WS1983 Investor’s Playbook: Become a Pro in Mobile Home Parks | Tyler Lekas

Are Mobile Home Parks Right for Your Passive Investment Portfolio? Thinking about diversifying your investments beyond traditional real estate? Join us in today's episode of the Real Estate Syndication Show,  as we continue our discussion with Tyler Lekas, who dives into mobile home park investing, a potentially lucrative option for passive investors.

Tyler shares his perspective on investing during potential economic downturns, forecasting a recession within the next year. His approach focuses on conservative investments with immediate strong cash flow and securing assets at prices that offer room for market fluctuations. Beyond financial strategies, he emphasizes the importance of personal well-being, with regular combat sports practice aiding in maintaining mental clarity and resilience. His unique philanthropic efforts concentrate on assisting individuals within his network, enabling him to directly observe the impact of his generosity.


Key Questions for Evaluating Mobile Home Park Investments:

• Vacancy Rates and Occupancy Strategies: How many mobile home lots are currently vacant? Does the operator have a plan to fill them? Understanding the costs and logistics of moving into new homes, including financing, permits, and physical setup, is crucial.
• Public vs. Private Utilities: Does the park rely on public utilities or manage its own? Private utilities can significantly impact future expenses and regulations.
• Park-Owned Homes: Assess the condition and age of any mobile homes owned by the park. The strategy for converting them to tenant-owned can greatly affect cash flow and overall returns.

To learn more about investment opportunities with MCHI Group, connect with Tyler Lekas on LinkedIn or reach out via email at tyler@mhcigroup.com 

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Transcript

Tyler Lekas: and how do you actually place that on the pad, especially with these older mobile home parks that maybe were built for 10 wide by 50 long mobile homes, and now you're putting a 16 wide by 80 long mobile home, how you set that mobile home up is going to make sure you don't lose multiple paths. I know that because we've lost multiple paths before in parks.

Whitney Sewell: your daily real estate syndication show. I'm your host, Whitney Sewell. Today, we are back with Tyler. Like I said, I hope you listened to yesterday's segment where he dove into the mobile home park investing and that asset class specifically, some things he loves and hates, and we dove into different things around property management and SOPs and whatnot that I thought was a surprise. I didn't expect to go into that, but I thought it was a great conversation. But today, if you are a passive investor, I think you're going to invest in the mobile home parks passively. He lays out three things that you need to know before doing so. And I thought they were great examples and questions that you need to ask an operator before you invest. And then even a few things at the end that also caught me off guard that I thought was great content and information for you, you're going to be a better educated, more informed investor after today's segment. Welcome back to the show. I want to jump right back into it. I told the listeners in the end of yesterday's segment that we were going to dive into questions for passive investors around mobile home parks. And because I feel like a lot of investors are used to hearing about multifamily or maybe even self-storage. But maybe there's questions that you know of as an operator and on the day-to-day operations expert that you are, that you can help them to think through, hey, you also want to make sure your operator knows this or does this thing or has this in place? Or what would be a few of those things that you would lay out there to ensure that they know they're making a good investment?

Tyler Lekas: Yeah, I think the first and foremost is how many vacant pads there are. So pretty much every single mobile home park, unless you're buying a stabilized asset, you're probably gonna be paying a five, six cap for that in today's market. So there's gonna be no meat left on the bone. But if you're going for value-add, higher returns, etc., then what I would say is there's going to be vacant pads in there. And an operator that says, hey, we're going to bring in some homes, set them up, yada, yada, yada. I would be asking him, you know, how are you financing those homes? Are they going to be new or used homes? If they are financing them, most of the time you need a dealer's license in that state. There's some complexities with bringing homes into a property because you need a highway crew that actually brings them in. And then you need a toter crew, which has a smaller truck to actually get them on the path. And then you need a plumber and electrician and a skirting guy and a steps guy. And how do you actually place that on the pad, especially with these older mobile home parks that maybe were built for 10 wide by 50 long mobile homes? And now you're putting a 16 wide by 80 long mobile home. how you set that mobile home up, it's going to make sure you don't lose multiple paths. And I know that because we've lost multiple paths before in parks. So we've had to go perfect this process. So moving mobile homes into a mobile home park is the heaviest type of turn you can possibly have and the most risk for sunk costs, most risk for losing money when you don't need to because you'll screw something up. We've had homes where I haven't been there to personally see things get set up, they get put in backwards. So the back of the mobile home is at the street and the window is like facing a forest.

Whitney Sewell: You're not just going to go hook your truck up there and whip it around, right? Exactly. Yeah.

Tyler Lekas: Yeah. So I would be asking your operator that there's vacant pads, how you plan on filling those and tell me the costs that are associated with that, right? We ballpark every single time we move in a home, we say, look, the chattel mortgage is going to be about 50% right off the top line. So if you're renting that thing for 900 bucks, spec 450 to come off the top line immediately. So your before expenses, your operating expenses, you're going to be taking home $450. And then you're going to have another $18,000 in intrinsic costs between the setup, skirting, stash, utility hookups, and HVAC. So again, that's how we do it. Again, I'm not saying I'm the best operator out there, but I'd be asking that question for sure.

Whitney Sewell: No, that's a good one. Go ahead.

Tyler Lekas: Oh, yeah. Just the next thing I'd be asking is, is it public or private utilities? If it's private utilities, ask them what type of private utilities it is. There's a significant difference between a lagoon where states are literally going out there and banning these things and basically costing, whether it's multifamily operators or mobile home park operators, millions, if not hundreds of thousands of dollars to go out and hook to city sewer, right? And then you've got septic tanks, which are a little more accepted in most states, right? They're viewed as a little more clean, environmentally friendly, easier to go in and replace, right? You replace a lagoon, that may cost you half a million dollars. You go replace one septic tank, it may cost you six grand. So different overall capital expenditures as well. So I'd be asking that for whoever your operator is. And And then the third thing I'd be asking is about park-owned homes. And what I mean by a park-owned home for your listeners is the There's a tenant-owned home and the tenant-owned home where you just own the dirt. So the tenant owns the home, you own the dirt underneath, you charge them what we call lot rent, right? A park-owned home is something where you own the home and the dirt. So it's more like multifamily, right? Where you're renting out that space, so you're responsible for all the, again, tenants, termites, and trash, or whatever you guys have. The terrible T's. The difference between those two is we run most of our tenant-owned home communities at around a 40 percent expense ratio. We run a lot of park-owned home communities where we haven't converted those park-owned homes at about a 50 percent expense ratio. Two different expense ratios for those, as well as depending on what type of park-owned home you have, will depend if you can convert that into a tenant-owned home. And what I mean by that is that if you've got a 1981 two-bed, one-bath with a flat metal roof that's in terrible condition, nobody wants to own that. The floor plan is terrible. It's an old house. It's undesirable because most people in our communities want a three-bedroom, two-bath. However, if you've got a 2000s mobile home and it's a three bedroom, two bath, and it's got, you know, a pitched roof, it looks a little bit better. And we'll just say there's 10 vacant park-owned homes or 10 occupied park-owned homes that are all 2000s, right? Or 10 vacant park-owned homes or 10 occupied park-owned homes that are all 1980. Those are gonna have two different attrition rates. Right. So you got to look at the age and the style of the park on home that you're taking on because that'll allow you to have it when it goes vacant. Are you going to fix it up? You're going to tear it down. You tear it down. Guess what? That's more intrinsic cost. How are you going to get a new home there? Right. Is it necessary for your cash flow, et cetera? So there's nuances when you take over a park, the park on homes. And I got to ask your operators plan there because it's, it's a really big deal for the operating cash flow, because if they just say oh well that park on home is going to stay occupied and we're going to get that $600 a month for perpetuity. with respect, they're smoking crack. You know what I mean? They're not being realistic about their underwriting. Most of our park-owned homes turn every 11 months. That's how that works. So then you got to put work into them. So how are you underwriting that? Is it $2,000 of work or is it $10,000 worth of work? So that's what I would be cautious about, vacant pads, private utilities, and park-owned homes, whether vacant or occupied. I'd be asking those questions.

Whitney Sewell: Yeah, no, that's, that's extremely helpful, by the way. I think any past investors that's listening is better off knowing those three things. So grateful for that, Tyler, I want to jump to a few final questions, just for the sake of time here and, and get your thoughts and ask everybody this, and especially your background in finance, too. I'd love to hear, you know, your prediction, right? What do you expect to happen over the next 6, 12, 18 months in the economy or real estate? And ultimately, how does that affect what you're doing right now? Buying, selling, or what does that look like from what you expect to happen?

Tyler Lekas: Yeah, so I think we probably go into a recession here in the next 12 months. Have I been wrong about the recession talks? I have. I've thought this economy has been like Humpty Dumpty, looking like it's about to topple over for a couple of years now. What I didn't expect is I didn't expect the Fed to continue to and I won't get political, but I want the Fed to continue to try to dump trillions of dollars of money into our system, dilute the dollar, and screw the average American versus doing what's right and basically saying, look, we're going to stop the money supply, we're going to feel some pain, but we're not going to dilute our dollar anymore. What I mean by dilute, the more dollars you print, the less the dollar is going to spend, the less purchasing power that you're going to have as far as your dollars go. And you can see that over the last four years, we've had basically a 40 percent decrease or a 40 percent increase in our cost of goods or a 40 percent decrease in our purchasing power. So if they continue to do that and print more dollars, then, you know, we'll just continue to keep this economy running until. you know, the consumer spending breaks, because, you know, people just, the purchasing power, you can't afford, you know, chicken anymore, because it's, it's up 300%, you know. So one of those two things will have to break. So I think we're probably in a recession. How we're underwriting deals is we're saying, look, if it doesn't work on day one cash flow, we're really not going to buy the deal. And the reason for that is because we have to be conservative here. We're not going to give up where it's not a huge portfolio, but we're not going to give up our 700 units by signing on a personal guarantee for a bank and then going bankrupt and losing all investors money. Because we have to underwrite kind of a worst case scenario for that. Because if we do go into recession, that means less people can afford mobile homes, less people can lease mobile homes, less people are going to come into our properties. Probably a lot of people are going to lose their jobs that are within our property. So we'll have higher vacancy rates, higher bad debt, etc. So we've got to underwrite that and we've got to be conservative for our investors, even if that means not buying deals. So that's kind of how we're looking at that. And for us, it's always about price, right? The more wiggle room we have between everything in our markets trading at 30,000 a bad and we can buy it for 20,000 a bad, we've got more breadth to be wrong, right? Because our operating, our debt service is less, our preferred returns are less than we have to pay our investors, et cetera. So that's really where we go in and we try to do our best for for our investors. But I do think we go into a recession and how that's affecting our buying is basically we're just saying, look, we got it. We got to take risk off the table. Right. Because if that happens, there's going to be way more opportunities out there. There are going to be guys out there that bought three caps on variable rates and they're getting hammered right now. They're going to run out of runway and we'll be able to buy deals at a steep discount. So be patient. And as Warren Buffett says, when there's blood in the streets, buy. So that's kind of how we're positioning for the future.

Whitney Sewell: And again, I don't think… I like that answer. Just, hey, we do expect a recession, but this is how we're buying still. But these things have to happen or be in place or else we have to be cash flowing. Which obviously just minimizes a ton of risk and not just counting on future cash flow that you hope is going to be there, right? Yeah, no, that's that makes a ton of sense. Tyler, what are some of the most important metrics that you track? It could be personally or professionally.

Tyler Lekas: So when you say personally, do you mean like personally for the business or like?

Whitney Sewell: It could be your bench press number or how many mornings you get out of bed on time or anything that's important to you, like things that that helped you to, you know, you see that, hey, this helps me to be successful every day.

Tyler Lekas: Yeah, exercise for me is a huge one. If I don't exercise for a day, my thinking's not as clear and everything. I've been in some sort of combat sport for basically since I was 16. I fought Golden Gloves and then I do some Brazilian Jiu-Jitsu now. And I feel that, you know, you know, rolling around with sweaty guys allows me to kind of let some, let blossom steam, you know? But in all seriousness, I love that. I did, I did some, you know, some competitive power lifting as well. So I like to lift weights when I'm not doing jujitsu or do jujitsu when I'm not lifting weights. So that helps me keep a super clear head because you know, it's, you know, stressful things come up in our business. And sometimes, you know, I, I don't want to eat and I certainly don't want to have a beer. I just want to go work out and, healthy way so I can get up and reset the next day. So I think that's, for me, that's a super important metric. In the mobile home park business, I would say that collections are super important. You got to stay on top of collections and you got to stay on top of your operating expenses. And you better have a great bookkeeper because if you're like me, I'm a 50,000 foot view guy. I like looking at cash flows and whatnot and kind of piecing those things together. When it comes to the operating accounts, I need all that stuff delineated out. I don't think like a CPA or an accountant. So I would definitely stay on top of those metrics. Yeah, I think that's to be successful in this business, you got to stay on top of, of those things. And I would always recommend exercise, but everybody's rolling around with some sweaty gas.

Whitney Sewell: Yeah. That's awesome. What about the number one thing that's contributed to your success?

Tyler Lekas: I would say, resilience. I've never been the smartest guy. I've never been the most talented guy. But as Mike Tyson says, everybody's got a plan to get punched in the face. And I'm pretty good at getting punched in the face and getting up, getting punched in the face and getting up, getting punched in the face and getting up. So a lot of people doubted this business when I first went out. Friends, family, et cetera, didn't have um, uh, virtually any support. Everybody thought, you know, you're out of your mind. There's no way you're going to do this. You know, you're crazy person. And I, you know, sat in a dark room and at an apartment for in Florida for years, um, grinding this out and finally got some traction. So I just, and it sucked. It really sucked. I'm sure just like Whitney, just like you, when you first got this business out and going off the ground, it sucks at the beginning. Um, and, uh, different problems now, but definitely we're, we're a little more, um, ingrained, you know, it's harder to kill us now versus at the beginning. But yeah, resilience, I think you have to have a ton of that. And I think you're, don't ever let your feelings get in the way of your mission, you know, because you're going to feel down some days, you're going to be sick some days, you're gonna be tired some days, family's not going to be working out for you, you know, girl might dump you, you know, you may have a you know, bad day at whatever, but just continue to push, you know, because it's, I think that what that's what carries you through into buying, buying mobile home parks or buying multifamily or starting any sort of successful entrepreneurship.

Whitney Sewell: How do you like to give back?

Tyler Lekas: So I'm a little bit. different than most people. I don't give to the Red Cross. I don't give to Wounded Warrior Project. I don't give to any of the large charities out there. I don't know where that money goes. I usually pick one person that's in my sphere of influence that I know is a hard worker, trying hard, trying to push forward. And I usually help them personally with something, whether that's paying for their apartment rent or helping them with a mortgage or helping them refinance or helping them get into their first property that they need to buy or whatever. I usually do an individual project and I usually focus on one per year. Last year it was two, but that was kind of a free deal. But that's usually what I do just because I know where the the money's going or the time's going to help that person. And I know who they are. Given to some big charity and have my name on a plaque doesn't do anything for me.

Whitney Sewell: I think that's very unique. I like that because it also allows you to build relationship with that person and do some mentoring probably along the way. Love that. That example of being able to just pick that person out and do that for them. That's awesome. Tyler, well, I'm grateful for the time with you again and laying out these things for the past investors to know about. I mean, I think you're They're going to be a more informed investor and make a better investment if they know those three things before investing in mobile home parks. And so grateful for your time. And, you know, tell the listeners how they can get in touch with you and learn more about you. And I know you have a 506 C offering as well. Please mention that.

Tyler Lekas: Absolutely. Yeah, we got a great LinkedIn page. I post a lot of operating, you know, knowledge about mobile home parks. So if you're looking to read like a Charles Dickinson novel about operating mobile home parks, I post some lengthy stuff. But I think it's for anybody looking to either get in the business or invest passively, hey, it's really good information. Just kind of my school hard knocks. So go visit our LinkedIn page. Again, you can just Google or you can look me up on LinkedIn at Tyler Lekas and then find my LinkedIn page there. You can also go to our website at mhcigroup.com. That has our offerings there or email me at Tyler at mhcigroup. Then we've got two deals, 281 unit, two part portfolio. We're purchasing both of those assets for about $7.8 million. And we're targeting a 1.76 equity multiple on those. So we think, again, these are gonna be kind of legacy assets for your kids or your kids' kids. And we're hoping to pass them down to our kids and our kids' kids as well. And we think we have, you know, four or $5 million in built-in equity day one on those assets, as we just had 100 in, I'm sorry, the 220 space park in Little Rock trade for 13.1 million, around 60,000 a pad. And we're purchasing both of these assets for around, 28 a pad. So we think there's some built in equity day one. So that's it.

Whitney Sewell: Thank you for being with us again today. I hope that you have learned a lot from the show. Don't forget to like and subscribe. I hope you're telling your friends about the real estate syndication show and how they can also build wealth in real estate. You can also go to lifebridgecapital.com and start investing today.