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Today’s episode features commentary from Archimedes Group founder’s Ian Tudor and Ryan Narus. They discuss their mobile home park journey, having managed various properties over time. Their experience includes park owned homes and tenant owned homes. The group compares and contrasts the two, providing firsthand insight on both. Let’s establish a clear understanding of both approaches.
Park owned homes
Home Park owners bear the brunt of the work in this version. They institute a rental fee and sometimes entertain sales. This means that owners claim the lion’s share of responsibilities. Custodial, infrastructural, and more. The benefit to owning comes in profits. Upkeep fees can sometimes even make breaking even difficult.
The Archimedes Group began exploring real estate in 2015, with MHP as top priority. They cite “the lower fragmentation [and] the lower amount of capital needed” for newbies. This perk wasn’t enough to keep the team in this trajectory. Their focus shifted to tenant owned homes.
Tenant owned homes
Tenant Owned Homes refer to individually owned units within a lot community. The group swears by this approach and its benefits. The largest support comes in financing. The “bank is only looking at land and improvement… Homes are personal property, which are a depreciating asset.” Tenant Owned Parks ease this. Each unit’s individual owner incurs maintenance responsibilities and lot rent. This opens up better interest rates on loans, and capitalization rates on pricing.
These considerations spell big profits for this approach. This comes with a substantial amount of grunt work. Owners must be a part of their community to truly build a thriving space. It takes putting boots on the ground, and embedding in the community to ensure success. “You need to have your fingers to the pulse of your community,” the group says. Tenants that own are more likely to stick around for longer periods. Nurturing and maintaining these relationships are necessary for a successful park.
Converting park owned or buying tenant owned?
Should you buy a tenant owned park outright or convert a park owned home to one? The group affirmed that buying one outright was less of a headache. If a park has renters without aspirations for owning, transitioning can be challenging. Purchasing outright means that the community is already on the same page. From there, it’s just a matter of elbow grease and good will! Worst case you can start converting your park owned homes to tenant owned today.
No license, no deal on park owned or tenant owned
Licensing is a major concern in all real estate. To put it bluntly: “Don’t Get Cute, Get A License.” The group warns of significant penalties for failure to get proper licensing. A previous client tried selling them an unlicensed home. “1st offense came with a fine and a warning… 2nd offense would be a $20,000 fine… 3rd offense, jail time, no questions asked.” Its imperative that you follow all federal and local guidelines to ensure legality.
The Archimedes Group is an example of homegrown efforts manifesting major successes. They are not risk averse either. They’ve had a lot of trial and error. This is the kind of failing forward that creates subject matter experts. Listen in full to their conversation with our own Jason Sirotin and Glenn Esterson above. For an even deeper exploration into entering the MHP space, listen here!
Podcast Transcript
Jason Sirotin:
Hello and welcome to the Mobile Home Expert Podcast. I’m Jason Sirotin, here as always with Glenn Esterson, and today we are graced with the presence of Ian Tudor and Ryan Narus. And they have a company called Archimedes Group. Did I say that right, guys?
Ryan Narus:
You nailed it.
Finally. So tell us a little bit about Archimedes Group before we jump into everything.
Ryan Narus:
Sure. We are owners and operators. We have been a part of now 10 transactions and roughly 1,200 pads, a little over 1,200 pads, and basically what we do is we are heavy value add guys. We do not outsource any of our management, we are all in house. We taught ourselves Spanish, we speak our broken Spanish, we go to the properties, we sleep on the properties if we have to. We have wonderful blow-up mattresses that work. And we pride ourselves in being different. We are young. As of this recording, I’m 32 years old. Ian’s got all the answers about what to do in your 20s, despite still being in his 20s. And we have fun roasting each other, we have fun doing business, and we started with nothing. No money, no experience, no network.
Ryan Narus:
Flash forward four years and change, and we are excited to be where we are and we’re excited to help people out in any way, shape or form that we can.
Jason Sirotin:
That’s incredible, because I don’t know if you guys know this, but this podcast is all about my journey to learn and possibly jump into this space. So I got to ask right off the bat, how did you get into it? What started it? And how did you do it with no money? Tell me that part.
Ian Tudor:
Yeah, so that’s a multi prong question. I guess I’ll start with first just how we got into the business. I came from the commercial real estate world. I worked for a publicly traded read at the time, and was on their investments team, and throughout that whole process I always wanted to do some investments on my own, because real estate is quite an entrepreneurial business if you want to take it that route. There’s no real requirement to get started, which is a beautiful thing, and people have PhD’s and there’s people who just got out of jail, and they both can make real estate work. That’s one of the things I really like with real estate, is if you really put your mind to it you can make it happen.
Ian Tudor:
So while I was working this job in Orlando, I was looking at ways of flipping houses. I owned a single family home right out of college and found out that cash flow gets eaten up pretty quick when you have a [inaudible 00:02:43] repair and a few others. So I looked to scale up. But before that I was looking at a mobile home because it was low on the capital. I was just going to own one mobile home and then rent to own it or something. They call it a Lonnie deal. Started there, and the roommate at the time said, “Why don’t you just buy the whole park?” So that opened my mind to it. Bought some information stuff, and then when Ryan and I reconnected in 2015, we decided to run with that business, and that was July of 2015 that Ryan pitched over there and we’d go into business, and then we were off to the races ever since.
Ian Tudor:
That was how we got started. It was just stumbling through discovery of wanting to invest in real estate, not really know the entry point, and there’s a lot of beautiful benefits of mobile home parks, the fragmentation, the lower amount of capital needed that allows new entrants to scale a little bit quicker than they would office or apartments where it’s a little bit more competitive.
Jason Sirotin:
That’s awesome. Before we get into our topic, which today is going to be converting park owned homes to tenant owned homes, I just got to ask, biggest failure and biggest success since you’ve been in the business.
Ryan Narus:
Naturally, like I mentioned earlier, we like roasting each other, so I’ll go without our biggest failure was a due diligence mistake that Ian totally made. Actually, we both made the mistake. I’m just saying that because it’s funny. But we didn’t check the water bills on our second park ever. And I did a whole podcast episode about it called Due Diligence Nightmare where, thankfully, we entered at a low enough basis where it didn’t ruin us, but we had about $20,000 a year go into the ground. In a week that was impossible to find. And I put together a list of every single plumber in Asheville and I called every single one, and no one wanted to touch it with a 10 foot pole except for one person that, thank god he was out there. But that was definitely our biggest mistake, but thankfully we lived to see another day. And anyone listening in who hasn’t gotten started in the business yet, please, do not wait for the perfect opportunity. Mistakes are going to happen, and as long as you can live to see another day, man, a single or a walk is much better than not even going up to bat.
Ryan Narus:
Ian, if you want to take the next part of the question, that would be awesome.
Ian Tudor:
Yeah. I think our biggest success was … I mean, we could cut this a lot of different ways, I think that’s hard to characterize. But one that I think Ryan and I look back fondly was the cost of mobile home parks. I jumped off full time, which I don’t recommend to a lot of people, when we had one park that we owned with another operator in 2016, and I lived in Ryan’s childhood bedroom at his family’s home and just tried to find a way to make it work. And we came across an opportunity, which was a 530 lot park in south Atlanta, and it was through a cold call. And through that, it allowed Ryan and I to both go full time. So Ryan was able to quit his corporate job, and we lived on the property for 14 months in a double wide on a blow up mattress learning the front lines of that mobile home park.
Ian Tudor:
We got to see all aspects of the business from exploding sewer pipes to bringing in RVs to sitting new homes from selling park owned homes to tenant owned homes to dealing with drug addicts to replacing water lines. There’s so many things that we learned in such a short period of time that it really kick started our mobile home park career, and I don’t think without that experience we’d probably be the same people we are today.
Ian Tudor:
That was something that we’ve done again and again on smaller properties, but that was really the catalyst for Archimedes Group and the [crosstalk 00:06:52]
Ryan Narus:
Yeah, and don’t forget deleting felonies.
Ian Tudor:
Yeah, that’s right. Yeah, we have [crosstalk 00:06:58]
Glenn Esterson:
That sounds a lot like my experience, or my introduction into mobile home parks as well, although at a much smaller scale. I did not [inaudible 00:07:11] a 500 unit park when I started off in this industry. I started with a small park, but much like you I had pretty much lived in that park two thirds of the week getting things done, and it really does teach you the front lines, and it really shows you the real ugly that can happen when you’re there all the time, and seeing the underbelly of what these things can do, and when taking them over from a mismanaged park and trying to turn it around. So I applaud that effort on there, I’m glad it has turned out to be an excellent investment for you guys, and it’s a wonderful park, still has a lot of meat left on the bone for you, and you guys have been doing great ever since with that one.
Jason Sirotin:
Guys, what is deleting felonies? I missed that.
Ryan Narus:
Go ahead.
Jason Sirotin:
Did you say deleting felonies?
Ryan Narus:
Oh, that’s an inside joke. Yeah, we had this one knucklehead who was causing problems on the property, and I don’t think there was a single person there who knew the guy who liked the guy. It was just one of the situations where sometimes you have to do what you can to get people away. And this guy came in and had a history of violence. And we denied him, and he was like, “So I’m denied because of my felony.” And we’re like, “We’re giving you an adverse action letter here because of several things,” but in so many words what he wanted to hear was, “Oh, if I just didn’t have that one time.”
Ryan Narus:
What it ended up being was he got tased by a cop. Sort of like, “Okay, that’s not normal, what happened?” And he was like, “Well, I was going through a divorce,” and I’m like, “Understandable.” And then he goes, “Well, one thing led to another, the cops bust through my door, and all of a sudden, I’m not going to not defend myself.” He’s like, “So long story short, I’m on the ground getting tased, and they slap a felony on me.” And he’s like, “Well, I’ll just go to the county or whatever and just have it deleted from my record,” or whatever. And we’re like, “Hey, we’re waiting in the office for you.”
Jason Sirotin:
We’ll be waiting. So Glenn, before we jump in, how did you meet these guys?
Glenn Esterson:
Ian and Ryan and I, we all met, I think initially at a conference in Atlanta that’s actually coming up next week where we’ll be there again. Or maybe, correct me if I’m wrong, it was either at that conference or you guys reached out to me maybe by email or social media, because they’re very present on social media, very easy to find. And we linked up now going on a couple years if I’m not correct. I think that’s correct.
Ryan Narus:
Yeah, we met, I’m pretty sure, Glenn, you and I met in SECO 2017 face to face, but I’m sure we reached out to you many times before that, because we’re, yeah, if you’re in this industry, we’re trying to meet you, we want to be as connected as possible. So yeah [crosstalk 00:10:14]. Some way or another we found you or you found us.
Jason Sirotin:
That’s awesome.
Glenn Esterson:
It’s been a couple years, and we’ve been able to help each other out in connections and feedback and understanding the business better. We have yet to transact, unfortunately, we keep trying, but these guys, they like to buy deals a little bit cheaper than deals I’m able to sell them. And they’ve done tremendously successful things with their operations that they have. And we’ve turned into pretty good colleagues and friends, and we have pretty open conversations about deals, and try to give each other advice when necessary, and I see them continuously do that with everybody that they meet on the internet, through social media, and in the few years they’ve been around they’ve really made a good name for themselves and have a lot of believers in them. That’s why I thought it’d be appropriate to bring them on to this podcast. They have their own podcast as well, which Jason will fill us in here in a second about.
Glenn Esterson:
But it made sense to have us all come together on here, I thought, and tell people, talk about the subjects we’re going to be entering into.
Jason Sirotin:
Yeah, and you guys also share some of the same beliefs and ethics around mobile home parks, which we’re going to get into later. And if you do want to check out their podcast, it’s MHP IRL, which is Mobile Home Parks In Real Life, and you can find it on iTunes, and what was the other ones you said? You said Switcher?
Ryan Narus:
Yeah, on all platforms, so Google Play, Stitcher, we even post some of them on YouTube. And if you don’t like listening, we have a ton of video content and a blog if you like reading, and we’re active on LinkedIn. My big thing is we’re not selling anything, we’re just two guys who own and operate parks. I do not like slumlords. That was one of my favorite parts of your book, Glenn, was responsible mobile home park ownership, and I was on an interview earlier this morning where the lady asked me, she was like, “I went through all your content, and you give a lot of stuff away free. Aren’t you afraid you’re developing up your competition?” And I was like, “Look, here’s why we do this. It’s because we want to combat slumlordism. So if we can help good people have the tools that they need, and we’ll give it to them for free, to combat potential slumlords, sign me up even if that means I get outbid. I would rather get outbid on a deal by someone who I know is going to have a heart than someone who’s not going to care.”
Glenn Esterson:
Yeah.
Jason Sirotin:
Absolutely.
Glenn Esterson:
Yeah. And it’s … Ian and Ryan’s group, they very much practice being an empathetic capitalist, and they understand that the people in their park are important and need to be treated well, and have the proper things provided for them that a good land lease owner, park owner might want to provide, clean living and honest management and up to date with maintenance and repairs, and not just jamming a massive rent increase down their throat, and hopefully helping these guys turn, if they’re renters, into lot renters, party into homeowners, and if they’re short term tenants, into long term tenants, and make it … I’m assuming you guys are making your parks feel as there’s real value there for your tenants so they don’t want to leave, and they feel respected. And at the same time, make a hell of a return. And that’s the premise of my book, and how I try and work with brokers, or with park owners, and what Jason is trying to learn about.
Glenn Esterson:
It made good sense here, it might make good sense here, to talk about one aspect specifically to start off with was the home ownership side, with having some empathy with your tenants, and being able to understand their situation and come up with a way to help them afford to own the home that they’re living in is a big practice inside of our industry. And a lot of people do it one way, and we’re hoping other guys start doing it more reasonable way. And that’s the way that Ian and Ryan do it, and that’s the way that we’re going to talk about here.
Glenn Esterson:
It might be a good time to start talking about how to convert your park owned homes into tenant owned homes, where you’re going to achieve considerably more value from that tenant over the life of that time that you own the park, you’re going to get a better capitalization rate and ultimately a higher price. And you’re going to have tenants that now actually are vested into your prop, they’re going to have a more solid foundation for their own futures, and with some of the amenities that the park owner can provide you might actually be able to really enhance their lives. But one step at a time. And it starts with getting renters to be homeowners.
Jason Sirotin:
Why is that important?
Ryan Narus:
If you don’t mind Ian, I …
Jason Sirotin:
Yeah yeah, go ahead guys.
Ryan Narus:
If you don’t mind, I’d love to start this off by saying that is something that we do on a lot of our properties is convert park owned home to tenant owned home, but before we really take a deep dive, I feel compelled to say this. Anything worth doing is worth doing right. Do not get cute. Get licensed. Different states have different laws, and you may need to get a dealer’s license to sell more than say two in a year. It is a pain in the butt, but do it, because I’ve had someone burn me earlier this year on a home they sold me unlicensed, and boy did I get him. And he got slapped with a fine and a big warning, and the next time he gets, if he doesn’t get licensed, he’s going to pay some like $20,000 in fines, and then the third time it’s straight jail time, no questions asked.
Ryan Narus:
If it sounds scary that selling too many mobile homes unlicensed will put you in prison, do not get cute, get licensed. It’s a pain in the butt to get the surety bond and to go to the class and [inaudible 00:16:35], but do it. Anything worth doing is worth doing the right way. So please, I felt compelled to say that, because it’s easy to go [crosstalk 00:16:44]
Glenn Esterson:
And it’s very-
Jason Sirotin:
We’ve never talked about that. I didn’t even know that was a thing
Glenn Esterson:
And it’s really important to highlight … Well yes, and Jason, that was one of the risks about doing these things I wanted to talk to you about, is one of the unfortunate results form the Dodd-Frank Act and the Safe Home Act, I think it’s called, or the SAFE Act, was that, dealt with predatory lending and things, and it caused this little effect where it made it harder for a park owner to sell a mobile home to the tenant. And it’s really made it a real challenge, and there’s been some creative ways people have worked around it. Sometimes they do it below the table. But what these guys are saying here is paramount to your … To not getting in trouble, is you have to get a license to be able to sell the homes if you want to be able to do it more than just a couple a year.
Glenn Esterson:
Meanwhile, the government is working to change on that. MHI just put in some stuff that would raise the limit to about 28 a year or so. It has yet to be seen, but there’s things being done to change that, but if you don’t want to get in trouble, and it is big trouble once you get in trouble with it, you want to get licensed, and I want to make sure everybody understands that.
Glenn Esterson:
That said, we will be talking also about how some other guys are doing it and have been successful with it, and there’s plenty of workarounds in plenty of places. But at the end of the day you want to make sure you’re always complying with whatever the local and federal laws are about transitioning these homes.
Jason Sirotin:
Good to know, thank you. So what … I need to understand why there’s more value in the tenants owning it than the park, because it just seems counterintuitive that you would have more value by owning the homes. But I know that these don’t appreciate like regular homes. Is that the reason?
Glenn Esterson:
No-
Ryan Narus:
There’s multiple I guess points here. One is financing. Your income isn’t able to be capitalized from a financing perspective. So even if it was the perfect business model, say hypothetically, and it’s the perfect business model, you make a ton of money. When you go in to finance these, unless it’s a very particular situation, the bank is only going to be looking at the land and the improvements. So they won’t be taking those homes as collateral usually, just because homes are personal property, and that is considered a depreciating asset.
Ryan Narus:
That’s the biggest driver of it. The second driver of it is as things get older, it just depends on the age of the park, some homes, I don’t know if you’re familiar with the star rating of parks, but certain parks have homes that are in the 60s and 70s. They have flat roofs and it’s just a consistent-
Glenn Esterson:
They fall apart every day is what he’s saying. These older homes are going to fall apart literally every day. And that’s okay. There’s money to be made, you’re going to rebuild them, and you’re going to rebuild them out again for a couple more years, and if you’re … The main value that’s being created for this is in the lot rent, as we’ve talked about so many times. And when you’re renting a home let’s say in a park that has a $300 lot rent, but you’re only renting the home for $500, $600, it’s a safe 500 for easy math, you’re only earning $2,400 on that home a year. And every time you turn that home over, the tenant moves out, then you have to go in and repair the floors, the windows, fix the leak, change the wall board, whatever it is you got to do, and it quickly adds up. Easily eats up some if not all of that year’s income that that home produced.
Glenn Esterson:
If you’re renting a home for two years and then every two years you got to sink back in 75 percent of that money or 50 percent of that money, it’s not the most efficient and productive way to spend your time, I don’t think.
Glenn Esterson:
So people convert these homes into tenant owned homes by giving, first, you deliver the home ideally in as good a shape as you can deliver it, and then the tenant is then responsible for the repairs and the maintenance and things, and they’re only going to be paying lot rent. And now you’ve been able to convert a higher portion of … The way that most people are going to do it is the lot rent will go up but the payment might stay the same, so you’re able to convert a higher level of capital for capitalizing, and the bank is going to look at your park more so as a lot rent community, assuming these conversions have seasoned, and you’re going to get a better rate, an interest rate on your loan, you’re going to get a better capitalization rate on your pricing, and the small buckets of money you actually earn from owning those homes is going to be minuscule as compared to what the exit or refinance would look like on that income.
Glenn Esterson:
That’s the primary, those are the two primary reasons that people want to convert homes. Plus you have a much longer tenant because a renter’s only going to stick around two, maybe three years.
Jason Sirotin:
Yeah, that’s what I was going to ask.
Glenn Esterson:
For the most part as an average.
Jason Sirotin:
Yeah, so it secures all-
Glenn Esterson:
And a lot renter’s going to stick around …
Jason Sirotin:
It secures the lot rent typically for a longer amount of time. Probably by a lot, right?
Glenn Esterson:
Correct, [crosstalk 00:22:40]
Ryan Narus:
And also you get a different mentality of person coming in. A lot of renters don’t … Certain renters will never be owners. They don’t make that shift. Owners who own, they want to build decks on their place, they keep it up, they plant flowers in front of their front yards, they take an investment in the community as well. There are certain people as well that will look out for the community and cite issues.
Ryan Narus:
I was in a park yesterday where one of the guys, he sits on his front porch, and if people from outside the community try to throw trash in the trash bin, he calls the manager and lets them know, because he doesn’t want people to abuse a trash can. Renters don’t necessarily have that same mentality and mindset.
Jason Sirotin:
So when we talk about like-
Glenn Esterson:
Yeah, I mean it is …
Jason Sirotin:
Yeah, go ahead, Glenn.
Glenn Esterson:
I was going to say there’s a lot of less tangible effects from the conversion that are going to have a benefit to the owner and the park and the community residents. But you basically are trying to shift from a renter situation to a lot renter situation, because those lot renters are very likely going to stick around for the rest of their lives. It is highly probable to think you’re going to get the majority of time spent there at their park, especially if they’re already older in age and now they’re permanent lot renters. Most people don’t like to move, and once they have a good community and good people in the community, they tend not to leave. It’s a very sticky audience, which is why lot rent is the best part about park ownership. It’s not the rent income from the homes, it’s the lot rent that really makes park management and park operations worth it, because it’s very sticky. It will give you consistent cash flows.
Ryan Narus:
Another big thing, Glenn, that you talk about under the risk exposure section of your book is that a lot of these mom and pops that own these communities do a very poor job vetting their tenants. And when you own your home, it is really hard to get somebody out, especially if they’re paying. So the advantage of buying a community that’s all park owned homes is when you inevitably run into someone who slips through the cracks or if the mom and pop just got taken advantage of and you have poorly vetted tenants. It is a lot easier to get them out and then hand pick those who are good fits for you and what type of community you are building, because this is a community building business, because a community will self police. [crosstalk 00:25:30] The advantage of owning the home is you don’t have to worry about brokering a sale or buying the home back from someone or all of the issues, or maybe possibly losing one, from the community. Or worse, they abandon it and it takes you six months to a year to get a title if you can even get a title.
Ryan Narus:
The advantage of-
Glenn Esterson:
And before you can move it off sometimes.
Ryan Narus:
Yeah, exactly.
Glenn Esterson:
[crosstalk 00:25:55] They left it disgusting, you can’t do anything with it, you got to have that eyesore stay there for a long time. So there’s definitely some real disadvantages with that. But that’s why vetting the tenants is so critically important. And to your point, starting off with an all park owned home community, assuming you’re having some concerns about the tenant base, is going to provide you an opportunity to really run new applications and sex offenders reports and violent criminal reports against your tenant base, have an easier time evicting them on a schedule so you can start replacing the tenant with somebody new and ideally somebody who’s well vetted that you would want to live in your park the next 20 years. It gives you an opportunity.
Glenn Esterson:
I mean, I had to do that at my park. It’s not easy but it’s not that hard. It took me a couple years to figure it out, but once I understood what to do to convert my park, granted it was only 30 something units, it only took nine to 12 months to fully convert. I had some problems along the way and learned along the way, but I didn’t have anybody teaching me.
Glenn Esterson:
But it wasn’t the hardest thing to do, and it was definitely when I was finally able to get my park back in line and make my life easier with the tenants that I had.
Jason Sirotin:
I’d like to pose a question. Is it sexier to buy a park that is tenant owned homes, or better to convert a park owned home park yourself? Is there financial benefit to either?
Ryan Narus:
I think that’s-
Glenn Esterson:
I’m curious-
Ryan Narus:
I think that’s an excellent question.
Glenn Esterson:
I’m curious to hear Ryan.
Ryan Narus:
Thank you. I think that’s an excellent question to ask. I would definitely say it is a lot less complicated to buy a tenant owned home already community. It should in theory be less work, it should in theory be a lot easier to do the accounting if you’re like us and you do your accounting in house. It’s still going to be work, don’t get me wrong. You still need to go to your property, you still need to make sure you have a finger on the pulse of what’s going on in your local community as well.
Ryan Narus:
But if you are like Ian and I and you absolutely love speaking your broken Spanish to the local Hispanics and love sleeping on the properties when necessary, I love all park owned home opportunities, because it is my way to be able to go in and build a community. Slowly over time, it takes a lot of time and a lot of effort, and there’s a lot of headaches. I think the answer to your question is what is your end game? What do you want out of mobile home parks? And if it’s I want to park some investment dollars in a less of a headache type property and I’m willing to pay up for that, then go for a stable property. If you’re like Ian and I and you started with nothing, no money, no experience, no network, you have to find ways to monetize this business, and one big thing that most people don’t want to do is most people don’t want to go to their properties. Most people don’t want to hear little Miss Janice coming up to the front door complaining that during, the fireworks were too loud at Fourth of July.
Ryan Narus:
People don’t want to do that, and people don’t want to sell. Selling’s hard. People like Glenn, Ian and I, we love selling. But Ian and I get excited at heavy lifts, especially if there’s a good healthy chunk of meat on the bone, because we can make a good profit, our investors can make a good profit, and most importantly, for the city and for that community, we are going to get the bad people out, bring the good people in, and bring real value to not only that property but the community. And we’re proud to have properties appreciate in value because we were there.
Ryan Narus:
That’s how I want to be remembered when I pass away one day, is I want to leave the world a better place because I was here, and that is exactly the mentality I look at going into it.
Ryan Narus:
To answer your question, it just depends on what you want out of mobile home parks. Do you want a little bit more passive an investment, or do you want to just go gung ho and roll up your sleeves and go to your properties like Ian and I?
Jason Sirotin:
Yeah, I mean-
Glenn Esterson:
And now, all absolutely fundamentally right on target points. From there, I would add the other side to the equation. Because me, I’m 44. I’m still young enough to do things, but man I don’t like heavy lifts anymore. And the idea of me spending an eternity turning something around right now would be too distracting for me. But the idea of buying a nice park at a six or seven percent cap rate, where I’m going to see above average growth with either in-fill that’s not too hard to do or with three to five percent increases, and things like that, I’m going to feel that that to me at this point in my stage in life is a better investment and use of my time when I balance my time value headache model.
Glenn Esterson:
But there’s plenty of guys that I do business with, a lot like Ian and Ryan, where a heavy list is like hey, I’m young, I can do this, I got the time, energy, and money, and this is what I enjoy, I’m passionate about it. And they go in and make a lot of money on these turnarounds.
Glenn Esterson:
The other side of that is when you do have park owned homes, if you buy an all park owned park in your first … And you can theoretically turn that park in a couple years into a lot rent park, there’s a lot of extra money to be made doing that, because these park owned homes are bing sold on the GRM or on the shovel value, GRM being the gross rent multiplier, that $200 a month above lot rent thing that we were talking about earlier. And you’re buying a home for essentially $10,000 or less most of the time. And yeah, you’re going to have to put some money into it, but you’re going to sell it, and it’s going to make its money back tenfold for you over the time, or at least fivefold most of the time.
Glenn Esterson:
There’s real benefit to buying an all park owned home park if you have the tolerance for it, or there’s a real benefit in going for fully stabilized without any home renters and just lot renters. There’s benefits to both.
Glenn Esterson:
That’s going to be a personal decision, and I would advise anybody who’s listening to really balance their time value headache model, because it is not at all easy to do some of the heavy lifts in these parks, and the tenant transition … The home transition’s one thing, but transitioning the tenant base, that’s a little bit harder. And that can wear you down and hurt your cash flow, and you got to be mindful about all the risk that are associated whichever direction you decide to go on these things. If you’re looking for no risk and just easy peasy, definitely lean more towards the lot rent only and fully stabilized type of stuff, but you are going to get a smaller return. But for me at my stage in life, that’s what I would be looking for. And Jason, that’s what I advised you to be looking at. [crosstalk 00:33:23]
Jason Sirotin:
Yeah, that’s me, all day. I don’t see myself being able to handle a heavy lift, I don’t see myself being able to stay on the park and be bugged by people. I think that would just stress me out. I can understand the excitement of it. I just don’t thing, with a family and everything, that would be a good fit.
Jason Sirotin:
But I did want to ask Ryan and Ian something. Have you guys looked into RV parks at all? Because that has been really interesting to me.
Ian Tudor:
Yeah, we definitely have put in some thought to RV parks. It is a different business model. And you just have to be very careful with going into it for multiple reasons. I hear financing is a little bit even more difficult on RVs than they are on mobile home parks. And the reason why is you have a transient tenant base, and that’s just because they can … With certain RV parks they can literally just turn on their engine and drive off the lot. And you really have not much recourse, because they can go anywhere.
Glenn Esterson:
There is much more challenges with it, absolutely. We’re selling a mobile home park right now in New Mexico, a brand new one, for about eight million bucks, 7.9 million, something like that, and the way you buy these parks, with RV parks, Jason, is a lot different than how you would buy mobile home parks. There’s a lot of overlap. But it’s more of a business operation, and the pricing is usually based more on the historic P&Ls. For most of the quality parks, that’s easy for them. For the mom and pop parks, that makes it real hard to understand the income, understand the high and low points of occupancy there, and it’s definitely a different animal, much harder to [crosstalk 00:35:24]
Ian Tudor:
If you’re looking for a relatively stable asset, I think RVs is going more towards the realm of park owned homes than it is to stability. So if you’re looking for stability, I would stick more towards lot rent.
Jason Sirotin:
Great. Thank you for that advice. That’s critical. We’re running out of time, so I do want to touch on something that I think is a big connective tissue between Ryan, Ian, and Glenn, and that is the ethics behind the mobile home park business and not being a slumlord, which we talked about a little bit earlier. But there was something interesting that I believe it was Ryan, or Ian, I can’t remember who said, but they said, “I don’t ever want to see a report like I saw on John Oliver again.” And I’d love to close out this episode talking a little bit about what’s going wrong with the business, and how can groups like you and Glenn turn it around and prevent it from being a slumlord ran business and giving the whole business a bad name.
Ryan Narus:
Yeah, I’m really glad you’re asking this question, and let me tell you why. Because I think that no matter what, you’re going to have bad eggs. But you always have to be a leader if you believe in something, and you always have to not say, “Do as I say,” you have to say, “Do as I do.”
Ryan Narus:
From my perspective, the issue that’s going on right now is because you have a captive audience, it’s really easy to crank rents way up, and it’s really easy to not invest in your properties because you have a captive audience that don’t have many more opportunities. And I agree with Glenn in his book when he says regulations are probably unfortunately coming, because they are. Like I said, what I want to see and what I want to help do in this industry is show people that you can make a profit, you can be fulfilled doing what you’re doing, and you can make your properties better off, and everybody wins.
Ryan Narus:
But the problem is right now there’s a lot of hype in this industry. And it’s being branded as a coupon clipping, highly lucrative, mom and pop filled industry that’s easy to get into, and you can just wack it. And the problem is people are going out and raising money, really truly not understanding the risks.
Ryan Narus:
Again, I’ll reiterate what I said about Glenn’s book. He has an entire section about risk that I do my best to put on my podcast, and Ian and I on our blog and on our LinkedIn, because we want to help people understand the risk. Because if you listen to just a couple of outlets and sources of information about this industry, it is easy to get drunk on the hype and then it is easy to get investors drunk on the hype. And then when you can’t find the outstanding returns, or you can find the outstanding returns but they’re heavy value add, like Mr. [New 00:38:32] or Waldo from the book, you end up getting smashed. It’s way more [crosstalk 00:38:38] it is. You aren’t licensed. You hire people that aren’t licensed. And you get ruined. And it’s not only your money at risk.
Ryan Narus:
If Glenn, Ian and I can do anything for this business, it’s we can help inject another perspective, one of reality, one of let’s encourage people to get in, let’s help people get into this space, but based on a foundation of truth and not hype. And that’s why I called my podcast Mobile Home Parks In Real Life, because I do not have a sexy mobile home park, hyping up the industry, I am not selling anything, I am not actively seeking investors for a fund. I am just putting this content out there so the right people can find it and get in for the right reasons based and truth and not hype.
Glenn Esterson:
Absolutely. Guys, as we’ve talked about before, Jason, there’s a lot of people that are promoting this industry for better or worse that are maybe making it sound a little too easy. And it’s causing, people are getting involved to push harder on just income measures than they are on improvements. And the real value in these parks, when you want sustainable value in your park, it’s the improvements that you’re going to put into your park that’s going to make you not get on John Oliver, because you’re not going to be doing things that have too aggressive income raises without having any significant improvements to the tenants’ lives, to the park’s facilities, and to the community programs that are already happening around. So if you can invest more heavily into that, I think the industry overall will be better. I’m hoping my book teaches people that. I’m hoping I keep meeting more and more people like Ryan and Ian who are promoting this idea. And through the various outlets that they have, they have a very large audience, and I’m hoping that their audience is going to learn what, I don’t know what’s the right way or the wrong way, I just know what feels better to me and what feels kind of slimy to me. And I’m hoping that that’s translating to the people I’m working with and the people they’re working with.
Glenn Esterson:
Because we have to turn the tide here. As we’re wrapping up I’m realizing we didn’t talk nearly enough about all the different ways to convert these homes, but do remember that if you are going to convert these homes, get a license and stay within the legal limits of what you’re allowed to do with the stuff, and if you need any guidance on that subject, you can reach out to me, you can reach out to Ian or Ryan, and we’ve got plenty of resources and funny stories to tell you about how people did it correctly and how people did it not so correctly.
Glenn Esterson:
I’ve had a real great time with you guys on here today. I always wish these things could go longer, but we’re all on time constraints.
Jason Sirotin:
Yeah, so if you want to get in touch with Ryan or Ian, you can find them, they’re the Archimedes Group, and their URL is [archimede 00:41:45] desgrp.com, and Ryan and Ian, how can people get ahold of you if they want to talk to you?
Ryan Narus:
LinkedIn for sure. Ian and I are huge on LinkedIn. My last name is spelled N-A-R-U-S. That’s N like Nancy, A-R-U-S, and as we all just saw before we started recording this, apparently our website does not show up first on Google when you type in my name. Find either Ian or myself on LinkedIn. We’re very present, we want to connect with you.
Jason Sirotin:
And if you want … Go ahead.
Ian Tudor:
Also as well, we have a closed Facebook group called Mobile Home Park Mastermind, and we are increasing our engagement there, and you’re more than welcome to join that group and ask questions about mobile home parks, and feel free.
Glenn Esterson:
I didn’t know about that one. Say that one again. I didn’t even know about that.
Ian Tudor:
Yeah, it’s Mobile Home Park Mastermind. We created it several months ago, haven’t spent much time on it, but in the past month or so we’ve started to increase our engagement there as we found Facebook groups are really powerful and useful for people who are like minded and want to connect. And people are posting about their issues in parks and things that they’re finding and people are helping each other. So it’s been a really good resource that we’re going to try to continue to push to grow.
Jason Sirotin:
That’s super cool, guys. Well thank you guys so much for being on the show. If you want to reach Glenn, you can find him at themhpexpert.com. You can email him at [email protected]. And, you can call Glenn directly on his mobile phone at 423-483-0492. Ryan, Ian, Glenn, thank you all so much, and thank you to the audience for listening, and we’ll see you next time.
