341: Real Estate Investing in Billboards and Mobile Home Parks – Part 1

SHOW NOTES FOR EPISODE 341: REAL ESTATE INVESTING IN BILLBOARDS AND MOBILE HOME PARKS – PART 1

Billboards and mobile home parks are two real estate investing niches that few investors know well.  Yet both niches have limited competition, are fairly easy to learn, can be extremely lucrative and generally provide high annual returns.  In this first part of a two- part podcast series, Frank Rolfe, who is a leading expert in both niches, shares insider information that will help you get started in these high yield real estate investment strategies for very little start-up cash.

What You Will Learn

• How you can generate hundreds of thousands of dollars each year by buying in volume those small little billboards you see on remote country roads
• How easy it is to get seller financing with most “mom and pop” owned mobile home parks
• The value of identifying a good working business model early on and sticking to it
• Why “mom and pop” owned mobile home parks are the best to acquire
• Why it’s not worth it to position your mobile home park for seniors
• The 5 things that tell you if you have a good or bad mobile home deal

About Our Guest

Frank Rolfe

Frank Rolfe has been an investor in mobile home parks for almost 30 years, and has owned and operated hundreds of mobile home parks during that time.  He is currently ranked, with his partner Dave Reynolds, as the 5th largest mobile home park owner in the U.S., with over 250 communities spread out over 25 states.  Along the way, Frank began writing about the industry, and his books, coupled with those of his partner Dave Reynolds, evolved into a course and boot camp on mobile home park investing that has become the leader in this niche of commercial real estate.  Frank also has invested in billboards and has taught courses in how to invest in billboards as a means of real estate investing.

More About Frank

• Went to Stanford University
• He want to get into the MBA program and he was told he should start a business and write about it and that that would help his chances
• Graduated a year early with his undergrad degree
• He had one year to start a business, sell it and then write a glowing report about the experience.
• He asked around to some of the parents of his friends on what would be a good business to start and sell within a year,  But a lot of the ideas weren’t that great:
  • Start a Subway sandwich franchise because it’s only $10,000.  But he knew that wouldn’t work because he had to sign a lease and he had a franchise agreement
• One parent said, “What about billboards?”
  • It’s weird
  • No one does it
  • You could buy/build a few and sell them fairly easily

Starting a Billboard Business

• Started calling around to bill board companies to get information
• Most of the companies though he was a lunatic
• He went in search of a billboard location to build upon
• Failed miserably
• After 9 months, he had nothing to show
• Suddenly he lucked out and got  a meeting with a guy about building a billboard on his property
• The guy felt sorry for Frank and said, “You obviously don’t know what you are doing but you seem to need this more than the other billboard companies who have approached me, so I’ll sign with you.”
• That guy next convinced his neighbor to go with Frank too. And the guy convinced his dad to sign up to as well.
• So now Frank had 3 billboards but it was the 10th month so he thought he would postpone applying to the MBA program for another year.
• Then, he got up to 10 billboards and he postponed business school another year
• Over the next 14 years, he ended up becoming the biggest owner of billboards in the Dallas/Ft Worth area with 300 billboards
• Worked 7 days a week
• Was in the right place at the right time
• He built a little office under one of the billboards where he owned the land
• Got a random call from a guy named Dan Simon whom he had met once, who’s company (Universal Outdoor) just went public and he wanted to buy Frank’s billboard business
• Frank threw out a random price and the guy took it
• Now, Frank was looking for something else to do
• He started calling all his old billboard landowners to see what businesses they had
• One guy he called, Ron, (whom he had put two billboards on his land) owned a 83-space mobile home park and he said, “If you want to know about my business, why don’t you just buy it from me right now over the phone.”
• Ron said he would sell it to him for $400,000 at only $10,000 down and he would carry $390,000 for 30 years
• Frank responded with, “If you are so quick to sell this, something must be wrong.”  Ron then confessed that he was losing $2,000 per month
• Frank did some quick calculations, was convinced he could turn it around and ended up buying it

Becoming A Mobile Home Park Owner

• His perception of mobile home parks up until that time was very negative – nothing but misfits and criminals
• The first thing he did, after he bought it, was to run down and get a concealed handgun license
• He soon learned that his stereotype was all wrong
• He set-up an empty existing single-wide trailer in the park to become his office
• Sat in the office from 9 to 5, everyday, managing the park for a year as learned and studied the business
• He had an assistant that lived in the park who would watch things at night
• After the first year, as he felt he had learned the business pretty well, he was able to step back and have his assistant manage the park during the day, while he took a more passive role
• That was the beginning of his odyssey in the mobile home park business

Turning the Mobile Home Park Around

• When he was first checking out the park, Frank asked Ron to send him the P&L for the park
• He scoured it right away to look for things he could cut, that were not nailed down
  • The first thing Frank found was a $2,000 per month cable expense
    • He called to find out what it was and found out that Ron was providing free cable for everyone in the park
    • He then asked the cable company, why there isn’t a discount for so many accounts and he said because Ron never asked
    • He asked when the contract expired and the guy said it was month-to-month
    • So, Frank said, “Cancel it now.”
    • The park was also have empty and he was still paying the cable for the empty spaces
    • In one move, he got rid of the negative cash flow – Boom!
• Next, he still needed to pay back the seller
  • His loan was$390,000  at 5%, so he still needed more income (he was about $2,000 short)
  • The lot rents were only $175, even though market rent was $300
  • So, next, raised the monthly space rent to $300
• He still had nearly half of the park vacant so he started rehabbing the trailers and renting them out
  • He got to break-even and then he got to positive cash flow
• In year two, he got his next big lucky break
  • They shut down a nearby mobile home park in Dallas redevelopment to build a Home Depot
  • His mother saw the story in the paper and said “You might be able to get a customer out of the deal
  • He went to the park owner and said he has a park in South Dallas and asked it he had anyone he could spare
    • The owner said, “You are what I was waiting for!”
    • The owner said he would even pay to move the people
    • So, Frank repopulated the rest of his park with sold Hispanic families
  • His park, before, had mostly carnival workers, and not such a great tenant base.  Now he got a great quality of tenant with “pride of ownership”
  • His problem tenants mostly left and he re-populated with more nice tenants
• He now felt he knew home mobile home parks were supposed to work
• He now set out to find more “broken” mobile home parks, get the seller to carry the financing and repeat what he just did – he now had a model to follow

In Pursuit of More “Broken” Mobile Home Parks

• He spread the word with local brokers
• Hit up other park owners
• He found insanely cheap, damaged goods
• Found his second deal
  • 17 mobile home park lots with brick 3 bed/2 bath home
  • Lake Worth
  • Purchase prince: $65,000.
  • 5,000 down
• He found with a lot of the “mom and pop” owned mobile home parks that, at some point, the owners just lose all energy and stop managing well
  • They pick-up bad tenants – people who can’t get in anywhere else
    • Didn’t do background checks
    • No criminal screening
    • No credit screening
    • Word-of-mouth gets around and they tell some of their friends and the bad tenants keep coming
• He bought one mobile home park at a main thoroughfare in Oklahoma City
  • No one would touch this park
  • Terrible reputation
  • People lived in structures that no one should live in
    • Old school buses
    • A family of 4 living in a pop-up tow camper, pulled by a pick-up truck (no bathroom, no power, etc.)
      • The family used the bathroom at a nearby McDonald to bathe and go to the bathroom
  • Today, it is all newer, mostly singe wide manufactured homes
    • Nice cars
    • Carports
    • Nice landscaping
• When he turns these parks around
  • Good tenants love it
  • Bad tenants leave

Tornadoes and Mobile Home Parks

• The number on area in the country where tornadoes hit is between Oklahoma City and Tulsa in Oklahoma (Tornado Alley)
• In 2013, there was a grade five tornado that hit Moore, OK but it didn’t hit any of his parks

Senior Housing and Mobile Home Parks

• You need to get the senior housing designation through HUD
• But once you have that, you’re stuck with that focus – it’s all seniors or nothing
• He’s found parks that are vacant, that have the senior designation, but for some reason are no longer attractive to seniors and they remain vacant

Biggest Mistakes

Billboard Business

• During the great savings and loan crash in Dallas in the late 1980s
  • He went on a wild buying spree
  • Many of the banks and S&Ls in Texas and Oklahoma were taken over by the FDIC
  • He had to look outside of the Dallas/Ft Worth area for a bank – ended up in Montgomery, Alabama
    • Forged a deal with a bank where they would finance any billboard  deal he could find for the value of the steel and scrap (approximately $10,000)
    • Had a great relationship together
    • He became the most prolific buyer you ever saw buying foreclosed billboards
    • He went directly to the FDIC, offer them $10,000 to sell right now – no due diligence
    • Most said OK because they didn’t understand the billboard business and they didn’t want to even learn bout them
    • As he kept buying up more and more billboards, the bank recognized him as a master deal maker
  • One day, he came across an entire billboard company for sale
    • Saw it as a great opportunity
    • But it came with a couple of signs way outside his comfort zone – valued at $100K each that rented at $5K per month for each side of the billboards
    • He typically buys signs at $10-20K
    • On this deal,  he was buying signs at a price much higher than he was used to
    • The bank, who saw him as the “master deal maker,” told him he could do it
    • The railroad is the #1 owner of billboards in America
      • Railroad leases are only 24-hour in length – a one-day lease that automatically renews everyday, for one day – they’ve done this ever since the 1940s
      • He couldn’t change the lease – he was stuck with it
      • He went to the railroad and said, “You’re never going to develop this land, are you?”  And they said , “No.  We’ve owned that land over 100 years”
        • So, based on what they said, he bought the company with these high-priced billboards
        • 6 months later, he receives a letter that says they were cancelling his lease on the two billboards and to remove the billboards immediately
        • He sold the signs for $15K as scrap, which left him at $170K in the hole
        • The bank threatened to call the loans if he didn’t immediately replace the signs and that income
  • What he learned from that deal – Don’t get involved in things if you can’t take survive the “worse case scenario”

Mobile Home Park Mistake

• He was very close to giving back “Glen Haven” Mobile Home Park (83-space park – his first) back
  • It had “master meter” gas, not individual tenant meters
  • Lost the gas during the peak of winter – no heat, no way for residents to cook
  • He had a “non-recourse” note held by the previous owner and he was seriously considering just pulling out and having it go back to the previous owner
    • The most he would lose would be his down payment and whatever he paid for improvements
  • But, instead of pulling out, he worked on it and found out that he could go with propane tanks to fix the problem
• What he learned from that situation is that, if you pull back and think things through, you can often come to a good solution
  • They got creative and had contests for coldest houses
  • Had people hare houses once they got their propane
  • They work and got through it eventually
  • “Problems are only opportunities in work clothes” – Kaiser Steel founder

Biggest Successes

Billboard Business

• After 14 years, he realized that there is big money in volumes of “little pieces”
  • Those little tiny billboards you see on those little two-land country roads across America
    • Typically make $2-3,000 per year
    • Almost zero management required
    • You rent out the ad space one time per year
    • No moving parts after you put up the ad
    • Don’t have to visit the sight more than once during the year (unless there is a storm that blows off a panel or something)
    • Easy to control in large volume
    • If you have 100, you’re earning $200-300,000 per year.  He owned 300 (earned $600-900,000 per year)
    • It’s all about scale

Mobile Home Park Mistake

• The unique opportunity you have by buying direct from mom and pop owners
  • You can get really good deals
    • They are generally unsophisticated on values
  • Business is not usually running at maximum efficiency – room to increase income
  • Seller financing
    • Easy to get from mom and pops
    • Most own property free and clear
    • No banks
    • No bank applications
    • Low interest
    • It’s better for seller – tax wise

First Things That Reveal if a Deal is a Good or Bad Deal?

Mobile Home Parks

• Five “I.D.E.A.L.” Things That Tell You That When a Mobile Home Park Deal is Good or Bad

  • I – Infrastructure – They want it to be like a high-density subdivisions – professional styled city water & sewer, paved roads & parking pads
  • D – Density – Older parks had smaller pads and if you up date it, you could lose 3-4 spaces to get a pad to accommodate today’s mobile homes
  • E – Economics – Trying to make a 20% cash-on-cash return.  Cap rate has to have a 3 point spread over the interest rate
  • A – Age of the Homes – You don’t want the homes to be too old or too new.  Modern floor plans that are paid for
    • Too Old – 1960’s homes and older  are too small and are no longer what customers want to live in.  Hard to get anyone to move-in.  High density.  Weak Infrastructure.
    • Too New – Usually means they still have a mortgage.  And mortgages get foreclosed on sometimes.  It costs about $5,000 to move a mobile home
    • Best – 1980’s to 1990’s Homes
      • 1980’s have rounded roofs (looks like a loaf of bread) and 1990’s have pitched roofs
  • L – Location – Only two locations that work: 1) The gritty urban, inner-city location where you can walk to everything that’s happening and exciting nearby  2) Subdivision, urban feel.  Good school district
• No location will have all the above but some have more than other – Southern California has most
  • There’s a park in Newport Beach, right across for the beach
    • $2,500 per lot
    • It meets almost all of the requires to be an IDEAL property
    • But infrastructure is a mess – all utilities master metered
    • Older park,  Therefore it has weak infrastructure and higher density.
• Slaves to Bank Debt
  • When you buy a mobile home park, unless it has seller financing, it’s all about bank debt
  • The buyer has to bow down to whatever the banks want
  • The banks and most owners don’t want PARK-OWNED HOMES!
    • Owners don’t want to own anyway
    • The true value is in the lot rent
    • Mobile homes are considered “personal property” and they can’t be capped (given a cap rate)
    • MS, LA, AL, GA lot rents are cheap ($75 per month) so they put in nicer homes and charge $700 a month rent
    • In Ohio – lots rent for $450, with homes – $750, giving a $300 spread
      • From that $300, he has to pay
        • taxes and insurance – $50
        • repairs & maintenance – $100
        • Only $150 cash flow per lot

Billboard Business

• After 14 years, he realized that there is big money in volumes of “little pieces”

Mobile Home Park Mistake

• The unique opportunity you have by buying direct from mom and pop owners

Advice for Old Dawg’s Considering Real Estate Investing

• How would you advice our 50plus audience to get started in real estate investing and how it can work well for one’s retirement years

Current Business

• What is the one thing that is really exciting you about your real estate investing business today?
• What vision do you have for the future of your company?

Rap-It-Up

• Favorite real estate book
• Favorite business book
• Most valuable web site for success (other than your own)
• Favorite app
• Favorite quote
• If you had to start all over, knowing what you know, and you only had $1,000, what would you do to launch your real estate investing business?

THIS CONCLUDES PART-ONE OF OUR PODCAST SERIES ENTITLED “REAL ESTATE INVESTING IN BILLBOARDS AND MOBILE HOME PARKS.”  STAY TUNED FOR THE EXCITING CONCLUSION ON MONDAY, SEPTEMBER 9th

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