Why Invest In Mobile Home Parks With Jack Martin Episode - 519

Triple wides are typically gonna be placed on a parcel of land that you own. Single wides and double wides are more common in mobile home parks. And the spaces, the width of the spaces in the park dictate what will fit. So we do both. We do both single wides and double wides in all of our properties.

Welcome to Streams to Impact and be inspired to engage passionately in the work of your calling while achieving financial prosperity through multiple streams of high-yield returns on investment to bring your dream of making a meaningful impact to reality. I'm your host, Dr. Allen, and I am delighted that you are joining us today. If you haven't yet, get a complimentary copy of our exclusive guide, High Yield Investment Blueprint: Secure 18%+ Returns in 60 Days. Go to our website, That is www.highyieldblueprint.com. Just provide your email address and we'll send you a copy today. Hello, enlightened investors. Welcome back to Streams to Impact, and we're so delighted that you are here to join us again today. And we're going to take a look at an asset class that is oftentimes neglected because it is a high-yield investment and highly recession-resistant. And so we are glad to have with us today Jack Martin, who is co-founder of 5210, an investment firm focused on mobile home parks. He's based in Scottsdale, Arizona, and the firm manages over 1,600 lots across 4 states and They have over $55 million of private equity investor capital. So they help clients invest with confidence in America's most misunderstood and one of America's most stable real estate assets. So Jack, welcome. We're so glad to have you with us and be able to have this conversation to help us to better understand mobile home parks and mobile home—

Thank you.

park investing. So before we get into that, just, Jack, share with us how it is, how the roads converged to take you into mobile home park investing.

Yeah, I look back— well, first of all, thanks for inviting me, Allen. It's good to be here. I look back on the event that caused me to trip over mobile home parks because that's kind of how it happened. Maybe today I look back and there was some serendipity there. I'm grateful that I'm in this asset class. It's very unique for a lot of the reasons we'll discuss today. But I was in the apartment business.

Mm-hmm.

And we were buying broken-down value-add apartments across the state of Arizona. I came across a vacant one in Flagstaff, Arizona, and it had been vacant long enough to where it had lost its conditional use for permit. So, in order to bring it back online, you had to meet all of the current qualifications. One of them was it didn't have enough parking. Right next door, there was a small mobile home park. So, I bought it to solve the parking challenge. Long story short, the city was so difficult to work with, I never did acquire the apartment. But now, I own this mobile home park. So, I had to figure out what to do with it. After owning that for about 3 years, I discovered it was the most stable cash flow of any real estate I'd ever owned. So a little bit of work to get it fully stabilized, but once it's stabilized, they are, they are some of the best real estate in town.

Well, Jack, let's just start off, if you would, just kind of clarify for our audience what a mobile home park is. I think there's a lot of misconceptions on it. It's just oftentimes we think of mobile home parks as trailer trash and other derogatory kinds of of connotations like that. So enlighten us as to what it is that you really are investing in.

That stereotype is common. It's even one that I held. I didn't purchase that first mobile home park for the asset class itself. But once I learned what it was, I became enamored with it. The easiest way to explain a mobile home park is if you can imagine a giant parking lot, And instead of parking cars in each parking space, you park little homes.

Hmm.

They're mobile homes, but today's mobile homes are actually considered manufactured homes and they don't actually move. So the first time they, they roll on from the factory, they're on wheels, but then they take them off and set them up permanently and they rarely ever move. I mean, just to give you an example, we have over 1,600 lots. Um, in our history of our business, we've only seen 3 tenants move their home.

Mm-hmm.

In, in a de— over a decade. So it's just, it's economically, it doesn't make sense to move them. It's very expensive. Um, if somebody decides to move, they, they just sell it and the next person pays the lot rent. So, um, it's, uh, there's a few things that are very unique about mobile home parks that no other real estate, um, has these kind of intrinsic, uh, characteristics. The first of which is the tenants own their homes. So most rental real estate, the landlord owns it and he's just renting. In this case, the tenant owns it, which means they do all the maintenance on it. So we don't do the maintenance to the homes. We don't have toilets and, and water heaters and roof leaks and stuff to deal with. The second one, and this is something few people are aware of, is the penalty for nonpayment of rent. And this is renting the lot, the land. Is the forfeiture of your home. So those 2 things combined, and we can dig into the kind of mentality of the resident in a mobile home park is kind of seeking a permanent housing solution. Whereas in a lot of other rental real estate, that's just a temporary thing.

Mm-hmm.

They stay on average 10 times longer than apartment tenants do. We've had— we have tenants in our parks that have been there for generations, like Mom owned the home and then they raised their children and the children own the home and, you know, mom and dad went to a condo or something like that. So it's not uncommon that tenants will stay there for decades and decades. It's a very stable real estate asset class. Cash flow tends to go in the right direction all the time. Very rarely does cash flow pull back and go in the negative direction. Even, even during times like COVID, where I saw a lot of my apartment counterparts, their rental collections were down 20%, 30%, 40%. We collected all of our rent in 2020. And it was because the, the penalty for nonpayment is forfeiture of your home.

Mm-hmm.

So tenants know that, you know, these guys have a— or guys and gals, have a family— or excuse me, they have a permanent housing decision that they make when they move into a mobile home park, and they view that as their neighborhood. This is theirs. They have homeownership. So it's— that's what creates the stability in the asset class.

Well, Jack, talk to us a little bit more about home forfeiture. Is, is this, I mean, they miss one month's payment and suddenly you can go in and take their home?

No, no, it's not like that. It's, it would be similar to, in, in a fashion to where if somebody had a mortgage on a typical, you know, single-family residence, if they miss one month payment, the bank can't take their home yet. I mean, it takes some time. There needs to be a length of delinquency similar to that process. Um, and an opportunity to catch up. Um, in our experience, if somebody has a true hardship, because those cases do arise, we'll work with them. We don't want the home. So we just want the lot rent. So if they have some kind of hardship, we create some kind of payment plan to help them catch up. Um, uh, you know, this is an affordable housing solution. So Then that's what attracts residents in the first place. On average, you know, the lot rent for a mobile home park of decent quality across the United States is probably somewhere in the range of $500 a month. Whereas, you know, good quality, let's call it a Class B 2-bedroom apartment, is probably somewhere in the range of $1,500 to $2,000 a month.

Mm-hmm.

So it's dramatically less expensive. You just don't see, for the most part, default happening in this space. So our eviction rate is like 1%. It's really low.

Mm-hmm.

Evictions typically are more common when the resident who lives there either has some kind of substance abuse problem, which that's gonna impact someone's life Regardless of what their housing solution is. Or there's cases where somebody passes away, the family or the estate gets the home. They don't want it. They don't pay the rent. They're— in their view, you can just have it. So there, there's kind of odd cases that typically lead to eviction, but it is not common to be evicting a tenant in a decent quality mobile home park.

So you, you call it an eviction, but really it's more of a foreclosure, is it not? Or is it kind of a hybrid of that?

No, it's different because they don't own the land, so we're not foreclosing on it. The eviction comes with this— the laws, and this is in every state, so it's not just limited to a single state— the laws associated with with mobile home parks are that if you can't catch up on the back payments that you owe, you cannot take your home out of the park.

Hmm.

So what ends up happening then if you get evicted and you haven't caught up, well then the, the, it goes through a process of repossession, kind of like an abandoned vehicle. It would, it would, the process is a little bit more like that. So again, it's, it's a, it's an affordable housing solution. This rarely happens.

Mm-hmm.

Hasn't happened much. But I think the point of that is, if you go back to COVID, there was a lot of strategic default with respect to rent payment in rental homes or apartments or those kind of things, where the tenant's view was, you can't evict me if I don't pay my rent, because there's a moratorium on eviction.

Hmm.

And when that changes 6, 10, 12 months from now, fine, I'll just leave. And I'll go— in the meantime, I'm living here for free. Well, in the mobile home park business, it doesn't work that way. So residents, you know, would come to the office and say, oh, I heard we don't have to pay the rent. It's like, well, that is true, we cannot evict you. But at the end of that, you have to catch up. And if you haven't, you know what the penalty is. And so their response is, okay, here's the rent. So it wasn't a case that they couldn't afford it. It was a lot of that nonpayment of rent during COVID was strategic default.

Yeah. And so just to understand this a little bit better, so you call it a repossession and actually it's titled with the Department of Transportation, is it not? Rather than—

Correct. Yeah, so it'd be like getting a bonded title on an abandoned car that was in your yard. It would be similar to that. Yeah.

Okay. So you call them manufactured homes these days and they actually come in Single wides and double wides, and I guess there are triple wides out there, although I've never actually seen one, but I do believe they manufacture them. Is that correct?

Yeah, triple wides are typically going to be placed on a parcel of land that you own. Single wides and double wides are more common in mobile home parks, and the spaces, the width of the spaces in the park dictate what will fit.

Mm-hmm.

So, we do both. We do both single-wides and double-wides in all of our properties. I think what's interesting, if you go back to, you know, call it '60s, '70s vintage mobile homes, and those were considered mobile homes or trailers back then, those were built out of really lightweight materials, 2x3 or 2x2 walls with paneling, and they were I mean, if you go over a bump on the road, they would start to come apart.

Hmm.

Today, those are built just like you would build a single-family home. So, 2x6 construction. They're well insulated. They're, you know, they're— they don't use small, lightweight materials like they once did. So, it used to be like if you go to renovate a '70s vintage mobile home, Everything is smaller than it is in a single-family home. So like the counter depths are different and the door jambs are different and everything is a little bit smaller. It's almost like a shrunken version of standard housing supplies. And you would actually have to go to, instead of Home Depot, you'd have to go to Mobile Home Depot to get those parts because they're uniquely different. Well, that's not the case today. So In the manufacturing process, the same materials that are used in a site-built home are used in a manufactured home. They're just manufactured offsite in a controlled environment, and then they're brought in on wheels either as a single piece or as 2 pieces that they put together onsite.

And you had mentioned one of the reasons that they stay is And they're going to sell. If they're going to leave, they sell rather than moving the home. That hasn't always been the case. Is it because they are so much heavier these days than what they were back in the '60s and '70s, or is it just the cost of transportation of almost everything has increased so substantially?

Yeah, I think it's a combination. I mean, a lightweight 10-foot wide by 40-foot long, you could technically, you know, if you had an attitude, you could tow that with a pickup truck.

Yeah.

You know, under the COVID of darkness, right? But these manufactured homes today are heavy, they're wider. You have to get a permit, you know, you have to have pilot cars front and back, you have to get a specialized moving or transportation Vehicle to do it, and then there's permits to remove and permits to install. The cost to move a single white across the street is about $10,000.

Yeah.

Well, that doesn't make sense when you could sell it, not have the $10,000 expense, and then just move across the street, buy a new one, or buy an existing one for sale. So the, the economics of moving are not Favorable. So that's the reason why you see a sale happen if somebody chooses to move out. Yeah, I think that brings up another point, Allen. I mean, the most expensive event— I was an apartment guy for years, and the most expensive event was turnover. So you get a vacancy, sometimes you have to go through eviction process, so there's an expense associated with that. Sometimes you don't. Now, you have a vacant unit that needs to be reconditioned. And then, you got to market it for sale. And sometimes, you have to offer concessions and first month free or whatever. You end up burning through 6 months of apartment rent to get a new tenant. And then, that cycle just repeats itself over and over again. The barrier to exit for an apartment tenant is a couple of buddies and a pickup truck and a weekend.

Mm-hmm.

And you're gone. Whereas the barrier to exit for a mobile home tenant is the sale of their home.

Mm-hmm.

So, and the beauty of that is if last month the previous owner paid the lot rent, this month the new owner pays the lot rent, and the expense associated with turnover is not— doesn't impact the asset class like it does others.

Right. Well, let's get into, uh, to what this means, uh, for, uh, investors. Um, and well, before we get, we get into that, another, another question that I have in conjunction with this is there are different ways that, that operators, uh, who operate mobile home parks work. You, you do not own them. Some, uh, park owners do own them. Some park owners have a combination of owned and, uh, and not owned, uh, properties, what kind of properties do you go into? How do you— if you purchase a property that is 90% park-owned homes, how do you go through that process of transitioning from park-owned to owner-owned?

Yeah, great question. So first of all, I think it's important to note That the strength of mobile home parks is derived from having tenant-owned homes. So as soon as you shift to a park-owned home model, yes, it is true that you could rent a 3-bedroom, 2-bath mobile home for a lot more than you could charge for the lot rent.

Hmm.

So let's say the lot rent is $500. You probably could charge $1,200 to rent that home. So there's a $700 delta there. But the challenge you run into is the same dynamic of turnover that we just discussed about apartments now becomes present in your park.

Hmm.

So, all it takes is a couple friends and a pickup truck and a weekend and they're gone. So, now you have reconditioning of mobile homes.

Hmm.

Apartments are designed to, to be more friendly to turnover. Apartments— every apartment does not have a roof. A lot of these are 2, 3-story, 4-story apartments. Every apartment does not have 4 exterior walls. If you start to do the math on this, you can recognize that there are economies of scale that work in the favor of an apartment if you're renting the units.

Mm-hmm.

Whereas that works against you in the mobile home park business. So mobile home kind of Operational excellence is focused on tenant ownership.

Hmm.

So now, if you could zoom out and say, well, why do some owners rent them? Primarily, it's because the market cannot support tenants purchasing them. So, and there's this couple simple, like, market dynamics that we look for when we're purchasing parks. And the first of those is, what's the median home value in the marketplace? So if the median home value is less than $300,000, we start to— that's a red flag to us. And here's why. A brand new mobile home, single-wide, 3-bedroom, 2-bath, good quality, $70,000, $80,000, somewhere in that range. Well, then by the time you deliver it and skirt it and put awnings and air conditioning, it's $100,000, $120,000.

Right.

The monthly payment with chattel financing, which is more expensive than traditional mortgages, is probably going to be 200 basis points higher, you know, on the interest rate. And typically, the duration is shorter. So, the amortization schedule might be 15 or 20 years instead of 30 because mobile homes have a shorter depreciation schedule. So, you add all those things up, and if the delta between a single-family home outside the mobile home park and the cost of a brand new one inside is not wide enough, the monthly payment is not attractive enough when you include the financing payment and the lot rent payment.

Hmm.

So typically, let's use that, that example of $120,000 home. You probably end up with an all-in monthly cost of somewhere in the neighborhood of $1,200 for lot rent and, and And, and your chattel financing payment. Well, if you could buy a house right outside the property in the same neighborhood for $180,000 and get a mortgage, your all-in payment might only be $1,400. But you own the land.

Mm-hmm.

So you control the entire environment there. So there's not enough delta for that to be attractive from an affordability perspective. Now, when you double that, And the home outside the park is $350,000, suddenly that monthly payment becomes, you know, $3,200.

Uh-huh.

And now it makes a lot of sense. So, what we look at is markets where median home values are higher, which means you'll probably pay a little bit more price per lot when you purchase the parks.

Uh-huh.

But it gives you the ability to exercise an infill strategy. Through the sale of new homes, and you could do that at scale. So, in our experience, selling homes in markets where median home values are low is the hardest thing to do.

Mm-hmm.

Now, that leads back to— it's a long way to get to answering the question, why do some owners rent them? It's because they're forced to. They can't sell them.

Mm-hmm.

So, they'll either rent them straight up as rentals Or they'll exercise some kind of rent-to-own program, or some way that buyers can accumulate a down payment, you know, over a course of time, and then use that to actually purchase the properties. So, but back to the original thesis, the strength of mobile home parks is the fact that the tenants own the homes.

Mm-hmm.

So any deviation from that is going away from— you may as well just buy apartments. It actually would be smarter. So, you lose all of your stability. You lose all of your stability. So, to answer the question, do we buy parks that have park-owned homes? Of course, we do. Almost every single park we buy comes with at least one.

Hmm.

We've bought— I bought a park in Mesa, Arizona that had almost 100. There's 98 park-owned homes the day we bought that. 50 of them were rented and the others, 48, were vacant.

Hmm.

To some degree, that is an advantage. The homes are already there.

Hmm.

So, that park also had 121 vacant spaces.

Oh, cool.

So, it was a neglected park to a high degree. But great location, great bones, good quality, built in mid-'80s, good infrastructure, had a pool and a clubhouse. tired and it needed to be brought back to life. So, the first thing that we'll do on a property like that is renovate the vacant stock because that's the fastest pathway to income.

Uh-huh.

And we'll renovate those to a level that looks like a brand new manufactured home. All the infrastructure in the home is replaced— the exterior, windows, siding, roof. Floors, walls, everything is completely redone. So, when it's done, it looks like a current vintage home, even though it might have, you know, mid-'80s bones. Stainless, granite, really nice. And then we'll— we like to build quality mobile home parks or put quality mobile home parks together where it's a— It's not a trailer park. It's a manufactured housing neighborhood is what it really is. So that gives us the ability to appeal to the tenant that's, you know, even though they're seeking affordability, they still want something really nice and they care about quality.

Hmm.

So the strategy to fix those up really nice helps us dictate what the culture is going to look like in that community. And then we start bringing new homes in. And if you can imagine, if you didn't do that and you just put a little, you know, steak sauce on the hot dog, you attract the 2 different tenant types. You're trying to sell brand new homes to somebody who can afford them and likes quality, but you're trying to mix that with folks that are seeking the ultimate affordability and they don't care about quality. So, it's important to recognize that when you have a wide degree of park-owned homes, that's an opportunity to change the entire culture at that property. Yeah.

So, when you sell those, are you doing owner financing on those park-owned homes, or do they have to obtain their own financing? And what's the challenge of getting financing on a used mobile home?

Great question, because this kind of shines a spotlight on one of the challenges in the industry. So chattel financing, it's just a fancy name for mortgages on mobile homes in a mobile home park. So chattel financing is similar to auto financing. The, the, it's not a fixed asset that sits on land that's owned.

Mm-hmm.

So there's a limited amount of Firms that offer chattel financing across the country. So you can go to any bank on the corner and get a mortgage for your home.

Mm-hmm.

Talk to any mortgage broker and get a mortgage for your home. But that is not true for mobile homes in parks because the land is not owned. So chattel financing is very specific paper that's written to residents who own a home in a park. There's half a dozen reputable outfits across the country. But it's pretty— it's become pretty restrictive. So the challenge that you run into is you might have, you know, a dozen qualified residents that come into your property and they meet the manager and they go through the qualification process and they select a home. They make a deal with you. They have the adequate down payment, and then you send them off to get chattel financing and only one of them comes back. with a loan. So that's a, that's a difficult— most of these people have never gotten a mortgage in their life.

Hmm.

And, you know, the, the— as you can imagine, these are big outfits. And the gal that you talk to on Monday is not the same person you talk to on Friday. And it becomes restrictive for— or a difficult pathway to navigate for the average resident. So one of the things that we're coming out with in 2025 Is a debt fund that will allow us to be the chattel paper provider. So we are essentially going to write the chattel financing. That way, when a resident comes in and qualifies, they probably could move in in 2 to 3 weeks, start to finish. So that's a new thing that we're bringing to the table. Otherwise, the restrictive component of, of selling homes to new residents at scale is the current chattel financing I've got one last question before we go to that.

Tell us about 5210 and what and how it is that we can get in touch with you.

5210, you can find us on our website at 5210.com. If you go to the contact page there, you can Fill out a form and then you'll be able to schedule right on my calendar. So if you want to chat directly with me, you got to go through that process and fill out a form first, but then I'll respond to you and you'll be able to talk directly with me. So I'm just kind of zoom out everything that we do is mobile home parks. We don't do RV parks anymore, although we once did. There is value in understanding the RV game because a temporary income stream while you have vacant spaces is RVs. While you're kind of slowly filling up vacant spaces, you know, by enrolling in a rolling fashion. But all of our products are either fund-based, individual direct deal-based, or coming soon, a private credit offering. And that's just a monthly coupon.

Okay. And all of that information will be in our show notes. So Jack, my last question is, What is in it for investors?

There's 2 or 3 things that really stand out. One is capital preservation. So what I find to be really interesting as I answer this, Allen, is what I've learned over the course of several decades raising capital is every check size thinks differently in terms of what's most important. Typically, the smaller retail checks are interested in how much I can make. What we've experienced is that the larger the check, the more focus there is on tax. How much money can I save by making an investment? What's the passive losses that I can garner from making an investment?

Mm-hmm.

That's probably the most attractive thing about mobile home parks. For each dollar invested, there's substantial passive losses that you receive in that same calendar year on your K-1. north of 50 cents on the dollar, even in this kind of like restrictive environment that we have today. But there are times when it's dollar for dollar or greater than dollar for dollar passive losses. So extremely powerful tool for those people who have gains in their life that they're seeking to offset. But a typical yield is going to be in the mid-teens over a 7-year hold period. Coupons from a cash flow perspective is somewhere between, you know, in the early years, 2% to 4%, in the latter years, 8% to 10% on the cash flow distributions. But I think the most important things are on the outsides of that. It's the tax benefit and the capital preservation. So mobile home parks deserve to be looked at through a different lens than most commercial real estate investment. You're not putting your capital, your principal at risk to the degree that you would be in other asset classes. And I think that that's important to recognize.

Yeah, I think that's an important component about it. And because from my understanding, they really do have staying ability, particularly in recessionary periods. They suffer the least of some of the real estate properties out there. And for all of the reasons that you, you know, were talking to us about, it's difficult to move them, its affordability is there, and so it just makes them some of the most recession-resistant assets that I think are on the market there. Well, Jack, it's been wonderful having you. And enlightened investors, I know you found today to be informative. And so I do hope you'll take a moment to like, share, and subscribe. And please take a moment to give us a rating and a review on your favorite podcast app. Until next time, live abundantly, and we'll see you in the next episode.

Thank you, Allen.

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