Ep. 16 | Broker Mini-Series: Interview with Glenn Esterson

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On this episode of The Mobile Home Park Lawyer, Ferd talks with Glenn Esterson of The MHP Expert about all things mobile home parks. Glenn explains that he was clueless coming into the game, but shares what he has learned over the years so that newcomers don’t repeat any of his mistakes. Enjoy!

 

“We focus very much on achieving the highest possible market pricing and still getting a buyer that understands the empathetic capitalist type of approach.”

 

HIGHLIGHTS:

0:00 – Intro
1:07 – Glenn gives his background
5:20 – It’s easy to raise rents and still be below market
5:53 – Glenn talks about protecting legacy tenants
8:56 – Glenn explains that he does deals all over the country, and talks about how he runs his business
13:00 – Glenn thinks the cap rates are irrelevant for value-add but thinks they’re going to get more aggressive
15:43 – Any time there’s risk in the world, people flock to a safe haven
18:24 – Interest rates are going to be kept artificially low for the foreseeable future
19:33 – You can’t be focusing on a get rich quick scheme when America needs affordable housing so badly
22:29 – Glenn gives tips for any new people in the game and says he always gives people the time of day who reach out to him
23:05 – The number one rule of real estate is location, location, location
25:17 – Your broker should be able to tell you what questions to ask
27:23 – The next most important thing is understanding the tenant bases
29:09 – Community bases can be easier but they can fall through easily
32:30 – You want to go and get quotes from a couple of banks
34:03 – Glenn discusses what insight your real estate broker should have
35:53 – Sometimes you have to argue and push the banks a little bit

 

FULL TRANSCRIPTION:

Ferd Niemann: Welcome back MHP nation, Ferd Niemann here with another episode of The Mobile Home Park Lawyer podcast. My guest today, I’m pleased to bring to you. He’s a big-time national MHC, MHP broker, got a good team, they’re selling deals all over the country. He runs the Esterson team, the Esterson MHC team at a Marcus and Millichap. Please welcome my guest Glenn Esterson.

Glenn Esterson: Thanks for having me on here.

Ferd Niemann: You got it Glenn. Thanks for being here. Well, tell us a little about yourself. I know you, but our viewers may not. They probably do, but tell us how you got into the MHP space and a little bit about your background so we can kind of get to know you a little better.

Glenn Esterson: Sure, sure. So, I’m Glenn Esterson. I’ve been doing brokerage for 20 something years now and stumbled into my first park back in 2003 or 2004, I had no idea what I was getting into. And you know, I’ve been in this industry a long time and I’ve brokered hundreds and hundreds and hundreds of deals and, you know nowadays, me and my team, we kind of run around the United States selling parks. We typically sell, you know, one, two, three parks a week. And you know, we kind of are a shoe for every foot type of thing. You know, I’ll sell a park for $300,000 one day and then sell a part for $30 million the next day. And we deal with, you know, straight land lease communities and we deal with a lot of park-owned home communities and everything. So, you know, we get around. This year alone, we transacted in 15 States so far. You know, and my team is a very small team. We’re only, you know, a total of seven of us, and a couple of them are our support, not agents.

And you know, we’ve been having a good time and our big thing, the way that we approach this whole sales thing and who we’re bringing buyers to is with this kind of ethical implication about being a park owner in dealing with affordable housing and low-income tenants. And we are very careful in the type of buyer we bring in that isn’t going to squeeze the tenant for, you know, 200% rent hike on day one or something like that. And we focus very much on, you know, achieving the highest possible market pricing and still getting this kind of buyer that understands, you know, what we kind of coined as the empathetical capitalist type of approach. And it’s a mouthful. Some people call it compassionate capitalism. We think an empathy approach is either better than a compassionate approach. And so we kind of outlined our strategies on how to achieve upsight before squeezing the tenants, you know, for us, we’re big on infill and they were, you know, big on filling vacant homes and then the infill, and then the expansion before you didn’t really discuss present rents. So that’s got to be in a nutshell, been doing this a long time. I’ve been you know, on the stream, another end of life, where it was very much a struggle. And I was very poor and a bunch of us living in a thousand square foot house with one bathroom and raising kids on my own and all that kind of stuff. And I got into manufactured housing by total accident. I bought a park because I needed to, I was a farmer at the time, and I was brokering but brokering a deal or two you’re there. And another broker came to me and said hey, I got a great opportunity for you. So up in this tiny little town, you’ve never heard of, you know, it’s a trailer park and that’s what we called it back then. Saying, I don’t want anything to do with that. And, you know, for six months until I finally bowed to his pressure and bought the park and, you know, I learned real quickly that like, like that’s the hardest business a man can get into. It was all park-owned homes and it was all D minus park and a D minus type of location. And you know, it was making me my 10%, 12%, but I was working for every nickel and dime for that thing. You know, after a couple of years of getting the hang of it, I finally got the hang of it. And then the recession came and went through that thing. And, you know, it taught me a whole new level of understanding how poor people can be and how desperate times can get. And it really changed my approach to just about everything with this industry. And I started brokering parks, you know, full-time, and you know, here I am today, and you know, like I said, I saw a lot of deals.

Ferd Niemann: That’s great. No, I like your method there, the ethical approach, I think that’s definitely the way to go. But when we do, when we buy parks, we do a lot of the upgrades and stuff, and then pour a bunch of cap X into the park before we even think about rent rates and we’re having the proforma or rent raise at some point, but it’s, I feel like it’s easy to raise rents and be way below market because there are some people up there that are raising them so much. I’ve got a park here in my metro that I’m at $375. The big planners are at $525. And I’m like, okay, I can get there $25 apiece. I’ll get there at some point, I’m not going to go $200 bucks. And it was a big infill. I brought in 49 homes in the last year, just one park. So, it was like, I’m going to make the value-add by bringing in homes and then ancillary services. Like people want to share, people want pets, some of those sorts of add on costs without having to jack the rent up, especially on the folks that have been there for 25 years.

Glenn Esterson: Legacy tenants. You got to protect these guys, man. Like, they’re not there because they want to necessarily to be. They are because there weren’t a lot of options for them. And this was the most affordable option for them. You got to be really cognizant of that, you know, and like, yeah, $500 market, it would be nice and your cash flow is great, get the new guy, get the new guy, $500, bring a nice home and get the new guy $500 and help you with legacy tenants, you know, catch a breath. Cause there’s been a lot of turnover over in our industry these last few years. And these guys have probably already gone through a pretty heavy rent press a lot at the time.

Ferd Niemann: Right. And I feel like the guys that are jacking the rents up that bad, they’re going to ruin it for everybody. Because…

Glenn Esterson: Legislation is coming. We are having regulations definitely coming downstream. I mean, it’s a fact of life. Capitalism will devour itself and amid capitalism all about that money. But at the same time, you know, unbridled capitalism devours itself. And so the government is going to step in because, you know, people are going to start raising, you know, raising a fuss when it’s, there’s no more affordable options in a town for somebody, you know, and that’s, you know, easier to regulate ourselves and put these kinds of cautionary tales in place. And like, we don’t do this, and we don’t do that, and we help improve this and we help prove that we’re going to have a much easier time in the long run with this. And I think will be able to live with yourself a little bit better. I mean, what’s $25 to you is nothing. $25 for them is a whole lot of money.

Ferd Niemann: And the $25 is one thing, but I’m under contract right now in Demoines and there in the parks like $280, the market is anywhere between $400 and $650. So, I’m like, okay, I want to be able to get from $280 and get up to $400 in a few years. But if these other guys keep pushing it, there’s no rent control talks every year in the last couple years in Iowa, if they go to $700, $800, there is going to be rent control. I’m going to be stuck at $280 forever. So, I was like, like I almost need to increase now because it’s going to get hit. I can’t increase that much. And this is…

Glenn Esterson: Get the new guy and get the infill done and get that side of the business up and put the other people in a nice, safe plan that gets them moving. And that’s, you know, to me, I mean, sometimes you got to do what you got to do and I’m not here to tell you how to do your business. And there’s no, there’s a thousand ways to skin that cat. Right. You know, I’m just saying from my approach. I’ve done things is like, gosh, for those tenants that are already there, man, I promise you, if you heard the real-life stories of how much pain they go through on a daily basis, it’d be nice we as landlords, you know, could be kind of a safe haven for them that still gives them the leg up. Still puts money in our pockets, still lets us do the cash flow kind of game that we like to play. But we take it out on the new guy, not the old guy, you know, that’s for better or worse.

Ferd Niemann: No, I think that makes sense. So that’s good. So, I know you mentioned you’re doing deals in 15 states, so I think you’re in the southeast, but where’s the rest of your team at, and where are you doing deals? I mean, are you willing to do deals everywhere?

Glenn Esterson: We do deals everywhere. You know, so through Marcus and Millichap, it’s, you know, we have 80 something offices around the country, you know, thousands and thousands of real estate agents working their tail off. And they’re a remarkable company. They had some of the hands-down, the best real estate brokerage minds I’ve ever met ever, you know. And so, but the way that my team works and all of us are kind of interconnected with the way it works. But like most places we’re still competitors and you know, they have their pocket listings, I got my pocket listings and all that kind of stuff. And, you know, we kind of don’t collaborate as much as I would like to see, but we probably collaborate more than any other brokerage office out there. But for my team, I’m in Wilmington, North Carolina, which is on the coast, you know in the south. But then I have a guy at Tampa and he’s my partner, Charles Dehart, and he’s the man, he’s hands down one of the best minds in this industry. And he’s gone through a lot of ups and downs to learn what he knows and him and I, we kind of are the strategy guys on my team. And we broker most of the deals, but everything comes through us. And then we give it to the guys on my team. We have guys in Charleston, Atlanta, Seattle, Los Angeles. And so, we have a pretty big network. I’m trying to bring somebody else on, up on the northeast. For now that’s mostly me dealing with that stuff or one of my other teammates, but basically between that, we help capitol migrate from Seattle to Florida and from New York to Texas, you know, and that’s a big way of how we’re able to push markets. You know, we just closed the deal yesterday in little rock, Arkansas you know, at a forecast for a value add and, you know and it makes sense on that deal. This guy’s going to make good money once he implements, the upside of that we’ve kind of outlay for.

And so, we have a lot of crossover with how we do it. Then of course, you know this industry like I do this, you know, there’s not a lot of people, lot of people come in here, but there’s not actually a lot of people here yet. And you know, it’s pretty easy to get known in our industry having a big enough reach. And if we had 12, 13,000 people in our inner buying database and, you know, we’ve got, you know, 50,000 something parks, you know, all around the country, 20,000, you know, full complete details on. And so, between having that information and the conversations that we’ve been tracking for a decade now, between all the park owners, it gives us a good idea of how people behave in an acquisition or a disposition. And we build profiles around that. So, we can kind of see how one group is buying their purchasing behavior in Florida, which suggests that, you know, when a broker is not involved, they would only pay X amount. But if we get a broker involved, we can get that same buyer group up to a different number. And that usually, a hundred percent of the time, that beats whatever we make on a deal. And so, we’re able to use that as a value proposition for a lot of the clients that we work with. And from a buyer standpoint, you’ve got no, there’s no other brokerage company that I know has got better data than we do. So, you can really kind of see where the market’s going. And when you overlay one market on top of another market, you can kind of see, hey if this is happening here, it’s only a matter of time before it’s happening there. And we can kind of figure out where that rent curve really is going to start happening and where the velocity of these transactions are going to be happening and bringing people from our industry or from apartments or single-family homes or from, you know, whatever, you know, wall street type of markets into these new markets ahead of time where they’re willing to pay more to get there. And at the same time, they’re okay with the risk and the return aspect of it as we help them compile a larger portfolio. And things like that.

Ferd Niemann: No, it makes sense. Seems like a good approach. I know I’m seeing lots of new people enter the space, lots of new capital, lots of new buyers, is that what you’re seeing, and as a result, I feel like the cap rates are getting lower and lower. And I don’t know when they’re going to get to the level of …

Glenn Esterson: Cap rates are irrelevant in my opinion. Okay. Because the value at a cap rate, like big deal. So, the sport cap, I just sold in Little Rock. I mean, that’s going to be a 10 cap before, you know it, you know, it’s going to be the upside, you know, there’s a deal we just looked at and right before this call, I was evaluating a deal in western North Carolina, guys at a hundred dollar lot rent. It’s a two and a half cap on purchase. Okay. Because it’s all a hundred-dollar lot rents, you know, but it’s a nice sized park and that thing’s going to be like a 25 cap by the time that thing’s fully maximized. You know, so the cap rate to me is irrelevant for value add. On stabilize it’s much more relevant, but at the same time, the real factor that it just that cap rate from a broker standpoint is, you know, we’re balancing off of what the interest rates going to be for that deal from the financing insight. So, you know, typically most of our buyers, going back to that buyer profile, we were talking about, you know, we understand what kind of returns they need based off of their purchasing behavior with, or without brokers, things like that. And typically, what you’re looking for is the spread between the interest rate and the cap rate to match the type of risk that’s involved. So that might be a 1%, you know, a one-point spread. It might be a three-point spread and somewhere around two and a half points, three points, it becomes like a 20% IRR almost all the time. When you get a bug that, it becomes a much higher IRR, but with the higher IRR and stuff, we’re going to have probably more risk or, you know, that the broker that is selling that part for the seller, that’s selling that park, mispriced their park probably. Because if agency debt’s available and you have a five-point spread between your interest rate and the cap rate, if I was a seller, and I found that out, I would be mad at my broker. And if, you know, if I’m a broker, if you’re pricing that way, like you’re going to fall behind the curve and the value-add stuff with bridge loans out there with pretty much a thing that are absolutely critical to helping these value ads get to the next phase of financing is you know, those guys need such a low DCR, and we can keep that spread in there on that interest only for that first set of, you know, equations on the P&L. And so, you have to know how to do it, and that’s how we, so the cap rate.

It is going to get more aggressive. It’s going to right, unless the interest rates go up, then our cap rates are going to be decompressed, but we have all this interest coming into our industry. We are the safest industry right now to invest in. You know, we’ve had almost no fallout from COVID okay. For, I would imagine your story is the same. Your collections are probably pre-COVID levels right now. You’re probably thinking about pushing rents. You’re probably thinking about increasing occupancy right now. Not too many industries can say that. So, supply-demand, I mean, that’s what it boils down to, right? And anytime there’s risk in the world, people flock to a safe haven. Right now, we’re looking really safe. And with interest rates incredibly low, you know, it’s, the aggregators are just having a field day right now as they go around and consolidating all these parks around the country. And I mean, we’ve probably, I can’t even, I sold thousands of units to just to single brand new people in one year already, you know because that’s what these guys are doing and they’re not stopping. I mean, we got people with $500 million floods coming in that park institutions. Okay. We have, you know, real players coming in and we have all these sponsors coming in from the back end saying, I don’t want to touch a park, but I want to go give a guy a bunch of money to go buy a bunch of parks, you know, and that’s happening a lot too. So, today’s school of good value in my opinion, is a six cap or a five cap is still a good number overall. And we’re going to have better returns because it’s never about the day one cap. We’re not, we’re not like an industrial building that’s got, you know, a corporate guarantee and your five cap, is a five cap, is a five cap for that whole lease term or whatever was maybe half-point increments every five years. We’re not that, we know a five cap today is definitely not a five cap tomorrow. And that’s why you see more coming in. And if you had the money and you have the time and endurance, buying parks now is real good. We’re not going to see blood in the water. I don’t think for a while, it’s going to have to hurt a lot worse out there before we start seeing any significant blood in our water.

Ferd Niemann: No, I agree. And I think people are paying more and more for the upside, as you mentioned, because again, I’m going to, like, I agree with you on the value add, I mean, I bought a deal a year ago. The cap rate was infinite, right? There was zero NOI. I mean, even this guy had a two and a half-million-dollar investment, and he had no debt, he had cash it and he couldn’t even cashflow. Okay. They were just mismanaging, and they had 11 people on the payroll. They should have had two or three. So, was I a fool that paid a one cap or an infinite cap? No, I was doing it for the upside. So, I definitely agree with you. My bigger concern with the interest rate stuff is that people are going to get stuck in these deals longer than they want, because low interest rates, they’re making some of the deals make sense economically. You know, if you can get two and a half percent agency debt, you can buy a four and a half five cap park, but if interest rates go up, so I’m not sure they will, but if interest rates go up to say 4% or 5%, you’re kind of stuck in that deal because the guy who you’re going to, if you’re going to sell to the next guy, he can’t get two and a half percent debt. He’s going to be four and a half percent debt, and you’re gonna say no, that’s a valid market, and that’s going to push the valuation down. So, if you had a five-year proforma with an exit strategy, you know, you may have to push off the disposition. Prepaid your principal, which is going to take 10 and 15 years. And that’s a long-haul period for a lot of these guys.

Glenn Esterson: It is. And it’s part of the risk-reward in this whole industry and with interest rates right now, the feds are telling us hey, we’re going to keep them artificially low for the foreseeable future. So, you know, we know we got a couple of years probably of having pretty strong or low interest rates if you will. But, you know, like when I bought my park, my interest rate was like seven and a half percent or something and say, you know, and like, it was hard, It was hard to pay the month on that thing. But as you grow your rents sustainably and the market has more demand than supply. You’re still going to find your balance, but you know, the days of doubling your money in three years, I’m hoping those days are ending in this industry because it’s bringing such the wrong type of element into our industry, where people are getting too aggressive with the rent pushes and doing things like that because they just looking at it as a flip and fix or fix and flip. And that’s the wrong element from an ownership standpoint. I know I go against the grain with this on a lot of investors and brokers, but you know, to me, the industry is more important than some independent investor, you know, getting rich quick. I think that’s just not what we need to be focusing on as advocates for affordable housing for our industry when America needs affordable housing so terribly bad. And you know, if you’re an advocate of affordable housing and you’re sitting on piles and piles of vacant lots, and are you really an advocate of reportable housing, or are you more of a straight capitalist? And you’re trying to make your buck off of some poor people and hey, I’m not saying which is right, or which is wrong. Just call it what it is. And if you’re trying to influence the affordable housing kind of institution that’s out there and make it stronger and make it so everybody has a roof over their head. And I think you’ll almost have to take it on yourself as a park owner with the vacancies that you have to utilize that before you start, like I said at the beginning, start squeezing everybody else, especially your legacies.

Ferd Niemann: Right. And I think the infill strategy is the way to definitely solve that affordable housing gap.

Glenn Esterson: That’s where the money’s at, man. And that’s where the money’s at for you. You know, it’s a win-win.

Ferd Niemann: I mean, I’m under contract on a park here in Missouri, and I met the seller out there and he drove his Porsche to the mobile home park. I was like, what are you doing? And this is a very downtrodden park, big-time value-add, really rough. And I was like, why are you rolling in here in a Porsche? And my business partner said he had a different Porsche Last time I was here; he has multiple Porsche’s. And I was just like, I go to two of his park-owned homes, there’s a single mom with three boys, and she’s telling us, are you maintenance? You know, can you fix this? Look, my water heater, look, it’s got hot wire sitting there in the water, she used to jimmy rig the hot water heater to take a shower. And she was, I talked to the boss, but he said, he’s got bigger fish to fry. And she has two mattresses on each bedroom, one in each bedroom. Nope, no sheets, no pillow, no bed frame. And there’s four of them. Somebody is either A, sleeping with mom or B, sleeping in the chair. And the guy in the Porsche can’t fix the hot wire. I’m just like, I’m not sure if we’re closing that deal because I just had some found some sewer problems today. But if we do end up closing that deal, they’re going to love me. Because like I also, now I got a bunch of more deferred maintenance on the park-owned homes. Cause I know there’s stuff that he hasn’t fixed because like the guys like that are the guys who would give our industry bad reputation, bringing more regulations. It makes the deal harder and harder. So, I think I’m with you on the philosophy, but that’s good. I’ve got another question for you Glenn. So, I know you’re dealing with, you’re dealing with a $30 million park, it’s not your small-time new buyer, maybe as a new fund or new private equity group. But what about for the smaller buyers are trying to buy their first deal? What tips do you have for them? Because you got a busy dance card. You’re going to, you know, you’re probably going to answer the call on the 30-minute ordeal more than $300,000, but the smaller deals for other folks. What can a new guy do to get on your radar and get your time of day.

Glenn Esterson: Absolutely. So, I read through every email and every call. I give everybody the time of day. If you’re the new guy, I love talking to you. It’s okay. Yeah. I might not give you all my time, but I’m going to give you some time. I’m going to hear you out and I’ll probably bring you over to one of my other agents on my team and they might pick up the slack from that point. But you know, for us, like I said, I don’t care if you’re buying a $300,000 park or a $30 million park, you’re going to get top of the line service from anybody on my team, because that’s just the most important thing to us is just making sure you’re making a good deal. Now there’s a ton of parks out there, you know, right now available for a million bucks plus or minus. And the things that you have to understand on the first part, especially on your first park is man, there’s a couple absolute you have to understand, is location, location, location is still the number one rule in real estate guys. And so, you might not be able to buy it downtown LA or downtown Houston, but if you’re trying to buy locally, still buy in the best possible location locally that you can. In my case, I bought in the worst location and it was far in the middle of nowhere. And that was a real pain in the butt to sell at the end, when I was finally done with that project. Because, and the location sucks and I had to get the crazy run-up and values of these other parks. So, location and within the location, understanding municipality, man, cause a lot of these municipalities, you don’t want to get in bed with them. They’re just, they’re just going to throw a wrench, after wrench, after wrench at you, especially if you’re not a local and they’re going to come at you with all sorts of things that you didn’t know to ask when you were going through your due diligence, because these kind of sound like why the hell would I even think to ask him these questions until they throw the wrench at you and you realize that, Oh man, I should ask the question. Things like if the park is not in the city limits, is there any plans to get it annexed into the city limits because that’s going to affect your taxes. So, they might make you a hook up from a private utility system to a public utility system. And that can be extremely expensive. You know, those kinds of things you need to ask the municipality. You want to figure out if they’re friendly or if they’re not. Of course, if you show up and you say hey, I got a business plan.

This is what I’m trying to do. I want to turn this slum hole into something real nice. And this was my plan where you work with me and they start giving you some ideas of what to do. That’s concise, but you got to talk to permitting, you got to talk to zoning, you got to talk to all the different aspects of municipality. Because that’s what most people forget to do. And then they just don’t understand how painful that is. Especially when it comes to things like grandfathering, you know, the grandfather clause and a lot of these parks not being, you know conforming zoning and things like that. So if you don’t know to ask that stuff, why would you, you know, because most of the time you don’t have to think about that when you’re buying a house or something. So you have to learn to ask these and your broker should be able to at least give you a generic idea of what you should be asking a guy like you, Ferd should be able to give them really good guidance on the tough stuff that they’re supposed to be asking. You know, attorneys are great at this kind of stuff. So don’t be penny-wise, pound-foolish and not buying, you know, bringing an attorney to the table with the first park, man, it’s so foolish, but you know, but a lot of guys do it cause they’re like, Oh, it’s a couple thousand bucks and I’m smart enough, I know what to do.

Ferd Niemann: I get those calls all the time. There’s like, I am closing on Tuesday. Can you just do the closing statement? And I’m just like, do you have an operating agreement? Do you have the zoning letter? Did you get a phase one? What’d you do in your survey? Do you make title objections? No, no I just need help with like the, I need like a bill of sale or I was like, you need a lot more help. And then some guys call me, I have one broker referred a couple of clients to me and the clients would call me like, yeah, I didn’t think about any of this stuff beforehand, but like the city now says like, I can’t bring in these new houses. The city now says I have setbacks. What’s a setback?

Glenn Esterson: That’s the big one. That’s the one they get you on.

Ferd Niemann: For some of the stuff like I can’t help you explain. I’m just like, I don’t need you as a client. And you were talking about two or three lots, it’s not even worth suing.

Glenn Esterson: And it’s like, yeah, you could win after a year or two or three of arguing with these guys spending tons of money or you can comply and you’re going to lose a few lots. You know, it’s a very, I just went through that experience with the guy in Charleston, South Carolina. It was like a 40 something space park. He bought it thinking, Hey, 40 spaces are 40 spaces. And yet some junker homes in there, he pulled one of the homes out, wanted to bring a new home and hey, here comes the city. Hey, guess what you’re going to have to do now? Because you just voided all your grandfather, and you could sue us. But like I said, it’s going to take a few years and you know, it’s still going to cost you a hundred thousand dollars. He ended up losing from 40 something spaces to 30 something spaces at his park, you know. And he had to do a full redo. I mean, you know, a full redo and 12, $13,000 a face to recomply now, you know like that’s a painful lesson to learn. So ask that municipality that question, you know.

The next most important thing is the tenant basis. Understand the kind of tenant base that you got in there. And you know, a lot of these mom and pops, we ain’t got no leases half the time. It’s usually just like, you know, $500 bucks when I moved in and I’ve lived here ever since, you know, and it might not, the seller may or may not be the most honest person. And they’ll tell you hey, this guy, Johnny in five pays $200, this guy in number four pays $300 and there’s no real track record of depositing the money in the bank. Maybe they’ll live it off of the income. And there’s no leases, actually you have to do letters and that’s going to sound like communism to them. So, they’re going to run for the hills. You know, it’s going to be a very confrontational type of thing, but maybe they’re all great tenants and everything’s above board, but you have to get to know these tenants a little bit. I really advise, spending some time in the park doing your letters, knocking on doors, saying hello to these guys. Hey, is this actually what your rent is? Do you have this, that, or the other I should know about and get that kind of down because you know, there’s not, there’s a lot of people that may not just tell you that what you need to know. They will only tell you what they want you to know. And you have to learn to dig right with the municipality, with the tenants and then the financing. Holy moly is the financing hard on these things, you know and so, you know, don’t come into this industry thinking you get into this for 10% or 20%, you know, 90% of the time that ain’t going to happen, 95% of the time that ain’t going to happen, it’s going to be probably 30% or 35% on your first deal. Maybe 25% If you got a nice local bank that can store good deals for you. But if you’re trying to get, you know, good agency debt is probably going to be something in that 30% to 35%.

Ferd Niemann: Getting agency debt is going to be unrealistic for most.

Glenn Esterson: For a first-time buyer. Yeah, exactly.

Ferd Niemann: In my experience.

Glenn Esterson: CNBS sometimes, you know community banks, so they’re a bit easier, but they’ll tell you, yeah, we’ll do this. We’ll do this deal for you that, we love mobile home parks until it goes to committee. And those guys are like we don’t touch trailer parks, no way, you know, reevaluate this thing at 20,000. And then that’s what we’ll end on it. And you’re like oh, what are you talking about? Like you said, you would do it. And then all of a sudden you pissed everybody off on the deal and deal is blown up. You’ve lost your escrow and things like that. So, you want to be very upfront with the financing. When you first start looking at deals, go get that soft goal, get somebody to kind of verify and make sure you’re careful. Make sure you got reserves. I don’t even think you should invest in anything for that matter. But especially this industry until you have at least 6 to 12 months of just living reserves for yourself and your family. Cause like before you know it, you can get into a deal, The city comes and says hey, there’s unpaid thing of $30,000 or it ain’t got all this underground work that is now a problem. And here’s a hundred thousand dollars bill to fix it. And there goes, you know, there it goes like, you’re going to have problems. So, you want to have this reserve built up. That’s something a lot of people forget to do. Those, those core five things. That’s what I would say. If you can at least cover that base as getting yourself initiated in this industry, you’re going to come out better than the guy who did it. That is for sure.

Ferd Niemann: No, those are just good tips. Kind of lessons from the school of hard knocks. I’ve got a client now that, the buying entity, you create an LLC and they go no we’re just going to use our retirement account. So, they’re, not only do they not have the savings. They’re like, they don’t have liquid savings to live on, they are pledging their retirement account. I was like, you guys, that’s a lot of eggs in one basket, but that’s the only way they can afford to get in. So, I’m like, I’m not trying to tell you how to run your life, but you just need to be aware that this is not all, candy canes here.

I mean, and I want to make a comment on the bank approval stuff too. Like I said, it’s really good. I’m now, I like to have more than one bank looking at every deal, like a good banker relationship, but because I had a deal that it was a bank that I had already, I had over $2 million a balance with them. And when you have over 2 million, you got to go to committee. It was a this is a Kansas City bank. I had to go to the committee, it was in a different city. Well, that bank had to go to the regional committee, and they approved my loan seven to zero. This was for a deal out of state. Okay, great. So, I moved forward, earnest money went firm, pay for the appraisal. Everything was good. Well, it comes time to fund the loan. And apparently unbeknownst to me has veto power. And I was like the local branch seven zero committee. The regional branch has had like two or three of the local guys on the regional branch statewide. They voted seven zero and the CEO said, Oh, that’s in a blue state. I don’t like high taxes. I don’t like other States I’m going to veto it. So, I have no idea. People in the local committee didn’t know, I’m sitting here 10 days out from closing. My earnest money is firm. And it was like $50,000 in earnest money. So, it wasn’t 1000 bucks. And I’m about to be screwed, just like. So luckily, I had another bank that I’ve done business with that was able to step up at the last minute. And the bank one was kind enough to reassign the appraisals to bank two. They didn’t have time to renew appraisals and I can’t give them indirectly. Like, can’t give them a PDF. So, I ended up getting it done, but had I not had two banking relationships with local banks, I’d been screwed and then lost that deal and lost a bunch of money.

Glenn Esterson: Absolutely. It’s just like anything else, you know, don’t put all your eggs in one basket, have some backup options. You’re going to the doctor. You’re not going to take the doctors, this one doctor’s thing about this disease, you all of a sudden have, you know, like you’re going to go get a couple other quotes, you know, you’re going to say, doc, what else you know, what else, what else? And in finance with getting the finance and stuff, you know, I’m appreciative of guys like you who want to go deal with the banks yourself and go do, you know, pick up the phone a hundred times, talk to find the one bank that will finance that. But man, I personally think the brokers, not the real estate broker, but the mortgage broker is the one of the best resources for our industry. And we’ve got some really capable mortgage brokers in our industry that really understand how to turn the bolts and get things done. And, you know, that’s, pay a half a point, half or whatever it might be, but the time value, you know what I mean? When you’re spending all that time, just going through the lesson, you just went through just to get to the finish line and be told psych! So, the mortgage broker probably would have seen that happening and probably advised, you know, a different strategy with that particular bank. This is like people tell me all the time, Oh, I got BPD to say, yeah, I’m going to do this loan with you, stopped lending on this asset class for a few years. And you know, the three deals that they’ve closed in the last one year, it was the only three deals. So, it’s like, you have to kind of pay attention. I’m just making up a bank. I’m not picking on BPD here, you know, but it’s like that type of thing, you know, the real estate brokers should have some good insight as to the capability of the person or the institution financing the park and your mortgage broker should have just an immense amount of data on who gets stuff done and who doesn’t get stuff done. The local banks, they had to fill a thing. But whether they’re, they like to tease you. They really liked to tease you. And then they, you know, they come back with an appraisal. It makes no damn sense sometimes. And you have to go back to them and be like, I had sold 10 parks within a hundred miles of this park. Here’s those comps. Why aren’t those comps on your reports that are showing, this should be a 15 cap instead of a 7 cap.

Ferd Niemann: You can’t argue with the appraisers. You can’t win. I had a deal where I actually was, I sold two parks in this exact city, the year prior, only one of those two parks showed up on the comp of 10 comps. They’re going like Indiana and stuff. I was like, I have two. In fact, the bank that had the loan on them is the same bank I’m asking for a loan now. So, you knew about this in one of them, it was like, it was a lot, it was all park-owned homes. So, a good portion of the allocated value was on the homes. The appraiser only looked at the real estate component that was at the county recorder deeds office. So, the comp that he used was only was half the value of the park. That half-comp to comp out my new park I was trying to buy and ended up missing the appraisal. Like you almost never missed the appraisal. I had to put like $45,000, extra cash in to make the appraisal.

Glenn Esterson: So frustrating, you know, we’ve gotten into the habit of calling up the appraisers and the banks and arguing with them until we’re blue in the face. And, you know, we just went through that on a deal in North Carolina and they’re like, Oh, but it’s only worth, you know, 75% of the value you’re saying. And we showed them so many. We had to go through it so many times. And they came up to about 90% of the value. Yeah, argue with them. And you have to really be willing to just, you know, poke them. Like, here’s all the facts guys, you know, and you’re missing the ball here. And I’m going to tell everybody in this industry, not to use you as a bank. So, we look at this appraisal and that’s sometimes what you got to do. And that’s where brokers really come in handy. My team, other teams and competitive teams, I don’t care, but use a broker, you know, because those guys get, those guys get in front of things because they’re incentivized to go and make sure this deal gets to the finish line. And that’s kind of what you need when you’re just winging it yourself, especially as a new guy, which is exactly what I did. And like, Oh, Hey, could you get me a closing statement tomorrow? But that was me, you know, 20 years ago. And that’s like, boy, that’s just how you open yourself up to exposure is not using the professionals in our field. There’s really good professionals in our field to protect you against these risks. It costs a little bit more, but the downside is way more than what we would have cost. You know, especially in your case as an attorney, you know, it’s like who would not use an attorney on a real estate track?

Ferd Niemann: Lots of people, about half the transactions I’m involved with there’s no attorney on the other side.

Glenn Esterson: That’s the same with us. It’s amazing. You guys are negotiating this contract without an attorney? And you know, they want to, they want to do all these legal ease changes. And it’s like…

Ferd Niemann: And attorneys can ruin a lot of deals. Don’t get me wrong, but it’s like, you probably, at least you have somebody looking at it for you, but if people did all the time, but anyway, Glenn, this is great. Where can people find you? I know where to find you, but how can people get ahold of you to get your opinion on…

Glenn Esterson: I am super easy, super easy to find. You can go to my website, which is themhpexpert.com or my brokerage site, which is estersonmhcteam.com. Maybe you just go on to LinkedIn and type in Glenn Esterson or in Google type in Glenn Esterson, it’ll pull me up. I mean, we’re extremely easy to get ahold of. Anybody on my team, you know, very capable people and me and Charles are behind them helping them with every aspect of it. And you know, on my website, you can see all the team guys and contact them directly. We’re here to help, you know, we don’t charge nothing. We don’t pay, you know, hourly attorney fees. We’re here just to help you. The only time you’re going to pay us is if you’re a seller in a transaction that we helped you get to the finish line. So, you know, that’s free resources you need, rent comp you need, you know, an evaluation of the park you’re thinking about selling, or the park you thinking about buying. That’s where we come in and we really have the data to help you be very confident, even if you don’t use us as your broker. And that’s okay to be confident that you’re going to be not leaving money on the table, or at least, you know, having a good strategy to offset the excessively local cap rates that you’re probably facing right now. And so, we are just a resource. That’s what we’re here for. estersonmhcteam.com.

Ferd Niemann: All right. Thanks, Glenn. Appreciate it.

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