Passive Mobile Home Park Investing Through An Investment Fund Structure
Updated: Sep 20, 2020
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 the second way you can passively invest in mobile home parks, which is through an investment fund structure. Andrew goes over investing in investment funds vs. syndications, and also discusses the legal side of the investment fund setup. Andrew also discusses the power of an experienced operator and how that can alleviate a lot of the risks involved with investing in mobile home parks. After all, you can have success investing in trailer parks if you are informed and educated.
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 projects in progress? If so, follow us on Instagram: @passivemhpinvesting for photos and awesome videos from our recent mobile home park acquisitions.
00:18 - Welcome to the Passive Mobile Home Park Investing Podcast
00:30 - Investment Fund Structure
01:15 - Syndications versus Funds
02:00 - The power of an experienced operator
03:00 - The Legal side of Investment Funds
05:50 - Property specific syndication
06:10 - The importance of trust
07:27 - Investment Funds are Close-Ended
07:52 - Variable based on investment
08:15 - Examples of Funds in no particular order
09:20 - Tips for investing this way
11:11 - Funds with dry powder
11:30 - Conclusion
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Links & Mentions from This Episode:
Funds, Joint Ventures & Crowdfunding, by Sean Cook: https://www.amazon.com/Investing-Real-Estate-Private-Equity-ebook/dp/B01IW0G0S0
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 the highly profitable niche of Mobile Home Parks.
Hello and welcome to this episode of The Passive Mobile Home Park Investing Podcast. This is your host Andrew Keel and today we're going to discuss the second way to possibly invest in Mobile Home Parks which is through an investment fund structure where a property specific real estate syndication is usually an investment in a single property, or a small defined group of properties. Funds are by nature considered more diversified because they're often investments in multiple properties.
Many like to say that investing in a syndication versus an investment fund is similar to investing in a stock versus a mutual fund. Mutual funds, because they’re a collection of investments, are considered better diversified. With one minimum investment, you're able to achieve higher levels of diversification than with a single property syndication.
However, in my opinion, the syndication verse fund route isn’t a huge sticking point; I think that they're both great investment options that everyone should explore and be open to. It could be said that a fund operator is less likely to “hit a home run” on every acquisition. Whereas through a property specific syndication, investors get information upfront to determine if they believe the tangible real estate being purchased is a homerun themselves before making any monetary investment. Either way you choose, I believe that ultimately the best way for you to mitigate risk as a passive investor is going to be through investing with experienced operators that have a track record of success in the business.
I just got done reading the book Investing In Real Estate Private Equity by Shawn Cook and I highly recommend this book to anyone interested in real estate private equity. The author writes in the book that, “Even the best real estate can't overcome the damage caused by a bad operator,” and I love that. I think that's 100% true.
We have an entire series coming up discussing exactly how you can vet an operator, so stay subscribed for that group of episodes.
A little about the legal side of investment funds. The Securities Act of 1933 was established in response to the stock market collapse of 1929 which was ultimately the start of The Great Depression. The Securities Act has two basic objectives. Number one, to require that investors receive financial and other significant information concerning securities being offered for public sale. Number two, to prohibit deceit, misrepresentations, and other fraud in the sale of securities. Mobile Home Park investment funds are typically, but not always, set up as 506(c) offerings which are governed by the US Securities and Exchange Commission, or SEC for short, that was ultimately created through The Securities Act.
The important point here is that all investors in a 506(c) offering must be verified as accredited in order to participate. Accredited Investors are defined as a person having a net worth of at least $1 million, excluding the value of one's primary residence. Or, a person must have income of at least $200,000 each year for the last two years, or $300,000 combined income if the person is married. They must have the expectation to make the same amount in the current year. The term Accredited Investor is defined in rule 501 of Regulation D of The US Securities and Exchange Commission.
We will assume that you’re accredited for the sake of this investment option. While the terms investment fund and registered investment syndication do not have specific legal or regulatory meaning, typically the difference between an investment fund and a real estate syndication is that with an investment fund, one is often investing into a broader business plan or idea. Investors are often giving the managers of the fund the ability to choose which assets they desire to acquire based on the criteria set up initially by the managers in the business plan. While investors review this business plan, they usually don't actually know upfront what specific properties they’re investing in.
One exception to this, however, is that fundraising for funds can span over a few years. Depending on when you invest, you might have a chance to see a few properties that they've already acquired into the fund. Property specific syndications on the other hand give investors the ability to review and see the actual property specific details ahead of time while the property is under contract. This ultimately gives investors more information about that property to determine if they would like to invest or not.
For a fund, the vetting focus is purely on the sponsors. Trust is very important because you're investing your capital typically not knowing what they'll purchase with your funds. However, as mentioned, they typically give you an idea of the type of properties they're going to target.
When it comes to Mobile Home Park investment funds, there are several, however they're not as easy to find as you might expect. It takes more effort to pursue this route versus the REIT investment option, but the returns to investors could potentially be better. These investment funds are considered alternative investments by The Wall Street crowd. One will probably not receive much help in finding or even vetting a Mobile Home Park fund by asking one’s typical investment adviser from a firm like Wells Fargo, Merrill Lynch, or Morgan Stanley. Mobile Home Park investment funds typically have similar offering structures and most require an investment of at least $50,000.
In terms of liquidity, most Mobile Home Park investment funds are close ended, meaning your capital is locked up and not immediately liquid. With a close ended fund, you may not get your initial capital back until a certain benchmark is hit like a refinance, or the sale of a property occurs. Projected returns are generally higher in exchange for the low liquidity offered by the fund model. Again, all of this is highly variable based on your particular investment so I recommend that you read and understand the investment documentation well. Also, ask the operator about this liquidity question upfront.
Without endorsing any of these funds in any capacity, here are examples of a couple Mobile Home Park investment funds in no particular order.
Caddiscapitalinvestments.com, they’ve been around since 1990.
Elevationcapitalgroup.com, they've been around since 2010.
Fourpeakspartners.com, they've been around since 2012.
Sunrisecapitalinvestors.com, this is Kevin Bupp’s group, for those of you that have listened to his podcast, and they've been around since 2016.
Seneca Capital Partners, their website is senecacp.com. They've been around since 2017.
Last but not least is Open Door Capital. Opendoorcapitalllc.com, this is Brandon Turner’s group from Bigger Pockets if you're familiar with them, and they're fairly new, they've been around since 2019.
Among other things you want to verify and do your homework on is whether the investment fund has a good deal pipeline built up behind them. According to a fund manager I spoke with, he stated that it is fairly difficult to be successful with this model if you can't deploy and then redeploy capital, otherwise investor capital is sitting idle. Also, you want to make sure the fund manager has a good management and operations team built to support the immediate growth that they intend to acquire. Good third-party property management companies in the Mobile Home Park space are very hard to come by. Most funds are usually forced to bring their property management in-house to avoid operational issues.
The typical limited partner or passive investor, meaning there is no voting rights, just economic rights via their ownership share, will usually receive a preferred return of anywhere from 5% to 10% and then a split of the equity and cash flow in the real estate owned. The time frame for return of capital varies from investment to investment. I’ve seen it as soon as 60 months and ranging to some firms holding these assets in perpetuity, or selling when they feel the timing is right and demand is the strongest.
Do syndications or investment funds offer higher returns? That’s a great question and it's completely variable. Oftentimes, funds do require a little additional management and administration, so you may see additional fees as a result. For example, fund investors may be surprised when they start receiving state specific tax documentation from the state in which the fund owns different properties. This is typical in speaking to the administration acquired to run these larger operations.
On the other side, funds with dry powder have the ability to come in and pay all cash to purchase new acquisitions. This is a powerful negotiation tactic that helps them acquire great deals that other operators needing financing just can't compete with.
Anyways, that's it for this week's episode. Tune in on Thursday for our next interview with real estate investor and CPA Noah Rosenfarb as we will discuss all the things you need to know when it comes to the IRS and taxes on Mobile Home Park private equity investments. Also, next week, don't miss our episode discussing Mobile Home Park property specific syndications and joint ventures. Thank you all so much for tuning in.
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. See you there.