On this episode of The Mobile Home Park Lawyer, Ferd interviews MHP owner/operator, syndicator, and podcaster Kevin Bupp. Ferd and Kevin discuss navigating MHP operations in today’s market, their opinions on rent increases, what we might see coming up with consolidation, and creating good reputations for MHPs.
“It’s hard to get it out there right now, so folks are willing to sacrifice and take much lower yields even on lower-quality parks. We’ve been outbid so many times I can’t even count anymore, but I’ve learned over the years, going through the crash, you’ve really got to stick to your criteria, especially during times like this.”
0:00 – Intro
0:49 – Kevin gives us an insight into his background, how he got into MHP and what he’s currently working on
3:59 – Kevin talks about the parks he currently owns and what he’s doing in the market
8:22 – Ferd and Kevin discuss how lending changes have been good in the last 5 years
14:56 – Kevin speaks about risks people generally don’t think of associated with MHPs
17:38 – Ferd shares his opinion on raising rent prices
19:18 – Ferd asks Kevin what he thinks we’re going to see with consolidation
25:14 – Kevin speaks about “dirty phase one” with parks and shares a personal experience
27:30 – Kevin tells us an interesting story about the first MHP that he didn’t buy, which taught him a lifelong lesson
31:27 – Kevin shares a funny story about the first MHP he bought
38:48 – Ferd comments on Kevin’s story and mentions how it is a good idea to have police live in your parks
43:07 – Creating a good reputation on individual parks is good for the industry as a whole
43:21 – Kevin discusses how there are still mayors in some cities who believe MHPs are the cause of crime in their area
46:15 – Kevin states that it’s a great industry to meet cool people and how he likes to see all the new young people coming into the industry
FIND | KEVIN BUPP:
Company Website: sunrisecapitalinvestors.com
Kevin’s Podcast: kevinbupp.com/podcast
Ferd Niemann: Welcome back mobile home park nation. Ferd Niemann here again today with another episode of The Mobile Home Park Lawyer Podcast. Got a great guest for you today. He’s a mobile home park owner-operator, he’s a syndicator, he’s got a podcast, great all-around MHP guy. Please help me welcome my guest Kevin Bupp. Kevin, how you doing?
Kevin Bupp: Ferd I’m doing great, bud. Thanks for having me here. Excited to be here. We finally got this thing done. I know I’ve had to reschedule a few times, but we’re finally here and that’s all it matters.
Ferd Niemann: It happens. You’ve been like the star power for my newsletter for like a month. I’m like coming soon Kevin Bupp coming soon, and then we haven’t done it yet. So I’m glad we got this on the calendar. I know about you. You know, I listened to your podcast, read some of your stuff obviously followed some of your deals. Most of our audience probably has too, but in case they haven’t, tell us a little bit more about your background, how you got into MHP and kind of what you’re doing today.
Kevin Bupp: Yeah, no, no, absolutely. And I’ll try to keep this somewhat high level, but I’ve been a full-time real estate investor in many different capacities now for 20 years. So I’m 40. I always forget my age. I just turned 42. But I got introduced to real estate agent at 19, bought my first single family property, the age of 20. Just like a lot of folks started out with single family. And that’s what my mentor had taught me. That’s what he did. I didn’t reinvent the wheel. I just, you know, just literally followed his model, which was small multifamily and single family rentals. You know, long-term rental portfolio and ultimately did that for my early to mid-twenties, but pretty substantial holdings of single family properties, about 122 when the market finally crashed, but on hundreds of them over the years, and then also started buying multifamily as well. This is prior to 2008, I kind of like to break up my experience in two different sectors, you know, like pre 2008, then post 2008. And so you know, pre 2008 on big portfolio of single family, multifamily and some miscellaneous commercial properties, and then basically had a reset, you know had a reset in 2008 and kind of went on a couple year hiatus, started a few other businesses outside of real estate. But you know, the fire of real estate never really left my belly. And ultimately, I decided that, you know, getting back into it, I really wanted to rebuild with something that was more efficient. And I kind of saw some of the pitfalls with the single family stuff, just amount of energy and effort it took to build that size of portfolio, which isn’t really even all that big that I could literally compound that by 10X, if not more with multifamily, but that’s kind of how I accidentally fell into mobile home parks. I went on a kind of a journey 2010, 2011, just really talking to everyone I could, that was still in the multi, either got into the multi-family space post-crash or survived during the crash and was still buying multifamily because the world had changed at that point. You know, that was very different. There were still a lot of blood in the streets, a lot of distressed projects out there. And so it was a very different world than pre 2008. And so during this little journey of mine, I was introduced to a guy by the name of Randy and Randy actually was here local in Florida. Randy had been a banker for 30 years and Randy had a lot of clients that owned and operated mobile home parks and RV parks here in Florida. And his story goes that, you know, after, you know, a couple of decades of financing them and seeing how much money you know, basically my clients were making, when I retired, he had a, you know, a good bit of savings and he deployed a couple million dollars and bought a couple of mobile home parks here in Florida. And ultimately had lunch with him and he was very high on mobile home parks and it had been an asset class I’d never considered. And that two hour meeting essentially intrigued me enough to where it led me to kind of commit myself internally to buy my first mobile home park. So we bought the first one back in 2012 after about a year of looking and making offers and backing out, getting cold feet making offers, and then finally closed one and literally owned that one up until January of this year. We just sold that one January of 2020. So we’ve been buying parks now for, so I guess you could say, you know, going on a decade there’s been quite a number of years and own parks today in 13 states. And in addition to mobile home parks, one of the things that we started buying as of recently are also parking assets. And so, you know, parking lots and parking garages. So that’s aside for mobile home parks, but those two assets are kind of our bread and butter in our core right now.
Ferd Niemann: That’s great. You know, I want to talk about parking too, cause I’ve seen you post a lot of stuff on LinkedIn and social media about the parking. And I actually, we used to practice at a law firm in Kansas City, and there was a guy that made a ton of money buying parking lots in distressed areas and he bought them for nothing. They are limited cash flow to cash flow. And then he ended up building office buildings. Ended up building condos. He’s a high school graduate that went from zero to a hundred million in net worth in 10 years and buying a parking lot. It was crucial to that and he’s just a true hustler.
Kevin Bupp: I feel like that’s like the mysterious story that used to hear about mobile home parks. I knew a guy that knew a guy. It was very cryptic. And I know, but I mean, mobile home parks used to be very cryptic cause like no one really ever knew anybody that owned one or never even considered that asset. I had never considered that asset class. I literally, I didn’t go to lunch with Randy because I wanted to learn about mobile home parks. I just enjoy meeting new people when my friend’s like, you should go have lunch with Randy. He’s a really smart guy. He’s local. And he’s a fun conversation. And I left that conversation basically committing myself to go buy a mobile home park. Cause he got me so excited about them. So now the whole world knows.
Ferd Niemann: Yeah, the secret it out. Tell Randy, guys like me, and you are ruining it for everybody else. But that’s part of capital raising. You’ve got to tell the story, but unfortunately the secret’s out and I wish I had done this years earlier, but it sounds like your banker did. That’s good for him. You know, I’m sure you’ve talked to your share of bankers too. I know my first syndication deal, I went to like six or seven banks and they just, they didn’t say, no. They said, hell no on trailer parks. And then I ran into a banker and this was like, the deal was 1.3 Million. So the loan was about a million. And I said, I’d like to get, I had seller finance teed up, the seller was willing to finance it, but he wanted 40% down, he was going to carry to 60. So I was like, well, that’s a lot of equity. So it would have been better if I get traditional bank finance. So I went to the bank and one bank told me yes, but we need 50% down. That’s non start, non-starter because I get 40% down with the seller. No appraisals, no fees, no longer-term. So I just said, no. Then I ran into another bank and I asked the guy said, Hey, before we get going, I need at least 70% LTV, maybe 75%. And then if you’re willing to do that on a mobile home park, then let’s talk. And he said, hell, I’ll give you 80. I said, what? He goes the richest guys I know are mobile home park owners. The best loans I’ve ever made are to mobile home park. He goes before I came to this bank, they never did them. He owned a different bank, brought in here. In fact, he goes, I got $2 million signature authority. So consider yourself approved. That was 30 seconds in and he’s like, there you go. After hearing no for the last three weeks. And I said, it was nice to run to a banker that got it.
Kevin Bupp: Absolutely. I think that was one of the biggest challenges that we face in the earlier years of our business. Banged my head against the wall, you know, hundreds of times trying to get financing for some smaller deals, you know, especially if the deal, if the loan amount was under a million bucks you know, banging on doors, you know, going and calling on basically every local bank in the area. And it was literally a crapshoot as to whether or not you might find that one banker that actually got it. You know, many of the challenges is that many of these local banks. So, you know, if you talk to one of the loan originators, I mean, loan originators are sales guys. They sell loans, but they don’t really have signatory power to basically commit to a deal. They’ve got to go in front of a committee, but they’ll tell you anything that you want to hear as far as yeah, we’ll do that deal. Absolutely. We’ll do that deal. We’ll give you, I mean, they’ll make promises that a lot of times, sometimes they can keep, but a lot of times things fall apart, once it gets to committee and now, you’re three weeks into the process and your due diligence time has been eaten up. And so lots of challenges back in the day. However, I think now there’s many, many more options. As far as, you know, local, regional, national banks that get this space and understand it that are willing to lend in it so very different times nowadays than what it was seven or eight years ago.
Ferd Niemann: Yeah, absolutely. I think, yeah, I think that’s one of the good changes in the last five or six years is being lending. Obviously, the downside of all this popularity is there’s a lot more people competing over deals, a lot of private equity, lot of rates, a lot of investment groups in general. Is that what you’re seeing in the states that you’re in as far as the marketplace is just the new froth of buyers looking to get into this space?
Kevin Bupp: Absolutely. And we’ve actually exited out of a few properties over the last year and a half. And so, and most of the buyers have been I wouldn’t say new to the business, but I mean, you know, the last two, three years and you know, a couple of them being larger groups that have, you know, acquired fairly substantive portfolios here over the last couple years they’ve been doing it. You know, some of it being institutional money, some, you know, pension fund money and things of that nature. So just a very different type of player than what I had experienced seven or eight years ago, getting into the space.
Ferd Niemann: Yeah, I hear you, man. I’ve seen it. You know, when we’re trying to buy deals and I’ve been asked by half I’m like, what do you mean you’re paying that much? I know the numbers too much, like it’s not worth that. I’ve had guys overbidding like crazy and done some projects. And we’re like, you’re selling a few, I’ve got a couple of we’re getting ready to sell, it has been five months. And the market’s crazy hot there. And like, you know what? People are going to pay, people are paying right now on some markets on proforma rents, you know, a hundred dollar proforma rents with extra. And then, you know, cap rates and the fives are lower. It’s like, dang, that’s a pretty strong valuation.
Kevin Bupp: Yeah, and I don’t know who’s right or right or wrong there. I will say that, you know, some of the assets that we exited out of I would never have been a buyer at that price point. And that’s even me intimately knowing the asset, like I would not even been close to a buyer at what they sold for. I know how difficult some parks are to run. You know, it’s not an easy business. Some parts are easier than others, but it’s not an easy business. I mean, there’s lots of moving parts too. It’s a very operationally intensive to a certain extent, you know, and if you have a 55 plus, 100% tenant-owned home you know, four-plus star community, you know, even they have their headaches, but that’s about as clean as it gets. But you know, if we’re talking, you know, the typical two-and-a-half three star, you know, C plus class community, there’s just a lot of moving parts to it. And you know, not being able to hand off the management, third-party management and having to have that in-house, you know, you got to have a subsistent portfolio in order to even justify having it in house. And so you go through this weird growing phase where if you’re just starting to buy parks now, and you’re having to pay five caps for these things for like two and a half three-star parks and you’re buying on proforma, it’s going to be very difficult for you to make money. It just is. Again, I guess it’s hard to argue that because maybe there’s plenty of other people smarter than you and I. But I’m just speaking to the assets that we’ve sold off. You know, I know them intimately, we’ve owned them for a number of years. I know the tenant bases, I know the market and I struggled to see how some of these are going to actually make anything more than maybe a 6% cash on cash return on a C grade asset. To me, that’s just not enough a reward for the risk and the amount of time it would go into run an asset such as that. But, you know, I guess to each his own, it’s hard to get it out there right now. So folks are willing to sacrifice and take much lower yields even on those lower quality parks. But I think that’s been our biggest challenge over the past year and a half, and we’ve got outbid so many times I can’t even count anymore. And even, you know, stretching a little bit out of our comfort zone and even still getting outbid by, you know, 10%, substantial amount. But you know, I’ve learned over the years going through the crash. I mean, you got to, you really got to stick to your criteria. Especially during times like this, I remember rolling through 2006, 2007, just watching everyone, you know, think that if you didn’t buy today, there’s going to be nothing left at thereafter. And, you know, there’s typically always some type of reset, there’s folks that are buying parks today that unfortunately won’t be able to meet you know, meet their projections, and have challenges down the road. I don’t wish that on anyone, but it just, it will occur, you know, especially when you’re buying with such thin margins of safety.
Ferd Niemann: I agree completely. And I think that there’s somebody else, you know, not that they are right or wrong, but I think the key is different investment metrics, different yield portfolio in need. I mean, I’ve got a couple of investors, I got one client and I’m like, you’re never going to fund this deal. And he funded like five minutes and was like, you don’t get it. My investor context are looking for safety of capital. They’re already maxed out their 401k. They already maxed out their IR, they already maxed out, they already got the lake house. They’ve already got the big house. They’ve already got a ton in the stock market. They’re like, you know, I’m looking for something, they’ve already got. They’re leery of retail right now. Industrial’s got low yield. Offices kind of shaky right now. Multi-Family has got a low yield relative to the quality of the asset in a lot of markets. So mobile home parks, you know, it’s a compression of cap rates and yield and they offer some properties, but they’re like, Hey, it is still the best thing we can do. And it’s diversification and it’s a long-term play. So like, okay, you guys have underwritten. You guys have analyzed this, you have a different yield requirement than me. Because you mentioned the 6% cash flow, that doesn’t get me out of bed in the morning, but I don’t have $10 million laying around in a checking account and then negative with inflation. So there’s some guys, I spoke to some other day and he said, I got 35 million in liquid checking, I am like, okay, you need to go place it in somewhere. You know, you need to get that going, man. I mean, obviously, that guy’s raised a lot, made a lot of money, so who might’ve told them. No, that’s definitely, I think we’re seeing, we’re seeing the same things, but I liked your comment and you obviously went through the recession there in the single-family space, but seeing other people take a bath on properties, I think we’re going to see that in MH because there’s people paying, I think the market’s strong and will be forever, but some of these price points relative to the risk, what’s your required rate. I’ve got some clients I’m trying to get them to pump the brakes. Like you’re not going to be able to do a 75% LTV cash-out, the local bank on your first deal. I know your spreadsheet shows that, but it’s not going to happen. You know, I’ve been told no on that. And I got more deals and more balance sheet and more experience. And they are not doing it for me. So in that timeline, you got to just, you know, be more conservative in general is kind of how I try to preach it, but to each their own.
Kevin Bupp: I think of the other risks associated with it, that folks don’t think of is you know, and I can tell you from personal experiences, you know, when you talk about buying on future projections or future proforma you know, this is a hundred dollars under market. I know in theory it is just as simple as going in and literally, you know, giving out whatever the legally required notices, 30 days, 60 days that we’re raising your rent $50 and doing that two years in a row. But I can tell you that more and more common, there’s a lot of energy behind residents throughout multiple states. There’s, you know, community organizations that are really fighting back against manufactured housing. And I can tell you that we’ve even had challenges over the last couple of years doing, you know, what I would consider to be a minimal increase when it’s major lender mark, you have $25 or $30 and receives pretty significant blow back. I mean, we went through a situation a few years back in New York where we had a rent strike, you know because we raised rents and it was very costly. And there’s lots of, there’s lots of traction that, you know, certain residents in certain states are getting with these different organizations, non-profit organizations that are fighting for residents and fighting against landlords and park owners you know, to keep their rents or to enforce some type of rent control, what have you, and keep them at a minimum. And so, you know, that’s a real risk both from a legal perspective. If you get tied up in some type of litigation or a rent strike, or even from a PR perspective. I mean, you know, news stations are just hungry for that type of content. And so just be weary of that when you look at something you’re underwriting and saying, Hey, I’m going to get, I’m going to pay for the value today because I’m going to get to that a hundred dollar increase in the next year or two years, I’m going to push it hard. And just know that there’s some potential downsides and blowback that might come as a result of that.
Ferd Niemann: Agreed. I mean, even on top of that, one of my concerns is other people ruining it for me, not just on your OPR, but we bought a park in Iowa recently and it’s significantly below-market rents, but there’s somebody else in Iowa that bought up like 15 parks in the same county, but I’m all in, and then increase the rent from $250 to $500 overnight and all of a sudden, rent control is a viable risk all of a sudden. Because these are bad, I don’t increase rent like that, but there are people doing it. It’s like, you’re going to ruin it for everybody. Like get to $500 in 5 years, maybe longer, but like, don’t get there overnight. Don’t get in 60 days. So that’s another risk of, you know, almost the game theory, if you will, what’s the other guy going to do. And like, I’m not saying we should all collude on pricing, but I don’t think anybody should try to gouge tenants one, because it’s morally wrong. But two is strategic it is a poor business play long-term for the industry.
Kevin Bupp: Absolutely. Yeah, I know the group you’re speaking of, and we’re not going to name names here, but yeah, they did it in Iowa and it was pretty drastic, the most drastic rent increases I’ve ever seen before ever. I mean, I think it was, you know, anywhere between 60 and 100% rent increases, shortly thereafter acquisition. So, across thousands of lots, I believe.
Ferd Niemann: Right. It’s definitely making me, it makes me nervous for the, and also for reputation. I mean, mobile home parks, you know, manufactured housing community.
Kevin Bupp: They already have a bad reputation.
Ferd Niemann: They’ve come a long way from trailer parks, but we ain’t there yet. And it’s moves like that, that are one step forward, two steps back now that the professionalization of management, more lending opportunities, national lenders, national investment groups, professional buyers, all make the industry better and better for the residents as well. But when you give one or two bad apples out there, gouging rests, like you’re going to hurt again. And what you saw through you saw Elizabeth Warren was running for president and she was bad naming Frank Ross and some of these other big players and John Oliver show and all this stuff like we’re payday lenders. And I’m like, you know, we’re not payday lenders. We’re providing quality affordable housing. As far as I can tell them, necessary in every community in the country, there’s just a shortage. You know, the underlying economics of the industry, you know, there’s demand and there’s a shortfall. There is a supply and demand gap. What do you think we’re going to see on consolidation? I’m interested in your opinion on that, because you got a good pulse on this as well.
Kevin Bupp: It is already happening. You know, I think it’s just a matter of time and I mean, now it’s just timing. Cause it’s already, there’s plenty of groups that are running at consolidation. In fact, I know multiple groups. When we talk about people that we think that they’re overpaying for an asset, I know multiple groups that are, I mean, they are purposely, not purposely necessarily overpaying, but they’re paying a higher amount than anyone else, but their whole objective is to consolidate a portfolio and then sell it at a premium cap rate to one of these larger institutions. And so they’re essentially overpaying for pretty much every asset, but as a bundle, you can get some type of compressed cap rate on the exit side and justify that consolidation and net portfolio sale. So there’s multiple groups out there doing that right now. And so, I mean, as far as like the overall picture of consolidation, I don’t know what the timeframe looks like, you know, before, I don’t think everything will ever be consolidated because there’s always still going to be parks that don’t necessarily fit the size criteria for a larger professional or institutional investor, or in the right marketplace. You know, still plenty of like tertiary and very rural markets where parks is this, that, you know, professional operators aren’t really going to have an interest in owning. And then aside from that, there’s always going to be operators that just don’t do a good job of running parks. I mean to where they get into the space. Again, it’s not rocket science, but it’s also not super straightforward and easy. I mean, there’s unique intricacies and idiosyncrasies that exist in this particular niche. And so I think that there will always be available parks. It’s probably less than maybe what there are today, as far as trading hands. And a lot of that I think will be just you know, mismanagement, you know, pure mismanagement, which will always exist. But I can already see that the consolidation is you know, consolidation paired with you know, incredibly, historically low-interest rates and really a good available debt now for parks, debt consolidation is happening incredibly fast. So you and I were just talking about this when we start recording, I mean, over the last year and a half, it’s become incredibly more difficult to find, you know, what you, or I might determine as a fair deal, as a fair deal, not stealing it, not you know, buying it way below market, but a fair deal that’s in a good marketplace. And those are just even, those are challenging to find today. And I think it’s only going to get more challenging here over the coming years. So you know, time will tell, I think that I am a firm believer in that there’s always opportunity out there if you’re willing to dig a little harder than the next person. And I think that’s where the relationships come into play. There’s still tons of mom and pop. It’s still a fragmented industry. So, you know, that’s where these long-term relationships and rapport come into play and we’ve fostered deals. I think the longest one that ever took us from like initial contact to close was nearly three years is a very long time. You know, the deal cycle is pretty long. And so you can still find those cause there’s plenty of sellers out there that want to sell. They want to sell at a fair price, but they also want to sell to someone they like, and ultimately might not choose to sell to a larger professional institutional player from New York or Boston or something like that. They’d rather sell it to someone that they like and trust. And that could be possibly you if you put the time and energy into building that relationship. So I think those will always be there at least for, you know, the coming decade or two, but sooner or later, a big portion of the industry, just like a multi-family will be consolidated by the bigger players.
Ferd Niemann: No, I agree. I think that’s a great brain synopsis of where the market’s at. I agree maybe one addition I would have on the ones that are not going to get consolidated, there’s going to be that crotchety old man that’s never going to sell at any price. And then you got to deal with his kids or grandkids, or I mean, I’ve run into do those guys that are like, get off my property. I’m never going to sell, you know, you can’t even get to them, but those are where the deals are because eventually, someone’s going to do, as you mentioned, like build rapport. I tried to separate myself, hey, look, I can’t pay them off. I’m not the richest guy in the world, I am not the biggest. I’ll take care of the property, I’ll take care of your tenants. I’ll be fair. I’ll do it as best I can do. And try to set myself apart like that. You mentioned three years, my dad found a deal, it is in our hometown. This a nice park. It was 90 pads, concrete roads, car, house, double wides, garages on several of them. And we’re in the process of expanding another 13. So go over a hundred pads. So we really wanted this park, you know, it was a nice park. And my dad called the guy every three months for five years. And in most times, he is hard to reach. Let me get my paperwork together. I don’t want to sell. And he was, he ain’t that old actually, I mean 60 going on a 100, you know, but he was just a grumpy old man. Finally, he said, here’s the price you know, not paying off, you know, it was a fair price. And we bought it, but it took literally years and years of follow-up and he had no sign. He lived in the park and he had a sign on his door, you know, had a rent box. And he had a sign on his door that said, tenants, the residents do not bug me, do not knock on the door. He was like that hard to get ahold of. And as a result, you know, everybody else in the country wasn’t able to get to this guy and we were able to, we were local and he was a farmer, you know, and the rest is history as they say.
Kevin Bupp: Very interesting. That’s awesome. I love the grumpy old guy. Once you finally break through to them, it’s a very rewarding experience.
Ferd Niemann: Yeah. It’s, it’s definitely, it’s not easy, but it’s definitely fun. So maybe you can tell us a story or two of one of your best moves you’ve made on deal, or maybe your biggest mistake. And it would help our audience. Don’t do this. I forgot to get to phase one. And now I’m paying the EPA out the nose. I assume you didn’t make that mistake, but you got away with it. I mean, I know a lot of people don’t buy a phase one and then it works out, but then sometimes, you hear horror stories that people are like, oh, it didn’t.
Kevin Bupp: That’s a good topic to talk about. So we’ve never had a dirty well, we’ve never purchased a park that has had a dirty phase one, however, we’ve never gone to due diligence with a park that, or without getting a phase one inspection done, there was a park in Pennsylvania that actually my hometown, which I was kind of excited to buy, cause it was decrepit and it was in a great part of town. And I was excited to kind of like, you know, spruce up something where I grew up, you know, my family still lives there. But anyway the front of the property had an old service station from, I mean, literally hadn’t been in service since like the sixties, it had like a couple of commercial buildings. One was a tire shop. One was a service station. Service station literally had been a landscape building for the last like 30 years. And we didn’t know it was a service station. Anyway, we did a phase one and found a number of different points of the property that had contamination. Well, we ended up doing a phase two cause we found some reasons to go that, you know, that further distance and ultimately it would have been a pretty significant cleanup. And you know, we spent a good bit of money getting to that point and tried to renegotiate. We were still willing to buy it, but at a significant discount, I mean, we’re talking a couple hundred thousand dollars and basically, you’re buying liability at that point in time. And so we couldn’t strike a deal and we walked away. But you know, that would have been based on the size of that deal and, you know, the cost of the remediation efforts that would have absolutely crushed somebody’s returns or they would have got caught up in a massive lawsuit and legal costs that would have far exceeded the cost, even remediating the property. And so you know that money that we spent on that phase one and that limited, we did limited phase two until we got to the point where like, okay, this is going to be either it’s going to be costly and let’s start the negotiations, you know, retrade with the seller. And then he was just being, he was the grumpy old man, crotchety old man. I’m like, I don’t know what you’re going to do, buddy. Like whoever buys this from you is going to have the same issues and now you have to disclose it because we’ve uncovered it. So yeah, you know, you’re kind of in a predicament and so you should probably just sell it us cause we’re going to clean it up. We’re going to do our thing. And then he ended up, I think he ended up selling someone else a couple of years later, but in any event, we didn’t buy it and we saved ourselves a lot of headache on that property. But you know, another story, you know, the first park we bought an interesting story. I actually, I, you know, I’d say the first park we didn’t buy is even a more interesting story. And this is, this was back in 2011, we made a number of offers, but we had a park here under contract in Florida. And it was a listed park. Back then you’d see things listed here and there every once in a while, that actually made sense. Not really any longer, you’re not going to see stuff on LoopNet that probably makes any sense. But we put this park in a contract of 77 spaces in Florida, central Florida city water, city sewer. And this has had not bottled park yet. Kind of had a mentor, had gone to Franklin Dave’s course, this that, and the other. But so had not bought a park. I’ve done hundreds of renovations, I’ve owned apartment buildings, but this park number one, it was like a tertiary market. But now I know like number of Florida tertiary markets, I’m very comfortable buying in. This one I just didn’t know all that well. On the part that really got me this part, this is where I got cold feet. Basically putting under contract $600,000, 77 spaces, 75 of the 77 occupied. There was about, I think about 16 or 17 vacant park-owned homes. Some needed pretty significant repairs, probably on average, 10K a piece, 10 to 12 K a piece. The part that I got cold feet on wasn’t the renovations. It wasn’t even really the market. I felt that there was sufficient demand in that market and that we would be able to do this deal. We had an owner financing structure as well as some very attractive terms. But the part that got me was the current lot rents on the remaining tenant-owned home. So the remainder of the homes in that park, aside from those vacant park owned were all tenant owned, but their lot rents were like, they were one $140 or $160. They were incredibly low. And the market was like $300, easily $300. And based on his ask and base how the park was being run and the cost we’d have to put into renovating those homes, you know, back then you like, you expected to get double-digit cash on cash returns. That’s just how things were bought. But the only way that this park made sense is if we could go in and do like an initial, like $30 or $40 jump after, you know, whatever the first couple of months doing some improvements, what have you. And I couldn’t get comfortable in the fact that I might lose people, that I might lose residents if I do that big of a jump. And that ultimately, we had to be able to get in a couple years to market in order for this thing to be an absolute home run. And I got cold feet. I just did, you know, to me it wasn’t a home run unless I could do that. And we backed out of the deal. And about two weeks later, I came to a realization that I’m an idiot and that I should have actually bought it. I called the broker back up and I said, Hey, man, I let my money go hard right away. He’s like, sorry man, we literally signed a contract yesterday on it. And I ended up interviewing that guy on my mobile home park about three years ago, somehow, I forget how he heard me tell this story. And he reached out to me. He was like, hey, I’m the one that bought that park.
Ferd Niemann: And he made a million dollars.
Kevin Bupp: So he paid 600 for it, what I paid. And he renovated all the park-owned homes that were in there that were vacant. And I mean, he had sold this thing even a year prior to us doing the show. And I wish, I mean, he probably shouldn’t have, but he sold it. He paid 600, probably put like another 200, you know, 250 into it between roads and some tree work and those Parkland home renovations. I forget where he got rents up to, I think he ended up getting rents to maybe 240 over, you know, two to three years. And he sold for 1.8, that park today easily would trade for three and a half million dollars easily trade for three and half million dollars. So that’s the one deal I kicked myself in the ass for. And you know, at some point in time and I’m not really risk adverse for the most part. I’m pretty calculated, in that one all the signs were there that I should do the deal. And I just, if I had one person say, if you don’t do it, I’m doing it. And they truly said that I would have done the deal. But I didn’t know that there was that much to me. I didn’t know it was going to get eaten up that fast. And ultimately, I never made a mistake again, you got to trust your gut and my gut was telling me to do it and I didn’t do it. And so one other funny story I’ll share real quick with the first park we actually finally did buy, this is a very distressed park up in Atlanta. It’s the one we just literally sold in January this year. It’s a 34 space park, found that one on LoopNet as well. Again, interestingly, it’s the only two parks actually I’ve found three parks over my lifetime that we ended up buying on LoopNet. This is the second one that we’ve ever found. And it was an REO, had been in court receivership for, I think two years when we found it, local realtor, residential realtor had it. He had never sold a mobile home park or commercial property before. The listing was horrific on LoopNet, which is what attracted me to it. It literally had one picture which was an aerial shot. It had no financials attached, not even a summary of like how many park owners have, I mean, it didn’t say what the rents were. It didn’t say anything. I mean, maybe had a sentence or two. And I called the guy, and you know, well, first thing I did is I looked that up on Google earth. I looked at the Google earth area and I’m like, and these homes look actually fairly new. This is so strange. And I said, you know, what’s the occupancy. He’s like, there’s a couple people in there. I’m like, what’s that mean? You know, he’s like, oh, just maybe two or three that are in their living. I’m like, well, the rest of the units. And I was like, who owns these? He’s like, I think they come with the park. I’m like you think, or, you know? I was like, and so I found out that all these homes, every single one of them came with the park and these are all like 2005, 2006 homes. And this is, remember, this was back in like 2012.
Ferd Niemann: Why are they making it, that is what I am wondering.
Kevin Bupp: Yeah. So, you know, the story, so I’ll give you the background, the story, at least what we heard from the local city as far as who the owner was, he was a local slumlord, owned a couple of mobile home parks, trailer parks in the area. And this park had been in pretty horrific shape. Had old rundown, beat up homes in it, lots of drugs, you know, just bad elements. And this was that guys kind of Mo, this is what he had done in his other parks. And at that point in time one of the major hurricanes had passed. I forget which one it was, but there was a lot of FEMA trailers coming on the market for auction, not travel trailers, but, you know, two and three-bedroom, you know single wides and basically, he had a line on an auction and knew that he can go buy basically 34, you know, fairly new at that time, single wides for a good price. And so he got approval from the county to replace those old homes. They required that he put new roads in, new water, and sewer lines. He basically ended up taking a loan of like $1.6 million in this property to do all this infrastructure improvements, bringing these homes. And then he just continued in his old ways and ran it like a slumlord. So very quickly he defaulted on this note and he couldn’t you know, maintain that debt load on it, because again, he wasn’t doing a good job running the property. So anyway, went back to the bank. We bought it. And so, but how I looked at it, they were asking originally 500K for the property. Even at that number, I looked at it and I was like, you know, even if I had a fire, so worst-case scenario if I had a fire sale, every single one of these homes, I’d be able to get my money back out of this. You know, that’s kind of how I viewed it. And we went to look at the homes, they were in pretty horrific shape. Most of the AC units had been stolen. I mean, over the years, I mean, just every single, every single one of them needed a full remodel. And we took pretty nasty pictures and we sent it to the bank. And this realtor had never even been in any of these homes. And we tried to use that as leverage. And we also, we ended up buying the thing for like 200 K. So we got a massive discount. Because it had been sitting on the market for like a year. Number one, poor listing, number two, bad broker, number three you know, there was revenue, four, the homes were in bad shape. I mean, just had a lot of things working against it. We picked it up for it was either 200 or 210, but anyway, we always liked to go to the local city municipality and meet with the mayor, if we can meet with the council, meet with whoever we can to kind of let them know what our plan is. Cause this place was an eyesore and it happened to be almost catty-corner from the mayor’s office. I mean, so the mayor and the chief of police had to drive past this place all the time. And so we made this, you know, this pitch, my partner and I went up there, had literally had a mayor, he had like seven other staff members there. And the chief of police was in there. Code enforcement was in there. He had everyone. And this guy was a pretty intimidating dude. He was like 6’3”, bald, handlebar mustache. His name was Bobby Cartwright, mayor Bobby Cartwright, He had like stuffed foxes on the wall. I mean it was a really weird, uncomfortable like environment. And we gave him this grandeur pitch of what we were going to do this park cross street. We’re going to make it so much nicer. We’re going to do new road, landscaping, renovate all these units do background checks on people. So we don’t have a drain on your police resources. And he let us talk for about 20 or 30 minutes. Didn’t say a word. And then we stopped. And he basically looked at us. He said, you guys are wasting your money. He’s like, I’ve been trying to shut this park down for the last two or three years. And I’m not going to stop until that thing is wiped off the map. He’s like, so I would suggest that you take your money, and you go invest it somewhere else because we don’t want you and we don’t need you. That was it.
Ferd Niemann: And you still did it.
Kevin Bupp: It was a very uncomfortable. We walked out of the room. I’m like, well, that is not at all how we expected was going to happen. And we looked at each other. We’re like, I think it’s worth the risk because all we have to do is like, as long as we show them, you know, that we are going to do what we say we’re going to do. And what we did initially, we had closed on it probably two weeks later and we made an immediate connection with the code enforcement and build a rapport with her, basically said, look, we’re going to clean this place up. If you see anything, if you notice anything, call us right away. Here’s my cell phone number and it will get cleaned up. We’ll fix it. What have you. And so we basically built a rapport with code enforcement officer and you know, started, brought three crews in. Started renovating things. Kicked out the couple of tenants that were in there. The squatters basically is what they were. And then, so the big renovation process and then part of the way through the renovation process, we still, you know, it’s not a bad reputation. So if people are still coming in trying to dump stuff illegally and try and do drug deals in there, and things like that, people were still breaking into units and stealing AC units. And so what we did is we renovated one of the very front units and we donated it for a year to the police department and made a substation for them. So we put the electrical on, the heat on, AC in, stocked the fridge and let them use it as a substation, which allowed them to basically have a presence there which ultimately lowered the drain on the resources. Because people stopped coming there. Very quickly the word spread that this is no longer the place to do illegal activities. And the mayor, the long story of this, the mayor called me, Mr. Mayor, Bobby, we did not have any interactions during this year and a half of us turning around this park at all. And he called me on my cell phone a year and a half into it and said, Mr. Bupp, this is mayor Bobby Cartwright. I just want to take a moment. I feel like I owe you an apology. And anyway, he went on to say like, you know, he originally thought mobile home parks were the problem. You guys have basically proven to me that they’re not, he’s like, I was pretty surprised that you ended up buying it with the threat I gave you. And he went and turned to write me a pretty stout recommendation letter that ultimately, we’ve used many times again with, you know, municipalities that have had issues with us coming in and potentially buying a park that’s in distress and saying, we’re going to turn around. Because a lot of municipalities just have a bad taste in their mouth. A lot of people talk big and they never do it. But ultimately, we’ve used that letter many times over again to get, you know, get a city, give a city level of comfort that we’re going to do what we say we’re going to do, and we’re going to fix things up. So anyway.
Ferd Niemann: That’s a great story. That’s awesome. That’s a good idea too, to have the police right there. We’ve offered policemen free housing many times, and it just never worked like, Hey, come live here. Bring your squad car. And they’ve never really take us up on it. So we had to hire some Moonlight cops and stuff like that, but man, you get there a substation there, that’s great.
Kevin Bupp: I think with this one, cause it was literally right across from the, you know, it was right across where the police station was. I mean, I wouldn’t even say they necessarily used it as a substation. Like they just knew. They would park their car there often, a lot of times there wouldn’t be any officers inside, but they just knew that it would in the long run, it would help them lower the call rates from that park. Cause that park got so many calls. It was truly a drain. This was like a, it was in Atlanta, Atlanta MSA, but it was a small little town incorporated town. And so, I mean, they didn’t have a massive police force and any calls they got from that place was a drain on the resources. So they knew that the long-term game, it would ultimately help, and it would help us change the reputation and the image, you know, of that place. And it did, it did. And ultimately one of the mayor’s staff member, she ended up living in that community for a number of years thereafter, which was kind of interesting as well.
Ferd Niemann: Yeah, I think that’s great. I mean getting on the good side of the city’s key and you know, I’m with you that sometimes they just, they just don’t want to believe it. I used to be outside legal counsel too. So I knew the city. I knew the mayor and so this park came up for sale. And then at the time I was no longer legal counsel. I was doing retail development and looking at some other department development as well. And the economic development director for the city called me and said, Hey, this trailer park is going for sale. We got 12 trailer parks and want to get rid of them. And this seller is willing to change the use. And we told him if the right developer comes along, we’ll give him every tax incentive out of the book to make it go away. So if you buy this and either putting in senior housing or multi-family apartments, you know, class A will give you property tax payment for 25 years. And I said, look, it’s just the ground’s not worth it. It’s a think value. The ground isn’t a million bucks. The Park’s going to sell for more than a million bucks. There’s ground and a better location. It’s better suited for multi-family and senior housing. So I said, it’s going to be a trailer park. So another California buyer starts washing it right into the ground or it’s going to be me. And they didn’t know that I was doing mobile home parks on the side. So is it like, oh, you’re kidding me. We called you thinking you would make it go away. And I was like, I told him, I said, I’d like to buy it, but as a mobile home park and I had done some retail in that town too. So I wanted to have a good, I still own a commercial building in that town. So I didn’t want to get rubbed them the wrong way. So I said, do I have permission to bid on this? And they said, no, and I didn’t. And then three or four months went by and it was getting ready to be listed. And that’s what I had to, my dad came in town. We sat down with the mayor, city manager, economic developer director and said, look, this is going to be a trailer park. It’s us or somebody you don’t know, do I have permission to bid on this? And they said, okay, fine. But the mayor put me in his SUV and drove me around every park in town who showed me all the vacancies, showed me that one’s got a hundred, that one’s got 20, this one’s a drug dealer. This one’s this, somebody was killed in that one. He goes, I’m just trying to tell you, you don’t want to own a trailer park in this town. And I said, well, I’m willing to take that shot. Kind of like you said there, and the dad there and you know, the whole father, son combo, we can get this done and we bid on it. And we got it bought and we filled 60 lots in 18 months in that park. I mean, we’re talking…
Kevin Bupp: New homes or used homes?
Ferd Niemann: Mostly new, about 10 used, about 50 new. I wouldn’t sell that park today for 5 million. I bought it for 1.3 Million, two and a half years ago. And it was because I had had to pitch the mayor on it. And you know we delivered, and I haven’t gotten that apology letter, but I need to get that. But I’m asking for an expansion of that one, the planning guys on board, the mayor’s not onboard. That would be my apology letter. He lets me expand it. So anyway the key to, you know, the key point there is, if you’ve delivered, you know, you said what you’re going to do, and then you did it, and, you know, you fulfilled your promise and your goal, and then you get the benefit of it financially and reputationally and for the next deal. And that’s what I was able to do a little bit on this one here. So that’s just great and it’s good for the industry. We were talking earlier about reputation. Like there’s a legitimate operator and a good job to improve a crime problem in a homelessness problem or whatever else in the community and turn into something great.
Kevin Bupp: You’ll have some cities that still won’t get on board. We had one in North Carolina that even after providing the letter, mayor Cartwright even called that mayor. And they just weren’t having it. They were steadfast and their belief that mobile home parks are what create the crime in their area. That’s where all the shootings happen. That’s where all the drug deals happen. I mean, that’s that, wasn’t the case, but that’s what they thought and that’s what their beliefs were. And so they, you know, the interesting thing what they did is they instituted kind of on the fly, some restrictions on, cause this the park we bought had 50 vacant pads, all developed, all had had homes on them in the past. Most of them got repoed during, you know, the chattel crisis back in 1999, 2000. And they instituted on the fly, some restrictions on what type of homes could be brought in. And they were trying to charge us like impact fees again, like fees at the developer had already paid when he developed this property. And we had to Sue them. We had to Sue the town and we won, you know, we actually won, but it took about a year and a half and, you know, costs a good bit of money. But we had to basically take them to court, which was unfortunate, but we came out ahead and we brought homes to that park and haven’t had any friction since.
Ferd Niemann: That’s the Hard way. That’s good you won. But yeah, I have to threaten that, I don’t try threaten loss by threatening to, it feels like once a week and it’s often a bluff just like, I don’t want to go through this brain damage for my clients. Like they don’t want to pay to go through this brain damage. So it’s great that you were victorious, but man, I’m sure that was a brutal process.
Kevin Bupp: So the advice is, you know, what we did there, and this might not work in every state, but you know, mostly every state has a manufactured housing association, some are much more active than others, right? I mean, there’s some States that like in Maryland, they have one, but it’s, I’ve never been able to get ahold of anyone there. I don’t think you can become a member. I mean, it’s a joke. But this was in North Carolina, they’ve got a fairly active association and we basically just, we caught up and found out who the association, you know, who their legal counsel was, you know, and they had been well well-versed in MHC law, especially as it applies to North Carolina. So, you know, who to know better about, you know, the laws of that state as they apply to mobile home parks, than the same, you know, law firm that the association uses. So anyway, that might not be applicable for all associations, but North Carolina is a very active one, so they’ve got good council behind them as well. And so that guy was a huge help. He didn’t have to go research a lot of things, you know, I didn’t have to spend time and, you know, hours upon hours charging us $450 an hour to research and you know, get up to date or up to speed as to, you know, what the laws are.
Ferd Niemann: Yes. I know clients hate that.
Kevin Bupp: That’s where it gets very expensive.
Ferd Niemann: Very expensive, very quick, Kevin, this is a great discussion. Great stories. Before we part, any other last words, or if not, where can people find you? How can they reach you?
Kevin Bupp: Yeah. I don’t think any lasting words, just, you know, it’s a great niche. It’s a great industry. Lots of great people, like Ferd and myself in the industry. It’s fun. Right? You get to meet cool people. And I like to see like a lot of, a lot of the new young bloods coming in, right. There’s kind of like the old generation, now the younger generation. So that’s exciting. But as far as reaching me two different ways, our company website, www.sunrisecapitalinvestors.com, there you can go find out about all of our activities in the mobile home park and parking spaces. And then my personal website, www.Kevinbupp.com. There you can get links to, I’ve got, I host two different podcasts. One’s called the Real Estate Investing for Cashflow Podcast, which is a commercial real estate investing show. And then we also do The Mobile Home Park Investing Podcast, which there’s links to that on my own personal site. Again, www.Kevinbupp.com.
Ferd Niemann: All right. Sounds good, Kevin, appreciate it.
Kevin Bupp: Thanks Ferd, thanks for having me, it’s been a lot of fun.
Ferd Niemann: You got it.