How to Invest for Cashflow in Mobile Home Parks and Parking Garages

Hey, it's Mark Pearls to the land geek with niche real estate website thelangi.com and on this week's Art of Passive Income podcast. I got him back. It's been a while though, but Kevin Bupp from Sunrise Capital Investors is back. If you're not familiar with Kevin, he is a Florida based real estate investor, top itunes podcast host and best selling author with over $500 million of real estate transactions. His extensive investment experience spans the gamut of apartment buildings, single family portfolios, medical, office, self storage, assisted living and his three favorite and his three favorites and by far the most profitable mobile home parks, parking lots are something and there's a third one he's not even doing anymore. So we're going to talk about mobile home parks, parking lots. Kevin. Bup.

Welcome Mark, it's good seeing you again. Thanks for having me back. Excited to be.

Yeah, no it's great, it's great to have you back. It's been a while and I was just curious, you know, about just the state of the market with mobile home park investing in parking lots, how interest rates are, are affecting that. But for the listeners that are not familiar with you, can you just give them a little bit of background about you and your whole idea of investing for cash flow?

Yeah, yeah, sure thing. You know. So again, Kevin Bupp here, Sunrise Capital Investors is the name of our company. I've been a full time investor, Mark, since I was basically 20. I got into real estate at 19, bought my first investment property at 20 and it's kind of all I've ever done. I've owned many different types of commercial real estate as you'd mentioned there in the introduction. I've kind of just run the gamut. Single family. We started with and built up a portfolio there and then kind of I guess opened my eyes to commercial real estate. Different asset classes from retail to self storage, medical, office, apartment buildings. And then at some point along the way, really More specifically like 2011 era, got introduced to mobile home parks which is, is, has been our bread and butter now for, for over a decade. We've got asset, we own mobile home communities and I think now it's 15 different, different states. We, I think we've owned as many 18 states, mostly throughout the Northeast, Southeast, Southeast and some of the Midwest. And then on top of that you mentioned parking lots. So you know, about four and a half years ago we started investing in that, that new vertical parking lots, parking lots and parking garages and very strategic locations. And so I've been at, I've been at this for quite some time. I through, I guess I've been through once. I don't know if we're in a cycle right now. I guess you could say I've been through one pretty massive downturn with the great financial crisis back in 2008 and you know, had to basically rebuild my business from pretty much scratch and bad credit at that point and rebuilt to what we're in today. And it's just, it's been a fun ride and I've learned a lot along the way and met a lot of cool people like you and yeah, that, that's, that's the really condensed version of me in a nutshell.

No, I, I love it. So, okay, all these asset classes, right? Single family medical, self storage, assisted living. Why mobile home parks?

Yeah, no, it's, it's a great question. I mean, you know, I don't need to go into the, you know, the, the, you know, the granular details of the affordable housing crisis we have in the country. I think everyone is well aware of it either they, they have personally experienced it, even just the cost of living over the last couple of years, but even prior to that, you know, just, it's been, it's been a, a massive challenge throughout the, the majority, many, many years now. And so, you know, mobile home parks really fit that void in a great way. I mean it, it truly is kind of the, you know, the last frontier of affordable housing. And, and it's, and it's a, it's a really good quality product now. It's, it's not what they used to be 30, 40, 50 years ago. They're built with the same materials for the most part that stick built homes are. They're just building in a controlled environment in a factory and then basically shipped to their location where they're going to end up. And so I, you know, mobile home parks really allow us to offer a really quality product. Any market that you could pick any one of our mobile home parks where they're located and I guarantee it is the, probably one of the better quality but the cheapest option available as far as affordable housing. And that's, that'd be compared to like an apartment complex. Right. If the option is an individual family could go live in a. Call it a, you know, B class apartment complex. So maybe not a brand new A class luxury, but not the, you know, drug ridden, wrong side of the railroad tracks, you know, rough D class, but the B class, the working class and that's our option. Or a mobile home in one of Our communities, I can promise you that we're going to be probably 25 to 30% less on a monthly basis and our product probably much nicer, it's probably more updated, it's got newer amenities, it's got, you know, it's probably got a swimming pool in the community, a clubhouse and things like that. And so it's just a, it's a great option. On top of that, you know, the last thing that really attracted me to this space, I think more importantly than anything else is that it's the, it's what, it's, it's the only asset class I'm aware of, aside from really, I guess parking lots could probably fall in there as well. But it's got a diminishing supply. So there's really not new mobile home parks being built. There's more that, that get redeveloped every year or torn down than, than that get built. And so there's some massive barriers to entry. We know that if we buy something in a good market that's got a high demand for affordable housing that we don't have to be concerned about, you know, 10 new mobile home parks opening up, you know, within a five mile radius and creating competition for. So it's just been a great asset class and we get to provide again an awesome product and a, and a great experience for those that, that live in our communities.

Yeah, I know, I, I love that. The fact that you know, that another park isn't going to open up within, you know, that radius. I had a buddy who invested in marinas and that was his number one reason for loving Marinas is that another marina is not going to open up, you know, right down the, the lake and compete. And so as far as interest rates are concerned, how has that affected your investment strategy?

Yeah, you know, I would say that the, what hasn't changed are the, are the fundamentals right of the business and how we underwrite properties like that hasn't changed. Our business model hasn't changed. And while you know, interest rates might, you know, might be delaying some current properties that we own today, we might have had like, you know, you know, a bit a plan in place to refinance at year three and do a cash out refinance, right. That might be pushed to year six now. But you know, you know, we're, we're, we're pretty low risk type investors. So we don't have floating rate debts, we don't have any terms that are coming due anytime soon. And so for the most part our existing business, it's Just delayed some capitalization events. That's it. So which is. Doesn't really have too much of an impact on us other than just the timing more than anything else. And so we're not finding ourselves in any type of precarious state with. With current properties that we own as far as, like new acquisitions. Again, the fundamentals haven't changed how we underwrite deals. I mean, the returns that we look for, we look for those same returns. And it just means that we have to look at a lot more properties in order to find ones that actually still fit our. Our buy box or our parameters. But as we were talking about before we started the show, Mark, you know what I've. What I've kind of seen over the past year and a half. So 2023, and then, you know, you know, we're halfway through 2024. Is that a lot of our competition that would have been competition prior years? A lot of them are. They're not buying right now for a lot of reasons, A lot. But a lot of them, their equity kind of dried up. You know, their equity sources dried up and. Or it might be a function of they bought really aggressively during, you know, 20, 20, 21, 22, to where they're now kind of just like more in defensive mode, managing what they have, but dealing with maybe floating rate debt, you know, loan loan terms that are coming due. And now with rates much higher, they're in a very tough situation where they're not trying to buy new, they're trying to deal with what they currently have. So it's put us in a great position to be able to buy the deals that make sense. And so we had a great. We had one of our biggest years last year as far as, like, new acquisitions, and we bought some great properties. So I feel, as anyone that's selling today, like, nothing, none of our stuff's for sale. Like everyone says, everything's for sale at the right price. And so that is true. If someone came to us with a ridiculous offer, anything that we own is for sale technically. But you're not selling today unless you have to sell. Right? Everyone knows that rates are higher, you know, commercial real estate value, just value in general across the real estate world, it's shrunk, it's come down, and some asset classes higher than or more than others, but it's just not the best time to sell. It would be better off to hold off and wait till interest rates stabilize a little bit until there's some certainty in the marketplace. And so anything that's coming up for sale. I feel there's some type of, maybe not massive distress, but there's some type of stress or a compelling reason why they're choosing to sell today in a not so ideal environment. So we've been finding good deals. It's just we got to look at a lot more.

Yeah, yeah, no, absolutely. And so in parking lots and parking garages, it's such an interesting niche. I don't know anyone else besides you that is in, that, is in that niche. And it is shrinking. There aren't that many to buy. So you're, you're in two, you're in two shrinking niches. Does that keep you up in that law?

Well, no, you know, so. No, to answer your question, no, because we're, we're not a, we haven't built our company around having to buy anything or having to grow to a certain scale in order to meet the demands of our investor base. And so we buy what makes sense. And when nothing makes sense, we don't buy, you know, So I mean, case in point, 2020, 2021 and 2022, while we bought some great assets, we sure as heck didn't grow nearly as fast as some of our competitors. I mean, in fact, I mean, you know, we, we, we, I think we probably added, we actually sold more, we actually sold more properties. We kind of took advantage of the top of the market. But I think we, we maybe added like a net four assets to our overall portfolio during those two and a half, three year span, whereas others might have quadrupled or 5x in size. And so, you know, we buy when it makes sense and then we kind of hold tight and just, you know, let our portfolio cash flow when it doesn't make sense to add to it. And so no, I, in fact, I flip one of the, one of the differences of this, I guess recessionary period, if you want to call it that. Right. I don't know what part of the cycle, everyone argues what part of the cycle that we're in. One of the differences about this time around from 08, 09 and 00:10 is I lost a ton of sleep in 2008, 2009, 2010 because the portfolio was not in a good position. And you know, we were just in a challenging state damage control for multiple years. And that is quite the opposite where we find ourselves today. And so again, like I said, we've been really conservative. We've got a low leverage point across our entire portfolio and we're not required to buy when it doesn't make sense. And so we're in a good state. We're really happy for where we're at. And you know, seeing us now, it puts us in a really unique state to be able to grow. You know, we've been able to hire some incredible talent over the last like year and a half from other companies that aren't growing. You know, they're more retracting than anything else. And so we've been able to pull over some great talent and we've just really taken advantage of, of this kind of lull in the marketplace and or I guess you call it a vacuum in the marketplace. So no, we feel really good with where we're at at this point.

No, that's, that's fantastic. So I'm a doctor and I need to make some passive income. Right. I'm tired of the grind. I've got solo economic dependency. If I'm not working, I'm not making any money. I want to shore up my cash flow and I'm looking at investing with Sunrise, but then I'm also looking at other funds, multifamily, maybe ATM machines and other cash flowing assets. What is the competitive advantage for me investing with Sunrise versus some other operators?

Yeah, it's a great question and I would say that you can make money in every different types of real estate. Right? So. Well, I love, I love mobile home parks and I think they truly have a real compelling story and a reason why they're, they're just a more stable investment than a lot of other asset classes. You know, I still, I've got personal investments in self storage and multifamily, a lot of other asset classes. So you know, the, the real estate piece of it is really just the vehicle and one can make an argument as to why their vehicle is better than the other.

Right.

I will say that mobile home parks are the. I haven't seen a more other than maybe a car wash which is about the same. But as far as from a depreciation perspective and standpoint, mobile home parks are by far the most tax efficient investment when compared to, you know, the multifamily or you know, you know, medical office or assisted living or any of the other asset classes.

Right, but is that right? Why is that?

Because the majority of the majority of the property falls within the 15 year or less IRS code. And so like most of the, most of the value in a mobile home park, it's not the actual raw land value because most parks aren't in like the center of a city. Right. And so they're on land that Isn't all that value, Most of the value is made up of the, of the improvements. So the water lines, the sewer lines, the roads, the electrical cable club, you know, it's mostly infrastructure related which, you know, per the IRS is a 15 year depreciation schedule or lower which allows you to take the bonus depreciation. So, you know, prior to the bonus depreciation, scaling back, there were many years where we were taking 100% of it. So if we bought a mobile home park for a million dollars, most of the time we were getting somewhere between 70 to 80 cents on every dollar invested as a year, one loss. And so just you can do the quick math on that. And if we're putting, you know, debt on, let's say debt on that property, we're putting a $300,000, we're putting $300,000 down for that $300,000, we're getting an $800,000 loss. It's pretty, it's pretty impressive.

That's fantastic.

A lot of our, A lot of our investors that are, you know, high net worth individuals that are, that are looking for not just cash flow but losses like that's, we get like the best of both worlds. And so it's a beautiful thing. So it's not, it, some make, some make the investment. Maybe not purely for tax, but it's really tax driven. They need losses, right? So like it's a perfect fit for that. And then on the flip side of that, they also cash flow. So you're not just, it's not like putting your money in an opportunity zone, which is mostly just a tax deduction play, this is a tax deduction play, but also cash flow along the way. So it's a beautiful thing. But as far as, you know, back to your original question of like, you know, the compelling reason for Sunrise, I think it really, I, I think a lot of, again, just all these different asset classes are just vehicles. I, I think a lot of it comes down to the sponsor, you know, the leadership team, what the track record is, how long they've been in business, you know, what have their historical deals look like. And now, now's the time I want to brag on ourselves, right, because now's the time, like when times get a little challenging, how are they managing, you know, how are they managing their assets? And, and just because an operator, you know, one of our competitors has a couple of deals that maybe aren't going as planned, doesn't mean they're a bad operator, you know. You know, it just means that they Got caught up just like a lot of other folks did in a, in a situation where rates rose faster than they ever historically have before. Right. And, and necessary. Didn't plan, didn't plan for that. The aggressive nature of the, of the interest rate hikes. And so, but how are they managing? You know, how are they managed prior? How are they managing during this challenging time? You know, are they communicating with their investors? What's their overall track record look like? What's their, what's their balance sheet look like? How are they, how, what's their financial health as a company and also what's their financial health as individuals? You know, the actual, the leaders of the actual group. Like, how are they in a good financial state? Have they made good decisions? And you know, how will they look based on what you found? How will they look in the next couple of years? Will they still be around? And so I think that's more important than anything else because you can make a ton of money in any, any of these asset classes. Again, I believe that mobile home parks are the best, but I think it really comes down to the sponsor and who the leadership is within the company.

Yeah. You know, it's a little known fact that the two asset classes that have the lowest default rates are mobile home parks and self storage, which always fascinates me.

Yeah. And self storage, you know, I've always struggled with that statistic because right now self storage has actually been, it's been having a lot of challenges in the past year with, you know, the rates, the rates month over month for, you know, over the last year have, have been decreasing across the board. And, and it's one of those asset classes where there's not necessarily a barrier to entry. You've got a lot of, a lot of. Anywhere you go, you'll see self storage being built. Anywhere in the country, you'll see self storage being built, a new one somewhere and you'll see multifamily property being built. Right. Especially when you live in a large city. I think you're in Phoenix area, I'm in Tampa Bay. I mean we can, we can go within five minutes. I guarantee I could go find a brand new facility being built. And so I do think that there are certain times where there's an oversupply risk of, of, of self storage and how many units are on the current market and how long might take for them to get absorbed. But yes, it's a great asset class, very recession resistant, but it has, it has some current struggles right now because new homes aren't Being built, people aren't moving as much because their interest rates are high. And so all those play into who's leveraging and utilizing self storage, you know, to store their unit or to store their, their items. So. But it's a great asset class. Absolutely. Great asset class.

Yeah. So why wouldn't I invest in a parking lot? That seems like the best business.

Yeah, no, it's kind of a lot of the same factors attract us to that space. You know, again, barrier to entry, you can't. Most cities, municipalities, you can't. If there's a raw piece of land, you can't say, hey, I want to convert this into a surface parking lot. Most surface parking lots are grandfathered in. They've been there a very long time. Maybe there was an old building there and someone knocked it down. This before, you know, zoning regulations got stricter and they allowed them to stripe it and turn it into a paid parking lot. But there's very few cities that would ever allow you to actually create a new surface parking lot within their vicinity. On top of that, a lot of surfing surface lots that exist and densely populated areas are, they have a higher and better use at some point in time and a lot of them have been redeveloped or getting redeveloped. And so there's a shrinking supply of parking in any populated area that you go to. And then the last beautiful thing that really makes this a great asset class for us, and one that we believe in for the long, long term, is that there's over 70 cities throughout the US and this number is growing every day that have, they've completely eliminated the parking minimums from new development. And so historically what would happen is if a apartment developer or an office developer or condo developer wanted to build a property, they had to build X number of parking spaces per every thousand square feet. You know, whatever that formula was, and most of time it was an excessive number, they would always end up building more parking than what they really needed. And given the option, a developer is going to would rather to build more condo units than parking units. They're going to make more of an R and more return and they only want to build enough parking for what they really are going to utilize. And so the parking minimum requirements have actually been removed in pretty much every major city and a lot of the secondary cities throughout the country. And so again, it basically creates a shrinking supply of parking and all these areas that we own parking in which again bare to entry. You know, speaking of, we don't have to worry about new parking being built. And actually, you know, Creating a competitive environment for us. In fact, it's if it's quite the opposite. Parking slowly going away. Actually some areas it's quickly going away. Like we own a parking garage in Clearwater beach right in my backyard here in the Tampa Bay area. And there's been the moratorium on parking for the last like 10 years. New parking lot, standalone parking being built and probably about 65% of the parking down on the beach there consists of surface parking lots which historically used to be motels and hotels that were built back in the 50s and 60s. Clearwater beach has gone through a really, a boom over the last two decades where lots of really high end hotels have been built or being currently built. And so a lot of these surface parking lots that, that, you know, that used to be motels that got torn down, they're shrinking. Like literally there's three right now. There's like 640 spaces that literally within the next eight months will be completely gone and not, not, not, not usable anymore. And the new development that's being built, this hotel, they're not building excess. They're building enough for their, for their, you know, for their, for their guests, but they're not, they're not offering, you know, beach day parking for people that just want to come drive in with their inner tubes and go hang out with their cooler on the beach for the day. So it's a beautiful thing. You know, this, this supply, demand imbalance is really in our favor. Yeah, we've got, we've got an asset in your backyard in Phoenix. And it's our most recent one that we purchased in downtown Phoenix. Are you familiar with the Lors City center right in downtown?

You know, I live within like a five mile radius of, I mean I rarely go out, but like, I'm sure I know downtown Phoenix, but you know.

The courthouse, you know where the court.

Yeah, yeah.

So we own a parking garage directly across the street from the courthouse which is, it's, it's called Lower City Center. I guess it's the original city block of downtown Phoenix. You know, way, you know, 100 years ago that was like, that was downtown and then it kind of built around it. But as you know, downtown Phoenix doesn't, doesn't have a lot, you know, in the core, doesn't have a lot of available vacant land. And a lot of the old stuff has been getting redeveloped for, you know, for many, many years now. So. And the population of Phoenix is only growing.

Yeah, exactly. And so Uber Wayos, they don't seem to be a Threat to the, that business?

No, no, not, not at all. I mean, we're still, you know, there's, I, I think it will be. Every city is a little different. So Phoenix and Tampa are much, you know, Houston, Dallas, like there's different cities throughout the US that, that still are heavily relying upon folks driving their vehicles. And it will, you know, very different than that, maybe of like a San Francisco, which is really has been on the cutting edge even with technology and things of that nature. And so, you know, it's going to be quite in the infrastructure, how these cities have been built, it'd be very difficult to completely get away from folks driving their vehicles. And maybe 30 years from now, or 25 years from now, or even 15 years now, we'll have a different conversation about this. But the thing about parking is that when that time comes, we, we will only buy a parking asset to where it makes sense. Today is parking like it's got to under, we got to be able to underwrite it and actually make the, have the numbers make sense based on parking its current use today. But we only buy it. We don't underwrite the future value, but we'll only buy it if it actually if we feel very confident and there's a lot of data to support it, that it will have a much higher future value as a redevelopment play. So anything that we own, it's got a vertical, it's got air rights to it, and we've got a pretty decent sized footprint in an area that has a scarcity of supply. And so when that day comes, if that day comes, you know, we feel as though we'll be in a great spot to, you know, to redevelop that property or sell to a developer that has the same intent to redevelopment. But back to the whole, you know, autonomous vehicles and things of that nature. When we get to the point where these things, you know, if they become the primary transportation source, they still have to stage somewhere, they still have to go somewhere and actually they have to have a physical space to stage and wait for their next ride. And so a lot of cities that, a lot of cities like a San Francisco, there's a number of garages now that have become staging points, not just for, you know, autonomous vehicles or like the Ubers and Lyfts, but even, even there's, there's been a number of concepts that have come out recently to where like for Uber Eats, for example, or Doordash, they've got these micro kitchens that are basically a smaller but just duplicate version of a McDonald's of a burger King. And that's literally becomes the. And they're built in these garages. It's like little storage containers. And they're, you know, all the popular restaurants. And that becomes a centralized, efficient hub for Door Dash and Uber Eats. And, and they're leveraging the centralized location and core location of these parking assets that might have a higher demand as being utilized as that than that of just traditional parking. So I think it's location, location, location. I think that's what it really comes down to. As long as the location is phenomenal and it's irreplaceable, then whenever that day comes that it doesn't make sense for additional parking, there will be a number of other things that it makes more sense for that we can move into. So that's, that's what excites us so much about it just getting irreplaceable. Land, cash flow, cover, land play for 5, 10, 15, 20 years. However it goes on, however long it goes on, and then when the time comes, you know, there would be a much better use for it.

Yeah. Kevin Buff, every time I talk to you, I just feel smarter. And your, your mentorship has been fantastic. I'm. I'm definitely sold on, on the mobile home park play, the parking lot play, especially being a land guy.

You are a land guy.

You know, it just, it's just like the next piece up and it's, it's such a, it's such a great asset class for so many reasons. And, and you and I both are, you know, in agreement that the antidote to financial insecurity is cash flow. Cash is great, but I would much rather have predictable cash flow and the asset classes that you're investing in provide that. Plus you get the, the tax benefits of it, which you don't get in land. Unless, of course, you're going to do a cost seg. And that's going to be a whole different strategy. And you know, our typical listener that's listening, this is not in that, you know, position yet to think about, you know, doing these more advanced sort of tax plays, especially when it comes to raw land. So, that being said, what is your tip of the week? A website resource, a book, Something that's actionable for the art of passing income listeners go improve their businesses, improve their lives. What do you got?

Yeah. Gosh, yeah, I wish I would have put some more thought into this. Tip of the week. Tip of the week. H. What are we. What are we doing on our company that's new today as Far as technology based man Mark, you, you got me. I, I should have had you in the beginning of the show about this, but.

Yeah, I mean, have you read a, have you read a good book lately?

Yeah, you know, I just, I just actually reread. I just reread. That's so I, I put together a, A, a charitable event every year, bike ride. And, and it's all, you know, when books, when books have a big impact on me, I typically try to like time them in my life where I can, I know what they're about and I bring them back in and reread them, try to get a couple additional gold nuggets out of it, what have you. But so we're starting to planning for this charity event that we put on every November. And so I reread just literally a couple days ago the Go Giver. It's a short book, it's an easy read. Yeah. And it's just got a wonderful message in it. And so like that's go read it.

Literally.

And there's, that's one of those books where there's actually no excuse to read it because it will only take you probably three hours of your life to, to knock it out and you'll get a, a lot of impact and value from it.

I love it. Yeah, Bob Berg, he was, he was on the podcast years ago.

Oh really?

Yeah, he was great.

He was great. Yeah.

All right, well, fantastic. Well, yours is a good tip, Louie, but mine's actually going to make you more money and that is invest with sunrise.com I have a link with it to it investorsunrise.com check out what Kevin's doing. And Kevin, do you work with non accredited investors or do you have to be accredited investor?

Do have to be accredited.

Yeah. So for you accredited investors this is a great way. Get your cash flow, get your, your tax benefits and for those of you who are non accredited you can start being motivated to see, okay, how do I become accredited? And number one, but number two, this is maybe an asset class that I want to learn more about and you know, certainly get Kevin's book and learn more about that as well. Real estate investing for cash flow. Mobile home park investing, the cash flow investor. So there's, there's lots of education as well. So Kevin, are we good?

I think we're good. Mark? I'm good. Are you good?

I'm good, I'm good. I want to remind listeners, today's podcast is sponsored by Flight School. Learn more. Go to land geek.com training and start building your passive income without renters, rehabs, renovations or rodents. I know you're thinking oh the tuition ain't going to cost you nothing guaranteed you make that, make back that money 180 days or less. Just show us you did the work. Blank.com training and if you're getting value, please do me a favor. Follow rate, review the podcast, send a screenshot of that review, support langate.com I'm going to send you a signed copy of Dirt Rich as a thank you. But if you don't want Dirt Rich, just do it selfishly for yourself. We'll get better guests which will benefit you. All right Kevin, thanks again and let freedom Ring. Thanks everybody.

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