and you should too if you want to be able to earn a return for yourself and or your investors. So, there was opportunities there to I mean, I think that a lot of times, you know, we’re not necessarily building inventory, we’re value adds. Sometimes it’s taking somebody else’s investment that you just didn’t know whether they found their version of efficiency. And you can add your version and you can find those opportunities like, hey, I took this lesson I learned from this property and take it over to the next one. I think that’s what that’s been my opportunity over time.
Brian: Yeah. So, it’s not a question here from Kristina Cohen, which is that do you prefer to own the mobile homes or also let people park their own mobile homes there?
Doug: I prefer at this stage to let people own their own. Now I’m like this one that I’m putting there, the one that I replaced. I went ahead and purchased this one. My mindset is I’m going to put this one there to ultimately owner finance it out to someone. And so, for me, it’s like it seems like there’s more of a challenge and getting some money to actually especially in this market, like just like the vehicles right now, it’s actually hard to go out and acquire a vehicle. Same thing with mobile homes. If you’ve priced a new mobile home right now, they are incredibly expensive. Yeah, so actually. So actually, finding it and landing it somewhere, I mean, that’s a pretty expensive piece. But if you actually go ahead and have it located where it’s in a park already and then you start talking about acquiring it already in the park. That seems to be more attractive. But like I said, I prefer to really finance the purchase to the owner of the mobile home that way, because then I’m not dealing with the maintenance costs and stuff that happens inside the mobile home. So that being said, I’m taking care of the park itself. I’m taking care of, you know, we just put a pretty good bit of chunk on the driveway, for example.
Doug: This is like a this is like at the edge of a city of twenty-five thousand, but Street is kind of at the end of a road. And we have parishes instead of counties, but especially the county stop taking maintenance to like rot just at the edge of this park. And in past it, there’s actually homeowners and stuff too. But somehow the maintenance of that roads always came to the park. And so, we just put four or five thousand down into the park as far as the driveways and stuff. The last week and you know, that’s the kind of stuff that we’re going to do so that they can focus on the stuff that’s going to be the, you know, the toilet issues, the stuff like that and those minor things. And I feel like that’s where we can provide value and focus on the park itself. And also, that’s what they’re going to see in traditional offerings. Because if they go and look at a different park, you know, it’s like five or six miles down the road, that’s the kind of situation they’re going to see. There are still a lot of parks owned homes in my area, but you can start to see a shift too.
Brian: Yeah, so you. You do not have to maintain the homes themselves as a mobile home park owner. You just maintain the public areas of the driveway like you said, maybe the landscaping.
Brian: And for a park that small, I imagine that you don’t have to have a separate office building, right? I’m guessing there’s no onsite office. Yeah. So, you have to maintain any buildings at all as the mobile home park owner there.
Doug: No one that’s small. I have a property management company, so I have single family homes as well. I have some multifamily and my property management company, they just kind of run through there like they would now if I had like a 20 to 30 unit, which is kind of what I feel like. The spot that I don’t operate in that doesn’t have, like a lot of institutional money chasing it. I think that you’ll see, like some, in fact, I was looking at a deal somewhere in the last. 48 hours, and you’ll see a lot of that where they have like one unit that’s reserved for a park manager and it’s subsidized the cost or something to some degree. I also think Christine is a follow up question about our mobile homes more difficult to manage because they’re seen as Class C or D. It really depends on the community you’re in because I’m in a very nice home on the edge of some very rural areas, and some of the markets I’m looking at are very rural areas. And some of these are like if you look at the price of a mobile home and these, these are not what I would consider cheap. And if you actually look at the level of construction, I mean, you’ll find that they have to follow the same building codes that you’ll have to follow if you’re actually building a slab home, how you’re doing different things, if you’re building on a slab, but you still have the same electrical codes and things like that in a different subset.
Doug: But as far as tenants and thinking about a park, I said when I, I have long term tenants there and these are people that I don’t have problems with. You know, when I think of like the places that I struggle with and as I struggle with, I think if you pick your properties, and you take care of things that it really takes care of itself. But this mobile home is not a park, it’s not one that I worry about. We have good tenants there. You pick on the front end and when you have any kind of multifamily, you have people that are next to others. You owe it to them to weed out bad actors and get rid of them whenever that happens. And that’s I think that’s a big part of it. Because if not, then that is like a cancer that will go through your park. If you have somebody, that’s for the sake of exaggeration that’s running a meth lab in the back or whatever it may be. I haven’t heard that. But if you had something to that degree, something that was bad or you had somebody just toxic person and have a criminal behavior involved, then you owe it to the rest of those tenants to root that out.
Brian: Oh yeah, because you’re driving away your good times.
Doug: Absolutely. You owe that to people that live there. And then for the business side of it, I mean, that’s going to affect your investment. Your rents are going to fall. It’s going to impact your turnover.
Brian: Yeah. So, I’ve actually heard I don’t I’ve never owned a mobile home park myself. I have heard that the turnover rates for mobile home parks are actually quite low, even lower than middle middle-class housing and way lower than Class C or D housing, which is comparable income wise. But yeah, I’ve heard very low turnover rates for these parks.
Doug: Yeah, if you’ll think about like you have five units there, I have one unit that’s had it’s had two tenants in four years. The one unit obviously had the tree go through it and that made that tenant turnover right. But then the other three had the same tenant since the person before me. So, we’re talking four- and five-year tenants. That’s great. And so, whenever we had to go through and do like where we pass, some cost back onto the tenants. These, I still say, and they still like living there. But that being said, we know when they have roof issues or we have the tenant, you know, he had a small an air conditioning unit, but when it went out, we go through, and we replace it.
Brian: So, we’ve got another question here from Christina, she says others, is there special due diligence that you have to do when purchasing a mobile home park?
Doug: So, if you’re considering a park that has park-owned homes and you’re considering going over to tenant-owned homes, then you’ll definitely want to approach it differently because you’re really in that scenario. You have to approach it like you’re buying nodes first and you’re trying to convert it over that way. So, you’re like, hey, I’m not, I’m not getting rents in perpetuity. Getting a cash flow payment for a defined period of time, and you have to essentially build your numbers into that accordingly. I’m sure there’s some calculators out there. I’ve done my version of it that I use when evaluating deals like that. But I look at those as income streams that have defined periods and I generally look at them in a 15-year window. Ok. That’s the way I look at because I’m originally going to finance them out, probably on a 10-year note, and then I’m going to show five years of no, no income from that, and then just a lot of rent. So that also kind of shows me what it looks like in a stabilized period when you no longer have that note to think about.
Brian: Ok. And then got a follow up question. Are rents increasing at the same rate in mobile home parks as in regular brick and mortar houses?
Doug: I would say as a percentagewise, I would say yes, at least in the markets that I’m looking at and I’m out there in north Louisiana.
Brian: Ok. All right. Well, Doug, I want to be conscientious every time I know you’re hanging out at the airport there. Baggage claim. Where can people connect with you if they’re interested in buying homes from you? Maybe mobile homes, maybe regular properties. Yeah, we’re having people connect with you.
Doug: Yeah. So, our buying website is monroehomebuyers.com. But you can easily reach out to me at [email protected], and I’m always looking to connect, looking for people, looking at investing and also just looking to bounce things off of each other and just talk real estate. Just like we’re doing here, I’m always learning something. I always learn something from anybody. We all have unique experiences that bring us here.
Brian: I’m going to add a link to your website here. Munroehomebuyers.com And that there show notes for the podcast version as well. Doug, any final thoughts that you want to share before we call this episode complete?
Doug: Obviously, just thanks for having me on. I would say that anybody is considering it. I mean, it’s one of those things where you find somebody who has them. You’ll find that most of your mobile home parks that are local to you. If you’re in that 30 30 unit and under range, they’re going to be individual owners and you’re going to find that like with most people who you probably talk to at real estate, at some stage, they’re really open books. And if you’re willing to go out and just invest a little bit of energy and find that mentor, find that that person is willing to impart some advice. I mean, you’ll find that most people are open books, and I would say that that’s been one of my biggest pieces to my growth. It’s just been finding people that are willing to share and open up to me, and that’s been very good for me and I’m grateful for it.
Brian: And it’s great advice. I mean, you know, every new investor in the world should go out and find a mentor or a coach, you know, real estate investing course. You know, whatever it is, get help so that you don’t. So, you can avoid those avoidable mistakes, right?
Doug: that’s right.
Brian: Because there are a lot of pitfalls in the road. Most of them, you can step around if you have someone to show you the ropes. So, Doug, thank you so much for joining us today. It was great speaking with you. I love what you’re doing with the mobile home park investing. And yeah, we look forward to having you back on the show. Maybe a year from now, we’ll see what you’re up to. Then maybe you’re at, you know, the 30 to 30 home parks. Yeah, I’m excited to talk to you again soon. So, thank you again.
Doug: I enjoyed it. Thank you.
Brian: All right, guys, we will see you next Tuesday. That’s not true. We will see you on Thursday at 2 p.m. for a free webinar, and I added a link to the comments here and in the show notes. Reserve a seat and we’ll see you guys’ Thursday at 2:00 p.m. Eastern. All right, bye now!