Interview with Charlotte Dunford of Johns Creek Capital
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 Charlotte Dunford, the managing partner of Johns Creek Capital. Charlotte brings a unique perspective to mobile home park investing as she comes from humble beginnings being a first-generation American citizen and college graduate. After leaving China with just her belongings at age 16, she has come a long way to now owning over 20 mobile home parks. Today, she shares her journey as well as her processes for finding trailer park deals, property management, and her tips for passive investors. Charlotte has great insights for anyone interested in investing into mobile home parks.
Johns Creek Capital is an investment management company which focuses on mobile home park assets. They currently have over $4.2 million worth of total investor subscriptions and currently own 20 mobile home park investments.
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.
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00:21 - Welcome to the Passive Mobile Home Park Investing Podcast
01:30 - How Charlotte Dunford got into manufactured housing communities
04:52 - Charlotte’s first park
05:20 - What fits the mold for Johns Creek Capital
08:10 - Park-owned versus tenant-owned homes
10:10 - Expense ratio for smaller parks
11:40 - The toughest hurdle in the MHP business
12:32 - Day-to-day property management
14:37 - How Charlotte finds her deals
15:46 - What limited partners need to look for when investing in the mobile home park asset class
17:51 - Charlotte’s perfect mobile home park
19:41 - Mistakes she has learned from
20:35 - The value proposition at Johns Creek Capital
24:15 - Getting a hold of Charlotte Dunford
24:51 - Conclusion
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Charlotte’s email: email@example.com
Keel Team's official website: https://www.keelteam.com/
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Andrew: Welcome to the Passive Mobile Home Park Investing podcast. This is your host, Andrew Keel. Today, we have an amazing guest, an investment fund manager, Charlotte Dunford of Johns Creek Capital. Before we dive in, I want to ask you a real quick favor. Would you mind please 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. Thanks for making my day with that five-star review of the show. All right, let's dive in.
Charlotte is the managing partner of Johns Creek Capital. an investment management company that focuses on mobile home parks, with total investor subscriptions over $4.2 million. Numbers-wise, they currently have 20 mobile home park investments. Charlotte herself has created over 500,000 in asset value in the last 12 months. Charlotte comes from humble beginnings and as a first-generation American citizen and college graduate after leaving China with just her belongings at age 16. Charlotte, welcome to the show.
Charlotte: Thank you so much for having me.
Andrew: Let's dive in here. Would you mind starting out by telling our listeners a little bit about your story and how you got into manufactured housing of all things?
Charlotte: Manufactured housing is definitely a niche within the real estate market. When I graduated college from Georgia Tech—one of the top engineering schools here in the south—I took a corporate job that focuses on data analytics.
I've always been interested in real estate ever since I was little. Here in the United States, you can actually own real estate, unlike in China where it's more of a communist regime where the only way to live in real estate is to lease it from the government for 70 years. Then you have to give it back. You can never own anything.
I wanted to take the opportunity to buy real estate in America. As soon as I started my first corporate job, I used my salary to finance the first deal which was a single family home. Then I went out to a duplex using the same financing structure, using my salary. But that only goes so far.
About a year and a half after I worked at my corporate job as a business analyst, I decided to take the jump to become a full-time investor and a full-time entrepreneur. That was a really risky move for me because my husband at the time was a student at college. He hasn't graduated yet. He didn't have any income. The little money saved, the little investment we had, and the little 401(k) I have for 1.5 years was nothing to launch a venture, let alone live until the venture takes off.
But I decided that it was a calculated risk because I educated myself on real estate. I would listen to podcasts like yours every day through my three-hour commute to and back from work, so I've learned a lot. Through my actual experience investing in the duplex and single family home, I have the confidence to make the jump.
I quit my job and started my own investment company. At the beginning, it was a little tough because I want to get into multifamily like a lot of people would do. However, it was an extremely heated market. The cap rate was way too low for me to yield any kind of profit. The barrier to entry was extremely high for someone who had not really any background in multifamily investing. So I decided to look at different asset classes.
Mobile home park was still a very novel concept at the time. It was definitely an ignored topic. I decided to look into that. I'm a big believer in avoiding competition and doing something where most people do not recognize the potential for, so I think mobile home parks were the perfect niche for me.
I started getting into deals with mobile home parks. This asset class—like any other real estate asset class—can be a tough asset to manage, but I think it offered me a ton of opportunities for a higher cap rate. I went in at 10–12 cap rate, which is almost hard in multifamily assets. That’s how I got into it.
Andrew: I love that, Charlotte. Tell me what year was that when you got in and you bought your first park.
Charlotte: I bought my first park actually in August of 2019. I quit in March of 2019. I bought my first park in August of 2019, second park in November of 2019, and third park in December of 2019. Then in 2020, it had just been rapidly growing craziness, and up until now we have 22 parks. With investor interest growing, we have just been really growing.
Andrew: That is fantastic. Wow, that is so awesome. Take us back, you said 10–12 caps and that piqued my interest. What type of parks are you buying? What fits the mold for Johns Creek Capital?
Charlotte: The parks we are buying have to go through a pretty rigorous algorithm that we developed internally, that we have certain parameters that this park needs to fit into, for example public utilities if it is private, sewer needs to be at least septic, definitely not a treatment plant or anything like that. As far as the high cap rate, I think it gets down to finding the deal that doesn't have a lot of problems, because if the cap is too high, that could mean something is wrong with the deal. You definitely want to do your due diligence to know that.
It goes down to negotiating. There are a lot of power dynamics that change throughout a deal, from going into escrow to the end of closing. There is so much going on dynamic-wise. There's always something going on, so you want to make sure you're a master at negotiating to be able to get the deal you want to get that high cap rate.
Overall, at the end of the day, seller motivations change based on the market. Right now when you're looking at mobile home parks, 10–12 cap is a little bit more difficult but when I got into it in 2019, that was more realistic. But now in 2021, there has been so much interest in space, I think the cap rate across the country has been lowered. On the high end, you'd be looking at 8%. On the low end you can get however low you want.
Andrew: What's the average size of your communities? How many lots are those?
Charlotte: Our parks actually focus on the small to medium size. We have anywhere from 10 lots to 30 lots. We focus on the small to medium sized one. Because those ones are, like I said, it's a niche within a niche actually, within a mobile home park asset class. Most people focus on the 50 lots and plus and sometimes 100 lots, depends on who you are. But for us, I think the money is in the niches. We wanted to focus on a particular area where we can make the numbers work, make the operating model work even if it's a small park. I think there is a special opportunity and potential there.
Andrew: I agree with that. There are a lot of big investors like the Carlyle Group, Apollo, and Blackstone. All these huge investors are getting into this space and along with all those bigger funds, they're all going after 100 lots or higher. Open Door Capital, 100 lots or higher. I think that you're right. I think there is a niche inside of that and there's money to be made on these smaller parks.
Andrew: Answer me this, park-owned homes or tenant-owned homes? Which do you prefer?
Charlotte: We definitely prefer tenant-owned homes. I think that's something that everybody in the industry can agree on. Well, maybe not everybody. It depends on what it is. A mobile home park is a parking lot business. If you want to get into the parking lot business, you should stay away from park-owned homes which are essentially fixing furnaces, fixing water leaks, running toilets. That's not something that we want to get into. That goes against the operating model of the mobile home parks and really takes away the advantage.
Now, having more park-owned homes is not the end of the day. You have to look at the age of the home, the conditions of the homes, if the homes are really just dilapidated or they're a brand new model, that makes a big difference. I think you can make more income if you have a park-owned home. It just really depends on the condition.
Overall, I would say the ability to finance the park at the end of the day when you want to sell, for the buyer, for your own profit and sanity, I think it will be better to have a majority tenant-owned home in your portfolio.
Andrew: Okay. And that's what you guys are trying to do. You buy them and then sell them off on lease options or something?
Charlotte: Right, that will be the plan, I think that's actually a pretty good value add strategy. It really depends on the deal. The deal only works if you have the income that comes from park-owned homes. That could be a solid strategy. It really just depends on the model of the home, the condition and how old they are, how much they really need maintenance, because they can be a pot of gold. But eventually you want to transition them off. If you don't, you want to have a plan to see how you want to exit. You just need an exit plan.
Andrew: Yeah. There are different strategies out there, and not that I don't think one of the others could make more money. I just think the tenant-owned home model is more scalable and it's just easier to manage. Do you agree?
Charlotte: Absolutely, yeah.
Andrew: Tell me. On your smaller parks, what is your average expense ratio? What are you folks normally running at?
Charlotte: Good question. I think that for smaller parks, the average expense ratio you're looking at is 50%–60%. It depends on how small it is. Because some real estate expenses are fixed. For example, real estate insurance, taxes, mobile home insurances. Even if you have a small park, like I said, that's another disadvantage of a park-owned home is you have to mow the yard for the homes. That's another expense. For a bigger park, you're looking at a 30%–40% expense ratio. But smaller parks, you have the 30%–40%, but you still have the fixed expenses.
That's not to say the profit margin is low. You also have a higher revenue stream. You also buy at a higher cap rate. There are so many factors that go into it. At the end of the day, it’s the final number that counts.
Andrew: Totally. The bottom line for sure. That's what I noticed as well. On a few of our smaller parks, they just run a little bit higher on the expenses because there are just less units to spread out the expenses over.
Charlotte: For sure. And you want to buy the small parks at a very inexpensive price and a great deal because it’s small. It has to be a really, really good deal.
Andrew: And you're going to get better deals.
Andrew: I totally agree. Tell me this, Charlotte. What has been the toughest hurdle for you in the business thus far?
Charlotte: I think from an operational standpoint, the toughest hurdle would be, I think upon acquisition you would be dealing with any code violations that the park has. A lot of times, an acquisition would trigger an inspection from the fire marshal. We have dealt with parks where they inspected the park and told us that there are a ton of code violations that we have to fix. That definitely is a hurdle.
From a business standpoint, from a Johns Creek Capital standpoint, the biggest hurdle is for us—like any business—to try to get the word out, put ourselves out there, and I think what we're doing is just that. In a nutshell that would be it.
Andrew: Awesome. Charlotte, how do you handle the management of your parks, the property management day-to-day?
Charlotte: For day-to-day, the system is that my business partner is the head of all property management and of the entire portfolio. For individual parks, we also have local individual teams that handle that. Because our parks span across nine different states—I think adding more, now 10—there's no way to manage it unless you have localized teams to handle the day-to-day boots on the ground operations. We have local contractors, even tenants within the park that we’d pick out to become the watch person of the park.
We have to just really work with the town, work with the city to have the right people on your local team to be able to handle the operation. In a nutshell, it will be smaller teams locally and they're reporting to a higher level, to us.
Andrew: You said 10 different states is what your portfolio is spread across? Wow. That has to be somewhat challenging. You're based out of Georgia?
Andrew: Okay. Is it all in the Southeast? Where are your properties located?
Charlotte: The majority of them are in the Midwest and the Southeast. We are focused primarily on landlord-friendly states and with certain policies that help the business model. There are certain places we wouldn’t go to because of the economy and the market, but we're across a lot of different states.
It's really not about the state. A lot of times it’s about the local market. If the local economy and the economy of the county, city, and the metro area is strong, then definitely that would fit into our criteria.
Andrew: Okay. Thank you for sharing that. Tell us Charlotte, how do you find your deals? Are you going through brokers? Are you going to other avenues?
Charlotte: It's really like a funnel system for all of our deals. All the channels that you mentioned—the broker, online, relationship with sellers that you know, the sellers you bought from, properties that you just drive by, any channel—actually come together as a lease machine, where we analyze the deals and make an offer, make a decision on it.
There isn't really any deal out there—at least for our small- to medium-level parks—that we haven't really looked at. I can say that as long as they exist out there, whether it's on the Internet or it's in a broker's hands, we want to make sure that we’ll get our hands on it, to take a look, and see if we want to pursue it.
Andrew: Wonderful. Over your time period owning parks and investing in parks, what would you say are the most important things that passive investors—we're talking limited partners here—need to look out for when investing into the mobile home park asset class? The most important.
Charlotte: All of our investors are passive investors and limited partners. I think the most important thing to look out for in this asset class is that, it sounds cliché but really, you need to vet the sponsor. Because at the end of the day, the asset class has its potential, and that is pretty obvious to a lot of people.
You really want to know that your sponsor is doing their homework and they have your best interests in line. You really want to make sure that the deal structure that your sponsor provides aligns their interests with yours and they're working hard to grow your return.
For us, we have a preferred rate of return and then we have a waterfall structure. That way, it makes sure that we're aligned with our investor interest. You really want to make sure the sponsor is solid and the deal is solid as well. I think that all comes from the sponsor.
Andrew: I like that. A lot of our visitors or guests on the show have mentioned vetting the sponsor. I totally agree with that. I like how you said alignment of interest with how the deal is structured, where there's a preferred return or waterfall. The investors win first—they're risking their capital—and then the GPs win after that. If you're looking at a structure overall, I think that is probably one of the best to set up a deal. Earn their trust.
Charlotte: Exactly, and you want to make sure that their strategy, the sponsor is really a believer in—that's what we believe it anyway—if you help others make money, you’ll make money at the end of the day. That really perfectly interprets the sponsorship, the structure. At the end of the day, everybody wins. If your investors win, you win. If not, you won’t win. I think that's important.
Andrew: Definitely. Charlotte, tell us what the perfect mobile home park looks like in your eyes and why.
Charlotte: There are two ways to look at it. From the structure of the park will be all public utilities directly billed back to tenants, you're looking at 50 lots with all tenant-owned homes, market lot rent not at market but slightly below market with some room to improve and to increase rents, and also in a major MSA.
From the deal numbers’ perspective, regardless of the park size, the park infrastructure size or infrastructure type, you'd be looking at a cap rate and the interest rate difference about 3%–5%, because if you're buying at 8% cap, you want to make sure your interest rate is at least 5% or below. Smaller than that is just not making sense mathematically. So two ways to look at this—mathematically and from the operational infrastructure of the park.
Andrew: Totally. I'm a fan of Frank Ralph when he says, you want a three-point spread (like you said) between your cap rates and your interest rate because that'll generate a 20% return on the invested capital. If you're getting a 5% gap between the interest rate and the cap rate, you're spreading it a little bit wider, which is really great.
Charlotte: The bigger the better, right?
Andrew: The bigger the better, yeah. Awesome. Charlotte, tell us what are some mistakes you've made so far in the space?
Charlotte: I will say that it’s actually not in our portfolio. It’s my own personal park, the second park that I acquired with my own money and there are no investors involved. For that one, I think the biggest mistakes, again, I didn't have enough spread. The spread was way too small and the tenant base was just not solid. Nonpayment was a big issue. Especially during Covid—we're still going through that—during the eviction moratorium, they didn't have to pay rent, which really made it difficult for me to operate. I guess the biggest mistake is not having enough spread and not having a solid tenant base.
Andrew: What is the value proposition at Johns Creek Capital? What would you say makes you guys different from other operators out there?
Charlotte: We really offer: (1) Really the personal experience, the customer relationships that we have with our investors, and (2) our deal structure is actually very attractive compared with a lot of the deals out there. I think a lot of operators offer maybe a 7% preferred rate of return. The rest of that you just split it 50/50. We actually have an 8% preferred rate of return and then a waterfall structure after that.
Then thirdly, I think our value proposition where we really focus on—brings back to the topic of this talk—is that we focus on small- to medium-level parks. We really focus on a different cap rate to begin with. It's a solid deal to begin with.
Every single one of our deals, the deals can stand on its own without pouring a ton of capital into it. That's important to us because it starts cash flow–positive from day one. We don't want something that sinks from day one. You have to put a bandage on it for it to stop bleeding. I think just really being in a different niche within the niche, that's our difference.
Other than that, I think it boils down to who we are as people. You know my background, and my partner's background is also very fascinating. He's had a lot of experience raising funds, running different assets. He’s run funds before and he has a really fantastic life story, I think, probably more interesting than mine even. I think all of those above really make up who we are.
Andrew: Yeah. Would you mind sharing the name of your partner, Charlotte?
Charlotte: His name's Rick Klopp.
Andrew: Okay. I would love to maybe have him on the show at some point. He’s the one that is in charge of the property management, correct?
Charlotte: He is.
Andrew: Awesome, because I would love to learn more about that because that's been one of the hurdles for us in my portfolio with these smaller parks. They're more labor-intensive. They're harder to manage, and getting a good onsite manager that sticks around has been difficult because you're not able to pay him as much. I would love to have Rick on the show to share some of his top secret tips.
Charlotte: Definitely. It's really a business strategy that both of us will have to think about. For smaller parks, you can't think about it the same way as a big park, and you can't operate it the same way. An onsite manager, that simply doesn't work. You can't really pay someone like 8% or something to manage a small park. It just doesn't work for an onsite manager and you just have to think outside of the box about how you manage things there.
Andrew: All right. Great. I definitely think you have a unique niche that will enable you to transact. There are some other operators getting creative. I saw there was a recent investment fund that was just for private utilities. They were targeting private utility parks to try to differentiate themselves as mobile home parks become more popular.
Charlotte: You know, I think that's a good idea. Why not?
Andrew: Yeah. If you're comfortable with it and you know all about it.
Charlotte: It’s a bigger risk but you can have a lot of cash flow. That's another topic.
Andrew: Totally. Awesome Charlotte. How can our listeners get a hold of you if they'd like to do so?
Charlotte: They can contact me at firstname.lastname@example.org or you can just go to our website at johnscreekcapital.com and there will be a Contact Us tab. You'll be able to fill out a form and contact me there. I'm sure you’ll link the contact info below your episode.
Andrew: I will. I'll put that in there.
Charlotte: For sure.
Andrew: Thank you so much for joining me, Charlotte. This was awesome.
Charlotte: Thank you so much.
Andrew: That's it for today folks. Thank you all so much for tuning in.