How to Scale Commercial Real Estate Podcast with Sam Wilson On the New York City Podcast Network

Mobile Home Parks: The Leader Affordable Housing

There s big money on mobile home parks and our guest today definitely made millions in the space Frank Rolfe is an investor in mobile home parks for almost 30 years Along with his business partner they are the fifth-largest mobile home park owners in the United States In this episode Frank examines the changes in the mobile home park industry over the last three decades including the increasing demand for affordable housing He also tackles the differences between the mobile home and RV industry and the current opportunities and challenges in the market 00 01 – 08 24 Mobile Home Parks Then and Now Frank discusses his background and how he was at the right place at the right time The changes in the industry over time Financing is easier and interest rates are historically low Demand for affordable housing is higher Lower production of mobile homes 08 25 – 13 46 Why Don t We See More Mobile Home Parks It s harder to buy mobile homes vs stick build The stigma surrounding mobile home parks Challenges with zoning and legislation Frank on what killed mobile home parks in the 50s and 60s 13 47 – 21 12 Comparing the Mobile Home Park and RV Park Industries How PR and marketing made the RV business more successful Cities are more amenable to RV park developments The appeal of RV parks to boomers and millennials The impact of COVID 21 13 – 22 07 Closing Segment Reach out to Frank Links Below Final Words Tweetable Quotes It s a basic fact of life The average American has a horrible stigma against mobile home parks around the residence And nobody wants a park to go up near where they live or even a business they own – Frank Rolfe If you wanted to build one today what you would have to do is you d have to go way out in the countryside where there are no people to complain where there are no zoning laws and then you have no municipal water no municipal sewer and no customers So what s the purpose of building that – Frank Rolfe If you wanted to destroy all mobile home parks it s simple Just bring back mass prosperity And then no one needs mobile home parks they just all go buy custom homes wherever they can But I don t see that happening – Frank Rolfe —————————————————————————– Connect with Frank Head over to mhu com for more mobile home info now Connect with me I love helping others place money outside of traditional investments that both diversify a strategy and provide solid predictable returns Facebook LinkedIn Like subscribe and leave us a review on Apple Podcasts Spotify Google Podcasts or whatever platform you listen on Thank you for tuning in Email me sam brickeninvestmentgroup com Want to read the full show notes of the episode Check it out below Frank Rolfe 00 00 I fully understand why as a homeowner you know it s a basic fact of life The average American has a horrible stigma against mobile home parks around the residence And nobody wants a park to go up near where they live or even a business they are If you simply go to Zillow and look at the single-family home price next to a park it s about half of what it is a block away Same home right Intro 00 21 Welcome to the How to Scale Commercial Real Estate Show Whether you are an active or passive investor we ll teach you how to scale your real estate investing business into something big Sam Wilson 00 33 Frank Rolfe has been an investor in mobile home parks for almost 30 years and has owned and operated hundreds of mobile home parks during that time He is currently ranked with his partner Dave Reynolds as the fifth largest mobile home park owner in the United States Frank welcome to the show Frank Rolfe 00 48 Hey thanks for having me Sam Wilson 00 49 Pleasure is mine Three questions I ask every guest who comes on the show in 90 seconds or less where did you start Where are you now How did you get there Frank Rolfe 00 55 Where did I start I started off straight out of Stanford trying to do a business school application and back then you would start a business to have a good application That s how I started my billboard company So that was my early origins of being an entrepreneur Where am I now Well I m now I m fifth-largest owner with my partner Dave Reynolds of mobile home parks in the United States So you know we ve done a lot of scaling over the last 40 years of being in business for myself Sam Wilson 01 24 Yeah that s absolutely fantastic And the last question is maybe we ll spend the rest of this episode talking about it How did you get there Frank Rolfe 01 31 Basically how I got there was working like an absolute maniac for most of the time Obviously having a good strategy some businesses you can expand and others you cannot And then finally just being outright lucky because there s plenty of guys with more ability than I ve got who just were not in the right place at the right time Sam Wilson 01 50 Yeah it s funny I was talking I was having dinner with some guys the other day big finance guys And somebody brought up that idea that some of it s just luck It s just you beat in the right place at the right time They re like man there s more truth to that than you realize that it s just you re desperate the right place the right time and it worked out So that s really interesting The mobile home park and the RV park space has really changed here I d say in the last 10 to 15 years it s gained a lot of attraction a lot of attention from not just individual investors but also as you will know from institutional investors what have been the changes most dramatic and noticeable to you and how has it impacted your business Frank Rolfe 02 31 Well the biggest change of course has been financing because when I got in at 25 years ago in the mid-90s you could not get back that So every deal you tried to do the number one hurdle you had was getting financing Banks hated that Nobody liked it And when normally you would end up with seller finance you try to cobble together something with seller financing And the sellers were amenable because they knew there was no bank debt That s the one big shift today deals rarely go on bankable right back in the 90s Everything was on bankable So that s when Biggie the other one has been just the appetite for affordable housing You know we ve said over the last nine quarters each quarter we broke the record of the prior quarter as far as sales And what s going on is just the nation s housing industry has actually gotten nuts on pricing And so we re producing houses at a price range of you know in the 300 000s And so there s so many people who cannot get into the housing market It s insane And while with our industry you don t own both home and land you do at least own home and you have some land unlike apartments So we re kind of this crossover product between apartments which don t give you that single-family home lifestyle at all We re kind of like a step between that and actual normal single-family Sam Wilson 03 44 What so yeah the bankability of things has changed You know the interest in the space too I mean cap rates in mobile home park as far as I understand I don t own any mobile home parks From an outsider s view It just looks like they just keep compressing How are people finding value right now Frank Rolfe 04 00 Well they re not really compressing what they re doing is they re going down but people are still having to buy a spread between the interest rate and the cap rate Thanks for not nuts in our industry and office buildings retail centers back in the day People were doing crazy financing right Just 110 LTV 1 interest People have never on the lending side been that nutty So you know we have to get loans and to have loans we have to have a 1 2x coverage ratio to the mortgage a lot of bank stress test our mortgages they ll say what happens if you lost 10 of your revenue So what you re saying is interest rates are historically very low Even today They re at roughly 4 t many mobile home park deals When I got into business they were at seven right so you know it s not like in our industry that the cap rates are unsustainably whacked out but the big difference has been that interest rates are low Another factor is you know in our industry the big narrative is that our lot rents are crazy stupid low which when you even say that I get nothing but hate mail but it s just a fact And you know our national mobile home park lot rent is 280 a month average apartments I think it s 1600 a month right So our pricing is stupid And institutional buyers are buying the stuff up they re raising the rents up significantly because they re stupid And because the rates cannot remain I mean most of these parks today at the current rates you re better off just bulldozing them there s a million uses for the land better than a mobile home park So as institutional guys go in and drive the rents up the banks and the appraisers have taken note how easy it would appear to be 100 occupied at 280 rent and still be 100 occupied at a 580 rent So they re starting to factor in perhaps the first or second read increase into their appraised value So that s the other phenomenon you re seeing Because last time when we buy a park we re not even looking at mom and pops cap rate because mom and pop is running that business so poorly It s a joke what the banks and the appraisers and sophisticated buyers are doing is looking at the raw material and what they can make out of it Sam Wilson 05 59 That s a really clear explanation I think that makes a lot of sense you know that I hadn t really considered as How are you guys are seeing it through the bank through the appraisers eyes versus you know maybe what mom and pop are putting together on it Are you guys buying actively right now Frank Rolfe 06 14 Yes We re always buying We have periods in which we buy more than others But we ve never had a period in which we were not buying Sam Wilson 06 21 What does opportunity look like for you right now Frank Rolfe 06 24 Well our tastes have changed significantly over the years right Both Dave and I when we started out we didn t start out together We were actually competitors In the old days our deals were very very rough and tumble what we d call heavy-lift turnarounds So I was buying parks that were often half-empty totally screwed up water leaks running down the streets stuff like that So as Dave Today because of our size we re trying to do add on to our portfolio what we call portfolio builders which are nicer properties that help the overall value But at the same time we still do heavy lift turnarounds Now the one style we re not as in tune with today as you were before are ones in which you have to do massive lot filling by bringing in homes And that s because home prices have gone up nearly doubled during COVID So while it was fun to fill lots and 30 000 homes not as much fun at 60 000 a home Sam Wilson 07 13 Well not only that but I ve also heard that finding homes is difficult Frank Rolfe 07 17 It s very very hard right now I don t think you ll ever go back to the old ways to be honest with you What happened was that you know manufacturing it was 400 000 units back in the late 90s Today it s been about 100 000 units for I don t know the last 15 years Nobody wants to step out and increase production They easily could because the plants are only running one shift and they could run three So they typically produce seven floors a day the average plant could produce 21 floors a day But no one wants to take the gamble Because half of all the mobile homes sold roughly it s estimated are park owners who are buying the homes to bring into their own parks Right And then the question is how much longer will that go on before people get full It s not like eating out where you might you have to eat out you know you eat daily so maybe you ll eat out you know in perpetually a certain number of times a week In our industry once you fill a lot That s it it s over So people just don t want to stick their neck out Sam Wilson 08 11 No and I completely get that That s very interesting You would think though that there s still some old supply going offline at some point I mean obviously there s gonna be some demand But you re saying that there s going to be kind of a point where they ve hit the wall and they can no longer keep up with runnings three shifts a day Frank Rolfe 08 25 Yeah well right Here s the problem see that the average American cannot buy a mobile home If he walks right now into a mobile home dealership you will find you have to have better credit and had worse or terms to buy a mobile home than the stick-built Because the government stands behind and promotes the stick build industry So they allow people to do these very very low downpayment all these different programs for first-time buyers and veterans and all this stuff None of that exists in our space So in our industry you re looking at a high-interest rate a much larger percent down than single-family And so you can t do it And the only reason that homes get bought today half of all home production is because the park owners backstop those loans right So if I bring in you know a 50 000 home I don t cosign the note but I guarantee the lender if the person is foreclosed on I won t charge lot rent and I will go ahead and rehab the home at my own cost and I will sell it at my own cost And that s the only reason they will do it And until the government wants to stand behind the industry and support it which they ve elected never to do that will never change If the government wanted to do that which they easily could then you could see greater sales Sam Wilson 09 35 Right that opens another can of worms you probably won t go down that road I m thinking more along the lines of building new parks Why aren t we seeing I mean maybe we ll ask that question differently What is the challenge outside of maybe the political challenge of building new parks why don t we see other new parks coming online Frank Rolfe 09 52 Well you never will Okay I mean I ve been in the business 25 years and I don t think in any given year you ve seen more than 10 new parks ever build and about 100 torn down So we ve been depleting continuously Here s the problem and you can t blame the cities for it I fully understand why as a homeowner you know it s a basic fact of life the average American has a horrible stigma against mobile home parks around the residence And nobody wants a park to go up near where they live or even a business they own If you simply go to Zillow and look at the single-family home price next to a park it s about half of what it is a block away same home right So the citizens go in an uproar if you try and build a new mobile home park and of course all their elected representatives on the city council they re not wanting to get all the citizens to vote them all out over some stupid mobile home park So they just will not grant the zoning they haven t granted zoning in the United States from mobile home park in any significant amount since 1970 So it s been half a century now And it s never going to change because it s a basic fundamental truth that you d have to change the entire attitude of Americans towards trailer parks before you could achieve that And that is never going to happen No one is ever going to spend 100 billion in public relations money to achieve that And that s why you won t see it But even then if you wanted to build one today what you would have to do is you d have to go way out in the countryside where there are no people to complain where there are no zoning laws and then you have no municipal water no municipal sewer and no customers So what s the purpose of building that So that s the problem Sam Wilson 11 25 Yeah absolutely Are there any other headwinds that come to mind I mean in its own right depleting supply is good for you as a park owner that the value of the park goes up It s bad for the end-user in the sense that we are once again losing more affordable housing and not replacing it or building new So that s bad for the end-user Other headwinds in the mobile home park space that you can think of Frank Rolfe 11 50 Well you know what killed the mobile home parks before back in their heyday which was in the 50s and 60s What killed it was mass prosperity when people off suddenly got rich and they all moved out right So you had that period in America which is hard to even remember back that far but I was alive during that period When America was doing really well And every year people were making more money And as people became more affluent they were buying homes and subdivisions And everything was great When you were born if you were ever back in the 60s the atmosphere in America was very very much different We were really rolling at that time And so the question is to defeat affordable housing if you wanted to destroy all mobile home parks it s simple Just bring back mass prosperity And then no one needs mobile home parks they just all go buy custom homes wherever they can build you know half a million million whatever on the golf course you know But I don t see that happening That would be the single biggest event that would kill the industry off The only other items you have circulating around in some of the blue states you have rent control People talk about it frequently Remember that in the entire United States only one state has statewide rent control and that s Oregon So you know the credit score is 49 no one yes you ve got four or five other states that allow it on a city by city basis But you know it s not a red state phenomenon But if you have a mobile home park in a blue state they seem to threaten that every year They never pass it because they have no desire to ever pass it Because the folks that run the government are all being subsidized by a whole lot of folks who do a lot of real estate ownership and development So they re not really going to say hey I ll give you my big political contribution despite the fact you screwed me over with rent control I don t see that really happening So no you know I don t really see any big headwinds to the industry But then again you know America is so screwed up at this point Every day is a new headwind So who knows Who knows where we ll be by the end of the day Sam Wilson 13 44 Right Well said Tell me about the RV parks because you guys are also well-known RV park owners I know you kind of lump the two together for our listeners maybe can you tell us why you lump them together And then is there a difference Frank Rolfe 13 59 Yeah sure Well you have to lump them together because remember that they were all the same family up through the 1960s So it was all called the trailer industry You had trailer park and you had a travel trailer Yeah And it was all trailer right And what happened was a trailer manufacturer called Selby had a customer who wanted an even fancier more expensive travel trailer And they called up the state of Ohio and they said Is there any way I could build this guy an even bigger travel trailer And the state said Yeah you know what we ll let you go up to additional feet and width but he can t pull it with his car they ll have to pull it with a commercial vehicle And that was the start of the industry splitting Because what happened was people who wanted to not move their travel trailer frequently but wanted to have something bigger that became the mobile home whereas the traditional RV person came to travel with shelter The biggest difference in the industry be honest with you is the amazing job the RV industry has done with public relations contrasted to the terrible job of mobile home park the industry has So the Go RVing campaign is considered one of the most successful marketing campaigns in American history The average American scores RV is very very high in status and in satisfaction So it s such a night and day difference It s like you have two brothers one goes off to win the Heisman Trophy be elected president and the other brother ends up you know dropping out of junior college and becomes a sanitary engineer even though they were the same industry at one time So when you deal with RV it s a luxury product it s more of a classy customer And it is something that everyone loves right Just as everyone hates trailer park mobile home parks they love RV parks So it s a different kind of business Now the main problem you have is that RV is in fact a business Whereas mobile home parks is very very static People never move around they sit there an average tendency is 14 years They pay rent you fix it when the utility pipes break But an RV is like going into a restaurant right It s much more active So you have to have customer service And if you don t they ll just go down the street to somebody who does So that s the key difference There s a risk profile difference between the two A lot of lenders do offset that They ll set the cap rate two points higher on RV than mobile home park because they want that extra comfort And if you re lousy operator even though you screw up you can still cover the mortgage Whereas mobile home park you know our managers or their worst manager ever we probably won t lose any customers will probably have property condition issues maybe a couple of collections problems But an RV park with a bad manager can just wipe your RV park out Sam Wilson 16 38 Right Absolutely We ve seen some incredible tailwinds in the RV space here just with deliveries in 2020 2021 And then you know 2022 projected deliveries are just through the roof Where do you see and I think there s a unique thing that I ve seen in the RV park industry is that people or cities are amenable to RV park development So where do you see that going Does this just peter out when people get tired of the pandemic and finally try to put that behind us Or do we actually had does that have runway Frank Rolfe 17 08 Well you know for a long time people thought RVs were not going to be a long-term thing because the majority of RV owners were baby boomers my generation And what they thought was going to spur it on the greatness would be a burst as you have the you know there s 10 000 boomers retiring today I mean I m 61 So next year would technically be my where I would retire if I was at a normal job So but what came out of nowhere that they did not anticipate was the millennials Millennials are now as bigger bigger buyer of RVs than the Boomers were right And that was a I think you have to tie that to the phenomenal success of the Go RVing campaign They were doing like you know all those Monster Energy extreme events they were marketing it those way back then they had real foresight whoever was running that marketing they knew what they were doing They didn t just focus on boomers they could have just only promoted programs that appeal to boomers right like the Golden Girls or you know golf tournaments But no they went after deliberately went after millennials and all of their most edgy millennial stuff And as a result they score very highly with them And they are now half or more of all RV sales right So you have all these young people with RVs now and so that s what s given the industry a whole new life because I didn t see that one coming nor did anyone that was gift from the Gods And then of course the other part was COVID I mean let s be honest COVID is one of the best things that ever happened to the RV industry right What happened was people now want to be outdoors Some people have never been outdoors before They never they want to go somewhere without a mask People said Oh well you can walk around without a mask They re like Oh holy smokes man I ve never been outdoors before what the heck I like that And also people now just don t like being around other people s nastiness They don t want to go to hotels and stuff because they don t know who slept in the bed or who coughed on the remote And so when they are in an RV they feel like they have that safety from germs and strangers and all that So I don t really see that going away You know the one part of the industry that someone will have to come to a conclusion with at some point is that you know a lot of people prefer retiring and living in RVs over mobile homes because of that stigma issue which you ll never solve So and I myself know I know a college professor who recently sold his house like a half a million-dollar house and bought an RV Okay it s a single guy And he just decided to sell everything and retire and bank the whole thing and just live in his RV He would have never lived in a mobile home in a million years He could never culturally stigma survive that but he can The problem is a lot of cities the RVs are not allowed to remain more than a certain number of days Right So those people end up in this nomadic existence So what you need is kind of a hybrid you need an RV park that you can retire in and live permanently And that s going to be the real challenge When cities grant these RV permits Traditionally they won t allow anyone to be there more than a certain number of days And they do that live really because they are afraid if they do you know there s an underworld RV of these kinds of nomadic freaky people who grew up around the river and they don t want them right Well you don t want the guy that was living under the bridge down by the river right That s not your goal So that s the real missing piece right now And then the same goes with tiny homes right tiny homes can t go on traditional mobile home blocks they don t have the HUD seal So what happens is you know you see them on TV but there s nowhere to put them right And again so that s the missing piece And so I think at some point in the movie maybe in the next five years 10 years 20 years people will figure all this out and maybe cities will allow what would be more of an upscale retirement kind of community that allows for tiny homes and things do not have HUD seal and yet don t have to move frequently I think that s the only missing piece the industry has Sam Wilson 20 51 Yeah that s really interesting I had not even considered that side of the equation before But yeah that is really interesting I mean a lot of what we re seeing in the RV park space is in the long term tenant though when you get outside of those city regulations of course I mean you have people that park their RV and leave them there for 12 months and come in every other weekend have a good time Really really intriguing Frank thank you for taking the time to come on today and talk about mobile home parks and RV parks certainly a blast I ve enjoyed it learned a ton about both sides of the business If our listeners want to get in touch with you or learn more about you and what you guys are doing what is the best way to do that Frank Rolfe 21 27 Well the best way to find my writings and all by different things just go to mhu com just the letters M-H-U com You ll find so much more you can handle Sam Wilson 21 39 Frank thank you again I do appreciate it Frank Rolfe 21 41 You bet Thanks a lot Sam Wilson 21 42 Hey thanks for listening to the How to Scale Commercial Real Estate Podcast If you can do me a favor and subscribe and leave us a review on Apple Podcasts Spotify Google Podcasts whatever platform it is you use to listen if you can do that for us that would be a fantastic help to the show It helps us both attract new listeners as well as rank higher on those directories so appreciate you listening Thanks so much and hope to catch you on the next episode Click here to visit this podcast episode