Episode 572: What Makes Mobile Home Parks Different From Every Other Asset with Brad Johnson

Welcome to the Smart Real Estate Coach Podcast, your source for actionable, real-life, practical investing advice. Each week we help you make a quantum leap somewhere in your business, your finances, and/or your life. Subscribe, leave a rating and review, and learn more at smartrealestatecoachpodcast.com. All right, welcome to the Smart Real Estate Coach Podcast, where we cut through the noise and show you how to actually get deals done. More importantly, when? Now, in today's market, biggest search right now in chat and Google is what? Is today a good time? Today's an amazing time. I'm Chris Prefontaine, and if you're serious about creating income and wealth through real estate, you're in the right place today, guys. This is gonna be a really cool interview because, as usual, I am genuinely more and more interested in the space of mobile home park investments. There's a couple niches I've been digging into and this is one of them. So I'm going to chat today with Brad Johnson. He's the co-founder and CIO of Vintage Capital. They do specialize in what? Mobile home park investments. But here's the other thing, guys, 20 years of experience across traditional and alternative asset classes. So I want to— you're going to hear me picking his brain a little bit, really for personal reasons. As always, that's what makes these interviews real about mobile home park investments and some other things. And he's got quite a unique perspective as both a former operator and a current allocator in that home, you know, mobile home park space. He's closed over $3.3 billion in commercial real estate acquisitions. So I thought, okay, cool. Couple of decades of experience. Let's dive in. Okay, Brad, with that as a little backdrop, welcome to the show.

All right. Thanks for having me, Chris.

Yeah, I, as I said to you off air, I, and I always kid around with the members of the community. I say, look, I just do the shows to ask the questions for me for selfish reasons. So I'm very curious and interested in your space. So I'd love to know kind of first before we dive into it, sort of behind the green curtain, how you arrived here. Like what got you in real estate and what got you into this space? And then we can kind of rip some things apart together.

Yeah. What got me into real estate was really just having an intuition for the asset class and feeling like I knew what I was looking at as opposed to Investing in securities and Wall Street, sometimes you feel like, hey, I don't have the access or the insight that these players do. And it all felt very volatile. And whereas real estate, it's a hard asset, kind of a lot of reasons why people, common reasons why people fall in love with the real estate. You can see it, you can touch it, you can go visit it. And it felt like I had an insider knowledge into the rent roll and what was going on with that particular property. that just felt easier to underwrite and make bets on than the crazy accounting for some of these publicly traded companies.

Yeah. And then, so real estate in general, like what, and then what, why mobile homes, I guess?

Yeah.

Right.

So I was working for a real estate investment bank and I had access to just a ton of deal flow across every asset class. And I noticed in looking at manufactured housing in particular, it it had the highest yields from a cash flow standpoint and the lowest default rates, which that really shouldn't go together, right? It should be the opposite. Right. The higher returns should have the higher default rates. So that got my attention and I just, I thought that if I was ever going to go off on my own and doing something entrepreneurial, I was 30, mid-30s. I just had my first kid and I thought, if I don't do it now, I'm never going to do it. I'm going to get just more tied to the The larger bonuses that keep growing and working on Wall Street effectively, it was going to be tough to leave. And so I made the, pulled the trigger and started buying mobile home parks with a partner across the country. And it felt like a niche that was a little underappreciated at the time. This was 2013, then when I left, and there wasn't as many private equity players that had gotten into the space. And if you don't really have a principal track record of your own, it's hard to go into a very competitive space like multifamily or office buildings as just like from the jump to get investor capital. But if you do something that's quirky, that's nichey, that has a great story, I thought, okay, well I could go ahead and raise capital as a first-time operator with something unique.

You mentioned leaving your W-2. So before we dive even deeper into the mobile homes, so talk to, there's a whole bunch of listeners that Some have come to us and we help people transition, get out of the W-2, but so many haven't and they're afraid or whatever. So as soon as you mentioned them, like, okay, wait a minute, you had your first kid or you already had and you left in your 30s. So any words of wisdom for them? Because here we are, by the time this comes out, just past the half-year point. And I'm like, guys, what, like, how long are you going to go along hating your job or on that grind? Or in your case, high-income earners have come in here and said to me, I just want out. Like, I can make the money, but I just want out. So just any words for them of encouragement or words of wisdom?

Leaving the layup there a little bit.

What was that?

Lost you there a little bit.

Okay. Usually this will pick it up, Brad, meaning Riverside's quirky, but it's screwy to stay with it, but it'll pick it up. So I wanted to address for them, like, any words of wisdom or mental thoughts about leaving the J-O-B. So important because so many of them are stuck and they're afraid to make that move.

Yeah. I mean, I did do it with a bit of a safety net in that my wife was still working at the time and so health insurance covered. And so that was a mindful bet in that, hey, look, we have at least a baseline. We're not going to starve. Children will get healthcare, the children will get their food. And then I looked at what I was doing as more of the long-term, hey, this is an option that we have if this works out. Which is exactly what happened, right? She was able to quit and then I took over all those responsibilities after like 5 years, 4 years. One of the reasons I think people tend to not pull the trigger is that it does seem very extreme. And if they don't have some sort of safety net, I think it's easy to think about, okay, well, I'm going to be broke and I'm not going to have any other options. But the reality is, I easily, after the first year or 2, could have just gone off and gone back to corporate America, right?

Yeah.

It's like, I view it as you give yourself 2 to 3 years to see real progress, and then you will have options to go back to corporate America, especially because now all of a sudden you have this different mindset in that I can go out and I can go make things happen. I can drive new business, which a lot of employees don't have that skillset. And what if you realize is that if you bring that to an employer, that is just a, it's just so much easier to get a job, right? When you're going to drive revenues, where are you going to drive new business and acquisitions? So I just as easily could have gone to a private equity company, a real estate firm and said, hey, look, I'll go, I'll be your acquisitions person. I've been doing this for the last 10 years.

Yeah. Wait. Yeah.

I've made this progress.

Right.

So I think people have more of a backup option than they think. They're not going to starve.

Yeah, no, this is— that's a good twist. And I've asked a lot of people that and I haven't heard that twist that, hey, you got to safety net that way. That's pretty cool.

Yeah.

Okay. Mobile home stuff. You mentioned high return, low default. Why is it then on the mobile home side, why is it low default? And is that across the board pretty much? Yeah.

So part of it is just the structure of the asset class. It has structural benefits in that there's declining supply of these properties and there is, you know, the demand for affordable housing has never been higher. Yeah. And so that's a unique place to be investing, right? Huge demand, declining supply. Usually, you know, supply and demand go with each other. But, you know, we started out with, I don't know, 55,000 parks maybe 10 years ago, and now it's getting down closer to 46,000 parks that you'd actually want to own. So that's a structural benefit. And then also from a capital standpoint, we own the infrastructure, we own the roads, the utilities, the pads, and the tenants own the homes. And so that is also a profitable structure in that most of the maintenance for the homes is all on the tenant's responsibility, and we handle the property taxes and the maintenance of the grounds and fixing the roads. So your profit margins are higher than something like an apartment building where you're responsible for everything.

I love that. I mean, coming from the single-family world, it's like night and day.

Yeah. I've owned single-family rentals in the past and I've sold all but my last one and I love it for an appreciation game, but from a cash flow game, I always found like, oh, I get 2 to 3 years of great cash flow and then boom, we need to replace the roof.

Yeah.

And then it's gone.

Yeah.

You bought a house so that you have fewer capital surprises when you own land infrastructure, right? There's no structure to maintain.

Yes. It's almost like a quasi-management company with a little bit of a cash machine going if you run it right.

Yeah, exactly. They are, you know, the thesis is beautiful. People do fall in love with that concept and think that, oh, this is going to be mailbox money, but they are operationally intensive. to run. You have to pick the right markets, pick the right type of infrastructure, of course, right? You could get surprised there. But once you figure that stuff out, yes, on average, the majority of mobile home parks generate higher cash flow returns because there aren't those surprises and there's unique, there's low turnover, right? Is the homes don't move.

So there's your stage and then I'll And then I'll talk about a new person. Are there size parks that you focus on now?

Yeah, we typically are in the 50 to 150, occasionally a 200-pad park. Anything that's bigger than that, the giant private equity firms have really started focusing on, and it's a much more competitive market. When you're looking at a 300-pad park, that might be $30, $50 million and above, and that starts getting the private equity guys excited. So there's been more consolidation at that segment of the market, whereas what I would call the middle market is where we like to play. It's a little bit less efficient. The consolidation hasn't happened as much.

Yeah.

Below 50 pads, especially if it's a more remote market, that park is not generating enough revenue to pay kind of a quality manager, right? That's in that market that's local. And it's just, you have the same amount of effort and time that goes into a 25-pad park as you do a 100-pad park. So it often is better to try to go a little bit bigger.

So your low threshold is what roughly on the—

50 pads is kind of, yeah, it tends to be our bottom. I mean, we prefer to to do more, or we'll do a portfolio of smaller parks that are all 50 pads, right? But in one region, that tends to work because you can share resources and armies. Exactly.

So if I'm looking at, it doesn't matter what size, I guess, and maybe you're going to tell me it does. What are some of the key due diligence items? I know you could go deep and you probably have checklists galore, but what are some key things like for the listener to know?

Yeah, just first starting from the market down, the macro to micro, the market, you need to have, a reasonable population base with pretty healthy home prices. You don't want to be going into a market where there's homes selling for $100,000.

Yeah.

Right? Because then you're competitive with a stick-built home and given the choice, right? A tenant's going to want to own the stick-built home.

Yeah.

Versus a mobile home park, even though some of them are really nice and certainly don't look like trailer parks. But if you have kind of over $200,000, over $300,000, $400,000 median home price, you're going to have a ton of demand in that market for a $100,000 mobile home. So that tends to be the first layer. And then you want to make sure that population is just not declining, right? As long as population is stable, it doesn't have to be gangbusters growth. It just needs to have a stable employment base that's diversified, not overly dependent on one industry ideally. So that's the macro, just at a very basic level.

Yeah.

We obviously go deeper, but then when you're looking at the individual property, then we tend to focus more on infrastructure, right? The quality of the roads, how much money are we going to spend on redoing pipes if we need to? What are the conditions of the homes in case we have to get any back? Because sometimes if a home is abandoned, it doesn't happen often, but if it is, then we're going to have to go through and fix it up and then resell it to a new tenant. So that's what we tend to focus on. Once we've cleared the market, once we have kind of gone through the financials and made sure that the collections are fine, then it's looking at the actual infrastructure, the utilities, the road condition to get comfortable with the asset.

It doesn't matter if you're brand new to real estate or if you've been doing this for several years or a whole bunch of years. I learned the hard way back during the crash that doing creative deals is Much better. It's a much better path in real estate in general than let's call it the old way, getting paid once using banks, signing personally. 3 paydays, getting paid 3 times on a deal. It's better 3 ways, not one. Money now, money over time, and money long-term. And I don't care if you're in an up, down, sideways market, it doesn't matter. You can and should operate with the utmost confidence. There's literally nothing I love more than helping people create systems and simple systems and processes to become massively successful. With our 3 Payday System, and doing so in literally any market, and doing it geographically literally anywhere. So if you've been learning and learning and listening and studying and not taking action, I'm telling you after going through it myself, it's costing you tens of thousands if not hundreds of thousands of dollars by not taking action on the 3 paydays the way you should be getting paid. Many of the people that were brand new just like you that joined our community have fast-tracked their startup. No, I mean, wouldn't that be ideal? If you said, okay, should I go fast or slow? Should I take action now or later? It's costing you too much money to wait. Each one of you are at a point in your life, I'm sure, where you want things to be easier. You want things to be better for you and your family. You probably realize that you not only want more, but you deserve more in this life. So, to be able to give your family everything they want, build a legacy for you personally too, and to have time freedom to start enjoying life. And frankly, whatever else you're seeking. And for some of you, now's the time, for example, to just focus on security. Maybe it's building a big solid bank account for retirement. We take these things super, super seriously, and it's my life's biggest reward to help you achieve them. I want to give you a free discovery session with our team. It's free. It's 15 or 20 minutes. You have zero to lose and everything to gain, and to understand how you might fit into the 3 Paydays system. That we've done now in over 80 markets as of this filming. Go to smartrealestatecoachpodcast.com/discovery for a free call with our team. smartrealestatecoachpodcast.com/discovery. Because it's not whether or not you can do it or whether or not you fit. You can do it. It's whether or not you'll take action and do what it takes. And we can guide you through that process. smartrealestatecoachpodcast.com/discovery. And are there any, I'm just kind of going my brain, are there any other than what I would know in real estate, are there any other tax holes or tax benefits in this space different from regular? Yeah. Yeah.

It's funny that you bring that up. It's actually a giant tax benefit because what we are buying is, I keep mentioning infrastructure. That is part of the big beautiful bill, right? It was the accelerated depreciation for anything that's 15-year property or actually 20-year And most of our, the value of our asset is not the actual land because we're not buying these in California and New York. We're buying these, a lot of these are in the Southeast and the, if it's 20 minutes outside of a major metro, most of the land, the actual land value is not that high. It's the ability, it's the zoning and permitting, and then the physical infrastructure. That's the value of the park. oftentimes 70% of the purchase price will be land improvements. And so the 15-year property that you get to accelerate that to the first year and take all of those losses. And so if you're using leverage, then you tend to get a multiple of what you're investing in terms of tax losses that first year. It's pretty common in the Southeast.

Yeah. Amazing. So I didn't ask you that region-wise right now anyway, are you focused on particular areas and does, when the market changes, do you tend to change or Are you guys laser-focused on a particular geographic area?

So we like to partner with local operators because one of the problems in the space is deal flow, right? And so we want to work with operators across the country and we like to make sure that they have a regional presence or expertise in that particular market because you get more deal flow and you can actually go to the assets frequently enough to make sure maintenance is being taken care of. And so we haven't, we've only really redlined states that are anti-landlord, right? So New York, we highly unlikely will ever own in New York again. California, we will probably never own in California again. Pacific Northwest, we like actually just because there has been rent control that has been implemented, but now we know what, how to underwrite that. And you've guaranteed there will never be another mobile home park built in those markets. The math just will never work.

Yeah.

So we know we have a deep moat from a competition standpoint in those markets. We have that nationwide with most parks. It's, they're very hard to build, but we absolutely have it now in the Pacific Northwest. And so as long as you're getting a decent enough discount relative to prior to rent control, The math still works and we like that market because most people have redlined it because of rent control. So we pick our spots. It kind of, each market has a different type of strategy. Like the Southeast has more vacancy and there's, they're hairier deals where you've got to spend more capital kind of to fix them up. The Midwest, you get pockets of that, but you get some really nice parks that look like subdivisions, look like Stick-built home neighborhood. Yeah. Pacific Northwest, everything's full, right? There's very little vacancy. So that's more of a coupon clipper type of park. So yeah, the strategy has to align with the market and what your operator can pull off locally.

And do you guys see in the small parks, just because we teach creative real estate, right? That's our world. Do you see a lot of maybe the smaller parks or any of them owner finance deals or are they all raised capital by—

No, surprisingly we do get a decent amount of seller finance deals, not on the, A $20 million deal, we're probably not going to have too much seller financing. But there is a, it's a unique time in that it's very difficult to push leverage right now, especially because most mom-and-pop operators have not kept rents up with inflation. So there is a giant gap between what the market is in most of the parks you're buying versus what the actual trailing 12 net operating income is. So that means that you can only really put on 50% leverage on a lot of these parks. And so sometimes you'll have the seller carry a small note above that if the lender will allow it. Yeah. Or if it's a, maybe if it's a $10 million park, you see plenty of sellers carry just for the first mortgage on that park where they'll carry a $4 or $5 million note because they know the asset so well that mitigates their tax hit.

Yeah.

One, because they can spread that out with the note payments.

Yep.

And it makes the deal happen. And then our business plan for that particular park would be to fix it up, improve the condition of it, the appearance of it, get lot rents closer to market rent, and then refinance with Fannie Mae, which is the biggest lender in our space, take out the seller note, and then we have a cash-flowing asset that has longer-term debt on it. Yeah.

And I guess just because this is what we do in our world. So if you did that process and you took the seller a lot earlier, there's another opportunity there to discount that, right? Perhaps if you're taking them out a lot earlier, offering them, hey, I can cash out early.

Good point. Yeah. No, when you're working with a mom-and-pop, it's like it's a handshake at their dinner table, right? It's how a lot of deals get done. I certainly in the beginning of my career was the one doing that, and I was always surprised at how flexible and how you could negotiate with these sellers because they own the property for 30-plus years. Like they have a really low tax basis because they've been depreciating it. So if they don't have a good home for that capital when they go to sell it, like they don't want to pay half of that to the, or more to the government. So they will often work with you and come up with creative solutions to try to mitigate that hit.

Yeah, I wanted the listeners to hear that because we have a woman in our community who came in with only mobile home experience and came in just prospecting mobile home parks, small ones in her particular area, and looking for owner financing for the free and clear properties, specifically free and clear for that reason, then structuring deals now. And the owners were over the top amenable.

Yeah, especially with smaller deals like a 20, you know, because groups like us aren't chasing the 25, 40-pad parks. You're not getting the crazy pricing on those. You're almost all of those are off market and so they have their healthy cap rates because you have to get a higher return on those to justify the effort. Yeah. And therefore they're not as liquid from a lending standpoint. Really only credit unions or regional banks are going to be the lender on that or the seller.

Yeah.

So those are the best deals if you need creative financing or you want to do some structuring. Yeah, I would stop looking at 100-pad parks. I would only focus on smaller deals and try to cluster them, right? I mean, fine, if you're going to do one-off, just make it so you can get to it fairly easy. But ideally you want to cluster those into a little portfolio that's regional, and then you get the benefits of scale and you can get kind of an arbitrage on buying them retail and selling the portfolio to a larger group.

What's interesting about this conversation is I live on an island, It's a 3-town island. And on the island, there's probably— I'll look, but there's probably 5 parks and they're probably that $25,000 to $50,000 range. But because it's an island, because it's transit, because it's very resort, the prices are crazy here around it, right? So where is this? What state? I'm in Rhode Island on Aquinnah Island, but down by Newport. And there's some old, old parks here, like a good handful of them.

Oh yeah.

No land left.

I mean, yeah, no, you should see the ones in Malibu here. I mean, they, the homes sell for $2, $3 million, a mobile home, right? Because they are in a, just an amazing location. And the retirees that tend to focus on those type of parks want, they prioritize the location than the structure, right? And then they've downsized, they don't need as big of a home. Yeah. Yeah. So yeah, there's all kinds of business models in our space. It's certainly, The stigma of a trailer park is what keeps a lot of people from looking at the space. And there's just a range of quality in our—

Well, good for you, right? And other investors that know that that's not a big deal. That's all good. Brad, what did, well, first of all, how can these guys reach you if they want? So I don't forget, because I'll get Gavin and picking your brain. How can they reach you if they want to reach out to you?

Yeah, so we have a team you can chat with sending an email to info@vintage Our website, vintage-funds.com, has a ton of educational material in this space. We're a big believer in that this asset class needs to have high-quality investors and operators to continue improving it because we have an affordable housing crisis in this country and manufactured housing certainly is part of the solution. So yeah, we like to teach people in the space, hence why we enjoy doing calls like this as well, or podcasts.

I love it. I love it. We'll chat again offline on this stuff too. As I wrap, what— there's, I'm sure, a bunch of things, but what didn't I ask you that you'd like to make sure gets across to the smart listeners that, you know, specifically about what you're doing right now?

Yeah, well, one of the things I really like about the space is looking kind of at this history of returns. You know, we didn't have the major drawdown that just about every real estate asset class had from '22. to today, I think we were down 6 single digits on a, just a valuation standpoint from the giant spike in interest rates. So, and then if you look at historically, you go back 25 years, the major players in our space have never had a negative year of NOI growth.

Wow.

The NOI growth has just been a steady compounder at 5% per year. And so that is a unique characteristic in real estate. Normally, Normally real estate's more of a timing cyclical market, and time and time again, the mobile home park space has showed that this is a durable business, durable cash flow. And I think in a very uncertain world with AI, this is one of the few asset classes that you can lean into because affordable housing probably isn't going anywhere.

Yeah, yeah. No, I agree. That's what my bells were going off in a bunch of our markets. We're in 82 markets as our coaching company doing deals with students, and there's a bunch of those that rang a bell when you said that. So Yeah, super cool. Smart listeners, I'm going to put everything Brad said for links in the show notes. You're going to want to reach out for sure, for sure, because you can integrate this conventionally or in our world with creative for sure. And I encourage you to do that. Brad, super cool having you on. As I said to you off air, I just wanted to pick your brain. That was fun. And so, thanks for sharing and being as cool and appreciate you being on.

All right, no problem. Thanks, Chris. Thanks for having me.

All right, guys, there you have it. No fluff, no theory, just real-world If you're ready to implement what you're hearing here, head over to smartrealestatecoach.com. We're going to help you build this the right way. And by the way, guys, we're sitting here about a month away or so from our 3 Paydays Live event that you keep hearing about. If you want to make the second part— we're actually past the second half, but the last quarter of your year the most amazing year and potentially set up a decade of income because of our 3 Payday system, go over to 3paydayslive.com/podcast.

Awesome.

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