Welcome to another addition of the Seattle Investors Club podcast. My name is Joe Bauer and I have my co-host Julie Clark on the line. Julie, how’s your day going?
Julie Clark: My days going good! Hey, everybody!
Joe Bauer: Yeah, yeah. And we are super excited to have Frank Rolfe of Mobile Home University. Frank, how are you doing?
Frank Rolfe: I’m doing great. Thanks for having me guys.
Joe Bauer: Yeah, we are excited to have you. It’s been some time since we’ve been trying to get you on the podcast here. Just to kick us off, Frank, tell us a little about your background and how long you’ve been investing in mobile homes.
Frank Rolfe: Sure, I bought my first mobile home park in 1996. I’ve been in the industry a little over two decades, started with just that one property, didn’t know anything about the industry at all. I only bought it because it had an outrageous offer. The seller offered me, on a single phone call, he would sell me the park for $400000 with $10000 down and he would carry $390000 for 30 years. Just based on that, I bought it.
Then I officed out of that park for a year in a little tiny single wide, at which time I started buying up more parks and then I merged with my business partner, Dave Reynolds, back in 2010 and now we are the fifth largest vendor of mobile home parks in the US. We have about 32000 lots spread out over about 28 states.
Julie Clark: Wow. When you bought that first one back in the day, did you have a day job or did that turn into your day job?
Frank Rolfe: No. Well, what happened was, I had built from scratch a billboard company over the prior 14 years, and I had just sold it in September of 1996, and then I bought the mobile home park a couple months later. So, my day job had already been sold to a public company, so I was basically bored and had no day job, so it seemed like a logical conclusion to buy a trailer park, so that’s what happened.
Julie Clark: Wow. So, was it distressed, the one that you bought, or was it, you jumped into a distressed situation or was it operating pretty clean at the time?
Frank Rolfe: Well, you can guess form that price-
Julie Clark: Yeah.
Frank Rolfe: That it was distressed, and so all I knew about the park was that it had 83 lots and was found in the understate in Dallas, so I ask him how much it made and he told me it was losing about two grand a month. So, I thought, “Well, you know what? I’ll see if I can fix it. If I can’t, I’ll give it back.” I’m going to lose $10000 in workspace plus some time, that’s just maybe I can fix it.
Well, when he sent me over his stuff, and his stuff was not professional, it was not computer generated, it was all handwritten. Just gobbledygook. I show him I got other items, and his largest single expenses was cable television, which made no sense to me. Why would a trailer park be in the cable television business? I asked him, “What is this?
He said, “Oh, you know, my manager convinced me a few years ago that I should offer everyone in the park free cable. So I called the cable company and I said, “What is he paying per lot?” They said, “He’s paying $30 a space.” I said, “But he’s only half occupied.” They said, “Well, he’s paying 30 a space for all 83. It doesn’t matter what he’s got going on.”
So then I drove to the park and saw that there were little Dish and DirecTV units on almost every home. So, come to find out, out of that entire 83 lots, there are only about 10 people that are even on cable, so I just sent a letter to everyone saying we’re discontinuing the cable, and I had no push back at all, except for those 10 people, at which they were like, “Whatever. I’ll just go get Dish or Direc.
That saved the day. That ended the negative. It was that stupid.
Julie Clark: That is awesome.
Frank Rolfe: Then, after that, there was still other dumb things to fix. He had water leaks, just crazy. He had engaged in a lot of activities he lost money on, which made no sense. And he had laundry rooms where he would spend an average of 500 a month on utilities when he was only netting in quarters like $150. Initially, all I had to do to trim around was just to stop the stupid stuff.
When I got that fixed, then the problem was, I was half occupied. Then I got my big luck out, which was, they shut another park near downtown Dallas down for redevelopment, and as part of the purchase, the seller of the park had to move all the families.
I saw in the paper that he was shutting this park down, moving the families. I [inaudible 00:05:01] for a moment there and said, “Hey, I got this half empty park on the other side of downtown and I would love to have your families.” He said, “How many can you stick in there?” I said, “I don’t know with my tiny lots I have and their larger home, I guess I could stick in about 30,” and that’s what happened. Basically, he paid to move about 30 families over to the property, and that saved the day.
And all those crazy things all transpired in the first year.
Julie Clark: Wow.
Frank Rolfe: Yes, it was quite a wild time. That’s how I got the business. It was just that freaky.
Julie Clark: Well, that is inspiring. I don’t know of how often that happens, but that leads me to a good question. When you’re buying all your units, you only buy parks or do you buy individual?
Frank Rolfe: Well, our business is, we only buy parks. We think of ourselves as being in the land business, but that being said, we own about 4000 mobile homes because you can’t really be in the park business and not be in the home business, because the only way to [inaudible 00:05:59] in a park is by you buying the home.
Julie Clark: Mm-hmm (affirmative), right.
Frank Rolfe: So, you can’t hide from it, so we’re well-versed in homes.
Julie Clark: Excellent. Do you find that, and I don’t know if you’re able to generalize this, but when you’re buying these parks, are you making your value add upside more in cleaning up poor management issues, or is it in upside in rents that you’re able to charge or clean up. You’re leasing the spaces or you’re selling the homes? Which one is it?
Frank Rolfe: Well, we’re leasing the spaces. So, our biggest turn around, typically, is raising rent. Before you think, “By gosh, that’s cruel,” let me tell you why that is the big issue. Most of these mobile home parks are built in the 50s and the 60s, and then the industry basically was shut down. You can’t really build parks anymore. That’s why they’re valuable because the supply is capped.
And in fact it shrinks. There’s about 50 a year that are redeveloped within ten years they were built. So, if you look up in the old marketing materials, those guys who built these parks, but the average lot rent back in the 50s, 60s, was $50-60 a month. And if you increase and adjust that today, you would be at about $400, $500 a month, but they didn’t do that, because what you had, you had mom and pop quantitative easing. Because they often lived amongst their residents, very common for mom and pops to live in those old frame houses you see in mobile home parks, [inaudible 00:07:40] mom and pops house.
You didn’t, obviously, want to get one mad at you because you lived with them, played with them, vacationed with them, so they’d literally not raise the rent, and we buy parks all the time where the rent has not been raised over the last 10 years, 15, 20 years. The places kept chugging along, they did not participate in inflation, so our US average lot rent is at 280, and our US average lot rent should be about 480, so there’s tons of room to raise rent.
Raise your rents as a park owner is your typical number one way to increase performance, but a lot of these parks are so poorly run by mom and pop on the front end, that when we first buy them, we undo a whole lot of disaster, which is a great addition to the cash flow and the value, but it’s not the ultimate addition. The ultimate addition is traditionally raising rents, in some cases selling lots.
But I’ll just give an example of a crazy expense story. We bought a park in Illinois, that a mom and pop had a staff that was costing them $240000 a year on a 199 space park with only 100 occupied. To put that in perspective, the industry norm would be $10 a month plus free housing, so that park, normally the manager would be receiving $30000 a year, but they were pulling out $240000 a year. So, a big problem in that park was-
Julie Clark: You said that the-
Frank Rolfe: Go ahead.
Julie Clark: To pay the park manager, the norm is $10 a month plus free housing? Is that what you said?
Frank Rolfe: That’s correct. Let me tell you how this all went about. My mom and pop, they were not living on site. They’d gotten wealthier, and they had this manager. Over time, the way this always works out, it’s crazy because mom and pops, they quite as often ease the residents’ rent, but they go the reverse on employees, because again, they’re always searching for love in the wrong places. They started the manager off probably at, I don’t know, 30000 or something.
But then they would give them annual raises, and then they would give them free healthcare, then anything else the manager would ask for, they would just slam it on at $500 a month increments, so that years later, now the manager’s at 100, so the managers making 100, and then the manager, of course, convinced mom and pop that she needed an assistant, because there’s just so much to do, and of course, there was nothing to do. So, they agreed to hire an assistant who just happens to be a family member of hers, and they pay her another 30.
Then she convinces mom and pop that, to keep up with the Joneses, they need to be doing a lot more maintenance on the property, so she convinces them over time to add three maintenance men which was costing about another 110. So, what we did, is we bought the park, and well, actually, the way we worked this deal, you can tell that you have massive potential liability from these employees, just if you fire them, among other issues, you would have all the problems of them suing, claiming wrongful termination and discrimination, everything.
So, we actually had mom and pop fire them all in closing, telling them that they should all come back and apply for their jobs back the next day. They thought we would rehire all of them, but we rehired none of them, and we replaced them with one manager for 30 grand, no maintenance men, and that was huge. That’s the biggest piece of that we’ve ever had, but it’s not uncommon that we are all the time firing managers who are making 70 and 80000 a year, and replacing them with folks making 25 and 30.
Julie Clark: Wow, where do you find the employees for your parks? Are they typically residents?
Frank Rolfe: No, we find them the same place. We follow the same people the public storage follows because we use the same pay scale as self-storage. Your typical public storage unit, they provide the person a free apartment, typically above the office, and then x dollars a month. It comes out almost the same amount of pay as what we pay. So, where we find our people is, we find most of them on Craigslist, and they all have the same basic MO. It’s typically a lot of retired baby boomers, they’re making 1200 a month each on social security, so they almost double their income if they can get a job paying 25000 a year.
It’s not a high paying job, you’d be shocked at how many people want that job. There’s 10000 baby boomers retiring in America per day, and any or all of the 10000 are players. You also can get a lot of retired military people. So, it’s a pretty large place.
Julie Clark: Yup. Do you actually need a maintenance guy?
Frank Rolfe: No, no, no. We don’t.
Julie Clark: Do you have common area stuff that you’ve got to take care of but the homes themselves…
Frank Rolfe: Yeah, see here’s the problem. Those maintenance guys you get traditionally don’t really have any skills. The maintenance guy is a guy, that the reason he’s a maintenance guy, he’s not good enough at anything to actually make a go of it. So they’re typically-
Julie Clark: But do you actually need a maintenance guy on a mobile home park?
Frank Rolfe: No, you don’t. No, you don’t. Most parks, you’re better off, when you need somebody, hire a professional. In some of the larger parks, if you have a larger park, that’s 200 lots up, you might want one just to pick up litter and things like that. Even then, they’re typically not any good, but often they’re a spouse of a manager. So you hire the manager and you kind of get the husband in the loop, and you don’t really want him, but you kind of run with it anyway.
Julie Clark: Yup. Do you ever take homes? I used to do condo conversions back in the day in 2004, when that all was hot, where you take an apartment building and convert them to condos, and sell off the units. Back in that time, I was actually looking at a mobile home park in Pierce County, Washington, for scraping it to go do stick builds. … to new home, construction, do you do any of that, or is that allowed?
Frank Rolfe: No. Well, we have redeveloped parks. We had a park in Springfield, Missouri that was redeveloped into a Harley Davidson dealership on the front and apartment complex on the back. You’ll be seeing a lot more of that in the years ahead. It’s so far today not been something that you see a lot of, but you see it a fair amount.
The [inaudible 00:14:14] going forward is that mobile park homes are not, in some markets, a very high use of land. They’re not as bad as driver, not like a golf driving range, but we’re certainly not like the high rise office building. A lot of your locations for mobile home parks, when they were first built, were not the crÃ¨me de la crÃ¨me, because even back in the 60s and the 70s, no one much wanted them, so they would put them in more undesirable areas.
The problem is, a lot of the cities have grown over time, moving some undesirable area to become valuable. And the thing about mobile home parks are-
Julie Clark: How about the zoning?
Frank Rolfe: Well that’s just it. See, mobile home parks have an unusual feature because cities are so desperate to get rid of them, they’ll allow parks to be rezoned into things that they would not allow anything else to be zoned in.
Julie Clark: Yeah.
Frank Rolfe: If you wanted to build the world’s highest density apartment in history, what would you seek out? You’d seek out a mobile home park, because you know that the neighbors will not complain about getting rid of it.
Julie Clark: The problem is, these days, there’s so much regulation with I’ll say, displacement. At least here in our area, we certainly have that. If you displace a apartment building tenant to convert to condos, there’s all sorts of fees, and I mean, it’s all manageable. You just got to know what the rules are and what the fees are, and build that into your equation.
Frank Rolfe: In most states, they’re more than aggressively happy to get rid of the parks, so you won’t see much like that. In most states, all you have to do is offer your residents first option to buy, and even then, that’s only a handful of states. The only states I’m aware of that require any kind of monetary compensation to move the homes is California, maybe Florida, maybe Massachusetts.
Julie Clark: Probably Washington. I think maybe our state might.
Frank Rolfe: Yeah, probably Washington, yeah, but it’s not common in any of the states we’re in. In all the states we’re in, we’re in 28 states, and none of them offer first right of refusal. I can think [crosstalk 00:16:19]
Julie Clark: Are you primarily in the Midwest?
Frank Rolfe: Yeah, we are in the Midwest and the Great Plains, so we are Texas to Canada and then that loose affiliation of states called the Midwest to the right. We have lots of outliers. We’re in Rhode Island, South Carolina, we have one park in Florida, we have things in Utah, but most of our portfolio, if you look at it on a map, it looks like a giant P, that’s what it looks like.
Julie Clark: Yeah. Wow. So do you invest in anything else besides mobile home parks?
Frank Rolfe: No, no, we do own different things that came with parks, which because we have so many parks are going to be an impressively large amount of junk. We own a lot of storage. We own hundreds and hundreds of storage units that came along with mobile home parks. We own apartment complexes that cam with the parks, we have, obviously, RV parks, commercial buildings, all sorts of junk. But the only thing we actually invest in are mobile home parks.
Julie Clark: What’s your favorite scenario? Do you buy parks that are of any age, or do you focus on parks that are older than year 2000 or something like that? If that even makes sense.
Frank Rolfe: Yeah, let me tell you, because I know it sounds odd to anyone listening who’s never looked into mobile home parks, but our industry began in the 30s and the construction phase ended by the 70s because cities just said, “No more.” So you can’t build parks in virtually anywhere in America today. Now, you can if you go way out in the country because nobody cares, but in regular city limits, they’re pretty much forbidden, so it’s very rare to find a park any newer than the 70s. There’s a few out there, but mostly every park we own, it’s at least a half a century old.
Julie Clark: Well, you know, that’s interesting that you say that. Essentially, for mobile home investors, here’s a guy like you who’s crushing it, at least in the states that you’re at, in 28 states, and I’m sure there’s people out in all the rest of the however many states attempting to do the same. There’s a lack of inventory to purchase these parks. Are there still parks out there or what?
Frank Rolfe: Yeah. Here’s the other weird part of the thing most people don’t realize. There’s about 45000 parks in the US, and out of those 45000, less than 5000 are professionally owned, so basically mom and pops still own about 40 of the 45000. So that’s number one where the opportunity comes from, because they’re still trying to buy directly from mom and pops. All the parks we buy are from mom and pops with no exceptions.
That’s where the deals are, that’s where the financing is, that’s where everything is that we want to be involved in is in moms and pops. That’s one thing people don’t realize. The other is people don’t realize, if you’re into real estate, real estate is real estate. The average investor that’s out there doesn’t like mobile parks. They have such a negative stigma, right?
Here I was in the billboard business, and when I called this guy, he was one of my former land owners who owned a mobile home park, had built two billboards on his property, and it turns out this pitch to me. “Hey, I’ll tell you what, just buy my mobile home park and they’ll give you [inaudible 00:19:57] through that.
The very first thing I thought of while I’m on the phone with him, is I’ve got to concealed handgun license. When I said that I’ll do it, the next call is the gun range. “When do you have concealed handgun license training?” I honestly…
Julie Clark: Is that a valid fear, you think? Is that a valid fear?
Frank Rolfe: No, not in the least. Not in the least. I mean, I was carrying a pistol probably the first month, maybe two months in my pocket while I was in the park. Then I realized I was more likely to shoot myself accidentally than to need it. So, I took the ammo out of it, didn’t even have the clip in the pistol. Then I realized it was stupid having a pistol with no clip. What’s the purpose of that?
Then I thought, “Well, I still want to have access to it,” so I put the clip in one briefcase, and the gun in another briefcase, then you fast forward a decade later, couldn’t find them anymore. So, I had a nervous breakdown trying to figure out where’s the gun, worried that someone had taken the gun. Then about six months later, I found the gun, then I couldn’t find the clip. Then I found the clip. It’s just a big joke.
That’s what TV has done to people. I’ll give you an example. You’ve probably seen the movie 8 Mile with Eminem, and you know all the scenes where they’re throwing beer bottles and beating each other up in the trailer park, and all that kind of junk.
I was out in Detroit last year, and I thought, for fun, I’d go find Eminem’s trailer park. I mean, why not?
Julie Clark: Yeah, why not?
Frank Rolfe: So I go Google researched around, and if you Google around enough, you’ll find Eminem’s trailer park. There it is. There’s enough Eminem groupies out there that they’ve identified where he grew up. So, I went out to this trailer park, thought I’d get some shots, and thought it would be interesting to see. It was and old retiree mobile home park. Nothing like portrayed in the movie. Manicured little lawns, club house, pool, average age of the average person there is probably 75 years old, all driving Buicks. He made the whole thing up. I mean, the media just loves the whole trailer park deal. They basically brainwashed everyone into being afraid of them.
Julie Clark: I think we have a famous trailer park celebrity out here in Washington. What’s her name? Who is the one in the Clint Eastwood movie where she was the boxer? What’s her name? Hillary Swank! She’s from a trailer park out here.
Frank Rolfe: Oh, is she? I did not even know that. When you talk about trailer parks and celebrities-
Julie Clark: You come visit us in Seattle.
Frank Rolfe: Well the names that people think of are-
Julie Clark: Come do a presentation to our Seattle Investors Club.
Frank Rolfe: Exactly.
Julie Clark: And we’ll go out and take you to Hillary Swank’s trailer park.
Frank Rolfe: There you go. Well, Pam Anderson’s the one most people think of. She lives in a trailer park there in Malibu, and then Hillary Duff lives in the trailer park in Malibu because their career, I guess, tanked.
Julie Clark: Really?
Frank Rolfe: And Sean Penn lived in a trailer park for a while when his house burned down in one of the California fires. Yeah, what’s crazy is I read an article that the [inaudible 00:23:06] brothers actually buy billionaires who live in trailer parks. It’s actually a fake thing. They have it as a residence, but actually, they’re all surfing billionaires from Montauk and the Hamptons.
Julie Clark: Well that would be the subject of a good podcast, or if you want to get some attention on your social media, do a video or a podcast about celebrities that live in trailer parks. You know, people are so dorky they’ll want to listen. I would listen to it. I’m a dork.
Frank Rolfe: Well, you know, I’ve never been to the Hamptons, but apparently there’s people who surf it, and the primo surfing spot is called Montauk, and apparently there’s an old trailer court named Montauk right on the beach, which you cannot redevelop because it no longer meets sub-back requirements.
So, what these guys have done is, they all buy mobile homes in there, and they make them where they go after surfing. So they park in front of mobile home, they grab their board, they surf, they go back to the mobile home park, and they may party, and then they leave, but none of them sleep there. But they do own the trailers.
Julie Clark: So, let me ask you. Do you invest in the 55 and older parks?
Frank Rolfe: Yeah, we have a few of them, but I got told those are a little scary, because we don’t know as a collective group if baby boomers will want to retire into trailer parks. All we know is that the silent generation, the greatest generation, did, but we don’t know about the others and the problem is, there’s senior parks you can’t undo the designation easily, so if you guess wrong and it turns out the boomers don’t want to live in trailer parks when they retire, you won’t be able to get anybody else.
Our industry focuses on two niches, what they call the newly wed and the nearly dead. If you select the latter, you can’t get the former, and some parks it’s strictly basically the younger folks and some of the older, but it’s kind of dicey committing your money to nothing but the older, because we don’t know that’s going to work.
Julie Clark: Right. That’s a good one. Good thought there. That makes a lot of sense. Wow. What else do we got here? How about lending? As far as you guys are renting your spaces, so what does that mean? The homes don’t get sold right? Or they do? How does that work?
Frank Rolfe: The way a bank looks at a mobile home park, they look at it as a parking lot. So, just like a parking lot makes its money off their rental of the parking spaces, they don’t really want you to be dabbling in that someone’s buying used cars in the parking lot. They won’t normally allow you to count that income. So, it’s really all about the lot rent.
Julie Clark: But I mean, maybe I’m confusing myself, so when you own a mobile home park, the occupants, I guess I would say, they own it, they buy it and they just pay rent, right?
Frank Rolfe: Yeah. Right, right. 80% of all trailer park residents own their own home outright. No mortgage, they just own it.
Julie Clark: Right. Do you get involved in any type of sale or financing, or because of Dodd-Frank and all that stuff, do you stay away from that?
Frank Rolfe: No. Prior to the the SAFE Act in 2010 and 2008, matter of fact, in 2005, a lot of the park owners did what were called rent-to-own agreements, which are basically installment sales. Not mortgages. Then, the SAFE Act ruined that for people who needed that. What they did was, they stupidly eliminated the possibility of people to become home owners and they could have been, because when we were supposedly protecting people from themselves. That is the most scary thing imaginable, when the government thinks they’re so darn smart that they’re protecting you, who is essentially an idiot, from yourself. And that’s what they did.
Numerous people challenged it, and then gave up to the state of Ohio, of all people. By Ohio, they were adamant that those rent-to-own agreements were disguised mortgages, and they’d come after everybody. So, park owners just threw in the tower and said, “Screw it. We’ll just rent from now on.” And that’s kind of where it went.
Julie Clark: Yeah. Yep. So, most people trade in cash, right? Do you allow people to bring in, say they buy some, do you let people bring in new mobile homes, basically get rid of the old ones and put in new ones? Or do you do that?
Frank Rolfe: Sure, although, I’ll have to be honest with you, what happens, is that doesn’t really happen anymore, but back in the day, let me explain why, although it’s sort of boring, so I’ll make it really short.
Prior to the late 90s, mobile home mortgages are traditionally 7-10 years in length, never above 15. So, people pay down their equity really fast, so it was not uncommon in those days for people to trade in their mobile home for a new model, just like a car. Because they are titled like a car. Maybe a really large car. Just as people would trade in their 1975 Chevy Impala for the 1985 version, there were people who used to trade in their mobile home.
That pretty much died out, though, because after what’s called the Great [Chettle 00:28:37] collapse of 1999, which was the mobile home industry’s recreation of the Great Recession, so they had their mortgage collapse a decade earlier. You couldn’t get credit if you were a trailer park customer, and even to this day you can’t.
Sales of mobile homes went form 400000 just down to 60000 a year. Went down almost 90%.
Joe Bauer: Wow.
Frank Rolfe: And they’ve been that bad ever since. They’ve been in the toilet now for almost two decades.
Julie Clark: Wow. Is there any secret. You hear about buys that make $1 million off buying used tires and repurposing or whatever the hell they’re doing with them, I don’t know, right? Is there any big secrete sauce on scrap of maybe metal scrap for old mobile homes? Do you guys have any side business model related to that kind of stuff?
Frank Rolfe: No, actually, old mobile homes, when you finally have to get rid of them, you lose money every time, because it costs about 2000 to trash one, and the recyclables in the home is only $200, so it’s a money losing thing, sadly.
Julie Clark: Gotcha.
Frank Rolfe: They’re really not, and there’s really nothing you can repurpose them into. I mean, storage containers have many things you can do with them, but old mobile homes, you really can’t. Most of them can last forever if they’re maintained. We have some homes that are in our parks that are from the 40s, but those that die either end up in the dump, either by bringing it to the dump and have the dump demolish it, or demolish it on site rather than roll them off site, and then it ends up in the dump. There’s really no money in that part.
Julie Clark: Interesting. Do you have any mobile homes that are considered in vacation property areas, or I guess, I’m thinking just off the top of my head, there’s in city kind of ones like you said, that maybe back in the day were considered bad neighborhoods, and now with everything creeping out to the ‘burbs and affordability issues, those are looking pretty damn goods, as I’m sure they have for a while, and then there’s the rule, like here, we say Eastern Washington ones that are out there in the sticks a little more, and then I say there’s the vacation area ones. Is that fair to say that those three types of areas?
Frank Rolfe: There are, but most of the stuff people would want to invest in are going to be the ones in the city. You really don’t want to be in the affordable housing business. That’s not a lot of business. The rural trailer parks, there’s not a lot of money in that because the rents are relatively low, the demand is relatively low.
Julie Clark: It’s probably do or bust, right, too? Right?
Frank Rolfe: Yeah, right. What we do is every park we look for, we put the zip code into bestplaces.net, and we see what kind of population are we talking in the metro, and the industry norm people are searching for is 100000 and up metros, but you can even go even lower, but for sure, you don’t want to buy into 25000 metro, and that retirement rate stuff, some of it has a 5000 metro.
Julie Clark: So what is your criteria? Let’s say somebody out here in our state or out there in podcast land listening to us, because that’s probably happening as well, if they had a lead on a mobile/ home park and they’re investors but they’re not specialists in mobile homes, I’m sure what kind of criteria is it? You mention sticking to metro areas of 100000 and up, maybe, what else?
Frank Rolfe: Let me tell you, because you can bench most of this sort of stuff on website, which is Best Places. What you want is, you want a metro of 100000 and up, you want a median home price of 100000 and up, you want a three bedroom average apartment rental of $1000 a month and up, you want a vacant housing rate that is lower or equal to 12.5%, because that’s good, because that’s the US average on that.
Then beyond that, we then spin over to Wikipedia, and Wikipedia who the top employers are in that market, and what we look for, we call recession resistant employers, so these are government jobs, education jobs, and healthcare jobs, because honestly, that has been among the top of the top 10.
Then, as far as the park itself, you want what’s called city water and city sewer, so you don’t want private well or private sewer.
Julie Clark: No septic.
Frank Rolfe: And that’s about it. I’m sorry?
Julie Clark: Yeah, no septic.
Frank Rolfe: You can have septic. We have some septic. The big issue on septic is, your business partner is Mother Nature, and septics in our industry, the average septic’s been running for half a century, so if the ground can absorb it for half a century, there’s no reason being it can’t going forward. I mean, the other thing is, you still want to make sure you have the ability, by law, to replace the tanks and also replace the leak shields.
Julie Clark: Right.
Frank Rolfe: Just in case. Traditionally, they seem to work pretty good.
Julie Clark: Is there any criteria that’s important, such as parking or things that might be important in apartments or single family homes that apply to mobile homes, like amenities?
Frank Rolfe: Yeah. This is where the two of those can get so strange, because you’re exactly correct, in apartments and single family it’s all about the structures and the bathrooms and the kitchens and the amenities. We don’t offer any of that, because we just rent land. We don’t even look at or care about the homes themselves because they aren’t ours.
Julie Clark: Well, I mean, in the park, right, it’s kind of like a subdivision a little, right? I mean wouldn’t people want the place that-
Frank Rolfe: Well, right, but see, most of the amenities in our parks, remember all these parks are old, so our typical amenities in the parks that we have are old amenities, and in most major cities in America today, you’ve got way better new amenities for people to play with. So, a typical trailer park playground is a depressing joke, but a modern playground’s amazing. Instead of that old, beat up pool, let’s go to the really nice water park.
Julie Clark: So when you buy projects, do you do any type of improvements, or are you guys just clean it up?
Frank Rolfe: Well, what you do is you put the money in the stuff that really matters to the average person. You want to have a nice entry. You want people to be proud of where they live, right? So, you want to have the entry nice, you want all the common areas to be nice, mud, painted, picked up, but the actual amenities, we often demolish the amenities, because most of the pools we inherit are illegal, they don’t meet actual city code. The only reason they’re in business is because mom and pop never got found out by the inspector, or the inspector befriended mom and pop. A lot of our pools have to go day one, they’re just not safe. And all the playgrounds, they’re usually not safe.
Julie Clark: How do you qualify the tenants, or I don’t want to call them tenant, the owners for their rent? In the apartment biz, you want to make sure they make three times their rent or whatever the leasing criteria is. What kind of leasing criteria do you put on a mobile home rent payer?
Frank Rolfe: Sure. Well, let me tell you, the front end, most mobile home parks, the residents that you inherit when you buy and then some residents will sell it and move later. They don’t move around much, and I don’t vet anyone when I buy. Everyone that I buy, I don’t know who they are or anything about them. Mom and pop traditionally didn’t keep very good records, so the only thing they have to do to stay is pay the rent on time, and not cause any trouble, just abide by the park rules.
The old lot people, I don’t know. The new ones coming in, they do a criminal and credit screening, but the problem is, most park ownership, the credit tends to be very low. This is affordable housing, people don’t have any money. And the criminal side, we’re typically just looking for prior evictions. It has to be an approval that’s extremely high.
We’ve taken a shot on almost anybody, but the formulas we’re describing don’t work exactly, because, again, our folks have very little money, so it’s going to be a higher percentage of their income than the average person. There’s people living in trailer parks on disability checks of 800 a month, and their housing is probably 70% of the disability check.
Julie Clark: That makes sense. But with that said then, if you’re inheriting the existing residents, which makes absolute sense, and these people are limited on their funds and maxed out on, like you said, maybe they’re paying 70% of their disability check in rent, then doesn’t it make it a lot harder to go with the rent increase plan, or you just do that over on turn over or what?
Frank Rolfe: Yeah, let’s go over that mathematically here. The average person in a mobile home park, the income is just so broad. You’ve got the billionaires of Montauk, you’ve got the celebrities of Malibu, there’s a park in Laguna Beach, the rent’s 5000 a month. So, discarding those and just focus on the affordable side.
The average person has to make a minimum wage in America, right? You can’t make lower than minimum wage, so let’s assume that our typical customer is making anywhere from a household income of 20, 30000 a year. That’s probably your typical mobile park home household. The guy who works at Arby’s and make 10 an hour, so there’s 20 and the wife works at Wendy’s part time and makes 10. Things like that.
So, if you have 30, and you take your third of income formula the government says is right, that leaves you 10, and then that leaves you 800 a month, and the typical mortgage on a mobile home is 350 if it’s a brand new home. That still leaves you about $500 on lot rent. If you own the home outright or buy for $1000, you [inaudible 00:39:20] pay lot rents to 7, 800 and still be at a level that’s affordable.
The reason you don’t see that is, again, most of you moms and pops have been willing to cut the rents insanely low, but that is not being supported by the owners. Perfect example is Denver, Colorado, which is the most assimilated market in America. There’s more park by percent owned by professional investors in Denver than any other city, as far as parks go, and the average lot rent in Denver is over 700 a month, and the parks are completely full, and if lot rents were in the 300s, not more than about four years ago. So, then you say, “Well, what the heck happened there?”
People said, “Well, the industry raised the rents up to where we think they should be, and they still haven’t hit the envelope yet, because if [inaudible 00:40:09] then that would suggest your rent is still not as high as it could be.
Julie Clark: Right, so you’re saying it’s the mom and pop, old school managers keeping it down themselves for whatever their reasons are to play nicey-nice, rather than the fact of affordability.
Frank Rolfe: Let me give you a local, crazy example. This is from one of my early parks I owned. This is about a 17 year old example, but it still would be applicable today. I got a park in Grapevine, Texas, which is a nice suburb of Dallas, very, very nice stats. Metro’s 6 million, and back then, even the median home price was in the 200s, but the lot rate in the park was only 100 a month.
And this park was within easy walking distance of the school district, the houses near it were $700000 and that’s insane. So, I ask mom and pop, once I have them under contract, “Hey, why the 100 bucks?” And pop says, “Well, you don’t know much about Grapevine. I was the mayor for many years and very active in the city, and I owned the trailer park, and I figured if I raised my rent, they were all going to come down and cat call me at the meetings and things, so I just made a business decision not to raise the rent.”
I’m like, “Well, when did you last raise the rent?” He says, “It’s been like 25 years.” I looked around at the other parks, and the cheapest park in Grapevine, other than this park, was $325, and that’s not even the big threes. So, what do you do?
I just sent a letter to everybody in the park, which was about 31 mobile homes in there, and I was like, “Hey, here’s the deal. You’ve been getting away with murder for decades because mom and pop never raised the rent and I know that you know that everybody else is paying 350, because I know you have friends in other parks. So, here’s the deal, make you a special deal. I’m raising the rent in 60 days to 275, still the cheapest in the city, but if you don’t want to pay it, here’s the name and number of every other mobile park in Grapevine, and you’re free to move anywhere you want.”
And we didn’t lose anybody, because the next cheapest they could call would be 325. It just shows how crazy this guy was to keep the rents, but that’s just how moms and pops are. You get maybe with the [inaudible 00:42:21] the Ricardos and the Maritzas and they’re vacationing together and hanging out together and all that stuff. That’s what happens with these mom and pops. Everyone needs friends, everyone needs affection, and they saw their residents as it. That’s their list of buddies, and you can’t really raise rent on your buddies.
Julie Clark: How do you get in touch with the mom and pops? Are you saying they maybe they live there, or you’re looking at the tax records?
Frank Rolfe: Well, multiple methods. The first way you get in touch with moms and pops, is you just look at listings they make online at mobilehomeparkstore.net, but those are moms and pops that are internet savvy, and let’s be honest, there’s not a lot of those.
So, what we do is, we typically talk constantly to brokers. Brokers call mom and pops all the time, and when they get listed, the big listings that continue is called Pocket Listings. You want to call all the brokers out there, you can go to mobilehomeparkstore.com, you’ll see a tab that says brokers. There’s about 100 industry-specific brokers in America, and we additionally cold call parks, we’ve sent out mail to parks, we’ve even dropped into parks and get a conversation going.
That’s how you reach them. You drive by any park that you drive by, you can see the address, find the address, you can even go on the tax rolls and get the owners straight off the tax assessments website in most markets. And if it’s not online, you can just call and get it, so it’s not hard to get to the owners.
Julie Clark: Do you direct mail them at all? Do you do any direct mail to them?
Frank Rolfe: All the time. All the time we do that. It’s like any direct mail, though. It’s a huge fail rate. Direct mail in america, the average fail rate’s 99%. Our fail rate’s like 90%, but yeah, we do direct mail.
Julie Clark: What about, I mean, so we’ve talked a lot about parks. Let me ask you one last question, who pays the utilities? They pay their own utilities?
Frank Rolfe: It’s changing. In the olden days, the park owner paid it all. Thank heavens it’s normally not electricity or gas for them, thank heavens. And then what happened is, the industry is getting away from that, so pretty much all of your professional owners, ourselves included, are sub [inaudible 00:44:45] water and sewage in the back. Because it just makes no sense to give people free water and sewer. You do that, they don’t conserve, they don’t care. It’s just a terrible idea.
Julie Clark: Right. Are you actually sub-metering or you’re using a service like a utility bill back service that splits the bill up, or are you actually putting in a-
Frank Rolfe: Well, what we’re doing is, actually, it’s an interesting question. There is a whole industry that’s coming to America from Europe, in the sub-metering arena, and there’s one pre-eminent company called Metron. Metron has a meter that reads every 20 minutes, so it alerts you of water leaks as well as reading your meters, and they can also do all the calculations in billing. It’s a God send and it only costs $5 a month a meter.
Basically, a lot of your park owners, we just read it for the day. But [inaudible 00:45:47] on Metron, so everything we have is now on Metron. That’s where that’s headed. I mean, the idea of a guy, Hillbilly Bob manually reading the meters is well and gone now, because technology’s marched on.
I think, eventually, everything will be done through Metron. Of course, the interesting thing about all this is that you, as you sub-meter, what you rapidly find is that the use of water/sewer plummets. Our average park, once we hit the peak sub-meter, use plummets by, on average, a third. It’s really, it’s a win-win for everyone. Lower utilities and better for the environment and conservation. I mean, we can’t really find a problem in any of it. It’s a win-win-win-win.
Julie Clark: But that bill’s going to the owner, right?
Frank Rolfe: Yes. No, billing and the bills are going to be going to the resident.
Julie Clark: Gotcha.
Frank Rolfe: We’re all trying to get out of the water/sewer business. It was fun while it lasted, but nobody wants to do it anymore.
Julie Clark: Right. What would be, investing in just single mobile homes on land?
Frank Rolfe: It’s been done. There was a guy name Lonnie Scruggs who wrote a book on it called Deals on Wheels back in the 70s and he sold a lot of that book. The only problem with these deals are called Lonnie deals, probably the traditional Lonnie deal was the SAFE Act.
Julie Clark: I never heard of that.
Frank Rolfe: Yeah, the SAFE Act came out, Lonnie died right before the SAFE Act came out, so he never was able to write the rebuttal to his business model. But when the SAFE Act came out, that really was kind of a death blow to the model, because you’re not really equipped to be SAFE Act licensed and compliant when you’re doing Lonnie deals.
Julie Clark: Well, that’s because he was seller financing those deals, right? But what about just-
Frank Rolfe: Exactly, exactly.
Julie Clark: We need affordable housing. Why not pre-hab or flip mobile homes?
Frank Rolfe: Well, you’ll find people. People do buy and sell and trade mobile homes, just the same as stick building markets, where the home prices are high enough, but there’s a liquid market on those. You see it constantly in Florida and California, and any place where the home values are high, even Colorado.
Julie Clark: Even out here. We have a lot of mobile homes outside of parks.
Frank Rolfe: Sure. Yup.
Julie Clark: But that’s your gig, what I’m hearing.
Frank Rolfe: I don’t doubt that. Not our gig. Definitely correct, that’s not our gig, but we have no problem with that gig. There are a lot of park owners who dabble in both. But we’ve just always stuck with the land.
Julie Clark: Awesome. Well, this has been fantastic for me. I mean, I think everybody else is going to enjoy this very much. Tell us about Mobile Home University and how all our listeners can get additional education from you. What are the rules for that?
Frank Rolfe: Sure. What that is, we have a strange story. Back in the day, 20 years ago, there was no information on the industry at the back end, and my partner, Dave, owned the website Mobile Home Park Store, so we would get requests from people looking at this fledgling concept of mobile home parks and [inaudible 00:49:07] on it. And there weren’t any.
I was not Dave’s partner back then. I just knew Dave and Dave wanted to write in some stuff to put on the website, so my first book was called I’m with Stupid: 50 Stories from the Trailer Park, in which I just told all the stupidest things that ever happened at the park that I was officing in.
Julie Clark: That sounds like a good book.
Frank Rolfe: Yeah, it was a good book. But then Dave wrote a little book on just some mathematical concepts on park evaluation, and people loved these little books. And I mean little books, like never exceeded 50 pages in one. It was almost like MAD magazine.
Julie Clark: And these books are still available today?
Frank Rolfe: Well, yeah. What happened was, the old timers, they wanted more books. They’d buy a book, read the book, and say, “I want another book.” So, we wrote another little short story book. Well, over time, the books just kept growing and growing and we ultimately combined all the books into one big thing and we made that into a course on Mobile Home Park Investments because there wasn’t any on earth. We thought this was something people might want.
They wanted that, and then over time, people said, “We like that but we don’t like to read,” when you add your non-readers. So we started doing a bootcamp-like thing. It’s basically a live event where we would actually go out in mobile home parks and show them how they work.
But it’s always been strictly as a hobby. Our day job has been portfolio, so what we did was, we took Dave’s son Brandon, who back then was 17 years old, we made him the head of MHU and so it’s been his thing since he was 17, and it’s just always been a goofy hobby. If it’s a hobby, we can do goofy stuff, so we’re kind of the Ben and Jerry’s ice cream of mobile home park education.
But yeah, if you go to the website mhu.com, we stoked the thing with lots of free information, and people are always fascinated with us because of our hobby. They’re like, “Well, why are you giving away the magical tricks?”
That’s because there are no magical tricks, and the other reason is, it hasn’t hampered us so far. We’ve bought an average of a park a week for the last several years. I haven’t seen it really get in our way much. But probably the craziest thing I’ve heard people of our board to do is to, I get a call a day from the reporter from the New York Times, who is doing an article on affordable housing, and I invited him to come out to the bootcamp, why not, so he came out and then he asked to live in one of our parks for a week, as a New Yorker, he’d never been outside of Manhattan.
So, we let him pick a park and we took an old abandoned mobile home, we put furniture in it form Rent-A-Center and that’s how it began. Then he went away, and he wrote this article, and he absolutely loved it. You got to check the article out. If you Google my name, Frank Rolfe and the New York Times, there’s the article, and it freaked us out how much he liked the industry, so we’ve also had some positive things from teaching our class, we’ve had a lot of ledgerers go through it, appraisers, all kinds of people. [inaudible 00:52:29] you name it.
Julie Clark: And do you, I mean, we’re all in business to make money or whatever. We’re nice people but we’re also in business to make money, so I assume that by also doing this as your hobby, we’ll call it, that you’ll probably get a lot of leads because you’re the authority, or at least one of them.
Frank Rolfe: Well, we get a lot of the leads, but what also happens is, I write a newsletter every month, because I am a park owner. We have a lot of park owners who really like our newsletters, so we have a lot of people who [inaudible 00:53:03] because they really like what we do and how we do it, because again, it’s just us telling the truth, talking about what we do, which freaks people out.
Julie Clark: How do we get the newsletter?
Frank Rolfe: Just go to mhu.com and you can sign up for it. It’s free. All our stuff we do is free, so it’s just two guys who live in small towns or own mobile home parks having fun, basically.
Julie Clark: Spectacular.
Joe Bauer: I love it.
Julie Clark: You’re Click and the Clack Brothers. That’s what I think of, like Car Talk, remember that?
Frank Rolfe: Well, yeah. Some people, when they like what we do, we’re like Car Talk. Remember the show Car Talk on CBS.
Julie Clark: I love it, yeah.
Frank Rolfe: Yeah, that’s what we do. Two guys who own mobile home parks talking about mobile home parks, and it’s recreational for us, and we talk to our friends, so it’s kind of goofy, but I think it’s good for the industry because without us, there’s really no information.
Julie Clark: That’s fantastic. So, let me ask you, though, if we’re out here in the Pacific Northwest, or the West Coast, anywhere out here, I mean, me personally, I have relationships in Houston and some other Midwest cities, because my brokerage firm is out there.
If somebody had a lead in Pierce County, Washington in a park, is that something you guys are interested in, or you only want to stick to?
Frank Rolfe: Well, us, ourselves, being where we are and our life cycle, we’re pretty much stuck in our territory, because this is where we live and what we understand, but there’s people looking for parks everywhere. One interesting thing about the park is that what people don’t realize, and why would they because it’s mobile home parks, most of the mobile home parks in America are not in the Northeast.
You think about, in most things, like where are the most apartments in America, probably in Manhattan, right? But this is one aspect that most of it is about where you are. Washington State’s in top 10 as far as largest number of mobile home parks, California, it’s such a Western phenomenon. The top three states for parks in America are Texas, California, and Florida, but in the Top 10, you have a lot of states people would not expect, a lot of western states.
Washington, I think, I ranked, I want to say number six or number eight, and then all those big population markets in the northeast have none. Connecticut has, I’ll say Connecticut has under 50 parks. It’s crazy.
Julie Clark: Interesting.
Frank Rolfe: I think Washington state has 3000 parks.
Julie Clark: So, we are live. We are ripe there.
Frank Rolfe: Yeah, you are. You’re in good park area.
Julie Clark: Yeah, okay, well, I’m gonna go find myself a park to buy. How about that Joe, you think that sounds good?
Joe Bauer: Yeah, let’s do it.
Frank Rolfe: Good idea.
Joe Bauer: Let’s do it.
Julie Clark: Yeah. Well, then we’ll sign up and get going on Mobile Home U there. Do you guys network? Is there a networking?
Frank Rolfe: Oh, yeah, there’s a very active forum on mhu.com. There’s all kinds of stuff. Some people network on the forum and then they probably DM each other, and people have forged partnerships and alliances and all kind of stuff.
Julie Clark: So all your boot camps are out there where you live right? So someone would need to come out to-
Frank Rolfe: No, we rotate them around. Brandon pretty much picks the cities each year, and we pretty much try and spread out and be equal and fair to everyone. They’re West Coast, East Coast, North and South each year.
Julie Clark: Well, geez, we need to talk to you guys offline here and see if we can convince you to come out to our area here, with my partner Joe being a marketing mastermind, we could blow that up for you guys.
Frank Rolfe: Oh, we did Seattle a few years ago, so yes, we go. Wherever Brandon tells me to show up, I am there.
Julie Clark: Okay. Well, Joe, note to self, get ahold of Brandon. Let’s see if we can twist his arm and we’ll take him on a side trip to Hillary Swank’s place.
Frank Rolfe: He would probably love it.
Julie Clark: Awesome. Well, is there anything else that you’d like to share with us or anything else that we can do to give back to you for your time today? It’s been so awesome. Are you on a vacation?
Frank Rolfe: No, I’m driving between mobile home parks we own right now. I’m leaving our park in Houston and heading for Bryan, Texas right now. That’s what I do. I drive to mobile home parks all the time.
Julie Clark: Awesome.
Frank Rolfe: But, you know, I guess the only thing I’d tell people listening in, if you have a negative stereotype about mobile home parks from watching Cops, Immortal Men and maybe 8 Mile and Trailer Park Boys, just give it a realistic look. I know there’s a lot of fake news out there today, and our industry has been the center of a bunch of fake news ever.
What’s crazy to people in the industry is that back in the 60s, you had Elvis, himself, living in a trailer park in two different movies. He lived in a trailer park in It Happened at the World’s Fair, 1963, and the movie Speedway in 1968. How in the world did we end up on the wrong side of the media? No one’s ever been able to figure it out. It happened in the movie Pink Flamingos in the 70s, and I guess people loved the stereotype of the crazy trailer park resident, and it was all trashy. You know the neighbor who’s the hooker and the drunk.
It’s just crazy how-
Julie Clark: Sounds like a reality TV show.
Frank Rolfe: The industry has been still, yeah. Like I said, like the show COPS, they love the trailer park edition of cops, because every scene, the guy’s got no shirt, covered in tattoos, crazy stuff, no teeth. But being in the industry, that’s just not really a fair assessment. That would be like saying the lodging industry’s all about the creepy [inaudible 00:59:13] 19 bucks a night, than on [inaudible 00:59:17] boulevard. That’s not the thing.
If you never looked at the actual industry, give it a fair chance, look at it, because it’s just a shame how bad the media has ruined the impression of what we do, and there’s problem case every day as a resident. We get lumped into this crazy trailer trash concept, which I don’t know where it came from, but it’s not justified. It’s not deserved. It’s really unfair.
Julie Clark: I think it is a hot asset class, because the affordable housing issue, I mean, whew, at least where we’re at, people should be all over that. Do you find that the mom and pops, do you have a good opportunity to get seller financing out of them on their parks?
Frank Rolfe: Oh, yeah, we still do all the time and the reason for that is that, right now for a mom and pop, and you take their sale in cash, all you can get in a CV, and they’re very conservative investors, is 1-1.5%, whereas if they carry they get roughly 5.
Julie Clark: Yeah.
Frank Rolfe: So it’s a three to five for one.
Julie Clark: Do you ever joint venture with them? Do you ever leave them in?
Frank Rolfe: No. We would not. I know people who have, but we traditionally have not. It’s kind of a little hard because a lot of what you can do in the park is gonna come back to haunt them because all their friends are going to tell them off, “You sold me out. I hate you.” Probably get really unpleasant.
Julie Clark: Yes, sir. I get that. Well, this is spectacular. Well, we definitely want to stay in touch with you guys and I think we’ll try to reach out to Brandon and see, is it Brendon or Brandon?
Frank Rolfe: Brandon.
Julie Clark: Okay. Awesome
Joe Bauer: Cool. We’ll get in touch with him. Hook it up.
Julie Clark: Yeah.
Frank Rolfe: Okay.
Joe Bauer: Cool, well thank you.
Julie Clark: Thank you so much Frank, and safe travels there as you’re cruising around the parks and we look forward to meeting you at some point here if that’s at all possible.
Frank Rolfe: Sure, sounds good.
Julie Clark: As it rolls through, and thank you for your time today.
Frank Rolfe: You bet. Absolutely. Thanks for having me and we’ll talk to you again soon.
Joe Bauer: Alright, guys.
Julie Clark: Joe, you got anything else there?
Joe Bauer: Nope. Well, if you guys want to grab the show notes for this call, for this podcast, you can get them at seattleinvestorsclub.com/29. That’s seattleinvestorsclub.com/29. And Frank, thanks again. We’ll talk to you all soon.
Julie Clark: Right on.
Frank Rolfe: Great, thank you.
Julie Clark: Over and out.