Interview with Mobile Home Park Fund Manager Kevin Bupp
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 about passively investing in mobile home parks through syndications and joint ventures. Andrew covers the goal of these legal structures, the pros and cons of each, and his top ten tips on how to meet mobile home park syndicators that may not be advertising their current investment offerings.
Andrew Keel is the owner of Keel Team, LLC, a Top 100 Owner of Manufactured Housing Communities with over 1,400 lots under management. His team currently manages over 20 manufactured housing communities across ten states – AR, GA, IA, IL, IN, MN, NE, OH, PA and TN. 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 value add projects in progress? If so, follow us on Instagram: @passivemhpinvesting for photos and awesome videos from our recent mobile home park acquisitions.
00:19 - Welcome to the Passive Mobile Home Park Investing Podcast
01:24 - Kevin’s background and educational journey through real estate
07:00 - Great on-site manager s vs slum-lord managers
11:28 - Mayor Bobby Cartwritght
13:24 - The hardest part about the mobile home park business
20:57 - The biggest risks in passive investing
26:26 - The value add components
30:49 - What does the perfect mobile home park look like
31:42 - The typical park that Sunrise Capital acquires
35:28 - What does Sunrise specialize in?
40:07 - The future of asset prices
44:00 - Sunrise Capital team and operations
50:45 - What are Kevin’s typical general partner splits and fees
55:00 - Getting a hold of Kevin
00:00 - Conclusion
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Links & Mentions from This Episode:
Kevin Bupp’s official website: https://www.kevinbupp.com/
Sunrise Capital Investors: https://sunrisecapitalinvestors.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/PassiveMHPin...
Andrew Keel Instagram page: https://www.instagram.com/passivemhpi...
Welcome to the Passive Mobile Home Park Investing Podcast with your host Andrew Keel. This is the podcast where you can get the education you need to invest 100% passively in a highly profitable niche of mobile home parks.
Andrew: Welcome to the Passive Mobile Home Park Investing Podcast. This is your host, Andrew Keel. Today, we have an amazing guest, Mr. Kevin Bupp.
Kevin is the host of The Mobile Home Park Investing Podcast and the Real Estate Investing for Cash Flow Podcast, both of which are top ranked on iTunes. Kevin is also the CEO of Sunrise Capital Investors, a fund manager that focuses on niche market segments that are currently out of favor, inefficient, and have less competition. Sunrise currently sees opportunities in Mobile Home Parks and in parking assets.
Kevin is an absolute wealth of information when it comes to real estate investing with over 20 years of experience and $100 million in real estate transactions under his bill. Kevin, thank you so much. Welcome to the show.
Kevin: Andrew, it's awesome to be here, buddy. Thanks for having me.
Andrew: Awesome. Can you start out by telling our listeners a little bit about your background and how you got into manufactured housing?
Kevin: Yeah, absolutely. Will do. Thanks again for having me. I've been a full time investor for a little over 20 years now. I'm 41 now and I got introduced to real estate when I was 19. One of my first properties was a single family residence like a lot of folks do when they get started out when I was 20 years old.
I kind of followed that same model—buying residential properties for many years. I was always into buying properties for cash flow. That was what my original mentor had taught me. Think of it as a sustainable income stream. Don't buy it to flip it unless you absolutely have to because you've got to start all over again after you get rid of that property, you have to buy another one. You got to keep that system going.
Whereas, if you buy them and they generate cash flow, number one, they'll pay down the debt. At some point, you'll own it free and clear. Also, if you've decided one year, you don't want to buy it anymore, you'll also have the income stream coming in. It won't go away. I always bought properties with the idea that they need to be self sustainable and they also need to generate additional cash flow that, ultimately, we can put in our pockets.
Starting with a single family, I built up quite a substantial portfolio in my early to late 20s. Then, moved into apartment complexes, bought about 500 units of small and medium sized multifamily. Then, [...] commercial real estate types throughout the years.
Then, 2008 hit. 2008 was a very challenging time for me and my business. I struggled for a number of years—three years—of just really damage control. Just trying to sort things out and work through the chaos. That's probably the best way to put it. It was just a chaotic time. Learned a lot. Learned what I would've done differently. Moving forward, just solve some of the mistakes that I made. That really allowed me to put forth the plan for phase two. Again, it took me about three years to even consider buying real estate again.
In 2008-2011, I didn't buy a thing. I just dealt with the challenges that were on-going with my prior business. Around 2011, the fire was still burning. It was like a pilot lamp at that point. It was really low. I kind of snuffed it out a little bit. I started a few other businesses not related to real estate because I needed income. I started other businesses that ultimately kept somewhat a roof over my head, I guess. The pilot lamps, it kept growing. It kept trying to ignite.
In 2011, I really started to acknowledge it and started looking for opportunities. At that point, Andrew, the landscape was very different. 2011 was very different from what pre-2008 was. The world had basically changed.
I went on an educational journey, talking to everyone that was in real estate that had either made it to the downturn or most of the folks were fairly new. They just went in after the crash happened. Just educate myself in the capital markets, what assets were trading, what markets were still going through a lot of distress, which ones were coming back at it?
I made the determination I was going to buy multifamily. Rebuilding, it seemed that it was such a much more efficient way comparing my prior assets of multifamily to single family. It's just a much more efficient way to regrow and rescale the business—it's to buy multifamily. It just made more sense.
However, on that journey of learning about multi family in this new world, I was introduced to a guy by the name of Randy. Randy was a friend of a friend of mine. I was introduced to him just nothing more than expanding my network. Hey, you need to meet Randy. Randy's a cool guy. He's been a banker for 30 years. He retired. He's got some real estate investments and he golfs all the time. That was kind of the introduction.
I went and had lunch with Randy and came to find out he retired from banking. He ended up buying three mobile home parks up just north of Tampa Bay Area. Those were ultimately his retirement, they were larger communities. Randy really convinced me over that two hour lunch with him on how great mobile home parks were and how they're so much better than multifamily, how they're so much better than any other asset class. That I needed to consider looking into them a little bit more as I went to rebuild things.
I literally left that lunch meeting, Andrew. I was like man, there's something to this. I don't know what it is. There wasn't much information out there like education materials out there. I dug as much as I could, read as much as I could, met other mobile home park owners, and talked to Randy a bunch more. I decided that I was going to give myself a year to learn as much as I could about the space and then buy one. I want to buy one and either prove or disprove all these great things that Randy had said about this space. I did.
It took me a little bit more than that 12 months. I bought the first park up in Atlanta in a small 34 space community. We still own it today. It's a cash cow, it keeps producing. It keeps kicking out money on a monthly basis. That worked out well and we moved on from there. We saw that it was a really viable concept and asset class. Bought the next one, bought the next one, and you know the story.
You went through the same thing. First one worked out well. There was something to it and you build a business out of it which is what we did as well. That was 2012 when I actually bought that first park, so eight years ago.
Andrew: Eight years ago, wow. That's fantastic. I had a similar story. With my first park, my on-site manager was amazing. I inherited her from the previous owners and she was just fantastic. That gave me momentum. I went into the next property thinking the same. Did you have a similar situation happen when that on-site manager was really good?
Kevin: Very, very, opposite type of situation. This property we bought was probably one of the most distressed properties that I've ever bought even today. It was a bank-owned property. Basically, how the story went was the prior owner, prior to losing it to the bank, he owned it for 12+ years. He was the local slumlord. He just was a slumlord, I'd leave it at that. He didn't do a good job running the property.
At some point in time, I forgot which hurricane it was, there were a number of FEMA mobile homes that were going up for auction nearby. He went to the local county. He had a lot of really older junkie trailers there. He went to the county which happens to be the courts and the county's office is right across the street. Literally, they could see the mobile home parks. He went there and he asked for the permission to bring newer homes in. They required that he upgrade some of the infrastructure, the roads.
He went and bought a number of literally a couple year-old three bedroom FEMA home. They're normal mobile homes. All the major manufacturers were making them back then. He brought them in there, made the park nicer, and literally continued with his old slumlord ways. In the process, he took out $1.6 million debt to do this. He continued his old ways, default on the property because he was just not running it efficiently. The bank took it back. When the bank took it back, the court appointed a receiver and that man just did a horrific job.
We found this park, it had 34 homes in it. There were only two people living in the community. The other 32 homes had been ransacked, people stole the AC condenser units. The management company had not shut off the water, and the Atlantic does go through freezes. Normally, once a year, it gets below freezing at least for a week or two at a time. There were water leaks, bust pipes spraying everywhere—it was an absolute disaster. The two people that were living there had not paid rent for the 2+ years that the court appointed receiver had taken over and their total rents between lot rent and own rent was like $385 a month.
Anyway, we looked at it and I'm like that's a lot worse than I thought. However, I knew lot rents in that market were fairly strong. This thing had been owned in the market for a while, listed way too high. We got the bank down, we toured all the units, gave the bank the video of the units, the interiors, and how bad they were. We gave them an estimate of what are those going to cost to rehab it. It's like $8000-$10,000 a home. We're going to put AC units in—top to bottom rehab. When we bought the park, the homes were seven years old, they weren't that old at all.
My partner and I looked at each other. We're like you know what? If we can get it for this price, and the price that we came up with was what we value those homes. If we fire sale any single one of those homes, we just want to give them away. Even in their existing condition, what were they worth? We came up with a number of $7000 or $8000 as probably what they were worth, even in their existing state.
If this thing didn't workout, we can fire sale those homes and give out from underneath this. It was worth the risk. Ultimately, we ended up buying the park for $210,000, including all those homes.
The funny part of that story, Andrew, I'm rambling on here now, is we always try to go to the local municipality. Get the city, the town, and the village onboard with what we're about to do if it's a turnaround. We want to build an alliance with them, let them know we're going to do some good things for their community.
His name was Mayor Bobby Cartwright. His office is right across the street as was the chief of police. I never met him, I didn't look him up online. We called and we got an appointment set. My partner and I walked into the room with this whole grand presentation of how we're going to turn this blighted place across the street from their office to this thing that they're proud of.
We walked into the room, there were like 14 people in the room. They have the entire staff—the chief employees, the city council, all of that was in there. It's a small little town. Mayor Bobby Cartwright was about 6'4 foot guy with a handful of mustache. He was bald and he was very intimidating. He was a scary looking guy. You guys can Google him. Google him, Mayor Bobby Cartwright in the city of Lovejoy which was a little small town in Atlanta. You can see what I mean. He has a stuffed fox on the wall, a rifle on the wall. He's kind of scary.
He let us talk for 20 minutes or so with our plan and how we're going to make everything great. He looked at us once we stopped talking and said you're wasting your time. You're wasting your time here. I've been trying to set that park down for years. It's been an eyesore. It's draining the resources. Our police are always there. The guy just rambled on. He was not happy. He basically said take your money somewhere else. Don't spend it in my town because you're going to end up losing it.
We walked out of the meeting and had a little gathering between the two of us. My partner and I, like what should we do. That's rough. We're going to have a little bit of a rough go here in the beginning. We decided to buy it. Long story short, we bought it, built a really good friendship with the code enforcement. We befriended her. Ultimately, we turned around the park eight months later. It took us a lot of time to rehab every home, turn around the park. I've got a call from Mayor Bobby Cartwright about nine months into it, apologizing to me personally. I picked up the phone call and he apologized for the way he acted. Even wrote us a referral letter that we could use for other Mayors or town council when we ran to similar situations.
Andrew: Which was common.
Kevin: Yeah. We were literally in the middle of another debate with another town. We're buying a park in North Carolina. He wrote a letter that we could use for that Mayor but also kind of a blank template we could use and they would use him as a reference. It's pretty cool.
Andrew: Wow, that's an amazing story. To kind of jump in here, what would you say is the hardest part about the business, the mobile home park ownership operations business. What would you say? How did you guys manage that initial rehab? Did you have to go up to Atlanta a lot? I take it you were in the Tampa, Florida area, right?
Kevin: That's correct. To answer your question, yes. That particular property, they were all park owned homes. We owned every single one of them and every single one needed a massive rehab.
I'll give some additional context. I owned a lot of property in the past; I've done tons of rehab, I run multiple construction crews. I wasn't scared of that part of it but I knew it was going to be an uphill battle because it was an eight hour drive. Atlanta is kind of a weird location for where we're at. It's about a seven and a half hour drive from my door to that door, or it's only an hour long flight. By the time you go to the airport here, fly, get a car, it ends up being like a very similar time, and you don't have as much flexibility. We drove all the time.
Once a week we drive up and spend two days there. We assembled a hodgepodge batch of construction crews and did our best to manage them while we're there and we managed them from afar for five days. We had an on-site manager we brought in that helps us as well like eyes and ears.
The biggest challenge with that property, Andrew, it was a complete disaster when we bought it, even attracting an on-site manager there. I'm not even joking, every single unit, the bank had taken away all the stairs because they didn't want people getting in. They keep people around from getting inside of the unit so they took away all the stairs. Every stair was missing. AC units we're missing. It was known as the local place you can dump stuff. People are still coming and dumping. It's just a disaster.
We finally found a manager that can get onboard with it. We rehab per unit first, upfront. We kind of kept it away from all the other mess in. She stuck around for about a year while we went through this. That was incredibly helpful. It was a lot of work, it wasn't a scalable model. There's no way we would probably do that today.
For the first park, we learned a lot of lessons, went through a lot of challenges. Again, it proved to be very successful. I think we're all into it for about $390,000. We did a cash out refi three years ago and put all of our initial cash back out of it. We keep low leverage on our assets. We literally took out $450,000 on our loan and it appraised for $1.25 million. It performed really well.
The biggest challenge with that one was the distance. It was just a weird situation. That big of a value add turnaround being far away, if you can't be present and you don't have the flexibility to actually be on-site often or have someone on your team, I can't imagine doing that. It'd be very, very, tough to do. I'm not saying it's not possible, but it would be very challenging. You'll probably get ripped off by contractors left and right. Your one year project would take three years.
Andrew: Definitely. Take that one park out of the picture, just mobile home parks in general, what would you say is the hardest part about the business? Is it turnarounds or is it collections? Just the business as a whole outside that one specific project which obviously was a huge value add turnaround.
Kevin: Yeah, that's a great question. Assuming that you can find the opportunities—you got the financing and things like that. The debt is not a problem, the equity is not a problem. I think a lot of people downplay the day-to-day operations of a park now. I'm not talking about the perfect A class or five star community with 100% tenant-owned homes, direct build city waters, city sewers, trash—I'm not talking about that park. Those are anomalies.
Andrew: It's music to my ears, those parks.
Kevin: Yeah. Very few of those exist. We actually owned a few like that but very few of them exist. In fact, even most parks that would be deemed to be stabilized still have some type of turnaround component. Some smaller, some greater than the others. I think the biggest challenge of owning parks is just managing the operations. There's a lot of variables there. We can dissect it a little bit.
I think one of the bigger challenges, especially if you're buying a park from a mom and pop that's owned it for a long time, it's a major shock to the current residents. It just is. People don't like change. It takes time to build that trust. It takes time to get them comfortable again, that a new owner just stepped in after them knowing the old owner for 30+ years. I think that's challenging. I think it's challenging to find quality managers, the staff that run your day-to-day. There's multiple different responsibilities that on-site managers, this is assuming you've got a park that's, let's say, 150 sites or smaller.
Normally, the on-site manager is not going to be the rent collector, scans checks, or deposit checks, what have you, handout notices, they're going to be that person. If you get homes that are for rent or for sale, they'll also become a sales person. Very few times, you find that one person that does both really, really, well. You either got a really good communicator, or they're an organized office person. They can run that part but they suck at sales. You've got a really good sales person but they are horrible when it comes to scanning the checks on time and handing out late notices, what have not.
I think the operations, again, are just downplayed a little bit in this niche. A lot of folks think it's a very passive investment. It's not. It's hands-on. Some are more hands-on than others but it takes time and energy to put the systems in place. You got to rely on allowing your on-site staff assuming the parks outside of your immediate backyard. It's not like where you live, it's farther away.
Some other layers there which I know you're really good at Andrew, one of the areas you shine is very downplayed as far as the ease of doing it is infill. I see parks getting pushed, it's got 50 vacant lots, that equals this much upside, fantastic. These homes will show up one day. It doesn't take energy to get them there. I see a lot of people paying a lot of money for that upside.
Times have changed, it's a logistical challenge. If you've got a lot there and it's all ready to go, it's still a logistical challenge to get that home, get it setup, get all the trades that need to be involved, and pull the necessary strings to make that happen in an efficient manner at scale.
Andrew: Yeah. At scale, being the keyword. You got 5 or 10 going on, that's different than if you have 50 vacant lots you're trying to fill. It's definitely one of the more difficult parts of the business, I agree. Infill and the trades that you're dealing with within the mobile home park asset class are different than if you're a general contractor working on a multifamily complex. Your mobile home transporters just aren't the most sophisticated business people, most times. It can be a struggle, for sure.
Kevin: From a mobile home transporter, you own a company now.
Andrew: I know a guy. Kevin, what would you say are the most important things that passive investors need to look for when investing into mobile home parks? What would you say are the biggest risks that a passive investor would have, investing?
Kevin: Hands down, it's the person they're going to invest in. The sponsor that they're going to trust their money with. It can be the best deal in the world in the best market that has the highest demand for affordable housing, but if the sponsor doesn't know what he's doing, the general partner that's going to run the asset, if they don't know what they're doing and they don't know how to do it, they're going to take that high quality deal and they're going to run into the ground. Hands down, it's absolutely the track record of that sponsor. Maybe not just in the mobile home park space because everyone's got to do their first deal.
However, I'm of the opinion that if you're going to start in a different asset class, even if you're experienced somewhere else, you should probably risk your own money first before you raise cap from others. That's just my opinion. I think you should prove your concept first before you go looking to take money from someone else on a brand new venture.
With that being said, there's a lot of folks that are coming from other asset classes into mobile home parks. Maybe they're in multifamily or single family or other types of commercial real estate where they might be really experienced and have a good track record but maybe brandnew to that space. You just want to make sure that whoever they are, that they truly know it's not just theoretical. They've done it before even if it's not in parks. They've actually put into practice what they're preaching to you. Hands down, that's it.
Andrew: Do you have any tips on how a passive investor would vet an operator?
Kevin: Yeah. Again, back to track record. Just really digging into their history, what have they done? How has that played out as far as other investors? If they've had other investors in the past and other ventures, then ask to speak with a handful of those investors and find out what their experience was. I've seen even sponsors go as far as doing background checks which I kind of like. You shouldn't have anything to hide. Limited partners doing background checks on sponsors. Sponsors shouldn't have anything to hide.
You can put a really beautiful marketing spin on anything. Just go to any crowdfunding site, look at any of the broker packages. It's very easy to make something seem so pretty. It's a no brainer. This thing will work no matter who takes it over. Gosh, this is just a hands down [...] of a deal. It doesn't matter if the sponsor's not the right person if they don't have that track or if they don't have that experience.
Again, you've got to dig a little deeper and find out who they are, what they've done, and who they've worked with. Even check references of past business partners. I know things might not always end amicably but it shouldn't be a trend that if you go back and actually see what they've done in the past where none of them ended amicably, they've always had bad partnerships that split up, that might be a red flag.
Kevin: Just dive deep. Simply put dive deep to the sponsor and what it is they've done in the past.
Andrew: Yeah. I agree with you, that's a great tip.
Kevin: Do you have any other tips? Are there any other things that you would suggest, Andrew, to passive investors to get more comfortable with a passive investment with a sponsor?
Andrew: Yeah, I'm big on track record. Looking at what they've done before. If you're taking risk to be the sponsor's first partner in the asset class, you need to just understand there's more risk there. You need to get more of a reward for doing that. I agree, looking at the track record is going tobe key.
Kevin: Yeah. Like I said, I like the idea of proving the concept. It's probably the most common piece of advice that I give new investors. It doesn't matter if it's looking to buy new apartments or single family home portfolios or mobile home parks or anything else. If their goal is to build a business out but they don't have a lot of money, they don't have enough money to do it themselves, they need to bring capital at some point to achieve their goals on how big they want to be. Even if it's I want to go own 500 unit apartment buildings, great.
How about go figure out how to buy exactly the similar model of what you intend to do with an apartment? Maybe you're going to be a value add play like you want to go on and buy a C+ 500 unit apartment complex. You want to upgrade all the units and amenities packages, what have you, and make it into a B-. That's the objective in seeking to raise rents. Do that with a fourplex. Do it with something you can do yourself in the same exact model. Prove that concept then you can truly speak in a marketing package to an investor. You can give a real pitch of like here's what I've done. Here is my business plan. Here's how I execute it. Here's how long I project. Here's the challenges I saw along the way. Here's how I overcame them. Then, here's exactly how I'm going to do it on this 500 unit apartment complex if you want to come along for the ride.
Andrew: Easy to follow story.
Kevin: You give more comfortability to an investor as well that they've actually done something.
Andrew: Definitely, definitely. Going into your experience in mobile home parks, can you explain the value add components that you've implemented? A lot of listeners come from different asset classes like multifamily. There's just different value add components in mobile home parks specifically. Can you elaborate on that a little bit?
Kevin: Absolutely. From a high level, operational expenses, situations where there's too much payroll or they've got multiple staff that aren't really necessary, they've got water leaks not taken care of, their sewer bill is 2x or 3x the amount of what it should be. Just really reducing the operational load on the asset itself, that's one of the big ones.
You and I could probably both look at a P&L very quickly and determine where there's excess. Getting comfortable with understanding that side of the business, of what it should be versus what it is today, and how to cut that down, that's one of the big ways to add value.
Another way is with utilities. A lot of these parks were built many, many, moons back. Back then, water and sewer wasn't very expensive. Nowadays, it's a lot more built than where that was factored into the lot rent. Water and sewers are just part of the lot rent. It was not built individually. However, water and sewer has got much more expensive over the years. Now, there's a lot of parks that you'll come across that it's included in the lot rent. However, we'll go on it with some meters in each individual lot and we'll back the residents for their respective usage.
We bill trash, depending on the market. In some markets, you'll find that there's themes. You run across some markets that every park in that market, the trash is included. It just is. Lot of times, we won't touch it if that's the theme across the board. However, in other communities you'll come across where trash has been billed back by the communities but your community just bought it, it's not, so we'll pass that back.
Another way is to do infill like we talked about. Actually, bringing homes into any of the vacant lots that exists in the park. New or use depends on what your flavor is, we've done both. That's like high hanging fruit, there's low hanging fruit and there's high hanging fruit. Low hanging fruit is operational changes, lot rent increase, lot rents are below market. I'd say middle of the road would be submetering utilities and billing that back. You're in the middle of the tree as far as hanging fruit. Submetering utilities, there's a cost there. There's some vendors you've got to get involved with. It's a process. Then, the high hanging fruit is the infill. It's like the three categories. That's what we look for. Any park that we buy, we want to know where there's an opportunity to increase the value.
Andrew: Yeah, I love that. Those are all great value add strategies.
Kevin: Did I miss any? Did I miss any that you know about that I don't that you want to share with me?
Andrew: The infill is what I've spent a lot of time on. That's the high hanging fruit, it just takes a lot more effort. That's another thing, when you're vetting another operator, have they done infill before? That's something I even learned the hard way. We bought some parks in Illinois, we planned to bring some new homes in, got accustomed to the hood process for site prep—what they require for concrete expense. Learned quite a bit about side prep, the grading of the lots, and the concrete that needs to be 48 inches deep. It's not cheap, it's not cheap to pour that amount of concrete.
Kevin: I respect what you've done. I know you've really put a lot of emphasis and focus on that side of your business. That is a weak link of a lot of operators in the space. Again, as we mentioned in the beginning, it's one of those areas in the business that is usually downplayed. To anyone who's listening, if you're looking to get into the park business, it's not rocket science. It's challenging. It takes time, it takes energy, it takes capital, and theoretically, it's easy. Put into practice, it's probably one of the more challenging. It is the most challenging value add component of the mobile home park.
Andrew: Yeah, I agree. Kevin, what does the perfect mobile home park look like for you? Where is it located? What does that look like?
Kevin: The perfect one. I think I almost outlined that definition at the beginning. I'd say that'll be very close to where I live. It'll be down here in Florida, out of the deal with plowing snow or frozen pipes or any of those other stuff that comes with the cold weather states. It will be a direct bill for city water and sewer. It will be the trash as part of the tax bill so we don't have to deal with that. 100% tenant-owned homes and probably 55+, being that most of them are fixed income, SSIR and pensions, what have you. There's not many reasons why they don't have the ability to pay. That would be the perfect park.
Andew: Yeah, that sounds like a good property. Within Sunrise Capital, what does the typical park look like that you guys are buying?
Kevin: We bought everything. I wouldn't say we ever bought a one star park. When I think of a one star park, I'm thinking of a junkie trailer park really on the wrong side of the tracks. No matter what you do, it's not going to attract the right clientele. No matter how much lipstick you put on, it's still going to be ugly. It's going to be a full drug, sex, and rock and roll. That's like a one star, in my opinion. That's my internal definition of it.
Two stars would be a similarly junkie park or a rough park but in a good part of town. It's got a good school district. If you clean it up, the good people will come. That's a two star. Then, three start kind of goes up from there.
Everything we've ever really bought would be a two star or above and we basically owned the entire range today. We have a couple of really nice assets up in New York and Maryland that I would say are, depending on how you define it, would be a four or five star category. Nothing that we ever buy, the two stars stay as two stars. Our objective is to get it to a three star. Go and pave roads, make improvements, bring in some nicer homes, skirt homes, all that, to make these aesthetic improvements needed to get to a three stars.
I'd say that the normal deal we buy nowadays is a two to two and a half star, maybe a three star, to start. Our goal is to bump it up either a half star or a star over the period of two years, what have you.
The average size of what we're buying nowadays is probably about 120 spaces but we'll look at stuff down, 80 is our minimal threshold. Maybe even smaller if it's in an immediate area where we own something else. I'd say our preferences, just like everyone, city water, city sewer. We own communities that are on, we've got septics, we've got few wells. We've got one waste water treatment plant. We don't own lagoons and I don't think I have an interest in owning a lagoon. We were comfortable with private utilities so long as we got engineers involved. We do really deep due diligence on the private utilities but we can get comfortable with that, it’s not out of the question.
I think I nailed all the key components of what the norm is for us. We want opportunities that have a little meat left in the bone. We want them in good markets, good locations, good school districts, and parts of the country that are growing, that people aren't leaving, that people aren't on a mass exodus, that people are attracted to.
Obviously, the last thing that's incredibly important is that there's a large demand for affordable housing. I'll give you the example where there's not a large amount for affordable housing is Flint, Michigan. That's just one that comes to mind. The median home price in Flint is, I think, $20,000. Everything's affordable in Flint. There's a lot of big parks out there that have a lot of vacancies. They were probably nice in their hay day but I don't think you'd be able to go on one of those communities, infill it, and expect to actually attract quality clientele.
Andrew: Yeah. You seem floating around online for these crazy double digit cap rates.
Kevin: Don't be lured in by the crazy double digit cap rates. It's one of two things. It's either that horrific market or the broker’s evaluating it wrong by actually capitalizing the park owner home income. That's one of the others.
Andrew: Yup. Tell us a little bit more about Sunrise Capital. What are you guys up to lately?
Kevin: Yeah, that's a great question. We're a boutique private equity firm that specializes in mobile home parks. We recently added another asset class to the equation which is parking assets, service parking lots, parking garages, which at this point we're not putting too much of an emphasis on just today with the pandemic. Mobile home park is our core competency.
When I initially started, I bought parks with my own money or with a partner. About five years ago, we formed what's known as Sunrise Capital Investors. It started raising capital via a fund model. It's a purchase of mobile home assets across the country. Today, we own assets. Now, it's 12. We just sold the parks in 12 different states. We've got 19 assets and now we're right around 1900 lots in total.
Kevin: As far as what we're doing today, we've been a little calm over the past four or five months with COVID just waiting and watching to see what would play out. I'm overly conservative especially after going through 2008. It's probably to my detriment, there's probably opportunities that we've missed on because I'm overly conservative.
There's always going tobe deals out there. I think the important thing to understand is never get caught up with that feeding frenzy. I saw back in 2006 and 2007 before the crash, if I don't buy today, there's never going to be a deal left. I might as well overpay because if I don't make a deal, nothing's going to be left. The price is going to keep up, up, and up.
Don't ever get caught up in that anxiety feeling of you've got to buy just to buy. Know that there will always be an opportunity no matter what part of the market cycle we are in. There's always opportunity. Sometimes, you just have to dig a little harder to find it.
Andrew: Yeah, definitely. You guys are currently raising right now?
Kevin: We're about to roll our third fund. We're about to roll our third mobile home park growth and income fund here. We're shooting for mid-September to push it out. It was supposed to go out in April. As March rolled around, we realized that it probably wouldn't be the right timing. Really, our focus from the past five months has been on our current assets, making sure that we had necessary liquidity, and making sure that we focused only on projects that make sense. We kind of halted a lot of capex projects for the first couple of months of COVID. We’ve resumed pretty much all operations as normal across the board.
However, Andrew, I think collections across the board had been really strong, residential real estate in general. Mobile home parks, multifamily, residential rentals, it's been incredibly strong across the board. However, I'm of the mind that it really isn't a true barometer of where we're at in the economy. What I mean by that, I think there's a number of residents–I don’t know how many–in all of our communities. Your communities, mine, and everyone else who's listening are only paying their rent because they’re getting stimulus checks. They're out of a job and they're making substantial amounts of money, sometimes more than what they were at their jobs.
Whenever this blows all over, whether it's November when the elections happen, whenever that stimulus stops, I do think there'd be some tougher roads ahead for the collections. They'd probably have a double digit unemployment rate. That means that there's going to be people in our communities—all of them that don't have the ability to pay. They literally don't have a job. There's no job to go to. Time will tell.
I still think that we're in the most resilient asset class that exists. There's no better affordable housing option than mobile home parks. I always like to say, you could pick any mobile home park in any of the markets that you own and any mobile home parks in markets that we own. There is not a better option, a cheaper option, for a family of four, a family of six, whatever the size of the family, to rent a three bedroom unit for them to live in that is cheaper than what they could live in that mobile home part. Assuming that they own that home. Average lot rents are $300 a month across the country, give or take. There's nowhere in any of those markets that anyone could find the lift for $300. Probably, not even in a studio room or an apartment for $300 a month.
Hands down, we have the most affordable quality housing option that exists today. I think it will continue that way forever.
Andrew: Yeah, I agree. What do you think about the mobile home park asset prices? Do you think that they will be affected anytime soon? What's your take on the future of that?
Kevin: If I have to give an opinion of what might shake out over the next couple of years, I don't know if it necessarily has to do with COVID exactly, I think there's a lot of new operators getting into the space a lot. A ridiculous amount that are buying parks, that are paying prices that we personally would have a hard time justifying for a particular asset knowing that the margins are very thin. It's going to be a lot of work to even, hopefully, meet those projections.
I think there will be a lot of folks who will get wakeup calls. I don't wish it on anyone but I think there'll be a lot of operators that will get wakeup calls based on a proforma that ultimately weren’t able to meet that business plan that was originally mapped out that became much harder, much more challenging, much more costly for them to do that.
I think there'll probably be some parks that come back around that, maybe, we overpay for. Only due to lack of operational ability by the sponsor and also overpaying. We were selling some assets right now, we've got some parks under contract. There's way smarter people than I. I will tell you that I probably wouldn't be a buyer at any of the prices that our parks are selling for today.
That doesn't mean anything. That just means I'm too conservative and we won't buy as many parks over the coming years. I'd rather be conservative to have bigger margins and have a buffer. You always need a buffer. I don't like playing the thin margin game. It doesn't work.
Andrew: Yeah, definitely. I've noticed a lot of people that are from the multifamily space or other asset classes coming in that contacted me and kind of want more information about how to setup operations. They're going to manage these assets from a highrise in New York City. I don't know how you're going to do that efficiently and manage these huge value add turnarounds from thousands of miles away.
At some point, you're going to have to get some boots on the ground. That's getting more and more difficult to do with COVID. It's an interesting market right now, for sure.
Kevin: It might be a little different if they're only out buying institutional grade or fully stabilized larger properties that come with a staff, they're 300-400 space parks. They're a three star asset but they've got a full time maintenance person. They've got a manager and an assistant manager. It's more of an inplace business than that of the 80 space value add community that is a thousand miles away from where they're located.
You can only afford to have one manager there or more likely, their pay scales will be fairly low, in the grand scheme of things. You get what you pay for. All the rest of that is challenging. I think it'll be a little bit easier moving forward with vendors because now, there's people out of work. Have a little bit easier time finding contractors.
I can tell you, I don't know if you've experienced the same thing, up until COVID hit, for the past year and a half, we've had across the board an incredibly difficult time finding quality contractors because there was so much work out there. I'm talking like racking our brains trying to find people. We're even willing to pay for it—pay a very high dollar amount and still not find people.
They get the choice. They get to work on a mobile home or go work in a single family home. They get paid the same amount. Their choice is going to go work in an airconditioned single family home versus a hot, humid mobile home.
Andrew: Crawl under the home and get in the underbelly, yeah.
Kevin: We've had challenges with that too. Time will tell that if it eases up a little bit with more people being out of work.
Andrew: We're going to summarize it up here. Tell me a little bit about your management team, operations, and how you built that up.
Kevin: Just very similar to most other park owners, we've got an on-site staff of either one or two people depending on the size of the park that actually is in the community. If it's a big enough park, we have maybe a part time or a full time maintenance guy. Most of our parks, it's hard to justify that. Most of that we just have go-to vendors for that type of work. We don't have any construction crew on payroll, per se.
Anyway, to backup a little bit, we got on-site managers. We just have one regional at this point in time that covers all the bases. He's based here in Florida. We call him Director of Operations because he does more than just regional responsibilities. He's more into our company and the operations as well. He oversees all those on-site community managers.
We've got a construction manager who handles all of our capex, manages, hires vendors, handles timelines, and all of our capex projects. He's the only higher level position in our team that's actually not based in Florida. He's up in New York. Again, he deals with all the vendors, contractors, and infills. He finds used homes and works with the on-site managers to track down used homes in the local market place, get a move in, deal with the movers and all of that.
We've changed up our structure a good bit over the last couple of years. We got behind the scenes accounting, we got a couple of accounting staff. We've got a CFO. Then, sales and marketing is a side of our business that we’ve changed up a great deal. I think it's something of an issue we can talk about here. It can be a value to you and some of the other people listening.
We used to allow our on-site managers to be the point person. We have them be the person that places the ads for homes that were available for sale or lease. Also, the inbound calls for those available units. We found that it's very hard to create accountability. It is just incredibly challenging to create accountability and consistency of the message that was being given out. It was hard to uphold a company brand with having 16, 17, or 18 different managers to manage that part of the business.
What we did is we hired one dedicated person internally, his name is David. He's our direct point on the sales and marketing funnel before it gets sorted out to each of the individual managers. He also does follow up quality control after a perspective resident goes to see us at home. He follows back up and then he calls them. He's incentivised to call them and actually get a followup survey of what their visit was like, did the manager show up on time, was the unit clean? What do they think of the community, the location? That's been a game changer in our business—having that middle point person.
He not only places all our ads and manages all of the ads that go out, all the available units, he also handles all the inbound email inquiries or phone calls related to our available units.
One other piece of that is we use a program called ShowMojo which allows us to basically set up virtual appointments. Each one of our on-site managers has dedicated time slots throughout the week when they'll do showings. David's got a link to each one of those managers. When he gets a prospect on the phone, he can just send that prospect the link and say here, go ahead and click this. That’ll take you to the calendar. You pick a time slot that works best for you. Then, all that information gets sent to the community manager. When they're going to show up, it gets put on their calendar.
David can hold accountability because he knows, he's got the master calendar. It's a very seamless process and follow up so we don't have anything fall through the cracks. We don't have the manager not answering the phones, being mean to people, all that kind of stuff. That's been a game changer.
Andrew: That's very common.
Kevin: Yeah, absolutely. That's been a big, big, game change in our business. David, he gets incentivised when we sell homes. There's not a point in time where he'd rather go do something else or he's out in the field and he's not answering his phone or anything like that. He's sitting at that desk and that's all he does all day long as opposed to asking and actually answering the phone. We incentivise him when a home actually sells not as much as we do the on-site manager but we incentivise him.
The follow up which is key. Just like anything in sales. Typically, you have to follow up 5-7 times or touch base 5-7 times before you actually make a sale. He is on top of these people. Until they say leave me alone, I don't want to buy that unit, he is all over them.
Andrew: That's great.
Kevin: I'll give you an example of how well that's played out for our business. We tested the waters by handing off our property management at the end of 2018. We ultimately took it back inhouse October of 2019. Last October, we took it back inhouse. I'll just leave it at that. It wasn't the best. It wasn't the same conditions as when we handed it off. We basically took back in throughout our entire portfolio, we had about 110 vacant parks on homes that needed rehab. Some very, very, very, intense rehabs, like the tenant $12,000 rehabs.
We knocked it out at the construction site. We just kicked ass. We literally crushed it. David obviously has to crush it as well. Once we were getting these, we're just pumping hundreds of thousands of dollars getting these things turned.
From the middle of October through the end of March, we rehabbed and sold 93 homes in 5 months. That was over holidays too. That was in parts of the country where it was even hard to find contractors. We had challenges. We had to find contractors, manage the rehabs, all kinds of variables. David, he kicked ass. He was working nonstop. We allowed him to work overtime if he wanted. He took that on but we absolutely kicked ass. We wouldn't be able to do that, I don't think, if we just solely relied on each individual community manager to sell homes and to market homes, it wouldn't have gone that well.
Andrew: Yeah. That's a great, great tidbit. We have someone dedicated to marketing as well. It's a lot of value. Last question, what are your typical general partner splits? What type of fees do you normally charge on a normal fund so investors could be aware of that?
Kevin: I'm not going to try to avoid answering because it's not really typical. The reason why I say that is our fund one, it ended up being a dividend fund two. We learn things. The market changed.
I'll answer it this way. I think this is a more appropriate way to answer it. We don't have fund three to roll it out. I don't want to speak to that in the event something changes between that and this show. I'll answer it this way. We know our investors really, really, well. We know what their ultimate financial goals are. We know what type of returns we're looking to achieve by investing in the partnership with us. Obviously, the market shifted, you can't buy deals at the same price you could've bought them five years ago. You can't. I shouldn't say you can't but that's not the norm. Prices have definitely gone up. Cap rates have come down.
We build our pref structure on the frontend. We build our fee structure and also the waterfall structure—the splits. We built that. We back into that based on what type of deals we intend to be buying. Like now, the deals are very different than a couple of years ago. What type of deals do we intend to be buying based on projected returns of that quality of the deal? The location? The size? All the details there. We go back to what the splits and what the fund structure needs to be in order to comfortably know that we're going tobe able to achieve what we've projected to our investors if that makes sense.
Generally speaking, our next fund, more than likely, again, don't hold me to this, it's going to be somewhere between 7% and 8% pref. It's going to be a 70-30 split. 70 to the LPs, 30 to the GPs. That was different on our last fund. We just did a 60-40. The very first one was a 50-50. It's changed over time based on the deals.
As far as the asset and the acquisition fee, we don't have it nailed down just yet so I'm not going to speak to that but we do take an acquisition fee. We take an asset management fee. That's the high level perspective of how our fund is structured.
Andrew: That's more than enough. I appreciate you sharing that with everybody.
Kevin: I think it's important, I get the question all the time. I literally just had that question earlier today with a couple of guys. They own a couple of parks and they're looking to raise capital. They're like how do you do it? I'm like I can give you the basic mechanics of how it works, but my structure might not work for you because I don't know who your investors are. I don't know what their expectations are. You can easily get back into it if you get to know your investors and what they're hoping to achieve financially. Then, you identify the types of parks you intend to buy and model out what you think the returns are going to be on those parks. You can back into what the structure needs to be at the fund.
If you're doing deals specific, it's way easier. It's much easier to figure out what that structure needs to be, if it's one deal at a time. The funds are a little bit different. We're trying to plan out what the world's going to look like 12-18 months from now, what type of deals are we going to be able to buy, and we're trying to project that out. As we know, things change overtime.
Andrew: It should be interesting to see how things play out 12-18 months from now, that's for sure.
Kevin: We've done really good with the last two funds. We projected it really well. We've tried to plan for the worst. The last two funds, they both ran about 12-18 months span of buying. They've turned out quite well. I think we're really conservative. We try to set expectations low and think of some worst case scenarios of what kind of pricing is going to be on parks, how that might change over the next 12-18 months, and what are capital markets going to do.
I think we can agree that rates have to stay low for at least next year. I can't imagine the world would fall into a tailspin really quickly if the rates even went up like 20 at this point.
Andrew: At this point, definitely. Kevin, thank you so much for coming on the show and adding value to all of our listeners. I really appreciate it.
Kevin, how can listeners get ahold of you if they’d like to chat more or get more information about Sunrise Capital?
Kevin: I appreciate it, Andrew. Thanks for having me. For anyone who has an interest in Sunrise Capital, our company and what we do, you can go to our website, it's sunrisecapitalinvestors.com. There you can sign up and get in our list for when we release offerings, you can be the first to know about it. If you want to contact me personally, you can either go to my website, kevinbupp.com. You can find me there. Just use the Contact Us or the Contact Me link there. It'll come right to me.
I've got a podcast as well. You can pretty much find me anywhere, Andrew. You can listen to the podcast, go to my website, go to the company website. I'm not too hard to track down just like you're not.
Andrew: Awesome. I love that, man. I highly recommend everybody to contact Kevin and chat with him. He has a tremendous amount of value to offer you.
If you like this show, I’d really appreciate it if you could subscribe to get signed up to receive all of our future interviews with rockstars in the mobile home park space just like Kevin. That's it for today. Thank you all so much for tuning in.
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