Transform Your Approach to Mobile Home Park Investments | Titan Impact Group

Recording. Okay. So welcome everybody. I am super, super excited to be here with one of my favorite people who I actually got to see this past week at Ray's Fest, which was pretty freaking awesome. And we are going to talk about one of my favorite things of all, which is renting Dirt. And this is like, Bryce, I feel like you're the king of renting dirt, at least in my world. So I'm Kathryn Bel, Titan Impact Group, and this is Bryce Robertson. And what's really cool is, well, I mean, I just feel like you have a ginormous resume and backstory and just your whole history in this. So I would love people, you just share with people bit about who you are in your history and all of that. I mean, in my mind you're a freaking rock star, so that should say it all. But they need more than that. So why don't you just share your, your experience and just all the things that you're doing and that what we're doing together as well.

Appreciate that. Yeah. So names Bryce Robertson, Founder and CEO of Cultivate Collective. I bought my first mobile home park in 2015. At the time, I had a negative net worth $2,000 in the bank and unseasoned credit because I hadn't been in the States long enough because I'm originally from Australia. And so that first deal, I learned how to raise capital and I did some creative financing and got that deal across the line. That was back in 2015, basically. After that I rinsed and repeated and did that for about two and a half years until I created Financial Freedom and I kept on that path of growing the mobile home park portfolio. And then in 2020, we saw the market shifting a little bit. And what we actually saw is a lot of other operators were lowering their investor returns to adjust to the market. And so I didn't want to do that. I wanted to provide the same amount of returns to investors. So we actually shifted our business plan a little bit. We used to buy 20% plus occupied properties, which is really considered kind of stabilized with a little bit of value add. And from 2021 onwards, we started buying properties as low as 50% occupied. So what that means is a lot more work for us. You know, we've got our own in house, property management, asset management, construction management, and mobile home financing. And what we do is, is we, we take massive action to fill the vacant lots and fill the vacant homes and take the occupancy from to 80 or 100%. And because we can do that, there's a Lot of upside potential in us being able to do that. So, you know, that's put us in a position to be able to provide more attractive returns to investors. And that's really the main thing that we've been doing that, that heavy value add since 2021.

So extraordinary. So what you're doing next is I feel like it's unconventional, like I don't know anybody else that's doing it. So I'm excited for you to be talking about and sharing this inside of everybody, understanding this is just another beautiful version of renting dirt. But that it's, it's that proactive piece that you're talking about. So it's the, the. Yeah. So let's talk about this. This is awesome.

Yeah. So I take it we're talking about the transformation fund.

Yeah, I want you to talk about that for just a sec and then we'll talk about, you know, how they can evaluate the mobile home parks and investing and all of that. Because a lot of people, like, you know, me included, was I was doing all these different type of investments. I knew about mobile home parks, but it always seemed like this, an anomaly, like how do you get involved? Right. And if you don't know somebody, it's like, how do you get into this whole thing? So I want to talk more about and educate people about that, but talk about the transformation fund first, which is separate, but it fits in together.

Yeah, it's part of the eco environment. And so we were doing some third party mobile home lending leading up to, I suppose, the end of last year. And it was, it's good to get loans on mobile homes because if you get a loan on a mobile home, all the park has to do is put a down payment down on the home instead of forking out the entire cost. So it means that at the park level, especially if we're doing a lot of mobile home loans, that we can actually keep the capex costs down, which boosts the returns for investors. And that's a really cool thing. Now the challenges we were having was a lot of limitations in some circumstances. Some of these third party lenders will only allow you to do three homes. And then we do three homes. It takes about six months to order the homes, get them delivered, get them, set up and rent them like six months on the earliest. So that was putting us at a maximum of six homes a year, which is way too slow. I mean, we're filling in like literally hundreds and hundreds of mobile home lots. So we need to go a lot quicker than that. So There was those restrictions plus a whole bunch of other restrictions, and we decided to bring our financing in house and we created a structure which I believe is a win, win, win. So the, the park gets to just pay a down payment instead of paying the whole cost for the home. So instead of paying $60,000 for a new home, the park's only paying about $10,000. So that means we're saving about $50,000 per lot. The tenant gets a TR affordable housing loan, which a lot of third party financing companies, they, they have loans available for tenants, but they can't qualify them because they need something that's more affordable. And so we've created true affordable housing loans. And then also investors who invest in our transformation fund, which is our in house financing. Those investors are getting 10 to 13% annual returns, depending on how much they invest. So it's really a win, win, win for our park investors, for our residents who get true affordable housing, and also for our investors in our mobile home financing company.

I love this because again, it's that whole, whole ecosystem, like all the way from beginning to end. So it's really cool. So Bryce really knows what in the world he's talking about, which is really cool about this whole thing. So let's go in and start, just go through. If you guys have questions, go ahead and put it in the Q and A or the messages and stuff. But we're going to have Bryce jump into the actual part of mobile home park investing. So you used to teach a course on this, right?

Yeah, MHP Mastery. It used to be called A to Z of mhps. So yeah, yeah. And so one of the things we really look at is, is risk. And so you could see a mobile home park investment and another mobile home park investment, two completely different operators. One operator, it could be projecting, you know, certain returns, and let's say the other operator is projecting the exact same returns. And you're looking at it and you're going, well, like, I don't know which one to choose because it looks like I'd make the same amount of money if I invested with operator A or operator B. But one of the things I wanted to kind of bring to investors awareness is it really what you see on the surface, there is one part of the calculation. The other big part of the calculation is what are the formulas behind those calculations and how much wiggle room is there in it. And that's a big thing to me because I always want to focus on recession resistance and I study macroeconomics and I'm Looking at the market and I'm thinking about things like interest rates, are they going to go up, are they going to go down? Cap rates, are they going to go up or go down? A construction timeline is going to be delayed potentially due to understaffing or supply chain issues, is there going to be supply chain issues, is there going to be price inflation, is insurance costs going to go up? And all of these sorts of things. And so what we do in our deals is we have a very large margin so that we can increase interest rates up to. Interest rates could increase up to 3% between our acquisition and either the refinance or the exit. Same thing with cap rates. We've had up to a 3 point spread or 3% spread on that. Meaning if cap rates went up 3%, we've still got that padding in there. And when you look at. And we can we double our construction timelines and we add in a big buffer of property taxes and insur. And so someone looking at our investment, if they didn't understand what we in this industry call conservative underwriting metrics, then they would actually think both of those deals are the same. But if, if I'm projecting the same returns as another operator over here and we've got a three point spread on our cap rate and our interest rate and these guys over here have a quarter of a percent, which is what a lot of operators have. They have a quarter of a percent or a half a percent, they're not going to be able to handle volatility in the market. And if they did, it would definitely throw off their numbers. And so that's something to really look, to look a little bit behind the curtains on. How much wiggle room do you have on your operating expenses, your interest rates, your cap rates, your construction timelines and all of the things. Because if you think any of those things could happen in the timeline of these investments, and usually these investments of five year holds, then if you think that's going to happen in the next five years and that's not built into the numbers, then it's going to be really difficult, if not impossible for the, that operator to actually hit those numbers. So then you can look at that and you can feel more confident about the operator over here versus that guy. So hopefully that made sense.

Yeah, no, that's amazing. And taking a look at that, and I love that you build it in so that you, you're planning for the future, hoping for the best, but planning for the worst, which is really amazing. So yeah, keep going. You're Amazing.

Yeah. And then, you know, one of the other things that we do when we're buying a property is we actually do a stress test on our deals. Not only do we have those conservative underwriting metrics so that we believe we could handle a heavy economic downturn, in addition to that, we do test ads. So if we say, okay, we're going to raise our rents from 450 to $490, we will literally place test ads in that market and we'll gauge the amount of response there is. Because if we say we're going to fill Plan 100 lots at this community, we better have a really, really good response rate on the amount of lot rent and home rent that we're going to be charging in those markets. So we actually do the rent raised amount, we put test ads on it. And then usually what happens is the response is either an epic fail and then it just, we just pass on the deal because we wouldn't be able to move forward because we wouldn't be able to fill all the lots, or it's a parabolic response, which is what we usually see. There's tons of demand and we know that we can pull it off. So, you know, that mixed with all of our conservative underwriting that I, that I really mentioned before puts us in a better position, gives us a lot more confidence to be able to handle some uncertainty. And I mean, if investors know what's been happening in the last few years in the investment market, in the real estate investment market, especially with a lot of multi family stuff, there has been a lot of volatility, interest rates have gone up, there has been a lot of these things happen. And so we want to be really, really prepared for that. The other thing that we do which is a little bit unique to most operators is we are heavily vertically integrated. So most operators will have in the mobile home park space, will have their own in house property management and own in house asset management. They don't always have their own in house construction management. And I don't know any operators that have their own in house mobile home financing. And so us having the ability to be able to control those things, I don't think anybody's going to control them as better as we would. So.

Right. So I love this because these are really great questions that anybody looking to invest in mobile home parks that they could be asking the operators.

Right.

Which is really important. Are you able to see my screen?

Yeah. Yeah.

Okay. Okay, you can keep going.

Yeah. And so, you know, these things that we have built in like interest rates going up, cap rates going up, construction timelines delayed, etc. Etc. All of those things are built in behind our deals where we typically present at about 19% IRRs, sometimes a little above that. And generally we present deals that have about a 8 to 11% cash on cash. And one of the interesting things about the mobile home park space specifically is in multifamily you might see operating expenses. So you've got all your revenue coming in and then you've got your operating expenses. Well, operating expenses are often about 40 to 60%, sometimes even more of revenue in the multifamily apartment space. In the mobile home park space, we're seeing things closer to 20 to 25% across our portfolio. Maybe worst case scenario, we're seeing things from like 20 to 40%. So we've got much lower operating expenses, which means that there's a lot more cash flow in these deals. And we've had deals that we've bought at 50 occupied, so we're only half full at that community and we're already cash flowing out of the gate enough to be able to send out distributions to investors. And that's just something that's very hard, if not impossible to achieve in a lot of other commercial real estate asset classes.

Again, this is the thing I love about renting dirt. Like it's just so much better for so many reasons. I love that. So I love the whole preparing.

Yeah. And so that's why, you know, we, we have the in house. Because the way I look at things is basically there's things within our control and there's things that are essentially out of our control. So the things that are out of our control like interest rates, cap rates, supply chain issues, inflation, we can't control those things. So we build wiggle room into our underwriting so that we can handle those things. So it's, I suppose it's the way that we can control the uncontrollables by having that into built in behind our deals. And then the other things more in our control is the operations, the management, pushing the project along, et cetera, et cetera. And we have in house, you know, property management, asset management, construction management and mobile home financing because we believe that we're going to do a better job than if we were going to work with third parties. So that's really the way that we control the controllables and the way that we control the uncontrollables as well.

It's so, it's so important. So I think this is really important right Here, this is one of the most important slides, I believe, because I believe that you can have a really good deal and a crappy operator and they could totally tank the deal. And you could have a really amazing operator in a so so deal and they know how to literally turn it around. So let's talk about that.

Yeah, and I think when people are talking about like investing in deals, some people say, well, you should put like 50 of your decision making on the deal and then you should put your other 50 on the operator. Because a good operator can take a, a bad deal and make it perform well. That operator can take a, a, an excellent deal and run it into the ground. And so, but I actually think that you should put at least 80% or more of your decision making on the actual operator themselves. There's a lot of deals out there. A lot of people can have a good deal. You want to have confidence they can actually handle the challenges. And believe me, I've been operating for 11 years now. I can tell you there are a lot of challenges. There are a lot of things that pop up through the hold periods that you'd be like w. You get a little bit shocked and taken back. And if you don't have things built in and you don't have the experience and the resources and the contacts to be able to solve a lot of these problems, especially in today's market, good deals could turn bad really quickly. And so you want to have an operator who has a lot of experience and someone who has the resilience to be able to handle rapid change and a lot of challenges. Because I think we're just going to see, if anything, I'm predicting that we're going to see a lot of rapid change at least in the next five to 10 years.

So what are some questions that investors could potentially ask when they're interviewing operators?

Yeah, I think you want to ask like operators, have you, you know, what's your track record? Do you have any like, deal examples that you have? How many deals have you gone full cycle on? Because you can't really see what the full scorecard is until they've gone through the complete cycle of like buying, managing and selling the property. Once the property is sold, then you have all of your final investment numbers. And then you also, you know, you want to find out things like have they done capital calls before? If they have had a capital call, how have they handled that? If they did have to do a capital call in the future, how would they handle that? And this is maybe not something that people would have been talking about all of the time. But there has been a lot of capital calls in the last two years and it's, these are important things to know. Have you ever had any deals that have gone full cycle and have gone, you know, fallen below your projections? And you know, and then you also want to find out, you know, what kind of loans are you getting? Are these adjustable rate mortgage loans or are they fixed rate loans? When is the balloon period? Meaning when is the, does the loan come due? Is that three years, five years, 10 years and asking questions about the loan. And, and then also, you know, you want to kind of figure out how they structure things on tax benefits too because that can vary from operator, operator and ask what the typical bonus depreciation looks like and how much of investors capital are they actually going to get back in year one. And for the overall lifetime of the investment.

This is awesome. I hope you guys are taking notes because what Bryce is like giving is absolute gold. Okay, so becoming a more strategic investor. So let's talk about that for a minute.

Yeah, so I mean, you know, being an investor you want to definitely like have confidence in what, what you're actually investing in. And you want to, you want to believe in the actual asset class yourself, then you want to believe in the operator themselves as well. And if you can believe in the asset class and you can believe in the operator and doing a little bit of like future planning, a lot of people look at what their investments are going to be like based off what performance is right now in today's market. But if you're investing in an investment and it's going to be a five year time horizon, you need to be able to think about what you think. You need to take into consideration of the next five years and take that into consideration now. So you want to do some strategic planning and you want to kind of plan ahead. Another thing you want to think about is, you know, is is there cash flow in this deal or is it a whole bunch of equity at the end of the deal? When is the return of capital going to happen? Is that going to happen at the refinance at year two? Is it going to happen at the end of the five year time cycle? How long is the life cycle? Is it a five year investment? Is it a seven year investment? Is it a ten year investment? Do I want to hold my money, tie my money up in that investment for that long? And these are things that you want to think about with your strategic planning to figure out, does it align with your goals? Some investors, they just want to get the tax benefits because they have a really, really high tax benefit. So they're going for investments that have really good tax benefits. If you're looking at an investment that doesn't have good tax benefits and that's what you need the most, then you're probably looking at the, the not, not the best investment for you at that particular time. And, and you know, you might want to talk to your CPA and advisors and, and talk to them about those things and kind of do a little bit of planning and they could tell you, hey, you probably need to invest this much right now, blah, blah, blah, to get these kinds of tax benefits, etc. Etc. And we can certainly have conversations with CPAs to help get things dialed in as well. And then you want to continue to educate yourself about these asset classes and you want to read all of the updates and you want to just keep your bit of a finger on the pulse of the market, which is something not only do I think it's really, really wise for investors to do, I think more than often I'm finding these days that there's operators that don't have their finger on the pulse of the economy and where we're at and where we're potentially going in the next couple of years, in the next five years. And so I think the more that we're really focusing on that because we're going through an economic transitionary period, there is going to be a lot of changes. There is going to be a lot of things that are going to shake out from this. So the more you can get educated on the economy as well as your actual investments as well, and then be tracking your investments and then if there's things that you don't understand, ask about that and, and find out the information so you can understand all of the terminology. And I mean, Google and YouTube has an abundant amount of resources, but the more wise we are, the better wise decisions we can make in business as an investor. Right?

Yeah, that's, I mean, it's an ongoing education. It just never, never ends.

Right.

Especially as the economy changes and all of that. So any of you, if you're looking to do my favorite thing, which is rent dirty shirts, you can for sure reach out to me and I'm happy to set up a call. I know Bryce. I'll jump on calls with us. This man is like a wealth of knowledge and I wish we could like download his. Hey, we can download your brain. We're going to turn, we're going to clone you. So this is AI clone. You can have a conversation with her. If you want to set up a call, you can set up a call there as well. But I hope that this, like, helped start helping you understand, like, more of the nuances of mobile home park investing versus, you know, other asset classes. And I hope you get why I freaking love it so much. It's seriously one of my favorites. Be the bank and rent dirt. So anything else you want to give them before we leave?

No, I think we're doing a Q and A in a couple of days, so come and join us for that.

Yep. So we're doing a Q and A, so be on the lookout for that. Bring your questions. Think about this. I'll send out the recording so you can watch it again. I know Bryce shared a lot so you can watch it again, but bring your questions and anything you. Any question. Any question. That's what we're there for to continue to help educating you on all the things. So I wanted to make this quick to honor all your time. Thank you. I hope this was valuable and insightful. Bryce, you're amazing as always. I so appreciate you and I can't wait to talk to you on Thursday. So with that, thank you, everyone. I hope you have an extraordinary day and we'll see you on Thursday.

Cheers, guys.

I love it. Thank you.