"Investing in Mobile Home Parks"
Mobile Home Park Investing Expert
Episode 10: "Best Deals"
Listen to the Podcast Here:
Welcome back to the Real Estate Nerds Podcast. On today’s Best Deals episode, our host, real estate attorney Scott Smith welcomes fellow investor Frank Rolfe. Most of us don’t think of mobile homes as goldmines, but Frank tells a strange and true story of how a low-budget trailer park became his best deal. In fact, the deal went so well that it laid the groundwork for Frank’s current successful real estate empire of mobile home parks across the America.
The Dollar General of Housing: The Beginnings of Frank’s Mobile Home Best Deal
Scott and Frank discuss Frank’s background, real estate debut, and current career as an investing coach. We also get the see some of Frank’s teaching side as he shares some tips and strategies that he advises his students to use.
[1:00] Frank and his partner Dave Reynolds are the 5th largest mobile home park owners in the U.S., with hundreds of properties across the country. The Best Deal he came to discuss today is actually the first deal he ever did.
[2:00] Frank entered the real estate industry in 1996 after selling his billboard business. He chose to invest in mobile home parks because the asset class wasn’t particularly popular. At the time, he saw these homes as “the Dollar General of housing,” and the idea of providing affordable housing appealed to him.
[3:00] This deal was for a mobile home park called Glenhaven in Dallas, TX. Frank put $10,000 down without even viewing the property, with the remaining $300,000+ financed over a 30-year-mortgage. He knew little about the area and nothing about properties. He only knew the contact who sold him the properties because he had created billboards for him.
[5:00] Frank knew the property was on a highway and that mobile home zoning is fairly rare in the area. He was attracted to the park because he knew he wanted “basic” housing: “I like industries that are built on cheapness. I liked the fact that the park was the cheapest, most bargain basement housing.”
[5:28] He took the deal primarily because the financing terms were excellent, and was prepared for there to be some kind of catch. Yet he personally knew the seller was losing $2,000 a month on the property. Frank, on the other hand, was able to assume this risk easily and had an exit strategy in case the investment wasn’t profitable.
[6:15] Frank quickly determined that the property manager was the first thing that had to go, and in fact, the reason the property was losing $2,000 per month. Knowing this was the problem made taking a chance worthwhile: “I was willing to give it a whirl. I was willing to lose $10,000 to see if I could fix it.”
How Frank’s “Wacky Subdivision” Became a Business Model
Frank describes how his trailer park full of odd and colorful characters became a surprising investing success.
[7:30] After closing on the property a mere three weeks later, Frank had the opportunity to view profit and loss statements. He noticed something odd: a cable TV bill for $3,000/month. For an 83-lot unit, this contract seemed large, and Frank later learned it had already ended. He simply canceled the contract, as this amenity was unnecessary given the property was 50% vacant and residents had alternatives. This small change allowed Frank to break even immediately.
[9:30] Scott asks how Frank approached the lack of perfect records regarding the park. He was able to discern how many homes were actually occupied, and therefore get a sense of his revenue. The city was able to provide records of the cost of utilities. Although he was new to the industry, he was able to verify the financial statements.
[12:00] Frank was able to get legal work done for free through the title company. Given that he bought the property with a non-recourse loan (meaning he could give it back to the seller), he went into the investment with relative peace of mind.
[13:00] To better understand his property and residents, Frank decided to sit in the trailer-office daily for a year. He didn’t know what to expect: “I felt like I’d bought OK Corral. The first thing I did was get a Texas handgun license so I could have a pistol in my pocket in when I showed up.”
[13:57] He recognizes in retrospect he may have been biased, and while his residents were poor, they certainly weren’t dangerous. Fortunately, he never needed his pistol.
[14:37] Frank was surprised by “This was basically like a high-density subdivision, or in the case of this property, a subdivision full of wacky people. But that changed dramatically in the months ahead.” He had a cast of characters in his park “worthy of their own sitcoms.”
[16:00] While property management wasn’t the best expense of Frank’s time, he did learn a lot. During this time, he got a tip about another park that was being shut down. He was able to get both trailers and residents from the closing property,
[17:24] This chance encounter became a lucky break for Frank “I was able to take Glenhaven from half-occupied to fully-occupied at no cost.”
[18:00] Frank’s new residents were very different from his trailer park’s original occupants. Most were hard-working people, rather than the eccentric types he had grown accustomed to. His “menagerie of nutcases” became a stable business model.
The Takeaways: The Power of Financing and Risk vs. Reward
Scott and Frank close the episode by highlighting the biggest lessons Frank learned from his first mobile home park, as well as what ultimately became of the Glenhaven trailer park.
[19:00] In Frank’s opinion, the major lesson he learned was about the power of seller financing.
[19:37] The other major lesson Frank learned from this excellent mobile home deal was about risk and reward: “If there’s little risk and high reward, you should always do it. If there’s high risk and no reward, you should never do it.”
[20:00] Scott observes Frank’s story is also about the power of networking. He found his deal through his billboard business, and his quirky residents ended up helping him develop a successful business investing in.
[21:14] “One thing I learned early on about mobile home parks is that there’s a huge amount of demand,” Frank shares. He also lucked into very low lot rentals, which were appealing to his customer base. This also allowed him to raise rents while keeping full occupancy. He later sold the property for $1.5 million after buying it for only $400,000.
[22:43] Frank’s greatest takeaway from his first deal is the groundwork it laid for his future success: “The success of Glenhaven is what gave me the confidence to buy Park #2, Park #3, Park #4, and now of course we’re at 300…It’s the little things that make the big things possible.”
Connect with Frank Rolfe
Thank you for joining us on today’s episode of the Real Estate Nerds Podcast.
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When making business decisions that affect your long-term goals, like what types of investments to make with your retirement dollars and which vehicles to use, it really is best to be aware of all of your options. We frequently talk about the Solo 401(k) and Self-Directed IRA as tools for funding your retirement. But what about life insurance? And what about the stock market? What if we told you there is a tool that allows to to reap some benefits of both? It’s called Indexed Universal Life Insurance–and some investors have found it a useful addition to their retirement plans.
What Is Indexed Universal Life Insurance?
Indexed Universal Life Insurance (IUL) plans are a variety of permanent life insurance plan that features a cash-building element. One primary benefit of these plans is that the policy holder gets some of the gains of being associated with the stock market without all of the risk Wall Street is famous for. This is in no small part because of how these policies are designed. IULs earn in part because they are directly linked to a market index, such as the Dow or the S&P 500. Any gains remain within the policy, albeit a cap rate will limit how much you can make. However, you are protected during a particularly bad year for your index with an IUL. The worst case scenario with these plans is that you make nothing, but you never actually lose money no matter how poorly your index performs. The protection of your principal is actually derived in part from the same cap rate that limits your gains.
How much money do policyholders stand to make? Historically, returns run between 5-9%. The S&P Index has actually returned at 9-11%, but the upside limit on UILs stems from the account’s cap rate. For this reason, many advisors argue that the UIL can make a wise addition to a retirement or estate plan once more traditional and self-directed accounts are maxed out.
Tax Benefits of Indexed Universal Life Insurance (IUL) Plans
There are three key tax benefits of IULs. First, you may pay into the policy with pre-tax or after-tax funds. Withdrawals from the policy may be made tax-free if you are under 59 1/2. Such withdrawals are regarded as loans, with your death benefit serving as collateral. Any funds paid out to the beneficiary are also tax-free, including normal benefits upon your passing. This is true regardless of their value.
Ask the Experts at Royal Legal Solutions About Your Retirement Planning Options
Regardless of where you are in the retirement planning process, Royal Legal Solutions an assist you. We have extensive experience educating investors about self-directed investment options. Many of our investor-clients love our Solo 401k information, product, and compliance services. Our Self-Directed IRA services can also be helpful for retirement planning, as the SDIRA is yet another vehicle that allows you to diversify and take total control of your investments. To determine which of the available retirement planning strategies are best for you, consult with one of our experts at Royal Legal Solutions. You may also contact us with any questions you may have about your options.