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Mike: All right guys, Welcome back, we are jumping right into our second part of our interview with Dan Gibson. Previously we were talking about private funding and now he’s going to share his knowledge on mobile home parks with it.  We hope you guys enjoy the rest of this interview

David:  Well let’s jump into the next topic. The next topic is mobile home parks, mobile home park investing. You guys are -- a mobile home owner, several parks, I should say park owners.

Dan:  Yes, currently we have one mobile home park, 33 pads that we have owned since March.

David:  Awesome.

Dan:  And we have --

David:  Isn’t that crazy? Owning 33 units or 33 single family homes.

Dan:  33 units, we count them as units just like we do any other thing. We have two more parks under contract.

David:  Love it.

Mike:  Holy smokes.

Dan:  One is a small little one, one 12 pad and the other one is -- 112. That is a little bit of a different ball game -- that one is going to take quite a bit of leg work. We are still months away from --

Mike:  But how exciting man.

Dan:  It is and thats what I am interested in. I think -- I was nothing special, a B,C student in college, did what you had to do the night for the test to pass right? Whatever --

Mike:  Right there with ya.

David:  Both you guys are special to me.

Mike:  Thanks buddy.

Dan:  It happens fast, buy your first rental, bought it will my parents and then really started actively getting into real estate investing four years ago and now I am trying to put 112 pad park, 1.8 million dollar deal together. That's how fast it can go.

David:  It can go fast, and it is not rocket science. Anybody who is determined, persistent and consistent -- I love those two words -- wants to start investing in real estate, they can easily progress from doing a single family rehab to buying 112 units.

Dan:  Same contracts, it’s the same due diligence process -- couple of extra things in mobile home parks you have to do. But it is the same process over and over. It’s just the numbers have a couple of extra zeros on them. That’s all it is.

David:  It goes back to what we were just talking about, if you find the deal, the money will come. For you guys you already had a fund or several to where is just makes it so much easier to go out and lock that up, you can go show it to the fund investors and everybody wins.

Dan:  Yeah and so -- with the mobile home parks. You look at them like apartments, like single family -- you are buying cash flow at this point; we are all buying cash flow. We want --

David:  You’re buying dirt mostly. I guess some parks you may get homes as well, but -- those aren’t really appreciating. The dirt is but the homes are -- again you are buying csh flow. So that leads me to my next question, why mobile home parks? Great question

Dan:  So -- from a dollar to dollar perspective, they make the most sense. I think -- I don’t know which book I read it in, one of the well-known guys said, 'mobile home parks are the highest and best use of land' they say that because -- you can -- they don’t take up a lot of space. The only infrastructure you have to provide is -- electric, sewer, water. Sometimes not even concrete pad -- sometimes gravel. Depending on the ground it could just be a hard first pad with some toppings on it. So really -- for the most part let’s assume concrete because it is more expensive, the right way to do in my opinion. When you are only providing those things, you significantly decrease your property taxes because -- if you compare the 33 pad mobile home park to a 33 unit apartment complex. The 33 unit apartment complex is going to be a decent size, a decent structure which means you are going to get taxed on it.

David:  You are going to have real estate taxes on it.

Dan:  The 33 pad mobile home park is really just a little bit of concrete, plumbing and electrical and that’s it.

David:  The actual homes that sit on top are not real estate taxed -- taxed differently?

Dan:  Personal property tax.

David:  Personal property tax, did you know that Mike?

Mike:  Yeah -- no it didn’t click till --

Dan:  Mobile homes have VIN numbers, they don’t have addresses.

Mike:  I knew --

David:  So the pad has an address but the home itself is VIN?

Dan:  Correct. In a perfect world we don’t own any of the 33 pads at our park. We do own a few of them, sorry -- the homes, we don’t own any of the 33 homes at the park. Because we only want to own the pad and the dirt. In a perfect world --

David:  Just lease that to the home owner -

Dan:  Lot rent, pad rent.

David:  I guess, I would imagine each park is a little different. Do you guys -- pay the utilities then bill them? Or do they pay it? I guess it depends on the park.

Dan:  It depends on the market, I know we are on a single meter so at this current time, included in our lot rent includes your water, sewer, trash payments. That won’t be --

David:  Electric too or not?

Dan:  No electric.

David:  Those are individual?

Dan:  Those are individually metered. There is a bill back program that we are working on. Ultimately you don’t want to be responsible for peoples water usage or electric usage. But just getting into the park and not just come in and raise rates and all that stuff. We will bill back for water in the near future. That is a kind of market to market thing. Over there this park is in [00:37:23.24 - inaudible] Illinois, four of five parks in [00:37:26.04 - inaudible] and they are all the same. Lot rent includes water, sewer, trash so -- a market thing. But -- yeah so with mobile home park, highest investment use of land. So you significantly lower your real estate taxes because we are essentially paying -- we pay for the land and just -- you get your tax bill, 90% of the cost is in the land. Just 10% is in the actual structure. A 33 unit apartment building it would be maybe 60:40 on structure --. Save a bunch in taxes, insurance same thing. We are only insuring --

David:  Are you insuring each individual pad or umbrella policy?

Dan:  One policy for the park.

David:  Isn’t that beautiful too?

Mike:  It is nice.

David:  Don’t need to have 33 individual bills.

Mike:  All the headaches --

Dan:  We don’t own the homes; we are no responsible for -- maintenance, not responsible for -- occupancy. I mean obviously --

David:  It’s in the lease I’m sure but it's their problem not yours.

Dan:  I’m not -- I am not fixing toilet’s, I’m not worried if the win knocks some siding off, not my property. Now we have appearance rules that you can’t --

David:  Every park is going to be different on that.

Dan:  As far as why mobile home parks its -- that’s why we are interested and -- kind of where we are placed now, a lot of [00:39:07.25 - inaudible] are -- they are not zoning new mobile home parks. Makes sense if you think about it because -- like what we just talked about with taxes, we are not paying that much in taxes yet, we still have 33 occupants that fire and police are responsible for.

David:  So it is very similar to a 33 unit apartment building, consumption of country resources -- however you are paying like a 10th into the tax base.

Dan:  Exactly, and -- so naturally counties look at this and they are like, why would we want mobile home parks?

David:  So it definitely isn’t a growing --

Dan:  No, not growing at all.

David:  They are unique and probably shrinking.

Dan:  Yeah so -- since they are not zoning any new ones, supply and demand, that is why we are trying to get as many as we can in the next few years.

David:  So let’s talk about tenants. What kind of tenants own homes in parks? And what kind of renters are going to be renting?

Dan:  Yep so -- like I said in a perfect world we are only renting the pad, the lot and we are responsible for the water, sewer, and electric. Obviously there is always park owned homes that comes with transactions because either people passed away and -- it costs more to move a mobile home than what they are worth sometimes.

David:  Or if somebody doesn’t pay their rent you have to evict them, how does that work?

Dan:  So, a lot of times you evict them from the pad, and a lot of times they will just leave.

David:  They will leave it and it’s on your land --

Dan:  A lot of times they will just leave it and then -- the property was to do it would be to go through a foreclosure process but again --

Mike:  Do you have to considering it’s your personal property?

Dan:  That's a good point. We never had to do that --

Mike:  I would imagine it’s going to be a little bit easier than even having to do a foreclosure on it.

Dan:  You know what? I am sure it is similar and you have to publically -- give notice. But I guess it would just be like -- you are really just trying to get the title. You have to go through that process; yeah it is a little different from foreclosure.

Mike:  It should be easier -- in theory, still a headache.

David:  A profitable headache guys don’t forget.

Dan:  That's true.

David:  That's why we are in this business.

Dan:  And you know, there is also money to be made in renting park owned homes. Especially if your parks are in a decent school district, a lot of these mobile homes are three bed, two bath and a three bedroom rental in a good school district might be for instance a thousand bucks for a three bed, two bath rental home in a part might be 650. So that family that wants their kids to be in the right school. That is what we found in [00:42:11.00 - inaudible] across the river where our part is, it’s a good school district and we put ads up for rent and we are getting 20 and 30 calls so. The type of tenants -- if they own their own home, usually they are higher quality tenants because they have invested interest, they own their home. They usually care what the place looks like, what the outside looks like, what the neighbours look like. So in that case it is a little better, but if you are renting -- you need to be a little bit more careful on your background checks. But we do the same leasing process for an apartment, for a single family house that we do for mobile homes. We want you to pass those background checks. So I would say if you are renting a park owned home, be a little bit more careful because of the nature of the beast. If your park is all owner occupied, -- we don’t have a problem with any of our owners. A lot of them are retirees. You wouldn’t believe the amount of retirees that want to live cheap.

David:  Stretch their dollar a little bit more and travel.

Dan:  We have one family, they rent lots from us, they have three lots, different family members, they have nice late 2000's mobile homes, relatively new. They have a huge RV that they just travel, parks right next to it. And talking to them they are like, you know, we are from here we want to stay here, our family is here but we also like to travel and --

David:  We are from here; we just don’t want to be here.

Dan:  Obviously those are your best tenants, the best residents at least. Perfect world, all owner occupied. Rarely have any issues -- tenant renting you are going to have the same.

David:  Not going to change. So I recently bought a mobile home, not a park, not on Dan's level yet. But I bought a mobile home and I was going to -- I bought it to flip it. And it ended up being a successful deal in terms of profit and exit. But one piece of advice I want to give our listeners and views that may be interested in buying an individual mobile home is, check with the park first before you buy it and get all the information about the lease and what the park is going to require. The mistake I made and one of the points of the podcasts is to teach people mistake that we make so we can prevent making mistakes. One of the mistakes I made was they didn’t allow me to buy the home and then lease it. It was an owner occupied only park. Which actually looking at it from an owner standpoint of owning the park -- that is a great way to keep the riff raff out of there and keep the park quality high. So of course I didn’t know that until after i bought it and paid for it and signed a lease and received the title. No big deal I ended up just selling it under financing. Originally I was going to sell it on a lease option or just keep it as a rental. So it ended up working out but, again, I just wanted to make that point clear. Make sure you do your due diligence; it wouldn’t have taken more than a five minute phone call prior. I just didn’t know, I didn’t know. You don’t know what you don’t know.

Mike:  I suspect you have similar rules.

Dan:  Yeah, I would say most parks are like that. Now -- again it’s a money maker. If you guys came to me and said I have five mobile homes I just bought, I want to move them to your park and are you ok with me renting them out? We would probably say yes. Mainly because we know you, we trust oyu, we know you are interested in cash flow, so you are interested in getting a good, high quality tenant. But yeah, the average person we don’t know --

David:  Well you have a lot more -- negotiating power when you come with bigger deal, rather than saying this park has got 150 units and I just want to buy one and rent it out.

Dan:  Most parks will have that rule. Exactly for what you said.

David:  It makes sense.

Dan:  But it doesn’t mean that every park is going to be that way and -- if it’s done right it would be profitable for both people. Because if I am the owner and you own a mobile home in my park, whether you live there or not, you are going to make sure the pad is paid, the pad rent is paid.

David:  That's part of the agreement that I have with the owner financing is -- I have to pay the pad and he pays me, the owner, who I am owner financing it to, it is a 12 month note for the most part, so -- yeah we are both on the lease at this point. Its ok, I ended up profiting, it wasn’t a big deal at all. I bought it for 6, i put 3 into it, so I was into it for 9, I had two months pad rent, so that puts me at roughly ten and I sold it for 12. So made a couple of grand, but if you look at my cash on cash return, its 20% considering its going to be in and out at 14 months, little less than 20. Wasn’t a home run but you don’t know what you don’t know and I want to eventually own parks like you do. There is no better way to learn the mobile home game than to go out and buy a mobile home.

Mike:  So we just illustrated one way not to do it.

David:  Got to get in there with the Rhino, head down, and charge.

Dan:  But you found your solution and that’s what real estate is. There is usually a solution that --

Mike:  Silver lining, I love it. I do want to kind of ask you back on the whole concept of investing in mobile homes. So the returns on mobile homes, I would image what you have already shared with us, the taxes have to be better than your typical maybe apartment complex? I mean that first of is a question, but I also want to ask about the -- homes themselves. So this is just something I was thinking of -- the quality of a manufactured home, is it going to last is long? What is the typical life expectancy -- do you even have that kind of experience yet?

Dan:  What we have been told, we have only owned parks for a year now. Most of the parks that came with the purchase, the one we have, we had five park owned homes that came with it, we early 70's to mid-80's. Those have seen some better days. The encouraging thing is that it doesn’t take a whole lot of money to renovate them, to make them --

David:  I can attest, I rehabbed a whole mobile home for 3500 bucks. Not even, lie 3200.

Dan:  So it’s cheaper materials, cheaper --

David:  Three beds, two bath too, it wasn’t small.

Dan:  And they have specific mobile home supply stores, specifically for mobile homes.

David:  What are those called?

Dan:  Arco?

David:  Not important, I was just curious.

Dan:  You overpay if you buy skirting from Home depo. There is Arco; I think it might be a national brand. There is one outside St Louis. But, back to your question so -- the life expectancy I think is 25-30 year is what -- based on what we have seen in our park. But -- it doesn’t take a whole lot to get them back on track. You can re-seal the roofs pretty easily, that’s the big thing right, roofs, water, and water is the biggest deterrent to anything real estate. So, re-sealing the roof every ten years. Not expensive, easy to do.

David:  It's not a big roof, easy to get to.

Dan:  If you have a newer park, they are shingle roofs with vinyl siding now. Those I’m sure last 50 plus years.

Mike:  Same as traditional housing.

David:  But shingle roofs are cheap, your square footage of roof is tiny.

Mike:  That's good to know. If it is a park owned home, it depreciates down to very little, it is not going to be a huge expense to get it back to rentable, which is kind of what I was wondering. So even these older homes, they can be made into homes again.

David:  That is one of the benefits I would think, right Dan?

Dan:  Oh yeah.

David:  The maintenance is a lot lower, one thing that is a little different with a mobile home versus a traditional single family or apartment is -- they are usually lifted. They sit on the ground, but they are on blocks. So you do have moisture that would get under the home, so the decking or the flooring or subfloor would need to be replaced every couple of years. But it’s cheap.

Dan:  Its cheap stuff -- yeah the most important thing-- if you are looking at a mobile home -- again learned this the hard way. School of hard knocks. Most important thing you can look at if you are going to look at the mobile home to buy, or if you are getting a bunch of parked owned homes with a transaction. Pull the skirting back, look under the home. You want to see either a full concrete pad -- across the entire home. Or you want to see some sort of tarp vapour barrier. Just like you said, if there is no vapour barrier, if that’s the concrete pad or some sort of tarp that is tied down. Then the moisture from the ground comes up, that is where you have subfloor problems. So most important thing to check -- under the homes. I found out the hard way. Because you walk through and you are like, yeah there is a couple of soft spots but that's probably typical, home looks great otherwise, then you buy it and you get into it and you are like. The subfloor in three rooms needs --

Mike:  That soft spot is the not the same as the soft spot in a traditional home.

Dan:  Built a little differently.

David:  At least if you fall through it you don’t fall too far. Just a few feet. Let's talk about financing. Is financing similar to apartments, or is it different? How does that work from your experience?

Dan:  From my experience -- we are doing it with a little bit of both so -- we -- financing is going to be similar if you go through a bank obviously. That's not going to change much, in our experience banks -- will want to see a specific mobile home park ownership background before they are interested in doing some sort of loan or portfolio or whatever.

David:  Sure that would be like any investment, they want to see the rent rolls, they are going to want to see the financial -- it’s not really anything extra or out of the ordinary right?

Dan:  We have found that we try, with any loan we try to leverage to the 80% -- with mobile home parks we have found they like to stay around 70%, for a little more protection.

David:  Minimalize the risk by just a hair.

Dan:  They are not going to put any value on park owned homes either. Which makes sense if you are looking at it from a banks perspective.

David:  Most of those homes are built in the mid 70's early 80's. They are 45 years old.

Dan:  I would say if -- the 112 pad park we have under contract. It actually comes with 80 park owned homes. So it is a pretty big undertaking. That is kind of part of the reason it is a more of a turnaround project than it is just buy it and live in cash flow.  But out of those 80, I think we came across an appraisal of those 80 and I think they are all between -- early 70s' to late 90's mode. So all 20 plus years old.

David:  Late 90's is pretty new.

Dan:  And you can tell which ones are late 90's.

David:  The one I bought was a '79 and I thought it was in great condition.

Dan:  So the average of those 80 park owned homes I think it came to like -- $4000 per home on average. So some were as high as 20,000, the nice 90's double wides. But some were like -- $500. The average -- that's a pretty good -- I would say, a 20 year old mobile home, just assume it is worth a couple of grand. But yeah in terms of financing and why -- in returns, cash on cash returns specifically. We have found that mobile home park owners are a lot more receptive to owner financing. So the park we have in [00:56:16.11 - inaudible] is owner financing.

David:  You are saying, whenever you as a buyer come to them to buy their park --

Dan:  Correct. A lot more receptive usually -- like I think any real estate investor would be a little more receptive, just from owning real estate, understanding cash flow and -- knowing that maybe the market isn't the best right now, so -- owner finance it and get out of the management.

David:  They are expensive to; it allows them an easy exit.

Dan:  I think because of the little bit tougher bank financing -- all that combined, they have to be a little bit more flexible with park. So -- and that is another reason why I believe that returns are better in mobile home parks. You have your cheaper taxes, your cheaper insurance, but -- you get better terms with owner financing. So like I believe, when I ran the numbers the other day -- since obviously the end of the year, the park since we owned it since March and -- so for this year 2016 I think we were at -- a little over 16% cash on cash return in the nine months.

Mike:  That's great.

David:  That's amazing.  Great returns, awesome investment, awesome advice today, awesome amount of knowledge that you have shared with our listeners and our viewers, Dan we really appreciate you coming on the show.

Dan:  Hope you got some tit bits out of it.

Mike:  Is there anything you want to plug or give out your contact details.

Dan:  Yeah I mean -- I do everything by e-mail, I am around the St Louis area, all the meetings and stuff. My email is [email protected], anybody has any questions please feel free to reach out, I think you guys would agree it’s cool taking people under your wing, it’s cool talk to people that have an interest in any type of real estate really. I like seeing the next younger guy come along who is interested.

David:  Me to.

Dan:  It's a great business to be in.

David:  I enjoy mentoring people on stuff they don’t know. You don’t know, you don’t know. If you can teach them a little bit along the way and help them and -- always comes around full circle

Dan:  We -- all of us had some type of mentor, or some type of training course or something. You don’t just wake up one day and understand. You have to go through the knocks of --

David:  Still do.

Mike:  Always have a mentor.

David:  Absolutely. Speaking of courses, check out freewholesalecourse.com, again we are constantly adding new stuff to that course, updating it and we are actually going to be launching a couple more free courses for you guys in the coming weeks and months. So if you are interested in contacting myself or Mike, you can reach us at [email protected], or [email protected], Dan's contact information will be in the show notes. What is your e-mail one more time Dan?

Dan:  [email protected].

David:  Awesome, well Dan I am going to ask you to read our quote today, this is out closing quote, we do it on every episode.

Dan:  Sure, the quote today is, "It is not worth winning, if you can't win big."

David:  Love it.

Mike:  Thanks for joining us, thanks for listening guys.