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Achieve Wealth Through Value Add Real Estate Investing Podcast

Aug 27, 2019

James: Let's get started, 1 2 3. Hi listeners, welcome to Achieve Wealth Podcast. It's a podcast where we focus on how to achieve wealth through value add real estate investing. And today I have John Jacobus from, John, where are you from? 

John: I'm from New York. 

James: New York. Awesome. Awesome. Why not John, you talk to our listeners about, you know, about yourself and what you've been doing and we are going to be focusing a lot on a mobile home park investment and John is an expert in the operation of mobile home parks. And I thought of bringing him on board and learn that asset class through the level of details where we can learn and figure out, you know, why that would be a really good investment vehicle for everybody. So, John, why don't you go ahead and take a and tell our audience things that I would have missed out.

John: Sure. Yeah. Thanks, James for having me on the show, it's really good to be here. As I said, I live in New York City but I invest in the southeast and the southwest. I got started in real estate investing in the early 2000s just doing single-family rentals and fix and flips, down in southern California. I'm originally from the San Francisco Bay area out on the west coast. And there was an equity opportunity down in southern California in the early part of this century. And with my dad, brother and I, we just got started. At the time, I was about 18, so I got started early and that really triggered an interest in investing and building wealth. And from there, just sort of followed my nose. So I got interested in stock market investing and just general assessing quality businesses.

And then maybe four years ago, got interested in multifamily investing, being surrounded by skyscrapers and multifamily housing here in Manhattan. I poke my nose into that, got to know people, build the network and started my first multifamily opportunity as a limited partner in a project in Dallas, Texas. And since then, just sort of took incremental steps to become more active and raising capital. As you know, James, it's gotten pretty competitive in the apartment space, especially when you're out of state and don't have the ability to get on planes and meet brokers or property managers for tours. So seeing that it was a sort of impossible for me to compete with locals and the markets that I wanted to invest in, I stumbled across mobile home parks. And the more I learned about it, the more I poked my nose into it, the more I liked it. And I found that I could be competitive despite being located out of town. And for about the past year and a half now, I've been focusing full time on mobile home park investing. Now, I've acquired a portfolio of three parks and I'm looking to continue to scale where we find value.

James: Awesome. So yeah, I mean mobile home parks, I mean, I do know some things about mobile home parks, but not to the level of details that you would know. Right. So can you explain to the listeners how does the whole, and at a high level, then we can go into a bit deeper into the details of mobile home parks. Why did you start with mobile home parks? Why not self- storage or office or retail warehouse and all that?

John: Yeah, so I'm generally attracted to assets that are under the radar and have a kind of negative stigma with them. So I mentioned I am into investing in businesses on the stock market as well. And I tend to adopt a contrarian mindset where, you know, the more popular or something is in the media or among, you know, the masses, the less interested I become. And so, I think point number one that triggered me to look into mobile home parks was when I would attend these conferences of real estate investors or go to meetups or just hear about mobile home parks in the news, generally, there was no one really focusing on it. So amongst the thousands of people that were at a conference, there was maybe two or three people that were focused on mobile home parks.

 And anytime you hear about mobile home parks in the news it seems to be negative. Nobody wants to brag about the fact that they're in the business full time because of the negative public stigma. To me, that's attractive because there are fewer competitors and especially when you dig into the details and see the fundamentals of the business, they're awfully attractive. So I think just generally the unpopular nature of the asset class was something that really appealed to me. And then, you know, the fact that it actually has appealing economics was even more of an attractive factor of the asset class.

James: Okay. That's exactly why people can still find really good deals in mobile home parks where there's a lot of stigma tied to it, to mobile home parks and that could be just an opportunity. So I mean, I attended like a two days boot camp, on mobile home parks, like two, three years ago. And I thought it was a really good asset class to enter at the time because as you said, not many people, know mobile home parks, it's not out to the masses. There are not many gurus teaching mobile home park too even though they're teaching, they are not everywhere, right? They're not in the social media guys like what's happening now. And that's a huge stigma on mobile home parks. This is a bit cross kind of thing, right? 

I mean that's what even the guy who was teaching that three-day boot camp was telling us, which can be a really good thing, right? I mean, I know the day we want to make sure that we have a good asset class where you know, it's very stable and able to predictably give you good cash and good returns at a high level. So let's talk about how do you make money out of buying a mobile home park?

John: Yeah, so a number of ways. We focus on turnaround parks. So one of the areas, well, I said that mobile home park investing is unpopular relative to self- storage or apartments. There is some competition in the market so I still face very healthy competition in some of tier one, tier two markets, where the parks are closer to class B Class So, in an effort to find value, we've found that there's value currently in parks that are rough around the edges. So whether they have high vacancy rates, they have a high percentage of park owned homes, there may be an issue with the infrastructure, whether the sewer or the water. So those things that have a little bit of hair on the deal, those we're finding pretty attractively priced. So currently we focus on those turnarounds and that's where we're able to generate outsize returns, by digging into those problems and fixing them and either elevating the class of the asset or simply filling in vacancies or in some cases, like one of the projects that we have under ownership right now in San Antonio is we're actually expanding the size of the park.

 So it's almost like a development deal, where we bought it for 20 units and we have plans to expand it by double. So those types of heavy lifts in terms of either turnaround operationally or expanding the footprint of the park, that's how we're finding ways to make money currently in the mobile home park business.

James: Got It. Got It. And correct me if I'm wrong, so the mobile home park is basically you own the park, you don't own the housing units on top of it, right?

John: So in an ideal world, and it really, depends on your perspective and what your preferences, but in the traditional way is that you just own the land and not the infrastructure. So you buy the land and you rent out the land to homeowners who pay you for the privilege of placing their home in your park. So in terms of operational cost standpoint, if you pursued that model, your operating costs are pretty low because you really just own the dirt and you're collecting rent for owner residents to use your land. Now, as you look more deals and get involved in the business, there are very few of those types of properties available because over the course of time, where residents come and go, ultimately you're going to find yourself as a park operator with some homes that you end up with, whether they're abandoned or sold to you or just come with the deal.

 So there are models in the southeast, in particular where there are parks, where the park owners not only own the land and the infrastructure but also own all of the homes, in which case they're more or less operating an apartment complex just with a different look. There are individual units rather than stacked or adjacent to each other. And for those that can do it and have the model and the pricing is right and their strength in the market, that can be awfully attractive. But I think if you're looking to reduce the amount of time and energy to operate the park when you're a dirt owner, that's the lowest touch, lightest maintenance, I think most appealing and certainly most profitable model from an operating margin perspective.

James: Yeah. It's like you have a big parking lot where people come and park their houses on top of it, I guess.  

John: That's right. Yeah. Look at it. And it's great because you know, it's very high margin, but also you've got owners that are in your community so there's an alignment of interest. You've got people that have skin in the game because they own the home and they want to take care of the community. So that's a really unique aspect in contrast to apartments where, you know, apartments, you always have renters and just by nature, you know, they're going to treat their place as if they're renting it. And that's very different from the mindset and the behavior of owners who are in your community. It's a stakeholder group shared alignment of interests and it's a mindset shift and something that I really pursue and try to cultivate in our communities.

James: Got It. Got It. Yeah. It's a very interesting model. It's a very simple concept. It does serve the affordable housing crisis that we have. Both apartments and mobile home park do serve it, even though it's two different, slightly different tenant base. One is one who wants to be a homeowner, even though it's a cheaper house, right? It's not like normal single-family houses but it's something that gives you a roof on top of your head and people liked that. And they have that community feeling when they are in that park so they are able to take care of it much better than like what you're saying in the apartment. You have leases turnover and you're 50% turnover per year and they leave the place every two years. So you have to go and do a turn around cause a lot more management intensive. How do you add value in mobile home parks?

John: Yeah, so a couple of ways. So increasing the rents. So one of the appeals of being in the asset class is it's a very fragmented and somewhat a non-professionally managed business. So in contrast to apartments where you have, I think very high transparency into pricing, because you have things like Yardi Matrix and some of the other platforms, where you can get a very quick insight into what the market rates and comparables are, you don't have that level of transparency into pricing in mobile home parks. So there isn't this invisible hand of pushing up rents with inflation or with market forces because the industry is just sort of 30 to 40 years behind, relative to single-family and multifamily, in terms of just, you know, pricing transparency. So simply coming in and raising the rents to market rates or what should be market, is one way in which you can add value.

Another that I described was expanding the footprint of rentable space. So in some cases, like our project in San Antonio, the former owner had given their residents very large lots, so they were almost twice as much as was required or determined as per the setback requirements. And so we found that if we simply move the homes over a bit and decreased the density by half, people would still be given pretty reasonable living space, we would be able to adhere to the setback requirements, and we would effectively double the rentable units within the property. So that's a way in which we're creating significant value by simply taking a look at the zoning requirements and the setbacks and seeing how we can reconfigure the lots well within the land to create new rentable space. 

A third is just operating it more professionally. Again, this industry is not one where there's a very sophisticated network of third-party property management. And you know, it's largely mom and pops owner-operators who, you know, at this point in time probably own the property outright. They don't have any data on it and they don't really have a need to maximize or optimize the performance of the property and in which case they let things go. So they may run operating expenses high, where relative to where they should be, they may have their friends working for them doing maintenance and or day to day operations. And as a result, probably pay them at higher than market rates. So coming in and introducing professional practices and professional management, running it as a real business, that's a way to bring down operating costs and increase the NOI. Those are really the main drivers, you know, rent increase, increase the rentable space and push down operating costs, those are the things that we focus on and usually have the greatest impact in terms of value.

James: So what about loans? I mean, you said a lot of these are mom and pop and fully, they own the whole thing, right? There is no debt on it. Are you able to get like seller financing deals?

John: Yeah, so of the three properties that we own, two of the three are seller financed. So we've got interest-only loans for six years on those two. And it's awfully attractive not to have to go through a bank or an agency to go through the underwriting process.

James: So you structure your non-recourse or recourse or how did you do that?

John: Yeah, non-recourse loans on both of them. So really great, fairly low down payments. So we have a 75 loan to value on one and 80% loan to value on the other. And we even on the first one, we strung out the timing of the down payment so that we could minimize the use of upfront capital. So, yeah, just increased flexibility, ability to execute with speed and fairly attractive loan terms. Again, another appeal of, of the businesses, you have a lot of flexibility with the lending for some of these smaller to mid-sized parks.

James: Yeah. Yeah, that makes it really interesting because recourse versus nonrecourse and loan terms, you know, in this case, you can structure this how you want, right? Because you're talking to mom and pop owner and how big are these parks?

John: Yeah, so for us, so we have one in North Carolina, which is 75 spaces. That was the first one that we took down. And that was, we negotiated seller financing for six years at 75% loan to value. And then the second park, we closed the month after. That's in San Antonio, that's 20 spaces and we're currently in the process of expanding that to 49 spaces. So by the end of the summer, that's the one where we're reconfiguring the land and bringing in 29 new homes to expand the footprint of the park. And then the third one is in South Carolina and that's about 45 spaces. So in a 20 to 75 space range, that's where we're finding opportunity value and that's about in the zone where you can negotiate seller financing. You know, it's good and bad, the financing.

 One, the pool of capital and the liquidity and access to the debt market is not at the level that multifamily is. So one of the nice things about multifamily is, you know, through Fannie and Freddie and other conduit lenders, you just have masses of capital available to you and it's an industrialized process to go through and get financing for these projects. That type of infrastructure doesn't exist really to the same extent with mobile home parks. So you know, on one end, financing can be really difficult, especially for the smaller parks. But what that affords you is the opportunity to negotiate more flexible and creative deals, through seller financing. Because ultimately, and in many cases, sellers, they don't have a choice. So if they are really interested in selling, buyers can't get financing through traditional sources and so they're sort of left with one choice, which is to carry a note. So, you know, in some cases we celebrate the fact that we can do this stuff, but in other cases we kind of bang our heads against the wall and say, if only we could go to Fannie or Freddie and get this financed, that, you know, very long term, low-cost rates.

James: So you are in New York and scattered all over the nation. How are these parks being managed, who's managing them?

John: So we have onsite managers for all three of our parks. And for all intents and purposes, they carry out the actions that we dictate. So all of them either live onsite in the park or live very close by and most of the time, we have daily calls with the managers to tell them what to do. Now their level of sophistication and their ability does not rival what you're accustomed to in multifamily because you know, in multifamily you've got a level of professionalism and sophistication that just isn't there yet in the mobile home parks that we deal in. So for us, it's just, we've got boots on the ground. Their jobs are primarily focused on collections. So making sure that people are paying rent on time, posting pay or quit notices or facilitating evictions, coordinating repairs to the extent that we need to bring in someone to fix the plumbing, for example. And then to the extent that we're filling in new units, they're coordinating showings with prospective residents to come and see homes and see if they want to sign a lease. So that's really where their job is focused on. So it's not a full-time gig really for any of them, it's part-time income for them and it's in peaks and valleys. So depending upon the activity, whether that's new rentals that we have, rental units available or repairs that are happening, they may be either really busy or find themselves with not much to do.

James: Yeah, I agree. I mean, I see they're not very highly sophisticated people. They are basically, you know, house-owner. So you know, mobile home users, on how people are paying, then we don't expect a lot from them in terms of management. I mean, even in multifamily. Yeah. I mean, we have a lot of professional management, but still, you have to manage them, right? So much moving parts, there's so many expenses, so much of repair and maintenance that need to be taken care of, which doesn't exist in mobile home parks. Because mobile home parks, supposedly, you know, you're just looking at the land and collecting rent. Looking at some common area, usually this kind of thing. So I think it would balance out in terms of, you know, the amount of time that you need to spend, especially for operators. 20:56inaudible] me who's managing our own property management and also people who are not having their own property management, their own active asset managers of apartment, failing to be involved very, very closely. You can't just go to the party. I mean they'll take it to somewhere else.

John: Yeah. Right. Yeah. Great. You know, and I think that's an important point that a lot of people miss. You know, going to the boot camp that you mentioned, I also attended, I think one of the things, I think the boot camp, people who leave the boot camp are fairly transparent about what it's like day, day in, day out. But for whatever reason, I talked to a lot of people that are interested in the mobile home park industry and one of the appeals to them is this sense that it's passive. And I would say, you know, it is very hands-on in the projects that we're involved with that we're turning around and trying to increase the value. We are pretty close to being full-time property managers as opposed to seeing the checks, you know, come in and you know, loving the passive income. So that's fine for us. I mean we like getting our hands dirty and taking action and being involved but that's one thing I would caution people about for whatever reason. I think headline news suggests that this is a passive income source and that's absolutely not the case at all when you're dealing with value add, you know, medium size mobile home parks.

James: Yeah. I mean if you want really passive and you invest passively or [22:28unintelligible] I don't think there's any business, which is really, really passive in real estate, right? Especially if you're an active operator and you want to make the most money. If you want to be at the top of the food chain, then you have to do work. If you don't do work, you can buy the deal and all that but the thing is you've got no control on the returns that are being made and being generated unless the market is getting up. There a lot of guys out there who are making, who are boasting themselves that they made a lot of money real estate without doing work. But it's actually the market is doing the work for you. 

John: Right, exactly.

James:  So this is the elephant in the room, right? So how're the returns compared to multifamily class B and C in mobile home parks? Because you have worked a lot on the capital raising side on the multifamily, so you can see a lot of operational stuff on that side compared to mobile home park, you know, how does that compare to..?

John: Yeah, so I'd say just general rule of thumb, it all depends, deal specific. I know that there are, you know, opportunities that you come across in apartments, they get into the 20% IRR. But generally speaking, I think hurdle rate for me, for apartment complexes, is about 15% IRR over say a five year holds. Whereas the hurdle rate for me for mobile home parks is about 20% IRR. So I'd say it's a 5% difference in terms of a return premium there that I'm seeing and that I'm using as a guideline for allocating capital in my projects.

James: Got It. What about cash flow on a yearly basis? What do you expect between these two asset classes?

John: It's about the same. So whereas, you know, you may expect an 8% yield a cash on cash for an apartment complex, larger apartment complex. We're looking at sort of 10 to low teens on cash on cash return.

James:  Are you syndicating this deal or you're doing this on your own?

John: No. So we use our own capital for all three of our projects and with this fourth in the pipeline. So, I work with other partners. There are about four of us that work together and to date, we've only used our own capital and that's intentional. We think we're still learning. We want to build a track record and we really want to get our arms around these heavy turnarounds so that in the future, we can raise outside capital and go to market with credibility and feel confident taking other people's money to do projects. So yeah, to date, it's just our own capital that we've used. So we're all active partners and no syndication.

James: So you could do a Jv type of thing. 

John: Exactly. 

James:  Okay. So you're saying when you're doing syndicate, you know, I mean, if you do syndication then you have to make sure you allocate some money for your passive investors as well from [25:24inaudible] whatever you guys are putting in I guess. So you're saying cash flow wise is almost similar, is that what I heard?

John: So like 3 to 5% premium, cash on cash return. Whereas the IRR was about 5%. That's what we're seeing. We see a significant portion of the overall return allocated towards the equity, the increase in equity because we are doing a turnaround. So you know, the cashflow is nice, but a majority of our returns are coming through the boost because we are fixing problems, elevating the class of the property or expanding it to generate significantly more income.

James: Got It. Got It. Got It. I mean audience just want to let you guys know as I wrote my book, you know, as a passive investor, you can choose any asset class, right? It's not only multifamily. I know multifamily is a lot of, what popular names nowadays is more famous than anybody or anything else. I mean, yeah, it is doing very well. There's a black swan effect of people become renters, you know, just demographic shift too. You know, people becoming renters. But there are also other asset classes like mobile home parks, self-storage, office industry. There's a lot of different asset class in that people are doing very well, right? Like, I mean, if you as a passive investor can make a couple of percents more compared to multifamily and you can find a good operator who will give you the returns on the backend you can always definitely do that. The key thing is to diversify your investment from what I see, even though I only do multifamily but I just think that, you know, wearing a bigger hat, my thought process, I think that's the message for passive investors, right? So the question for you is, you're talking about the 5% premium with the IRR and that's where the value adds are being generated, I guess. Right? And how do you plan to exit? I mean, are you going to sell to someone else? Is there like a big reap that is coming in?

John: Yeah, so for us, I mean, we like buying and we don't ever want to sell. So I say that in air quotes, you know, we'll own it forever. But for us, the exit is really through a cash-out refinance. For us, we find these smaller to medium size parks where we think that we can elevate the class of the property. So take it just under a million dollars and you know, at a low vacancy and augment it such that it can be financed through, either a conduit loan or a Fannie or Freddie debt. And at that point, we will have created sufficient equity that we can more or less pull out all of our capital that we've put in. And then when we're done, we've got long term, low-cost debt on the property and then we'll just collect the cash and go on and do our next thing.

 So that's the vision for all three of these properties is to execute the heavy turn of the value add in the first three to four years and then refi, take out all our capital and then go rinse and repeat and do that elsewhere. Because, I mean there's a very stable asset class. We liked the business. Affordable housing, we think is going to be a thing for the very long term. We like owning productive cash flowing assets and so we don't have any desire to sell now. So someone comes along and gives us an offer we can't refuse, well, we've got to, you know, do the math and see if it makes sense. But we're definitely not looking to go in, execute a turn and then exit to other private equity owners.

James: Very interesting. I mean that's what value add keeps you in commercial and that's the real power of commercial real estate. The other day, I was talking to a passive investor. He said, hey, this guy is giving me, you know, 8% cash on cash flow and that's it. Right? What about the back end? He said, oh, I don't care what the backend. I say, well then you can get much higher cash flow on mobile home parks. So if cash flow is the only thing that you're looking at, you know, you shouldn't look at multifamily alone. Or maybe you should look at 'A' type, 'A' class multifamily in a very strong location near to core urban center as what I call a core type of deal, right? You really don't have to do just multifamily, you can do a lot of other asset classes, right?

 The power in commercial real estate is actually on the cash flow plus the backend. The equity growth that you generate through value add, right? So that's why I named this podcast as value add real estate investing, because that is the gs of commercial real estate, right. Otherwise, I mean, unless you are rich or unless you are a big family office where you want to preserve your wealth; you're not investing, you're preserving your wealth. You're making slightly more than your inflation. Say inflation is 3%, you're making 8% cash flow. There's nothing on the back end, then you can go and do, you know, that kind of deal. The majority of people, people want the value-add component where it grows on the backend.

John: Sure. Yeah. I mean, we'd love to sell to those types of buyers. The ones that are looking at this squeaky clean, I mean, we'll do the work, we'll create the equity and then, you know, for those that just want to collect the rents, we're happy to sell for a premium.

James: Yeah, there's a lot of syndicators who buy the type of deal where you just cash flow because they get fees. Right? But for the passive investors and you don't understand, you're just going to get a cash flow, right. And some times people are very intrigued by the cash flow concept. Suddenly they come out from work, you know, working w two for their whole lives. Oh, there's a cash flow coming in monthly, you're going to jump on it, which is okay. It's okay for some people, but there are much better alternatives out there. Where you can grow your wealth as well on top of preserving your cash against the inflation. So that's good. So, how are you finding these deals because you are New York, how do you find it?

John: Yeah, so we explore all channels. So we do cold calling, we network with other owner-operators. We had done some fairly extensive direct mailing. We no longer really do that much. We talked to brokers, we go to industry conferences, we look at Facebook, Craigslist, eBay, a variety of other digital platforms. Really, we try to cast as wide a net as possible because again, this industry is really fragmented, not as industrialized as, you know, apartments are. You'd be hard pressed to find significant deal flow on a loop net, for example, for mobile home parks. So we just try to put ourselves in the flow of deals in as many instances as possible. Which means that we look at a lot of deals, we say no to most of them and it's very structured and haphazard. But, I mean, the three deals that we've sourced so far have been through relationships. So whether it's through meetups, we've met people and they needed to refer a deal because they had other priorities that they were going after. So despite, you know, we've done the work and built out databases of owners, throughout the country and, you know, done the cold calling, done the direct mail, despite all that time and energy put into revving up that engine, ultimately today, it's come down to relationships with other people.

James: I mean, it is so fragmented, right? It's just so hard to go and get to a broker and buy a right deal. Right. And daily, even in mobile home parks there to work hard for it. But that's okay. I think you're able to find it, which is really awesome.

John: Yeah. Yeah. And again, it's good and bad. It's hard work to do it because it's so fragmented. But at the same time, that's one of the reasons why there's value there because you've got really mispriced opportunities because the market isn't as efficient. So I mean, I'll take the hard work any day if it means you can still get good deals.

James: Got It. What about the depreciation or tax benefit of mobile home parks? How does that compare to the apartments?

John: Yeah, so with those parks where you're owning the land and the infrastructure, so you don't have quite as a large depreciable base as you do in multifamily. One good thing is that you have a condensed depreciation timeline. So while the depreciable base is not as high in terms of absolute dollar value, you can take a decent material dollar value for the depreciable base and depreciate it over sort of a 12 to 17-year timeframe instead of the, I don't remember the exact number..

James:  27.5

John: Yeah, 27 and a half year timeframe. So what you find yourself in a situation is that in the first sort of 10 to 15 years, you have about the same depreciation benefits and taxable losses that you would experience in multifamily. But then after sort of the 10 to 15-year mark, you run out of the depreciation and then, you know, you find yourself in with a larger taxable income.

James: Well, I didn't know that that is shorter than multifamily, is it 12 to 17 years?

John: Yeah. About that because it's not real property that you're depreciating. These are the utilities, so [35:11crosstalk] and the light posts and the roads and I mean this is equipment, essentially, depreciating. With the schedule, you apply a different shorter schedule depreciation. Then you do the actual structures,

James: You're not paying for the whole, I mean, you're paying for the land plus the utility infrastructure. Infrastructure maybe 10% of the overall cost, is that right?

John: Roughly. Yeah, it depends. It depends on what your infrastructure looks like. But it's still material; in most cases, it's material amounts that you can depreciate, but it accelerated, right? So now while you may have a lower absolute dollar value of an asset that you can appreciate, you can do it over a much faster time so it's accelerated, which means your yearly depreciation charge is higher and can also be a significant portion. But again, that expires faster than you find in multifamily.

James: Yeah. Yeah. But even in multifamily, I don't think anybody owns it for 12, 17 years. I mean, on syndicated deals, I guess.

John: Right.

James: Interesting. So, okay. So yeah, usually I think in commercial office industrial, is it 39 years? Multifamily residential, it's usually 27.5. And you're saying some of the utilities or infrastructure in the mobile home parks minus the land is 12 to 17 years. Okay. Yeah. Very interesting. So,

John: Yeah, so not quite as attractive from a tax basis. Look, after tax returns, I think you still find yourself in a very favorable situation because you know, the overall returns generated by the property are at a premium. And so even if you are paying taxes on that, you're after tax returns still tend to trend above what you would find in other commercial...

James:  Are you able to get a negative K1 in the first few years?

John: Yeah, yeah, definitely.

James: I mean, let's say after value add is done, let's say after value-add is done stabilized, do you still get negative K1?

John: I'd say, I mean deals specific, but it would be reasonable to expect that for, you know, the initial years of operation for sure.

James: Okay. Okay. Yeah. For our listeners, I mean K1 is the form that everybody gets when you're invested in a deal where it shows what is your paper loss or a paper gain. But usually most of the times, it's the loss. Because your mind is seeing the mortgage or you're minusing the depreciation of the asset and also you're minusing the interest on the loan that you are doing. But in this case, I think, John's case, there is a lot of it is seller finance so that still be interest. Yeah. You still have interests, right? Because for your IOS and all that.  Interesting. So where do you think you want to grow from here in mobile home parks?

John: Yeah. So continuing to scale. As I mentioned before, we're probably right on the cusp of taking in outside capital. We'd like to complete the turnaround with the three properties that we have under our ownership now so that we can prove out the concept, you know, go to market credibly with we've executed, have you turn arounds. We did it successfully and just have the inner confidence to be able to go and take outside capital. So look, we're trying to find value and when value presents itself, we'll act. We don't have any stated goals in terms of the number of units that we want to acquire. We do want to get larger. We wanted to do, you know, more complex, more interesting projects. Well, it's hard work, it's also really fun and we find a lot of sizes faction and turning around some pretty beat up and run down communities and augmenting the sense of community, beautifying the neighborhood and again, solving a really meaningful problem, which is the lack of affordable housing. So we get a lot of satisfaction and find fun and interest in solving these problems and continuing to grow the portfolio.

James: Yeah. And how frequent do you go and visit these parks?

John: So I make trips about quarterly. So I was just in San Antonio in April and was out there for a week and then flew back through the Carolinas to see the other projects. And in South Carolina, North Carolina, I'm going back to the Carolinas in June. So about, you know, every two to three months, I'm a boot on the ground, either looking at deals in the pipeline, checking up on progress on existing turnarounds or, you know, in some cases, we've got to get state licensing in order to do what we want to do in terms of lot infill. So for example, you know, I was in Austin in January to sit for the dealers licensing exam. So in order to execute the law and fill that we want to do in San Antonio, we need to be licensed dealers in order to buy homes directly from the manufacturer. So we were in Austin doing that. The same thing is happening in June. We're getting a dealer's license in North Carolina to be able to execute these large turnarounds. So between checking up on projects, chasing new deals and getting whatever required licensing we need in states, we're on the road a lot and touring around the southwest and the southeast.

James: Yeah. Yeah, that's very interesting. How are you getting dealer license to turn it on these properties and how are you finding a lot of fun in doing a lot of value? That's where you make the money. To solve problems that other people don't want to solve. 

John: Exactly. 

James: Right. So, and what's the point of buying a cash flowing deal? 

John: Right, right, exactly. You know, in maybe 30, 40 years from now, great. I'll do those and just collect the rent checks and that'll be fine. But in the meantime, you know, I'm still relatively young, hungry. I want to make an impact. And so that's where value add is really where the opportunity is.

James: I don't know, I mean, I think if you didn't want to work hard, I mean, I know if people want to get into real estate, but just so many people either, they don't want to take action or they think the problem is too hard or they just didn't want to put their mind into solving that problem. And that's where the barrier to entry comes in. Not many people want to solve the problem. And people like you who are in New York, you know, is solving the problem like in San Antonio and North Carlina, it's hard work but that's fun. And you make money out of it and it's generational wealth too, right? Because after you refi, you take out your money out, it's your cash flowing for your whole life. So you don't have to answer to anybody since you're not syndicating anyway, so that's awesome. So let's go to a bit more personal side. Why do you do what you do?

John: Yeah. So again, I think it's just fun. I'm the kind of person that I don't think I'm ever going to retire and sit on a beach or golf all day. I like to be active and doing things that are interesting. I liked doing challenging things and so, you know, for me, I just get a deep sense of satisfaction in doing hard things and really doing those hard things with teams of people. So I like surrounding myself with partners and binding together as a team to solve challenges that are just intensely satisfying for me.

James: Got It. Got It. Is there daily habits that you practice that you think has made you more successful?

John: Yeah, so I would say I'm a distance runner. So I'm an athlete, I've been running marathons for what seems like forever. And what that practice is instilled in me is a couple of things that have really translated directly into investment success. One is just the concept of compounding. So logging miles every day, over long periods of time. You know, maybe in a week or a month, I don't notice the progress, but over years of repeated activity and continuing to grind it out despite pain or cold weather or you know, emotional blocks that would, you know, would it difficult for me to want to move forward, I keep powering through it and ultimately it's led to a lot of success in my running endeavors. Implying that same approach of compounding and continuous daily incremental action in the investing space has really helped position me for success in investing there too.

James: Got It. Any advice that you want to give to newbies who want to get started in the mobile home park operation or investment in the business?

John: Sure. I'd say definitely learn about the nuances of the industry. Take the time to not only attend boot camp or something similar, but talk to other owner-operators about the details of owning and operating parks. You know, it's not enough to just read materials or listening to podcasts, I encourage people to do that, I do it myself, but really get to know owner operators because there are a lot of nuances about running or even finding parks that are glossed over or not adequately covered in podcasts, reading material or boot camps. So I'd say education, definitely take the time. I mean, I took about a year to really get my head around, you know, what is this industry like and what is it going to take to succeed? So education and then just get started. I mean, there's a lot of reasons to say no and to walk away from opportunities. Again, with mobile home parks being kind of 30 to 40 years behind the times relative to multifamily. There's just the nature of the asset classes, there always are going to be problems with these assets because they're not usually professionally managed and they all have some level of hair or warts on them. Don't let that scare you, that should inspire you to learn about which problems are fixable in which are not; where you should run away quickly and where you should dig in. And really find an opportunity to solve problems and create value. So I think those are my two best pieces of advice. Just get educated and then learn to get started and get going.

James: Awesome. Hey, John, why don't you tell our audience about yourself and where to get hold of you or if they want to contact you?

John: Yeah, so my website has my contact details. So Loan Juniper Capital is the name of my firm. We own and operate mobile home parks in the southeast and southwest. That's There you can find my email address, my phone number and I'm on Bigger Pockets as well, I'm all over Facebook as well and the mobile home park forums and multifamily forums in Texas. So I try to be active and get my face out there and I do a fair amount of attending conferences in the southeast and the southwest too.

James: Awesome. Thanks for joining us today. I'm very sure that you added so much value. You know, I like to talk about different asset classes such as mobile home parks, other than just multifamily. Because as I said, opportunities everywhere. You have to find the right guys to partner with to know or to learn from. So, absolutely, I had a lot of value. Thanks for coming to the show, John.

John: Yeah, thanks for having me, James. This was fun. Appreciate it.

James: All right. Okay. Bye. Bye.