Escaping the Day-to-Day Grind to Work on Your Business with Jefferson Lilly

Brandon Turner:
Jefferson, welcome back to the BiggerPockets Podcast, man. A threepeater, glad to have you here.

Jefferson Lilly:
Third times a charm, we’ll get it right this time, Brandon.

Brandon Turner:
That we will, and today we brought in a special guest of course, Mr. Ryan Murdock sitting here next to me, along with David Greene, and the reason why is because as we talked about and we probably mentioned in the intro, we’re actually in process, Ryan and I, of buying a couple mobile parks from you right now, which is funny, because you’re the one who taught me about mobile home parks like years ago when you were on the show the first time. Yeah, you were the impetus … Is that the word?

Jefferson Lilly:
Yeah.

Brandon Turner:
Impetus?

Ryan Murdock:
Yeah.

Brandon Turner:
Okay, we’re going to go with that.

Jefferson Lilly:
Impetus, that’s it, yeah.

Brandon Turner:
Yeah, for the [crosstalk 00:01:56]-

Jefferson Lilly:
Have you bought anything from any of your other guests? Any other asset class, any-

Brandon Turner:
I don’t think so. I don’t think I’ve ever bought anything from a guest before-

Jefferson Lilly:
You’re the first.

Brandon Turner:
… so this is a first.

Jefferson Lilly:
Okay, great.

Brandon Turner:
Anyway, the reason why that’s cool, and the reason why I think that’s so neat is because it showcases that kind of investor lifecycle where when you bought those you were at a certain phase of your business, you grew them to a certain point, and now you’re ready to sell them, move onto something else. So, we’re going to buy them from here, take them further, and someday we’ll sell them and probably sell them to a random other guest, or … It doesn’t mean like-

Jefferson Lilly:
Tell me though-

Brandon Turner:
…. I think that’s important-

Jefferson Lilly:
…. because I may buy them back, we’ll see.

Brandon Turner:
Yeah, okay, I’ll call you before we sell them. There you go. It’s so cool, because it’s not always a win lose in real estate, it could literally can be like, “Hey, this benefits you at this point in your career, benefits us at this point, and it benefits somebody else later on down the road.” So, real estate moves in these ebbs and flows, that’s kind of a lot of fun. So, I like that.

Jefferson Lilly:
Yeah, yeah, we’re happy with it. So, I hope you are too.

Brandon Turner:
Good, good, yeah-

Jefferson Lilly:
Should be good, you can have me back on for a fourth time in another couple of years-

Brandon Turner:
We will have to do a fourpeater, yes.

Jefferson Lilly:
… and you can talk about how the deals have done, and on and on.

Brandon Turner:
Yeah, it’ll be awesome. Yeah, it’s fun. So, just throw it out to everybody listening is like you don’t … You can seek win-wins in any kind of real estate thing. I find especially when you’re dealing with buying from investors, different investors have different parks. We bought that mobile home park from your friend Ed.

Ryan Murdock:
Ed.

Brandon Turner:
Yeah. So, Ryan had a friend named Ed, we bought his mobile home park. Ed’s great, he’s still investing, but at his point he wasn’t prepared … He didn’t want to do the work that we were willing to do, so instead he just ended up carrying the contract on it, and he made-

Ryan Murdock:
Yeah, win-win.

Brandon Turner:
Yeah, win-win, he makes passive income now, and we got ourselves our first park like a year and a half ago.

Ryan Murdock:
Yeah.

Brandon Turner:
Yeah, anyway, cool. All right, so let’s get into this. Before we talk … we can go through mobile home park stuff, we can go through a lot of stuff today, but before we get all that, can you give us a big … I mean, a quick introduction? Who are you? How did you get into real estate in the beginning? What was your very first deal?

Jefferson Lilly:
Yeah, so I got into it … well, really it was sort of 15 years ago, I think it was 2005, I was just thinking about it … I was working in high-tech, I was on, I think at that point, about my second of what would be three different startups, and I was just looking for some passive income, and I thought, “Hey, I’m a big fan of Warren Buffet, I love value, I want to stay within my circle of competence.”, whatever that was, but I figured I would buy an apartment building, just because that was kind of all I knew. I figured I had always lived in a house or an apartment building, let me buy an apartment building, I’ll fix it up, maybe some new kitchens, new roof, make it better for the tenants, bump rents, make it better for me, everybody wins.

Jefferson Lilly:
And then just in going online like at LoopNet I kept looking for apartment … well, multi-family, and there’d be these one in 100 mobile home park things that would pop up, and I’d just say like, “That’s absurd, I’m not buying a friggen mobile home park.”, and I’d delete the search result, and look again and again, Peoria, Illinois, Lubbock, Texas, Ames, Iowa, these things kept popping up, that were priced better.

Jefferson Lilly:
Anyway, so I got hit over the head several times, but then finally just decided to look into it. So, I had my day job at that time, I never, at any point, was so taken with mobile home parks that I just said, “Hey, I’m giving up all the sexy Silicon Valley stock options, and I’m going to go do parks.”, but I ended up … It then took about a year and a half from when I started getting educated about parks, it took just 17 months, I think, until I closed on my first deal. But even then I still had my day job, which I think is a great way to transition into real estate. The income from that first property wouldn’t at that point quite have really been enough to support me, but it was a significant chunk of passive income.

Jefferson Lilly:
Anyway, so then eventually I’ve moved onto a third startup, and I could see after about a year that that third start up wasn’t doing real well, but my mobile home park was doing reasonably well, and I was putting virtually no time or money into it. So, at that point I had the confidence and left the day job as it were, and got into real estate, and then invested some more money in that property, built it up, improved the cash flow further, ended up buying a second park, and here I am 12 years later. I think I’m now up to 30 parks, and we’ve got one more under contract, and a second hopefully coming under contract this Friday. So, we’ll see how quickly I can get to 32.

Brandon Turner:
That’s awesome. That’s awesome. Can you walk people through real quick, and I know we covered this in the first episode that we did with you back on episode … I don’t remember … Oh, 262.

Jefferson Lilly:
111. 262, okay [crosstalk 00:06:35]-

Brandon Turner:
Oh no, 111, you’re right, 111, and then 262. So, 111 we could really cover it as like why mobile home parks, but can you give a quick just … what appealed to you about that, besides them just being cheaper, and popping up on LoopNet?

Jefferson Lilly:
Yeah, so part of it was price, but then really at least as much was just kind of structurally why this is such a compelling niche, which I’m sure you’ve now found getting into it yourself, Brandon, but a couple quick things. So first, the supply curve is actually shrinking. It’s effectively illegal to build any new mobile home parks, zoning laws, density, other things have been changed, so even if it’s not literally illegal in your city or county, it’s almost certainly not economy feasible. And then about … So, the supply curve right there would be fixed, but about 1% of these get plowed under every year and become redeveloped into some higher and better use.

Jefferson Lilly:
So, the supply curve is actually shrinking, my estimate is about 1% a year. Demand continues at 1% a year just as population grows, same demand for apartments, and multimillion dollar houses. Housing demand in general grows about 1%. The interesting thing about this business shrinking though is when, say, 1% of the mobile home parks get redeveloped every year, those mobile homes have to go somewhere and they’re infilling the remaining mobile home parks. So, the fact that the supply curve is shrinking actually creates its own, roughly, 1% demand, plus just as population grows there’s another 1% demand growth. So, it’s probably about a 3% supply/demand imbalance between, again, growing demand about 2% a year, shrinking supply about one.

Jefferson Lilly:
The other interesting thing I think about shrinking supply, and just that you can’t build these anymore is that, frankly, what gets a lot of real estate developers into trouble is they get over leveraged, they get into a property, and then 10 more developers come and open self-storage units, or apartments, or build office towers all within one mile of the property. So, in the boom times, in virtually every other kind of real estate, you get overbuilding, and you can get then, frankly, a lot of people going bankrupt, because of excessive price competition. So, that doesn’t happen here, because there is no overbuilding, so it’s just a very, very stable business.

Jefferson Lilly:
And then secondly I’ll just mention, again, most of our tenants own those mobile homes, so all those things that cause all of use landlords headaches, which usually are the proverbial leaky toilets, and leaky roofs, almost all of those maintenance responsibilities are on the tenants, because the tenants own almost all the homes. So, you have reduced repair and maintenance expenses, plus again, you actually have a more responsible tenant base than your typical apartment renter. These folks don’t live in a house as nice as you and I do, but they do own that home, they do have, by and large, they do have an ownership mentality rather than renters mentality. So, you’ve got really a better quality tenant base, lower repair and maintenance expenses, and a fairly favorable competitive dynamic with your competition slowly but surely going away. There, we just summarized episode 111.

Brandon Turner:
There it is.

David Greene:
There we go.

Brandon Turner:
Done.

David Greene:
Let me ask you, Jefferson, a lot of our listeners are newer investors, and they’re trying to figure out which niche would be right for them. Can you share a little bit of your experience of working in mobile home parks? What type of person, or what type of mindset tends to gravitate towards this and do better?

Jefferson Lilly:
That’s an interesting question. So, I’ve never worked in any other real estate niche, so it’s hard to do a comparison and say, “Hey, this is so different than self-storage, or office, or what have you.” My general sense is, again, this is not sexy, so folks that tend to like to be able to brag about owning a sexy, gleaming office tower, or brand new hotel, or what have you, this wouldn’t be the thing for them. What’s sexy about this business is the cash flow, it’s not the properties, let’s be frank. There’re very few sexy looking mobile home parks.

Jefferson Lilly:
So, it’s just got to be somebody who’s comfortable, I think, thinking outside the box, and again, not afraid to roll up their sleeves, and we can talk a little bit about this, but I’ve kind of gone through what I call mobile home park 1.0 to now mobile home park 2.0. 1.0 is you’re doing everything yourself, you’re scheduling the plumber, you’re answering the tenant calls, you’re putting the ads up on Facebook and Craigslist for your property. I’m now, and for several years have been at mobile home park 2.0 where I do directly almost nothing with the properties. But I have to now hire, and manage, and incentivize people, and have systems in place so that people who work for me do all that, and that’s a fairly big leap going from managing properties to managing people. In a way, it’s almost like being in a separate business, but you could go that far.

Ryan Murdock:
Yeah, Jefferson, I’d say it’s a big leap going from having no rental properties at all to buying a mobile home park, I mean, that’s a big step. As a lot of people are going over to the single family home, or a duplex, or a small multi-family that’s close to them, you went from no rental properties to a mobile home park, and I don’t know the size or the distance away from you, but what did that look like, and what kind of systems did you have to build out, what kind of mistakes and things that you learned from that?

Jefferson Lilly:
Yeah so, I made pretty much every mistake in the book. I bought a park with a sewage lagoon, and well water, and dirt roads.

Ryan Murdock:
Good times.

Jefferson Lilly:
So, that’s the bad news. The good news is it’s all up and to the right from there. It doesn’t get any uglier than that. But yeah, so I got started doing everything myself. Well, first off, I got started getting educated, so I started reading books, I built up an unofficial advisory board, about 10 guys that were already in the business, they had all owned parks, or did or had, and so I was bouncing deals off of them, and they would give me a thumbs up or a thumbs down, that kind of thing. I did attend the Mobile Home Park Bootcamp back when the original founders, not Frank and Dave, but the original founders were two other guys, Steve and Corey.

Jefferson Lilly:
Anyway, so I got educated that way, and just started meeting other park owners, and again, reading all the material that I could, and there’s a lot more of it out there now. But I got as educated as I could, I bounced deals off folks, and finally found one that seemed to pencil out, and that my advisors thought that was decent. Again, in retrospect, I would not advise buying a park on private utilities, at least not for your first park. But anyway, that’s what I cut my teeth on, and so I was traveling out to the park … it’s in Oklahoma City, I’m here in San Francisco, that’s obviously 1,200, 1,500 miles away.

Jefferson Lilly:
So, I had an onsite manager, I was also traveling out there and living on site one out of about every three weeks as I was bringing in houses. I was my own general contractor. I would bring an air mattress, and my toothbrush, and some breakfast cereal and milk for the fridge, provided the house, again, was hooked up to electricity and had running water, I would sleep in the park for about one week out of every three. I did that for a couple of waves, but it was a total of about a year that I was effectively living onsite one-third time, and just being my own contractor-

Ryan Murdock:
Wow.

Jefferson Lilly:
… general contractor getting the plumber to do this, and getting the guy to grade the roads, and getting the painter to paint, and overseeing all that. And then I’d come back to San Francisco, and make more phone calls, and find more houses to buy. I was buying mobile homes, bringing them, infilling some vacant pads, and obviously improving my cash flow. So, anyway, that’s kind of how I got into it, I didn’t even … I got started just doing my own bookkeeping with QuickBooks. We’ve now evolved to Rent Manager, we now have someone else who posts ads, we have someone else who does that sort of general contracting asset management work, but again, I’m operating at a much larger scale than that first park, it was only about 66 pads, and it was only about two-thirds full when I bought it. Anyway so, that’s kind of how I got into.

Ryan Murdock:
Wow, yeah.

Jefferson Lilly:
Again, starting with the day job … most of that living onsite was really in the second year. The first year I wasn’t doing too much, I was still working the day job, and just seeing how things went with the park before making that switch to doing it full-time.

Brandon Turner:
So, there’s a couple things I want to dig into here, because this is cool, first of all, you mentioned … Actually, let me go here first, going from version 1.0 to 2.0, I think that is a theme that applies across the board, whether you’re buying mobile home parks-

Jefferson Lilly:
Totally.

Brandon Turner:
… single family houses, duplexes, whatever, that I work in the business to working on the business. Can we talk that transition for a little bit? So, how did you … First of all, why did you make that shift, and then what’s the beginning? How does somebody who’s listening to this show right now … I mean, there’s people listening to the show right now who have headphones in, they’re at their rental property right now, they just got finished yelling at a contractor, and now they’re painting a wall. Right now as they listen to this, and they’re laughing now, because I’m calling them out. I did this for a decade, so I’m not all the way over it sometimes. How do you go from that to, “I don’t even deal mostly with the day to day of that properties, I got people that handle all that.”? What’s that transition look like?

Jefferson Lilly:
Yeah so, I wish I had done it faster. One of my greatest regrets is just … I’m doing the right things, it’s just taking me too long to get where I am, and I just should’ve done things faster. But it started off, I think, in about month four or five of operating that first mobile home park when I said, “Okay, I really hate putting numbers into QuickBooks.”, and I went, I think, on Craigslist and found somebody to do my QuickBooks. I still wasn’t at the level of rent manager, or that sort of really multi-family accounting system. But that, again, was somewhere around four or five months into my first deal I outsourced the accounting. I think probably within that first year I also found somebody to be putting up ads like on Craigslist back then more than Facebook.

Jefferson Lilly:
But anyway, so I outsourced pieces of it, and then frankly, hiring somebody else to be an asset manager, really sort of a general contractor, and super property manager, a manager of the managers, that didn’t happen until about five years ago when I started raising outside capital and really started growing. So, at that point we hired somebody from within the business, I think off indeed.com, but we found somebody that had been trained and had spent, I think, almost a decade working for some of the largest mobile home park operators, and so we hired her to come work for us.

Jefferson Lilly:
Now with my new fund, I’ve done basically the same thing. I hired a guy who, again, has some fairly deep multi-family and actually self-storage experience to come work for me. Those are six-figure heads, it’s not like you’re getting somebody at minimum wage to really drive you properties towards full potential. But with a fund, we’re now … this fund is right around 15 million, cumulatively I’ve raised about 35 million. It’s not that money’s no object, but when you have that level of funding you, frankly, you can afford, and you have to afford to start bringing in “real help” to help grow the properties. So anyway, it was a progression.

David Greene:
I like the definition of 1.0 to 2.0, 1.0 is doing it and 2.0 is managing others and providing others opportunity to do it, you know?

Jefferson Lilly:
That’s very true.

David Greene:
And Brandon was kind of laughing at me, because this is my life right now, I’d say 80% of our talks are just, “I can’t do this, this is hard.” It’s hard enough to learn how to be really good at something, but it’s 10 times harder when you’re trying to get someone else to do it to your standard and your way. So, I think … I mean, if you’re at that point trying to make this transition I know these listeners 100% are relating, they’re just on the edge of their seat to hear this, and if you’re not there yet, you’re going to get there. So, this is good stuff for you to start hearing to prepare for.

David Greene:
This is exactly the problem that I’m having is you’ll … I either get newbies who come and they say, “Hey, I want to work for you and learn everything there is to learn.”, which is great, but it doesn’t necessarily help you in your position where you’re managing a fund, and your investors are expecting a performance. What you’ve done is … What I’ve heard you say is, “I found people that had experience.”, and you’re willing to pay, but I think what I’d like to know is can you walk us through the process of what they said that made you stand out and recognize, “Oh, this person could be good.”, what you were looking for, how you knew this is the guy I’m willing to pay six-figures for, the gal, as opposed to giving someone a chance and seeing how it goes?

Jefferson Lilly:
Yeah, so for us it was basically just hiring and really only interviewing people that had already been in the business, and then just figuring out a little bit about cultural fit, and a little bit about still the experience level. So, there’s some people, for instance, that are asset managers in this business that really have never done anything other than sit in front of a spreadsheet. So, we’d ask questions like, how many mobile home parks have you actually visited for your company? And sometimes we’d hear like, “Oh, yeah, last year my manager took me out for one day, and we looked at one of the properties close to headquarters.” So, I was like, “So, what do you do with your time.” “Well, I’m analyzing the variances, the rental variances, the utility collections.”

Jefferson Lilly:
So, for us, that’s valuable, but that’s not going to be a full-time job for a still relatively small fund like ours. The big equity lifestyle, and yes communities, and other big publicly traded REITs with hundreds of properties can afford to have somebody that’s really a financial analyst even though their title is asset manager. So, we weeded out those people. Then you’ll have some asset managers that, again, don’t … They’re a little bit more like a cheerleader. They’re running programs, and trying to get all the managers to clean up their communities, who get the most number of outside move-ins, that kind of thing, but they still haven’t necessarily hired, trained, fired a manager, hired a subsequent manager, or changed a compensation plan for a manager. I call those kind of folks coaches.

Jefferson Lilly:
So, what we need, being relatively small, we need that coach asset manager, somebody that’s gotten traction, hired, fired managers, changed compensation plans, that kind of thing. We don’t need a cheerleader who’s sending out emails saying, “Hey, $500 bonus for whoever has the most outside move-ins.” We need more than that. Some of that, but more than that. And again, we’re not yet at the level of needing anybody, at least full-time, to do financial analysis. We will likely be hiring somebody to do that here in Q1 of this year part-time.

Jefferson Lilly:
Anyway, so we’re really looking for folks that have that sort of coach mentality, they can change the players on the field, they’ve done that already. Frankly, that means we’re taking less of a chance, less of a see how it works out. Presumably we’re hiring somebody that’s actually done all that, proven they can do it, and they just come right in and hit the ground running with us.

Brandon Turner:
I struggle a lot when I’m hiring, because I’m … what I’m trying to do over the last year to put it in the terms that you described today, which I like, is I’m trying to build a 2.0 business from the ground up, which is hard, because most people would start with the 1.0, and then they build in. But I’m like, “Okay, well, what do I need to have a 2.0 from right now?” So, I hire like four people right off the bat, and brought in a bunch of partners, Ryan here is one of them, and we’re building this thing.

Brandon Turner:
But here’s what I struggle with in doing this, do I hire for heart, and for passion, and for culture fit, and they’re just great, but they have no experience in mobile home parks at all, but they’re just perfect for like … I love them on the team, or do I hire for they’ve been working in mobile home parks for 20 years, they get this, they can teach me to run things? I’ve struggled with that at BiggerPockets when we’re hiring people at BiggerPockets … Do you hire for experience more, or culture fit more and let them learn the skills, or you hire for skill and let them learn the culture?

Jefferson Lilly:
More the latter, more hiring for skills. Culture is certainly important, and like what you guys are doing at BiggerPockets, you’ve got I don’t know how many dozens and dozens of employees now, are you over 100?

Brandon Turner:
Yeah, I think we’re like 30 something, in-house, yeah.

Jefferson Lilly:
30 something, and you’re all kind of in an office there in Denver, right? All under one roof?

Brandon Turner:
Yeah, everybody but me and a couple others.

Jefferson Lilly:
Okay.

Brandon Turner:
We get to stay in Hawaii, it’s pretty fun, they let me surf.

Jefferson Lilly:
I know, you were on the beach in Hawaii working hard.

Brandon Turner:
Yes, it’s not bad. Yeah, working.

Jefferson Lilly:
Brandon, the owner, is working in Hawaii-

Brandon Turner:
Working hard, and … Yes-

Jefferson Lilly:
… on his tan. No, sorry, working on the [crosstalk 00:24:37] that’s what he’s working on.

Ryan Murdock:
I’m here just to keep him on track. I verify-

Brandon Turner:
Yeah, I let Ryan do the work in the back.

Ryan Murdock:
… that he works.

Brandon Turner:
Yes, there we go.

Jefferson Lilly:
But no, so my organization, for better or for worse, is fairly remote, so to speak. I’m here in San Francisco, frankly, I’m kind of the, or one of the few guys in San Francisco that knows anything about mobile home parks. If this were all software, and social networking and chip design, I would have a deep bench of folks to hire. So, I don’t, but I like living here. Coincidentally though, our business, the mobile home park business has really always sort of tri-headquartered. The big companies have always been in Denver where you are, in Detroit, or in Chicago. So, my asset manager is from Denver and he lives and works there, and I anticipate … and then of course our managers are all onsite wherever the properties are, which is now South Dakota, Nebraska, Texas, and Idaho in my new fund, and then we’re in about 12 other states with my previous funds.

Jefferson Lilly:
But anyway, so for better or for worse, frankly, I think we’ve had less of a culture simply because we’re all remote than when you have a whole company and a literal and figurative water cooler to gather around. We’ve never had a company meeting where absolutely everybody that works for me has been together under the same roof at one time. That would mean flying in all the managers from Wyoming, and from Wisconsin, and from New York State, and what not. Anyway, so I certainly want to build a culture of accountability, and I want people to have fun, but at the same time when everybody’s working remotely, at least for me at this stage, I’m more about hiring for somebody who can actually deliver results rather than somebody who’s specifically a cultural fit and then I’ve got to train them on how to do what they need to do.

Brandon Turner:
Hey, do you offer any equity in your deals, or in your fund, or GP for your asset managers, or your people, or are you sole owner basically? How do you structure incentives, I guess is what I’m curious about?

Jefferson Lilly:
Yeah, so no, there isn’t equity. That gets a little sticky. It’s not an impossibility, but it can be a bit sticky then … So, what we do is we do allow folks to actually write a check and invest in our fund if they choose to, folks that are employees, and folks that are employees of a company don’t have to be accredited to invest, they’re a full-time employee-

Brandon Turner:
Really?

Jefferson Lilly:
… regardless of what their net worth is they can invest. Yeah, so we’re a 506(c) fund, and so Park Avenue can only take accredited investors as far as … the true pure investors all have to be accredited, but again, yeah, our own employees can invest if they choose. Anyway, but we do pay out bonuses that is mostly geared around occupancy. What drives our … basically, very simplistically, there are two things that drive our profitability, it’s bumping rents, and it’s then getting homes occupied … getting lots occupied, be it either through renovating a house that’s already there, or buying, say, a new house from a factory and trucking it in.

Jefferson Lilly:
Frankly, we don’t need an asset manager to just put out a notice that says, “Hey, your lot rent has gone from $295 to $315.” So, we don’t compensate our people based on rents. We do based on occupancy, every house that comes in between our manager, our onsite manager and our asset manager, we’re paying out a low four-figure bonus for every house that comes in. Right now, again, we’re growing, but so far we’ve got, call it 110 vacant pads. So, that’s not going to get filled across our portfolio across the six properties, and we’re about to close … Well, I think, in about another six weeks we’re going to close on a property that’s quite large, but has approximately 100 vacancies.

Jefferson Lilly:
Anyway, so that’ll be, say, 200 vacancies at a couple thousand in bonus, that’s potentially $300,000 to $400,000 of bonus to payout within my organization that’s not going to happen in one year, I mean, if it did that’d be great, I’d happily pay it, but realistically that’s going to be spread out across probably a four or five year infill process, and I’m sure we’ll buy additional properties, and have additional opportunities for our employees to earn money. But the really heavy lifting is in getting a crew to actually show up and actually renovate that house, get the mover to move in a new house, did he level it? Oh, he did. Got to call the mover back to re-level the house, submit the invoice because it cracked in the back bedroom, and it was 300 bucks to get the roof crack fixed when the mover moved it, and then you got to advertise it, and get people to come in.

Jefferson Lilly:
There’s a fair amount of heavy lifting with the business, I think still less than apartments, but there’s certainly upfront of the infill there’s a fair amount of heavy lifting in this business if you’ve got properties with vacant pads. So again, we pay out significant bonuses to managers that can do that. We also promote managers. We’ve had two particularly good managers, including the one there at that property you’re buying from us whom we’ve promoted to be a regional manager, so we give them some additional pay and additional responsibly to help us in turn manage other managers. So, providing that sort of upward career trajectory for folks also helps compensate them. They get compensation on infilling others as well, but they also just get the psychic benefit then of being promoted, of managing then other people, they get that experience.

Brandon Turner:
That’s cool.

Jefferson Lilly:
Anyway, so that’s another thing we’ve done for some of our best managers.

Brandon Turner:
That’s cool. One of my buddies is A.J. Osborn, he was on the podcast a while back, but he’s one of the largest self-storage operators in the U.S., his and his family own a ton of self-storage, but he mentioned to me that his entire leadership team of his company … he’s got a large company, lots of employees, his entire VP team, or leadership team, they all came from like ground level at their company. One guy was like the maintenance guy at a random storage unit-

Jefferson Lilly:
Interesting.

Brandon Turner:
… and over the last 10 years or whatever they’ve just like … certain people have proven themselves, and they promote from within, and they give people opportunity to excel. When I heard that I was like, “I love that idea.” So, it’s very cool to hear you are doing the same thing as promoting from within to encourage growth and growth mindset between … with employees. That’s cool.

Jefferson Lilly:
Yep.

Brandon Turner:
Very smart. You mentioned the fund, you have a fund. Can you go through the difference real quick between a fund and a syndication? I know I’m hogging all the questions here today from Ryan and David here, but why fund, what’s the difference, and why did you choose a fund?

Jefferson Lilly:
Yeah so, I think what you mean by syndication is when you raise money just for a single deal, and we call that deal by deal, but yes, that syndication, I still consider raising money in a fund syndication. Fundamentally a syndicator is-

Brandon Turner:
Okay yeah [crosstalk 00:32:23]-

Jefferson Lilly:
… anybody that raises money from others to buy real estate or other assets, and split the profits. The fund model really is kind of the … for an investor the difference between a traditional one property syndication and what we do is the difference between buying a stock and buying a mutual fund. So, we are a focused, if you will, mutual fund, we only buy mobile home parks, but the advantage then for our investors is that they get geographic diversification, and deal diversification. For instance, if you do a traditional syndication, you invest in one property, and heaven forbid something goes wrong, you could get hit with a capital call, like, “Hey, we just need to come up with another quarter million bucks to fix the sewage system, and you’re 20%, and so you got to write a $50,000 check to help fix that property.”

Jefferson Lilly:
Again, we’ve got a fund, it’s our first fund here in the new partnership’s about 15 million, we may well … We’ll certainly keep, I would guess, about 5% of that in cash, 750,000. We may go upwards of 10%, that would be a million and a half. So, I can’t guarantee that we would never do a capital call, but it’s highly unlikely when you’re in a fund. And again, they’re liquid reserves, plus I’d say within a year the fund might well be cash flowing a million and a half or more a year, call it a hundred some odd thousand a month.

Jefferson Lilly:
When you operate at that level of scale and something goes bad, and you’ve got a quarter million dollar whoopsie, it’s just a lot easier to cover that, take some cash off the balance sheet, or just earn out that money, unless it’s an absolute emergency, just earn it out over two or three months, there’s your quarter million bucks. Maybe suspend a dividend for a quarter, which we’ve not had to do, but you could, and then just take care of it that way. So again, our investors get a lot more diversification, and a greatly reduced risk that we would ever have to go back to them for a capital call.

Jefferson Lilly:
And then, frankly, we as a fund, the advantage for me is … I just closed … Again, so I bought six properties this year, they’ve all been at reasonable prices for all cash quick closings. So, we don’t write offers that say, “Hey, if after 45 days we don’t have financing, but we have a letter from a bank, we get an automatic 30 days extension, blah, blah, blah.”, our offers generally aren’t that way. It’s just, “Hey, we’ve got 10 million bucks in the bank, your property costs two and three quarters, we can do this all cash, and we can close in 30 or 45 days. Let’s just make sure you’re not committing any fraud, let’s make sure the rent is there, we’ll do a Phase I, make sure the property’s clean.”, but we’ll just then wire over the money out of our fund, we don’t need to deal with the bank.

Jefferson Lilly:
So, the first four properties we bought as a portfolio back in June we just closed on some CMBS financing last month borrowing out about five and a quarter million against what was a seven and a quarter million dollar acquisition, but we had plenty of cash in the bank, we didn’t need the money until about last month, December. So now we’ve got an extra five million in the bank, we’ve already got our next acquisition lined up that’ll probably use up about three million of that. Anyway so, that’s the advantage for a fund is you can usually get better pricing rather than having to scramble, our first deal almost fell apart, because we had a big investor drop out, but again, as a fund, we don’t have to scramble. We just got the cash in the bank, and we will just close quickly at a little better price.

Ryan Murdock:
Yeah, do you find it more challenging to raise money to sit in your fund if you don’t have deals lined up to deploy that capital with, or what does that look like? Do you get pushback from investors of like, “You’re going to sit on my money for X amount of months.”?

Jefferson Lilly:
Very little. Frankly what tends to happen is investors that think that way tend to sit on the sidelines until I’ve bought a deal or two. Our fundraising over this last year kind of grew exponentially, and we had almost two million I think come in last month prior to closing. So, some investors will join … get on the train very late after they already see the fund has made a number of good acquisitions, so be it. But it hasn’t seemed to be a major problem. There’s a fair amount of interest in this space, and we’ve got a pretty good track record, we’re very aligned with investor interests, we don’t take fees, we’re just straight up split of profits, that’s very different. So, there is no perfect fund, but there’s certainly some compelling things about our fund, and we’ve had a hundred some odd folks write us checks.

David Greene:
Can you walk me through what the process is like to go from buying your first park to running a fund?

Jefferson Lilly:
Yeah, so we ended up doing three deal by deals in 2014, and then in 2015 graduated to the fund structure. So, it was some of the same investors, and it was very similar legal paperwork, and we used the same attorney that had advised us on our individual syndications as on the fund, but … So, in that respect from a process standpoint, the paperwork, what have you, it was really quite similar. What we did start doing roughly at that time was I came on the BiggerPockets Podcast, and then started my own podcast, which is the mobile home park industry’s first podcast simply called Mobile Home Park Investors, so that started getting us … improving our marketing. So then we started getting much more traction, more interest once we were podcasting more. So, the marketing probably changed more from individual syndications to fund syndications, the marketing changed more than anything else.

Brandon Turner:
Yeah, it is interesting how podcasting, I mean, podcasting and things like social media, it’s all like new world stuff, like the old school guys would never even consider podcasting to raise money. Yeah, I mean, for the last fund that we did that we raised all the money for, and I think we raised, what? It was like four million bucks, something like that?

Ryan Murdock:
Almost five, yeah.

Brandon Turner:
Yeah, we got almost five, I had literally put out a thing on Instagram, and it was not even a post, it was in the comments on Instagram, I said, “Hey, got a new 506(c) fund if you’re interested link in the bio.”, and we filled that thing, I mean, we had … I don’t know-

Jefferson Lilly:
Wow, that’s good.

Brandon Turner:
… I think we have 1,000 people on our list right now of accredited investors, and we’re just like-

Ryan Murdock:
[crosstalk 00:39:32]-

Brandon Turner:
… yeah, crazy, crazy what social media can do. So, I would just encourage people listening to this, even if you’re not right now raising money, it would not be a bad idea to start developing your presence on social media as an expert, or as somebody who’s trustworthy, because social media builds trust and credibility in a way that previous generations would never even imagine, and it’s hard to believe.

Jefferson Lilly:
Yep. Yeah, all true.

Brandon Turner:
Huge. Hey Jefferson, so you’re raising money that way, I’m wondering … let’s talk about finding deals real quick, because you have a lot of deals, a lot more than we’ve got, definitely. How are you finding them? I mean, how are you stating competitive? I mean, I’m assuming you’re working through brokers, but are you doing also off market stuff, and then how are you staying competitive against those big REITs that can take a 3% return, and everyone’s happy?

Jefferson Lilly:
Yeah, so as far as sourcing, that’s changed a fair amount now for me in my new Park Avenue Partners fund. So far, those six deals, and the seventh we have under contract, are all off market. There’s no broker involved, they were never up on LoopNet, or Mobile Home Park Store, or any website. So, we’ve built a network now of some folks that basically just do the heavy lifting for us of phone calling, mailing letters, driving through parks, just literally knock on a door see if you can find out who the owner is.

Brandon Turner:
That’s cool.

Jefferson Lilly:
So, we’ve got a network of folks, those aren’t six-figure head employees, those are people that work on a commission basis. Several of them are making six-figures from us, it’s just not a base salary, it’s just, “Hey, you brought in a good deal, we’ll pay you a nice commission on it.” And frankly, having the podcast and having the website that we do, we do get some people that just send in a lead, so that’s great as well. They know we buy mobile home parks, and they’ll just reach out and let us know. It might be the only time we hear from that person, because it’s just like, “Hey, my uncle has got health concerns, and he needs to sell his park.”, but we’re happy for those one off leads, and then again, we’ve got a solid handful of folks working for us that are just working the phones and doing heavy lifting.

Jefferson Lilly:
I’m sure in this new fund we will eventually buy from a broker. We bought a lot from brokers, probably two-thirds or three-quarters of the deals in my previous funds came from brokers. Again, those deals tend to be priced a little more highly, a little more richly now, so we’re making a very concerted effort to source deals in a proprietary and off market way. But there is no single panacea, there is no single thing to do that’s guaranteed. We kind of do a little bit of everything, brokers, and sourcing, and sometimes we see things posted on Craigslist or something, you never know where you’re going to see a deal.

Brandon Turner:
Yeah, super cool.

David Greene:
Oh, and that part of-

Jefferson Lilly:
And as far as competing, you asked also about competing with the REITs, so we tend to buy deals, our average deal size has been about two and a half million, and that’s still fortunately relatively below the radar screen of most of the big REITs they’re looking for five and certainly $10 million deals.

David Greene:
I hear that advice all the time, when you’re trying to avoid the big dogs in whatever thing you’re in, you just got to go smaller, and you can go smaller, because you’re using running a leaner operation than what they are. I find that when you’re competing with people that are doing things at a big level, they just do not have the ability to do the level of diligence that a smaller person can do. Like if you’re buying 50 homes a month you cannot look at every single house and make sure that it doesn’t need a lot of work. So, you’re going to just take on losses, and you understand that’s a part of your business to be that big.

David Greene:
When you’re small you can’t, and that’s the way you compete with big people is you just you’re more efficient, you’re leaner, you’re quicker. I like this analogy of you’re this Jet Ski that can zip in look at a deal and zip out, where your competition’s a battleship that’s going to take them four days just to get completely turned around. I liked to know in your business, Jefferson, how have you divvied up the responsibilities that go into this? You’ve got analyzing deals, looking for deals, purchasing deals, managing deals, doing rehabs. Can you share the different roles that you have within the organization and how you’re structured?

Jefferson Lilly:
Yes, so again, we’ve got a handful of folks that are sourcing deals, we’ve got then our VP of operations who still does, I’m guessing, 15 or 20% of his time on acquisitions. So, he’s sort of 80% actually managing the properties, managing the managers, but that’s obviously property level stuff, but he does still help out some with the acquisitions level. We’ve got sort of an internal model that basically cranks out a number. It ranks, and it’s not scientific, it’s not pure science, we’re still going to do other diligence, but just having a fairly simple model to just put in some numbers, what’s the price, what’s the location, what are the lot rents, how strong is the economy, just to have it kick out a number also helps us just filter through which deals we want to pursue.

Jefferson Lilly:
But then, frankly, a lot of the analysis still comes to me. Again, we may, and probably should have already hired that out, but for the deals that we’re actually pursuing I’ll do a simple financial model, and put together some budgets as well on that. So, that’s kind of how the deal is processed, and then I’m closing it with help from attorneys, none of those folks are on staff, those are all outside firms, and then it does get turned over to my VP of operations to actually operate it and deal with the CapEx, and fix the roads, and get the three mobile homes fixed, and get four new ones, and on and on. We’ll work out that plan that’s part of the budget, we’ll work that out for each property, and then again, it’s his responsibility to execute against that, and get the property cash flowing better.

David Greene:
So, you’ve got someone who loads up your pipeline, that’s your VP of operations, you’ve got you that analyzes it, decides to pull the trigger, and then sees it through to close, that’d be like the filter of the funnel that gets it through, and then once it’s done you turn it over to another member who manages the asset. Are there any other positions in there?

Jefferson Lilly:
It’s back to that asset manager.

David Greene:
Oh, so you’re running it really lean, you’ve got the same person who’s loading you up with deals, and then once you get in there and close it they take over again?

Jefferson Lilly:
Yes. He principally runs the deals, but he also helps do some of the analysis. So, his job basically has evolved. I hired him, again, trying not to repeat every single one of my previous mistakes, I have hired largely ahead of the curve with my new fund. So, for instance, I brought him on before we did even our first deal. So, he was initially 100% acquisition, screening through things, and his job has now shifted to be 80% operations, which is his background. But yeah, just being a smaller fund, I wasn’t in a position to hire on a six-figure head just to look at and screen deals. So anyway, that’s kind of the … that’s the way I’ve managed things so far. We’ll see as we continue to grow, we may well bring on somebody more full-time to help screen and source, we’ll see.

David Greene:
How about you, Brandon and Ryan, how are you guys structured?

Brandon Turner:
You want to take it?

Ryan Murdock:
No, you go for it.

Brandon Turner:
All right, so we have … So yeah, like I said earlier, I was trying to build from the ground up, this like ahead of the curve thing, or this 2.0. I will preface it with this, I am making this up as I go. So, I didn’t actually build this off anybody else’s model actually, other than BiggerPockets, but I looked at it and said, “What would I need … if I was going to own 1,000 pads, maybe a dozen parks, or seven to 10 parks maybe call it that, what would I want to have?” So I said, “Okay, well I would probably want somebody in charge of acquisitions.”

Brandon Turner:
So I found somebody, and everybody here came from within BiggerPockets, meaning members of BiggerPockets not employees. So, we have an acquisitions guy who just pretty much runs acquisitions now and then financial analysis, so that’s Walker. We have an investor relations, which is me and Mike, so Mike is half assistant, half investor relations. Mike does other things as well beside that, some BiggerPockets related stuff. Ryan, who kind of oversees the entire operation, everything from top to bottom. He’s kind of probably what, Jefferson, what you do, which is kind of overseeing just everything to make sure the ship is always moving. And then Brian who is asset manager, who is a partner, so he’s not an employee, he’s just a partnered … he just is making sure everything is working right once we buy it.

Brandon Turner:
And actually we brought in a full-time person mostly on commissioned based to do park infill, and so we have Tristan Thomas who was on the podcast a while back, we hired him just … his only job is to fill parks that we’re buying, because we’re buying just like you were Jefferson, buying them that need a lot of, or at least have the room for infill. I know you guys did the park we’re buying from you, you guys did a lot of infill, and now we’re going to try to finish it up, and so we brought in Tristan to help with that. So, I appreciate you leaving some meat on the bone for us, thank you.

Ryan Murdock:
Jefferson, I’ve got a question about your analysis, how have you been able to avoid getting bogged down analyzing every park that’s on the market? You must have some quick sort of hard and fast criteria, or a quick analysis that you can either weed these things in or out before you spend however much time it takes you to do a deep dive analysis, how have you been able to combat that, because we’ve found that that was a bottleneck for us early on, and still can be where you’ve just got way too much to analyze and you’ve got to weed these things out quickly, how do you do that?

Jefferson Lilly:
Yeah so, that’s our financial model, it’s not hugely sophisticated, but I put it together, and again, you’re just putting in some of the basics, how many pads, what’s the lot rent, how strong is the economy based on things like what’s the average house price in that metro area, that kind of thing. So, that kicks out a number, I can’t say that every single deal that’s been emailed in that we’ve done that much on, some of them, I’m sure, have just skipped by and we missed them. But we try and run those through our model, and then just prioritize things.

Jefferson Lilly:
We’re definitely more interested in deals that come in from the folks that source deals for us, and we have them already focused on healthier metros. So, that right there just knowing that whatever they find is coming from a healthy metro makes it more interesting. We’ll have some quick discussion around pricing, we’re happy to fire off an offer if a seller’s like, “Hey, just make me an offer.” Great, we can do that. But that’s the way we do it, it’s not a perfect process, and I’m sure as we continue to grow the fund and staff up it’ll be better, still probably never perfect, but [crosstalk 00:51:20]-

Ryan Murdock:
Yeah, but it sounds like it’s fairly targeted, and you’ve got some sort of hard stop criteria that has to be met before it even proceeds to the next steps. You’re not just doing the shotgun approach looking at everything everywhere, you’ve got fairly it [crosstalk 00:51:31]-

Jefferson Lilly:
Correct.

Ryan Murdock:
… as to what you want.

Jefferson Lilly:
Fairly, yes.

Brandon Turner:
Yeah, I think that’s a lesson that any investor, whether they’re mobile home parks or whatever is there are probably criteria that you just, Jefferson, right now off the top of your head, like internally you were just like, “Yeah, no way I’m [inaudible 00:51:45] deal.” Like, “Yeah, it’s got a separate sewer lagoon blah, blah, blah.”, you’d be like, “No, pass.”, or, “Hey, it’s located in a population of 300 people live in the town and nobody else within a four hour drive.”, so like you’ve got those criteria-

Jefferson Lilly:
Yeah, you just get a feel.

Brandon Turner:
… so you can screen them out. Yeah, you get a feel.

Jefferson Lilly:
That helps, you can look at things and just kind of ask a couple of questions, and with 10 or 15 seconds you can be 80% certain whether it’s interesting or not.

David Greene:
Let me ask you, because it’s very similar to every business that I see, like me as a real estate broker, when somebody calls me and they start talking about wanting to buy a house or sell a house, I know you’re a good client or you’re not within 10 or 12 seconds of talking to you. I’m looking for-

Jefferson Lilly:
Right, what questions are you asking [crosstalk 00:52:28]-

David Greene:
Yes, that’s what I’m getting at. I can tell are they-

Jefferson Lilly:
… where are you from, you just know.

David Greene:
… If they’re saying things like, “Well, I’ll buy a house, but it has to be a really good deal, and I really want something with seller financing, and I’m hoping I can get it for 30% of what it’s worth, but I don’t want a lot of work.” That’s just a person that’s going to wear you to through ground versus like, “Hey, I-”

Jefferson Lilly:
You’re like, “If I find that deal I’m buying it myself.”

Ryan Murdock:
Exactly.

David Greene:
Yeah, everybody’s buying that house, that’s just-

Jefferson Lilly:
“You are not getting that deal-

David Greene:
…realistic to expect.

Jefferson Lilly:
… at 70% off.”

David Greene:
That’s exactly right, versus, “Hey, I’m moving to California in a month, I need to find a place to live.” That’s someone that was a-

Jefferson Lilly:
Right, “I’ve got a great job lined up, I got savings, I can do a down, just find me something-”

David Greene:
“I got a wife and a little kid, we need to find a house.”, I know that is a good lead that I need to pour my time into and prioritize, so-

Jefferson Lilly:
“… If you don’t find a house I’m going to look bad in front of my wife. I’ll make [crosstalk 00:53:13]-”

David Greene:
Yes. Yeah, she’s going to be yelling me … We’re not Brandon and Heather, we can’t live in a Prius, and just slowly Brandon rolls down the window to stick his feet out of it, because he’s eight feet tall, and the Prius is five feet long.

Brandon Turner:
It works. Yeah, it works.

David Greene:
What do you look for when a deal crashes your desk, and you were too, Ryan, what are those things that … that’s why I was using that example, that standout that you’re like, “Oh, this looks good. I keyed in because I just saw that.”?

Jefferson Lilly:
Is it a metro of 100,000 and up that’s healthy, is it a park of 100 spaces or more, is it all city utilities, is it at least 80% full with resident owned homes? Is it within five miles of a Super Walmart?

David Greene:
This is really, really good.

Brandon Turner:
So, here’s-

Jefferson Lilly:
I literally get all of that, but if the deal’s got four out of five things that’s interesting. Three out of five, maybe, but four out of five, yeah, that’s-

David Greene:
That’s really helpful though, because that’s what people are looking for, they’re like, “How do I put this matrix together to know what I should analyze to what I shouldn’t?”

Jefferson Lilly:
Yeah.

Brandon Turner:
And this is why that’s so helpful, too-

Jefferson Lilly:
That’s what our financial model does as well.

Brandon Turner:
… I would encourage everybody, whether you’re, again, big time investor or just starting on your first property, define those criteria just like Jefferson just did. What are those five things that you want in a property? Okay you want a house hack in Denver. Great, what are you looking for? Well I’m looking for either a house or a duplex in these five neighborhoods. Okay great, what do you want … how many bedrooms do you need? Get that criteria and now that accomplishes a couple things. One, it helps you narrow your focus on what you’re searching for, but two, when you can get deliberate to other people … I mean, my criteria is almost identical to yours, Jefferson, very much we have the same kind of numbers, and for a while we were just getting-

Jefferson Lilly:
It’s like you listen to my podcast [crosstalk 00:54:55]-

Brandon Turner:
I know, it’s just like I listen to your podcast, weird. You taught me everything I know. So, it’s like, once … I have a team of interns, we have a team of interns … or, not really interns, like the team of individuals who are finding deals for us, same thing that you kind of have, people looking for deals. In the beginning, they were just firing so much at us, and finally we were just like, “No, we want these five things, we have to hit four out of five.” I mean, it was the same number we … we said, “If it doesn’t have four out of five don’t even bring it to me, because I don’t want two out of five.”

Brandon Turner:
So, by doing that, all of a sudden we started getting solid leads that came in. Again, if you’re on your first house, a duplex, single family, talking about an apartment, identify what those things are that you’re looking for, because you probably have in your head, it’s probably somewhere back in there that everyone listening has what they want, but they haven’t defined it on a piece of paper, because now you can give that to other people, and now other people are more focused on bringing you deals as well, and they’re not going to waste your time. It’s just a win-win for everybody.

Ryan Murdock:
Yeah, I think that’s the single most impactful decision we made in our business is defining that criteria-

Brandon Turner:
Yeah, defining exactly.

Ryan Murdock:
… because we were spending so much time, inefficient use of time analyzing stuff we had no business even looking at, because it was not anything we’d be interested in. So, until we sat down, and it was alarmingly simple to do that once the light clicked, okay, we have these six or seven criteria, like Brandon said, very similar to yours, Jefferson, probably blatantly stolen them from you, but yeah-

Jefferson Lilly:
[crosstalk 00:56:10]-

Ryan Murdock:
… now we can look at something and quickly within two minutes we can say, “No, this one’s going in the trash pile, we don’t want to spend anymore time on that, let’s move onto something else that fits.”

Brandon Turner:
Yeah.

Jefferson Lilly:
Yep, cool.

Brandon Turner:
Cool. All right, well guys, before we move on to the next segment I’m curious, where do you see yourself headed, Jefferson, in the next few years. How big do you want to grow this thing? I mean, are you like billionaire focused here, or where do you see yourself?

Jefferson Lilly:
No, I don’t think quite billionaire focused, but yeah, I want to keep building the business. I would envision doing this for at least another decade, and probably doing a fund sort of every 18 months, or something like that. So, that might be six funds over the next 10 years, something like that. I want to get better at hiring systems people, operations, that kind of thing. Maybe mobile home park 3.0 will be hiring people to raise funds for me, because I’m still at fundraising 1.0, so to speak, where I handle most of the investor relations. You’re already ahead of me if you’ve got somebody doing investor relations for you. But yeah, I want to make it more of a machine, the fundraising, and then the property operations. So, I’m sure there’ll be a lot of growth for me still in both of those areas over the next decade. But I also spend-

Brandon Turner:
That’s cool, man.

Jefferson Lilly:
… a fair amount of time with my family, and my wife and I homeschool our kids, and it’s mostly her, but we’re very family focused, so I’m not looking to work 80 hours a week in the efforts of trying to become a billionaire. I’m well-to-do enough that there are other things that are important to me as well.

Brandon Turner:
Yeah, smart. Smart man. All right, well let’s shift gears here and head over to the Deal Deep Dive.

David Greene:
Deal Deep Dive.

Jefferson Lilly:
Deep Dive. Deep.

Brandon Turner:
All right, this is the part of the show where we dive deep into one of your particular deals, Jefferson, so do you got something in mind that we can pick apart?

Jefferson Lilly:
I do, let’s do the … We’ll call this, well it is, it’s the Cherrywoods deal, which was the first deal of the syndication deals that we did in Ottawa, Kansas.

Brandon Turner:
All right, let’s go through that thing. First of all, well, I was going to ask what kind of property is it, it’s a mobile home park, correct?

Jefferson Lilly:
Shocker, you’re talking to Jefferson, yes-

Brandon Turner:
Jefferson, yes.

Jefferson Lilly:
… it’s a mobile home park.

Brandon Turner:
All right, David, next question.

David Greene:
We’re just freestyling this thing, aren’t we? Or are we going down the list?

Brandon Turner:
Making it happen.

David Greene:
Okay.

Brandon Turner:
Working on our list. You got this?

David Greene:
Okay, how did you … Well, you said earlier that we would fire random questions.

Jefferson Lilly:
Do we have process, or not?

David Greene:
We normally do, but I thought Brandon wanted to try something different when he said, “We’re just going to throw things at you.”, but he must’ve meant throw the process at you. Okay, how did you find this deal?

Brandon Turner:
There you go.

Jefferson Lilly:
This deal came to us from a broker at a major firm, and yeah, so that’s how it came to us. We liked it, it probably wasn’t snapped up by other firms because it was a relatively small deal, 45 pads in a smaller town. Ottawa, Kansas is not Kansas City, it’s I think roughly a 30,000 person town.

Brandon Turner:
All right, number three.

Ryan Murdock:
Okay, Jefferson, how much was that property?

Jefferson Lilly:
We purchased that one … it was total of 800,000 was the purchase price, and we got … basically three-fifths, so I think that’s 62.5% seller carry, a note we’re, of course, still paying.

Ryan Murdock:
Wow.

Jefferson Lilly:
So, we had to come up with a relatively large down payment, whatever the 37.5% down, but that also de-risked the deal for us a bit because the mortgage was relatively low.

Brandon Turner:
All right, so then on that note, how did you negotiate that? Were there any fancy negotiation strategies, or anything tips, stories, that went with that?

Jefferson Lilly:
No, that one was relatively easy. The seller indicated he was at least open and maybe even preferred seller carry, so that was fine. So, we’re still writing them a check every month. So, it just worked out well.

David Greene:
Okay, how’d you-

Ryan Murdock:
Those are the best words to hear ever, that the seller prefers seller carry.

Brandon Turner:
Yes.

Jefferson Lilly:
I know.

Ryan Murdock:
Almost as good as clear to close.

Jefferson Lilly:
Yep, yep.

Ryan Murdock:
Sorry, David.

David Greene:
How did you fund the portion that the seller didn’t carry?

Jefferson Lilly:
Yeah, the actual equity we had to come up with, so that was quite an interesting process. There’s a story there. So, we thought we had one … sorry, one investor lined up, he happened to be out of Wyoming. We refer to him as Mr. Wyoming. He had already been in real estate, although doing more like multi-million dollar fix and flips of fancy houses, but he had some real estate experience, we needed about 450,000 down, we wanted to have what we needed plus some cushion.

Jefferson Lilly:
Anyway, so he asked a lot of great questions, then wanted to follow up with my partner, we all got on the phone with him, then he wanted to do a follow-up meeting, then he went radio silent on us for a week or so, then he came back with some more questions, then he asked if he could just half the deal somewhere along that process a little too late. We had found him simply because I had been doing some blogging online. But anyway, somewhere along that process, we’ve got about a total of about six or … I think it was about seven weeks to close, so he, after several weeks of kind of stringing us along and cumulatively burning up, I don’t know, probably a dozen hours or more with us on the phone, just sent us a one sentence email that said, “I’m sorry, my wife won’t let me do this deal.”

Brandon Turner:
Oh man.

Jefferson Lilly:
So, we had already started calling other investors though, not as soon as we should have, but we had already. I had also sent an email to a guy, we’ll call him Mr. Boston. A gentleman who had lived in a house that I had lived in, a triplex in Boston. It wasn’t a roommate, but he owned one of the other units. We had kept very loosely in touch by email over roughly 20 years, and I sent him an email. He knew what I was doing, he’d expressed interest. Sent him an email, a presentation, and said, “Hey, if you want to do this deal let me know, and I’ll be happy to get on the phone with you.” He sent back a text and said, “I’m in.” I sent him a text back like, “Okay, when do you want to talk about the deal this week so I can discuss it with you?”, and he texted back and said, “Jefferson, what’s your bank account? I’m wiring you $100,000 in the morning.”

Brandon Turner:
Wow.

Jefferson Lilly:
I said, “Okay, great.”, and we did raise money also from approximately six other individuals, but it was just interesting in that very first deal we did we went guardrail to guardrail, we had Mr. Wyoming, who just dragged things out, and was kind of, frankly, amateurish, and never invested, and we had Mr. Boston who I spent 10 minutes with writing an email and a couple of follow-up texts, and he wires over $100,000. So, to this day, I’ve never had another Mr. Wyoming, anybody that difficult to try and raise money from, and I’ve never had another Mr. Boston, anybody that easy to raise money from, but it’s just interesting that on that very first deal for fundraising we kind of went guardrail to guardrail.

Brandon Turner:
Wow, crazy.

David Greene:
I mean, is it true that you guys are raising money with Open Door Capital by having Ryan sell is hair to Locks for Love? That’s the rumor going around-

Brandon Turner:
Yeah, it’s [crosstalk 01:03:56]-

Ryan Murdock:
We weren’t supposed to talk about that.

David Greene:
I’m sorry.

Ryan Murdock:
We weren’t supposed to talk about that. Very few things are off limits with me, but that’s one of them, okay?

David Greene:
That’s why Brandon’s growing his beard out, he’s trying to keep up with [crosstalk 01:04:05]-

Brandon Turner:
That’s it. I’m going to shave the beard, Locks of … yeah, beards of love. It’s going to be a … yeah, for those … it’s going to be a great charity.

David Greene:
I also want to ask you, Jefferson, has anyone ever told you that your voice sounds like James Spader, Ultron from Age of Avengers, or Age of Ultron?

Jefferson Lilly:
No, I’ve had people say I sort of have a radio voice, but nobody’s ever gotten that specific. I will try and take that as a compliment.

David Greene:
You might be able to make some money doing voice work-

Brandon Turner:
Yeah, I can hear that.

David Greene:
… for Ultron in the spin-offs.

Jefferson Lilly:
Okay.

Brandon Turner:
Good to know.

David Greene:
[crosstalk 01:04:34]-

Jefferson Lilly:
Thank you, in case the whole mobile home park thing doesn’t work out.

David Greene:
Yeah, in case it doesn’t work, exactly.

Brandon Turner:
There you go.

Jefferson Lilly:
It’s important to have alternate job skills.

Brandon Turner:
Exit strategy, it’s great.

Ryan Murdock:
So, Jefferson, back to your park, what did you end up doing with it? Was it more of a conservative sort of longterm buy and hold, or was it a more aggressive value add reposition and sell it? What’d you do with it

Jefferson Lilly:
Yeah, it was kind of a nice in between, there was, or has been, I think, cumulatively now over about five years, probably something around 30% rent increase upside spread out over about five years. That park also, out of the 45, did have, I believe, 12 empty pads, fully constructed, but obviously just empty. So, we invested additional capital bringing in mobile homes there, and that park is now virtually full. Anyway, so that was it, we got into the home business in a fairly significant way. We also used the 21st Mortgage cash program a fair amount there to infill that property with brand new homes. Our test ads had polled well enough and the economics there were good enough we felt, and we’ve been proven correct that we could infill it with brand new houses and really make quite a stellar community out of it.

Brandon Turner:
Cool. All right, well what was the outcome then, what did you end up doing? Do you still own it today, or like for your portfolio, did you sell it? What was the outcome?

Jefferson Lilly:
Oh yeah, so it’s part of our portfolio with the previous partnership that we’re now selling, so I believe it’s under contract right now.

Brandon Turner:
Very cool.

Jefferson Lilly:
[crosstalk 01:06:11] make some money on it. Hopefully so.

David Greene:
Yeah. What lessons did you learn from this deal?

Jefferson Lilly:
From Cherrywoods?

David Greene:
Yeah.

Jefferson Lilly:
Yeah, just done … you got to get … don’t spend that much time with an investor that waffles, that’s the key thing. You need to have more irons in the fire. Fundraising has gotten easier since then, but it can be precarious, frustrating, when you’re getting started if you’re dealing with just one investor, or some small handful. So, I guess my lesson learned and my advice there for folks getting into the business, whatever your deals are, again, have more than one investor, and assuming your numbers are pretty good it will get easier in time. So, hang in there, and hopefully you’ll get to the fund level of fundraising, if that’s what you choose to do, within a couple of years.

Brandon Turner:
Awesome, man, very cool. All right, well, with that, I’m going to move onto the last segment of the show. We’re going to bypass the normal Fire Round, because this has been a long show, and go right into the world famous, Famous Four.

Ryan Murdock:
Famous Four.

David Greene:
Famous four. How come-

Brandon Turner:
Look at that, three part.

David Greene:
… Ryan didn’t have to go all high pitched? I hate having to do that.

Ryan Murdock:
You know I’m not capable.

Brandon Turner:
We have a sound effect that goes there anyway.

David Greene:
Oh, that’s a good answer.

Brandon Turner:
Yeah, he doesn’t have the ability, he’s a man.

David Greene:
I’m drowning in testosterone and I can’t get my voice that high even if I wanted to.

Ryan Murdock:
Pretty much.

Brandon Turner:
Pretty much.

Jefferson Lilly:
Thanks for the visual, David.

Brandon Turner:
All right this … Yes. This is the Famous Four, the part of the show where we ask the same four questions to every guest every week, and we’re going to ask Jefferson, Question number one, Jefferson, and you may have answered this last time, maybe it’s changed, maybe it’s not, favorite real estate related book, do you have one?

Jefferson Lilly:
Well, now it’s probably Sam Zell’s, Am I Being Too Subtle? It covers his life, and so it covers when he was in college and started managing a college quadplex that his roommates dad owned or something. So, I think it does a very good job of stepping through at least how he got started managing a property, not even owning it, and then worked his way up into where he is now owning mobile home parks, and office, and apartment, and Anixter cable manufacturing for computers, and all kinds of things. Anyway so, Am I Being Too Subtle?, by Sam Zell.

Brandon Turner:
Cool.

David Greene:
The next question is the same question we ask everybody as our second question, what is your favorite business book?

Jefferson Lilly:
Oh, general business? Probably Snowball, that’s a particularly good biography on Warren Buffett, again, covers his business career, but also, frankly, some of the sacrifices that business success meant for him and for his family. I think it’s a fairly balanced perspective, again, not only just on his business, and how he invests, but also what sort of a dad he was, and it just gives a very good overall perspective on Warren Buffett.

Brandon Turner:
Cool.

David Greene:
Awesome. He’s one of those people-

Brandon Turner:
Yeah, I’ve not read that yet.

David Greene:
… that’s just very intriguing. Everybody likes Warren Buffet, you’ll never find [crosstalk 01:11:05]-

Brandon Turner:
Everyone does.

David Greene:
… person that says, “I hate Warren Buffett.” It’s like, I hate Christmas, it doesn’t make any sense. Okay, what are some of your hobbies? What do you enjoy doing?

Brandon Turner:
Ryan hates Christmas, that’s why I looked at Ryan.

Ryan Murdock:
Not a fan. Not a fan.

David Greene:
No.

Brandon Turner:
He did not have a tree. He did not have a tree, he did not give … His wife got me a present. Well, us a present, but you know.

Jefferson Lilly:
That’s why he hates it.

Brandon Turner:
That’s why he hates, yeah.

Ryan Murdock:
I still like Warren Buffett, though.

Jefferson Lilly:
Okay, okay. Okay.

Ryan Murdock:
I think that’s [inaudible 01:11:32] point, I hate Christmas, I still like Warren Buffett.

Brandon Turner:
Anyway, keep going, David.

David Greene:
What are your hobbies?

Jefferson Lilly:
My hobbies? Oh gosh, I don’t have too many. I ski a very little bit. I’ve got three little kids five and under, so maybe those are my hobbies now, just really spending a lot of time with my kids and taking them to the park and traveling a bit outside of our hometown here. Yeah, I think I alluded earlier we actually homeschool the kids, that takes time. So yeah, I’m really pretty family focused right now, so we’ll say that’s my hobby.

David Greene:
Nice.

Brandon Turner:
All right, all right, have you ever heard that book Call of the Wild and Free? It’s a homeschooling book, I just got it. It’s pretty good.

Jefferson Lilly:
I’m not sure I have.

Brandon Turner:
Yeah, I don’t know, it’s pretty good, you might want to check it out.

Jefferson Lilly:
I’ll mention it to my wife.

Brandon Turner:
Yeah, have her read it, I think it’s called Call of the Wild and Free, but anyway, I’m liking it, because I’ll probably homeschool Rosie some day. My last question, Jefferson, what do you think separates successful real estate investors from all those who give up, fail, or never get started?

Jefferson Lilly:
I think a big thing is focus. I see a lot of people that’ll email me, or even talk to me on the phone, or I seem them posting online and they get totally excited about mobile home parks, and then a couple of months later they’re like, “Oh yeah, but I found a great little fix and flip deal, so I’ve got this little three bedroom in Des Moines and I’m fixing it up, and blah, blah, blah.” It takes focus, I think, to do well whatever you want to do in life. Again, I’ve chosen to focus on this niche, other people just kill it in raw land, or self-storage, or what have you, but I just think the ability to really focus, keep your standards, build your deal flow, and then only do deals that meet your focus is what leads to success, and a lack of that leads to failure, or at least mediocre results.

Brandon Turner:
I want everybody to go and rewind the last 30 seconds and listen to that again, because that is some of the best advice ever given on the podcast ever. That’s just it, so good. Yeah, so good, man. Well, thank you very much, this has been fantastic. David, you want to take us out, and do your last question?

David Greene:
Yes. A lot of us have liked what we’ve heard here and think it’s so good. So, if we want to find out more, Jefferson, where can we find out more about you?

Jefferson Lilly:
Yeah so, first off, hit my website, it’s parkavenuepartners.com. You can literally just contact me there. Also I would say, again, I mentioned the podcast that I’ve started for the mobile home park business we also produced an industry calendar of events, and I run the largest mobile home park group on LinkedIn, and people can find all of that right at mobilehomeparkinvestors.com. That’s kind of all the social networking stuff, and again, the main website parkavenuepartners.com.

Brandon Turner:
Very cool. Thanks, man. It’s been good.

Jefferson Lilly:
Yeah.

Brandon Turner:
It’s been awesome. Appreciate all the advice-

Jefferson Lilly:
Thanks to Kevin and Ryan-

Brandon Turner:
… and mentorship over the years.

Jefferson Lilly:
… this has been great, David.

Brandon Turner:
This has been awesome.

Jefferson Lilly:
Yeah. Well, thank you.

Brandon Turner:
[crosstalk 01:14:53]-

David Greene:
Ryan, any closing thoughts, too?

Ryan Murdock:
No, just thanks for letting me hang out guys, I appreciate it was fun.

Brandon Turner:
Yeah, it’s been fun.

David Greene:
Your hair does look terrific.

Ryan Murdock:
Appreciate that, David, thank you. I’ll sell you some.

David Greene:
Yeah, I’d love to help you guys raise some money, that’s exactly what I want to do. All right, this is David Greene for Ryan “The hairpiece” Murdock, and Brandon “Captain mobile home park” Turner, signing off.