Empower Your Future: Mobile Park Mogul Shares Essential Strategies

Stephen S. (00:03.15)
Welcome to the show where we interview the nation’s leading real estate entrepreneurs. I am here today to bring you a ton of value. We’ve got Brad Johnson in the studio and we are going to be talking about all things real estate. Specifically, Brad has been in the business for over two decades and is a mobile home park mogul. So we’re going to be talking all things mobile home parks today. People leadership.

Capital Solutions and all of the above. We’ll see where the show takes us. Just remember if you are joining us for the second, third or hundredth time to go ahead and drop a subscribe on our YouTube and remember at Investor Fuel, we help real estate investors, service providers and real estate entrepreneurs, two to five X their businesses to allow them to build the businesses they’ve always wanted to allow them to live the lives they’ve always dreamed of. That being said, it’s Stephen Schmidt, host of the show. I’m here with Brad Johnson. Brad, welcome to the show today.

Brad Johnson (00:58.868)
Well, thanks for having me, Stephen.

Stephen S. (01:00.726)
Super excited to talk to you today. But before we get started in that, can you just for all of our sake share a little bit about yourself, what got you started in this space and how you got to where you’re at today?

Brad Johnson (01:12.552)
Yeah. So I’ve been in real estate, as you mentioned, for 20 years. I was an analyst on the South side. working for a real estate investment bank, shortly after business school at MIT Sloan back in Boston. And I was working for this investment bank that was doing a ton of deals. And I was noticing kind of a frequency. I kept seeing these mobile home parks in the loan portfolios that we were analyzing.

And I asked one of the lenders one day, like, why are these manufactured housing portfolios included with all these giant trophy building office properties, apartment buildings, industrial assets? And they would always say, well, we like the fact that the yields are high, but the defaults are low. So it boosts our debt yield and decreases our foreclosure ratio of these loan pools. And I was like, okay, well, that shouldn’t go together, right? Normally if something has a higher return,

It should have higher risk, not lower risk. And so that was really one of the first catalysts for me to go off on my own. And really having my first child was also part of that because I just realized that I was spending so much time at the office working insane hours for this investment banking firm. And I realized that if I was going to do something entrepreneurial, I needed to do it quickly before, you know, I have the second kid and too many responsibilities and

the big house or whatever, right? So the earlier you go off on your own, the easier it counterintuitively is. And so I made the leap and started buying mobile home parks with a partner all over the country, got up to about 2,300 pads, sold that portfolio in 2020, kind of before really pricing started to crater, which was good timing. I wish I could say I did that 100 % by just vision, but I did.

noticed that pricing was getting a little crazy and we couldn’t buy as much. And we thought it was a good time to exit. And so yeah, so that’s how I got started in mobile home parks.

Stephen S. (03:14.574)
When you decided to sell everything off in 2020, I did you sell 100 % of that portfolio or did you keep on the crim de la crim of your properties?

Brad Johnson (03:24.71)
No, if I was smart, I would have kept some, I would have cherry picked. And that’s my advice to people now is that you actually in operating these things, and particularly mobile home parks, I mean, it works in any real estate, but with mobile home parks, there’s so few of them and they’re hard to acquire that your best ones, why would you ever want to sell them? Right? And so that’s really the approach today is to keep the ones that are the jewels, right?

that you see the operations, you see that the collections are great. You can kind of say, hey, this is something that I could hold forever. And then the ones that are kind of ancillary, maybe they’re too far away from your core portfolio. Sell those opportunistically when it makes sense. But yeah, I know I a hundred percent agree with that. In 2020, we sold them individually. really it was like, it was 23 parks and it was about 15 different transactions.

which was very unfortunate. And that was a function of my own stupidity, my partner and I’s stupidity in spreading those out too far and not clustering them in specific markets. And so that’s very much of an approach I take today is a spoken hub system where you create little regional portfolios as opposed to just scatter shot.

Stephen S. (04:45.006)
Yeah. Now, so you mentioned just doing some pretty basic math here. I mean, you had 2300 pads and 15 sales. You 23 total parks.

Brad Johnson (04:57.62)
Yeah, so 100 a pad or 100 a part.

Stephen S. (05:00.588)
Yeah, so I mean pretty decent sized lots. Obviously you’ve been doing this for the better half or better part of two decades that is. So when you guys were looking at a park to buy, what were some of the criteria that you were really flushing out to make sure it was an actual good investment?

Brad Johnson (05:18.312)
Yeah, to clarify, it’s been about 12 years in parks, but 20 years in real estate in general. But, the criteria when I started was, was really like, what, what IRRs, you know, can we get out of this thing? Can we get 20 IRRs out of lot of these? And in the beginning, a lot of deals were riding to 20 IRRs. It was a little bit under the radar today. It’s less of a complete secret. Private equity has started to get into this space and we’re consolidating.

Stephen S. (05:24.258)
Okay.

Brad Johnson (05:48.428)
but back then, you know, 12 years ago, you could buy eight cap deals. could buy kind of a scary park that, know, maybe it was a little hairy from a tenant base that was a 10, 12 cap, type of asset. so really I was kind of focused on high returns and, public utilities that really scared me in the beginning today. I’m more comfortable with.

With private utilities, really septic. don’t get into some of the other hairier stuff. Septic systems are pretty, are pretty straightforward though. Especially if you’re, you’re in an open area countryside versus a very dense, you know, city, you obviously don’t want to have something failed when you have the no acreage. but yeah, public utilities was big when I was starting out because I could just, you know, I was more of a finance guy and I’m here. I’m getting into this weird world of mobile home parks.

And I knew nothing about a septic systems or electric or gap, private gas, right. Or well water, all that stuff kind of scared me almost irrational, irrationally, right. My advice to, to people who are looking for deals or getting into the space is really to lean on the experts. You don’t need to know everything, right? You just need to be able to hire the right people. Even though if you’re only consulting, like they’re only consulting your project.

find the right people, they’re going to give you the confidence to move forward versus trying to figure it out yourself in terms of, you know, is this pipe big enough for this park? Right. I had no idea. So I focused mostly on public utilities, which just means city water, city sewer, a reasonable size Metro area, you know, MSA kind of 200,000 people or above. now I’ve actually upgraded, you know, in terms of the size of the market, I want to see

usually 250, 300,000 median stick built home pricing. Because I know that our $100,000 mobile home is going to be a huge value versus the stick built, right? There’s a huge margin in between those two versus the cost that you’re going to be paying for your stick built home. We’re going to have almost unlimited demand if the homes in that market are 300,000 or above.

Stephen S. (08:07.478)
Yeah, yeah, that totally makes sense. And for some of those terms that you’re using, like IRR and, you know, internal rate of return, some of those things, what when you when you’re factoring that into your deals, what what what is a good, you know, internal rate of return, for example, that somebody should be searching for? Should they just rely on the experts? Because I think a lot of people that get into real estate, especially certain niches, they don’t do it with as big of a, you know, a finance background or as much security, I’d say from a knowledge base that maybe you started with.

of seeing how they were done. So like what are some of those pitfalls people can fall into or things they should be looking for as well?

Brad Johnson (08:37.395)
Yeah.

Brad Johnson (08:43.88)
Well, that’s a good point because IRR is kind of meaningless if it’s a short-term hold, right? Because you can’t eat IRR, right? If you’re going to hold something for two years, it’s pretty easy to have a high IRR, but you’re not going to make a ton of money on a multiple basis. So IRR is useful when you’re kind of comparing similar things. And that’s hard with mobile home parks, right? You can’t really compare a mobile home park to a business investment.

Uh, from a risk standpoint, but I, I kind of think of it just as like a 15 % return. You know, I need to get paid a 15 % return in this space to kind of get me interested. Uh, and, and that’s cause it’s simple math, right? Every five years on at 15 % IRR, you’re going to double your money. And then if you keep it 10 years, you’re going to four X your money. And then if you keep it 20 years, you’re going to 16 X your money.

Right. With a 15 % IRR. So that’s just kind of my bogey. Uh, and you can adjust that up and down compared to the risk of that project. Right. Like if it’s a, if it’s an amazing market, if it’s a mobile home park in Raleigh, North Carolina, it’s a hundred percent full. It’s public utilities, all brand new homes that are the tenants own those outright. A hundred percent collections. It’s like a bond.

That is a very low risk investment. I don’t need to get a 15 IRR on that. I can get a 10, right? Because I know I’m going to get the tax benefits that after tax return is going to be very compelling. Whereas if it’s in the middle of nowhere, right? Which I’m not going to do anymore anyways, but I have in the past gone to a market. You’re like, really? You went to that market, but 10 years ago, you can get like crazy pricing and it still made sense. But like a middle of the nowhere market that most people have never heard of.

you need, know, you’re going to need an 18 plus IRR with private utilities and like riskier tenants. And, know, it’s more of a trailer park feel than a nice mobile home park that you’d be comfortable putting grandma in. Then you’re to need a higher return. And those are how, you know, some, some of those smaller parks that a little, hairier are easier to buy and are easier for people to get started in, in this space. just cause they’re riskier. They require more time and effort versus.

Brad Johnson (11:09.84)
example that fully occupied park in North Carolina. So that’s kind how I think about returns versus risk.

Stephen S. (11:16.992)
Now, what are a few things about mobile home parks that separate them from more traditional apartment complexes? I’m sure there’s a ton of differences that are just obvious compared to single family because it’s multiple structures, multiple at the same time. But what are some of the few things about them that a seasoned investor, let’s say, might not be aware of that make them just killer investments?

Brad Johnson (11:43.893)
Uh, there’s a couple of things. One is turnover. So tenant turnover is drastically different from apartments to mobile home parks. Oftentimes apartments you’re looking at, you know, mid forties, high, you know, high forties, 50 % tenant turnover every year. Uh, whereas mobile home parks, you’re talking two, 3 % turnover. And, and that’s a function of the fact that the tenants own the home, right? So the tenants own the home. They’re getting a huge value from a pricing standpoint.

as we’ve talked about it. So they’re not moving, right? It’s expensive to move the home. They’re getting good value. Why would they leave? Another one is capital. So the ongoing just capital reserves and capital maintenance expenses that you have to put just to maintain the status quo. It’s not improvement capital that lets you increase revenue. It’s just capital just to keep the lights on. With apartments, you know, that can be…

seven to nine percent a year of your income. It’s got to go into new systems, roofs, turnover costs, just to kind of keep things pretty static. Whereas with mobile home parks, we generally, we own the infrastructure, we own the land, the tenants own the home. Land is not very expensive to maintain. Our capital expenses are like three percent of revenue. So it’s more of a compounding asset because you’re not having to

continually put capital into it. So you can, you can hold these things for longer term and cashflow them versus having to trade because you’re, running out of capital for CapEx improvements.

Stephen S. (13:20.846)
Now, correct me if I’m wrong here too though, but when let’s say you have a quote-unquote vacancy, let’s call it for ease of the conversation, a lot of times when somebody moves out of their mobile home, they don’t take it with them. Am I wrong about that? So then the park in some cases also then gets that structure. Am I wrong there?

Brad Johnson (13:30.526)
Yeah.

Brad Johnson (13:40.148)
It’s rare.

Brad Johnson (13:44.692)
Yeah, so this is a complicated aspect of the industry when you work in a market that is not extremely on fire with demand, with tenants that are earning high incomes that can afford to bring in their own homes. Like the Raleigh example, I owned a park in Raleigh. If somebody left, they left their home in the middle of the night, they got a new job somewhere else. Generally they sold it the next day to somebody else. Or if we had a vacant lot,

We’d call a dealer and say, hey, we got a mobile home dealer. We got a vacant lot. They’d have a home in there next week with somebody that just wanted a very affordable spot. If you’re in say a smaller town in Indiana, you’re going to end up being in the home business because you’re going to have to help supplement the park occupancy. When somebody passes away, somebody leaves, somebody gets evicted.

They don’t automatically sell that single wide to somebody else in a softer market. So then you, as the park owner, oftentimes will have to take over that home title, throw in $10,000 to fix it up, and then try to sell it to somebody else. If you can’t sell it fast enough, you might want to rent it. Right? So you, you end up having two sets of books for those parks. have the lot only set of books, and then you have the park owned home business.

And you keep those books separately because lenders really only want the lot only business. They only want to finance the land, so to speak, and not the home business, which is ancillary, but it can help drive your returns. helps drive occupancy gains and is really an alpha generating way to boost IRRs, right? It’s just harder to do. Requires more capital. There’s more maintenance. It’s a little hairier, but it’s a great way to get started in this business because

they’re easier to buy those type of parks, especially in the Southeast, that model where the landlord owns a lot of the homes is just more common in North Carolina, South Carolina. It’s like cultural to that business down there. So if you can find a park that has a lot of park owned homes, you get seller financing on it. And then over time you sell off those homes. You just 10 X your buyer pool because you’ve increased the

Brad Johnson (16:06.918)
ability for that thing to be financed by Fannie Mae or a credit union traditional balance sheet bank.

Stephen S. (16:14.626)
Why is it, just out of personal curiosity, why is it that the lenders are more so focused on financing the land versus the home? Why is that?

Brad Johnson (16:23.38)
It’s a better business and it’s, more of what this whole business was started on that model. It only the last 10 years, it started to creep into also being park owned home, being a component of the business model. So the lenders are coming around. Fannie will do like 30 % now park owned home properties will lend on it. whereas before they didn’t want anything with more than 10%. Because they just wanted to make sure you were focused on.

running a land only lot only rent business. But as the home values have got, you know, have increased, they’ve gotten nicer professional management has come into the space. People want to upgrade these parks. It’s just faster to, get into the home business versus waiting for somebody to bring a home to fill a vacant path.

Stephen S. (17:14.284)
What so and I think you might have touched on this a little bit, but just for clarity sake, what’s your preferred model then? Is it tenant owned homes, park owned homes or a mix of the two?

Brad Johnson (17:22.772)
my preferred is always tenant owned, right? The problem is driving returns and finding enough product that is a hundred percent tenant owned. So we do occasionally do deals that are 25 to 40 % park owned. but once again, we go through then and make sure that those get off the balance sheet within five years. Cause that really drives up the multiple right. Lowers the cap rate.

because you’ve expanded your universe of buyers and lenders. So you’ve increased liquidity of that part.

Stephen S. (17:54.296)
What are some of the common things that are challenging in dealing with like city regulations or like zoning challenges when you’re acquiring or improving a park?

Brad Johnson (18:03.648)
some zoning challenges are when you’re, you’re going into a park in a dense, location where their homes are kind of on top of each other and the city has grandfathered the use, but it’s nonconforming. So it’s legal nonconforming. So then when a home, ends up vacating or somebody, leaves and it’s too old and it’s the homes too old to, save or fix up, you demo it.

Occasionally, some cities will take the viewpoint that, you’ve now lost your ability for that to be a mobile home, that to be a unit that now has to be an RV lot. So that can get tricky. You got to make sure you have a lawyer look at the zoning ordinances before you buy a park in a densely urban type of environment.

Stephen S. (18:52.696)
Mm-hmm.

Brad Johnson (18:54.526)
For the most part, red States don’t, you know, they don’t have that, those issues. They tend to be more in larger cities. So that was, that’s kind of one zoning quirk. you always want to make sure you’re getting a license permit, right? That has the, the exact number of lots that you think you’re buying. Some people get tripped up there as they end up buying a park and they realize that, the thing’s only permitted for 50 % of the lots that you bought. so that’s problematic.

But yeah, the nice thing about this space is that, you know, it’s really supply constrained. There’s not a lot of cities or counties or really that want any more of these parks. And part of that is just an educational thing. just, people hear mobile home parks, they think trailer parks. That’s not what we’re doing. That’s not what we are looking to provide our customers, right? It’s manufactured housing communities. And so,

Really we have affordable housing crisis in this country and these counties and cities would be better off if they would actually restrict or sorry, loosen some of the zoning regulations and allow nicer manufactured developments to move forward. But they they’re not doing that. So, you know, supply has actually gone down over time, whereas demand is stronger than ever because just people can’t afford homes these days.

Stephen S. (20:18.99)
Yeah, I totally agree with you on that. Why do you think that is that the local municipalities are still so stringent when it seems to be such a need? Is there any particular reasons you see for that?

Brad Johnson (20:31.974)
Yeah, it’s part of it is just education. like, you know, they get in their mind that it’s a dumpy trailer park, right? Versus a beautiful, even like curb to subdivision looking property, which I was a partner on a deal in Texas where we developed a giant park outside of Houston that looks like a subdivision. Right? Yes. Every home is, is manufactured, but they’re beautiful homes. You know, you’re driving through it.

Stephen S. (20:39.043)
Mm.

Brad Johnson (20:59.22)
And it feels like a stick built subdivision. So what, if you show a city that right, it’s like, you’re able to take a video or like take them to the property and show them what you could build. I think they would eventually come around, but you know, when somebody just submits something that says, Hey, look, I’m putting in a request to build a mobile home park, you know, in your town, immediately people were like, Whoa. And then the, you know, the pitchforks come out at the city.

know, hall meeting because somebody’s like, I don’t want that in my backyard. so anyways, yeah, I think it’s more of an education thing. And it’s also a, you know, a tax issue because if they can have an apartment building that goes vertical, that’s going to generate more taxes for the city. If they can build a mall, that’s going to, you know, the retail center is going to generate more tax revenue versus a mobile home park doesn’t drive a ton of tax revenue for the town.

Stephen S. (21:50.542)
Yeah, that makes a lot of sense. Have you primarily used all your own money on these deals or how do you traditionally get these funded?

Brad Johnson (21:59.892)
No, so we’ve done both private equity and high net worth capital. Call it 70-30 high net worth capital to private equity. And so you’re talking just regular people that are accredited investors that want access to the space. A lot of people like it for not only the cashflow and the fact that these things are fairly recession resistant, but the tax benefits are compelling as well. we’re gonna… Yeah, so…

Stephen S. (22:25.518)
Can you give us little more details on that?

Brad Johnson (22:29.588)
This was especially true when we were getting a hundred percent bonus depreciation, but we still at 40%. You can take 40 % of bonus depreciation today, which just means that you do a cost segregation study. Once you purchase an asset, the study says, okay, well, this amount of the property is land. This percentage of the property that you bought is land infrastructure, which is 15 year property, which means you can bonus depreciate that the first day. So it creates a lot of paper losses in year one.

which is extremely compelling if you’re not selling it within two, three years, right? If you sell something within two, three years, that bonus depreciation, you got to do depreciation recapture, and you just deferred the tax for just a little while. But if you can defer the tax for a very long time, some of our assets, hopefully we hold, you know, quote forever, I hope we’re giving them to our kids, then that tax bill never comes. That bonus depreciation recapture never comes. And so you’ve benefited.

from these giant after-tax returns in an asset class that has been historically very stable with generating a lot of cashflow. So that’s why some high net worth guys and girls love this space.

Stephen S. (23:43.03)
Are there specific regions in the US where you’re seeing more opportunity or growth right now?

Brad Johnson (23:48.212)
yeah, the Southeast is still very strong. you know, it’s, it’s not a secret and people in the apartment world to figure that out. And it got a little bubbly in the apartment world. didn’t get too bubbly in manufactured housing. There’s still a lot of properties that need capital that have been owned by mom and pop for 20 years. They’ve been, it’s their only job. It’s their only source of income. They live in the park. They don’t raise rents to.

You know too much because they know all the tenants right so there’s a ton of parks in the southeast where you have population growth and incomes are Increasing and yet these parks are haven’t nobody’s investing into these parks They’re just kind of clipping the coupons and generating cash flow and they could use a you know a transition to professional management Where you’re bringing in capital to improve the infrastructure to make sure that the property can?

can last long-term, not treating it like a cash cow. That’s one thing I don’t like in this space is that some people hear the thesis about not building any things, that the homes can’t, you’re not building any more parks, the homes can’t move without spending eight grand, and they think cash cow. Which yes, these things can generate a lot of cash over time, but they do require heavy capital investment if the park’s not already in great shape.

And so these things, how I like to think of mobile home parks is that the ability to steadily increase lot rents over a very long period of time, you don’t get that in any other real estate asset class. The bad actors in this space will come in and try to do that in the first year, right? Without investing any other capital to improve the park, to drive that value, to make that lot rent increase less painful for their customers. So anyways.

Stephen S. (25:35.875)
Yeah.

Brad Johnson (25:45.81)
That’s my soapbox speech about how to run parks in this space. yeah, Southeast is a great opportunity still, think.

Stephen S. (25:50.552)
I love it.

What’s the…

And last, we’ll make this our last question and then we’ll tell people how they can connect with you, learn more about what you’re doing, what you’re working on. But what would you say is, in the last 12 years of you playing specifically with mobile home parks, what’s the biggest mistake you’ve made and what’d you learn from it?

Brad Johnson (26:14.484)
The biggest mistake I made, I kind of hit it at in the beginning, is looking at a spreadsheet and thinking that a 20 IRR is better than a 15 IRR with a property that’s gonna be half the time commitment, half the headaches. So I’ve learned over the years, there’s two things about IRRs. There’s risk adjusted, which just is a fancy way of saying, you might…

Stephen S. (26:31.522)
Mm.

Brad Johnson (26:42.388)
lose your money 50 % of the time in this 30 % IRR versus 5 % of the time in this 13 IRR. There’s also like brain damage adjusted IRR or, you know, hassle adjusted IRR where something that you, you increase the lot rent 10%, you infill one or two homes and the property’s in a great location. You kind of just do a few small things.

that IRR is gonna be a lot better generally than something that’s incredibly hairy and time consuming and stressful. So I think that was the biggest, these things aren’t absolutes, right? You have to adjust them for time commitment, headaches and risk.

Brad Johnson (27:29.67)
Stephen, think I lost your… You’re on mute.

Stephen S. (27:34.51)
Yeah, I think, I don’t know what happened there. What I think you were referring to there specifically is the opportunity cost sometimes outweighs the actual percentage of what you’re gonna make on your net return.

Brad Johnson (27:36.649)
North.

Brad Johnson (27:47.188)
That’s the perfect other way to say it. A much cleaner, simpler way to say it.

Stephen S. (27:51.854)
Well you say it in the MIT way and I’ll break it down for us simple folks. man, I love it. Well Brad, thanks for joining us today. If anyone wants to learn more about you or what you’re working on, where should they go for this?

Brad Johnson (27:58.164)
Yeah, no, that’s the wrong way to look at it. It is opportunity.

Brad Johnson (28:09.16)
Yeah, so you can go to vintage-funds.com. You can shoot us an email info at vintage-funds.com and see what we’re up to.

Stephen S. (28:19.768)
There you go. Well everyone, I hope you enjoyed today’s show and we’ll see you on the next episode. Thanks again for being here.

Brad Johnson (28:25.566)
Thanks everybody. Thanks Stephen.