BiggerPockets Podcast 111 with Jefferson Lilly Transcript

Link to show: BP Podcast 111: A Unique (and Profitable) Real Estate Niche You’ve Probably Never Considered with Jefferson Lilly

Josh: This is the Bigger Pockets podcast show 111.

It’s a win for us as a landlord, it’s just a great business to be in when you run a mobile home park.

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Josh: What’s going on everybody? This is Josh Dorkin, host of the BiggerPockets podcast here with my charismatic co-host Mr. Brandon Turner. The crowd goes wild.

Brandon: That they do, that they do. How you doing Josh?

Josh: I’m good, I’m good. How you doing?

Brandon: I’m good, I’m good. Life is good, it’s raining again.

Josh: I almost crashed my car this morning.

Brandon: Did you really?

Josh: Yeah.

Brandon: Tell me.

Josh: There was like a snowstorm. Ice- the roads are horrible here in Denver and I start going down this hill and hit the breaks. They didn’t even lock up, I just couldn’t stop skidding. It didn’t matter what I did so I whacked into the sidewalk and almost hit a sign and then a second later I almost hit a bus.

Brandon: Wow.

Josh: I’m glad that didn’t happen, let’s just put it that way. And I’m especially glad because my daughter was in the back.

Brandon: Oh well you know. I’m glad you’re here and I’m glad you’re okay.

Josh: Thanks. You’re a good guy, it’s not true what they say about you. It’s not true what I say about you.

Brandon: It’s not true what you say about me. Today on the show we have a really cool niche that we’ve never covered before and it’s going to be kind of exciting. But before we get to it let’s go over our quick tip.

Josh: Today’s quick tip is we’ve got this suit of calculators on the BiggerPocket sites, we’ve got a landlord buy & hold calculator, we’ve got a flipping calculator, and a wholesaling calculator. So whether you’re interested in buying and holding flipping, or wholesaling properties, these calculators are designed to help you evaluate opportunities and determine if they make sense. One of the nice things about them is they all print out these cool reports that you can bring to lenders or give to folks that you might be wholesaling to. Lots of great stuff, you can check those out at BiggerPockets.com/calc that’s BiggerPockets.com/calc.

Brandon: There you go. And now a quick word from our sponsor today. This episode is brought to you by realtyshares.com. RealtyShares is a real estate crowdfunding platform that allows accredited investors to invent in pre-vetted real estate deals online. So investors can browse and invest in both residential and commercial properties that yield returns of eight to sixteen percent annually. As a RealtyShares member you can also possibly invest in professionally managed real estate investments in a variety of asset types and geographies for as little as $5,000, all from the convenience of your living room. Set to learn more and to get started with a free account go to realtyshares.com/BiggerPockets. That’s realtyshares.com/BiggerPockets.

And finally before we get to the show I want to do our weekly trivia question. Like that?

Josh: Oh yeah, was that the new jingle?

Brandon: That’s the new jingle for trivia.

Josh: I see you put a lot of time into that.

Brandon: Yeah you know I paid a lot of money for it. Last week on the Bigger Pockets podcast we spoke with Glen McCrorey who talked about his unique strategy of buying rental properties for group homes and other hassle free businesses. And he also mentioned in this show that the first property was a condo he bought was for who in his life? He bought a condo for someone, who was that for? So if you think you know send an email to trivia@BiggerPockets.com for your chance to win the digital version of my book, the book on investing in real estate with no and low money down, and I think you’ll like it. So do it.

Josh: Fabulous. Awesome. Let’s get to the show today we’ve got a man who is a really, really smart guy. He’s got a background in start-ups and went to a great ivy league school and now he’s investing in mobile homes. Weird huh? No it’s not that weird. Actually it makes a whole hell of a lot of sense.

Brandon: It does.

Josh: Stick around and listen, there is a lot of learning to be done in this show. Today’s guest is Jefferson Lilly, and his niche is mobile home parks. We delve really deep into the economics of these things; why they make sense, why they’re being ignored and shouldn’t be by most investors, and why you might want to consider becoming an investor in mobile home parks. So, with that, why don’t we move forward to the show? Again, this is Show 111 on the BiggerPockets podcast. You can check out the show notes at BiggerPockets.com/show111.

Brandon: And you might have questions for him because this is high level, so go ahead and ask them.

Josh: And lastly, if you have not yet already jumped on iTunes and left us a rating or review of the BiggerPockets podcast we ask that you do that. It definitely helps us get the word out, helps let other people know what you think about how we’re doing. Some people really hate us, but most of you guys think we’re doing alright. So do leave us a rating and review if you can. With that, let’s bring him in. Jefferson, welcome to the show, man. It’s good to have you here.

Jefferson: Than you, it’s great to be here.

Josh: Awesome. Today we are going to talk about your unique strategy of investing, something that we have not had anybody on the show. I don’t think we’ve had anyway from the very beginning who does this type of niche. Even though it’s a fairly common niche to get into, just not very popular on BP apparently, or maybe we just don’t care. So today we are going to talk about it.

Jefferson: Wow way to start it, way to start it.

Josh: When reading the notes today that Hillary who’s kind of prepare the podcast stuff- just reading the notes today I’m convinced that what you’re doing, I want to do. And I don’t even know anything about it yet. I’m just convinced that this is cool. So why don’t you tell us-

Brandon: Well he’s got a 900-97 other course that you can-

Jefferson: I’ve got a bank account that you can wire your investment to.

Josh: Let’s talk about first of all, how did you get into the idea of real estate? What did you do before, how did that come about?

Jefferson: I had worked most immediately for about nine years in high tech. I live here in the Bay Area and had worked at a couple of different start-ups. I had also always been an investor. I think I bought my first stock when I was seventeen and my dad had to co-sign the trade ticket. I’m old. This is way back before online trading.

Josh: I remember tickets.

Jefferson: Exactly.

Josh: You’d have to run them to the window.

Jefferson: Yeah exactly.

Josh: I used to work at a brokerage, that’s why.

Jefferson: Oh did you? Perfect, perfect.

Basically I came out of the dot-com bubble with a world view that basically Warren Buffett was right about personal finance. I know it’s never quite black or white, but I had done some other dot-com investing which hadn’t worked out terribly well. One of those start-ups that I had worked at had gotten sold to a large public company. I think I had recognized that I was more lucky than smart there. So I just wanted to do more value investing and try and emulate Warren Buffett to the very best of my very limited abilities. I’m not in his class, but I’m a big fan.

So I started looking around to diversify out of the stock market and figured I would buy some real estate and thought, as Buffett espouses, stay within your circle of confidence. I’ve always lived in a house or an apartment building and I though why don’t I buy an apartment building and fix it up a little, probably bump the rents, make it a little nice place for the tenants. I wasn’t going to be the guy to swing the hammers and put in the new kitchen counters. But figured that I would be the general contractor and improve a multi-family property.

And then just at looking at LoopNet and doing a search on multi-family, I would see 99 apartment buildings added at an eight cap, eight and a half cap- not here in the Bay Area, I knew I would be buying out in the greater Midwest-and there would be one trailer park at an 11 cap. And I though, that’s absurd, I’m not buying a frigging trailer park, and deleted the search. And do it again Omaha, Nebraska, Lubbock Texas, Peoria Illinois. Wherever I was looking there was this one-in-a-hundred multi-family property that was a mobile home park that would be yielding 200, 300, 400 basis points more, a dramatically higher cap rate.

So at that point, I started thinking why don’t I look into this business and learn something about it. I wasn’t going to be living in the apartment building anyway and these are multi-family. I did some online research and started buying every book and tape out there, basically. Started talking to folks in my world and found a few other folks who owned mobile home parks, or maybe had a parent that did. So I kind of built up an unofficial advisory board of about 10 guys and it took me about a year and a half from the time I first got interested in the space until the time I actually closed on that first property. I wasn’t looking full-time, I was still working my day job. But, I just realized that this business just makes a lot more sense to get into than apartment buildings or single-family. And we’ll certainly talk about that.

That’s how I sort of transitioned into it. I still worked my day job for the first year that I owned my first mobile home park. I’m now up to five properties and closing on a sixth, I think in about two weeks. After that first year I could see that that third start-up that I was at wasn’t doing terribly well. The first mobile home park was doing reasonably well, but I was putting no time or money into it. I transitioned and started doing mobile home park investing full-time. That led to a consulting gig with a high net worth family here in San Francisco that owns a really gorgeous, really high end property fairly near the water. And then it led to my second park and then I’ve just, over the last, a little over a year, formed a partnership. We are now acquiring properties with other people’s money, as it were. We are now raising a fund to acquire more properties. So it’s just sort of taken on a life of its own from just initially sort of thinking it would be a passive, good but passive, investment and now for the last seven years I’ve been doing it full-time.

Josh: Wow, that’s great. And you were a consultant back in the day. You worked at some pretty decent companies. To jump ship from a pretty solid income I’m guessing, I’m assuming, to get into mobile home parks, people are going to, you know-Really? Who the hell would do that? So that’s why this is really interesting. You’re this guy who’s seemingly got everything going for him and you stop cold turkey-

Jefferson: Yeah and what went wrong that I got into mobile home parks?

Brandon: Josh made this joke before we started recording. Something about like mobile home parks and meth addicts. That is the instant reaction we all have. We think mobile home. Meth. Or mobile home, we got drama and problems.

Josh: Except the people who listen to the show who are living in a mobile home park. We love you.

Brandon: It doesn’t apply to you guys.

Josh: But that is the natural American reaction to that. I mean, why is that wrong? What are your thoughts on that?

Jefferson: There’s a big dichotomy between perception and reality and that’s really the crux of why there’s profit opportunity here above and beyond apartment buildings or single-family houses. Because, maybe the bottom two or three percent of mobile home parks would be your worst nightmare of drugs and police activity. But for the overwhelming majority of mobile home parks, that’s just not what happens day to day. And you’ll never see a news story with someone standing in a trailer park and saying on the night news, “hey, all the rent come in on time today and the kids down at the end of the street are playing with their tricycles and this lady’s plating begonias in front of her mobile home and nothing happened today. Okay back to you”. You’re never going to see that story. You’re never going to see the reality, the overwhelming reality of mobile home parks.

These are decent folks. Most of them own their own mobile homes. They’ve stepped up out of, for instance, being an apartment renter, where of course they would otherwise never build up any equity or anything paying rent forever. And so they now at least own their own mobile home. Many of them are on the path in the long run to owning a regular site-built house. A mobile home park may be a place where they live just for five or ten years while they save money for their bigger dreams. And we’re very proud to help them along their path in life.

But again, most mobile homes- I would challenge any of your listeners to just, at random, just google on your phone “mobile home parks” just drive into whatever is your nearest mobile home park or two or three, and see what it’s actually like. It’s highly unlikely you’re going to see prostitution or going to hear gun shots or whatever. And there’s a study that came out, I’m not going to be able to cite it exactly, done I think by a professor at Northwestern, and it just came out in the last couple of years, and it proves conclusively that there is no difference in crime rate in mobile home parks versus site-built home neighborhoods or apartment neighborhoods. So there’s a gap between perception and reality.

Josh: That’s great.

Jefferson: We benefit from a lot of investors eschewing this asset class because they have the wrong perception of it. Again the reality of it, is that it’s a perfectly fine, and we think really an excellent asset class to invest in. Frankly, other than the cash flow, very little happens. There’s very little drama.

Josh: That’s great. And you know I love hearing from you. Again, one of my goals with BiggerPockets is to help spread the message that we real estate investors are good people. We’re here to help people with their lives and you said something earlier- I’m going to misquote you- but you said we’re happy to help people as they move their way up from one asset class to the next, is in essence what you said. Your attitude and theory about these people, and the way you speak to protect them, and really stand side by side with them, says a lot. I think you’re a great spokesperson for mobile homes and people who live in them and I think that’s fabulous. Frankly, you should be all over the place speaking on behalf. I think it’s great and investors get a bad rap at the end of the day and I really love to hear that from you.

Can we transition a little bit to how does this work. Okay, an apartment building, I go and I buy a building. I own all the units in the building and people come and they rent out each unit and there’s open space and all that stuff, right? Well, what happens in a mobile home park? You said there are people who own their own mobile homes within the property. Explain to us the whole big picture of what these things are.

Jefferson: Yeah. A few more moving parts with mobile home parks than in single-family house investing or apartment buildings. So probably most of your investors, sorry most of your listeners, inherently understand that if they buy an apartment building say with 75% leverage and they buy it right, they’re going to do well, right? You’ve got recurring revenue stream, you’ve levered up 75% loan-to-value. You’ve got depreciation that helps you generate, at least in the earlier years, helps you generate a return tax-free. Mobile home parks have all those benefits, we typically are buying mobile home parks with about 75% leverage, we’ve done as well as 80- actually I’m sorry, I did a park with 100% bank financing, I put down zero, but that’s unusual.

Josh: Oh nice, I want to talk about that in a minute.

Jefferson: Okay.

Brandon: Oh boy.

Jefferson: It’s fairly standard to get 75% loan-to-value. You do have depreciable assets, right, even though you typically wouldn’t have bricks and mortar like you would with a single-family house or apartment complex, you still do have roads, signage, fencing, water and sewer infrastructure in the ground. We’re typically able to depreciate between 60 and 80% of our purchase price, and that’s in line with apartment complexes. So we’ve got all the same benefits as apartment investing. Here’s where it gets better. Unlike with apartment investing, where if you own an apartment complex, you’re responsible for repairing all those toilets and leaky roofs. In our business, we typically don’t own the mobile homes, so we don’t have the maintenance expense. When you look at most publicly traded REITs, and you look at their R&M lines, repair and maintenance, probably 60 to 80% of that goes to the actual four walls of all those apartment complexes. It’s relatively inexpensive to maintain the land. You do occasionally have to repave, you have to mow the lawns, you do have to run a roto-rooter through the sewer pipes from time to time. But the bulk of your expenses of real estate are on and in those four walls. And in our business, we, at least in the long run, we don’t own the homes.

We’ve just purchased a property in Tulsa, it’s called Tulsa Estates, the website is tulsaestatesmhp.com. People can see there that we’ve got houses for rent-to-own. So, we’ve renovated a number of the houses, we’ve renovated about ten, and we are putting those out on rent-to-own contracts. We’re helping those folks own their own house. Most of the rest of the people already owned their own home when we bought the property. We’ve also got on that property- again we’ve got 75% loan-to-value from a bank- we got about another half-million dollar line of credit to acquire another 20 mobile homes. There are roughly 20 vacant pads. All the infrastructure is there; the water, sewer, telephone, all that comes up out of the ground in the lot.

So it will be very economic for us to buy these additional 20 homes, probably over the next year and a half, bring them in and also put those on a rent-to-own agreement. So that property started with around 60 homeowners, we’re going to end up with 90. We’re going to have about a 50% increase in affordable housing there. These folks will own their own houses, probably in an average of five years, maybe six years. There’s no 30-year mortgage in our business. So we help people become homeowners quickly, they’re getting out of apartments in that market in Tulsa that would run 850 to 900. We’ll get them into a house for about 650. In five years they’ll be down to just paying a little over 200 in lot rent. So that’s a huge decrease in their cost of living. We help them become homeowners.

Josh: I obviously love that strategy, but how does that play to the idea of a bank who lends 75% loan-to-value, and then you’re selling off the assets that that bank is secured by? How does that play into that?

Jefferson: That property had relatively few other homes that the bank took as collateral. And actually I think the details of that deal was that the bank really just took the land. So the land had enough value that the bank, I don’t even believe, took those homes as collateral. The deal that I paid nothing for, it was 100% bank financed, that deal the bank has taken the homes and the land. There, I’ve just got a good working relationship with that bank and as the tenants pay off the homes, and we’ve had a few pay cash upfront, I just move that cash right through to the bank, I pay down the loan, they issue the tenant a lien release and we sell them the house. So it works for us, the tenant, the bank, it’s a win-win-win for everybody.

Brandon: I love that.

Josh: That’s great, that’s great. So, you collect lot rents. You collect cash on rent-to-own, right? What other incomes streams come with a mobile home park?

Jefferson: Those two are it, principally. I know some other folks will try- actually the deal that we’re closing in on in about two weeks does come with some self-storage, about 50 units. That’s somewhat unusual, and we like that property principally because it’s a mobile home park, we’re happy to take the self-storage with it. But we don’t, for instance, build self-storage. We don’t put in Coke machines, vending machines. We tend not to get into other ancillary businesses. In the long run, we just want a parking lot. We will maintain it as a safe community, we’ll keep the common area grass cut, we’ll take care of the land. We want folks to be homeowners, so we typically don’t get into other ancillary businesses.

Brandon: That’s great.

Josh: That definitely feels more simple to manage, you don’t have to deal with all the drama. What about laundry machines? Do all the units have their own laundry or do you have laundry?

Jefferson: Great question. So the history here is that the business kind of grew up after World War II, when a lot of GIs that had been housed in trailers on air force bases in the US during World War II, they were able to buy those houses or maybe even were just given them for free. And they went into what had been trailer courts, which were more transient- I don’t mean that negatively- they were for folks on vacation that would pull in because trailers back in the ‘40s and ‘50s were so small they could be towed behind ordinary cars. Of course now they’re large, they have to come in with a big toter like a semi-tractor trailer. But back then a lot of the old, old, what are now mobile home parks, started as trailer courts and they had laundry, because people would pull in for a weekend or a week and needed to do laundry.

Newer parks maybe not have a laundry facility, and actually none of ours do. But if, and I assume when, we buy one that has laundry, we would honestly probably close the laundry facility. They tend not to make money. They tend not to be metered so most landlords don’t really know now much electricity the machines use, and how much gas- especially if they are gas dryers- how much gas is used. So it’s very difficult to be in the laundry business. If we were to stay in it, we’d turn it over to somebody like WEB and just have them pay us 100 bucks, a couple hundred a month and just let them have all the headache of reimbursing us for utilities and then they get to sort all the quarters.

Brandon: I love that

Josh: That’s what I do.

Jefferson: We view it as another business to be in, laundry. It’s a bad business.

Josh: That’s what I do right now. I split mine with a company up in Seattle. They come down, they manage it. There’s even signs on top of all the washers and dryers that says: If there’s a problem, please don’t contact management, call this number. I never think about it, I just get a check usually for $300 to $400 a month.

Jefferson: Oh good for you.

Josh: It comes in every month. Now granted, I would be surprised, I’m curious how much my water and electricity bill is going up because of that, because I don’t meter them separately. But-

Jefferson: See, you don’t have meters on it.

Brandon: So you might be losing money.

Josh: I might, but I don’t think so because my-

Jefferson: I’d look into it.

Josh: I’ve got to look into that. But that said, one of the things I feel about the laundry is that it helps get good tenants that stay for a long time. Now, do most- I don’t know if that’s like that in a mobile home park, my assumption is if I lived in an apartment complex and I constantly had to go and drive three miles to go and wash clothes, I probably would always be thinking every trip, “I’m going to find a new place to live, this is irritating”, six times a week. I don’t know, maybe that’s not the case. Do they have washer/dryers in the units at all ever?

Jefferson: Typically yeah, these folks are more stable than apartment dwellers. Most apartment folks turn over about 50% a year. They’ll stay in an apartment building roughly two years. We have tenants that stay at least five years, on average. So the turn over is much lower. These folks are more stable, we think they’ve got generally better jobs and so they tend to own their own washer/dryer. They’ll just bring it right into the mobile home. Most all mobile homes from, I would guess since the 1960s and 70s forward, would actually have hookups in the mobile home for washer/dryers. Certainly all the newer homes all do. That’s what we infill our properties with; nice new large homes, almost 1300 square feet homes. So there’s plenty of room to have a washer/dryer there, so most tenants do. It’s not a big inconvenience in this business to not offer a laundry.

Brandon: Apartments are a different business.

Josh: Sure. I think that’s funny, you make a good point. You said earlier and you said it again now how people often think of mobile homes as we said earlier as that’s where the meth people live, or that’s where the ghetto is or whatever.

Brandon: Well it’s a step down from the apartments is what a lot of people think.

Josh: It feels like, when I think about it, actually you’re right. The people I know in a mobile home, they went from an apartment to a mobile home to be more secure. Everybody I know that’s- and when I think of all the mobile home parks in my area, they all are really nice. We don’t have a single junky one that I know of in my county. Maybe they’re hidden out in the woods somewhere. I don’t know why that has never occurred to me in my entire life until this podcast. I think that’s actually a step up from apartments, not a step down.

Brandon: You were waiting to meet Jefferson.

Josh: I know.

Jefferson: There we go. So some mobile home park owners do rent mobile homes. Now, we don’t so, we notice there’s a big difference between folks that come- but I used to. I’ve made every mistake in the book and we can talk about a couple of them. We won’t have time for all of them, but I used to rent mobile home and I’ve always rented-to-own. And I’ve seen it firsthand myself that what you really want in this business are folks that can come up with about $2,000 down on a house, and can then can still afford roughly the same 500 to 650 a month rent-to-own payment.

But again, those are the folks that are more stable, they’re going to have their own washer dryer, they’re going to take better care of that home, they’re going to plant the proverbial begonias in from of the mobile home so you know that home is never leaving the community because they’ve got their flowerbed right in front of it. They show real pride of ownership. It’s a win for them, it’s a win for us as a landlord. It’s just a great business to be in when you run a mobile home park correctly, and don’t rent to just anybody.

Brandon: Hey Jefferson, I’ve got a whole slough of questions that I’m going to jump to a couple that were written a while ago.

Jefferson: Fire away.

Brandon: How is the value of a park determined? I mean is it literally just, you’re adding your lot rents, rented at a multiple and you can determine it from that? With a multi-family, you can buy a distressed multifamily at some vacancy rate and acquire it for less money because you’ve got all these openings, and I’m assuming that it’s similar with a multi-family. You’ve got 50% of the lots rented so you bought this property at some kind of discount. You go in, get them all rented out and suddenly the value of your property is worth more. Is that kind of the basics?

Jefferson: Yeah. The moving parts, principally, is that you’ve really got two businesses. One is the land, which we like to think of as a parking lot, and the other business is the mobile homes. So we always, for instance, acquire a property with two LLCs and ideally we’ll take title to the land in a land trust. That’s a separate discussion on asset protection.

But the land itself needs to be valued using a cap rate. And in the Midwest where we buy- 16,17 states in the greater Midwest- we’re typically paying a nine/ten cap rate for most of those properties. A lot of mobile home park owners will combine in all of the income from the houses. You don’t want to do that because the mobile homes, if you cap the income from them, you could end up paying $20,000 to $30,000 for a house that’s really only worth $5,000 or $10,000. So we look, we run test ads, and we got a feel for what the mobile homes are actually worth in that market, what we can sell them for to a new tenant. And that’s typically between $5,000 and $20,000.

So we value each mobile home separately just based on what it’s worth in that market. A 1980 two-bedroom, in and around Los Angeles is going to be worth certainly $20,000, maybe $30,000. That same house out where we’re buying in Tulsa and Kansas City, Oklahoma City might only be worth a couple thousand. But you value the homes separately, each home and then you figure out what the PNL- you might have to do some forensic accounting and separate out the numbers. Whatever the land itself earns, that’s what you would apply in the Midwest a nine/ten cap rate to. That’s how you come up with your value.

Josh: Okay. I going to ask you to explain cap rates a tiny bit just for a second, quick and dirty. Before I do that, anybody listening, if you guys have questions about this stuff that Jefferson or any of our guests are asking, we, BiggerPockets, we’ve got thousands and thousands of articles written, answering things like, “hey what’s a cap rate?”. And the reason I bring this up, I was talking to my uncle the other day and he said “hey Josh, I love your show, but you don’t ask all the detailed questions”. You let them talk about cap rates but you don’t ask what that is. We explain that on Show 15 and 16 and so on and so forth.

Anyway, for folks listening, if you jump on our forums, BiggerPockets.com/forums or if you jump on the BiggerPockets blog, BiggerPockets.com/blog and search for cap rate, you’ll find answers to questions that you might have about things that our guests are talking about. I think you had mentioned NOI. What is NOI, how do you find it? We’ve talked about that, we’ve written about it, we’ve done videos on it before. So if there’s something that you find that you’ve missed, just make a note of it and do a search, and you’ll find it.

With that, jump really quickly on how the cap rates work. The mechanics, if you don’t mind.

Jefferson: Cap rates simply mean the yield on your investment. So if there’s any kind of real estate- mobile home park, shopping center, anything- it yields say, $100,000 a year in profit, also known as Net Operating Income. And somebody want’s a 10 cap or a 10% yield, that means you just divide 10% into that $100,000, that means they’re going to want one million dollars for that property. If you bought it outright, no debt, you paid a million for it, you’re going to put $100,000 (10%) in your pocket every year. If you can negotiate them down to a- now here’s where it goes in reverse- if you negotiate the price down to a cap rate, say a 20 cap, well that same $100,000 to have a 20% yield means you buy it at $500,000. Your same $100,000 profit into a $500,000 purchase price is a 20 cap, or you’re earning 20% on your money. Most properties in the Midwest trade around a 10 cap which means you pay 10 times the annual earnings, or another way to think of it is that you’re going to get a 10% rate of return on your money every year.

Brandon: Well explained.

Josh: Yeah that was great, that was great. That’s kind of a topic, that- people use that word a lot, cap rate, but a lot of people don’t even know what it means. So I think that is valuable, I think we should probably do more asking people to explain themselves.

Josh: Oh yeah. Test ads. Do you want to ask him? I know you and I chatted about that. I’ll ask. Test ads, you talked about using test ads and I didn’t quite follow it. I’m guessing you put ads in the paper to find out what kind of rents you would get on a potential purchase, is that what you’re doing?

Jefferson: Good heavens. Newspapers sound like they cost money. Why not use craigslist.

Josh: Or whatever, you know. I’m old

Brandon: Josh is old.

Jefferson: Oh boy, okay. Take a lesson from an old guy like me and I’ll tell you about craigslist. We’ll put up ads on craigslist for the homes in a community just to see how well they pull. In this business, mobile home parks, we want to see roughly 20 responses per week- could be email, could be phone call. We turn over all those leads to the current owner of the park. This is something we do during about one month’s worth of diligence when we’ve got the property under contract. And again we’re doing diligence to see if we want to go through with the contract. But during that month, one of the many things that we do is, we’ll run a test ad. Rarely do we get 17,18 responses and we kind of on the fence about a deal. What we find is we either, over the course of a week will get two or three response, in which case it’s clearly a deal we don’t want to do. Or we’ll be getting 30 and 40 responses a week. We bought a second park in Tulsa about five weeks ago, smaller one. That one had over 60 responses in a week. That’s about the strongest we’ve ever seen.

So that just tells us how easy it’s going to be to get some of those homes filled if, for instance, we buy the mobile home park and it comes with some vacant mobile homes that need some $3,000 or $5,000 in repair. We just need to make sure that once we sink the money into those homes, and certainly when we start buying and bringing in homes from banks that maybe have foreclosed on the homes, we’ll bring those in. Now we’re looking at maybe a $20,000 investment. We need to make sure we can get those homes moved in about 30 days. And as long as we’re getting 20-some-odd responses a week, we’re pretty confident we’re able to get those homes moved quickly.

Josh: So are these ads basically saying; hey owner-financed, mobile homes available in this part of town. Boom. That’s it.

Jefferson: Exactly, yeah. You just put what the town name is, mobile home for sale or rent. We’ll include some photos, inside and out. We’ll write in, depending on the house, it could be as little as $500 down, most of them are $1,000 to $2,000 down. And then, just what the monthly payment is, which is typically ranges from about 495 to 695 a month. So it’s a very simple ad. We’ll typically have again, our phone number in there and between mail and phone responses we’re looking at ideally 20 responses or more per week.

Josh: That’s great. Really, really, really clever idea. And that actually I think applies for the purchase of apartment buildings as well, I would assume. You see this building that’s 50% vacant, maybe it’s not because the owner’s an idiot and doesn’t know how to take care of it, maybe there’s no demand for apartments in that area. That’s great. Really cool.

Brandon: I love it. How do you find mobile home parks? They’re not just throwing up mobile home parks on craigslist usually? So what do you do for that?

Jefferson: Typically they don’t. But that free park that I got, zero down, I got it off craigslist, believe it or not.

Josh: Let’s hear that story.

Jefferson: Okay. This is not typical, but I look on craigslist, I also look on eBay, I actually bought my first park off eBay. The more recent parks I’ve done, I’ve done the normal way through brokers. And brokers really are, it will ebb and flow, but right now this year and for the past couple of years brokers have been the better source of deal flow.

Josh: These are commercial broker, right?

Jefferson: Commercial brokers, yeah. So that deal, when I saw it on craigslist, it was fairly near the first park that I bought in Oklahoma City. So, I went to my bank and I said hey do you like this deal? I think it makes sense and it’s also in a very good- well all of Oklahoma City is quite strong. Sort of five, five-and-a-half unemployment. This was in a town with a particularly high average household income. The bank said they liked it and actually the bank had come to me, because I had built up a relationship with them for about four, four-and-a-half years. They had come to me and just said, Jefferson, borrow money.

You can buy mobile homes in infill your existing park, if you find another park we’ll lend on that. So that was how that deal came together. My bank that I had a longstanding relationship with, obviously never missed a payment with them. We do the whole business, all the rents go into their bank, we pay all the expenses out of their bank, they see the whole business happening right in front of them. They were then comfortable lending 100% loan-to-value on that second park that I bought, which just about a 20 space park. Not huge, but to get it for free, zero down was a pretty good deal.

Brandon: Well that is a great reason why we always tell people to develop those relationships with your banks. Even if people listening to this don’t have a single property yet, there’s nothing to say you can’t start establishing relationships with banks. Let them walk with you on your journey. Yeah you never know, you build that relationship and they come to you with zero down loan. That’s awesome. Love it.

Jefferson: That’s one of the key- seller financing is great, but just understand that if you get seller financing, virtually no seller is ever going to come to you after four years and say hey, you’ve made every payment on time, why don’t you borrow more money from me. So, there’s pros and cons to seller carry and bank financing. But that’s one of the key ones for the pros of bank financing, that if you treat a bank well, probably the bank will treat you well.

Josh: Unless they’re one of the big, big, big banks.

Jefferson: Right. This is a small bank, about 180 million in assets. And all the people who work there and own the bank all have the same last name. It’s been in the same family since 1950.

Josh: That does not apply to the major banks, they don’t give a-

Jefferson: Wells Fargo, Citi Bank, no not so much.

Josh: I want to jump back a little bit and then keep going forward here. You had talked about due diligence earlier, and just now you had talked about looking at the income in the town, kind of the general income level. So, my question is what other forms of due diligence are you doing besides demand for the property and trying to determine if this is a property that you would want to purchase?

Jefferson: Sure, so I can spend about two minutes and probably get a very clear- actually in one minute I can get a very clear insight into weather it’s a property I want to buy. So what I’m looking for, first and foremost is to see that it is on city water and city sewer. As opposed to, for instance, being on a well and septic. You just have no idea whether either of your private utilities water and sewer are really working correctly and government can come along and cause all sorts of problems for you.

So first off, we weed out probably between a third, probably even towards half of all of our deals just because they’re on private utilities. We’ll make an exception if the city water and city sewer line runs immediately in front of the property. But generally that’s not the case. Generally these are stranded properties, and certainly even just a thousand feet away is just too far, and usually you’re five miles to the nearest city water and city sewer. We weed out a good amount of deal flow right there. Once we’re actually in diligence on a property we run those test ads. We also go on site. We want to get into as many of the mobile homes that might convey with the sale. But there might be none.

The smaller Tulsa deal we closed on five weeks ago is just a parking lot. All the homes are owned by residents. There’s just nothing to get into. Well want to meet with the manager. We’ll want to understand how they’ve been marketing the property. What we typically see is that there’s no website for the property, and they’re not advertising on craigslist. We’ve even bought properties, believe it or not, that have no sign out front, and that are not listed in the Yellow Pages. So we love that. When a property is that badly marketed that really the only way to find it is by word of mouth, you can not even look it up online in the yellow pages or in a physical old book, that’s all a very good sign for us. We’re happy to pay 9 or 10 cap rates on properties that are that poorly marketed because we know by putting up a website, getting it listed on Google Earth, getting it in the yellow pages, all that’s free. We’re going to have dramatically more traffic.

Brandon: That sounds great.

Josh: Let me ask you this. So we’ve had different apartment investors on the show before, we talk about this a lot and you talked about the cap rates and you talked about- So, if you were to improve an apartment complex to bring in more income you would raise the value. If you were to drop the expenses on an apartment building you raise the value. Because it’s based on the return on investment, essentially like the cap rate. So how does that apply to this business? How do you raise income and lower expenses?

Jefferson: Sure. So our large Tulsa property both had lot rents that were below market. We’re never the highest. We don’t try and take advantage of folks, but we will raise rent to be where our competition has rent. So this is where the tulsaestatesmhp.com property. People can check that out. The nearest competitor had lot rents at $240. They actually had an inferior location to ours. When we purchased that property, lot rents were $180. So we’ve taken them halfway. We’ve taken them to $210. But That’s still about a 15% increase, and probably in another year, we’ll take them another 15%. So that property, we will have over about the first 12 months, a 30% increase in rents, that goes a long way to the bottom line. At the margin of course, that’s all pure profit for us. There’s no incremental managerial, insurance or maintenance costs when you just raise rents.

But we’ve also given back to the tenants. We’ve repaved that community, we’ve kicked out two sex offenders, and there were four burned out mobile homes that really were safety hazards for kids playing in the park. The previous owners were classic mom and pop, they were very bad operators. They weren’t taking care of even basic safety issues like those abandoned homes. So we’ve hauled out four houses. We’ve put some money back into it. And we think it’s fair that we’ll raised rents over a year or so to be where he competition has rents. And again we’ll certain reinvest in the property. So that’s the revenue line on expenses. There’s some problems with water leaks, and we are getting those patched. So, that we will encourage conservation and lower our water bill. It’s the right thing for our environment, it’s the right thing for our PNL. It’s nice when the environment and profits line up.

Brandon: Do the tenants pay their own water or do you pay their water?

Jefferson: Typically tenants will- it works one of two ways. Either tenants do have a direct relationship with the water company, that’s the way our park in Kansas city works. Or, tenants will have a relationship with us. We’ll put the meters on the houses, and we receive a master meter. There’s one giant meter from the city right at the edge of our property line. And so with those meters on each house we then bill back the water at cost. We’re not making a profit on the water. So that’s the way that most parks, probably 75 to 80% of parks will be master metered. And that’s upside, because, as is the case actually with the free park that I got, the water meters- well many of them were broken. So there was good upside there in just spending $3,000 or $4,000 in new water meters and that helped to reduce the annual water bill by about $7,000. Spend $4,000 and get back $7,000 a year forever. That’s like doing real estate at 150 cap rate forever. I wish I could be in the water meter business and not the mobile home part. If I could just collect all the savings on water meters, that’s really the best thing. Anyway, small dollars, but profitable to do that.

Josh: So we talked about park managers. If everybody owns there own house then why do we need a park manager, right? So what does a park manager do? I’m assuming that when you buy the property the manager’s there. You probably bring in your own team, regardless. But maybe you can fill us all in on the park manager component of all this.

Jefferson: We actually almost always keep out manager. We’ve found them to be reasonably good and competent. We keep them, we’ll train them in the ways we do things. We find, for instance, a lot of pervious owners may not be advertising the houses, may not even have a sign, one of those little banded signs in front of the house that says, “For Sale”, or “For Rent”. So we’ll buy those for the manager, we’ll train them in how we want things done.

So, to answer your question, what our managers do then is when a house may come available, and although we don’t own most of the houses, we do budget that we’ll probably always own maybe 10% of them. So, our business may look 90% parking lot and 10% apartment building. That’s still pretty good. So, they will show those houses, they’re typically not doing the repair work. That’s a mistake other park owners typically make. They try and have the manager both manage and do the sheet rocking and painting. It’s rare, not impossible, but rare that you would find anybody with the skill sets to do both the white collar, rent collections, sign the lease type of work, and the blue collar sheet rocking and paint work.

So we typically take that away from them and we’ll hire in a crew as needed to do the repair. But they would take photos of the house, they would maybe supervise what the repair crew is doing for us. And again they are there depositing the rents, the lot rents that come in. They’re depositing those into the bank. So it’s not a full-time job, it’s an easy job. It’s something that I manager can do in their spare time around whatever is their full-time job.

Josh: Are they typically somebody who lives in the park?

Jefferson: Yeah, I think in all but one of the cases. So you want somebody that’s vested in the community. You find your managers, in this business, by driving through the park to see who has the nicest house. It might not be the newest, but it’s painted, the lawn is cut, there’s not a car up on blocks. They’re probably driving a car that might be five years old, and not 10 or 15. And we just knock on doors, when we need to replace a manager. And again we typically have a manager that comes with the property. But that’s how you find your manager. You look for someone who’s has pride of ownership. They’ll almost want to do the job for free. Now, we pay them. But someone who shows that kind of pride of ownership is going to be fired up about saying, hey I get to be the manager? While the guy down at the end of the street that does have a car up on blocks, you mean I get to tell him to take his car down and fix it or have it hauled off? Now, we don’t let this get personal with the managers, but we’ll back him up and say yeah here’s our form, here is what you do to serve that person with a notice that they have 30 days to get that car down off blocks. So we’ve got a manager that’s motivated, that’s the kind of person you want.

Josh: I love that tip.

Brandon: And I’m assuming you come up with your policies, with the rules for your parks, which are probably standardized-

Jefferson: They are

Brandon: -Cars on blocks don’t go, and just because the previous guy let it, if you don’t like it, get the hell out.

Jefferson: Yes, we say it a little nicer than that.

Brandon: I’m a new Yorker

Jefferson: Alright, alright. Yeah, we back up our managers we provide polite notices. But we have, it’s rare, but we have had to evict a couple of folks, and this is out of hundreds, in the last eight years. We’ve had to evict just a couple for rules violations. It’s pretty rare, and especially if you’re actually investing in the community and you’re paving roads. Something else we do is we put up house number on all the mobile homes, and that helps first responders find the house when they know house number 17, somebody in it has had a heart attack. A lot of previous owners haven’t numbered the houses and you can’t find house number 17. Anyway we do safety improvements and stuff like that and then tenants know that we care. We’re not there to be their friend, but we are a responsible and better owner, landlord, than the previous guy, or mom and pop were. And we find folks response quite well to taking the occasional car down off blocks and, it’s rare, but folks will respond well when they see a landlord that cares.

Brandon: That’s awesome.

Josh: I mean I love that tip about you’re saying that, find the person with he best pride of ownership. And I’m thinking about my own properties, like my apartment complex. That’s probably how I should have found resident manager is doing it that way. So next time I need one, I’m going that route.

Something you mentioned way earlier and we kind of glossed over it real quick. You mentioned raising a fund. And I want to talk about what is that? Because that is something that applies to all investors, whether you’re a mobile home park or not. What does that mean, and why would you do that? What’s that like and why are you going that route?

Jefferson: The bottom line is, with my first couple of deals, frankly I’ve outgrown my own limited personal capital. I’m not Warren Buffett so I do have to use OPM, Other People’s Money. Those first three deals that we did were all done deal by deal. We did retain a securities attorney, paid him almost $10,000 to put together our offering document for those first three deals. We’ve paid him now almost another $10,000 to put together what I think are almost identical documents to raise a fund. But we want to make sure we do it right. So we have registered the fund with the SEC, this is a proper 506 Reg-D fund so, for instance, I can talk to you here about it on the phone, on Skype. We can advertise it.

We do have to only take accredited investors, folks with $1,000,000 net worth, or $200,000 a year in income. I can put in a little plug here, that information is on our website, parkstreetpartners.net\fund. And people can invest. We’ve raised- well it’s been about 30 days now, not too long- we’ve raised about $1,000,000 so far. We have our own mailing list, a couple hundred, maybe closer to 300 folks now. And then some of the folks that invested in our first couple of deals have also re-upped and invested in the fund. We can now advertise it widely.

I’ve got the largest mobile home investors group on LinkdIn, which is simply called Mobile Home Park Investors. You can just google or it, or find it off LinkdIn’s homepage. We’ve got about 2,300 folks there, so we’ve gotten some interest from that group and folks that have invested. The minimum investment is $50,000. We are trying to raise $5,000,000. We’d love to find high net worth folk, person or family office to write a seven figure check for us. So far we’ve gotten a lot of six figure checks, from $50,000 up to $500,000. The way to do it right then when you’re tapping into OPM, is to get a proper securities document written.

When you’re just doing friends and family, and it’s is your uncle, you’re college buddy kind of pooling together maybe $100,000, maybe $200,000 to do your first mobile home park deal or whatever real estate you’re into, you can just write up your own operating agreement yourself, your own gentleman’s agreement, form an LLC, for $100 and go buy a property. So you can make it quite simple, we just chose to go the more formal route and retain an attorney both on the first deals and then now on the fund.

Josh: Okay, great. So one of the things I was told upfront when we were going to chat with you, was that you were doing something kind of interesting with your business, you were doing a bit of outsourcing. You weren’t super involved in the day to day. What does that mean. Explain what exactly do you do, what are you outsourcing? Fill us in.

Jefferson: Sure. So as I mentioned earlier in the podcast I transitioned obviously from being an employee to now being an owner. And the biggest mind shift, or perspective change, that I had to go through on one of the couple was that when I was an employee, I was working to make myself as relevant at possible to the business. I was taking on more work, I was working long hours. But I was always- I was never looking to replace myself. I was always looking to be hugely relevant to that business When you own your own property, and I would say probably really for any business, even if you’re an entrepreneur even in the real estate business, you have to make yourself completely irrelevant to the business. So, I started out, for instance, for the first four months, doing my own QuickBooks. I think there was some value to learning that, but I’ve now outsourced that, I’ve found a company over in India that I hired, I believe of Odesk.com, which is now part of Elance.com

Josh: Really? I didn’t know that.

Jefferson: Yeah they merged somewhere about a year ago.

Brandon: I knew that. Josh where have you been?

Josh: Where have I been? I have no idea.

Jefferson: Sleeping. Anyway-

Josh: We love Odesk. We use it all the time.

Jefferson: Great. Those guys, in India, and it’s an accounting company, it’s not literally an individual. But I pay them about $7 an hour, which I think is quite reasonable for bookkeeping. I had been all across the board, I had paid as little as two dollars to someone in Bangladesh that didn’t work out. I paid $50 an hour to someone here in the US that was even worse than the two dollar Bangladeshi. So I bounced around a bit. For instance, I’ve outsourced the accounting, they have read-only access to my bank account. They can’t write checks, but they can go on, they’re day time is the middle of my night time, they can see all the rent that’s come in, they can see all the expenses I’ve paid, they can keep my QuickBooks up to date. So, that’s outsourced.

As I mentioned earlier, a lot of our managers have day jobs, because this is not a full-time job, managing a mobile home park. So, what happens to a phone call when it comes in during the day? Well, folks can press extension one, and they’ll get through to a lady that we have, she lives in Tennessee, she’s a stay at home mom. So all our properties have calls that roll over into her cell phone, and she can then deliver information to folks that are calling in during the day.

We use Dropbox, for instance, to upload photos of all the houses. So she’s up to speed on which house in which community is available, she can describe it to someone that’s interested. She’s actually the lady that does our marketing, so she’ll post those photos up on Craigslist. I don’t do that. My managers, all the have to do is- some of them aren’t entirely computer literate- they simply send an email to her and say, hey house number 123 is available, and within 24 hours she’s got it posted up on craigslist with photos and linkbacks to that property’s website, the whole thing. So that’s just a couple of things that we’ve outsourced.

Brandon: That’s great

Josh: Can I dig in a little bit longer on one thing you mentioned earlier: accounting. For personal reason, because that’s what I do. So my wife spends a lot of time on accounting, she does that a lot. She doesn’t mind it too much, but- and we’ve talked about that before on the show about finding a bookkeeper. And we’ve found one now. But how does a person in India manage your books. I guess that’s what I- I feel like when we do our books, every couple of minutes when my wife’s doing them she has to asks me, hey do you remember what this is for, or how did this work here. We have to talk about things. How does that work with somebody who works overnight?

Jefferson: So we have some email back and forth explaining transactions. It’s certainly not daily. It does certainly get to be a little more intense at the year end. But, I’m able to put into at least in our back accounts, I put into the notes section of the check that goes out to a vendor. I’ll say, this is sheetrock for house number 123. And then our bookkeeper can see that written in the memo line of the check. And he know sheetrock, we capitalize it, and that’s for house number 123, here in the Nobel Estates mobile home park. So that answers a lot of questions, just that I’m putting notes in the memo line of the check. And then whatever else isn’t clear he gives me- he shoots me an email, we rarely talk on the phone. Or he’ll also be somewhat in contact with our CPA who’s in Massachusetts, who’s obviously a proper US-based CPA, very familiar with US tax law. So, there you go. That’s how we handle it.

Josh: You know one of the holes that I’ve found, and we’re dealing with this, is with credit card. You’ll get a purchase, or you need some supplies, you need something from Amazon. Great, I’ll get something on my credit card statement saying Amazon and the bookkeeper is like what the hell did you buy for $742? Then the nice thing is to be able to go through Gmail, so do a search for 742.- whatever it is- and it will pull up. Oh yeah this is what we bought. So that’s kind of how we deal with the credit card situation. And here’s a little tip for people. We love using our credit card, because we get points on our credit card. And that’s always a nice little bonus for your business. You know, get a really good points credit card and build up some free trips as your company pays for stuff.

Jefferson: Yeah, it is. And just to talk briefly about credit cards, here’s a little tip. One of my little tricks is we’ve got currently a PayPal link on our website, so that our tenants can pay us rent. What we find is if they’re really having trouble holding it together in a month is that they’ll have a relative that will say sure, here’s my credit card. So then they can just pay us with the credit card through the PayPal link. Now, we build our websites with SquareSpace. SquareSpace has just formed a partnership with Stripe.com, which is a PayPal competitor, and that actually gets the money directly into our bank account, as opposed to just into the PayPal account. So we may switch over, but we’ve found that helpful and probably most any landlord out there with- any landlord out there with apartment complexes or single-family housing would find that helpful. It’s free to add to your website, and it does help folks in need get you paid.

Josh: And we used Stripe for our payments. We used to use PayPal, and I am ecstatic to not be with them and I am ecstatic to be with Stripe I mean, great, great service. Fantastic, well listen, great great great stuff. I don’t know. I’m walking away like oh man, Okay my brain is spinning, it’s going nuts. We’ve got our next segment of the show that we’re going to get to, almost done here, which is our:

It’s time for the Fire Round.

Josh: Alright these questions come straight from the BiggerPockets Forums, which people can access by going to BiggerPockets.com/forums. And I will say this, if you’re not on the forums everyday I think you’re missing out. I think there’s just something awesome about the people listening to this, if just by engaging, even if you don’t feel advanced, just engage in there, couple times a day, ask a question, whatever. Anyway. Off my soapbox.

Number One: Can you wholesale a mobile home, the same as a regular property?

Jefferson: Well we sell the homes either for cash or what we call rent-credit agreements. So I think that’s what that listener would be meaning by wholesaling.

Josh: Maybe, yeah I’m not even sure. I think they’re probably looking at it more from a single mobile home, can they find a good deal and then assign it to an investor or something, but that seems kind of weird.

Brandon: And mobile homes, from my understanding, similar to vehicles. There’s a title that passes with the mobile home, versus a- it’s a different process.

Jefferson: There’ a VIN number. And other than here in California, they do title transfer through the local state’s DMV.

Brandon: DMV, yeah.

Jefferson: Exactly, so banks of course, like with a car loan, will take them as collateral. And sure I guess you could flip them. We’ve had a couple of guys offer to find us houses and flip them, wholesale them to us. So far those guys have gone radio silent on us. It might not make too much sense for them, I don’t know. We do find deals on Craigslist and we find wholesale deals from folks like Green Tree and Vanderbilt, that are specialty finance companies in this business. So we don’t have a huge difficulty finding houses ourselves, we are certainly open to paying referral fees to folks that might have mobile homes for sale.

Brandon: What about the maintenance? Is the maintenance more or less the same with a mobile versus a single-family?

Jefferson: I think it’s pretty comparable, again, there’s a difference between perception and reality. We use almost all the same materials, paint, carpet, sinks, refrigerators. We’re using virtually all the same materials in our mobile homes that go into site built houses. We just go down to Lowe’s and Home Depot. We’re typically buying off the contractors desk. We’re buying all the same stuff that folks are putting into apartment buildings and single-family houses. It’s just not that different of a business from a repair and maintenance standpoint.

Josh: Right on man. Cool. Listen, would you be- this is an interesting question. Would you be more comfortable being over leveraged or under leveraged in your investments?

Jefferson: I would be more comfortable being over leveraged. I’m pretty confident in what I do. Again, just putting up a website or advertising a property on Craigslist, doing some expense control, bumping rents, I can pretty quickly improve a property’s NOI, you know, 30-40% within maybe the first six months at the most. So even if I’ve gotten in- well like that one property, 100% loan-to-value, it’s relatively easy in this business to get your debts-service coverage ratio up even towards a 2. A lot of banks will look to get in even at a 1.2 debt-service coverage ratio. We can improve on that relatively easily. So we’d probably be more comfortable being over levered. And I’ve been through a down market. I bought my first property in March of 2007 when things are still good. And by that summer and into 2008, the wheels came off the housing market. Well, not with my mobile home park, we stayed full. You know, I bumped up the rents a bit, another $10 a month or something, so this is a fairly recession-proof business. And so I would be pretty confident and err to the side of being over leveraged.

Josh: Alright, last question. I’m new to real estate and I have lots of student loan debt. Can I still invest? And if so, how can I do it?

Jefferson: Yeah the nice thing about this business is that it’s got a really easy on-ramp. By that I mean you can get started with relatively little capital. Although I advise buying the land and buying the mobile home park, it is possible to get started just buying a mobile home. Some park owners that again, may not be the best operators and investing in the homes, they might even give you a house for free, or for $1,000. And so if you can hang some sheetrock and paint, put a little sweat equity into it, you might be able to get that home fixed up, sold off on a note, take $1,000 down, get your money back there, and create a note of $300 to $400 a month income.

We advise owning the land, so maybe you want to do a land-home deal, where you’ve got a mobile home, just on it’s own quarter-acre, or half-acre. But you can get started in this business for much less capital. And of course you can always partner. We’ve seen folks partner and raise 20 or 30 in equity capital from someone else. And again they’re the ones that then goes, finds the property, does the rehab. So you don’t have to have six figures to get started. You could probably get started with four, and maybe even zero if you can find somebody. Like a local RIA, create a real estate group that probably meets in your local town. You can find somebody there that can help you get started, so I would advise partnering.

Josh: I love that. Great. Awesome, awesome stuff. Alright let’s move on to the word famous-

Famous Four

Josh: Alright. These questions, we ask everyone and I know you’ve heard them before. Let’s go to number one. What is you favorite real estate related book, and why?

Jefferson: You know, as simple as it is, I really like Robert Kiyosaki’s Rich Dad, Poor Dad. It just made so many things even more clear around prioritizing your spending, saving money, getting into real estate, look at what you get with depreciation, what really is an asset, what is good debt versus bad debt. And so I recommend his book and a couple of others for more general investment. But for real estate, I always recommend his books to folks that want to get started in the business. Weather you’re doing- he advocates more single-family housing but really any kind of real estate. If you follow the advice in that book I think you’ll be thinking clearly about your investments and be rewarded for reading that book.

Josh: Fantastic. What is your favorite business book, and why?

Jefferson: I really like Alice Schroeder’s Snowball, which is the biography on Warren Buffett.

Brandon: I can see a trend here. A little obsession with Mr. Buffett.

Jefferson: Admiration. But anyway, so, what that book conveys is both the human side of Buffett, he certainly paid a price with his family for spending every evening with his nose in annual reports and publicly traded companies, looking for investments. It made him look, and accurately, made him look very human, He’s not perfect, he’s an excellent investor. But I think his kids may have missed him a bit growing up. So it was nice to see that personal side that the man is fallible. Clearly accomplished, but nobody’s perfect. And then Alice does a good job laying out his evolution from being a cigar butt investor.

That would be where he would buy a company that maybe was near bankruptcy, but the assets of course were worth more than the liability and had positive book value. And he would take one last puff, if you will, off the company before it would go away. He evolved from that, from buying fair businesses at good prices, he evolved to being a quality investor, he now buys good businesses at fair prices. I’ve seen a similar evolution, my first deal was not a cigar butt deal but, it was more of a fair mobile home park I bought at a good price. What we’re buying now in our fund are, good mobile home parks at fair prices. So we’ve evolved similarly.

Brandon: That’s good.

Josh: Fair enough. What about hobbies, what do you do for fun?

Jefferson: Gads. Well, I used to collect flasks, little sort of liquor flasks that you would have carried around in your coat pocket. I’ve got one that is designed to look like a book, so I’ve got it up on my shelf. I’ve got one that was supposedly given to Julia Child who had done some work for the OSS in World War II. At least that’s what the eBay listing says, who knows if it’s true, but it only costs me $100. But honestly, I’m a new dad, I’ve got a wonderful little nine-month old, almost 10-month old little son.

Brandon: Congrats.

Jefferson: Thank you. So that gives me a lot less time for hobbies. And to our earlier point makes outsourcing all the more important so I can spend a little more time with him.

Brandon: Thanks great. Love it.

Josh: Alright. My final question of the day is, what do you think sets apart successful real estate investors from those who give up, fail, or never get started?

Jefferson: I would say a key point is going to be the ability to think broadly and use OPM, Other People’s Money, And maybe I’ll make up a term here, OPL, Other People’s Learning. I got started up in this business, as I alluded to, by building up an advisory, an unofficial advisory board of about ten guys that were in the business. I spent a lot of time running deals by them. They would say yay or nay, or maybe they didn’t know, but Jefferson, the key issue is X. Find out this issue about this part. So learning from people that way was a huge leg up for me. And then again, more recently, now that I’ve outgrown my capital base in my first two deal, to now be raising outside capital helps me to lever my existing learning. So I think those two things, I’ll leave it at that.

Josh: Fantastic, fantastic. So you are a loquacious man who has lots of wonderful things to share, it’s fabulous, lots of great advice here. Before we let you go, here’s a chance to tell people where they can find out you. I know you had mentioned the park site. Do you guys have a site for your business?

Jefferson: yeah so the parkstreetpartners.net website is our primary site. I’ve also got my lillyandcompany.net website. There’s certainly some overlap there. You can check out the resources on both websites, that will help folks find other books and articles and things to read to learn more about manufactured housing, also known as mobile home parks. There’s more information about our partnership there and our backgrounds. My partner, Brad Johnson, and myself. And then again you’ll see a link there for parkstreetpartners.net\fund. That tells you more. That’s actually where the offering documents are for our fund and two very good videos. I’ve been on television earlier this year, and been on stage for a real estate investors conference. Those two quick videos, I believe they are both less than six minutes clearly lay out our investment thesis. So they are a quick and easy thing for any interested parties to watch and to learn more about us and about the business.

Brandon: Fabulous.

Josh: Great. Jefferson thank you so much, we really do appreciate it. And of course if people have questions they want to ask you, they can do that on the show notes page at BiggerPockets.com/show111. And thanks for being part of the show and for being part of our world. We appreciate it.

Jefferson: Thank you for having me, both. Thank you both.

Josh: Alright, once again that was Jefferson Lilly. Big thanks to him for coming on the show. Lots and lots of really high level, great information about mobile home parks. Other information you can use regardless of your strategy and regardless of your niche. So hopefully you enjoyed that.

Brandon: I totally want to be a mobile home park investor now. It happens after every show, but now I really want to get into mobile home parks, right.

Josh: But you live in Podunk, Washington so for all practical purposes are a mobile home investor without the mobile home park.

Brandon: Oh funny guy, funny guy.

Josh: Yeah, Yeah. I like this stuff.

Brandon: Smart, smart guy. I need to pick his brain some more. Maybe we’ll have him back someday.

Josh: Good stuff. Well thanks to Jefferson and thanks to you guys for joining us, for listening. We really appreciate- appreciate you and you’ve been a part of-

Brandon: We also appreciate you.

Josh: Yes. Well there you go, really nice, really nice. Picking on the guy who has a problem.

Brandon: Yeah.

Josh: anyway, if you’re not already on our community, join BiggerPockets today at BiggerPockets.com. Get involved, connect and just start engaging with us in our little corner of the real estate world. We hope to see you there. Thanks for being a part. Thanks for listening. And we’ll see you next week. Listen up and I’m going to just babble on because I haven’t slept in five days. Thanks, I’m Josh Dorkin. Signing off.

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