Interview with Mike Conlon of Affordable Communities Group

Listen on Apple Podcast here: https://podcasts.apple.com/us/podcast/interview-with-mike-conlon-of-affordable/id1520681893?i=1000560316065

SHOW NOTES

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 MHP legend Mike Conlon. Mike is currently leading Affordable Communities Group, also known as ACG, with his vast knowledge of the manufactured housing industry having been in it for over 15 years. Andrew and Mike discuss the future of the mobile home park industry and how it will fare with our potentially rocky economy. Mike also answers Andrew’s questions about property managers, mobile home park investments versus apartment investments, and mobile home park value-add components.

Mike Conlon is President and CEO of Affordable Communities Group, LLC who currently owns 44 mobile home communities and RV parks with approximately 6,200 spaces in 6 states. Mike is also the author of “Unconventional Wealth: How to Become A Main Street Millionaire Helping Others Get What They Need.”

***Andrew Keel and Keel Team Real Estate Investments (Keel Team, LLC) do not endorse any interviewee. This interview is for informational purposes only and should not be depended upon for investment purposes. ***

Andrew Keel is the owner of Keel Team, LLC, a Top 100 Owner of Manufactured Housing Communities with over 2,100 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.

Would you like to see mobile home park projects in progress? If so, follow us on Instagram: @passivemhpinvesting for photos and awesome videos from our recent mobile home park acquisitions.

Talking Points:

00:21 – Welcome to the Passive Mobile Home Park Investing Podcast

01:32 – Mike’s story and his journey into Mobile Home Park investing

05:58 – The toughest hurdle for most operators in Mobile Home Park ownership

08:36 – Big differentials between apartments and Mobile Home Parks

09:45 – How Mike educated himself on Mobile Home Parks and good advice

16:20 – The most difficult value-add in Mobile Home Parks

18:42 – Mike’s team at Affordable Communities Group, LLC

20:54 – How to find and keep good on site managers

22:54 – The toughest hurdle for operators in Mobile Home Parks right now

25:40 – The future of Mobile Home Park investing and how they fit in with the direction of the economy

33:00 – Recent negative press with big groups in mobile home parks

37:52 – The investment fund model vs. syndications

40:23 – Mike’s perfect Mobile Home Park and why

43:19 – Mike’s opinion about third party property management

44:37 – Connecting with Mike Conlon

45:15 – One last tip

46:06 – Conclusion

SUBSCRIBE TO PASSIVE MOBILE HOME PARK INVESTING PODCAST YOUTUBE CHANNEL https://www.youtube.com/channel/UCy9uI3KGQmFgABsr9lUtRTQ

Links & Mentions from This Episode:

Mike’s Email: mconlon1@gmail.com

Affortable Communties Group Website: https://acgmhc.com/

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

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TRANSCRIPT

Andrew: Welcome to the Passive Mobile Home Park Investing podcast. This is your host, Andrew Keel. Today, we have an amazing guest in Mr. Mike Conlon from Affordable Communities Group.

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. Thanks for making my day with that five-star review of this show. All right, let’s dive in.

Mike Conlon is President and CEO of Affordable Communities Group LLC, based in Cary, North Carolina. ACG currently owns a majority share in 44 mobile home communities and RV parks, with approximately 6200 spaces across six states.

Mike is also the author of Unconventional Wealth: How to Become A Main Street Millionaire Helping Others Get What They Need, where he gives insights to his tailored business and investing strategy. Mike, we’re excited to welcome you to the show.

Mike: Andrew, thank you. Glad to be here.

Andrew: Let’s dive right into the questions. Maybe you can start out by telling us about your story and how you got into manufactured housing.

Mike: It is sort of a crazy story. Just a quick tale of my background. I went to law school. I absolutely hated it. I got into banking. Probably one of the best moves I ever made was not becoming a lawyer. I got a lot of friends who just hate the business.

I got into banking. It lasted about 24 months. It was very corporate. I learned quickly. I wasn’t a corporate guy. Then I went into the financial planning business, which I enjoyed. I failed miserably at first. I stumbled into an organization that was young and growing.

I got somewhat a leadership role early on and grew it real big. We were in the right place at the right time, mid-90s, and the stock market was going through the roof. We grew this broker dealer real big and sold it to a big insurance company. That was my first payday, just being in the right place at the right time.

I was fairly naive at the time. After that, I bought a financial planning practice because that’s what I knew. Financial planning is a good business. It’s somewhat residual because you get trails and stuff like that, but it’s a grind. I had 500+ clients. I’m working a lot. The markets get volatile, it gets a little bit crazy.

In about 2001, I read this book, which most people have read, Rich Dad Poor Dad. That book changed my life. I didn’t know anything about real estate investing. I really didn’t know anybody who had done it. When I read the book, it made so much sense to me.

Kiyosaki talks about apartments. He never mentions mobile home parks. I don’t know if he even knew about it. We went into apartments and I was living in Wisconsin at the time. One of the junior planners in my office who was my chief operations officer today, 20 years later, said, hey, I’ll do the outside stuff, you find the apartment deals and whatever.

We bought a couple of deals in Wisconsin. I liked the business, but realized nobody was moving to Wisconsin. We moved to Orlando, Florida in late 2002 and bought six or seven apartment complexes. I liked the business. I was growing the business.

It was difficult. Apartments by nature are more difficult than mobile home parks because it’s transitory. You typically get 45% of your people to move out every year. You need licensed maintenance guys and all this other stuff.

We did that for a couple years. Then I stumbled across, somebody wrote a book or something about mobile home parks. I said, wow, that looks interesting. It seems like a decent concept. Of course, the way we were back then, we just jumped in and bought a mobile home park and would figure it out.

We bought the small 80 space park in Lakeland, Florida. It was 80 homes on four acres, if you can imagine that. They were right next to each other. A couple of them were on 25 amp electric. If they turn on the hairdryer and the TV, the electric went out. It was ridiculous.

We learned the process of what it was. Chris Berry who’s my chief operations guy said, hey, way easier to manage. Let’s do these instead of the apartments. At the same time in 2006, these guys came knocking on my door and saying, hey, I want to buy your apartments for X sort of what’s going on today and every asset class. And I said, well, they’re not really for sale. They’re like, well, how about if we offer you double X? I said, well, maybe they are for sale.

That was more lucky than good. We ended up selling all the apartments in 2006 in Florida, but we couldn’t reinvest in Florida. We really wanted to go into mobile home parks. We’re pretty sold in that concept, but the prices were so high like they are today.

One of my good buddies, Enon Winkler, who’s a broker in the business still said, hey, go to Raleigh or Charlotte. Those are the next hotspots. He was absolutely right. It turned out he was from Greensboro originally, so he knew it. We decided we move to Raleigh because it was just a little bit smaller at the time.

We got in the mobile home park business and away we went. We didn’t know anything we’re doing. We didn’t understand the difference between lot rents, park-owned homes, septic systems, and whatever. We made every mistake in the book, but we figured it out. It obviously worked out well from there.

Andrew: Wow, that is fantastic. That park, the 80-space one in Lakeland, what year was that? Do you remember what year that was?

Mike: We bought that in 2005.

Andrew: Wow, that is fantastic. And then Enon, that’s awesome. I needed to have him on the podcast. I haven’t had him yet. That would be awesome. I saw him at MHI. I’ll have to reach out to him. Very cool.

You came from the apartment world. You did well. You had a nice exit and got into mobile home parks. It’s easier to manage. What do you think is the toughest hurdle for most operators in mobile home park ownership?

Mike: Let’s take one step back. Let’s just talk about apartments versus mobile home parks. Number one, I enjoyed the experience. It’s an easier sell, especially if you’re going to investors because the brick and mortar is much sexier than a so-called trailer park, obviously.

It’s funny because the only investor I initially had when I first started out was my dad. I didn’t even want to tell him we were going into mobile home parks because he didn’t get it. He loved the apartment thing because he could see it and touch it and stuff like that.

All I would say from an apartment standpoint, it was a great learning experience, but it’s a tough business. The amount of turnover, the turnover in the staff, the maintenance especially, is difficult. I found the yields to be much lower than mobile home parks even today, obviously, just because your expenses are so much higher.

That sort of transitioned. Really, whether it be mobile home parks or apartments, the biggest hurdle is your first deal. You have no money, you have no idea what you’re doing, you have no track record, and you somehow got to piece it together.

Again, I tell people to start small. The first apartment building we bought was an eight-unit family back in Wisconsin. We bought it for $300,000 and sold it two years later for $304,000 or something. That’s where you learn you get your feet wet. You figure out whether you like it or not, and do it.

Obviously, if you can raise some money, it helps initially. I was fortunate in the broker-dealer situation where I sold it and I had some money, so I could reinvest it in there. But you’re going to make a ton of mistakes. Thanks to guys like you, Ryan Narus, and some of the other guys. I mean, there’s a lot more information than when I started.

You got some guidelines now, but I think the toughest thing is just not to have paralysis by analysis where you’re just too afraid to jump in. You just got to go do it now. Caveat saying, it’s a much tougher market as we speak in May of 2022 with interest rates going up and every PE shop in the world in the business.

I feel lucky. I’m sure you feel lucky too when you got in the business at the time you did. Those things were a lot easier. I was talking to Hansel Rodriguez, who you may or may not know. I was really proud of him. He’s up to about 1000 communities and he only started a couple years ago. A young guy, a hustler. It’s tough to do that. Your yield is a lot less and things like that. That’s where I would say, just have the courage to do it.

Andrew: Agreed. On the apartments, you talked about the high turnover with the tenants and the staff and the higher expense ratios. Is there anything else that is a major differential between mobile home parks and apartments that you would think is valuable to mention?

Mike: I think the capex is much more. You have to spend more money. Your roof and your ACs are the two big things in the apartment business. You’re going to have to replace them every 15 years. They get expensive, obviously. Then you have the parking lots and things like that.

Not to say you don’t have capex with the mobile home parks because we have the roads and sewers and things like that, but you’re going to spend more on capex. Obviously, when you’re turning over the units, you got to redo them and things like that. I just think mobile home parks are an easier business.

I’m sure you’ve had the same situation where you’ve had tenants at your parks for 25, 30 years. That’s the lower turnover. We were looking back like a year or so ago and our turnover is below 15% . We’re lot rent guys. We don’t do really any rentals. We want people to own their home, so it makes it easier to manage.

Andrew: That’s awesome. To go back to that, how did you get educated on mobile home parks? Was it just dive right in? Did you go to any boot camps or read any books? How did you end up coming to the end goal of, all right, we want to be tenant-owned homes instead of park-owned homes, that model?

Mike: I believe it was from Mobile Home Park University when it first started. This was way before Frank and Dave’s. Again, 2004–2005, I read something. I got some type of manual from them and they walked through the whole thing of how to ease it in your business. Really, we learned by doing. We just got into it and figured it out.

I remember our first MHI we went to was 2007. We had three parks. We didn’t know anybody, but we got a lot out of that. We got rent manager right away in 2007, which has been tremendous for us over the long term. Just some of those things. The networking that you can do is what really helped us. Along the way, as we’ll get into it, a couple guys gave me some really good pieces of advice as we got further into the business about what to do, so that really helped.

The people in the business are very good people, I think for the most part. Small businesses, you know a lot more people than I do, actually, but they’re mostly good people and willing to help.

Andrew: I’ve had the same experience from the vendors all the way up to the owners that have owned for many years. I mean, just always willing to help. I still call some of the owners.

Actually, this morning, I called one of the owners and said, hey, do you happen to have an old survey back when you redid the sewer here? He picked right up and said, yeah, let me go look at my filing cabinet. Just like that willingness to help and not such a dog-eat-dog attitude, I think, is great.

Mike: Exactly. It’s refreshing. It’s obviously changing a little bit as you get more of the institutional guys in the game a little bit. It’s unfortunate that way, but that’s just the evolution.

Andrew: Agreed. Maybe you can touch on those insights from those couple of people that mentioned some advice to you because I think that would help our listeners a lot.

Mike: There are a couple of key moments when we’re doing it. We pieced together three parks, mostly in North Carolina back in 2006. The first two parks, I bought way too high. I didn’t understand the difference between rentals. Back then, there was a real distinguishing thing between park-owned homes, rentals, and lot rent. Everything was about lot rent. Fannie Mae didn’t touch any three-star parks. The whole world was different.

I was fortunate that I had a bank lender with a really good relationship. I strongly recommend you cultivate those relationships. I always told my banker who was still my banker, the same bank today, is I want to be your most profitable client. Because if something happens or if there’s a deal you don’t want to do, I want to make sure you guys know how much money is made off me.

I think one of the biggest things after we got started, it’s interesting whether you want to think big or not. I had three parks in Raleigh. I was probably making $25,000 a month. I’m not doing a lot, sort of enjoying life. And I’m like, this isn’t that bad. We bought at the right time. We were able to fix it up, bump the rents and stuff like that.

But I just am not that type of person, so we sold them at the end of 2011. Only one of them which I regret selling. I wish we would have kept it. We sold them because we heard that a bunch of the foreclosures and stuff from 2008–2009 were finally going to hit the market. We sold everything to Richard and Jordan Odell, who were great guys, friends of ours today. They were very good to us.

We sold it and then waited six months before we got our first deal. Everyone’s just sitting around like, okay, what are we doing now? We finally got some deals. That’s when we got incredible bank deals, where we bought six parks for $6 million and stuff like that.

The one park we bought, it was thrown in one of the Bank of America deals, thrown in foreclosure. It’s like 45–50 spaces in North Carolina and we bought it for $25,000. I didn’t even want it because it had a wastewater treatment plant. I was afraid of them back then. I didn’t know what it was. I’m like, I don’t even want that park for $25,000. Think about that.

We fixed it up and probably had it 18, maybe 24 months and sold it for like $575,000. We just sort of got lucky. Everyone says, hey, Mike, you’ve done great over last year. If I would have done really great, I should have bought everything I ever saw over the last five years. Would have, could have, should have, obviously.

That was a big thing for us to buy those foreclosures. Then we got another big foreclosure deal the next year that really helped us, where we bought seven parks for super cheap. We had all sorts of environmental issues with one of the parks where you learn and stuff.

Probably the best thing that helped me was a guy named Matt Follett, who’s still in the business today, based out in Sacramento. Crawford, his son and his other son are in the business too. He sat me down in 2016 and said, hey, you’ve done a great job building up basic communities, but now it’s time to sell the smaller parks and get the bigger quality parks. He has made me a lot of money just really drilling that into my head.

It was funny because he had owned some of the parks that I had owned at the time. He had owned them 10 years earlier and they were not the best parks, let’s say. We could laugh about that, relate to it. But he said, you sell those.

I tell people, we’ve sold over 4000 spaces over a period of time. People say, oh, my God, what if you would have held onto them? I said, yeah, maybe. But on the other hand, they were older, not as nice smaller parks, and they allowed us to trade up.

What I did is I traded up. I sold the smaller stuff to buy the bigger and nicer stuff that we’re going to keep for the long-term. What that allowed me to do, too, is not take on a lot of investors. Because of the financial planning business, I didn’t want to have a lot of investors. Right now, we only have a couple, but I own majority of every deal, which I just want to have the control.

That was a difference for me. I don’t know if you can do that today because the deals are so much more expensive and you need the money and stuff like that, but that really helped me a lot.

Andrew: That is great advice. I’ve heard that through Ryan Narus, the trade up model. I think just starting out in the business, you’re trying to do a deal and you find these value add deals. The numbers are very attractive, but it is a lot of work.

Maybe you can tell us a little bit about some of the value add projects you’ve done. It sounds like there’s a ton of them. From infill, to rehabbing homes, to utility infrastructure, that’s what we kind of cut our teeth on in the business.

Mike: I think right now, if you’re younger and newer in the business, you’re going to make your money from the value add deals because everything is expensive. I didn’t really know that much difference. Kiyosaki sort of talked about that, buying rehab stuff. We just figured it out.

We started a relationship with Clayton way back when and just started buying 100+ homes a year or whatever and filling them in. We even bought some ugly parks. One park, we tore out 80 homes. They were so bad, we didn’t realize it.

Another park up is in Chicago, which is our worst buy ever. We actually made money on it when we sold it, which was a miracle. The pipes were like a sieve. In the wintertime, guys are shooting out. I can tell you a million stories about that.

What we learned is the value-add in the project is the way to go, but you can’t have too many of them because of the burning out and there’s a lot of work. You need people on the ground to get those home in, put up obviously, and then sold. That takes manpower and you have to have people you trust to do that and things like that.

We learned from that standpoint that, hey, let’s get some core parks that we’re always going to have. There are going to be more lot rent–only. Then we’re always going to have these project-type deals that you got to get in there and get the homes and do everything.

We were laughing the other day. We used to be able to get homes in some of our early parks all in for like $28,000–$29,000. Now you’re looking at almost $60,000 in some of these markets where it’s a little more expensive. Just your basic 16×72.

I really think that’s still the way to go, but it is a lot of work. I see some of these bigger groups buying a lot of projects. I worry about that because they’re biting off more than they could chew, in my opinion. I hope they have the manpower to get it done.

Andrew: Maybe we can piggyback on that and learn a little bit about your team at ACG and how you’ve developed that. I know Chris. I’ve met him previously. Maybe you could just tell us about your team and where you started to where you are now.

Mike: It’s funny because we’ve always run very lean. It’s really been Chris and I for the most part doing almost everything. He’s a rock star. Operationally, he’s fantastic. He knows everything. I think one of the best things we did early on is get good managers and overpay them.

We overpaid them. We have very little of any manager turnover. We give them free rein. Obviously, they collect the rents and do the projects or whatever. We’re not sitting there saying, hey, are you working 40 hours a week or whatever. They like working for us versus a bigger corporation.

We pay them. We surprise them with bonuses and here and there. The managers are everything because a lot of our managers have sold all our homes for us. Obviously, you give them bonuses and stuff to do that.

With 6000 spaces right now, we’re running at 50 people, which is pretty low. I do a lot. Chris does a lot. We’re very automated on everything we do. Rent Manager, again, has been a Godsend because everything’s the same.

Obviously, we’re on the PayLease situation where nobody’s collecting rents anymore. We really run a model now with the managers where we think they can manage 300–400 units, assuming most of them are lot rents. Pretty effectively, assuming they’re close together, obviously, too.

That’s sort of the model we’ve gone to. Some of the markets where we’ll have maybe 500 or 600 units of one manager. They’ll obviously have a full-time assistant to help them out. The business has gotten easier because of technology.

Andrew: Agreed. Yeah, Rent Manager is huge. PayLease specifically has been a game changer. First, collecting a bunch of checks and money orders every month. At one point, we needed someone just to open the mail and then deposit those. They’re like, that was a job. And I was like, okay, either remove the PayLease and we hire this person full-time just to open mail and deposit checks and money orders. It was an easy decision.

Mike: Yes, it’s great. Jonathan Gindes is another owner and […] was a friend of mine, too. He told me about a year before we really got into it, he’s like, dude, you got to go to this. And I’m like, really? Everyone can go online and do it? He was ahead of the game and it proved to be a game changer for everybody.

Andrew: That’s awesome. That’s really awesome. We could go so many ways. How do you find these managers? We’ve had a tough time with our onsite manager staying.

We have a fairly high turnover. We’re kind of using the Frank and Dave model of how to pay them, $10 and occupied lot plus free lot rent, and then bonuses based on home sales and things. What’s your model for that?

Mike: I would say probably 2/3 is what we inherited when we bought parks. The other 1/3, we just sort of found through ads or whatever. Our average manager makes a minimum of $65,000. Again, we overpay them. Some are pushing $100,000 now, where they manage 400 units or whatever. It makes our life easier now.

When you’re starting out and it’s smaller units, you absolutely have to do the Frank and Dave thing. But as you get bigger, and as you aggregate more parks in certain geographic regions, and you can have one manager do it, you got to get good people. Get good people, treat them well and overpay them what they can get anywhere else.

I would say probably 95% of our managers all came from the apartment business at one point in time. They were used to craziness over in the apartment side, where you’re turning over 15 units a month and everything like that. They come over to the mobile home park side. It’s a lot easier, obviously, except for filling homes and things like that, but then also we get PayLease and it’s really easy, so they can add more units to it.

We’ve had some managers for 10–11 years now, which has been great. Chris does a great job, too, dealing with the managers and working with it. I can’t say enough how much that’s going to make your job easier.

We started out the way you started out, lot rent, get them cheap, and whatever. Once we figured out that the better managers can do a lot of the work for you, we said, hey, we got to bite the bullet and pay them more money, especially if they’re new.

Andrew: I think it’s worth it. I think that’s a really good tip. What do you think is the toughest hurdle that most operators face in mobile home park ownership?

Mike: Right now, it’s obviously finding the deals because it’s just so competitive. I saw a deal the other day. They’re multiple parks—maybe eight or nine parks—and secondary to tertiary markets. That was basically negative cash flow, day one.

Now you probably raise your rents right away or whatever, but negative cashflow. The seller was “firm” on his price. Somebody, I guess, is buying that. I don’t know. You go back to Frank and Dave. They were saying 10% going to 20%. That’s obviously not there anymore.

If I can’t get to 10% with that first rent raise, I’m not doing the deal. I may be more selective now. We still bought a thousand units last year. We’re closing on another deal in two weeks. They’re out there, but you just got to be a lot more selective.

I was fortunate because when we started early, we can keep it contained geographically, where now you probably got to go anywhere to find a deal. Technology makes it easier to manage those deals too, but you just got to be willing to get on a plane all the time. I think the biggest deal right now is that raising money is not the hard part. There’s a lot of money out there and you establish any track record.

Here’s another tip that I didn’t know what I was doing, but it sort of happened. Because we sold up on the parks, we developed a track record. A couple investors that I had, all of a sudden, they got the check back. What’s their first question? Where’s the next deal?

I don’t want the money. You’re paying them 8% or whatever the number is. They want to keep that money working. I didn’t realize it, but all of a sudden, we trade this track record. Every couple of years, I get a check back with a nice kick.

Obviously, the last couple of years have been ridiculous, what the returns have been. Back in the normal days when you’re happy to get, let’s say, a 10% return plus your dividend, now it’s triple your money in two years. I think we’ll go back to those normal days pretty soon here with higher interest rates.

It’s a tough call. Ryan and I go back and forth on this. Do you sell parks now? Because they’re so hard to get. That’s exactly what you were saying, I think too, because if you’re starting a little later, I’d be hesitant to sell a lot until I had something else going. On the other hand, if you can get that track record going, you can attract as much money as you want. See how many guys are doing it now. It’s sort of crazy.

Andrew: Agreed. Yeah, there’s been an influx of investors into this space. Like you said, PE firms and everything. Interest rates, like you mentioned. I think yesterday, they decided to do 50 basis point increase. Where do you think mobile home park investing is going? What do you think the next 2–3 years are going to look like?

Mike: That’s a great question. That’s the million dollar question. I’m tempted to sell a couple of more parks just to hedge my bet, prices are high, and stuff like that. We sold five parks last year to a bigger group. We made really good money on them.

They’re more tertiary parks that didn’t fit our geography. One was in West Virginia, a couple in Florida. We sold out of Florida because prices were so high and stuff like that. Our core group is really what we have now, the 6000+ spaces. Mostly North Carolina, South Carolina, and Georgia. A little bit Alabama, a couple in the Midwest.

Very core, easier to manage when it’s closer to you and stuff like that. But I’m a little tempted because prices are high. Just to hedge my bet, the inflation thing, you just don’t know where it’s going. My gut assumption is it’s probably already peaked and we’re on the downward trend. Obviously, you got China issues, and with Covid, and the war over there to make it a little more difficult.

I read a good piece from Ken Griffin, who run Citadel Securities and one of the richest guys in the world. He’s very worried about the dollar losing its dominance over a period of time because we’re forcing their hand to stop using the dollar. What does that mean for our interest rate thing is a normalized interest rate could be a lot higher than we’re used to. And we’ve gotten so spoiled in the last couple years.

I would say just be careful. I was fortunate. Then the last couple of years, we locked in a lot of our refi deals on 15 years, interest only for a lot of them, too, which is crazy. Thinking about where we started back in the day, Fannie and stuff like that.

People are like, why are you doing 15 years and the rates? I’m like, I’ve been through the cycle before. I’ve seen it, 2008–2009 was a disaster for a lot of people. Now people say to me what happened in 2008–2009 in the parks? Really nothing. The only thing that happened to us in 2007 is we lost a bunch of residents who supposedly bought houses. Miraculously, they came back to us two years later after they got foreclosed on.

We didn’t really notice a difference, which proves the whole theory about why we’re investing anyway. It’s pretty recession-proof, but lot rents are a lot higher now than they used to be. There’s going to be a point where a lot rents are going to get too high in certain markets. I don’t know what point that is.

I look at somebody’s got yes and some of these groups really pushed the lot rents. They’re still 98%–99% occupied, so they’re doing really well. But there’s going to be some fallout. I just don’t know.

I hope the theory proved well that mobile home parks are recession proof. Everything falls down the ladder. We’re sort of at the bottom of the ladder. In my opinion, lot rents are way too low, still. Even though we’ve all been trying to push it, but we all started so low.

In Raleigh, lot rents are averaging around $500. They probably should be at least $700-$750 just because apartment rents have gone up so much. There is some room there, but I’m a little bit nervous that when everybody is so, so bullish and then you start to listen to guys like Ken Griffin saying, hey, things could get real choppy here and real ugly, just make sure you got a lot of cash in case that happens.

Andrew: That’s a really good advice, I think. There are two sides to that. Cash is trash. Inflation is running rampant. How much do you leave over there? The other side of it is when I’m talking to sellers is, where am I going to put the money? What other asset class or where else am I going to put stuff right now if I do so? It’s a double edged sword. I do think the pricing right now that sellers can command for these things is at a peak.

Mike: It’s at a total disconnect. The tenure has gone up 150 bips in four months. They still want prices from last fall, which just don’t work in today’s financing and ranges. Or you have to be willing to accept a lot lower returns, which the PE shops obviously are willing to do. It puts them in a very big competitive advantage. They get a 7% cash on cash and near four or five, they’re cool with it.

A lot can go wrong at 7%, in my opinion. Especially, too, because you’re buying 50-year-old infrastructure in a lot of these deals. Definitely, stuff can go wrong. The good news is everything’s fixable.

Even if it’s wastewater treatment plants, it’s sewers or whatever, everything’s fixable at a certain price. Workers’ time to get anything done right now is difficult. I think it is. I’m a Midwestern guy, so I’m always a little bit cautious. You have it in the back of your mind. I went through 1999–2000 when I was in the financial planning business and then the market tanked.

You’ve got 30%, returns in 1999 and they lost a little money in 2000, they irate at you. It was just sort of crazy, but 2008–2009 was fairly smooth, like I was saying. I feel like the model will hold up in certain situations. I think it will. I just hope, but again, be a little bit cautious here.

Andrew: When do you think cap rates are going to catch up and start ticking up now that interest rates are up? Do you think that lag will continue because there’s increased liquidity in the marketplace?

Mike: That’s another really tough question. I think it’s more of a supply and demand issue, obviously, because they’re not making new parks. We got a few in development, but they take forever. It’s just a difficult process.

Texas seems to be developing some more parks because they have the land available. I don’t know. Supply and demand and these guys, I’m just always surprised when I see a deal come out that just gets bid to the moon.

When I knew it was over was right before Covid, the fall before Covid in 2019. I was in a deal on a park in Charlotte. Basically, the broker who I knew well said, Mike, it’s between you and this hedge fund, basically private equity shop. They said they’re going to bid a million dollars more than you. So whatever you bid, it’s not going to matter.

I raised it a couple times and sure enough, they raised a million dollars more. I’m like, okay, I get it. I’m sort of out of this game. They turned it on. They killed it on that park, by the way. Good for them, but the game has changed.

The supply and demand issue offsets the cap rate thing. Getting sellers, I see that now where mom and pops are like, ooh, I probably should have sold last fall. I still want that same price.

In my opinion, I don’t think the brokers do a good-enough job talking them down. They’re trying to do that a little bit. I think it’s been easy for the brokers for the last couple of years. They’re all good guys. They’ve done well, but there needs to be a come-to-Jesus meeting at some point say, hey, this is just not realistic at this stage.

Andrew: I totally agree because that will also put less pressure on new owners to do these drastic rent increases. They’re pro-forma–ing these big rent increases and paying a price based upon those. I know there’s been some kind of negative press recently. What do you think about that and some of these other larger groups that have made the paper?

Mike: I know several of them. My first point is they’re not wrong. They’re running models that are correct. The rent should be where they’re at. It’s just they didn’t take into account—they probably just didn’t understand as well—the type of people you’re dealing with. People are down on their luck. There need to be treated with more care and more understanding.

I think they realized that now. Some people were talking to me, well, there’s a threat of national rent control. I don’t see that happening. I don’t see it definitely in the southeast. It’s not going to happen. Maybe in some cities. Obviously, in New York, California, and some of those places, it has. I don’t know how you invest there.

I went and looked in California a couple of years ago and a couple places where 2%–3% rent control thing. And I was like, there’s just no way. You can keep up expenses. I don’t think that’ll happen in southeast, which makes the southeast more in demand to do that.

I think one of the things are doing well and some of the groups that you know well too that made the mistake, they’re really doing good with the PR thing now, putting out a lot more information, hey, we’re investing this in the community and that. I like that type of thing.

Ryan Narus and I had a big talk about that about a week ago. It’s like, all we need to do as an industry is put some more positive press out there. Are you helping people reinvesting and stuff like that? The bottom line, if you use the rule of thumb is, lot rents should probably be the equivalent of a Class B two-bedroom apartment in your market.

Raleigh right now, the rents have gone through the roof. Class B apartment is $1500. Not that great of a neighborhood, and no yard, no nothing. You get somebody atopy inside you. We should probably be at $750. When I bought a lot of these parks 5–7 years ago, we were at $190. Now we’re at $500. It seems like a lot, but it’s still not enough. I think the title changed a little bit. As people go and looks at Colorado, the rent control is not going to happen. I just think rent control is a bad idea. It’s […] and things.

I talked to a guy from New York the other day and he said, New York City is a nightmare right now because of the rent controls. I think it’ll take a couple of years to see the backlash against that. As long as I think we mind our P’s and Q’s and don’t make some of those mistakes, it’s hard, though because you know how it is.

You get into deals and said, man, I really like this deal. I know the lot rent, they’re at $300 and they should be at $500. I always say to myself, damn, I don’t want to be in the paper. I don’t want to be in the news. I don’t want people knowing what it is.

It’s a tough call. I think we got spoiled too. Because used to be, you could buy the park, add the homes, fix it up. In 18 months, you refinance, get all your money out, and you’re on to the next deal. You could either keep it, sell it, or whatever. Now that one and a half years, which was totally unrealistic, is more like 3–4 years.

Andrew: But it’s still great.

Mike: It is. We got so spoiled. It’s way reasonable from a timeframe perspective. It’s not bad. I just think you just have to be careful there. Keep your head down as much as you can.

Andrew: Agreed. What do you think are the most important things passive investors—we’re talking total LPs here—need to look out for when investing into mobile home parks?

Mike: It’s obviously all about the operator and what the track record is. If they have confidence and trust in the operator, that is everything in my opinion. Whether they get a 5% dividend or 8% dividend, if somebody’s arguing a lot about that, you probably don’t want them as an investor. The passive people need to understand they’re going to get a good rate of return.

Again, if you can flip a couple of deals and get them a really nice return, all they’re going to do is tell their friends how great it is. You’re going to have money beyond belief. I think the passive investor just needs to go with the smaller to midsize guy, not the bigger guy. The bigger guy, you’re going to get lost in the shuffle. I think it gets very corporate in certain situations. People get to 10,000–12,000 sites.

You can’t talk to people like you and me. What the passive guy wants to do is call you and say, hey, Andrew, how are things going or whatever? I think we’ve always tried to keep it small enough for that to happen.

I deal with all the investors and they’re all friends of mine that happen to be. What they want is that comfort level to look you in the eye and say, hey, is everything cool? Are we good. Obviously, the last 10 years has been ridiculous.

Andrew: That’s a good point. We talked previously before we started recording about the fund model versus individual syndications. Maybe you can shed some light on that. And if you were an LP, which one would you prefer to invest in?

Mike: Yeah, because I went through that a lot, especially in the early years. I got pitched by every PE shop initially. They want you to be the operator and blah-blah-blah to put the money up.

I had been through a situation in the broker-dealer world where we sold a broker-dealer a large insurance company, and we were all best friends until the day the deal closed. It became, hey, you’re my employee, I’m going to tell you what to do. And I’m like, what? I thought we were friends.

You realize the deal changes. My thought with why didn’t do that is they could never quite get comfortable when they really liked. I came close with one group. The other thing is, if you ever have an issue with these guys, they can sue you to no end. I get that you want their money and you want to grow and stuff like that. But just be careful who you’re dealing with because they can be very nasty people if they want to be.

Again, when everything’s going great, it’s fine. But if things go the other way, especially with interest rates going up, it’s not the same situation. I have always done a deal by deal. Again, I always basically put more money than anyone else, so it’s been a little bit easier.

The fun thing to me, the biggest negative, and it’s happening right now, and I see a lot of situations, and you’ve mentioned it before too, is there’s a lot of pressure to do deals because you don’t get paid unless the money gets to work. Your partner’s pushing you and say, hey, I gave you $100 million, you got to put it to work. We need our fees and things like that. That forces bad deals.

I see a lot of that happening right now. I prefer the individual model. I refer to it as the Chick-fil-A thing. Chick-fil-A grew slow because they bought the land and the restaurant, where McDonald’s franchisees typically own the land. It’s a little bit different.

McDonald’s could grow a lot faster because they didn’t have to use their capital. Chick fil A I think is more quality and grew slower. Now it’s crushing McDonald’s, but they just had more control over the situation. I would encourage people to do it deal by deal. Have your investors lined up, but don’t get that money and feel like you got a gun to your head.

In your mind, you’re going to say, I could probably get this deal done, or maybe it won’t be this bad, or whatever it may be. But if it is, then you have to make those people whole. That’s the way I always looked at it. If there was a problem, it was going to come out of my pocket. So I better make a good deal.

Andrew: Amen. What do you think the perfect mobile home park looks like in your eyes and why?

Mike: The perfect one to buy obviously is one from mom and pops. That’s been our model from day one that maybe kept rents too low or too close to the residence, stuff like that. We’re lot rent–only people as much as possible.

We do 120–130 new homes with Clayton every year. We do have sort of rent-to-own model with the newer homes, but anything older we sell. We’ll either fix it. I have a crew to fix it up and sell it. It had become a lot renter and stuff like that.

I’ve never really made money on the homes. I always tried to break even on the homes and keep the lot rents high. That comes from really pre-Fannie getting involved five years ago, where you couldn’t get a deal done if you had any park-owned homes. They were so picky. They didn’t like three star parks and the whole thing.

That’s my thing. What’s turned out to be, too, it’s a lot easier to manage. My perfect park is 200 spaces, lot renters. If possible, direct bill, water, and sewer. If you run into a direct bill situation, keep that park. In my opinion, they’re so much easier. You’d never have the issues you do have the other parks.

I would also have a caveat. I have several parks with private utilities. I was scared of those initially, but it’s not that big of a deal If you know how to handle it, you’ll get the right people. I would have passed on a couple of great deals if I didn’t jump on that type of situation. But to me, it’s the lot rent thing.

Again, a lot of guys are renting homes now. I don’t think it’s a wrong thing because some of these investors are giving you the same value for the rentals as they are for the lot rents, so you might as well go in there. Especially if you’re going to do sort of a flip deal, you rent them all and then let the buyer figure it out what they want to pay it.

I would never buy a deal like that, but there are a lot of guys that will. Like you were saying, too, a lot of guys coming over from the apartment business who view they’re not afraid of that rental model. I think it’s tougher in the mobile home parks because they really can beat these units up if they want to. I got buddies who all they do in their parks is straight rentals.

Andrew: Park-owned homes or straight rentals. Yeah, flat apartment complex. It’s just a different model. There are many different niches inside of this asset class. A lot of people have made money over the last 10 years in different ones.

Mike: I would say on the rental model, you’re not going to be able to grow as fast like the apartment business because you’re going to have three or four maintenance guys. Those guys are going to turn over and you got constant.

Again, the horizontal apartment complex, I always looked at it and said, if I want to be in the apartment business, I’m going to buy the brick and mortar. If I want to be in the mobile home park business, I’m doing it because a lot rent is a lot easier to manage. That’s the way we looked at it.

Andrew: Definitely. Did you ever look at a third-party property management?

Mike: No. I’ve looked at them, obviously, but I was appalled. We had taken over parks that were managed by third-parties and it’s atrocious. It may have gotten better now.

We manage all our own stuff. We’re hands on. I want to know what’s going on. I want to have that sense of feel that we know where the people are at, where the price is at, and stuff like that.

If you’re growing nationwide and you have to do it, I get you have to do it. I don’t know how the pricing works today, where it’s a lot thinner on the margins. I would just encourage you. If you don’t have to do it, manage your own stuff.

In my case, it’s a Chris Berry, if you can find that guy who’s got different skills than you. I’m more of a big picture sales guy, he’s more of an operational details guy, and it’s a perfect combination between us to have that. But if you have that one guy that can really help you on that side of the business, you’re going to do really well with it.

Andrew: Awesome. Mike, thank you so much. This is just a ton of valuable information. Thank you so much for coming on the show.

Mike: Absolutely. I really enjoyed it. I’m excited to be with you. I’ve heard great things about you and your career and stuff like that. Keep up the good work and keep up what you’re doing with the podcast. It’s really valuable, especially to the young guys coming in.

Andrew: Thank you. I will do that. Mike, if any of our listeners would like to get a hold of you, what would be the best way for them to do so?

Mike: Do I have to give them my phone number? I’m just kidding. You can just hit me up in email. It’s probably the easiest. It’s mconlon1@gmail.com or go to our website which is acgmhc.com. Either one, I’d be happy to answer any questions. Do it all the time.

I wrote the book back in 2015 and the last section sort of mobile home parks. Randomly, still, I’ll get people. Hey, I’ve read the book. I got this question, that question. I’m always happy to help anybody. Anytime you can help the younger people, it helps the business, so it’s all good.

Andrew: Awesome. If you had one last tip to give people interested in investing into mobile home parks, what would that last tip be that you would leave them with?

Mike: I would say don’t be afraid. Even in a rising interest rate environment, there are still deals out there. Don’t think that the deals have all gone away. Stick to your model as much as you can. Don’t overreach in this environment. Buy from mom and pops, not from other people in the industry.

Andrew: That is gold right there. The buy from mom and pops thing, I think that’s huge. We have something in our CRM called a GOAT seller—gray, old, and tired. That’s the model because they leave the most meat on the bone.

Mike: I totally agree.

Andrew: Awesome. Well, thank you again, Mike. I appreciate it.

Mike: I enjoyed it. Thanks.