All Forum Posts by: Chris Reeves

I'm not done with that post - it's just that it's very long and I'll put the rest in my next post after a writing break.

 Hi Rina, nice talking with you again. Yes it was a lot of information, and it was good quality information about the nuts and bolts of running parks - no question. The course was worth its money and I'm glad I went.

Rolfe is smart enough not to come off as a huckster.

The more important question, to me personally - is trying to understand Frank Rolfe's real motivations for running this university, what his real and private opinion of the state of the market and future of the industry is, and what his larger game plan is.

There is the old saying that says that if you are playing a game, and you don't know who the sucker is - you are the sucker.

The man is clearly very intelligent, and very clearly has an agenda of some kind - some larger plan. It is no accident that NPR was allowed in the room with microphones for three days and that Al Jazeera was there as well with cameras.

Rolfe HAD to know that many students would react negatively to the presence of press - and that is why he didn't tell us. And yet he allowed them anyway. The question is - why? What's in it for him?

What is he REALLY selling?

You see Rina, Rolfe spent three days painting a picture of:

1 - The perfect business (high gross margins, high barriers to future competition (quasi local monopolies), increasing demand).

2 - Claimed that this perfect business counterintuitively sells for a big discount to its true value - and painted a plausible dual reason for it:

a - the stigma premium - mobile homes are yucky and embarassing, therefore demand for them is lower than would be expected

b - the current set of owners of this asset class (mom and pop) are so stupid and lazy that they have priced the rents of the asset class lower than they should be compared to apartments.

3 - He then masterfully executed the classic sales technique of creating a sense of urgency - saying that the current fragmentation and irrational discount-to-value of this asset class (mobile home parks) will soon expire because "mom and pop" are dying off, and will be selling out to professional investors with huge pools of capital.

4 - He claimed that when this de-fragmentation occurs (the next 10 years) the discount-to-value will disappear and that the real value of the rents of mobile homes will finally be extracted through inevitable professional management.

Item number 4, Rolfe must know, makes any experienced investor salivate - it's like cat nip. Because it implies that not only are *current* returns FANTASTIC they will be MIND BLOWING 10 years from now if you buy-in RIGHT NOW because two things will happen (according to Rolfe):

a - earnings will shoot up due to increased rents

b - cap rates on those earnings will plummet due to a new professional investor class owning the asset.

Combine a and b and you have the recipe for giant returns on capital if you only buy in RIGHT NOW, as good old Uncle Frank is advising you to for the low, low price of $2,000.

The problem with your plan - OP - is that you are:

1 - pumping approx $80,000 into depreciating assets (mobile homes, which will depreciate steadily all the way down to being near worthless) - real estate investing is predicated on a foundation of assets which at least hold value.

2 - grossly underestimating your long term expense ratios

The land you purchase and the capital improvements you make on it (pads, infrastructure) will hold value - the homes themselves will not. So to calculate a real return you had better factor in the reality that your homes will rapidly lose their value.

Thus a large part of your projected cash flow is a return OF your capital not a return ON your capital - i.e. you are gradually liquidating your own business.

If you were buying near-worthless old homes for much less money, and buying land already developed as pads, to get your lot rent - that would seem to make sense. But the way you have this structured I think your cash flow is going to disguise the fact that 10-15 years from now the homes will have eaten up much of the value of your project.

And if you are planning on keeping those homes as rentals (i.e. you own them ) then your expense ratios are way out of wack with industry norms.

You also have not broken down your estimates of gross income by homes vs land. Your model is far too simple.

Thanks for the feedback and great discussion guys - getting ready to head to the airport now - gonna spend the next several days listening to Frank Rolfe in Seattle at his bootcamp.

Hi folks - first post here on Biggerpockets. Glad to be here!

I and my family have been in the multifamily industry for many years, owning and operating apartment complexes ranging in size from approximately 30 - 130 units, in California and Oklahoma.

We are considering dipping our toes in the mobile home park business to diversify the portfolio and add some yield (anybody half awake has noticed that multifamily caps are at historic lows) - we'll be at the bootcamp in Seattle this week.

But one question has been gnawing away at me - there is no free lunch in this world. While I am a believer in the tenets of behavioral finance and of going against the herd to find deep value, I still struggle with the idea that there is a whole asset class out there that is mis-priced and a goldmine waiting to be claimed.

In addition it does not make sense that parks are claimed to be both very stable compared to multifamily, easier to run than multifamily, AND trade at yields well above multifamily.

We live in a world where information is instantaneous, and investors are flush with dollars coming out their ears driving yields down on every type of asset class - why should mobile home parks be any different?

So I have a hypothesis - that the high mobile home park cap rates are an illusion - that in the long run (ie holding periods of 20-40 years) these cash cows are giving you a return OF your capital, not a return ON your capital - i.e. a gradual liquidation.

The reasoning is simple - if your customer base is stable because they are so poor they cannot afford to rent an apartment, how in the world can they afford to maintain the mobile home they own in a habitable condition over a very long period of time? You can't have it both ways.

And if you are dead broke and can't maintain your home - eventually you may simply stop paying lot rent and abandon your now-trashed "home" - leaving it for the park owner to fix up and attempt to sell to the next person who also cannot afford to maintain it.

With multifamily the caps are lower but as the owner as long as I maintain my property and make the necessary cap-x investments when needed (roofs, fencing, interior upgrades, siding, etc.) the property's life is indefinite.

In any case - somebody please tell me where I'm wrong. I would very much love to be able to gobble up a portfolio of 10 cap parks, put a regional manager in place, and be sitting in cash cow city while I wait for the multifamily industry to crash and burn from its current low cap rates until acquisitions are attractive again in that sector.