Syndication Series: Interview with Jack Martin

How did you get started?

In my 20’s I was a general contractor buying large parcels, subdividing and building spec homes. A friend approached me to start building a rental portfolio. I accepted and began acquiring a handful of rentals. After the first year, our ability to source a high volume of good deals caused us to keep some homes as rentals and begin wholesaling most of the homes. Over the next 10 years we acquired and sold roughly 2,500 houses, buying a house every day at one point in Phoenix. Toward the end of 2010, we were selling high volumes of homes to larger acquisition groups, including a subsidiary of Blackstone. Eventually, I became bored with single family homes and pivoted to apartments for the next 3-4 years until I fell in love with mobile home parks. I sold out of my company and partnered with an experienced asset manager with the goal of building a portfolio of MH/RV parks.

Why mobile home parks?

I prefer them because they are the most stable asset class, especially in terms of recession resistant cash flow. As long as you buy them right, parks have a greater opportunity for upside than other recession resistant assets: medical offices or self-storage. The greatest lesson I learned during the recession of 2008 was through a land development project. It was a golf course development expansion of 600 acres where all the solutions for utilities, access, zoning, and entitlements were complete and the project was in escrow to be purchased. Then the market crashed and there was nothing anyone could do to save the project. The lesson for me was to focus on an asset class where if the market crashes again, it will not affect the portfolio I have built. Better yet, a recession actually can be welcome. That is what I really love about mobile home parks.

Why syndication?

My real estate career has always involved private money. It started with friends and family and as we grew, we started doing syndications of individual assets and then funds for larger groups of assets. When starting out, a partnership is the easiest, a simple LLC with an operating agreement. Syndication is essentially the same thing, but with multiple investors who don’t know each other, and it is a SEC regulated entity. We started syndicating when we started doing bigger deals. Syndication allows you to share an actual property and to tell the story of the deal and why it makes sense. A fund is more of a concept: “We will raise capital to do projects like this”. A fund is really selling a track record of success to prospective investors. We are getting ready to launch a fund in the next 90 days with the track record we have in mobile home park investing. The advantages of a fund for the investors: it doesn’t matter when they get in, their yield is derived from a blend of returns from all the assets in the fund, they gain that diversity. There is no deadline like there is in a syndication that has a closing date etc. To me, as the operator: I am raising capital in advance to find an asset, so it gives me the ability to pull the trigger on a great deal quickly. And from a reporting perspective: it is simpler to send one report to everybody who invests in a fund versus individual reports for each syndication. It is also simpler for taxes and quarterly distributions. To use an analogy, a joint venture is like elementary school, then syndication is middle school and a fund is high school - once you have a good track record. We prefer 506(b) structure: you can allow up to 35 unaccredited investors but cannot solicit publicly. 506(c) can take only accredited investors and you can solicit publicly.

Can you walk us through the steps of a typical syndication?

The first thing I do: I already have prospective investors who love mobile home parks and my track record. Some of them have invested with me in the past, some have not. We have an open dialog and constant connection, so they know very well what we do. As soon as I put a property in escrow, I communicate with all of them. A good strength to show is powerful, candid, transparent communication. I share updates with them every week during the due diligence. Once I know we are going to buy the property, then I let them know we will start our offering docs, which will be completed in about a month. I tell them: "For those of you who are interested, let me know how much are you in for". Then I reach out to my attorney and give him everything he needs. We’ll get that done in about 3 weeks. We then review the documents, make any adjustments needed and when they are ready, upload them onto our digital signing platform. At the same time, we are doing the offering document, we are establishing the new LLC for the property and its bank account. When we are ready to accept cash, the funds go directly into the new bank account for the property so that from the very first day we can account for every penny. Then we close the asset, we let everybody know that we are closed, we can bridge for those who are not ready. A fund is better in that way: the capital is already raised and you just deploy it.

How do you raise capital?

Raising capital is an interesting conversation. When you do a syndication, the most important feeling to give the investors is confidence: a. It will be profitable and b. They are not going to lose their money. This is best accomplished through good relationships, once you have a great track record, that’s the time you don’t need new investors: you have more money than you have deals. I have been raising capital for over 15 years, from way back in 2002 when I was developing family homes. My network of investors has expanded from those people to include their friends, and their friends, and so on. I sometimes would approach existing connections and let them know I want to expand my investor network, "do you know someone I who could benefit from this like you do?" It is critical to do things correctly upfront to be allowed to network with their friends. 90% of my growth has happened through building those relationships, and through powerful transparent regular reporting.

Today I do quite a bit of giving back to those who are seeking to follow my footsteps. I contribute on forums like Bigger Pockets, write articles, participate on podcasts, and speak at events. The goal is to share the wisdom I have gained in a way that will benefit others. What happens is that readers seeking to partner with someone with a high level of expertise reach out to connect and explore potential opportunities. When the time is right and a prior relationship is established, some of them choose to become investors with me. Selfless contributors with the right attitude have probably raised tens of millions of dollars through that behavior. The newer capital in my network has been attracted through me doing that work. It is a great demonstration of the old adage “Give and you shall receive”.
At the very beginning, you start with people who already trust you. “If I find a deal would you have an interest in being my partner?" After that, I ask my investors to refer me to people they know who might be a good fit. If you want to attract new relationships, the way I have found success is to share your wisdom and knowledge and become an industry expert in your asset class. It is like farming and is a much longer process. Some of the people who eventually become investor partners of mine have been on my radar for several years.

My investors expect a real chance to receive a 12% return, and I set them up for an incredible experience: access to me all the time, regular reporting in many different forms, at the same time every quarter and distribution always on time, taxes completed exactly on time every year.

One of the best things you can provide to inventors is to have a plan of how you will communicate with your investors before you even start.

How do you find new deals?

When I was a wholesaler, even when I was a developer, I would drive through the area I would like to build homes in and I would find out who owns what. I would send them a letter asking to call me. All the land I bought, I bought directly from the owner. The most valuable skill is to get them to feel comfortable and to like you. People like to do business with people they like. Ask them about their story, don’t talk money right away. You will discover people like to talk about themselves and the more they get to talk, the more they tend like you. Listening is a powerful skill. Keep the conversation organic and be comfortable enough to laugh and be lighthearted a little bit. When the time is right, ask them "If you did sell your property, do you have a number in mind you would get excited about." They may not be interested initially but call them back in a few weeks or a month. After a few conversations, you’ll have a good enough relationship to ask, “When are you going to sell your property to me?” The goal of talking to them often is if they eventually sell, they think of you first. Be consistent. Create a relationship. A relationship is the best way to get deals.

I have a specific type of parks I want to buy, which narrows my target. I cold call and after a couple of years I am talking to them for the 10th time. My goal is that every owner of a property I’d like to own knows me. I will visit them and invite them to lunch, making me different from the others who are contacting them. I want to become the first choice when they decide to sell the property.

What type of parks do you like?

At least 100 spaces, in major markets, not in the middle of nowhere so that there will still be jobs in case of a recession: markets of 50,000 people, at least one Walmart, but more than one is even better. Walmart does incredible market research. They want their customers to have jobs even in the worst of times so their stores will still perform. Walmart customers are also mobile home park residents. I prefer to have city water and sewer because they are more predictable with less risk. But with that said, I own parks with septic and wells.

I will buy RV parks, but only in great locations in a strong market where they can be a solution for permanent housing, not in the middle of nowhere or along the interstate.

How do you do your due diligence?

Well, there are over 100 things I look at. The physical inspection is the last thing I do. I do a drive through during the time I make the offer, so I can get a pretty good idea of how well the park is being taken care of physically.

The important element is market demand: what are the options for existing and prospective new residents and how does this property fit into those options? For me, the park I buy should be the best option in the market. So the demand study is the most important element of my inspection. That comes before doing due diligence on the asset itself.

Next, I go to city/county/police state regulatory department to see that there is not something that can’t be remediated: crime, sexual predator… flood zone, grandfathered rights, can I move units in and out? If there is a well or a septic: what are the historical issues? Then I get contractors: who will be my local plumber who understands mobile parks, my electricians who understands pedestals, my paving person, my landscaping solution… And I get them to inspect the park and they tell me what needs fixing and what it will cost.
If I will be putting a loan on the property: we start the loan process and my business partner Nate will be analyzing their numbers (income, expenses), how they are operating the park, do rent survey with competing neighboring parks. Every time we check a property and find a new item to check, we add it to our list. There are 4 words we use in our business: “We don’t like surprises” so we have a habit of doing super deep due diligence to avoid surprises.

What is your take on mentorship?

I have had many mentors along the way. Every one of us has the opportunity to be a mentor at some point in life. I do it in the personal development space for youth who are struggling, it is a rewarding way to give back. My approach is centered around belief: I help them connect with their ability to believe. If you believe you will be successful, you will be. If you believe it will be difficult, it will be hard. On the real estate side, I don’t carve out mentorship bandwidth outside my writing and contributing to Bigger Pockets, because my business demands a lot and I have 7 children at home.

What books have influenced and continue to influence you?

Personal - The fundamentals of my daily habits are from a book called The Miracle Morning: take things that can contribute to you having an amazing life and put them into an hour every day.

Business - Traction is the best business book I have read in the last 5 years and it’s the book we run our business and properties by. It will cause your business to be proactive, not reactive. It causes people to own things and be accountable. It creates measurable results. How many people did I talk to this week? How many potential investors have I met with? That way, the needle continues to move at the business or property level. If you do those things every week, you can guarantee success. What gets measured gets done!

Sales - Chris Voss’ Never split the difference is about how to be a great active listener and active listening is extremely rare but if you meet someone who is good at it, you will notice it right away. Ask questions to lead the person to share more. Then you can summarize it and help them appreciate that you were listening and that you made them feel understood. Then they will be willing to listen to you after you really made them feel understood. Active listening has power in business and personal relationships of every kind.

Do you have daily routines?

I think daily routines are the greatest contributors to one’s success in life. That’s the first thing I encourage the people I mentor to integrate into their lives. I have been a personal development person for as long as I can remember, to always be working on becoming a better person. My daily routines have evolved over time. They include some meditation to get good at ignoring the noise around me, then daily exercise, prayer, affirmations, time with family. I set my mind to how strong my belief is and, if I will use my gifts and abilities, things will always line up for me.