In this post, we are learning about mobile home parks: why are they a good asset class to invest in, how do you go about analyzing a mobile home park, how do you get rent comps when there are no parks near you, and how to find these deals? We are interviewing Todd Sulzinger, founder of Blue Elm Investments, Todd is a mobile home park investor and syndicator. He has been investing in real estate since 2013, and prior to that he had a successful career in corporate finance in Silicon Valley.

How did you get into the mobile home park asset class?

It happened over a long period of time, looking at a lot of different markets and asset classes. I started investing in real estate back in 2013, buying single family homes in DFW. With the idea of going where the returns are better, out of state, starting with single family homes, and building up the portfolio. But as you soon find out, there's only so far you can go. If your goal is to find a way to replace your passive income with real estate income, it can take a long time to get there with single family homes.

At that point I started to look into putting together real estate syndications, since I found that a lot of people that I talked to and worked with were interested in investing in real estate, but didn't want to do all the research and deal with property management, rehabilitation, etc. But they were interested in taking advantage of some of the benefits of real estate. So I started to do research into doing syndications, pulling groups of investor's money together, going to conferences and learning all I could about it. When you start down that process, you try to decide "where do I invest?" Do I invest in a certain state, a certain city, a certain asset class. I was looking at everything: groups of single family homes, apartments, self storage, mobile home parks, and RV parks.

I had always been intrigued by mobile homes, and I knew a few people in that business. I guess the one thing that I had heard about those that could make them potentially difficult is that they're harder to manage than an apartment or a single family home. It's not an asset class that you can find professional property managers, typically, as common as you can for apartments and single family homes. But I was able to create a relationship with some mobile home park consultants and property managers that have two parts of their business. As I built my relationship with them, I found that they could be a great resource for me to help me with the acquisition and the due diligence and help me with the property management, because it really is a certain skill set to deal with that product type, that tenant type, that's different than apartments and single family homes. And these consultants really have that process nailed.

Once I found that relationship and started to feel comfortable with working with them, I decided to take the plunge and focus on mobile home parks and take advantage of some of the other big benefits of mobile home parks, which is the returns are better than most other real estate assets. They're very recession resistant. There's definitely concerns now with what's going to be happening in the economy in the future. And the mobile home park business is very resistant through any kind of recession movements in the economy.

Why is that?
If you own your own mobile home, then you can often rent the pads themselves. In the markets that I look in, you get between one hundred and fifty and three hundred fifty dollars a month. If you don't own your own home, but you're renting a mobile home from a park owner like myself, you might be able to rent it for between $450 to $750-800 dollars. If somebody is looking for a place to live, that's potentially less than an apartment or a single family home, then mobile home parks are one of the best choices they have.

A lot of people when they're looking at a place to live, and if they're comparing an apartment that might be going for, say, nine hundred or a thousand dollars in the market, with some mobile home that might be renting for five or six hundred, with the mobile home, they have their own home. There's nobody above them or to the side of them, it's a single story property that they can drive right up to their house, and they potentially have a little bit of a yard around them. So for a lot of people, it could be a more attractive place to live, and it's at a lower price point.

If there's any issues where wages might become stagnant or people may lose their jobs, where somebody might rent an A class apartment, those people might go down to be B class, B class might go down to C class. Mobile home parks are typically in the C class range. Once you hit below that, there's really no other place to go. If people are looking for an affordable place to live. Then mobile home parks are the best answer out there. Mobile home parks are the only asset class in the country that there's less and less of every year. There's always new apartments and homes being built across the country all the time, but there's no new mobile home parks being built. And oftentimes they're actually closing down, whether that's just through redevelopment, or abandonment over time. That is one of the other things from a supply demand standpoint that is really favorable for the mobile home park space.

Does that go hand in hand with the tiny home movement? I know that the government does not want more mobile home parks approved just because they don't get real estate taxes out of it. But how about the tiny home movement?
People often ask that. You read stories in the news about how people are looking to find a cool place to live, and that they're downsizing and looking for a simpler lifestyle. Typically, the tiny homes are more expensive on average than a mobile home would be, and they're smaller. I think the tiny homes are in the 350 to 400 square foot range. If you're a family with a couple of kids, that's not going to work out.

And the prices of those are quite a bit more than a regular mobile or a manufactured home. We can acquire used mobile homes and put them into place in the $18,000 to $25,000 range. Or you could get a new mobile home that's on the economy end of the scale for, say, $35,000 to $40,000. So when you compare something with the two or three bedroom mobile home for $35,000 to $40,000 dollars for something newer, to a $70,000 or $80,000 tiny home, typically the economics don't work out to put those in place.

I find it really interesting how they market it. It's definitely a smaller home as you were seeing, but it's more expensive just because it's a popular movement.
They're really cool, they have great porches, patios, and high end amenities. I was in one when I was in Seattle last year and they had a display outside, it is really nice. Very small, obviously, and you have to wiggle your way around the home, but very high end amenities, so I don't think they're made for somebody who's looking for an economical place to live.

How do you go about finding deals in a market that is shrinking like the mobile home park market?
The good thing is that there are over 40,000 mobile home parks in the country. So there is a lot of supply. There are three public companies that own mobile home parks, and some other larger operators. From what I've researched, they own maybe between five or six thousand of those 40,000. So that means there's a lot of mobile home parks out there that are owned by smaller owners, smaller operators that might own several parks, or mom and pop operators that may only own one or two. So while the supply is shrinking, there's still a lot of opportunity out there to acquire parks.

My primary source has been through brokers. There are a few brokers out there that specialize in the mobile home park space, as well as other commercial brokers who periodically get listings for parks. I recently closed on a park in Georgia, and I found that one through a broker who specializes in mobile home parks. The mobile home park consultants that I work with have quite a bit of deal flow that crosses their desk. So I see a fair amount through them as well that have the potential to purchase. And recently I've also started to see more activity on the partnering front where I've seen quite a few other people putting deals together who are looking for people to partner with. They may have a park under contract and they're looking for people to partner with to put deals together, and sometimes things come across my desk from that angle as well.

Thank you for bringing up the last deal that you made. I think that goes hand-in-hand with my next question on how do you analyze a mobile home park. Why don't we take that one as an example and we go over the numbers, if you would like, so we can understand how to analyze a mobile home park.
It's a multi-step process. When I'm looking at potential acquisitions and bringing them through my funnel, I've a simple spreadsheet that I have created where when something looks like it might work. I plug it into the spreadsheet and take a look at the numbers to get a quick sense of whether it's even worth pursuing further.  If it looks like it is, I have a more detailed model that I put numbers into.

But it's like any other multifamily business, you look at the amount of income that it's generating. With this park, there are two parks that are about a mile from each other. The seller owned five parks, and he was selling these two because they were about an hour from where he lived. And it was just too hard for him to manage parks that where that far, he had to drive to the park a couple times a week to collect rents because he was a very hands on manager.

The acquisition price for the two parks together (there were 71 spaces) was $825,000. There were about fifty five homes that the park owns. And there were about 10 lots that were rented by tenants who owned their own homes. And there were a few vacant spaces that we will eventually need to fill in. So then you look at the last 12 months of income statement. What is the history of vacancies? What have the operating expenses been? Go through the due diligence process of visiting the park and seeing if there are any other infrastructure issues that might need to be taken care of. From there you take a look at the net operating income and the purchase price to see if this is something that will make sense for your investors. Can there be enough safety, in return and potential upside, that it'll be attractive for me to bring to my investor group?

How do you go about rent comps if you bought the entire neighborhood and there is nobody else near you? How do you know by how much you can increase rents?
That's another funny thing about the mobile home park business. If you compared it to apartments or single family homes and you just drove around the neighborhood, usually apartments might have a name to them or a phone number that you can call.

In this town that I bought the parks, there are about 50,000 to 60,000 people. I estimate that there are probably 25 to 30 mobile home parks. There are some that maybe have 10 spaces, other ones that might have 50 or 60. But if you drive through town down the road, you'll see that there are about 25-30 mobile homes on that lot. You then drive a little bit further a couple of miles down the road and there's another 25 or 30. Most of the time they don't have signs or names on them. They're just a piece of land that somebody bought, put in all the infrastructure and started renting the lots or renting the homes.

That can be a little challenging because, if you do a search for mobile home parks in this town, only about five or six show up because those are the only ones that are named. None of them have websites, they're not very sophisticated sellers where they have an elaborate operation. A lot of it was making phone calls for the ones that did have signs outside of their parks and asking them what is their lot rent, how much they rent their two bedroom, three bedroom homes for, and doing our comp search that way.

And then you can also do comps based on apartments. If we know that two bedroom or three bedroom apartments are going for between $800-$1,000 then we have pretty good comfort that if we have a nice product, and we want to rent it for $500-$550, we'll be pretty safe.

One of the other things that we like to do is run test ads on Craigslist. After we had the parks under contract, but before we acquired them, during a due diligence period, we placed ads on Craigslist saying "Two bedroom mobile home for $450, Three bedroom mobile homes for $550. Call this number". It's a good way to test what the market would bear. And we got a very favorable response.

Right after we put the ads on Craigslist, we had multiple people calling and saying "Yes, I'm interested. Need to move right away. When can I come by and take a look at the homes?" If it would have been a case of no responses at all, we would have tried again at a lower rent amount because there's a possibility that the rent would have been too high. If in that case there was still no response, then it would have not spoken well to the market. Based on the fact that when we did these test ads, we got a favorable response, we felt comfortable that we were going to be able to meet the rents that we were projecting in our proforma.

Is there anything else that is important for our listeners to know about mobile home parks?
If they're interested in them they shouldn't be scared of them. Again, they're different animals to manage than other multifamily assets. But if you have the right partners that can have a good control on the onsite management, then I think they can be really great investments. That combination of good returns, fewer number of parks in the country and recession resistance is great. And because you're often dealing with mom and pop sellers, they're often less sophisticated sellers, so there is an opportunity at times to get a little bit better price than you might have if you were competing against quite a few people trying to buy an apartment building.

And sometimes seller financing is available. We were able to get seller financing on these parks that we closed. The seller wanted to get out of the properties because he didn't want to travel down and manage them as much as he had been. And he really didn't need the money. So we were able to work with him and find out what his motivations were, and what he was looking to get out of this. He didn't want to pay the capital gains on selling the entire park. So we were able to work through a negotiation process to say "If you can carry back a note on the property, you'll get monthly income. You'll be out of the day to day management, and at worst case, if we default on this loan, you're going to take back this park that you already know how to run". So it made him feel comfortable that he had a good piece of collateral backing his note. He didn't have to pay all the capital gains, but he's still getting some income on the note that he's carrying.

Todd Sulzinger