Interview with Chad Freeman of MHPinvestors
Updated: Nov 15, 2022
Listen on Apple Podcast here: https://podcasts.apple.com/us/podcast/interview-with-chad-freeman-of-mhpinvestors/id1520681893?i=1000555598110
Welcome back to the Passive Mobile Home Park Investing Podcast, hosted by Andrew Keel. On this episode of the Passive Mobile Home Park Investing Podcast, Andrew talks with Chad Freeman from MHPinvestors. Chad has a unique perspective on the manufactured housing industry and the real estate businesses as a whole. He shares his insights on the future of the mobile home park industry, mobile home park investing, and the lessons he has learned throughout his time investing in real estate. Chad and Andrew discuss the hurdles the industry could potentially face, as well as the perks during recessionary times.
Chad has been a part of the real estate industry since 2005. He made the jump from residential real estate to commercial real estate and has overseen all aspects of a business. Chad, is a pilot currently and also is taking the lead in scaling his company MHPinvestors to new heights with his co-founder.
Andrew Keel is the owner of Keel Team, LLC, a Top 100 Owner of Manufactured Housing Communities with over 2,000 lots under management. His team currently manages over 30 manufactured housing communities across more than ten states. His expertise is in turning around under-managed manufactured housing communities by utilizing proven systems to maximize the occupancy while reducing operating costs. He specializes in bringing in homes to fill vacant lots, implementing utility bill back programs, and improving overall management and operating efficiencies, all of which significantly boost the asset value and net operating income of the communities.
Andrew has been featured on some of the Top Podcasts in the manufactured housing space, click here to listen to his most recent interviews: https://www.keelteam.com/podcast-links.
In order to successfully implement his management strategy Andrew's team usually moves on location during the first several months of ownership. Find out more about Andrew's story at AndrewKeel.com.
00:21 - Welcome to the Passive Mobile Home Park Investing Podcast
01:21 - Chad’s story and journey into manufactured housing
05:50 - Chad’s first mobile home park and his current portfolio
11:11 - The toughest hurdle in the mobile home park business for Chad
12:17 - Managing mobile home parks
13:00 - What to look out for when investing in mobile home parks (most important) 14:56 - Chad’s perfect mobile home park
16:50 - Submetering and infill value add
17:54 - Financing new manufactured homes
18:35 - Mistakes that Chad has learned from
21:17 - The cost to infill a used home versus a new mobile home
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Links & Mentions from This Episode:
MPH Investors: https://mhpinvestors.com/
Chad Freeman, LinkedIn: https://www.linkedin.com/in/chad-freeman-90967411a/
Google Voice number: 702-706-6904
Chad Freeman, email: firstname.lastname@example.org
Keel Team's official website: https://www.keelteam.com/
Andrew Keel's official website: https://www.andrewkeel.com/
Andrew Keel LinkedIn: https://www.linkedin.com/in/andrewkeel
Andrew Keel Facebook page: https://www.facebook.com/PassiveMHPinvestingPodcast
Andrew Keel Instagram page: https://www.instagram.com/passivemhpinvesting/ Twitter: @MHPinvestors
Andrew: Welcome to the Passive Mobile Home Park Investing podcast. This is your host, Andrew Keel. Today, we have an amazing guest in Mr. Chad Freeman of MHPinvestors.
Before we dive in, I want to ask you a real quick favor. Would you mind taking an extra 30 seconds and heading over to iTunes to rate this podcast with five stars? This helps us get more listeners and it means the absolute world to me, so thanks for making my day with that review of the show. All right, let's dive in.
Chad has been investing in real estate since 2005 and has a successful track record in both residential and commercial real estate. Chad is one of the founding members of MHPinvestors, and he has overseen all aspects of the business. He's currently taking the lead on scaling their business to new heights. Additionally, Chad has spent over 20 years in the travel industry as an airline pilot. So Chad, welcome to the show.
Chad: Hey, Andrew, thanks. Good to be here today.
Andrew: Yeah, let's dive right in. Would you mind starting out by telling us about your story and how you got into manufactured housing communities?
Chad: Yeah, I'd love to. My whole life, since I was a little kid, I wanted to be an airline pilot. That was my focus in life until I graduated. I got in early and started my life as an airline pilot in 2001. I had this whole glamorous life picture, picture Catch Me If You Can with Leonardo, right? I'm going to be living this awesome lifestyle with this great job, rolling in money, and just everything awesome.
Well, I got hired at the beginning of 2001. I was furloughed by the end of 2001 because we all know what happened in 2001. And then I quickly realized, a few years into this job, that I was piss-broke and I needed something else on the side, and it's also an incredibly unstable industry. I was always interested in real estate, both my parents did real estate stuff with sales and investments, so it was really easy to fall into that. I got extremely hooked on it.
It started out with me as a pilot being based in New York or Newark, actually. I thought I'd make an investment with a crash pad. There are other people, you purchase a home, and then you fill it full of pilots that are just there overnight occasionally, and they all share this room and pay you rent. That's what my idea was.
Well, I think it was a good idea, but I had no clue what I was doing. I didn't even know what due diligence meant. I bought this place in Elizabeth Seaport, which you don't want to buy a place there, I'll just say that. I started renting this crash pad, and that bad feeling in your gut that people say pay attention to it, I didn't pay attention to that. It was pure speculation based on some rumor on a ferry going to Manhattan, so markets going up. This is 2005, I'm like, oh, you just buy real estate and make a bunch of money. Obviously, that didn't turn out right.
Not too long into it I realized, this isn't the investment deal I was looking for, so I started a class. I took a six-month-long training class and I really learned so much from that. I got out of that lousy investment. I got myself into some good investments, which fast forward now to 2015. We make enough money to get into something commercial, which I had been wanting to do from the start, but I wasn't quite sure where to go with that yet. I just knew I liked the idea and I wanted to get into commercial because I also knew there's some money there.
My business partner now, Kevin Kouzmanoff (one of my business partners), I was over at his house and his mother also is in real estate. She was a realtor and she had all these bootcamp manuals from Frank and Dave's Mobile Home Park Bootcamp, which I'm sure a lot of people listening to this will recognize that. It's kind of the standard of how to figure out this industry. I didn't know anything about it. I asked her, hey, is this any good? What is that? And she's like, oh, yeah, it's really good. I've taken it twice.
Now Frank accidentally became my mentor and awesome dude. He got me started in the industry, gave me the knowledge to get going, and then haven't looked back since. I absolutely love this industry. We get to help people out. We're going in and we're looking for undervalued parks that are poorly managed and usually run down. We get to go in there and turn them around, make people's lives better too, and then we make a great profit in the process.
I remember one lady was scared to go outside when we first bought one of our properties. Now she lives next to a nice home that was once a total dump and she's not scared to go outside anymore. It gives us pleasure to help people like that, but we did get in it to make money, so this space right now and with what's going on in the economy is unbelievable with mobile home parks.
When you purchase the correct property, I think it's hands down the best investment you can make anywhere in real estate today. We're not the smartest people on Earth, but I think we got a good handle on it. We've been able to hit a 52% increase in value annually since we started this business. We just want to keep replicating that.
Andrew: I'd say that's doing pretty good. That's fantastic. When did you buy your first deal? Was that 2015?
Chad: That was 2017.
Andrew: Okay, 2017. Tell us about that first park and maybe tell us about your portfolio now.
Chad: Well, it was a two-part package and we took our time. It took me a little bit to get motivated to really sit down and make it happen because it's kind of an abstract idea to get into something when you first go to the bootcamp. To make it tangible and take that action is something totally different, but we made it happen. I sat down, I got very determined one day, and I just made it happen. I said, I'm going to sit here in front of my computer until I find a deal that I want to purchase because I've been looking at so many deals that weren't right. We had backed out of a couple during our diligence process. I just made up my mind and I did it.
We found this two-part package from this guy. It was sitting out there in the mobile home park so I don't know how it wasn't [...] already. They're good properties. They're good value add properties. They're undervalued, and he sold these things to us at almost a 15 cap because he was going through a divorce and he didn't want his wife to get a dime extra, so he actually sold them for what he had in them at that point just to get out of it. So we got an incredible deal right off the bat, which gave us room to make mistakes and gave us a really nice margin for air going into our first properties.
Our last deal, so we've got 3 properties right now, 150 lots total. And then did you ask about our last deal as well?
Andrew: Yeah, sure. So on that first deal, real quick before we go, so where are those at? I know you're based in Florida, Jacksonville. Do you buy around Jacksonville or are they outside of that area?
Chad: We're pretty much open to anything kind of east of the Rockies, but we avoid areas more so than anything. It's throughout the Midwest is where we feel the most undervalued market is at. We avoid Illinois and New York, pretty much the Northeast and the Northwest because of the cap rates.
And then Louisiana to Georgia, not a huge fan of because often people have a lot of park-owned homes and their lot rates are just unbelievably cheap like $75 to $125, so we stay away from that too unless we're in a major metro like Atlanta. I'd love to own some in Atlanta. But we're kind of leaning towards the red states now too, to be honest. Not to get into politics but they're just more business-friendly, we find.
Currently, we're in Michigan and we're just trying to push south from there and avoid markets we'd consider bad. But other than that, we're open to most places east of the Rockies pretty much.
Andrew: Very nice. So all three of your current parks, they're in Michigan?
Andrew: Awesome. Do you have any trouble managing those being in Florida? Is that where your whole group is based?
Chad: Well, there's two of us in Florida, one in Colorado, and one in Georgia. This is a good business because you can manage it remotely. It would be easier in person, of course, but the challenges that come from remote haven't been a huge obstacle. We randomly visit the park to keep the manager on her toes, randomly show up. I actually got that from Dave Thomas written in his book. Dave's way, he used to always surprise people. Never schedule anything, I guess.
Andrew: Maybe just shed light. So you had the two-part package and then maybe shed some light on the third deal, the third park that you guys bought. You said that was a recent one.
Chad: Yeah, that was a couple of years ago. We have a list of brokers, and when we're in buy mode, then we just bug the crap out of the brokers. We've established some good rapport with some brokers, and one of them in particular, he knew we had a couple of properties in Michigan already. I met this guy in person at the MHI convention in Vegas. I ended up hanging out with him, we connected more, and then a few months later, I got a call and he said, hey, I know you guys got properties in Michigan. I got this off-market deal. That's magic to our ears, that's what we want, right?
Andrew: Yeah, definitely.
Chad: So we ended up buying this property, I wouldn't say out from under Frank and Dave, but he teaches in his bootcamp that the little guys like us—startup guys—often have an advantage over larger companies because they can get in and establish rapport with the mom and pop operators, and that's exactly what we did. He sold it to us. He straight up told us, I sold it to you guys because you guys are young. I like your energy and I want to give you this opportunity rather than see it go to a big company where it's not going to matter as much. That was pretty cool.
Andrew: Yeah, that is super cool. Are you still a pilot or do you do this full time?
Chad: One good thing about the airline job is I get a lot of time off. Even when I'm at work, I have a lot of downtime on layovers just because of international flight rules that we have. You can only do one flight and then I got to stay somewhere and rest. So yeah, I still work there. It's considered full time, but this is a lot more time-consuming. I put a lot more time and energy into this because I'm trying to completely get away from the airline income.
Andrew: Maybe you could tell us what's been the toughest hurdle for you in the mobile home park business.
Chad: Initially breaking into the business. We had people telling us on the phone, do you guys have any idea how hard it is to break into this business when you don't want any properties? I just took it as a challenge and made it happen.
Our biggest pain point right now is filling vacant lots, I think. It's the most time-consuming. It's a lot of moving pieces to get those things coordinated and to come together with lot prep, and then the demand in the market right now has gone astronomical for new and used homes. All the dealers are backed up. It took us a year to get two new homes or three new homes just recently. You can't even put big orders in anymore, and then because of this, the supply chain disruptions and the inventory backups, plus inflation, the used home market has just caught on fire.
Andrew: It has, yeah, and it was already on fire before all of this, so I agree. I agree, infill's tough. How do you manage your parks? Do you have a third party manage them or do you guys manage them in-house?
Chad: It's all in-house. We train our managers, look for the nicest home, expect a high turnover, try to start conversations with good residents, and maximize that person's potential through training, coaching, annual reviews, and whatnot, but we do expect a high turnover with managers.
Andrew: Very cool. Yeah, the Frank model, right? That Frank and Dave.
Andrew: That's awesome. All right. I ask this question to everybody and I think this is the most important question of the interview. What are the most important things passive investors—we're talking limited partners here—need to look out for when investing in mobile home parks?
Chad: I would say just do some research on who you're dealing with. Well, first of all, just invest with us and then no brainer. I've heard some stories about guys out there that were even impersonating other operators that have actually managed to—there's a big lawsuit about this. There is a chunk of change like over $100 million, I think. There are some scammers out there and then other people I've heard of, they're just lousy operators or they're more in it for just the deals. They just buy deals with bad assets because they're getting fees as the managers.
That's not who we are. We want to return an incredible return to ourselves and our investors. We don't have a $150 million fund and we're transparent too.
Andrew: I think knowing the operator as much as you can is just so valuable. It's amazing to me—with COVID and everything—just how to get to know an operator, right? Because everybody sounds good over the phone, but I think the more you could dive in and see how they're living their life, hobbies, and otherwise, I think it'll just give that gut feeling you were talking about on that first crash pad. I think you can just follow that so far, but any additional info you have is just good to research your operator because yeah, there are some scammers or whatever you want to call it, just people out there not doing it the right way.
Chad: Yeah, I mean, check the balance sheets and stuff. We just recently had an investor because [...] pretty good, and it felt good. At the end of it, he's invested with us now. Do your diligence.
Andrew: Yeah, definitely. Let me ask you this, Chad. What do you think the perfect mobile home park looks like and why?
Chad: I'd say our last purchase but we wanted larger. So it was an off-market deal, that's where you're going to find the best deal always with any real estate. It was the typical mom and pop operator that we look for who aren't necessarily the best business managers so they've mismanaged it. There's a lot of value add there. It wasn't too small, an 82-space park, and very undervalued and mismanaged.
It had good bones and we go buy this awesome asset for pennies on the dollar compared to what we're going to turn it into, and we're already doing that and seeing great returns on it. Lot rent was over $100 below the market rate.
The park was paying all the utilities, so we spent $10,000, put in sub meters throughout the entire park, and we took our water bill from over $7000 a month to nothing. The overall usage of the community dropped by 2/3 just by making people responsible for their own water usage. It had some rooms with vacant lots too. There are about 20 vacant lots. Bank loved it, we loved it. Mom and pop were ready to get rid of it. It was just the perfect deal for us.
Andrew: Yeah. You may have some water leaks too with $7000 a month.
Chad: Oh, yeah. It was swiss cheese when we bought it. It's all patched up now though.
Andrew: Those are always fun, especially when you just buy a new park and you're like, all right, let's get to work. But American Leak Detection, they'll save you thousands of dollars.
Chad: I think they've been there three or four times.
Andrew: Yeah. I got those guys on speed dial.
Chad: I like those guys.
Andrew: Definitely. Well, that sounds like a great deal. So you submetered the park and have you been able to infill? Maybe tell us about your infill. How many homes you've infilled to date. Just shed some light on that.
Chad: We really liked Clayton Homes a lot because Warren Buffett's behind it too. I mean, that business is amazing. It's so cool to go tour their factories too. But the infill has been the biggest challenge. We brought in new homes from Clayton, we brought in some used homes, and we're just letting the park pay for that because this wasn't purchased under a fund either, so there's not as much capital there. It's just organically doing the infill.
The demand is just trying to fill homes, and then we've had a couple of demos too which set us back there. But it's also good with the demos because then you get nice new homes and better residents too. It's a speed bump, I guess. The infill's tough.
Andrew: It is. How do you guys finance? Do you guys only do Clayton Homes or you use 21st Mortgage for those? How do you finance your new homes?
Chad: You mean for our residents to sell them to the residents?
Andrew: Yeah, to sell them to the residents.
Chad: Yeah, we've had great success with 21st. We have a good rapport with them so we just stick with that. There's the team in Chicago, we keep sniffing them out. We've been set up with them but never used them. It's capital equity partners or something. I forget their name. There's another vendor out there that's supposed to be good, but we're happy with 21st and their cash program.
Andrew: Nice. What are some mistakes that you've made that you've learned from and maybe our listeners can learn from?
Chad: You got to make sure and stay on top of what's happening. In today's economy and more recently, we've not done a better job with letting homes leave the park, and I think this is coming from demand that we see for used homes. We've had to adjust our practices with how we're treating people as well, just to try to stay on top of that so if anybody moves, we need to make it good for them, find a win-win situation, and realize we weren't necessarily doing that.
We had a little bit of an issue with a dealer recently. This guy has some interesting points for me, but it's kind of a funny story. He was so mad at me right off the bat and I didn't understand why. I think he's just used to dealing with lousy operators that make these people who are moving feel like they've done something wrong because they don't want the home leaving the park.
He said he's the one sitting there looking at the old lady trying to help her out through one of the most stressful times in her life, giving her cash for her home, and making her feel good. And then he's dealing with operators that park dump trucks in front of her house for the last three days that she's there and make her feel like she did something wrong.
We totally got away from the first right of refusal in our leases based on input from this guy because he thought we were doing something not shady, but something that's not good for our residents. We've changed our policy on that and just focused more on a happier customer experience, even with evictions. Not make it personal, but you try to find a win-win situation. It works for everybody to help them avoid a mark on their record as well. That's our biggest focus and mistake lately I think is just staying on top of those homes so they don't leave.
Andrew: Definitely. So a dealer came in and was trying to buy a home out of your park to then resell it?
Chad: No, he did buy it. He bought it right from under us and we didn't even know it.
Andrew: Got you. So it was an actual mobile home dealer that was coming in and scalping homes? It's scary to think that people are that desperate for inventory. That they're coming in and stealing homes out of parks because you need heads and beds, you need occupancy. When occupancy dips, it's expensive to bring in a new home and fill in a lot. Maybe shed some light on that. How much does it cost for you guys to infill a used home, and then how much to fill a new home?
Chad: So the couple parks we have in South Michigan, we did a test with a couple of new homes. And then the economy doesn't quite support the new homes, so we focus on used homes there.
Another problem is when you're in a HUD state like Michigan, they have guidelines for how to set the homes based on soil tests, drainages, and frost heave, which is so ridiculous because you can spend $8000 to $12,000 on concrete work to prevent frost heave, which gets passed on to the tenant. But if you wouldn't do that, then every five to eight years they need to relevel their home for a few hundred dollars, so they're paying $10,000 to avoid a few hundred dollars every few years, right?
The economy was good enough for us to get into it, so we just focused on used homes in that location. But then another park we have is up north of Kalamazoo. Great economy there in Plainwell, Michigan. It supports used homes all day long, but it gets more expensive because of HUD guidelines and concrete work. We've tried to break down our used homes into a science to see what works, what doesn't, and then each one's a unique animal. We've had plenty of break-evens or make a few dollars on our homes, and we've also had a cost I think $13,000 to fill a lot.
Andrew: It just depends. I agree. We have some parks in Michigan. I mean, the concrete work is expensive, but the thought is that long term, it'll be better for the homeowners keeping their homes safe. It's just part of doing business in Michigan, right?
Chad: It is, yeah. We can work around it. Luckily, one of the last parks we bought had great soil samples come back to where it's all sandy and it drains well, so we don't need concrete work with that. That helps us put in new homes there as well.
Andrew: Oh, great. That's awesome. Where do you think the mobile home park industry is headed? Given the woes in the economy right now with inflation and the Fed starting to raise interest rates, how do you think you know manufactured housing will weather the storm if one comes?
Chad: Well, I mean, in my opinion, we got a major storm brewing. That's why I absolutely love mobile home parks. The stock market right now is the most overvalued I think it's ever been in history if you look at the valuations on it. Dismal returns or forecast for the future.
But if you look at what happened with COVID, I thought this was really interesting and it really made me feel good about mobile home parks. You saw so much exposure to risk in the market and who's got the exposure and who doesn't. Who doesn't is mobile home parks, plumbers, Costco, waste management, and these things that are essential. We have a very essential business, low income housing, in an economy that's just the worst the economy does, the more the demand for low income housing.
On top of all of this, what we have going on in this economy right now for mobile home parks, you have the great reshuffling, pushing people into the suburbs, which is where almost all the mobile home parks are at. There are 20 million baby boomers retiring in the next 10 years. A lot of them don't have a lot of money and we get a lot of retirements. Plus you get to own your own home, so they like that. It's a great way to downsize.
Actually, in fact, my brother in law who made enough money to retire early sold his house and didn't know what to do for a while, so he bought a mobile home. He's like, man, you can't believe how cheap I can live in this mobile home. It's nice, they redid it, and they're going to make a few bucks on it.
There is a lot of demand from the retired people. You got the Infrastructure Investment and Jobs Act. It's almost like it was designed for states with mobile home parks. If you look at the top 10 states with the most funding, I think eight of them, by number of mobile home parks, are also in those top 10.
We have a nation of low earners. Half the jobs since the great recession pay like minimum wage. This is driving demand. We have government-backed barriers to entry with low competition. We have a better product because we have vested interest in our business with our homeowners, our tenants own their own homes, therefore we get the better residents.
The entire industry is massively undervalued because the typical mobile home parks operated by mom and pop just simply failed to adjust for inflation from the 1960s lot rents, which are way under fair market value, and it's a diminishing supply because we're way under fair market value. These things are being repurposed at approximately a hundred a year and going away.
Consolidation is happening. If you look at the money inflowing from institutional investors, it's unbelievable right now. I saw the other day from 2013, I forget the numbers now but a huge, huge increase in billions of dollars flowing into the mobile home park sector lately from institutional investors. We have some of the lowest default rates in the industry, so we get more attractive debt. Banks absolutely love us.
It's inflation protection. We're actually adjusting our rent based on the consumer price index this year to match inflation. The setup we have in this sector right now I don't see anywhere else.
Andrew: What are some hurdles? Do you see any hurdles? Maybe regulation I think is a big one with rent control, and that kind of spreading beyond just California and New York. I know you said you guys try to avoid buying in in those blue states, but what do you think about that?
Chad: Yeah, I mean, those are the hurdles. I think probably the biggest hurdle to anything that I can see coming down the road is politics. If somebody comes up with an industry disruptor that's a very nice affordable housing option, then that could do it. But as far as I can wrack my brain thinking of ideas, I don't have one. Maybe somebody will come up with one, but it's been tried with rented homes.
The competitors there aren't there. I think if anything, the mobile home product, the mobile home itself, will evolve and become better. But yeah, as far as major hurdles, I don't see any huge disruptors to this industry. I can't forecast the future, of course, but I feel really safe in this space.
Andrew: Yeah, if only we had that crystal ball to tell us the future. Tell me, what's the value proposition at MHPinvestors and what makes you guys different? Maybe you could just tell us a little bit about your company and fund.
Chad: We're a small operator and we're trying to hit the gas pedal, basically, by raising money. We have an open fund right now. We can raise up to $5 million, and that's open until 2023, but we're looking for accredited investors.
I guess what makes us different is we have a great team, which a lot of businesses I'm sure have a great team but we're not a startup. We have a successful track record with good revenues for the last five years, but we're a small company looking to expand, so that gives him an opportunity out there that I think you wouldn't get with a large REIT. The tip of the spear with the growth is what we're offering right now with us.
We're also offering half of the value that we've created. In the back end, when we either sell or refinance properties, which like I said, we've hit 52% since we started. We've had some good things going in our favor in the market as well, but as long as we purchase the correct properties, I'm 100% sure we can keep replicating this. We're also offering a split with half of the excess cash flow that we create with our investors.
As far as the interest we're offering, it's a 10%, then 9%, then 8% return on years, one, two, and then three, and three after just 8%. But like I said, there's a lot of other opportunities to create more money there.
Andrew: Awesome. Thank you for all the information and for coming on the show. If any of our listeners, Chad, would like to get a hold of you, what is the best way for them to do so?
Chad: You can find information on how to contact us and how to schedule a Zoom call or a phone call at mhpinvestors.com. You can find me on LinkedIn if you just search Chad Freeman. My Google Voice number, if anybody's out there, if you're an accredited investor and you want to talk to me, give me a call. You can reach me at 702-706-6904, and you can also email us at email@example.com.
Andrew: Awesome. Well, thank you so much, Chad, for coming on the show.
Chad: You're welcome. Thanks for having me.
Andrew: All right. That's it for today, folks. Thank you so much for tuning in.