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SHOW NOTES FOR EPISODE 197: ARE MOBILE HOME PARKS A BETTER INVESTMENT THAN APARTMENTS?
He developed a love for investing at age 17 but ended up working for “the man” at a Silicon Valley start-up. With the goal of gaining financial independence and growing wealth, Jefferson Lilly searched for the perfect investment. In this episode, hear how Jefferson’s journey ultimately resulted in him becoming a multimillionaire mobile home park investor.
What You Will Learn
- Why Jefferson believes mobile home parks are the best multifamily investment
- How he formed a powerhouse advisory board comprised of successful mobile home park owners before he purchased his own
- What are the key benefits of mobile home investing
- A unique strategy where you can get started in mobile investing with as little as $0 to $2,000
- Why mobile home tenant turnover is only 2%, compared to average apartment turnovers of 40%
- Why mobile home tenant evictions is so rare
- The advantages of investing in a asset class that actually has a shrinking market
- An 8-point comparison of mobile home investing vs. apartment investing
About Our Guest
Jefferson Lilly
Jefferson is a self-made millionaire, mobile home park investment expert, educator, and industry consultant. He is the co-founder of Park Street Partners, which owns 23 MHPs coast-to-coast totaling over $54mm in value. Prior to co-founding Park Street Partners in 2013, Jefferson spent seven years investing his own capital acquiring and operating mobile home parks. Before becoming an investor full-time, Jefferson spent nine years in sales leadership roles with three venture-backed startups in Silicon Valley. Jefferson has been featured in The New York Times, Bloomberg Magazine, and on the ‘Real Money’ television show. He’s earned a B.A. from the University of Pennsylvania and an MBA from the Wharton School of Business.
More About Jefferson
- Always interested in investing
- Bought first stocks at age 17
- Later on, decided to get out of the stock market diversify
- Looked at buying houses or apartments
- Looking on Loopnet.com
- Saw 99 apartments at around 9 CAP and 1 mobile home park at 12 CAP
- Saw mobile home parks as more profitable
- Did research, buying books and tapes, attended seminars
- Built an “unofficial” advisory board of about 10 guys who owned mobile home parks
- A year and a half later, closed on his first mobile home park purchase (11 years ago)
- Still working day job in Silicon Valley start-up
Growing His Mobile Home Park Portfolio
- Quit his full-time day job after he bought his third mobile home park
- Started a partnership with someone else who owns 23 parks
- Starting a fund to buy more
- Consulting practice today
The Main Benefits of Mobile Home Parks
- The cash flow
- Very profitable niche
- He’s a big fan of value investing (Warren Buffet)
- Fairly priced
- Buy at 9 CAP
- Get 15-20% cash-on-cash return
- Can convert some mobile homes to rent-to-own
- Cannot get the same returns, for the most part, in the stock market
- Since the 1990s, manufacturing of mobile homes has improved and now are more like regular homes
Handling Evictions
- Very rare to have evictions if the person owns their mobile home for a $300 monthly lot rental fee
- Has only had to deal with two evictions like that in the last 11 years
- He has had more evictions of those renting park-owned homes or renting-to-own situation
- In an eviction of a tenant-owned home, the tenant-owner would sign over the deed or ownership documents or sell it their selves and pay-off the debt
- Sometimes, people who are financing their homes through the bank default on their loans and the bank evicts them and takes ownership of the home.
- Cost to move a double-wide trailer out – $8,000. Single-wide – $4,000
- The bank is responsible for paying the rent at that point
- Mobile park owner and bank would negotiate an agreement
- Bank may ask for free rent while they sell the home
- Bank may pay rent
Biggest Mistake
- Starting later in life (39 years old)
- Viewed himself as a value investor buying mobile home parks and not as a money manager (currently has raised over $20 million to buy other parks)
- Waited too long to scale capital to buy other parks
Shrinking Inventory
- Over the last 30 years, almost every city and county has outlawed the building of additional mobile home parks construction. Or have added building restrictions making it difficult for new construction on new or existing parks.
- The advantage is that there are less parks available and, therefore, no competition from new starts and a growing demand
Biggest Success
- His “Mobile Home Investors Podcast”
- Educating people
- Attracting new investors
- Getting new deals
Mobile Home Parks vs. Apartments
- Management Issues
- Apartments
- Easier to find experienced managers
- Many experienced property managers are available across the U.S.
- Mobile Home Parks
- Must find someone living in the park
- Have to find/train their managers from existing tenants
- Not allowed to knock on doors to collect rent – not a collections business
- Only post late notice
- If don’t tenant doesn’t pay
- Goes to court
- Apartments
- Ownership Issue
- Apartment
- Tenants can leave easily
- Mobile Home Parks
- Most own or rent-to-own
- Have more to lose
- Apartment
- Cost of Rents
- Apartments
- Usually higher than mobile home monthly rents
- Mobile Home Parks
- Lower rents
- Means more disposable income, easier to pay
- Lower rents
- Apartments
- Length and Definition of Tenancy
- Apartments
- Sign a lease
- Can leave after one year
- Can break lease (but would lose security deposit)
- Vacant apartments don’t bring in rent
- Apartment vacancy rate – 4.5%
- Apartment turn-over rate – 40-50%
- Mobile Home Parks
- Difficult to move homes
- Therefore, tenant-owners stay longer
- Park owners view the “mobile home as the true tenant”
- As long as the home is there, someone will be paying rent
- Most are owners/tenants
- Trailers have typical 50-year useful life span
- Typical turn-over of tenants – 2% per year
- Apartments
- Repairs & Maintenance
- Apartments
- Owner pays
- Mobile Home Parks
- 25% of apartments
- Tenant-Owner pays
- Owner covers the rest of the land (lawns, snow shoveling, common plumbing, electrical, etc.)
- Apartments
- Depreciation
- Apartments
- Standard 27 ½ year depreciation period
- Mobile Home Parks
- 80% of property can be depreciated in 17 years
- Can take down in almost half the time of apartments
- Get twice the tax benefit
- Apartments
- Inventory Supply
- Apartments
- New apartment buildings being built at rapid pace
- Mobile Home Parks
- Declining supply
- No new parks being built
- Existing closing down – 1% per year
- Apartments
- Demand
- Apartments
- 22%
- Mobile Home Parks
- 1-2%
- Apartments
Mobile Home Park Numbers
- Average purchase cost-per-pad – $20-25,000
- Average rent – $300-350 per month
- Average expenses – $150 per pad
- Average cash flow – $200 per pad
Other Advantages
- Less Competitive to buy
- Smaller niche
- 1,000 parks up for sale yearly vs. 100,000 apartments
- More mom and pop owners – less institutional/international players
Advice for Old Dawgs Considering Investing
- Good for pre-retirement and current retirees
- Price of entry is low
- One guy bought one mobile home for a few thousand dollars, fixed, flipped it, sell as rent-to-own, generate $200 monthly, repeated
- $10-20K can buy a small 5-10 space park
- Do rent-to-own agreements
- Don’t need $100s of thousands or millions to get started
What’s Ahead for His Company
- About to launch a third fund
- Hope to purchase 10-15 more parks over the next 18 months
- Hiring lots of people
- The only shortage is good human capital
Rap-It-Up
- Favorite real estate book: Am I Being to Subtle by Sam Zell
- Favorite business book: The Snowball by Alice Schroeder (about Warren Buffett)
- Favorite quote: “Whether you think you can, or you think you can’t – you’re right.” – Henry Ford
- 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? Pay a very modest retainer to a law firm to get an Offering Memorandum together to raise $5 to 10 million dollars to get into the business,
How You Can Reach Jefferson
This Episode Brought to You by HealthIQ.com
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