Paul Moore returns to the Apartments Operators Podcast to discuss how he and his fund expanded their portfolio from multifamily to it’s close cousins the mobile home parks and the self storage facilities. We discuss the similarities to multifamily operations and the differences and hear Paul’s thoughts about the future of these asset classes. If you’re considering investing in multifamily properties, mobile home parks or self storage facilities, then you’ll want to check out this episode!
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Welcome to the Apartment Operators Podcast, where you can learn from experienced operators what it really means to be an apartment operator. No fluff, no sugarcoating, just the raw, unfiltered truth of the ups and downs of operating multi-family communities. We have a repeat guest, our first repeat guest of the podcast, my friend Paul Moore.
Paul is an amazing guy and we bring him, usually we talk to operators. Paul is the operators operator. It’s the next level up. Paul, give us a few minutes just so the audience will have a refresher if they haven’t heard our previous podcast or they don’t remember since it’s been so long since you’ve been on.
Man, it’s great to be here, Joseph, but why did you want to get a guy on who has a podcast called How to Lose Money? Come on. First of all, I was a guest on that show, so I liked that show and I’m a great man of that show. And this is in a way, your podcast inspired mine because you said it. The same thing is there’s way too many podcasts out there that just talk about the rainbows and lollipops.
Yeah. And here on this podcast, we talk about the real no sugar coat. Truth of operating apartments and operating multifamily. So that’s why you’re here and you’re like I said, the next level up. So I’m sure our listeners would be happy to hear from you. Yeah, man, thank you so much for having me on again.
So yeah, I had a engineering degree, which was my first mistake, and then I got an mba, went to Ford Motor Company, had my own staffing firm from five years, and then I. Just went off into a shiny object chaser mode. Like I started all kinds of companies and most of ’em, I don’t, some of them, I should say, I don’t remember now.
Most of them never got off the ground, but I did a couple things that were really interesting. I flipped houses. And then we flipped waterfront lots. Then we built some houses. We did a ground up. We did some we did seven or eight houses we built from scratch. That didn’t go very well. But I did a subdivision, which was land development and that.
Went really well. And then we eventually invested in oil and gas in North Dakota and we found out that there was a massive housing shortage during the oil boom in 2010, 11, 12, 13, et cetera. So we built multi-family there and we operated that for a number of years. We had no idea what we were doing. In fact, when we went to sell the property, they said, do you have a copy of your rent roll?
And I. What’s a rent roll? And they said, what do you mean? What’s a rent roll? I said, what do you mean? I said, I got a list of everybody who stays here. And that’s how little we knew about it cuz we weren’t connected to any multi-family, any formal procedures and all that. We were operating at more like an ex.
Extended stay hotel, because these were flexible leases. They were paid corporate suites basically. And so we had a lot of fun doing that. We were charging like 4,000 a month for our 300 square foot furnace unit, and we were staying pretty full, so that was fun. But my partner decided to do a Hyatt hotel and I helped him for a while, and then I broke away and went back into multi-family.
My goal, Joseph, was to stay in multi-family the rest of my life. But then I came to the conclusion that maybe it was overheated. Now the real problem wasn’t just that. The problem was too, my company didn’t have a good acquisition team. We didn’t have great strategies, we didn’t have a great team, and we just weren’t finding the deals that other people were finding.
And so out of frustration, I started looking at other asset classes. We looked. Self storage. We looked at senior living and we eventually decided to start investing in self-storage and the other multi-family, and that’s mobile home parks. Remember in the, maybe before your time in the nineties here be before.
Before you came to the US there was an ad campaign called Pork, the other white meat, and we thought that was pretty funny. We always made fun of it. Now I call mobile home parks, the other multi-family. So why do you call it the other multi-family? Where is operating a mobile home park similar to operating an apartment and where is it different?
Yeah, so I wrote a book on multi-family investing, and at the time I thought it was the perfect investment and that’s why I called the book that now. , just to be clear for you and your listeners, I still believe that. I still believe multi-family is the perfect investments. It’s got incredible demographics, it’s got long-term data that would support that.
Multi-family is gonna be a great asset class for decades to come. It’s got all kinds of benefits and features and things that just make it a wonderful asset type. The foreclosure rate is extremely low. It’s almost zero, and we. Multi-family, I call mobile home parks. The other multi-family, because it’s also a property that has multiple families and individuals living at it.
Unlike self storage that has nobody living there except some mice, the mobile home parks, have a lot of different individuals sharing the common space. What I love about it is, . Unlike multi-family, it’s an opportunity. Unlike apartments, it’s an opportunity to partner with our tenants because mobile home park investing done well usually doesn’t have mobile homes involved unless they’re owned by the tenants.
In other words, we’re basically leasing land to. Tenants who are bringing or buying their own mobile homes at the park, when they bring or buy their own mobile home, they’re actually responsible for the maintenance, the upkeep, and if they walk away and don’t pay their lease, eventually they’re gonna be walking out of there without their mobile home.
Sure they can haul it off in the middle of the night, but it typically costs $5,000 to move a mobile. . And so even with Covid going on when there was some eviction moratorium, Our operators would tell these people, look, you might as well keep paying your rent. You’re making money from the government anyway, and if you get six months behind on your rent, the day this eviction moratoriums lifted, we’re gonna file eviction against you.
How are you gonna catch up and you’re gonna lose your home? And typically they would. And stayed caught up. And so we really mobile home park investing. The tenants are sticky. And you know what, Joseph? It’s the only asset type we’ve ever heard of that has a decreasing supply and an increasing demand.
every year, so we really like it. Yeah, I heard about it. Is it true that it’s about every year about 3% of mobile home parks are being wiped away and no city or county wants to approve new locations? I don’t think it’s, I don’t think it’s that high. There’s about 40, 44, 40 5,000 mobile home parks in the us.
It’s believed that 85% are owned by mom and pop operators. They don’t have the know. The desire, the skills, the money to upgrade the park and to increase income and to maximize the value. and they don’t need to. Think about this. Cap rates used to be like 12% for mobile home parks. , now they’re really popular and the mobile home parks cap rates have gone down to say maybe 6%.
So Wow. While the operator has done nothing except b. status quo or mediocre? Yeah. Their value of their park has perhaps doubled, and so they don’t have to do anything. Why should they? So if they sell, One of our operating partners can pay them top dollar in their mind. They’re getting, absolutely top dollar more than they ever dream to go retire with.
But this operator can take that same park and create a wonderful asset with higher income, better park, better maintenance, better everything, and they can sell it to a larger. Like a REIT sometimes for top dollar and really do well by their investors. . Interesting. So I heard you say 85% is still owned by mom and pop.
Yeah. That means that this field, that this asset class still has a ton more opportunity, right? For people like Q and I to come in, raise money and buy these things out. But we’re investors, right? We’re operators. We’re looking at things a little bit different. A couple questions that I always had in mind about Mobile Home Park is one.
because you don’t own the homes, right? You only lease the land. Land is not appreciable. Isn’t that being taxed like ordinary income at the very high brackets? Man, Joseph, this is one of the big. Hard to believe. Secrets of mobile home park investing because bonus depreciation is so strong, you can actually depreciate in many cases.
Of course, I can’t guarantee this, but in many cases, investors get back over 100% of what they invested is depreciation in year one alone. Now, let me. And if you want me to drill deeper, I will. Please do. But typically, a mobile home park is about 25 to 35% valued in land. The other 65, maybe 75% is in infrastructure.
The infrastructure, and sometimes there’s mobile homes in there too. Like some park owned homes, but the infrastructure is typically depreciable not in 39 years or 27 and a half years. It’s typically depreciable in 15 or 10 or five or three or seven years. Will all those asset classes, excuse me, all those depreciation classes under the.
Tax Reform Act in December, 2017 are all compressed at the moment, at least into year one, bonus depreciation. And so if a mobile home park has, let’s say, 50% loan to value mortgage, so you got a 5 million park, two and a half million equity, two and a half million debt, okay? . Now the 5 million park, let’s say a million and a half of that is.
Now you’ve got three and a half million that you can write off, and if you can compress all that, let’s say of that three and a half million. 3 million, okay, can be depreciated in year one. ? The total investor size is only two and a half million. So all that two and a half million in equity is getting a $3 million write off.
So those investors are getting incredible tax deductions. Would you have ever dreamed that? No. I assume that the land value is much higher. Me too. As part of the cost of the mobile home park, is that something that you guys have to put into the contract? The value of the land, the value of the improve?
That’s funny you say that. Cause I used to think that. I used to think, oh, what is this some kind of funny accounting where you’re adding in goodwill? Or is this some kind of thing where you’re adding in the value of the business separate from the real estate? No, this is all basically done on what’s.
It’s similar to a cost segregation study and some mobile home park owners just use a typical cost segregation study, and there’s actually two different ways to do it, but they both arrive at a similar conclusion. Interesting. . Okay, so let’s talk about the operations, right? So one of, right out the bat, you said the biggest difference is no maintenance, right?
So you don’t have to worry about the houses and the inside and faucets and plumbing and all these other stuff, right? Yeah. But you still have the infrastructure. Absolutely. Yeah, we have some maintenance for sure. So let’s talk about size for a second. What kind of size of mobile home parks you guys are invested in.
Because I’ve seen those as little as like 12 lots. Yeah, and I’ve seen those go to hundreds and hundreds of lots so yeah. What is your. Portfolio looking like in terms of advertised? Yeah. Our sweet spot would be investing between a hundred and maybe 300 units. So of course larger would be fine, but they’re extremely hard to find a large mom and pop mobile home part.
Now, the percentage out there is so small, but I mean like our best deal. Last year, and I can drill into the details on this, but at a high level, we did due diligence. January, 2020. We closed on it February, 2020. We did four important things to the park, and this is again, improving on the mom and pops.
Oh, it’s important to note, the seller had not been to the park in at least five years. She lived five, four states away, and so she just never went. . And so she got top dollar 7.1 million and we sold it 10 months later for 15 million. . Oh, wow. Okay. Yeah, so the return on equity, the equity was only three and a half million of the 7000007.1 million, so the equity return was quite substantial.
Awesome. So what did you do? How do you add value in a mobile home park compared to an apartment complex? Yeah, there’s a bunch of ways to add value. Like you can lease sheds, you can lease carports, you can build decks and sell them or lease them to the tenants. You can lease storage to the tenants. You can do internet, cable tv, but we didn’t do any of.
Here’s what we did. Our operating partner went in number one. Now imagine we’re talking about 311 units, so it was a large park, okay? And it was a decent park, and it was in a good area. But the first thing was the operator. The previous, the seller had not raised rents in many years from what we understand.
So they were 35% below the market. Now, excuse me, a smart mobile home park operator, especially a buyer, is not gonna go in and raise. Rents that high. Even if they could, they shouldn’t. And that’s one thing that’s really important to us. We don’t want to see anybody taking advantage of people, especially in a lower income bracket.
So they raised rents a fraction of that 35%. But as with the commercial real estate value formula, a small amount of increased income is a real big. to the value. And so that small amount of increased income, let’s say that they raised rents 10%, and I actually don’t have the actual number.
, let’s say the rates were raised 10%. That can raise the value by maybe 20%. , but with leverage, that can be, that can cause a 40% appreciation on the equity and you know that. Yeah. So that’s number one. Every dollar times 311 times 12 months. Ah-huh. . Actually, let me tell you more about that, but you’re right, that’s right.
Second, the utilities, if you can believe this, were still paid by the owners. And so we went in and we actually had my operating partner installed meters on every lot. And the tenants. Started paying for the water and sewer, which is actually way more environmentally sound because they use an average of 30 to 35% less according to studies.
And so that pass got pa, that cost got passed back to them. Let’s just say that was 150,000 a year, $150,000 a year, added straight to the bottom line. At a 5% cap rate. When we went to sell, that was 3 million in value created. Wow. Okay. Absolutely. So that’s a big deal. So that’s the second one. And that was the big one, by the way.
The third thing is the costs were really bloated because, the owner was just, she just had a cash cow and she would pay whatever she needed to do to pay for maintenance. Or pay for, management or to pay for whatever she needed. So the costs were greatly slashed. 60, $80,000 a year, which again, that, that creates a big amount in the value.
And the fourth thing, and this is really weird, there were 50 vacant lots. Now, Joseph, it’s not like apartments. I mean filling 50 vacant lots with mobile homes that cost, let’s say $5,000 to get in there and they might cost 50,000 for the new home. , or 10 or 20,000 for an old home. That’s a big. Big chore and it’s a lot of effort.
And by the way, that’s why the mom and pops don’t usually fill their vacant lots. It’s very hard to do. , my operating partner didn’t do it. He set out a plan to do it. He was on the way to doing it, and that’s when he got the offer for 15 million and that was only six, five or six months into owning it.
And so he got that offer and then he closed 10 months into owning it, and the rest is history. . Yeah, no. Cuz the big grids or the big owners out there that they operate differently, right? They can spend that CapEx to buy those 50 mobile homes and then start doing either park owned leasing or set them up with owners financing.
For the tenants to start buying those off their hands. That’s right. So they make money on the financing side, on top of the. The purchase side. But that’s because they have that size and that infinite money for CapEx, right? That’s why they also offered you 15 million, six months after you paid seven, right?
Cause they look at differently. Yeah, I knew the buyer and I did the math on the back of an envelope for the buyer, and I thought, you know what? He didn’t do too bad either, because if they can fill those 50 vacant lots, it should take them four years. That’s one mobile home per month. If that takes them four years, more or less.
they’re gonna do fine. Their value. So they’re a long-term buy and holder and they plan to hold this 40 years. Yeah. And so they’re gonna do fine. But yeah. The crazy thing is, do you know Berkshire Hathaway? Yeah. Actually is at, involved at least two or three ways in mobile home parks. Number one, they have 21st.
21st mortgage will actually do up to a 100% loan on mobile homes new, or even up to 20 something years old. And so they’ll actually go in and so if you can, let’s say you’re the mobile home park owner operator, and you can find a home on Craigslist for $10,000, spend several thousand dragging it in and setting it.
and then you can turn around and 21st mortgage, we’ll finance that to the right tenant, okay? Or you can go to Clayton Homes, which is also owned by Berkshire Hathaway, and you can get them to finance to, basically, Clayton will finance the mobile home. They’ll put it in there, and after 12 months of it sitting there, if you haven’t filled it, you gotta start paying as a lot owner.
But there’s no reason a well marketed mobile home. In the right location. Shouldn’t be able to fill a mobile home, like that in a year. Yeah, of course. they basically give you 12 months with no payments. I think that’s how it works. That’s my understanding. And the 21st mortgage one, here’s a little sly thing Berkshire Hathaway does.
They actually have the, Park effectively co-signing for the deal. They’re not really co-signing, but what they’re saying is if this home gets trashed or if the people move out and stop making payments, the park has to assume the home. Interesting , and it’s the park ownership. You have to sign on it.
that basically you sign a deal with them that says you’ll take over payments. And so think about it. This is a great deal for everybody because the part gets a new income stream. The Clayton or whoever sells a new home, Berkshire Hathaway, gets financing with a g. , guarantor. Yeah. And the individual who can’t afford their own home with a medium credit score can actually get in and get their own home where they get their own backyard, their own playground area.
They can park right by their door, have a grill outside. Some of the things they might not be able to get in their parents’ basement or in, some high-rise apartments and things. . Yeah. Now we interviewed Kevin Bupp as well and that’s the majority of what it does is mobile home parks and it works great for them as well.
Yeah. So you also got into another asset class in the last couple of years since we, we talked, right? What’s the other asset class? Yeah, self storage. I’m actually writing a book called Storing Up Profits Capitalize on America’s Obsession with stuff by investing in self storage. That’s awesome. Tell us more, how does it look like?
What does the average deal look like for you guys? How. The obvious thing is you have no tenants, right? So that’s different operation wise, but I’m sure there is still maintenance for the buildings. Oh yeah. There is the whole business aspect of everywhere I saw a steal storage. They have a rental truck and they have packing materials and all this kind of stuff.
So how does that look like operational wise? To deal with on compared to, of course, apartments that we are. Yeah. Let me tell you, let me start by telling a little sort of a story here. If I was renting you an apartment in a thousand dollars a month and you, if I was the landlord, and I said, Hey, your rent’s going up 6% next year.
That’s, a thousand dollars rent, that’s $60 a month, that’s $720 a year. You might move out rather than sign up for that extra $720. But if I was renting you a storage unit, let’s say a 10 by 10, and it was a hundred dollars a month and I raised your rent, six. , you’re probably not gonna get a U-Haul.
No, you’re probably not gonna get your friends together to move all your junk, your treasure down the street just to save $6 a month, especially when you’re on a month to month lease. And you can know that you can, eh, yeah. next weekend or next month, I’ll go ahead and clear that stuff out and get out of there.
And of course, they usually forget about it again for until the next rent increase in a year. , or it could be the next rent increase could be in three months. But it’s very flexible terms. There’s no eviction problems. There hasn’t been any eviction laws passed against self-storage that I know of.
Any moratoriums you don’t have to deal with toilet. Tenants and trash. Although there are tenants, you’re not dealing with the same level. The value add or the maintenance usually on these is when someone moves out. You just have to sweep out the unit and put it back on the market. When I first heard about value adds, Joseph in self storage, I think I laughed out loud.
I. , what can you do to value add a self storage facility? We’re talking about four pieces of four or five pieces of sheet metal, a floor and a door, and some rivets. How are you gonna improve, where is the paint and where’s the carpet and the cabinets and the countertops and fixtures and faucets and lighting.
The value add is in other areas that you already mentioned, number. If you add U-Haul, it can be huge. If you’re in an area where there’s not a lot of U-Haul or there’s not an oversupply of U-Haul, you can make up to several thousand dollars. A friend of mine’s making, I think, $5,000 a month with U-Haul in front of their facility.
Five thousands high, let’s say 3000. So $3,000 a month in commission from U-Haul, that’s $36,000 a year. Divide 36,000 a year by a five or 6% cap rate, and you just increase the value of your facility by six or $700,000 perhaps. , that’s a pretty good day just for signing a. and it’s a really good impact on equity, especially if you got a deal where you only have a million and half in it, and you just increased it by say, 30% by just signing a contract with U-Haul and getting started with them.
That’s a big one. Another one’s showrooms, and you mentioned this, you can sell locks, boxes, tape, scissor. Bubble wrap, and you can also upsell the clients. You can also, give them special deals. You can sell them tenant insurance, and you can make money from that. Other value adds a big one is just all the vacant land.
A lot of mom and pop owners will say, yeah, here’s my self storage facility on three acres, and there’s. Five acres vacant right beside it that comes with it. You can turn that into an RV and truck parking lot, and then while you’re parking RVs, trucks and boats there, you can start building out a little more self storage at a time to see if you can fill it up.
And especially if you can get some state-of-the. Climate controlled self storage, it’s likely that you’re gonna do really well with that. So that’s one of the biggest value adds that there is. Other stuff like adding cell towers. adding an at t m machine, selling propane, things like that are also done at self storage facilities.
Oh, one of the things that I’ve seen the last couple years is people getting creative. Have you guys looked into maybe take an abandoned TomTom or Albertson’s? That is a big space in a retail and all those REITs that owns those places. , they can feel a 200,000 square foot location very easily.
And converting those into climate controlled self storage in great locations because you can rent it out of the reed really cheap for a long term. Have you considered something like this? Is it something that you’ve seen other operators in the field do? Yeah, in fact, one of the chapters in my books about.
A guy named AJ Osborne, you might have heard about him. He was actually in a coma, but his company kept operating while he was sick. They bought a re, the reno. . Yeah. They brought the Reno, Nevada super Kmart and they, I don’t know how much they originally paid, but they sold the parking lot off to apartment developers.
And when they did that, and then they did the upgrades to make it into a self storage facility, they actually had seven and a half million dollars in it. That was 5 million in debt and two and a half million dollars in cash. , they actually cut the old Kmart in half to create more perimeter for more external, outside self-storage.
They made the inside climate controlled, beautiful, climate controlled self-storage, and I was on the phone with him in December of 2018 when he told me that he just got an. . Now, remember, he only had two and a half million cash in it, seven and a half million total. He got an offer from a REIT to buy it for 26 million.
Wow. That would’ve been about an eight or nine to one return on equity, and he turned it down because he believed he could do better because he was only 40% full by then. That’s incredible. Yeah. People are very creative on these things, and then, . So operating, I’ve seen two kinds of storage facility. One that has everything automated, right?
So you click buttons, you get in, you can lease. There’s a little mini kiosk you can lease through, and they give you a lockbox and everything. And I’ve seen those that have, like the guy that operates the store also lives above the stores in a mini apartment, right? And he’s the one that does everything else, right?
Tell us a little bit about your experience. What have you seen out there? How do you tackle the two different ones? Yeah. We have one that we invest with who’s based in Georgia. They’ve got, decades of experience and they believe it’s best to have the manager on site. So if they buy a mom and pop self storage, they’ll often build an apartment to put somebody on site.
And then if for some reason the person can’t or won’t live on, , but they’ve got a great person. They might lease that, for, to a college student or whatever, but having somebody on site, Provides a feeling of extra security. If the person is a workaholic, they might be willing to go down and help people or let people in the night.
It just gives a better feeling to some people, it definitely allows them to staff the showroom. to work extra hours to clean out the U-Haul S and get ’em ready for leasing the next day, which they do have to be swept out by the way. Those are the type of things that happen when you put somebody on site.
Like you said, the other model is not having somebody on site. There’s another model, Joseph, that’s fully automated. where basically there’s nobody on site. It used to be it costs like $35,000 to get a kiosk to actually do your transaction through, but now with an iPhone or , any kind of smartphone, they can actually sign a lease and get set up and get a gate code and everything all through their smartphone, and you lose something there.
You can’t do as good a job upselling. You can’t sell locks, boxes, tape, scissors, and bubble wrap. , but. , you can cut deals to do that kind of stuff, but you have to get pretty creative to try to do some of those type of things with an automated facility. But think about how much money you’re saving.
Yeah. A whole year worth of salary. Yeah. Yeah. Fantastic. Okay. I wanna be conscious of your time. I know you have hard stop in the last two years perspective, right? Because we’ve asked you that two years ago, and I’m gonna ask you again the same thing now, and it’s like, , if you could go back two years, not 20 years, right?
What would you tell Paul from two years ago that today, you didn’t know two years ago? Warren Buffett? I’m writing a book on Warren Buffett’s principles for real estate investors, and he said The best investors say no a lot. The very best investors say no almost all the time. And I originally, when we got started, I originally was headed default my whole life of trying to say yes to things, trying to make things work, trying to find a way to make you know, something good.
Now I’ve learned, and that’s been maybe over three years actually, to really have a. and a mind defaulting on. No, and that means when we go in to meet with an operator, we really don’t try to make it work. We don’t try to find every way we can to say, yes, we really do have a default. This probably won’t work.
, but it could work. Let’s talk and. that’s really helped. If I’d have spent my whole life with that mindset, I think I would’ve lost a lot less money and made a lot less bad deals in earlier decades. Sounds another episode for your podcast. I know, right? Interview yourself, . Yeah, man. I should.
That sounds like a good idea. Okay, awesome. Thank you so much, Paul. So for our audience that would like to reach out to you or maybe invest in your funds, maybe find where they can buy your books. Definitely. I highly recommend listening to the podcast, how To Lose Money. It’s a fantastic podcast with really great guests.
I’m not saying just because I was a guest, , how can people find you, and obviously we will add all that in the show. You can find email@example.com. That’s W E L I N G S capital.com. And if you really want to get a an ebook, a free P d F Guide to Self Storage Investing, or Mobile home park investing, or just commercial real estate in general, which includes multi-family, you can go wellings capital.com/resource.
and we’ll get you all that information for free. Awesome. Thank you so much, Paul, for coming back on the show. I really, thanks Joseph. Appreciate. , man, it was really an honor to be here. Thank you so much. Awesome. And for you, the audience, if you wanna listen to more of our podcast, you can go to iTunes Cloud, SoundCloud, Stitcher, Amazon, wherever you want, wherever you consume your podcast, and download more episodes.
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