MFREE 117 Full Episode with Kevin Bupp: Why Do Smart Investors Focus on Durable Cash Flow?

In this episode of the Multi-Family Real Estate Experiment podcast, host Hutch interviews Kevin Bupp, CEO of Sunrise Capital Investors, about his journey in real estate. After building and losing a $75 million portfolio in the 2008 crash, Kevin rebuilt his empire stronger than ever with over $500 million in transactions. He discusses his strategies for investing in mobile home parks and parking lots, emphasizing recession resilience, cash flow, and the importance of sticking to the fundamentals. Kevin shares his experiences, lessons learned, and insights on the real estate market, making a compelling case for contrarian investing in niche asset classes.

00:00 Introduction and Guest Overview

00:31 Kevin Bupp's Real Estate Journey

02:44 Lessons from the 2008 Crash

06:06 The Appeal of Mobile Home Parks

09:19 Mobile Home Park Business Strategies

15:42 Exploring Parking Lot Investments

18:55 The Psychology of Wealth and Cash Flow

20:35 Conclusion and Contact Information

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hutch@hsquaredcapital.com

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Transcript

Speaker: 0:00

Wah Gwan all you multifamily enthusiast. Welcome to another episode of the Multi-Family Real Estate Experiment podcast, where we break down the mindset, mechanics and market intelligence needed to help you own more of America. Now today's guest, built a real estate empire. Lost it in 2008 crash and then rebuild it stronger than ever. And listen, some of you meet roadblocks, in your life and think it's the end of the world. But most of you understand that is a setup for the getup. We're gonna talk to Kevin Bupp today. Kevin Bupp is the CEO of Sunrise Capital Investors. He has over$500 million in real estate in transaction. He hosts a top rated real estate, investing cashflow podcasts. He's also the author of the Cashflow Investor and one of the country's most respected voice in the mobile home parking lots. It also, which is a unique niche in a commercial real estate asset. Its Insight has been featured, everywhere in the BiggerPockets, the International Investment Conference, and today he's here to teach us what most mainstream investors completely overlook. Kevin, welcome to the Deal Lab, brother.

Speaker 2: 1:16

Hey Hutch, thanks for having me, I'm excited to be here.

Speaker: 1:18

Yes, sir. Brother, do you have a favorite real estate quote or mantra that drive you? Let's talk about that before we get into the tactical stuff.

Speaker 2: 1:26

Yeah, that's a good question. I'll share two with you. I've got two young sons, they're 9 and 12. I say this to them all the time. This is applicable to any part of your life, whether it be real estate, investing, sports, business, marriage, get comfortable with being uncomfortable. Throughout your life, you need to get very comfortable with getting outside of your comfort zone and being uncomfortable. So that's the only place we find growth as individuals. And then the other one is, I'm a big fan of Warren Buffett. one of, Warren Buffett's famous quotes is, rule number one, never lose money. Rule number two, never forget rule number one. So we live by that at Sunrise Capital.

Speaker: 1:57

Yeah, that is awesome, man. Look. I've been in the Marine Corps for a while now, and some of the best relationships that I've made is being in, really uncomfortable situation and environment with limited resources, that we consider, austere environment, right? You get to see what drives you, what fuels you. You get to see what you do, why you do it. And you get to see the people around you, what makes them tick. You get to see their growth as well. You also get to see the ones who, who break. so you get to see the ones who are dependable. And you also get to realize that you may or may not be a dependable, person as well. You know what I mean? So the discomfort really drives you to a higher level of growth. In multiple situations. Absolutely. Yes sir. Now, Kevin, I agree

Speaker 2: 2:42

wholeheartedly.

Speaker: 2:43

Yes sir. I appreciate it. So you built a hundred million dollar plus portfolio, and then in 2008, like a lot of people have seen a multiple market cycle, lost everything. Most people never recover from that. Can you walk us through, brother, what you did, what did losing your portfolio teach you about leverage risk, true fundamentals, of wealth.

Speaker 2: 3:05

Yeah, it's a great question. it was a very challenging time. had found some, significant success in my early to late twenties, leading up to 0 8, I about a, nearly a hundred million dollars. About$75 million real estate portfolio of, single family homes and multifamily properties, in southwest Florida. The first big lesson I took away from that is, a large majority of my portfolio were single family properties. The operational side of that, we owned properties spread amongst five different counties. It was a very inefficient process. It was very expensive to manage them, technology. Exist today. That didn't exist back then. That creates a lot of efficiencies that weren't really in place back then. And so while I had low leverage points on everything, I wasn't making a lot of cash flow. I speak about cash flow today because really it's our number one principle. But, if I'm being brutal honest with myself, my portfolio was more built around appreciation. That kind of, rose with all the tides in Florida, Florida's a very cyclical market. It goes to really high peaks and it goes to lows. and that's typical of a lot of the coastal markets. while I made some cash flow, it wasn't durable enough to withstand, negative impacts that occurred, during that period of time. A lot of folks say rents never go down. That was not the case. there were, periods of time where we had, oversupply of homes here in Florida, and so that, that impacted our rental portfolio. In addition to that, when they stopped building new homes, a lot of the jobs went away. There weren't as many, the population, slightly decreased in Florida. Folks had to move other places to find work. And so we had challenges, maintaining occupancy. And so once you start stacking all the challenges, maintaining occupancy, lowering our rents, offering concessions, we had challenges being our debt service. And in addition to that, the, values of these properties, even though we had low leverage points, we had, built in equity, a lot of them within a period of a year. We're upside down in value, even if our leverage point was in the 60% range, so we were pretty conservative generally speaking. But, you know, we lost nearly 50 or 60% of the value in a period of a year. that value has since come back, but we didn't have the durability to weather that storm, We look at things very differently today. We've got to, we put a lot of stress test in place on our properties. we're still very conservative with leverage, however, we look at worst case scenarios. we underwrite to various cliffs within the financial model to ensure that any event of a worst case scenario, can we still make debt service? can we weather the storm and carry it through to the other side? And so, that's probably the big difference and one of the biggest lessons I took away from that period and how we've, restructured our portfolio today. We just had a challenging couple of years, with interest rates going up. A lot of folks are in trouble. a lot of folks had short-term debt in place. We have not missed a quarterly distribution. We're proud to say that we've literally made 34 quarterly distributions in a row. We've gone right through COVID going right through the last couple of years with interest rate increases. We don't have adjustable rate debt. We've got long-term debt in our portfolio and our leverage points are low. Even if we, lose occupancy in any of our assets, has not impacted our ability to pay distributions and debt service. It's a very durable portfolio versus what looked good. On the outside of, my old portfolio. When you really got into it got into the nitty gritty, you found that there was lots of weak links, on the chain. And so, just lots of lessons learned. But those are some of the big ones,

Speaker: 6:02

We are as strong as the weakest link in the chain. That's right. I wanna talk about Mobile Home Park because you probably deal with this question quite a bit, and I think it comes from a place of lack of understanding. We drive past these things and, don't really quite understand, mobile home parks. You have doubled down on mobile home parks, when most syndicators chase apartments, I would like for you to help our listeners understand, what makes Mobile Home Park one of the most recession resilient high demand, with limited supply assets in the commercial real estate space.

Speaker 2: 6:37

Yeah, that's a great question. You know, funny enough, I know you're based in Hawaii. Hawaii is the one state that does not have any mobile home parks they don't exist there. Probably the cost of transporting the mobile homes, across the ocean and there's no manufacturers there for mobile homes. I've always been a contrarian investor. I always try to, you know, where's the herd going? What's on the opposing side? Is there opportunity there? Right. And so, you know, mobile home parks now are pretty popular in the mainstream. Lots of institutional money is in the space. That wasn't the case. 13 years ago when we started buying them. It was a very, unrealized niche. If you knew, you knew, but if you didn't, you didn't. It was like a little, good old boys club. Lots of mom and pop type owners, not big institutional groups. Once we identified, a potential opportunity there, we bought a property I didn't know I, I'd known Apartment Complex has owned, portfolios of single family homes, another type of commercial real estate. I didn't know what I didn't know, and there wasn't a lot of information out there. What I did know is that the affordable housing crisis, was real 13 years ago when we started buying mobile home parks. It's even more real today. Mobile Home parks, offer, what I feel is the best unsubsidized housing option in any market across the country. You can take any of our mobile home parks in any city that we own across the country, and I can promise you that it's. A better quality than what you're gonna get for the same price point in an apartment complex. More than likely it's half the price of the same size stick build home. Our competitors are apartment complexes. we offer the American dream to those that would otherwise be renting an apartment, but for a much less price. They can live the American dream in a brand new mobile home than what they might be paying to live in a, B minus or C plus class apartment complex. It's a Very compelling picture that we can paint to, provide, a beautiful form of housing at a very affordable price. And so, I bought that first property, 13 years ago. Didn't know what I didn't know. Bought it, stabilized it, did a lot of improvements and it filled up very quickly. We made something very nice. It was in a good part of town. It was in. The good school district. So folks wanted to live there, wanted to raise their kids there, right? They wanna send their kids to the good schools or good, hardworking blue collar folks. but they need an affordable place to, to reside and raise their family, and that's what we provide. that hasn't changed. That's still the same storyline today. But the unique thing about mobile home parks is that it's one of two asset classes that has a diminishing supply, meaning that. There's more mobile home communities that get torn down or redeveloped every year. Meaning that there's a shrinking supply than new supply that comes on online. And so we've got this unique asset class to where if we buy in a great market. And a great part of town, we can fix it up, do great things with it. We don't have to worry about a new competitor being built right down the road. It's a very isolated, asset class and also has a, significant barrier to entry. Whereas, in self-storage or apartments you've always got the concern of potential oversupply, someone else coming in, building too many units, and then that ultimately impacts, what you might be able to charge or how fast you might be able to lease up,

Speaker: 9:18

Yeah. That is interesting, man. So there's a couple different ways to my understanding that we, can, run a Mobile home park business, right. I'd like to dive more, into your business strategy as far as the, as your practitioner. Right. Where the residents, they can own the mobile home and just rent a lot from you or you yourself can own the mobile home and the lot and the maintenance that comes along with it. Which one of those you see to be more successful or do you do a practitioner of both? Multiple,

Speaker 2: 9:44

We're a practitioner of both, but only out of necessity. the ideal business model is we don't own any of the homes. We just own the property, the infrastructure, and we rent the lot to the residents, and they own the home when they own the home, they're responsible like a homeowner would be. They're responsible for if the roof leaks, the plumbing leaks, if the AC breaks, right? They're calling the vendors. They're not relying upon landlord, to fix those items, right? And so it's, the expense load is much lower when we don't own that unit. When the resident owns that home, it's very akin to that of a stick boat home. To them they're living in a subdivision. what that means is we've got a significantly lower amount of turnover of resident base, whereas with renters, they might be moving every 12, 18, 24 months. We've got residents that have lived in some of our communities for four decades, even. There's a couple that have lived there for five decades, and there's multiple, you know, components of their, of multiple generations living in that same community as well. So you've got entire families, 2, 3, 4 generations of families living in some of these communities. And so they don't leave. They stay, they're sticky resident base. And so we like that, they've got a pride of ownership. There's a sense of community that just doesn't necessarily exist when you have. Renters, in the units. And so again, in a perfect world, we wouldn't own any. However, there's a number of communities that we buy, where the prior ownership might have, had some rental units in there. Sometimes it might be five units, sometimes it might be 50. In our entire portfolio today, we own about 3,500 units, 3,500 mobile home spaces. Of those 3,500, we probably have about 400 of the actual homes that we own inside our portfolio. Some of our communities, we have zero that we own, and others we might have 50 or 60 or 70 that we own. Right. And it just varies community to community. But ideally we would own zero.

Speaker: 11:17

Okay. So if you acquire a mobile home park where the current owner owns. The home and the land. do you have a process to get the current resident to take over the ownership of the home? Yes.

Speaker 2: 11:29

Yeah, that's a great question. typically, if there's a renter in there, normally what we'll do is, give them the opportunity, try to give them a compelling reason, of, us financing the home form or provi, you know, helping them get financing and showing'em that it, it's more than likely cheaper for them to actually own that home. However, some folks. Should be renters, right? they may don't have an interest in being a homeowner. They don't have, an interest in being responsible for items that need repaired or investing back in that home. And so it's very difficult to convert someone that, is a lifelong renter and desires to be into a homeowner. And so we always attempt to convert. If they don't have an interest in buying, normally what we do is if they're a good paying tenant and a good, citizen of our community, then we just let them rent until the time comes where they no longer choose to rent. Once they move outta that unit, we do a renovation and then we put it back on the market for sale. That's normally the protocol that we go through. we've got, about 10% of our portfolios rentals today. We're always Going through that conversion process. However, we're always buying new communities and we start wheeling that number down and then we'll go buy, like we're buying a, we close on a community tomorrow morning. It's a six park portfolio. And inside that six park portfolio, there's about 500, 500 sites in total. And of those 500 sites, there's 70 units that are owned by the various communities. And so, you know, we'll have to start working towards chipping that 70 number down, over the coming years.

Speaker: 12:42

It's always con,

Speaker 2: 12:43

continual progress.

Speaker: 12:44

Yeah. That's awesome, man. So I'm trying to visualize this, right? And if I was to buy an apartment complex and now sell that off to the resident, that creates some complexity as far as cash flow value, so on and so forth, right?

Speaker 2: 12:57

selling the land though, we're we keep the land, correct? Yes. We're just selling the home.

Speaker: 13:00

So, as you sell those homes To the residents, What is the financial impact on the valuation of those parks?

Speaker 2: 13:08

It's beneficial. it actually increases the value. You have to bifurcate the valuation. When we look at a park, we're looking at the capitalized income derived from the lots themselves. Just like you would underwrite an apartment complex. The durable income we want is on the lot. Income itself, not on the actual income from the home if it's a rental. These homes are personal property. Classified as what's called chattel. And so they're no different or no different classification than like a vehicle, a car, a truck. So, they tend to depreciate in value because they're personal property. They're not attached to real property. When we buy a new mobile home park, that has units owned by the community, we evaluate it separately. We capitalize the income on the park, and come up with a valuation in that manner. And then we just put a shell value on the home itself. Based on how old these homes are, you know, the condition, we might say, Hey, they're worth 15,000, 20,000,$30,000 a pop. and so it, what happens is, when we can sell that home off the end user. The desirability goes up quite a bit because most other buyers in the marketplace, especially institutional buyers, don't want to own any homes. They have no interest in owning homes. They don't want, they don't wanna be in the rental business'cause they know that it's just a lot more turnover. the income's not as sticky. Typically what we'll see is cap rate compression. If we can get rid of. All the park owned homes over a period of time and then turn around and sell that property. Whereas if it had park owned homes originally, it might have, maybe it sold for six cap. But if we can get rid of all those park owned homes and sell it as a fully stabilized property with no rental units it might get a 25 basis point, maybe even a 50 basis point premium on cap rate. So we get some cap rate compression because now we're selling an asset that. it's got lower maintenance requirements. We don't have to have as much, involvement from a community manager to oversee it. We don't have to have maintenance guys on staff. It's really simple and there's very little turnover. We're not involved in leasing homes. We're not involved in selling homes. It's a very simple business model. Once we can get to that point.

Speaker: 14:54

No, that is pretty cool, man. I've interviewed a cost segregation guy, he was talking about the type of properties that, that has the highest level of, bonus depreciation in mobile home park. Yeah. Tends to be one of them. Which makes sense, right? Because you pay this high dollar value for, land and a small amount of improvement, right? That's right. The cross segregation mostly is on the land improvements. Then you get to, that's right. You get to have a huge tax benefit for those passive investors who are investing, for, tax benefits. So yeah, I like that concept as well, man.

Speaker 2: 15:26

About 70 to 75 cents, for every dollar of purchase price that we get. It's significant. Yeah, it's a lot. I think car washes are the only asset that actually have a greater bonus depreciation opportunity because of all the equipment, they have with them. But, mobile home parks, I think are second line.

Speaker: 15:40

I got you for about another seven minutes. Before we get into the focus run, I wanna talk a little bit about parking lots. I live here in Hawaii and parking downtown is probably one of the most lucrative thing down there, man, because they're so scarce. You go into, in some major cities, you go to like New York, San Diego, different places, Vegas, right? Parking structure, it becomes a scarcity. Right. Can you tell us a little bit about that business model and why?

Speaker 2: 16:04

You hit one of the important points. it's scarce. In fact, it's the second asset class as a diminishing supply. if you've lived in a certain city for. A couple decades, and you can think back to what maybe the downtown area looked like 30 years ago. More than likely, there was quite a bit more surface lots than today. They've been redeveloped into condos mixed use properties apartment buildings or office buildings, land is scarce, especially in, densely populated downtown areas. And so we look at parking as an opportunity to buy a prime piece of real estate in a phenomenal location, what we, classify as irreplaceable real estate, In addition to that, typically what we buy, we're buying for below replacement cost. The current use today as parking. We know and we're confident That is the lowest use that property will ever have, meaning it can only go up from there. It'll only be something else at some point in the future. However, we don't underwrite the future. We only underwrite today. And so we've gotta make the economics and the business model work as parking at the present time. And so, we disclosed on a property a couple months back and, historic, old Town Philadelphia, literally a block away from the Liberty Bell, two blocks from Independence Hall, irreplaceable Real Estate. You would never be able to rebuild that parking structure again today. Even if you could spend, as much money as it costs to do it, you would not be allowed to rebuild that structure. Right. In addition to that, we got up for below replacement costs. In addition to that, there's just no vacant land left. There's no land and the demand drivers of why people are parking there, you know, all these tourist attractions one of the oldest cities in the country, they're not going anywhere. People are gonna continue visiting there and. Parking is gonna continue to becoming more scarce over time. And so, that's why we love parking. The last thing to mention is that a lot of parking, just like mobile home parks, just like multi-family, there's opportunities to pull value levers. The parking garage we bought in Philadelphia, we bought from an institutional investor, most folks think that institutional groups. Do it all right. They've got all the MBAs, MIT grads, they've got the smartest folks running the show, but they're such big behemoths. There's so many politics involved in making decisions that. There's a lot of inefficiencies that get created there. And so like in that Philadelphia garage, we've already pulled a couple levers and added a couple million dollar in value just by literally making some adjustments to the pricing. Redoing some minor items such as improving the lighting, improving the safety measures, making people safe, you know, parking there. Just literally a couple months improved that value or increase that value by about$4 million. It's a cash flow covered land play. We know that parking's gonna be in high demand for many years to come When that day comes where cars might be flying and we don't need parking garages. I think that's far off in the future, when that day comes, I know that land will be worth something incredibly valuable. As another use. Whatever that use might be, I'm not sure, but it will have a higher best use.

Speaker: 18:28

that is awesome, man. And no big tenants, toilets. minimal termite.'cause it's street concrete. yeah. It's concrete.

Speaker 2: 18:35

or asphalt.

Speaker: 18:36

The plumbing is, minimal, fire sprinkler and the elevators. Right. And you don't have to have anyone there working, the kiosks or anything like that. So, that's right. Yeah, it's very manageable business. Man. Man, brother, I could talk to you for a good two hours in some of these things, right? And I, but I know you gotta drop dead time here shortly. And I want you to talk about your, the psychology of wealth. How To think like a cash flow investor. Can you talk about that briefly, Like, maybe like a minute. You know what mindset shift separates people who build long term, wealth from the people who chase shiny objects. Maybe like for.

Speaker 2: 19:12

I mean, for me, like cash flow, it's a pretty simple premise. you invest in an asset that throws off cash flow ultimately, like you're taking your original principle investment and you're not spending that principle, those principle dollars on material items or, fancy vacations or a home you're making a principal investment into an asset that's throwing off cash flow. I think the way to real wealth is letting time take place, watching the value go up on that asset over time. But I think to compound that effect is to take the cash flow from that and then reinvest that cash flow. Buying for depreciation or buying for appreciation. can work. But it's Really difficult to time the cycles. As I referenced in 2008, it caught me off guard. I wasn't trying to time the cycle, but it caught me with my pants down where we lost a lot of money, practically everything because it was really an appreciation game. Challenging to time the market, even the smartest folks. even with, AI and all these technology, it's still impossible at the time the market. And so if you buy for cash flow and you buy with durable cash flow, and you just, and you got time on your side, you know, typically time will heal all wounds it's easier to heal those wounds if you've got. Positive cash flow coming in at the same time. So, I think making sure that you buy assets that have cash flow from day one is the way to go. I know that's difficult and even more difficult nowadays to do, easier said than done, but the deals are out there, the opportunities are there. You just gotta work really hard to find them, This is applicable than anything in life as well. Work harder than your next competitor. Like you don't have to be smarter, just have to work harder, work a little longer, right? Grind a little deeper, and I promise you that you'll find success where others don't.

Speaker: 20:34

That is awesome, man. Kevin, if our listeners wanna get in touch with you, how do they go about doing that?

Speaker 2: 20:39

Yeah, so you can check out what we're doing at Sunrise Capital. you go over to invest with sunrise.com and learn a little bit more about what we do I'm pretty active on, different social channels. Very active on LinkedIn. you can search me by my name Kevin Bupp. And, and I, I think I'm the only Kevin Bupp out there. I've got kind of a unique last name, so not too hard to track down.

Speaker: 20:53

Okay. Thank you, listeners, today's conversation was a reminder that, Wealth is built on fundamentals, discipline, and the right vehicle. You don't need hype, Kevin showed us, the niche asset, mobile, home park, parking lots, recession resilience and cash flow, if you want to build true wealth, stick to the fundamentals. thank you for spending time with us in another episode of the Multifamily Real Estate Experiment podcast. Until next time, I'm Hutch Marine Investor out.