Trailer Parks & Un-Sexy Investments
Would love to hear some experiences/stories on investing anything considered un-sexy. Think tailer parks, billboards, Section 8, tax liens, etc.
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No personal experience but Sam Zell made a killing with mobile home parks. Equity LifeStyle REIT. I've heard they're fantastic investments because it's usually that or living on the street for people, so they really want to make their payments and take care of the place. The latter being because a lot of senior citizens live there, so they have pride of ownership.
They are fantastic investments if you can find one. People aren't selling the good ones and if they are cap-rates have compressed dramatically. The institutional community figured out how amazing trailer park economics are about 3 years ago. Growing demand and limited supply because municipalities will not zone land for trailer parks anymore.
That sounds a whole lot like a benevolent dictatorship. Sure, it could exist...in theory...
Yeah, it's pretty shitty when you think about it. Our newest fund is purposed partially towards LP JV equity investment in nursing home development. Memory care is a huge money maker because the arbitrage between labor cost and how much they charge these residents (huge upfront deposit plus $5-10K per month in rent). It's very depressing to tour these facilities but there is a market need that will be fulfilled either way.
None of this is as bad as the pharmaceutical, cigarette, alcohol, fast food, or big agriculture industries which kill thousands of people every day.
Most institutional guys also avoid owning any actual mobile homes and just collect lot rent, leading to a greatly reduced CapEx profile vs multifam. I've also heard the stat passed around that when a home is delivered, 95% of the time it is never moved once during its useful life.
A good buddy of mine is involved in the MHP game and when new tenants are interested in renting a lot but don't have an existing mobile home or the means to purchase one outright, they can structure some pretty lucrative rent-to-own chattel loans on the trailers.
As mentioned above, really can't be stressed enough how much the acquisitions supply is drying up. It is pretty impossible and uneconomical to develop new MHPs in any worthwhile location, and the recent institutional involvement has really compressed returns.
Couple points:
+A few firms just got sued in New York over the chattel loan deals.
+Seems like the institutional interest and subsequent cap rate construction should help with making it easier to build. That said I agree still very hard, especially due to the chattel loan issues
Buffett and Clayton Homes
Cavco too.
https://finviz.com/quote.ashx?t=CVCO&ty=c&ta=0&p=m
Some investors here in San Diego love Section 8 because the rents are about 10% higher and direct deposit. The downside is that each unit tends to have a lot of tenants. Average 2br will have four or more tenants.
I sold 16 units in June and 11 were Section 8. My buyer, who is HNW laughed and called this property "A Dog House" lol
I absolutely hate regulated housing (Section 8, rent stabilized, etc.). It's messy, filled with government inefficiencies, and attracts some of the slimier guys in the industry...
Investing in trailer parks, billboards, tax liens, and the like is cool if we're talking about making bets on idiosyncratic risk.
And yet, it's safe and delivers consistent returns with little risk if you have even the slightest idea of what you're doing.
I agree that there are some real gross characters and bad actors in the affordable housing business, but honestly, that's true of literally every business. I don't think its substantially worse than anywhere else, except that people looking to make a quick buck at the expense of others are a little more the norm in other places, and less likely to be remarked upon because of it.
We've invested in man camps out in West Texas. These can make an absolute killing. 30%+ returns on cost. That said, there is typically no residual value due to the cyclical nature of O&G.
Would love to hear more about this. Do you guys own and operate? Or just an equity partner? I've seen stuff like this and wonder how much of a pain in the ass it is maintain the camps if they're out in BFE.
It's a side hustle for my boss who runs our fund. They get LP equity from a big Texas HNW family to develop the properties, which get leased by oil companies for their employees. Only downside is a glut of supply, our guys are in the know about the oil patch so they get the jump.
Development is similar to a trailer park - grade, run MEP, and set the manufactured housing down which is all pre-fab.
No personal experience either, but there's a great interview article that popped up on WSO maybe a year ago called "Park Street Partners - Finding Opportunity in Unsexy Assets" on A Student of the Real Estate Game - you may have already read it, from your title. Unfortunately can't send links here yet.
I remember a YouTube interview from a couple years back with another fund that said mobile home parks were a big part of their strategy to hedge against future downturn - will try to track it down and PM you. The thesis was that anyone in X housing tier would be forced to move to X-1 tier as a result of the next credit crunch.
Believe I've read that in the past. Will certainly dig for it. Trailer parks seem to be somewhat recession proof... I could certainly see myself acquiring one down the line if all goes well in my career.
Only thing sexy is money, everything else is unsexy
Looked into investing in parking spaces in a major city a few years back but never actually pulled the trigger. Certainly easier than having to deal with people living on your property, lower maintenance costs, etc but I imagine it's tough to find a long term tenant
Interesting, are the parking spaces condo'd?
Depending on the space. Some are only used by building residents, others are available to anyone to rent out on a monthly basis
Did you do any research into redevelopment costs to accommodate self-driving cars?
Did not, but that could be an interesting play
In general lower income real estate is pretty unsexy, but can make decent money if you can find the right blend of lower income, but not so low income that the tenants become really difficult to handle.
Lower income housing is usually less affected during downturns as well, well less affected than the luxury houses.
I would love to own a few massive multi-family properties in an unsexy area and be able generate a ton of cash. Same goes for trailer parks. I hear storage facilities and gas stations are also a good money makers if you're looking for ideas.
I also think owning a bunch of fast-food franchises would be unsexy but pretty fun. I hear mcdonalds and taco bells print cash. I came across a small PE firm a few years back that would buy groupings of taco bells and other franchises and they were doing pretty well.
My buddy and I looked hard at franchising a Jimmy John's a few years ago. The failure rate based on SBA loan data I've seen is ~5%. Their gross margin is insane, and the quick delivery gives them steady reliable corporate lunch business.
I can attest to this. I work for a firm and we strictly develop gas stations (owners reps). Also know of a company that was killing it with Taco Bells.
It's cut and dry but at the end of the day it brings in money.
Worked for a guy a few years ago acquiring self storage facilities. The guy was brilliant (former software guy) and basically had 3 or 4 SS properties in a college market where he had perfected a management-free system where you could pull up, rent a unit, get a key, move your stuff in, etc all without anyone being on site. He then went around buying up old, traditional SS facilities in other college towns and updating them to his new model, where he could have one manager in each market overseeing multiple properties.
I used to buy MHPs for one of the more active buyers in the market. It's a great business, it was kinda boring though. Very systematic. We bought about 2,500 pads a year. It's a very fragmented market with so many mom and pop owners and lot of mismanagment.
Business trips suck though, most of them are located in areas where you're lucky if your lunch option is bojangles.
We bought mostly 3 star communities and all land lease. A lot of people are doing heavy rental plays which I would imagine is a nightmare. Why on earth would you want to upkeep 600 roofs, water heaters, facades, lawns etc.
How, if at all, did you interact with the manufacturers of the homes?
Oh also appraised a portfolio of cemeteries in another life. It's more a of a business than a real estate play but they were Killing it even in the recession 20-25% unleveraged returns
There are actually publicly traded funeral home/cemetery companies. Service Corporation International (SCI) comes to mind.
Strangely have been seeing the company classified in some places as a consumer cyclical co though...
heh
Cemeteries are also know to have tenants who lease long term.
I believe funeral homes have been getting rolled up by private equity over the past decade...
Yes I think they have been and a few large publicly traded companies Carriage Services and SCI.
In regards to cyclcality in recession people still spend less on their services (I'm guessing). From what I saw the lot sales and even with associated fees didn't really make money, which is why they don't want you buying your casket at Walmart
Read about a few small players that were rolling up model homes from Toll Brothers/Pulte, etc. Guaranteed rent for 36/48 homes with built-in extensions and minimum sale value at end of term or extension. NN/NNN lease structure.
Can you elaborate on this? They were bulk purchasing newly built homes from large home builders, who were guaranteeing rents and exit values? Really never heard of an NNN resi lease.
No - they were purchasing the model home(s) in a development being built by Toll/Pulte. The builder handled everything until only a few lots/homes were left in a development or a new model was built for the development, allowing the lessor to sell the home. Lots of restrictions and minimum value for sale built into contract. Essentially it was a point of sale for appraisers to immediately value a home in the new development and freed up space on the LOC for the developer.
Should have mentioned this earlier but there are two REITs that focus primarily (exclusively?) on billboards, LAMR and OUT.
If you watched enough dirty jobs with Mike Rowe, you can see a lot of stuff that is somewhat dirty (like actual dirt, not illegal) that is a great investment. Goat farms were making millions a year.
Kinda said above, but said a lot by Mike Rowe too, investing/working, at the end of the people just care about making money. Sometimes here I think we all get a high on our horses in terms of prestige, but at the end of the day the only person who really cares about it is yourself.
When I worked for a large developer we were approached by a family that owned prime land across the river in Austin with great downtown views. Wanted us to fee-only develop a legacy high rise tower for long term, generational hold. It was going to be $100MM project and they stated specifically no JV partners just a little debt . They made all their money in mobile home parks. Own the lots and not the homes. Most homes get left and you can sell for pocket change and then re-rent. Low maintenance and good cash flow.
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