Real estate is a great area to focus your investments in. In this episode, Sam Wilson welcomes Christopher Nelson, co-founder and principal of Wealthward Capital, to talk to us about mobile homes and the cashflow it presents to the table. Christopher brings expertise to the real estate arena with experience from over 20 years in investing, due diligence, and financial operations. With the goal of building a financial fortress, Christopher has managed to help investors preserve and grow their wealth by partnering with top-performing sponsors/ operators who have a strong track record for successful asset management and meeting or exceeding investor returns. Listen in as Christopher teaches us how to take what you’re earning today and move it towards generational wealth through mobile homes.
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Building A Financial Fortress Through Mobile Homes With Christopher Nelson
Christopher Nelson is an experienced Technology Executive. He went through two IPOs. He’s a real estate investor, author, and Cofounder of Wealthward Capital. They are a real estate investment firm with a diverse portfolio of 3,000 multifamily units, mobile home parks and ATMs. Christopher, I’m looking forward to jumping in now. This is a blast. Welcome to the show.
Thanks for having me, Sam. I’m looking forward to it as well.
The pleasure is mine. The same three questions I ask every guest who comes on the show. Can you tell us where did you start, where are you now, and how did you get there?
I started after our first IPO. I had a sudden wealth event, and I did not realize how much that would affect me emotionally. A lot of fear, doubt, and trepidation took over as all of a sudden, overnight, we had multiple seven-figure paydays. It was coming out of that, that my wife and I wanted to create a financial fortress for our family. How do we take what we have earned now and move it to multi-generational wealth?
With a lot of learning, studying, and getting into Meetups in masterminds, we found real estate and then syndicated real estate becoming limited partners. That’s where we spent a ton of time working and investing. We also built out a small portfolio of single-family homes as well. It was in that journey, as I was sharing it with other technology professionals, they started raising their hands and saying, “Can you help us invest as well? We would love to invest alongside you and your family.” It was truly out of that that Wealthward Capital was born as a private equity company. We are very transparent in how we are investing our tech equity dollars, and we invite people to join us on the journey.
Real estate is a very unique asset that we all need to have in our portfolios.
It would be tough early on. You have liquidity and a wealth event, as you called it. You started investing. At what point in time did you say the juice is worth the squeeze to bring other people into the business? I would think as you are doing something, that’s fine and good, but at some point, you go. How did that time investment make sense for you?
Quite honestly, it didn’t. When it was first brought to me, I was negative about the whole concept. I did not want to do it. I wanted to take care of myself and my family but what I saw out there and see a lot of other syndicators and people who are in this business is, people need help. I realized there’s this machine that’s the same machine that was convincing me that I turn all my wealth over to them and that the market is going to take care of me. That’s riddled with a lot of falsehoods.
It was speaking to those people as well, and they heard me talk about, “You are preserving your equity. You are getting income off of it and expanding your equity when you exit these investments. We want some of that.” I felt called into it, quite frankly, to turn around and help my people who nobody feels sorry for the technology executive that’s had multiple seven-figure paydays. They have the same struggles as anybody else’s understanding what to do with their money because of the machine of Wall Street and the lack of education in the United States.
When you say the lack of education, what things come to mind when you make that statement?
There are a couple of things. Number one is basic financial education of saving and also of investing. It’s being able to evaluate different vehicles. I know that we run in some of the same circles, Sam, but when you have the light turned on, you start seeing as an investor and being risk-focused. You look at returns, underlying assets and understand what’s beneath them.
Once you turn that on, you can’t turn it off. There is a level of training and education so that people need to understand what it is because then there’s this misperception of, “If I see a fabulous return and I place money on it,” that’s more akin to betting versus understanding risks, doing due diligence and analysis. Those are some of the fundamentals that are not taught.
Let’s talk about this. What was your first step? You said you came in on the limited partner side. You started investing yourself as an LP, is that right?
Even before there, I was given some advice by a mentor, which was to understand the math. Being a technology employee, having gone through Computer Science in school, doing a lot of Math, I enjoy Math. I’m a geek. I admit it. Getting well-versed in understanding the fundamentals of, whether it’s a single-family home, multifamily apartment building or mobile home park, understanding the math, the assumptions, and what drives profitability in those, were key to us to understand.
My wife and I consider ourselves real estate scientists where we started saying, “Where can we put in minimum dollars and create some experiments where we are investing?” We’ve got skin in the game. We are participating but also tracking the results and understanding what’s happening in the underlying asset as a business plan is being executed. Also, as we get deeper into a partnership of operators, it was those fundamental steps of math and participating at a level that we felt comfortable with that, then after, I would say 12 to 18 months, we started scaling.
Let’s get into what is that real estate scientist. What was the conclusion of that study, and being a real estate scientist, what did it lead you to?
Real estate is a people business and understanding people is critical for it.
Conclusion number one is real estate is a unique asset that we all need to have in our portfolios. There’s no other asset. There are four ways to produce some level of either income or dollars back to you, which is cashflow appreciation. You can do equity pay down and also the tax efficiency but no other asset has that.
Number two is from a limited partner perspective 90% of the success is going to be on the operator. This is a people business, and understanding people is critical. Number three is the math isn’t that hard. Get to understand the math and tie that back to what your risk factors are so that you can quickly scan a pro forma and understand, “Is this too risky for me? Does this fit somewhere that I now want to take a deeper dive?”
I love that, especially when you said it’s a people business. That’s one of the things that we always stress. I was talking to an investor, I was like, “You can look at deals all day long but you should spend the bulk of your time vetting the people because that’s the largest part of this.” Did this drive any of your investment thesis or asset class thesis? When you’ve got done with that, you said, “We are going to stay in this asset class and move to a different one.” Were there any conclusions on that front?
When we were doing this exercise back in 2015, 2016, we did start buying some single-family homes, as I mentioned, because we wanted to understand operations ourselves. We wanted to own our real estate. What we did come out of that is to scale and get the value of owning larger properties, being an LP and syndications is where we want to put the majority of our dollars to work.
Our focus in 2016, 2017, and 2018 was very much on multifamily. Multifamily, at that point in time, was giving us good cashflow. You could get anything from 10% to 8% cash-on-cash return, and as the market was appreciating, there was the opportunity for some nice equity multiples on exit. It’s not the same case nowadays.
Did you pivot out of multifamily?
We have done a pivot into mobile home parks. We took a stop at ATM. We did make an ATM investment in 2021. That was a nice high cashflow to put in the portfolio but we found our way to mobile home parks, where we see an inefficient market that’s not dissimilar to where we found multifamily back in 2015 to 2017.
There are still a lot of mom-and-pop owners and inefficiencies in the way that mobile home parks are being run but you don’t have another asset class that is shrinking in size. Mobile home parks are being removed every day in this country because people do not want that in their backyard. However, the demand for that level of affordable housing has never been higher. That’s where we are laser-focused now.
You hear arguments, “All the deals are dead.” You hear something, which I don’t ever believe that but we have seen a significant uptick in the mobile home park space. What are some things that you are doing now as you have had opportunities one, to make sure the deal still makes sense but also to find opportunity in a market where there’s growing interest?
There always needs to be a level of Blue Ocean Strategy, Sam. It’s like, “Where are others not playing?” What we are seeing now is that a lot of the larger mobile home players and syndicators are looking at mobile home parks that are 100 pads and above. However, there are geographies where there is the geographic density of mobile home parks that are 75 pads and below, where it’s easy to accumulate 100 to 150 pads or we are closing now on 268 pads in total aggregated small parks but we are running them as a single entity.
Real estate is about meeting people, getting to know people, and aligning your values.
That is where we see a ton of opportunity now because a lot of those mom-and-pop operators are running their businesses inefficiently. Why? They can. They have owned them for many years. If they are running at a 70% occupancy with a low headache, they are getting the cashflow that they need because the majority of them are paid in full.
Number two, they want out. They are tired. They want to get to the beach and be able to harvest all of the returns that this asset has generated in the equity buildup, so they want to get out. It’s a tremendous opportunity, and we are focused on 2022 continuing to acquire because we are finding that there are tons of opportunities out there.
Have you built out an in-house acquisition and ownership team or are you participating as a co-GP, bringing capital to the table?
This is one where Wealthward Capital is partnered deeply with Fortify Capital. We have come together in a single entity called the Thrive Community Fund. We are operating as true partners where they are the vertically integrated managers. I’m working on not the capital side but also the finance and debt side as well. We are truly sharing the responsibilities and growing that, is a sister company to Wealthward Capital.
How did that relationship come about, and how did you finally ink that and say, “This is the path forward for us?”
This is the interesting thing when it comes to real estate. Real estate is about meeting people, getting to know people, and aligning values. I met Beau Wiltshire, my business partner in the Thrive Community Fund, through a networking group. We’ve got to know each other, and when I first met Beau, we had a nice connection. As I started wanting to know more about mobile home parks, he was the guy that I knew that had been an operator in that area.
I started having conversations with him, and we found a lot of things in common that we both came from other professions before real estate. We both operated at a very high level of execution, had tremendous success, and now we are seeing success in real estate. We are also focused on impact investing. We do see here in the United States, we have to help solve the affordable housing issue. When you have that principle, passion alignment and you are both high execute individuals, there’s a real opportunity there.
Let’s talk a little bit about the Thrive Community Fund. What’s the structure of that, and let’s get the down and dirty on the fund itself?
The Thrive Community Fund invests in mobile home parks in the Fayetteville, North Carolina area. We are looking and aggregating for these smaller parks. This is exactly why we are putting it in a fund instead of syndication because of the fact that syndicating all of these small parks truly wouldn’t make sense, but we are aggregating capital.
We call it capital when we have parts that we are going to purchase. This isn’t a fund where capital is going to be sitting idle while we are going and looking for parks. It’s, “We have parks in mind.” We go, raise that capital, and then we would go and put the parks under management. At a high level, we are providing an 8% preferred return but our average annual return is a 10.5% cash-on-cash return.
We are looking to do a cash-out refi in year five of this transaction to return all capital and then continue to cashflow for five years. We are looking for a long-term hold, and all of these came out of the fact that my focus as a passive investor is building a portfolio. What I have seen is that while multifamily still has a large portion of my portfolio, a lot of those transactions and investments are closing out in 3 to 5 years. I want longer-term holds and also the ability to get my capital out midway through so that I can redeploy it. This was what helped me partner with Beau and create what is a phenomenal investment for any passive investor’s portfolio.
Christopher, thanks for taking the time to break down your company, what you have done, how you have grown and had a liquidity event. Those are all fun things that present new challenges. I have learned that the problems never go away. They change as you have pivoted and learned along the way. This is fantastic. Is there anything else you are working on now outside of real estate or is this the 100% focus?
Now, I am focused on helping to educate more of my technology professionals. I’m in the middle of writing my first of what will be three books. My first book is No Dough To IPO. I want to help technology employees adjust their lens and have an industrious focus when they work for equity. The majority of technology employees go to work for the highest risk, highest reward type of equity, early-stage startups, and get frustrated when they can’t do it.
Myself, who I have gone through two IPOs, I also know people who have gone through 3 or 4 different IPOs. I am collating all of the information on how we analyze companies and invest our time wisely to go through these events and create what we call career compensation compounding. We are going to follow up No Dough To IPO with From IPO to Cashflow.
Knowing the fundamentals and what drives profitability are the keys to understanding your investments.
Once you get it, how do you plan, protect and start producing cashflow? We are going to cap that off with the book that I’m writing now, as we live it, which is How Do You Go From Cashflow To Passive Investing Pro, where you want then spend your final days investing passively and making an impact where you feel called?
Christopher, thanks for breaking all that down for us. It’s loads of fun. I look forward to those books when they come out. On that topic, when is the first book coming out, and how do our readers get in touch with you or get a copy of that book?
The book is going to be coming out in the late summer of 2022. We are going to be publishing with the editors, wrassling with those people, and having a ton of fun but it will be late summer. The best way to get in touch with me is at ThriveCommunity.fund. You can go up there and watch a webinar but that also gives you access to my calendar to get some time, and we can get a chance to know each other.
Christopher, thank you for your time. I do appreciate it.
Thanks, Sam. I appreciate it.
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About Christopher Nelson
Christopher Nelson is an experienced technology executive (2 x IPOs), real estate investor, author, and co-founder of Wealthward Capital, a real estate investment firm with a diverse portfolio of over 3,000 multifamily units, mobile home parks, and ATMs.
