Kevin Bupp Shares What You Should Know about Parking Lot Investing

Hey, it's Mark Podolski, Land Geek. It's a favorite niche real estate website, thelandgeek.com and on this week's Art of Passive Income podcast, I've got a big deal. I'm gonna put on my anchorman voice. It's Kevin Bupp. Now, Kevin's been on the podcast several times, but it's been, it's been a while, Kevin.

Right, it's been a while. I don't know how long, but it's definitely been a few years.

It's been a few years. So just to refresh you because I'm sure all of you already know many ways. Kevin is. He leads the strategic vision of Sunrise Capital Investors. He's the host of two top ranked, not one, two top ranked real estate podcasts regarding investing. His real estate investment advice has been downloaded millions of times by folks in over 190 countries. With over $250 million of real estate transactions under his belt, Kevin's extensive investment experience spans the gamut of apartment buildings, single family homes, office buildings, parking facilities, which I can't wait to hear more about, raw land, condos, and of course, mobile home parks. He is the host of the Mobile Home Park Investing podcast and the Real Estate Investing for Cashflow podcast. Kevin Bupp, Welcome, Mark.

Thanks for having me back, man. I'm excited to be here.

I'm excited. So when we first talked, you were only doing, I believe, mobile home park investing. You'd really sort of become the bigger player in that niche. So tell me what has changed since last time we talked?

Yeah, no, absolutely, you're right. I mean, we've been doing mobile home parks, buying mobile home parks for over a decade now. And prior to that, prior to this past decade, I've owned kind of across the board, across the spectrum of different commercial asset classes, apartment buildings, portfolio of single family properties, office, retail, self storage, all that. And I do have some of my fingers still in some of that stuff in a passive manner today, but not in an active space. So mobile home parks kind of our core asset, bread and butter. But parking lots and parking garages have been an asset that had been on my radar for probably about four years just by happenstance. Interviewed a guy on my show, my podcast, many years back. I love niches. I love niche things like land investment. Right. And interviewed a guy about parking I didn't know too much about. Actually, I knew nothing about the asset class or really the investment side of it. And I was intrigued. He piqued my interest enough to where it never left My brain. And for a year I continued to think about it and for the next year I thought about it more. And then we finally started attending conferences and really diving in deep into the asset class. And at present time we've got about $60 million worth of parking assets in our portfolio and are continuing to buy. So just love every bit of it. Love the fragmented nature of it. It's not an overly competitive environment. Probably a lot of people listening don't know anyone in their immediate network or even their expanded network that actually owns a parking lot or a parking garage. You might, but the majority probably don't. Right. And so it's just, it's about as niche as raw land gets.

Okay, let's talk about what you love about parking lot investing. Let's talk about some of the things that you don't love.

Yeah, no, absolutely. So we look at it as a cash flow, uncovered land play and in highly desirable locations. And so, you know, or irreplaceable locations is a better way to put it. So I'm going to use an example of why I love it and I'm going to use a recent deal that we just closed a couple months ago. This is in Clearwater Beach. So in our backyard, it's a seven story parking deck that was a partnership between the city and a local developer. They built it six years ago. It is literally a block from the beach. There is a moratorium of parking in Clearwater Beach. A lot of the surface parking lots at the present time are being redeveloped right now into towers. They've, they've, you know, the, the city's removed the parking minimum requirements from the developers so they don't have to build a certain number of spaces per square foot. So they're only building as much parking as what they're needed for the hotel because they want more rooms, they want as many rooms as possible. And so what that means, it creates a major supply demand imbalance for park. And we have literally the last parking garage that will ever be built solely for parking, Clearwater Beach. And it's an acre footprint. We take up an entire acre, one block from the Intercoastal Waterway, one block from the Gulf of Mexico. That's an irreplaceable location. And there was a lot of opportunity. There was being run by the city. So a lot of these parking garages, they've got antiquated practices in place. And this was a fairly newly built one, but it still had, it had antiquated operational practices in place. They hadn't raised the rates for Literally since the place opened, they were literally a third of what the market rate was. They had poor software, they had a poor asset manager that oversaw the property. And so a lot of those same things exist with other parking lots. What I have found is that the fragmented nature of this parking industry, there's lots of generational families that own surface parking lots in cities and they literally are running them the same way they ran them 30 years ago. They don't leverage technology, they don't leverage the many different apps that exist nowadays that help people direct people to available parking spaces for events or sporting venues and things of that nature. A lot of them, they don't even accept credit cards. One of the other deals we bought in North Carolina, it literally had a lot of tenant there and I guarantee half the money was probably going to that lot attendance pocket. They didn't accept credit cards, they didn't have any dynamic pricing models in place that adjusted for high demand peak times and then any lower the rates when there was troughs in the demand. And so there's just that exists, it's all across the board. It's baffling to me of how fragmented this industry is and how behind the times is. In fact, it reminds me a lot of mobile home parks 10 years ago or 15 years ago, no one wanted to give them even a look. I mean, it was just this old mom and pop underground industry. And those that knew, knew and those that didn't, they didn't. And I feel like the park industry is kind of that way. It's gotten passed over for the most part, so. And then last lastly, you know, how we look at it as well is like I know that as it sits there as a parking lot or parking garage, that is its lowest use, it will based on its location, it will only ever have a higher and better use at a future date. Especially a surface parking lot. It will never be worth anything less than what it is at a as a surface parking lot. Whether it's gravel or asphalt, it's going to have a higher intrinsic value once a future development takes place. So that's what we look for.

It totally makes sense. And it's so funny because every time you go to a sporting event, you see there's no parking, it's $10 or $20 to park, the closer it is to the stadium, you pay it. And it's just the way it is. And I've always wondered, well, who owns these parking lots? And it's just a mom and pop industry. Is that right?

Yeah. I mean there's obviously a lot of municipalities that own parking garages and lots of, there's lots of even sporting venues. A lot of times the sporting franchise might actually own maybe the primary lot or a couple of primary lots surrounding a particular venue. But then a lot of the others are owned by private individuals. There's a small contingent of the parking industry that's owned by larger institutions or private equity groups. But a lot of times that's like parking garages that are in Manhattan or downtown Chicago that are associated with maybe a high rise tower or something along those lines. Very different than the type of assets that we're looking for.

Sure, sure. So knowing what you know now about parking lots, the business of parking lots, the fractured nature of it, what would you do differently?

Yeah, would've probably started buying them earlier on. I mean, that's probably the best way to answer that. I mean, we're kind of all in now. You know, we pound the phones, our team pounds of phones on a daily basis. We do a lot of direct mail, we kind of do a lot of the same things that we did in the mobile home park space and pretty much every other asset class that we've ever bought. We, you know, we create a database. We know the markets that we'd like to buy in, we identify the assets in those marketplaces. We, you know, skip trace all the owner owner data and then we just go after them. Right. I mean we, we document all of our conversations in the CRM, we set follow up, you know, appointments, try to open a dialogue up with them and keep that dialogue rolling until, you know, the timing is right, whether there's always a point in time when a, when an owner either needs or wants to sell. Right. And our objective is to be in front of them when that time comes in their life. So for example, the one we bought here in Clearwater, it was the right time for the city. The city was partnered in this deal. They got the short end of the stick. They did a poor job negotiating with the original developer that build it. Shame on them. They had never met their pro formas. They weren't doing well. That capital that they allocated to that deal was not giving them an ROI at all. I found out that they had a new project happening that they were short about $20 million for. It was a perfect time for them to reallocate the capital from this parking garage into this new project. And so I also found out that the developer really didn't like the city as a partner. They hated partnering with the city. And I saw an Opportunity to help both those parties exit out of it. And we assembled it together and it was a win. Win all the way around. So there's lots of opportunities like that out there, so long as you're willing to pound the pavement and find them.

I love it. So let's juxtapose that mobile home park investing versus parking lot investing. Which asset? I mean, they seem similar in the fact that you're really buying the dirt. You're not the one putting in the mobile home parks. You're not. You don't own the parks. I'm sorry? You don't own the homes. You own the park.

You own the infrastructure for the most part, yes.

Right. You're collecting your lot rent or you're collecting your car rent. It seems like once it's acquired, very little maintenance, you might have one person in the park helping out, one parking attendant or two, whatever it is. Is that the way you look at it or am I thinking about it differently?

Yeah, I mean, it's hard to compare apples to apples. You know, housing is fairly easy and straightforward to understand. Everyone needs a roof over their head. Right. It's one of their basic needs. And so long as you're buying a mobile home park in a market that has a demand for affordable housing, which is a large portion of the United States, I'm not going to say the entire United States has that problem. There's plenty of areas in this country. Flint, Michigan, for example. And I'm not shooting out Flint, Michigan. I just know that I can go into MLS now and probably buy a house for $15,000. Right, right. There's not necessarily a huge demand for affordable housing, and there's a surplus of vacant homes in that market. Right. But generally speaking, if you go into a good market that's got the economics that support growth, but also that demand for affordable housing, fill that void. Mobile home parks are easy to understand. On the flip side of that, parking has got some additional complexities that make it a little bit more challenging. It's not as easy as just saying, everyone's got a car, one needs to park that car. We look at. We look at parking assets, but more importantly, we look at the market they're in. But also what are the demand drivers? Like who. Who's actually parking in that lot? And if I see that, you know, it's a parking garage, it's in a great city, great location, but literally 90% of the parkers that are parking there are associated with the office building across the street. That's concerning to me because if, you know, again, look at Covid, what happened with the office environment, right? Like, things shifted quite drastically, and we don't know what that's going to look like when it comes out the other end. And one would, I would definitely take the. I would take the odds against it actually ever looking like it did pre Covid. And so that's going to drastically impact the revenue of that parking facility and it might not ever come back. Right? And so I want to know that there's a minimum of five parking demand drivers. I want to know that they're fairly even keel, that one is not proportionately so overweighted than the other four. And so I want to know that there's, for example, sporting venues, nighttime traffic after business hours. Nighttime traffic would be bars, restaurants, nightclubs, things of that nature. You got daytime office traffic. You've got residential units in the area that might not have their own parking, which is pretty common in urban environments where they're paying for monthly parking. You've got employees of other surrounding businesses that are working, that ultimately have monthly parking passes to work there. So there's a wide variety of different demand drivers that we're looking for. And I want to know that if any one of those falls off, which it could again, ie, office, if that falls out, I know that I've got 80% revenue retention and I can figure out how to fill the void there. I can't figure out, If I lose 90% of the revenue, how to fill that void. We're buying these parking assets on an income basis. And if all that income goes away, all I've really got left is a big concrete structure, which it's got some value to it, but it's probably what I paid for, probably is much greater than that of if I demoed it and what that land value was worth. And so again, more complexities when you compare parking to that of mobile home parks, but again, it's not overly complex by any means. And just understanding those basic fundamentals, I think those that are listening in here could easily identify, hey, this parking lot in my city now I understand a little bit more. I know that it's used for daytime traffic. There's a bar I go to, I park there after hours. And you know, you know, the stadiums right around the corner, I know that that place fills up at 4,40 bucks a card. You know, during the games, things they can get a sense of, like that that's probably a prime line. That thing kicks butt and makes a lot of money. You know, that could be an opportunity Right, Yeah, absolutely.

So let's talk about the economics of it as far as buying say a smaller parking lot and, and what you would look at, I mean, so first of all, let's just define cap rates. Could you just quickly define it for the audience?

Yeah, I mean, cap rate is the, you know, looking at it from an unlevered standpoint. If you, you know, if you had a, a property that you paid a million dollars for and ultimately it Produced, you know, $60,000 of, of, of revenues on an annual basis, you basically bought that at a 6% unlevered cap rate, you know, cash on cash returns. Once you factor leverage into, into the play, cash on cash returns are, are, you know, more of a boosted levered cash on cash or. Anyway, I'm not going to go into details there, but speaking to cap rates as far as like parking, you're a value add investor, as am I. And so, you know, it's hard. Every time I talk to a broker on the phone, I always get asked, you know, they always ask me like, what cap rate are you guys looking for? I hate that question. It just, it doesn't fit into the dialogue of what our business model is because I'm looking for opportunities that, where the value hasn't yet been maximized. There's inefficiencies in the operations. And so I don't necessarily care what the cap rate is today because if I'm, I bought many deals at 4 caps, which our model doesn't support 4 caps at all. Like we would never be able to pay our investor returns at a 4 cap. And so I want to know that, what is my potential stabilized cap rate after I actually implement the value add plan? Where can I get to in a stabilized cap rate? And so to answer that question better, as far as what we're looking for, in order to hit our economics like, we need to be able to get to a stabilized cap rate of somewhere in the 7% range. And we do put minimal leverage on our properties. We've got about a 55 to 58% loan to value across our entire portfolio. So it's fairly low leverage. You know, we could probably juice returns a little higher if we were willing to take more risk. But I like low leverage. It's safe and I don't have to worry too much if, especially when interest.

Rates are going up.

Yeah, that's it.

Unless you buy the, did you buy, do you typically buy the rate?

What do you mean by do I typically. Do we put like a lock in or like a lot?

Yeah, you lock the rate? Yeah, yeah.

It depends what kind of debt we're getting. That's, that's very doable with like Fannie Mae and Freddie Mac dead on the residential side, you can buy rate caps and that's not necessarily always available, very rarely available when you're dealing with like traditional banks or credit unions or regional lenders and things of that nature. So when we can, we do, if the economics make sense, to do that. And so there goes one of the big risks with investing nowadays. There's so much volatility with rates that if you're underwriting a property and you're drawing out a pro forma based on certain debt terms that you feel you're going to be able to achieve. And the Fed has been being month after month. Right. And the tenure's been all over the place for the past couple of weeks. And so, you know, you're literally shooting at a moving target. It's really, really challenging right now. And so if you don't have the ability to get a, you know, a rate cap in place and, you know, you need to do your best job at actually negotiating on the front end some type of buffer. Right. And it's still a competitive marketplace and that's really challenging to do. There's still a lot of capital looking for a home and looking for a return. And so, you know, it's tough right now. It's a very tough environment. I will say that we've had a few deals die, and I hate seeing deals die, and the only reason they died over the past six months has been due to the interest rate volatility. We've had a few deals and unfortunately sellers, they didn't see it through our eyes. Expectations weren't similar and ultimately things fell apart due to a change in rate of 50 or 75 basis points, which on a multimillion dollar deal, it's a fairly drastic difference in monthly payments and debt service.

So, yeah, absolutely, it is.

Yeah. And so, but go ahead.

Can you depreciate a parking lot?

You can, you can, you can appreciate a parking lot. Yeah. You know, really, all your depression, there's no, most of the time, there's no infrastructure there. You know, there's a chance that if you put like a pay station in, there's, you've got some, you know, electrical wiring and, you know, there's a chance there could be water and another type of plumbing, but really all you have is you've got an asphalt, you've got an asphalt, you know, pad there or maybe even gravel. It just meant. So there's not a lot to depreciate, but you can, it just, it might, you have to, you have to weigh the benefits of the cost of the actual cost seg study and, and whether or not you want to go that route. So mobile home parks on the flip side are one of the most tax efficient asset classes that exist. And so we're typically able to take, you know, in the ballpark of 70 to 73% year one with the bonus depreciation laws that are currently in effect.

Yeah, absolutely. And I always tell people when they're like, well, what do you do after you get to a certain point with your land investing and you want to do bigger deals? I'm like, well, land investing is the gateway drug to get into mobile home parks because it's really the next step up and it's not too different and the headaches are really minimal compared to say multifamily apartment buildings.

Yeah, I mean it can be, you know, I always like to say that there's many different, you know, grades when I'm speaking to quality of like, I like to use the example of, you know, speak to the neighborhood you live in. I'm sure I can drive 20 miles in one direction or another. I don't know which direction it is where you live, but I could drive 20 miles and be in a ghetto single family home. But kind of the ghetto, I could drive the other direction and be in a blue collar version of that and I can drive to the wealthy part of town where you live, Mark. Right. And the same thing exists with mobile home parks. I mean there's some really dumps like, you know, think of Eminem 8 Mile, the movie. He lived in one of the scary parts of town, right in that mobile home park. There were shootings and drugs and all that stuff. Then there's very much blue cat, you know, blue blue collar, hard working folks that they take care of their lawns, they mow the grasses, they make, you know, $18 an hour and they, you know, they want their kids to go to a good school and you know, they appreciate life as we do. And then you got, maybe not high but like you get in places like Florida and where you live out there in the Phoenix msa and you know, some of these retirement, retirement communities, they're not affordable housing at all. I mean, you've got lot rents that are, you know, 1,000 plus dollars a month. And these are, these are communities that have, you know, three clubhouses, four swimming pools. You know, they've got Activities, directors and people live there by choice, you know, and they can probably afford a condo somewhere else, but they live there by choice. So again, just a broad spectrum, you know, when we speak to, you know, what type of tenants we're dealing with, the same goes with multifamily. And so I guess, you know, I think mobile home parks are more apples to apples comparison to multifamily when you look at the different qualities. But the one benefit that mobile home parks have, again, speaking to the model of where you don't own the home itself, if you truly just own the underlying dirt. And in a perfect world, we would, I think about 20% of our portfolio, we own the homes not by choice, but because we have to, or we acquired it that way. But when you don't own that home, the overhead and maintenance and the, just, just the, the ongoing tenant relations is very minimal. In fact, we've got some residents that have lived in our communities that own their home. They've lived there for more than 40 years.

Wow.

In fact, they pass it down generationally, just like you would a single family home. That's how they view it. Right. And this is their home. They've lived there for 40 years. They're going to give it to their daughter and their daughter raises the family there. That's very common in the manufactured housing space. That is not so common in multifamily. Right. You got, you turn over that unit every 12 to 18 months with, you know, without failure. They're moving somewhere else more than likely.

Exactly. Well, I love the niches you're in. This has been a, as always, an enlightening and educational conversation. But Kevin, we're at that point now in the podcast where I'm going to ask you for one more tip of the week. A website, a resource, maybe a book, something else. Action for the autopassers to go improve their businesses, improve their lives. What have you got?

I'm not going to give you a website, a resource or a book. I'm going to give you something else. And you know, we are down here in southwest Florida and obviously I'm in the Tampa Bay area. We were supposed to get by this hurricane that just came up the coast here. And those to the south of us were not the luck they were. They were the unlucky ones. Two hours south and I got to go down there the other day. We took a bunch of supplies down and, you know, got to see like the impact zone and meet families that have lost. I mean, there was a lot of losses during this one and I would say I'm going to suggest to everyone, like, just hug a loved one, right? You know, hug your wife, hug your husband, your kids. Tell me love them. I mean, call your parents if you haven't talked to your parents or a friend, you know, a great friend that you just haven't talked to in quite some time or whoever that might be that you've lost that bond with a connection. Like, just take the time to like, remember the things that really matter, right? Because like the things I just saw, like things that just wiped away in an instant and life is never the same again. So just cherish the moment that you're in and you know, again, hug the loved one.

I love that. I love that. And it's so funny. I was listening to this podcast on the Waking up app, just interview with people that talking about death. And this one person that had written a book on it said, you know, the five things that people before they die, when they connect with their loved ones, they should say I forgive you. Forgive me something in that order. Say thank you, I love you and I'm proud of you is like the fifth one. And so you don't have to wait. So to do it now is fantastic. Yeah. My tip of the week is learn how you can invest with Kevin. And so go to sunrise capitalinvestors.com sunrisecapitalinvestors.com Is that correct or that's it. Okay.

Yeah. Sunrise Investors sunrisecapitalinvestors.com not sunrise investors sunrisecapitalinvestors dot com or the direct way invest with Sunrise. That will get you to our current offerings. And then Mark, I'd love to. We didn't talk about this beforehand, but I'd love to get a free copy of the book. I just published it like four months ago. Your listeners can grab a free copy by going to kevinbup.com freebook it's for sale on Amazon for 20 bucks, but I've got a free full PDF version of it. It's the Cash Flow Investor. It's about investing in commercial real estate. We cover a litany of asset classes in there and go into detail on them. And it's a great primer for those that are considering other types of real estate investments. So would love if I could give that free copy away if you wouldn't mind.

I love it. That's so generous. I will have links to both wonderful places to go. Investwithsunrise.com, kevin Bupp.com freebook. It'll all be there. We'll get it right. Anyways, Kevin, are we good?

I think we're good, my friend. It's always good seeing you.

Always good seeing you. I'm going to thank listeners. Remind them the only way, the only way we're going to quality guests like a Kevin Bupp is if if you do three little favors. Follow Rate Review the podcast Send a screenshot of that review supportlandgeek.com I'm going to send you for free a signed copy of Dirt Rich. Today's podcast is sponsored by Flight School. Learn more go to land geek.com forward/training 1, 2, 3 let freedom ring thanks everybody.

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