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Mobile Home Park investment – Jefferson Lilly

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We talk to Jefferson Lilly, a self-made millionaire, mobile home park investment expert, educator, and industry consultant based in the U.S.A. He joins us to talk specifically in the show today about mobile home parks and the investment opportunity they offer.

Transcript: 

Kevin:  I’m going to introduce you to my next guest. He is Jefferson Lilly, and Jefferson is a self-made millionaire, mobile home park investment expert, educator, and industry consultant based in the U.S.A. He joins us to talk specifically in the show today about mobile home parks and the investment opportunity they offer – particularly in the U.S.A.; we’ll try and explore a little bit of that in the Australian and New Zealand markets as we move through.

Jefferson, thank you so much for your time. Great to be talking to you.

Jefferson:  Cheers, mate. Maybe that’s as much Australian as I speak.

Kevin:  You had to get that in, didn’t you? Jefferson, let me firstly just mentioned that you have a very successful company called Park Street Partners that specializes in this type of investment. But interestingly, too – and this is how we met – you have a podcast called MobileHomeParkInvestors.com. That’s a nice little adjunct to your business. I know it’s you and your partner who actually cohost that each week.

Jefferson:  We do, Kevin, yes. We get between 10,000 and 12,000 downloads a month for our quirky little niche of mobile home park investing. Yes, we’re both helping other folks in the business operate their parks better or get into the business, but we also have folks call us then just wanting to co-own parks with us by investing in our fund, or we occasionally also get deal flow.

We got our park in Raleigh-Durham, North Carolina, from some folks who had listened to our podcast and knew it was off market but coming up for sale. We podcast both to raise money and to raise deal flow.

Kevin:  Jefferson, just explain to me the ownership of the parks. Do you know the freehold to the parks and then you lease out the homes, or do people actually come in and buy the home in some kind of a strata scheme?

Jefferson:  We really view this business, frankly, as being a parking lot business. Approximately 90% of the folks who are in our communities own their own mobile home, so obviously all the proverbial leaky toilets and leaky roofs and that maintenance is on them. And then we do own approximately 10% of the mobile homes, but all of those are on rent-to-own agreements, so we have folks really who are buying those homes from us.

Hopefully, call it five years down the road, all of those homes then will have passed into the hands of the residents, and we’ll be back to just owning the land that, again, more responsible homeowners then pay lot rent into. In the long run, we just want to own the land.

Kevin:  Someone who has a mobile home in your park, are they able then to sell it in situ. In other words, if they decide they don’t want to be there anymore or they have to relocate, can they actually leave it there and then on-sell it? If so, how does that happen?

Jefferson:  Yes, they certainly can. Once they own the house, it’s their property. I suspect it’s similar in Australia. At least here in the States, mobile homes have a VIN number, vehicle identification number, and they title trade through the DMV, as we call it, the Department of Motor Vehicles, just like an automobile.

Anyway, once they own it, sure, it’s their personal property – it’s not real property; it’s personal property – and they could sell it. They might sell it back to us; more likely, they would sell it through Craigslist or a local newspaper ad and sell it to someone else.

Typically, it stays in place. Even if ownership changes, the mobile homes do, almost always, tend to stay in place. That means, of course, our cash flows continue: either the previous or the subsequent owner is paying lot rent. Frankly, we don’t care.

They are sort of movable. It’s expensive – maybe $4000 or $5000 to move a home – but occasionally someone will move the home out to another park, but again, they virtually always stay in place and the title trades through the DMV and people find other folks through Craigslist or newspaper ads, and that’s typically how homes change hands.

Kevin:  As the owner of the park, how much control do you have over the ongoing maintenance of each of these homes? Because I could imagine if one gets run down, it’s going to pull down the value overall of the park.

Jefferson:  It could, although at least in the U.S., mobile home parks are not generally quite as downscale as they might be in Australia. Probably our average tenant earns between $30,000 and $35,000 U.S. a year. In general, we’re not dealing with the real bottom feeders or folks really completely down and out on their luck.

But indeed, we can and do enforce park rules, and if a house is particularly bad on the outside – it’s rare that it happens – we will require a tenant to repaint the house or, frankly, we might just go ahead and repaint it on our own. So far, nobody has really objected to getting a new paintjob.

It’s rare that we have to do that, but with our average lot rent being, perhaps, $300 a month and it being maybe twice that to repaint a home, if the outside is really bad, we’ll just go ahead and do it and, again, we’d have all our money back in a couple of weeks, but, hopefully, the tenant would, in fact, just paint their own house and keep it up.

We do also enforce things like requiring tenants to mow their lawns and not have cars up on blocks, as we say. The cars all have to be running. So, we really work to build a basic middle class neighborhood. We try not to run these as real junky properties. That’s not typically the way it goes, certainly not our properties.

Kevin:  You obviously have some standards in place from what you’re saying there. It’s an area of investment that we haven’t really focused a lot on, and no doubt, there are parks within Australia, and there will be people who are listening to this podcast who will want to input into this conversation. You’re more than welcome to send me an email through the website, kevin@realestatetalk.com.au. We’d love to have your feedback. If you are involved in this type of investment, I’d be keen to know what’s happening in the Australian market.

Let’s look at the investment opportunities with you just for a moment, Jefferson. Anyone who wants to know a little bit more about it, we’ll give you that website again at the end of this interview. What sort of returns can we expect if we were to invest with your company?

Jefferson:  Our funds have been returning between, say, 12% and 14% cash per year, and then appreciation we estimate might be another 6% or 8%. We think overall, our investors should be compounding their money at approximately 20% a year.

Again, more than half of that paid out in cash quarterly, but there will be some lumpy payouts as we sell or refinance properties and recognize that appreciation, which again, should bring their overall return from the low teens upwards towards about 20%.

Kevin:  Is there a minimum amount of investment that someone would have to make into the company?

Jefferson:  $50,000 U.S. and they would need to be an accredited investor or whatever. They don’t have to meet U.S. standards. If they’re Australian, there is a somewhat similar standard in Australia for investing in these sorts of funds. $50,000 U.S. is the minimum.

Kevin:  It’s been great talking to you, Jefferson. We are out of time, unfortunately; we’ll have to go. But just to repeat those websites again, ParkStreetPartners.com is the website, and the podcast, if you’d like to have a listen to, a lot of good information there, too, and a way for you to reach Jefferson and his team, as well, is mobilehomeparkinvestors.com.

My guest has been Jefferson Lilly. Jefferson, thank you so much for your time.

Jefferson:  Great to be with you, Kevin.

 

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