GI319: How to Invest in Mobile Homes with Cory Harelson

GI319: How to Invest in Mobile Homes with Cory Harelson

Cory Harelson is an ex-structural engineer turned mobile home park investor. He bought his first Mobile Home Park in 2016 after reaching a career-breaking point. Cory left his 18-year career as a structural engineer in 2023 to devote 100% of his focus to building his Mobile Home business. To date, Cory has purchased 18 mobile home parks and has been through 5 sales and 3 cash-out refinances.

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Transcript:

Charles:
Welcome to another episode of the Global Investors Podcast; I’m your host, Charles Carillo. Today, we have Cory Harelson. He is an ex-structural engineer turned mobile home park investor. He bought his first Mobile Home Park in 2016 after reaching a career-breaking point. Cory left his 18-year career as a structural engineer in 2023 to devote 100% of his focus to building his Mobile Home business. To date, Cory has purchased 18 mobile home parks and has been through 5 sales and 3 cash-out refinances. Thank you so much for being on the show!

Cory:
Hey, I’m excited to be here, Charles.

Charles:
So you you know, you’re, you’ve been a full-time investor in mobile home parks for a few years now. Can you tell us a little bit about yourself, both kind of personally and professionally that pushed you to becoming a real estate investor in the first place and kind of where you are today?

Cory:
Yeah, absolutely. So, 10 years ago I was working as a structural engineer. And it was a, a, a great career. It’s fun. I could go point to a bunch of buildings I designed all around Boise and other places, but I was pulling big, big hours, 60 to 80 hour weeks, and my wife and I had recently had our first kid. And so all of a sudden that that big workload wasn’t, wasn’t okay. And so he was about one years old. I felt like I was missing seeing him grow up. There was a whole week straight where I went to work in the morning before he woke up, and I came home after he was already in bed. So I literally didn’t see him awake for a week. And then it was it was that Sunday of that week. It was five something pm I’m in the office as usual, and I was like, screw this.

Cory:
I’m gonna go home and put my kid to bed. So I just left the office. I went home, went to go take him from my wife to go give him his bath and put him to bed and stuff. And he looked at me like he did not know me. It was like when you hand him to the uncle that they haven’t met yet, and they do the total stranger danger mode and started screaming, screaming, crying, trying to get back to mom. And it was like that moment when it hit me, like I, I am a stranger to my own son. And I didn’t like that at all. So that was my kind of like, i I, my <laugh> my freak out point, I, I guess if you call it. But but so I knew I had to do something different. I was like, I can’t just stay on this path until I’m 65.

Cory:
Like this doesn’t work. And I didn’t know what different was. Shortly after that, just fortuitously, someone handed me that little purple book that everybody’s read, the, the ca rich Dad Poor Dad by Robert Kiyosaki. And my mind kind of exploded and I was like, assets that pay you <laugh>. Like, why did I have to be 35 years old and read this in a book to figure this out? It’s not that complicated. But so, so then I got really excited. I met, my wife and I were like, okay, we’re gonna invest in real estate. We buckled down, we started saving. We weren’t very good savers up to that point. I like to rock, climb and ski and do a bunch of things. And so if I had extra money in the bank account, I was probably going to buy more rock climbing gear or something with it up to that point.

Cory:
So we buckled down. We really, really got our savings rate under control. And I am an engineer. I’m a left brain nerd. So I built, I, I figured out how to build a pro forma spreadsheet and what goes on in pro forma and some Google searches showed me some examples, and then I figured out what the formulas were for those and quickly figured out how to build a pro forma. So I built my first pro forma spreadsheet. I started analyzing deals. ’cause Everybody says that’s how you have to start, go analyze a bunch of deals. So I did, and I, I, you have to pick up a direction. So I said, Hey, duplex plex, fourplex, that sounds good. So I started looking at a bunch of duplex, threeplex fourplex deals and punched ’em in my spreadsheet. And they all sucked. And, and I got, I quickly got discouraged.

Cory:
It was like, where’s all this cashflow Robert Kiyosaki’s talking about, like, these rents are barely gonna cover the mortgage. Even back then, this was late 2015. And I stumbled across a mobile home park listed for sale on Craigslist. It was very small, small little mobile home park in, in Garden City right near where I live in Idaho. And I punched those numbers in and those looked a lot better. And I, and then I got, I got kind of excited and I remember thinking, but like, what, what is like, I don’t know anything about mobile home parks, like <laugh> like what, what, what am I doing here? And I, I did some Googling and, you know, found some online courses and things, and I was like, okay, I guess this is a real thing. So I took, I only knew one person in the world who invested in real estate at the time.

Cory:
My friend Matt, I took, I remember took him out for a beer. He, he was a real estate agent, but he owned some rental houses and things. And I, I said, Matt, I’m thinking of doing something dumb and I need you to talk me out of it, and I need you to tell me why <laugh>. And I was like, I I, I, I might buy a mobile home park. And he goes, no, I know people who own those. They’re cash cows. And so so then we ended up, we didn’t buy that one, but we ended up like sending out a bunch of letters, got a bunch of responses back. So at the time, no, it, it was still like the secret wasn’t out about Mobile home park. So we got a bunch of responses and kind of laid ’em out on the table and said, I’ll take that one <laugh> and bought our first park in 2016.

Charles:
And how, how big was that

Cory:
One? 12 units, so not a very big park. It was 10 minute bike ride from my house. We, like I said, we weren’t good savers up to that point. We became good savers as we were doing this which was a big part of what we did. But so for our down payment, we did have equity in our house, so we ended up setting up a heloc and we used for the most of the down payment, we used a heloc. And we got, I, I was calling banks to get that first loan, like, Hey, do you land on mobile home parks? No. Hey, do you land on mobile horse? And I just was like, literally going down Google, like calling every bank in the area. And then I found one of them who mountain West Bank here in Idaho. They, they one of the VPs owned some mobile home park, so they were actually comfortable with them and they, they, they did the commercial loan.

Cory:
We used the heloc and I remember being like, terrified. We closed on the deal and it was like, I just, in my head, like, all the residents are just gonna decide they’re not paying rent all at once. Like, oh no. And then that first month, like the money came in, the expenses got paid and there was cash left over. And it was sweet <laugh>. So we, we, we ended up, we, we ended up like really buckling down the savings rate. And so we, we put all the cash flow plus what we were saving towards paying down that heloc. And then we used it for another down payment again the next year on another one. So we did like several of these small mobile home parks over the next couple of years.

Charles:
Yeah, proof of concept is definitely powerful in anything. Well, how close was that bank to your property?

Cory:
Close. So they’re, I mean, if like me and the bank and the property are in a triangle that’s like each side is a 10 minute bike ride. I would say

Charles:
The, the reason why I asked that is because what I found and what I kind of like talk about in the show a lot too, is when you’re investing in properties, the importance of using like small local lenders, credit unions and banks. And I remember getting, I’ve gotten loans from banks before and I remember talking to loan officers very similar to you, and they would like send me back a resume. Like they were applying a loan to me of all the different properties down. And you’re like, oh, this is like, this is perfect. You know what I mean? Like, they know this insight. This is the person that’s making the decision, you know what I mean? Or who I’m working with to, to push it across. And that’s how it was with you. Where you have someone that’s number one, they’re super close because when I’ve called like lenders 45 minutes an hour away from the property, they’re like, well, what are you doing? Why don’t you call someone closer? And it’s kind of like, they’re like a little hesitant, you know what I mean? But the thing though is that it’s, if you’re, that’s why I was asking so close. They know it intimately. They’ve probably driven by it a number of times. They know the area, they wanna lend in the area, you know what I mean? They wanna do business in the area. And that’s kind of what I’ve realized over these years. And it seems like you’ve had a similar kind of relationship with them.

Cory:
Yeah, they pride themselves in lending on local, you know, local businesses, local assets. Like that’s what they’re, that’s what they’re good at. Exactly what you said. They know, they know this area here. If I was outside of this area, you, you know, I don’t think it would work with them. But, but yeah. So that was good. They did our first couple <laugh>.

Charles:
So for great. For people that might not be completely familiar with what’s happening with mobile home parks over the last few years you’ve been in here or going on a decade, I mean, how is the demand for people wanting to live in a mobile home park community really changed over the past few years?

Cory:
Yeah, so it’s, it’s been high, but it’s really skyrocketed. So I was actually just talking to a broker friend of mine earlier in, in the morning and, and telling him it, it feels like being the, the only guy with the hotdog stand outside the stadium, right? As the ball game is letting out, it’s the country’s literally an affordable housing crisis. It’s not like, oh, that affordable housing demand is high, like crisis. Any article you look at uses the word crisis. And we are the most affordable form of housing bar none. The only type that works without government subsidies. We don’t need hud, we don’t need litech. We don’t need all these other things that the apartment folks need in order to make theirs actually affordable. ’cause Apartments aren’t really affordable. They’re only affordable because of subsidies. So, which means they’re at risk if, if those subsidies get taken away, which I think, I know there was a scare with some of the HUD stuff earlier this year, but ours are, they’re just legitimately affordable.

Cory:
Like two, two, you know, two parents make a minimum wage can, can live there in support a family they can have four walls and a yard and park it. So it’s really, really great from that perspective. The supply is limited. There’s more of them get redeveloped every year than get built because it’s really hard to get them permitted. Cities don’t want them, you know, people don’t want a mobile, even if it’s a nice one, people don’t want a mobile home park built next door. So there’s, there’s, it’s not like self-storage where it’s really great now and then next year someone builds another one across the street and now you’ve got, you know, more competition. So yeah, from a, from a demand su like supply demand perspective, it’s, it’s the, the best <laugh>,

Charles:
I think. I, that’s one thing. You talk about self storage and you brought that up there, and that’s one thing that’s kind of always, there’s, I mean, there’s pros and cons to everything, but the thing though is that you have, with self storage, I always thought is like, they can be built so fast, you know what I mean? There’s not like if you’re, if it’s, it can be out further, like they know how many minutes out, but I mean, literally you can pull up, I remember talking to developers and they’re like, yeah, we can put it up in like a couple weeks. So you’re like, oh, okay. Like, I understand there’s all the permitting that goes with and everything, but you’re like, that’s what you’re going against. Versus like an apartment complex, you know, big one that’s two, three years plus and for yours, they don’t even put ’em up. They won’t even permit ’em. So the thing though was that, I mean, you have a moat, there’s a moat there of some level that is going to kind of insulate you and your investments,

Cory:
Right? And the, I mean, the other piece to it too is just they’re so afford, like our expensive parks are 500, $550 lot rent versus you’re gonna pay 1500, 1600, $1,700 for an apartment in the same market. So there’s no, like, it’s so much more affordable than everything else. It’s so, so if, if like apartment says it’s $1,800 for an apartment, and if apartment rents drop by 10%, that drops 180 bucks our $500 lot rent is still so much better of a deal. It doesn’t really impact us. So it’s kinda like where the submarine, so like all the like, oh, what are rent, what are market rents doing with apartments? Everything’s like this storm up here and we’re kind of like a submarine just cruising under the surface. So we’re, we’re a bit insulated from all the ups and downs that

Charles:
Way. So Corey, can you give us a little overview of kind of right now what you guys are working on? What’s your current investment strategy? I know you just took down a few different parks a few weeks back. Tell us a little bit about what you’re working on and kind of what your type of parks you’re looking at size-wise and markets, et cetera.

Cory:
Yeah, absolutely. So for those of your audience who are in kind of the multifamily or commercial world, what we are targeting is called a value add. And so this was the thing when we started syndicate. So I, I did my first few parks up until 2020, and then I had some friends and family come and say like, Hey, this is cool. Take, take my money and do this too. And so I, I figured we better figure out the syndication thing. So me and my brother-in-law partnered up in 2021 to form our investment company. But one of the things that got me really excited once I realized that I didn’t even know this when I first bought my first two mobile home parks, so I didn’t put two and two together, but the fact that the value is proportional to the net operating income is this hugely powerful formula.

Cory:
Because if, so, if, if it’s bringing in a million dollars a year and mobile home parks aren’t trading at five caps anymore, but just for, for simple math, let’s say that that million dollar mobile home park that you bought is, is netting. So after, after its operating expenses, it’s, it’s putting out $50,000 a year of income. Well, if you can increase that 50,000 to a hundred thousand, you’ve just added $50,000 of cash flow, that’s cool. But you’ve just added a million dollars of equity that’s really, really cool. So the, there’s this huge lever. And so that’s what value add is like in a nutshell. And we try to add value for more than just us and investors. Like we try to make it nicer for the residents too, and improve the aesthetics and everything and make, actually make ’em nice places to live.

Cory:
But like the bottom line brass tacks on value add, if you make the NOI go up, the value goes up a lot. That’s the, that’s the key thing. And once, once that clicked, it was like, oh, and mobile home parks, I think have the biggest value add potential in all of real estate because think there’s a crisis. And yet all these things are built in the fifties, sixties, seventies, or almost all of them. And so they’ve, so many of them are, they’re either first generation or maybe it’s the second generation owner, but they hadn’t, haven’t had a mortgage in decades. They don’t like, they haven’t had the motivation to keep up with the deferred maintenance. And it’s, and especially keep up with the infill. And so there’s so many of these things where it’s, it’s, it’s not easy to fill a vacancy like an empty lot in a mobile home park.

Cory:
You have to, you have to know where to look. You have to be able to find source the homes. You have to have licensed people to move the homes. You have to have a special license to be able to sell the homes. You have to get, if it’s a used home, you probably gotta get a contractor in there to rehab it. And then you’ve gotta be able to turn around and sell it. So you’re like a used car dealer, a house flipper, and a real estate agent all in one. So it’s not easy and it takes capital. So because of that, there’s all these owners, but, but it’s hugely profitable <laugh>, and you get the capital back out. But there’s all these owners who just haven’t done it, the cash flow’s good enough, they don’t have a mortgage, so there’s empty lots, there’s vacancies that aren’t due to a lack of demand.

Cory:
‘Cause The demand is off the chart. So there’s vacancies and there’s crazy demand. And so there’s the ability to come in and pay a fair price based on what the, the income it’s producing today, and then fill in all these vacancies and shoot the income through the roof which then increases everybody’s equity. So it’s not just the, so I, I think 10 or 15 years ago, these things were trading at very, very high cap rates, and it was all about the cash flow, and it still is, they’re, they’re higher cap rates than apartments. But, but it’s also, I feel like there’s this missed this piece that I feel like isn’t maybe talked about enough. That’s the, the value add potential. It’s like being able to add a whole other floor to your apartment building. And then in addition to the fact that maybe people are under market on rents and that there’s all that stuff too, which we, we try not to jack people’s rents up too much, but we, we get ’em caught up eventually. Right? And so so, so that you combine those things and the, the value add potential on these is, is very large.

Charles:
So in most parks, in most mobile home parks, you’re not owning or you don’t own that many of the homes. But you know, in in apartments what we do is we’re going in there, we’re doing a lot of physical work to the property, a lot of com cosmetic work to the property, you know, interiors, right? So if that’s not part really of a business plan for mobile home parks, can you tell us really what a typical value added business plan would look like for say, a typical mobile home park community kind of acquisition that you’re working on? Yeah,

Cory:
Absolutely. So what I like to say is we’re looking for ugly parks in great locations. So I’ll use, we closed on one last year, a about a year, about a year a little like maybe 13 months ago. We closed on a park in Lexington, Kentucky beautiful area, rolling hills, horse farms. We were on the DD visit. There were literally bulldozers driving and the, the, the pro the, the land right behind it, building a brand new McMansion neighborhood great area. And then just this ugly, ugly model <laugh>, it just was just overgrown and there was junk everywhere, and the roads were trash. So we we came in, what we did, our, our plan is, is 1, 2, 3. So it’s make it nice, fill it up and charge a fair price. So the make it nice portion, we repaved the road, you know, we spent six figures repaving the roads.

Cory:
We spent six figures on trees. Holy cow, trees can be expensive. But just removing the ones that aren’t supposed to be there, trimming the ones up and making ’em look nice, the ones that are fencing, signage so and, and then just rule enforcement so that, you know, the residents who are keeping their yards nice, don’t have to live next to someone who’s got a pile of junk. So so we do those things to make it nicer. And then it’s a, it was a, this is a 79 lot 79 lot park, and there were 24 vacancies. So for each vacancy we fill in that lot rent. Once you have a a tenant owned home there, there’s not really much additional expenses that come from having the homeware there, especially since this is direct build, city water, city sewer. So they pay the water company directly, so there’s not really extra expenses for having that home there very much.

Cory:
And so each one of those, the lot rent that it generates adds adds between 60 and $80,000 of equity for each one that we fill. Not counting like profit on home sales or anything like that. So every single one that we do, so you fill in 10, that’s 600, $700,000 of equity, you fill in 20, now you’re at 1.4. So, so it, the, the numbers get pretty fun. And, and what’s cool about it is you can bring homes in and we can, we can spend the, you know, we can spend all the money to bring ’em in. And if we make a little bit of profit on the home sale, that’s great, but I don’t even care that much about the home sale profit because the real money’s in that equity jump from having that lot occupied. So so what’s cool is we’re able to sell the homes at, at actually very affordable prices that people can actually afford.

Cory:
So, so, so that’s, so we’re, we’re, we’re then we’re filling in the vacancies, and then if the, you know, the, the current, I forget what the actual rents were, but the, the current residents are a hundred bucks or so less than what we’re bringing the new people in at. And we’ll jump them like 50, 50 bucks a time or so. We, we don’t wanna go like too high. We never wanna price anybody outta their home, but we do wanna eventually get there. So over, you know, a few years we catch ’em up to where everybody else is at.

Charles:
Yeah, no, that makes perfect sense. So it’s like a lot of landscaping, it’s a lot of different work throughout the park, common areas type thing, obviously. How about the parks? I mean, I’m sorry, the homes in the park. So like, how does this work? Are we, I would imagine it’s difficult for someone to, it cost them several thousand dollars to move a home into yours, right? But how does it work in sense of selling a home and how does that all situation work? Like, what is the usual cost for something like that? How do they finance it? Are you on the hook for that, like as a lender or is it through another third party? I think Berkshire Hathaway has some sort of like financing on this or something.

Cory:
Yeah, that’s, that’s absolutely right. So there’s a few methods. So we’ve got kind of two infill tracks that are, there’s some similarities, but they’re pretty separate. So we’ve got our used home track and our new home track. So used homes, we’ve got sources for used homes. We’ve got multiple sources for those. And so we will u we will take capital that we have raised, like part of the deal capital is for the infill. So we’ll take the capital, we’ll buy the home, we’ll pay someone to move it on, we’ll get it set up. If it needs a renovation, we’ll renovate it, and then we’ll turn around and we’ll sell it. And so usually by the time we’re done with all that, that’s, those are going for 40 to $45,000 at the end of the day. Is is what we’re selling those for.

Cory:
So most residents don’t quite have that much, so they might need to get a loan on that home. So there’s what you call chattel financing. These are not permanently affixed to the ground. They’re, they’re technically titled through the DMV. They’re not real property. All that means is you can’t get a normal mortgage on these. So, so, but there are companies that do mortgages for residents called chattel financing. And depending on which one you use, they’ve got different requirements and things. Some of them we do backstop so there, there’s, there’s credit Human is one where we don’t have to, they don’t make the park owner sign anything. The home is just the collateral, but they’ve got much higher credit requirements. So not everybody qualifies for that 21st mortgage is the one you’re talking about. That’s the Berkshire Hathaway, Warren Buffett company. They, we do.

Cory:
So if, if the, if the tenant defaults, it’s not that big of a deal, we, we have to then start paying on it. We’ll just renovate it and sell it again. But but, but yeah, that’s Berkshire Hathaway. So that’s the used home model. And the idea is then you sell it and you get the cash back out, and now you can take that cash and go do it again. Right. And so you’re recycling the cash to fill these lots. The other option for new homes, 21st mortgage, that same company has a whole other program where they will actually 100% finance the home for you. So they’ll pay for the whole home. And you can actually even get reimbursed all the setup costs and everything too. So you can, so you don’t really need any capital or much capital to bring in the new, it’s weird, like you need more capital for used homes than new homes.

Cory:
But the drawback to that is you have to sell ’em at a higher price point. They, you sell ’em for 10% more than you put ’em in at, they, that’s their mission’s affordable housing. So they cap you at 10 and you kind of have to sell ’em for 10% more. They take half of your profit. That’s how they get paid. And then they’re available to provide the mortgage to the residents. They’re kind of like a all in solution. So it, it’s a, it’s a great program. Those ones were more at like the 70, $75,000 price point. So sometimes just depending on the market, it, it, you know, sometimes you need to stick with the used homes and then the, and then if you’ve, and then if somebody defaults and you, you get one back, or if you’ve got like an empty home, you know, they cost 15 grand, 10, 15 grand to rehab typically. And we can sell ’em usually just for cash for 20 or 25. And those people typically don’t need loans for those. So those are, I guess, kind of the three different ways that we’re dealing. Lots.

Charles:
Very interesting. Thank you. So what are what are some of the tactics? ’cause Like you said before, a lot of these are mom and pop owned. I mean, what are some of the tactics your team utilizes for finding some of these home park deals? Are they on the market or are you guys doing some sort of direct to seller, direct to owner marketing?

Cory:
So we’re a little different than several of the other people. I know. I, I know a lot of people who only do like the direct mail and stuff like that, and we do that stuff. But our, my best source is honestly brokers not necessarily listed, but but we get a lot of stuff that’s either pocket listing kind of thing, where the, the, they, they, you know, they don’t want the broker to list it. They don’t wanna freak the tenants out or, or and or, and, or, we’ve got really good relationships now with several brokers that will send us deals early. So this one we just closed in Tennessee just a couple weeks ago. The, the, I had worked with the, the, I had worked with this broker on several, both on the buy and sell side. So he knew that we were, you know, would honest and not trying to like, pull any crazy tricks, like we’ll do what we say we’re gonna do our due diligence, but at the same time, like, our offer is good as long as everything you told us is accurate.

Cory:
So we’re not just like intentionally trying to retrade the deal. And so I think because they know that, like, there’s several of these brokers now that, that we, we have very good close relationships with Sendo stuff. So he, he reached out on this one. It was, it was a, it was a, at the, this was last, it was a year in the making. So last summer it was an 11 park portfolio. It was like a 500 lot deal that he reached out on. He was the, he, he had moved over to this other brokerage and was the junior broker on this deal. And he reached, he, but he pinged me on it, and I was like, ah, these are all spread out. Like, I don’t think we can manage that. So we partnered with another group who had a bigger footprint there, and we’re trying to take that one down.

Cory:
But I guess they, they were based out of Asheville, North Carolina. They got rocked by that hurricane. A bunch of their other communities in North Carolina got rocked. They had to back out. We backed out. Somebody else picked it up and dropped it. And then I get a call a couple months later that’s like, Hey, hey, they that this other buyer backed out. They, you know, something about, you know, interest rates or they made up some excuse. He, he but he was like, they’re, they’re gonna break it up into pieces. Are there any of these you guys want on your own? And I was like, oh, yeah, like, ’cause we’d already done all the due diligence. I was like, I want those three right there. So we, we, you know, that, that was not listed again. That was like, we got that first call and we managed to get my favorite three of them under contract. So pretty, pretty funny. But there’s just a, there’s always like these weird stories behind them, and it, it seems like it’s never that straight forward <laugh>, but we seem to, every time I feel like I need to go start cold calling again, we find more good deals from brokers. So at some point maybe it’s, it’s a who, not how, like they’re, they’re making those calls every single day. Are we really gonna do better than them? So I’ll, I’ll, I’ll pay a broker fee if it, if it if they’re bringing good deals.

Charles:
Yeah, no, that, that’s a great, that’s a great way of working with it. So let’s go like one step further. You find a park, and this is one thing that I’ve found when I’ve spoken to mobile home park investors is a lot about the due diligence process. People like losing their shirts sometimes and due diligence. Can you tell us a little bit, I mean, your engineer, tell us a little bit about the due diligence, your inspection process before you’re purchasing a park. Like you said before, you already checked those out, you’d already did your work. I mean, what are the main things you’re looking at and maybe like a list of some of the deal killers as well.

Cory:
Yeah, absolutely. So the this one is not, I didn’t come up with this on my own. I, I stole this concept from Frank Rolf, but I really like it. So we use it we, I break the due diligence things down. It’s ideal is the acronym I-D-E-A-L. So it’s infrastructure density economics. So like the, the returns makes, this is the number of makes sense age of homes and location. And it’s not necessarily in the order of importance. So we, I’ve actually got a color coded I’ve got my, my color coded deal analyzer. This is, it’s not like our full underwrite, it’s like each deal gets its own row, but it’s got sections for each of those. And we have all our location and, and then each of the cells are color coded based on if it’s hitting the metrics. So we put in our location all the stuff about it, and then you could really easily see like, Hey, all the cells are green.

Cory:
We should probably think about offering on this one. What, you know, what, what is their asking price? Are we gonna be close? And then we might go do a full underwrite at that point to do an offer. So that’s but, but so some of the deal killers, so just to kind of run through those infrastructure, you can have you know, mobile home park, you don’t have a whole building typically. Sometimes you have a little, there, there can be buildings, but typically you don’t have a whole building. We own the land and, and the utilities. So the big thing is, is it city water and sewer or is it private? And if it’s private, it could be well and septic. Or on the sewer side, there’s a couple of other, there’s, there’s something called a lagoon, which is like a poop lake.

Cory:
And there’s a wastewater treatment plant. So you can actually have like a little packaged private wastewater treatment plant. I have had a lot of deals go really well. My first deal, I nine xed our equity over five years. But I had one go bad, I had one go really bad. And it was a wastewater treatment plant deal. So we’re probably, the deal would have to be really, really good for me to wanna look at another waste. So lagoons of wastewater treatment plants, we just kind of automatically say, Hey, not, not even worth our time. Well in septics, okay, if it’s in good condition and we’ve, you know, we get it inspected and everything and city water sewer’s great. The, the trade off with city water sewer versus well in septic is well in septics really cheap to operate, but you have to have reserves for the CapEx.

Cory:
City water sewer will be the most expensive line on your expense budget typically. But your, your, your CapEx risk is way lower. You just got the lines to worry about. So a couple others. The most common reason we pass on a deal is typically the lot size. Actually. There’s a lot of them where they were built when the homes were smaller and they don’t make homes small enough to go in those lots anymore. So a lot of times it’s like, if you have to replace these homes, you can’t. So it’s kind of a dying park at that point. So that’s, that’s typically when we find one where we get all excited about it, that that tends to be the thing where it’s like, ah, the lots are too small, <laugh>. So, so, so that’s a big one to watch out for.

Cory:
The smallest homes that you can, that are readily available that are HUD certified, which a lot of jurisdictions require are 14 feet wide. So depending on the setback requirements, if you have to have 10 feet between homes, that means your lots need to be 24 feet wide. If you need to have more than that, then it’s more. So, so, and then the depth wise your, your three bedrooms start at 66 feet long. Is it 14 by 66 is your smallest three bedroom typically? So we like to have three bedroom homes. You can go down to a 14 by 48, but that’s a two bedroom. And the three bedrooms sell like hotcakes and the two bedrooms are harder to sell. So those are some of the things that we’re, if you, if you want like specifics, those are some of the things we’re, we’re looking at. And there’s a, a bunch of other stuff that you would, you would think about all the location metrics. Like is I, I guess the other thing is like, is there actually an affordable housing, housing problem here? Or can you buy houses for a hundred grand? Like if you can buy a regular house for a hundred grand, why would you buy a mobile home for 70? But if it costs you 300 or 200 for a house, then the $70,000 brand new mobile home sounds pretty good. So

Charles:
Yeah, no, it’s similar to same thing. If we’re buying a you know, apartment somewhere, something like this and you’re buying apartments and you know, an apartment is 125,000, let’s just say the house is 175 or 200 some, you know what I mean? You’re getting really close to where they can make that jump now from renting to owning versus if it’s like, you know, you’re renting so you know, something you’re buying for 125, like you said, houses are three 50, that’s a jump. You know what I mean? And so you have a spread like that too, and that bigger, that spread, the more kind of secure, I guess you would say, the bigger the mode is around what you’re planning on buying. So in one way or another. But yeah, those are pretty big. Those are pretty big properties, pretty big lots when you really think of it, 24 feet. I mean, it is, it is like a house. And also same thing as you know that three, the the three bedroom, you know, house, just like you’re flipping house is, you know what I mean? No one’s gonna flip a two, you know, a two, two bedroom house, you know what I mean? It’s kinda like what people want, what’s gonna sell fast. It’s gonna be that three bedroom, you know, like kind of three, two setup.

Cory:
Right, right. No, that, that, that’s exactly right. So yeah, it’s, it’s when we see a bunch of small ones and my business partner Thomas is the one, he’s, he’s more in charge of the infill than, than I am. And he’s like, man, those are all gonna be two bedrooms. I dunno if we could fill all those up. So that, that’s a big, a big reason we pass a lot.

Charles:
Yeah, it’s different renting a two bedroom, it’s a whole different thing if you’re buying that property, you know what I mean? A hundred percent.

Cory:
And we can find renters, but we don’t want to have renters. We wanna have owners, we want them to be an owner, us an owner. So we’re both vested. They’re gonna be a good long-term tenant. If they leave, they’re gonna sell their home to the next tenants. They find us another. So you have zero day, zero cost turn to all the good things about tenant owned homes. Yeah, that’s, that’s the goal.

Charles:
So let’s talk about, you mentioned before about that portfolio you’re buying, you’re talking about me through and there kinda like management. Let’s talk about how management’s handled in your different communities. You know, kind of like how you guys do it. I mean, you have parks from 1200, you know, you know, all different size lots. You know, how are you doing management in those properties and those sizes and is it like a full-time? Is it part-time? I mean, kind of like, how, how do you guys usually do it?

Cory:
Yeah, absolutely. I, I think the management is one is probably the thing that is the most misunderstood for mobile home parks. I’ve actually thought about starting a ma, there’s so many people trying to get into it right now. I get questions on LinkedIn all the time. And I, I’ve actually thought about starting a little mastermind for like operations. There’s so many op masterminds out there, how to find deals. There’s a lot of those, but there’s none on like how you actually operate these things. And everybody thinks they’re really passive because the tenants on the home and you own the land <laugh>. So if the toilet leaks, it’s not your toilet, it’s their toilet. And that’s true, but there’s still a whole lot of stuff you have to do. And on the flip side of that, the thing that multifamily has going for that mobile home parks do not, and I didn’t fully grasp this first coming in, is property management companies, third party property management companies are a dime a dozen.

Cory:
There’s a ton of them. If you’re gonna be an apartment investor, you don’t have to build a property management business. You just need to get good at finding the good property manager and hiring them and staying on top of ’em and making sure they’re doing their job. So you can be a successful apartment operator without running a property management business in mobile home parks. That’s not really the case. I don’t know any successful syndicators who don’t who, so we brag that we’re vertically integrated, but the dirty little secret is kind of all of us are. ’cause We have to be, because there’s not a lot of good property management, third party property management companies out there. There’s a few that I know of that I, I’ve actually worked with one of ’em before, but but their fees are structured. So you’ve gotta have, like, your park’s gotta be a hundred at at least sometimes 150 lots before the percent of your income makes sense.

Cory:
And, and that’s just a function of the fact that if an apartment’s $1,800 a month versus mobile home lot is $500 a month there’s not as much meat there to go around for them to manage it. So the unless you have a really, really big park, you’re gonna pay a large percentage of your income in, in management. It just doesn’t work. So, so we, we, so so, so, so we built our own property management company. Is is what we did. The way that we manage our parks, every park has an onsite manager will typically not in all cases, but in most cases we will hire a resident. And so one of the things that we do to help with that is we have fully automated the collections. So, which is hard to do in a mobile home park because you’ve got a lot of old tenants.

Cory:
It’s not like apartments where you can just say, ah, go pay online and y’all are young anyway. You, you can, we’ve got residents who have, they have a landline and a, and a and a a, they get paper mail. They do not have internet or a cell phone. They never will. So if we said pay online, they can’t pay. But there’s, so we, we work with a, a company called Z Go. They integrate with our property management, so it’s like integrated with our property management software, which is also integrated with our water submetering software. But so they, they’ve got relationships with retailers. So the residents who don’t wanna pay online, the biggest is Walmart. So they can just take their little number down to Walmart pay at the customer service counter. So what that lets us do is say, we’re not collecting rent payment on site at all.

Cory:
We do not at all. You can’t pay it on site. The onsite manager cannot take your payment. And so what that does is for the onsite manager, usually the, the biggest time suck, the biggest scope of work and the least pleasant scope of work is going and banging on your neighbor’s doors, trying to get them to give you checks. Like that’s no fun. Who wants to do that? So we take that away from them. So now they just get to be the problem solver. They’re the eyes of the ears. They can do home, sh you know, sell some homes for us and make a little commission while they’re at it. So it, it turns it from this unpleasant, really big time suck into this part-time job that a lot of people want to do. And we to, to find our, our managers, you just go look at who’s got the nice yard and the well kept, well kept home, the clean car who looks like they care and would probably want to have their neighbors care a little bit more <laugh> and to have some influence over that. And so those are the people that we talk to and we can usually find someone to do that for a very reasonable price because it’s not as big of an ask as if they were collecting all those checks.

Charles:
Yeah, yeah. May Yeah. You’re the, the collecting of rent manually is a, I mean, like you said, it’s a time suck is just so much time wasted. And I mean, it’s just one of the things can people mail in too, like mail in checks, mail in money orders.

Cory:
We have a lockbox. Yeah. They have to put the number on there so the lock, the lockbox scans it and automatically credits it to their account. They, they can mail it into they can pay at Walmart. Yeah. It’s, it’s, it’s great. Yeah. And so, and then we have like some back office like back office staff as as well that can help people with payments and run all the systems and you know, organize who’s, you know, we gotta source. We got a lot of other work we gotta do too. Mostly around the infill is where the big time suck is.

Charles:
Yeah. The nice thing is you’re not that super you’re bringing on, let’s just say if that’s what we call them on site, they now don’t have to touch. You don’t, you don’t have to worry about them touching any of the money, you know what I mean? Worry about any type of fraud, any type of giving receipts, not giving receipts to whole nine yards that happens there that used to happen. You know what I mean? I think years back with mom and pop owners were collecting rent if they’re not there, you know what I mean? It’s, it’s a difficult thing.

Cory:
Yeah. Or like I’ve seen, I’ve heard people talk about people that they’ll tell someone they had a rent raise when they didn’t and they’re paying in cash, so they’ll pocket the difference. Like I, I’ve heard all sorts of all sorts of stories like that.

Charles:
So with that situation, it really doesn’t matter. It doesn’t, it just seems like you’ve kind of solved the problem with having parks scattered throughout different states because you’re using a super on site, you’ve taken off as much as you can out of them to a centralized location right out of the parks into a centralized location like you said before, like payments and everything like that. So that takes away a whole part of the, and now you just have someone on site that’s doing what they need to do to keep up, like grounds or whatever else has to be done there.

Cory:
Yep. Yeah. Making sure everything’s mowed. And they’ll do a weekly you know, a weekly spin through the park to look for like violations, things like, hey, there’s someone have something in their yard they shouldn’t, or, you know, some kind of car that looks like it’s broken <laugh> so they can issue, they can issue violations for that kind of stuff. And we have them, we’ll go visit the sites in person occasionally too, and then we’ll have them do typically like monthly vi you know, video drive through the park so we can get our, you know, we can see what’s there as well. So,

Charles:
So kind of as we’re wrapping up here, I just had a couple questions in regards to, you’ve went over a bunch of stuff with management as that being one of the main challenges. Are there any other challenges that you would see off the top of your head of owning a mobile home and park community?

Cory:
I think the, the management puzzle is the biggest one. Or it’s, it’s the one that’s that, that, that could catch you by surprise. ’cause It’s different than the multifamily. And, and then I think it’s just managing those, the, you know, it’s a lot of the due diligence and, and, and managing, managing those risks coming in, right? Like making sure you’ve got enough cash reserves ’cause you don’t have, your recurring expenses are are, you know, pretty darn predictable. You got the trash and the water and property taxes. But you know, a lot of your maintenance stuff is gonna be things that are infrequent infrequent, but larger expenses. So you need to make sure you are appropriately budgeting for those setting, setting funds aside. What

Charles:
Would those be if it wasn’t, say we had something with like city water, city sewer the infrastructure let’s say is, is fine in the sense of like, you know, plumbing, everything like that. What other like big ticket items would come up if you’re not owning the houses just off top, top of your head.

Cory:
Yeah, so if a, assuming your lines are good, right? Like you could have I mean, at, at some point you’re gonna need to repave the roads, right? So you, maybe that’s five years down the road or 10 years down the road, but that could be a hundred grand. And you’ve got you know, are your, are your sewer lines new? Like that’s, that’s, I guess that’s a, that’s a thing to look at. Like what are the sewer lines made of, right? Because you, there’s a thing out there called Orangeburg that you don’t want to touch. You’ll have to, but if you have to do a pipe replacement, you, you know, on your property, it could be under, it could be an underground leak, right? We had an underground leak at one of our parks last December. It was at one of our Minnesota parks.

Cory:
And the, the pipes are so far down underground because of the cold weather. I saw a picture of the guy in the excavation hole, and I mean, he was like this big and the hole it was, it was way down there, but that was a $19,000 plumbing bill, so <laugh>. So yeah, there, there’s certainly, there’s certainly things it, it depends on the park, right? If it’s, if it’s like our Lexington Park is city water, city sewer, and the, the city owns the lines <laugh>. So we’re, we’re in pretty good shape there. It’s just trees and it is just trees and roads at that one. But we, you’ve got private utilities that, that’s a big one. Right, like what, you know, at some point if you got a well, at some point you’re gonna need to probably replace that. Well, how much is that gonna cost?

Charles:
Well, what was the Orangeburg you asked? Is that, is that like, that is it like a, the one that’s like, almost like a, it’s almost like cardboard. Is that the one I’ve heard that before.

Cory:
It’s cardboard. It’s basically cardboard. They were doing it after, I think it was like after World War ii. They, they used it for several decades, but it’s basically cardboard and it, it was like coated in pitch to keep the sewage from soaking into the cardboard. But then apparently all of the chemicals that you put down the drain, take the pitch out, and then it’s, and then the cardboard just degrades, and now you just have a tunnel through the dirt. And so eventually it, it will collapse. And so that’s always a question we a ask during due diligence, what are these things made of? And then we’ll have someone actually run a camera line down the sewer to make sure, because that, that is that, that if, if you, if you just have like a sewer clog or you have to, that’s not that big of a deal. Those happen from time to time. But if, if you had to replace all the sewer lines of the park, that that’d be a big like, multi six figure project depending on the size of the park. That’s,

Charles:
That’s the one thing that scares me. It’s just like, I mean, when we’re doing due diligence, we’re like, we’re scoping lines, all kinds of stuff. And we’ve gotten even more doing more and more of it, you know what I mean? Even if we’re buying newer, newer properties, but like when you’re buying properties or anything that’s like, you know, 50, 60 years old or anything like that. I mean, that’s just the one thing I’ve heard when I hear from mobile home park investors, they give you a couple of things that they’ve learned and it’s always that things always like the lines, you know what I mean? The issues I hear that every time I speak to them, it’s always the lines come up as one of the things. That’s why I want to ask.

Cory:
Yeah. And getting your insurance right. I, I don’t know, like we, like I, that, that I got burned with that wastewater treatment plant thing. We had a wastewater treatment plant that the building that was housing, it caught fire. It got totally totaled. And I had taken the appraiser’s word for the value in the appraisal that it was insured for, and it ended up being woefully underinsured. So, so I, I guess that, that, that’s the other thing that I would say that, which isn’t mobile home park specific, but make sure you triple check, you know, talk to a contractor <laugh>, like, like figure out how much things actually cost. Don’t just take the appraiser’s word for any kind of insurance limits. So.

Charles:
Well, Corey, as we’re wrapping up here, just one more question before we learn more about your firm and how people can reach you. I usually ask advice about what, you know, new investors, you know, what kind of advice you’d have for new investors in mobile home parks. But I kinda wanna ask, because you worked in a full-time job for many years before transitioning over, kind of, what advice would you have for any type of new entrepreneur or real estate investor that is in the dilemma that you were in before going full-time and kind of some of the things that you had to get really right to make that transition actually happen?

Cory:
Yeah, I, I think the biggest thing for us was just getting that savings rate up. We, you, you know, ’cause you need to have cash to invest and you need to have like a safety net there too. So the, the, there’s a great, it’s not real estate specific. I think real estate, we can do way better on the returns than, than the stock market. I’m, I’m biased, but but there’s a great article by like Mr. Money mustache from probably a decade ago, but he, he’s looking at like, basically you can, if you say you, you can get x percent return. The only variable between you and having enough passive income to replace your, your living expenses basically replace your job. The only variable is your savings rate. And so it’s basically like how much can you plow in and invest?

Cory:
So we got that savings rate up to like 50% very, very quickly. We had the passive income coming in that like two years in, allowed my wife to leave her job when we had her second kid. And then we, and then we, we buckled down even more and got the savings rate back up to 50% without her salary. So, so I, I think that’s the number one thing is, is, is getting that I if, if you’re like where I was, where you’re, you’re working, you know, you don’t already have a, it’s different if you already have a stack of cash and like, how do we use it? But if you’re trying to build up that stack of cash, it’s, it’s the savings rate for

Charles:
Sure. Yeah. Yeah. You gotta get control of those personal finances before you can start working in the business. I always, I always think, but, okay. Corey, thank you so much for coming on. How can our listeners learn more about you and and your company? Yes,

Cory:
I have a free PDF on mobile home park investing. It’s at passive m hp.com. I’m also very active on LinkedIn, so DM me, it’s i’ll, I’ll say hi <laugh>.

Charles:
Corey, thank you so much for coming on today. Looking forward to connecting with you here in the near future and we’ll put all those links down in the show notes.

Cory:
Hey, thanks Charles.

Charles:
Thank you.

 

Links and Contact Information Mentioned In The Episode:

About Cory Harelson

Cory is an ex-structural engineer turned mobile home park nerd! His mission is to 1) Help solve the affordable housing crisis, & 2) Provide financial freedom for investors by improving MH communities to make them clean, safe, and prosperous. He bought his first MHP in 2016 after reaching a breaking point in his career. Cory left an 18-year career as a structural engineer in 2023 to give 100% focus to building his MH business. His journey started with time freedom as the goal, and in the process, he found his passion for helping others achieve financial freedom too, through syndications. He has purchased $20M (15 communities) of mobile home parks to date, and has been through 5 sales and 3 cashout refinances.

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