Mobile home parks have less risk than multifamily housing when it comes to inflation. Mobile home parks are tough to manage and can be difficult to find qualified third-party contractors. The hardest lesson for the mobile home park owner is to make sure they buy the right properties.
In today’s episode of How To Scale Commercial Real Estate Podcasts, we are joined by Charlotte Dunford.
Charlotte is a graduate of The Georgia Institute of Technology where she earned her B.S. in Business with a focus on business analytics and technology. Along with her business partner, Rick, Charlotte started Johns Creek Capital, LLC in early 2020. From only 2 investors at the beginning of the firm’s founding, Charlotte and the team led the company to 23 investors with subscriptions ranging from $10,000 to over $2.7 million each. Charlotte is also a Certified Associate in Project Management.
Let’s join Charlotte as she shares her insights and story!
Highlights:
[00:00] – [06:08] Mobile Home Parks Still a Good Investment
- Charlotte Dunford is a partner at Johns Creek capital, and they own 27 mobile home parks in their portfolio.
- They recently sold one park, but are in the process of acquiring another.
- Mobile home parks are relatively tough to manage, and it can be difficult to find qualified third-party contractors to take care of onsite maintenance, usually taking care of everything themselves.
[06:08] – [11:46] Risks Associated with Mobile Home Parks in This Economy
- Mobile home parks have less risk than multifamily housing when it comes to inflation.
- There are fewer good deals and great deals available, so it is important to do your research before investing.
- Rent increases in multifamily housing typically exceed those in mobile home parks by a wider margin.
[11:46] – 17:4 Substantial Rent Raise
- The hardest lesson for the mobile home park owner is to make sure they buy right and have the right infrastructure in place. This can be expensive to fix.
- Sewage leaks are a common issue and can lead to high water bills.
- The mobile home park owner also has to be careful with advertising and budgeting for lot practices in order to attract tenants.
[17:39] – [19:21] Closing Segment
- Reach out to Charlotte
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- See links below
- Final words
Tweetable Quote
“ You just have to make sure you buy right with the right infrastructure in place because you can’t change the infrastructure of the park and those problems can be extremely expensive to fix.” Charlotte Dunford
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Connect with Charlotte Dunfordby visiting johnscreekcapital.com
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Want to read the full show notes of the episode? Check it out below:
[00:00:00] Charlotte Dunford: I think as far as. The total landscape of mobile home parks, the whole industry is getting consolidated from the top down and there are less and less mom and pop owners, which means that there are, will be less and less good deals and great deals out there. So I would say for those of you who want to invest in mobile home parks right now is still a good time to jump in because we’re still early on in the curve of the entire real estate cycle for mobile home parks. So I think that’s the opportunity right?
[00:00:38] Sam Wilson: Charlotte Dunford is a partner at Johns Creek capital. They are a private equity firm focusing on the mobile home parks. Charlotte, welcome to the show. Thanks so much for having me. Hey, no problem. Glad to have you on. There are three questions. I ask every guest who comes on the show in 90 seconds or less. Can you tell me, where did you start? Where are you now? And how did you get there?
[00:00:57] Charlotte Dunford: So I started with, , a corporate job out of college, just like a lot of people do. And, after which I, in this, in the same time I was buying mobile home park, sorry, real estate, while I was holding that job. But soon after that, my salary was not enough to fulfill the ambition of, scaling the business. So I quit my full time corporate job while my husband was still in school. So kind of a risk for us, but with a calculated risk, cuz I was already buying, , homes on the side having some real estate experience and start in 2019, our first mobile home park and then scale to today’s 27 mobile home parks with a total asset value. Investor subscription of five, roughly $5
[00:01:39] Sam Wilson: million. That is really cool. Absolutely fantastic. So you guys own 27 mobile home parks at this point.
[00:01:46] Charlotte Dunford: Yeah, in our portfolio, we have owned 27 mobile home park. We recently sold one. , but we are also in the process of acquiring another
[00:01:53] Sam Wilson: one. Sure.Okay, cool. How are mobile home parks, how do you quantify that? Is it by the number of pads that are in them or What do you say, when you say, Hey, this is what we own? Cause the number of parks versus the number of pads is probably entirely different, right?
[00:02:09] Charlotte Dunford: So a number of parks is not really, the Doors as far as in commercial estate or multifamily. So in mobile home parks, you’re really looking at occupied lot.
[00:02:17] Sam Wilson: . Okay.
[00:02:19] Charlotte Dunford: Number of pen-paying tenants.
[00:02:22] Sam Wilson: Right. Okay. Gotcha. So you guys have 20 or 27 parks that have come through your portfolio. What I guess what, how many, what’s the average pad per park, then
[00:02:33] Charlotte Dunford: average pad per park. We’re looking at anywhere from 2010 to 20 lots, all the way to, 30 lots. So that’s, we’re in the smaller space. So small to medium-level mobile home parks are kind of a niche within a niche which means that we don’t have a lot of competition. We can get parks at a. Attractive cap rate, right? Yeah. So on average, you’re looking at about 2020 pads.
[00:02:56] Sam Wilson: Gotcha. Okay. Now, this is cool. Yeah, because a lot of times we hear, especially on this show, like, Hey, go bigger, sooner, faster. And that’s gonna be one of the ways that you scale, but it sounds like you guys have found a way to actually kind of go the other direction in order to grow. Can you talk to me a little bit about that?
[00:03:13] Charlotte Dunford: Well, the most important thing is the good deal is to acquire at a good rate and you buy, right? So in order to buy, right, you must focus on vicious and opportunities where you can escape competition, sort of. So there are only two ways to do this. One is a focus on a space where. Most people are not looking at, or they have been ignoring for some reason or number two. You’re so competitive to the point that you have just have so much money. You’re one of those big institutional funds that you just rule out competition justed by being so big. So for us, we’re definitely not the second one, but we’re the first one we’re focusing. Diamond in the rough, not necessarily we’re going after it because it’s small, but it represents a lot more lot of things such as higher cap rate and, more solid deals, deal structure, and easier to fund and also very attractive returns.
[00:04:06] Sam Wilson: Right. How are you finding one of the things I’ve heard is that it’s challenging the smaller, the. Mobile home park or mobile home community is the harder it is to manage the harder it is to find and support say onsite maintenance, things like that. How have you guys found a way to scale with the smaller parks?
[00:04:25] Charlotte Dunford: Right with the smaller parks. I wouldn’t say that it’s more difficult to find onsite maintenance onsite maintenance is always, you find the local contractors with any bigger parks. If you wanna hire someone full time, that would be an expense, but that’s not really the model that we underwrite sorry, under operate under. So it’s a lot of times we under we operate everything in house. So we take over the management once. By the park, instead of outsourcing it to the third party, property management firm who would not really put enough effort as much effort as we would like them to be as much as we would ourselves, because, we always have our own asset. In mind. And we also invest in in all of our own deals on top of our investor funds. So, given that mobile home park is relatively a tough asset to manage and also because they’re smaller and, generally if you’re not. Under, you’re not, a hundred pads and above, it’s extremely difficult to find any third party person. So what we have, we do have onsite person, but he’s not getting free rent. Just to fix our park up. That doesn’t really work in any scenario. I don’t think, what we’ll do is that, If he is a contractor, we just pay him an hourly rate. And he has to, the rent rate is the same that way. If we wanna raise rent, we don’t have to raise someone’s rent for by a hundred dollars at a time because, he, all of a sudden he was paying nothing and now he’s paying everything. And that way it just never good is not a good business practice. And we just never see that working out for anyone really.Big or small.
[00:05:59] Sam Wilson: Okay, cool. Tell me this. What are some risks you see in the mobile home park space right now that you guys are actively trying to mitigate?
[00:06:08] Charlotte Dunford: Right. Mobile home parks actually in this economy has lots of risk mitigation against inflation actually. Relatively less risky than a lot of other multifamily. First of you have less cash tied into the deal. So that’s already less risky. But I think as with any investment vehicle, there are risks. So for mobile home parks, I would say the number one thing is that, like I said earlier, you have to buy, right. You have to make sure the utility structure is solid. The biggest money loser in mobile home park is utility issues. So that includes. Overpaying for utility bills that includes utility sewer and water leakage that not only means the higher utility bill and repair maintenance bill that could also shut your park down, which is the biggest risk because the health department may go after you and they have the right to shut the park down. And I think the biggest risk is to really be careful with the park infrastructure and to make sure that you don’t have any, I. Issues because insurance companies, a lot of times, if you have a park that’s really rough shaped, they, they’ll probably not ensure you. And that’s another risk that people need to be careful with.
[00:07:15] Sam Wilson: Yeah, no, certainly certainly insurance is a big ticket item for many of us right now. What are some things that you can do to bring down? I guess some of those potential costs. I know you said that if you have a park that’s in rough shape, But, I mean, if you have a 10 to 20 unit property, I’m assuming a lot of those are mom and pop run, and maybe some of those have deferred maintenance. How are you guys overcoming that?
[00:07:37] Charlotte Dunford: So we actually don’t we, we avoid all the properties that have really significant different maintenance because different maintenance don’t do anybody, any good different maintenance is like taking a shower. If you don’t take a shower, it’s bad. But if you take a shower you’re just normal. So it, it doesn’t really add any value, even if you take care of different maintenance. So even if, just because a park is mom and pop run doesn’t mean that it has significant different maintenance issues. Doesn’t mean that the mom and pop run park. Are rough shape because for decades, all the mobile home parks have been mostly mom and pop run, and some mom and pops do a good job in running those mobile home parks. So I wouldn’t say that’s an issue. As far as bringing down the costs of different maintenance, again I think you just have to have a really solid infrastructure the park the conditions of the roads, conditions of the homes, age of the homes and the utility structure.
[00:08:29] Sam Wilson: Got it.That’s really cool. Now, are you guys doing any park owned homes or are you guys strictly lot rent?
[00:08:35] Charlotte Dunford: Well, we sometimes have to have a mix because a lot of those parks. They don’t, we don’t have a, rule that says it has to be alternate own home, but we definitely wanna focus on majority tenant own homes. And if there are park home homes, then the Parkland homes have to have in good condition. And we have to look at their ages of the homes too.
[00:08:54] Sam Wilson: Right. Yeah. I would imagine park own homes, bring their own stat of of challenges maybe that that you don’t want to deal with. What are opportunities right now that you guys are seeing in the market, as it pertains to mobile home communities?
[00:09:08] Charlotte Dunford: Well, I think the affordable housing crisis in the country is worsening. And it’s always been there, but it’s worsening in today’s economy. So as far as opportunities, I think the overarching big problem of the affordable housing crisis definitely presents ITSs own opportunities. And I think as far as the total landscape of mobile home parks, the whole industry is getting consolidated from the top down and there are less and less mom and pop owners, which means that there are, will be less and less good deals and great deals out there. So I would say for those of you who want to invest in mobile home parks right now is still a good time to jump in because we’re still early on in the curve of the entire real estate cycle for mobile home parks. So I think that’s the opportunity, right?
[00:09:50] Sam Wilson: Right. Yeah, absolutely. Absolutely. Yeah. The affordability, I mean, that’s something that, I mean, it’s just, it’s Countrywide and there’s not a whole lot you can do about it. But tell me this, how, I guess we, we look at rent increases in multifamily and then compare that to mobile home parks and do they keep up neck and neck as far as percentage increases in a particular area or do they differ somehow? They’re
[00:10:15] Charlotte Dunford: definitely not the same as far as percentage increases. Usually depending on the area, we usually don’t wanna raise the rent more than $50 per year and in some areas $25 per year. So it really depends on what the last rent was increased and the market rent in the area. And as far as market rent, you’re not only comparing what the other mobile home parks are charging in lot run, but also what. The other housing products are charging. What you really wanna do with mobile home parks is to provide the best option for best value for money is affordable housing, right? It has to be less expensive. So you really wanna have a gap four to $500 gap between mobile home park law rent and the, other housing , let’s say mortgage or apartment building, single family, home rentals, their rent amount. You wanna make sure tenants are really getting this less expensive option. That’s really the key.
[00:11:06] Sam Wilson: Right. So you’re saying if apartments are renting it a thousand bucks, you don’t wanna have your lot rent meeting or higher than say 500,
[00:11:14] Charlotte Dunford: right? No. Yeah. 500 bucks in lot rent is almost, very, is pretty rare even in the heated markets. It’s well, unless you’re in a really heated market like Arizona or in Allen, California, but in the most part of the Midwest and Southeast you’re looking at in the 200, $300 range,
[00:11:31] Sam Wilson: Got it. Which goes back to your, don’t increase 25 to 50 bucks a year because obviously 50 bucks on a $300 rent that’s one six. So roughly 16 and 0.6%. Raise if you raise it 50 bucks that year. So that’s a pretty substantial substantial rent raise there. That’s really interesting. What would you say has been the hardest lesson? That you’ve learned since you bought a mobile home park in 20, bought your first mobile home park in 2019.
[00:11:58] Charlotte Dunford: So the hardest lesson, , like I said before, is. You just have to make sure you buy right with the right infrastructure in place because you can’t change the infrastructure of the park and those problems can be extremely, expensive to fix. So you wanna make sure you’re really careful with the utilities.
[00:12:15] Sam Wilson: Got it. Very careful with utilities, what was the, I guess when you think about, when you say that what’s the story that comes to mind for you?
[00:12:23] Charlotte Dunford: So the story that comes to mind, there’s several stories, but mostly, related to sewage leaks and just waterline leaks. So, sometimes you can be very careful with the utilities, but you still, sometimes you get sucked into the problem. So just really make sure you have enough reserves to, , prepare for any potential issues. They may not always happen, but when they do happen, they’re gonna be expensive. So I think. Sewage leaks, which leads to, higher bills. And, we once , took over a park where they were paying $7,000 per month on water bills. So there were leaks everywhere and the previous seller just paid the fees, which was ridiculous. So we really. Went out there and, hired pretty much a huge plumbing team to really identify and locate all the leaks. And we fixed all the leaks. And that brings down the normal water bill, which is about 12, $1,200. So think about a $7,000 per month in water bill bring down to $1,200. That’s a value add in itself. So you gotta be careful and it’s expensive fix, but it did make the money back pretty quickly.
[00:13:30] Sam Wilson: Oh, yeah, no, that’s a that’s. That to me just sounds like opportunity where you go. Okay, cool. So clearly there’s an expense for you, which brings your net operating income down, which means that I’m gonna pay you less for the property. That’s
[00:13:41] Charlotte Dunford: right. Yeah. So for the seller, he was really baffled on why , The water bill was so high. He never really thought to even to do the plumbing job and to really fix the thing, didn’t really understand $7,000 in water bill was outrageous. , but for us that turned out to be opportunity. We’re able to get their property at very significant discount and we were able to fix that
[00:14:00] Sam Wilson: problem pretty quickly. Oh yeah. Oh yeah. No, that’s really cool. Do you guys buy parks that are, that have low occupancy with the intent of increasing that occupancy?
[00:14:12] Charlotte Dunford: We do buy parks with lower occupancy. As far as the intent to, increase ly that, a few years back, it was a lot easier to buy used mobile home mobile homes. There are new mobile homes and bring them to, to your park. Now with the labor shortage, it’s extremely difficult to acquire, , mobile homes used or new. To your and bring to your Park’s extremely expensive endeavor, and that will cost you more money than what the value would be for a $100 lot run. , so nowadays, , for a lot, I think a lot of operators then for us, for sure, we we have the intent to advertise the park, advertised a lot, and, we budget for lot practice to attract tenants, to bring their own mobile homes into our park.And that’s how we tend to, increase document.
[00:14:59] Sam Wilson: Right. How, what, why does someone move their mobile home? , if you raise rents 50 bucks, it’s gonna cost them. I had, I don’t know, five, 10 grand to move a mobile home. Why do people actually end up moving their mobile homes? So
[00:15:13] Charlotte Dunford: people don’t really move their mobile homes from other parks. Period. They don’t do that. Very rarely do they do that. So the only chances they move their homes into your park is they’re buy a new home and they’re doing, it’s a financing package with the mobile home dealer that they’re doing this through financing, they don’t really, pay out of pocket some may, but most don’t. Buying them. , but they certainly never moved their mobile home from an existing lot or existing mobile home park that they were living in to another park. So that almost never happens. They usually sell it or walk away. So in the cases where mobile homes do get moved is because they’re buying a new home and move it into your park.
[00:15:53] Sam Wilson: Got it. That makes a lot of sense. So if you’re buying a park with low occupancy, one method would be to advertise for people or maybe even coordinate with your local distributor or supplier, whoever it is you have to go to for mobile homes, coordinate with them and just let ’em know that, Hey, you guys have spaces available, right?
[00:16:12] Charlotte Dunford: and then you can pay them a kind of a commission if they were successfully able to, , bring a home into your park and that’s a really good deal for you,
[00:16:21] Sam Wilson: right? Yeah, absolutely. That’s some of the best marketing that’s out there. What’s kind of a going rate for that. Say somebody say I went to a local dealer and said, Hey man, send me some of your people buying new homes. What should I anticipate paying.
[00:16:34] Charlotte Dunford: So it depends on what kind of people you’re talking to. So you can pay maybe a thousand or if it is a tenant in your park that you’re saying doing a referral program, maybe $500 in cash, or sometimes gifted cards work, but mostly, if you go any lower than that, I don’t think any or Anybody would be too interested in do, doing that much hassle for you,
[00:16:55] Sam Wilson: right? Yeah. Right. So a dealer sends a prospective tenant your way with a new mobile home. You can expect to give them roughly a thousand bucks and say, Hey, thanks for right.
[00:17:05] Charlotte Dunford: Right. If the tenant ends up moving in, of
[00:17:07] Sam Wilson: course. Sure. Yeah, absolutely. That’s a very interesting way. Filling your parks. Have there, have you had any challenges buying a low occupancy park and then filling it?
[00:17:18] Charlotte Dunford: So I think the in filling is always challenging. So I wouldn’t say that, if your, primary overarching strategy is infilling that’s not what we specialize in. And we don’t really focus on that because in today’s market, it’s just not a viable solution, not so much, , because it takes, like I said, it doesn’t make sense economic economically. So we don’t really focus on that. So I wouldn’t say there are any challenges in us actually trying to do that because that’s not really our strategy.
[00:17:47] Sam Wilson: Got it. Got it. That’s really cool. Charlotte, if you were to think about your success from point 19 till now, what would you say is one of the keys that has helped propel you forward?
[00:17:59] Charlotte Dunford: One of the keys is to make sure that you build a really powerful team that is a team sport. You can’t do this alone, and you wanna make sure that you have your team members who are very specialized and very good at what they’re doing. And you guys work as a team and achieve the common goal. So that’s the most important thing. I think, as someone who wants to start a company, as someone who wants to scale their business, you wanna make sure that you’re not the only person doing, wearing all the. You have to delegate, you have to assign those people who are good at what they’re doing to do that job.
[00:18:32] Sam Wilson: Right. Who was the first key team member you brought on?
[00:18:36] Charlotte Dunford: Well, I think the first one is my partner. He’s not a team. He is a team member, but he’s my business partner. So he has a really good engineering background, construction background, and backgrounds in running businesses in, in general. So that was really a no brainer.
[00:18:51] Sam Wilson: Got it. That’s absolutely awesome. Charlotte, thank you for taking the time to come on the show today and really break that. Thank you so much for having me the mobile home park space, how you guys are finding opportunity in the small to medium sized parks. Some of the risks that we can hopefully avoid and, especially as it pertains to infrastructure and things like that. And then also some just helpful tips and tricks on how to fill our parks. If we’re buying these and there’s lower occupancy, how to coordinate with local dealers. And bring prospective tenants new prospective tenants into the park. So that’s loads of fun, been a pleasure to have you on. If our listeners wanna get in touch with you, learn more about you. What is the best way to do that?
[00:19:28] Charlotte Dunford: The best way is to find me at our website at johnscreekcapital.com. And we’ll go from there. Great.
[00:19:35] Sam Wilson: Thank you, Charlotte. Appreciate it. Have a great rest of your day.
[00:19:38] Charlotte Dunford: You too. Bye.
