Ep. 65 | Interview with Top 50 MHP Owner Daniel Weisfield

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On this episode of The Mobile Home Park Lawyer, Ferd talks to Daniel Weisfield. Daniel and Ferd discuss MHP ownership and management and offer some great tips and tricks to other owners or people interested in MHP. Enjoy!

 

“I got that law degree and I never practiced, I feel very grateful for that decision. I co-founded Three Pillar Communities in 2017, and we’re a top 50 owner of mobile home parks in the US.”

 

HIGHLIGHTS:

0:00 – Intro and background on Daniel Weisfield
3:50 – Daniel is still in the family business
8:56 – Daniel asks how Ferd’s financials work
11:57 – Daniel asks about buying someone else’s home and pulling it out of their park to put it in his own
16:17 – Daniel asks what some savvy provisions Ferd has come up with are
19:15 – Ferd talks about some of his deals, where some use legal councils and others don’t
20:17 – Ferd asks Daniel to share his biggest creative advantage
23:12 – Daniel talks about the cap rate of some of the different types of parks
24:47 – A lot of people come to Daniel looking for mid-teen IRR’s, which no one is getting
27:59 – Daniel asks what the endgame of Ferd’s business is, as Ferd explains why he doesn’t go for bigger deals
29:51 – Ferd talks about the cap rate spread he gets off-market
32:38 – Ferd explains how he can make money on rural parks, but he doesn’t buy them often
34:44 – Ferd asks for tips in terms of scaling staff
37:42 – Daniel’s contrarian strategy for deals is that he’s not trying to hit a home run every time

 

FIND | DANIELWEISFIELD:

Company Website: www.threepillarcommunities.com

 

FULL TRANSCRIPTION:

Ferd Neiman: Welcome back mobile home park nation. Ferd Neiman here again today, I got another great guest with me. This guy is the co-founder one of the top 50 mobile home park owner-operators in the country. They’ve got 33 parks, five states, really, really high asset parks as well. Big footprint on the west coast. Please help me welcome or welcome our guest, Daniel Weisfield. Daniel, thanks for coming on.

Daniel Weisfield: Thanks for having me Ferd, this is fun.

Ferd Neiman: Yeah, great, man. Well, I know a little bit about you. I know you’ve got a pretty good presence online and social media as well. But for those who are not familiar to you tell us a little bit more about your background. You’re smarter than me. And that’s you’re a lawyer, but you’re not practicing. You figured that out. So I know you’re a lawyer. But you don’t really, you spend your day job obviously running mobile home parks at three pillars communities, tell us a little bit more.

Daniel Weisfield: Yeah, so, fortunately, I got that law degree and I never practiced. I feel very grateful for that decision. I co-founded three pillar communities in 2017. We’re top 50, owner of mobile and parks in the US, as you mentioned. How I got into it, actually I had a family background. My family immigrated to the United States from Israel. My mom was born on a chicken farm in Israel. So is my grandfather, came to the US, you know, with nothing. My grandfather had to put food on the table. So he started buying wrecked cars and fixing them in his backyard and selling them and eventually saved up enough to open a garage and eventually saved up enough to buy a mobile home park. So that was in Seattle, he bought his first park about 35 years ago. And as a kid, I’d go help him you know, mow the lawn, paint the fence, take out the trash, you know, hands on owner operator stuff. He’s a farm boy, that’s how he ran his business. And you know, he saved money and bought another one. And so my family started in a very humble roots was able to build a small portfolio of parks that they operate. It really is mom and pops, right mom, and pop operators. And I did not think that was going to be my path in life. When I was a little kid, I didn’t dream one day being a mobile home park investor, I had other ambitions and aspirations. So I actually worked as a US diplomat for two years. I’ve got a law degree, I got an MBA, I worked in the corporate world, at a company called McKinney doing management consulting for big companies. And really, a few years back, I realized the incredible opportunity in this space. Mobile home parks are such an important source of affordable housing for so many Americans, and are really good recession proof business as an investor. And so when I had that realization, I realized the family business is actually a really good business to be in. And I partnered up with my business partner in 2017. We founded our company, since then we’ve been really fortunate. We syndicate our deals, we bring in money from outside investors. And we’ve you know, we’ve done about 20 deals in the past three years, and then we fee manage my family’s legacy portfolio. So collectively, it’s about 33 parks in five states, we focus on the western US, and we’re vertically integrated. At this point, we have around 50 employees, creating value through acquisitions, asset management, property management, and manufactured home sales.

Ferd Neiman: Okay, great. So I was going to ask you on your family’s legacy property, so still in the family. They’re still in the business. That’s great.

Daniel Weisfield: You know, still in the family and it’s funny. When I got into this space and convinced them hey, let me fee manage your properties. You know, I discovered so many skeletons in the closet. It’s like anytime we go, you’ve seen this all the time for anytime you go buy a park from mom-and-pop operator, you see that, you know, are they actually keeping the books and records or not keeping the books and records and how  they’re actually collecting rents or not collecting rents. I realized that was my family’s assets. That was us until four years ago, and that we’ve been fortunate to professionalize a lot of that stuff.

Ferd Neiman: Okay, that’s great. Yeah, that’s part of the fun, and not so much fun in buying deals from mom and pops. I had a guy, he owned three parks and like 50 rental properties. And I asked for the financial records for this park that I was trying to buy. And he said, here you go. And they were all in the same checking account, his personal account, I was like, well, I can’t tell the collections are good, you got it mixed in there. He’s like, well, I told you, I’d give it to you. And it came with 24 park owned homes. He gave me a box with 30 titles and said pick 24, he had no idea which ones were which, he was a mover. He brought said, yeah, I don’t care. And are you kidding me? I have 30 titles and we had to mix and match them, and they didn’t all match it up. It was crazy. Yeah, so I’ve seen it for sure as well. But that’s great. Now one thing that caught my eye about you a couple months back on LinkedIn, you had indicated the sales price or the market price of the homes in your, I think in Washington. I invest in the Midwest, and a lot of my clients are you know, southeast. Totally different world in MHP Park and home valuation. Tell us about what does a nice double wide sell for in one of your communities?

Daniel Weisfield: Yeah, I’ve been looking forward to talking to you about this and try to fit, let’s do the Battle of the West versus the east and figure out what’s the better market to invest in. I think there’s pros and cons. All right. So let’s talk about the manufactured homes first, and then maybe we can transition to talk about actual parks and park values. So on the home side, I’d say, in most of our markets in the used 1970s singlewide trades between $15,000 and $30,000 depending on the park. Used older double wides, maybe kind of $40,000, $50,000 on average, again, depending on the parking the location. For us to bring in, we’re really active in bringing in new homes into our parks. In my view, that’s the single best way you can upgrade a park. By just replenishing the housing stock. So when we bring in a new single wide, our minimum cost to get that thing built in the factory and hauled over to the park and installed is around $60,000 for a single wide. And our minimum cost to get a double wide installed is around $80,000. And the sale value of that double wide. You know, in most of our markets, we can sell it for around $85,000, $90,000 kind of breakeven, that’s kind of you know, middle of the road markets, you know, not hot markets. And then in certain markets like an example is Ukiah, California, it’s a little place in Mendocino County, a lot of agriculture, a lot of housing demand, not a lot of supply. So in that market, we can sell that doublewide for $150,000 or $160,000. And then in really prime markets like San Jose, California, which is where Google headquarters is coming in, and other tech companies, you can sell a double wide for $300,000 in park.

Ferd Neiman: It’s unbelievable. I bought a park, I bought parks for less than $300,000. Not even joking. That’s great, man.

Daniel Weisfield: Yeah. And to me, that’s part of the you know, California and other West Coast markets have such an intense affordable housing crisis. And this, to me is the magic of what we’re doing. You know, the cost of one of these homes is $90,000. So you can sell a double wide breakeven for 90,000. Even in these prime markets like San Jose, where you’re not going to get you know, a single-family house for under half a million bucks. The upside of that is residents take care of their houses. It’s a real investment. And they’re very sticky. The downside is, in some of our more marginal markets, it can be hard to break even and sell a home for 90K. And like, you know, some of our agricultural markets for example, in California Central Valley. Most of the ag workers are happy to buy a used home for $20,000, $30,000, $40,000 but it’s a stretch to get them to buy a new home for 80 or 90.

Ferd Neiman: No, that makes sense to me. Interesting, I was looking at a park the other day and it had, I think it had 14 park-owned homes, so I was trying to put that in my evaluation on top of the land. What am I paying for these homes? And how I valued them 70’s homes $1000 bucks, 80’s, $5,000, 90s, early 90s $10,000, late 90s $15,000, 2000s I meant the 20s 2010s maybe $30,000.

Daniel Weisfield: How do your financials work if you assign a value of $1,000 to an old 1970 single wide, what would your actual replacement costs be to bring in a comparable used home?

Ferd Neiman: Used homes that old are pretty hard to transport, a lot of the movers won’t even do it. I got bought a 1985 and I had to transport it 90 miles, it took me six or seven movers for I got one guy to do it and he required me to reweld the frame and reshingle the roof. So that was a pain, right? So I’ve typically never bring in a 70s, 80s if you bring them within two or three hours away, you’re probably talking five grand transport and install and then whatever the cost. The home is  probably, I think that home I bought I paid $7500 for it. By the time I shipped it, installed it, utilities, new roof, deck. I think I’d put an air conditioner in there. I was in for about 17,500 all in.

Daniel Weisfield: We really double that. But what rents are you getting on that home once it’s installed?

Ferd Neiman: That home I rent for like $825 and then the lot rent was $350. So I mean the last occupied lots worth 35,000, so it was a good investment to bring in a home at half the cost and I sold the home at cost. So you know it’s a net you know, it’s an infill lot. Used home, five years ago, I’d never even bought a new home. Used is better. In the last two and a half years, used homes are exceptionally difficult to find. And to source, I used to go on Craigslist, there’d be 10 houses. My first park, this is 2014 I spent $90,000 and I got 15 homes out of it, because what I would do is, I’d look at what I want, and I buy it for $10,000 moving in, and then 13, renovate them at 18. I’d sell it for $18,000 and I’d recycle the same $18,000. I could do about five houses, and that was all the money I had available for that project. But I recycle it and I end up doing 15 or more lots, and then you know, increase the value of the park by several $100,000. But today, if I go on Craigslist to find that use home, I’m going to find three of them. They’re all going to be garbage, and they’re going to want $15,000 for them. It’s just that competitive. And we’ve talked to movers and you know, movers have bought homes for, bought five or six homes from one guy, and paid them install them, paid him to do the concrete, and said, Hey, give me your list, man, I’ll take care of you. And he said, somebody else already offered me $20,000 over whatever I pay to find them homes, $20,000. Referral fee.

Daniel Weisfield: As a finder’s fee.

Ferd Neiman: So I can’t compete with that, it doesn’t make much sense for me, I might as well go get a new home, then you get a new home, and they print them in the factory.

Daniel Weisfield: Let me ask you a question. I’m derailing your podcast.

Ferd Neiman: It’s alright.

Daniel Weisfield: This question might make you uncomfortable to answer on air. So I’m curious. How do you feel about buying a home from a resident that’s located in somebody else’s park and pulling it out and putting it in your park?

Ferd Neiman: I don’t like it. We don’t do it. I had somebody try to do it once to me. I had them do it twice to me. I got an anti-poaching sign. I think I told this story on my podcast. I got an anti-poaching sign on the front. I got a first right of refusal in the lease. And I had a dealer call me and say, called my dad actually, a real dealer. The guy has a showroom and sells  1000 homes a year, a big pretty big sized dealer and we bought some homes from him and good guy. He called said hey, I just bought a home in your park. And I’m not going to get it out before the end of the month. So what’s your lot rent? I want to make sure I get you paid your lot rent. I said I’m not going to say his name. But hey, we’re not going to, we don’t want it to move out. Did you see the sign out front, he’s like,  I want you to go drive by again, there’s a sign-up front. It says any home to be moved in or out of this park, any or applicant needs to be approved by management prior to the home being sold or moving. So you were on constructive notice right up front, in every entrance and exit I got this sign. And I said that puts you on notice that maybe there’s a different provision and the guy that owned the house died. So his son inherited, his son didn’t know about the lease, didn’t care about the lease, he just called the dealer, said I want $10,000. This home was appraised at $38,000, new home and this guy is pulling it out of there. And I said, you are going to be in a middle of a lawsuit if you pull that thing out of here. I said, but I’ll pay you a couple $1,000 for your referral fee for finding it for me, and he said okay. So that sign, I made $15,000 selling the house. So that signs were 15 grand to me, I’ve had that happen a couple of different times. I start to price stuff, I just found $100,000 because of this one provision or because of this one item. So anyway, we don’t poach from other people. If they try it at us, it’s going to be a problem. And probably we’ll do a back. I’ve had to make that maneuver once. But I particularly don’t do it to guys bigger than me. Because it could be a problem. But like, I’ve got one Park I’ve got it’s right down the street from a park that son owns, RHP and then strive. So three pretty big players within a mile of me and I probably could have poached some of their homes. But I didn’t feel like I’m doing it back. So we just don’t, right? So I did have one organic moving from one of their parks and we just call, hey this person is leaving, they are like, we don’t care. So I tried to park friends. So that’s how we do it. And I think it’s the best way to the industry because otherwise, it’s just a zero-sum game.

Daniel Weisfield: Exactly. Exactly turns into an arms race. So everyone needs to observe the ethical rules as an operator.

Ferd Neiman: Yeah, I mean, one benefit that we’ve had in that regard, as well as like this park that I’m talking about in Kansas City with these other big guys next door. There are three types of homes in the park. There is the old homes, they’ve been there forever, they’re not movable. The tenants owned. So those ones are, there’s no realistic threat. There’s a second type of home that, there’s about 20 of them that are nice like ’90s, 2000s that came with the park. So I own them, and they are rentals, so those aren’t going anywhere. There’s a third type of home. Those are people that bought the homes for me and used 21st Mortgage for their financing and there are restrictions on them being removed until the first 36 payments are made. So practically those homes can’t move either. And I had a form in the 21st mortgage packet, which I just, I had in my form says that I get access to your, I can basically call 24th mortgage and check in on your balance, I can call 21st mortgage and I can put a provision, or you can’t move the home until that recourse option, they call it a repurchase obligation, until that burns off, it can’t be moved. So, practically, you can’t poach from me. And I got that sign upfront and in the back. And as I tell you, and I still don’t go poaching the other guys as a matter of principle. But I could go poach from them because they don’t have those steps in place. Because they are such a big animal, they’re not watching the minutia like I am.

Daniel Weisfield: Let me ask you another question. I’m seeing the way you think, right? You are applying a lawyer’s mind to MHP operations, right? You got all sorts of savvy stuff, how to protect risk. What are the other like, one or two, savviest innovations you’ve come up with either terms of lease provisions, or PSA provisions or other things that you’ve used your lawyer’s mind to create value for yourself as an operator?

Ferd Neiman: I don’t want to give away my sauce. I am kidding. You know as a lawyer, the worst thing about law school is you got to go to law school. The best thing about law school is they teach you how to think. And I already had, you know, two college degrees and had done well in school, and done well in work, I went to law school when I was like 28, or 29. So I think kind of paranoid, I say, you know, my job is to worry. And then I think what could go wrong. So for example, my inspection period in my contract, most people’s inspection period begins, like on the day of the contract or five days after. My inspection period begins after I received a later of title, survey, and the 45 items on Exhibit D, some of which the seller…

Daniel Weisfield: And your sellers agree to that?

Ferd Neiman: They do. If they don’t, I have additional provisions that are things that are outside of my control, that are things like the timing, and the result of the phase one, the survey, the appraisal, and the insurance company given me a binder of insurance. So I have in my contract, even in instances after the expiration of the inspection period, in the event, one of those four circumstances, if I get an unsatisfactory result, I can drop the contract and get a refund. Which means practically, and this is worth 100 days, and practically, if I don’t have a survey in my possession, can I be satisfied with it? Of course not. I need to see it. Which means I don’t have to order my survey until the last day of my inspection period. In a table A Alta survey with times, that’s going to take six, eight weeks, so I just bought myself six or eight weeks. Now I can’t drop the properties if the survey comes back good. But I bought myself is six more weeks to go raise capital on syndication. I bought myself as more time to do market research, more time to find users, more time to hire a manager, more time just to, I’ve got five deals in the contract right now. I know some of those are going to close the next 100 days. But I’m building a pipeline by having a strategic timeline. So that’s one example of things that I’ve been able to, if you put it in one spot in the contract, wide open, and you put it one spot in the contract, it’s kind of, you know, fine print. People will sometimes see, okay, cool it’s in here, like I won and they forget what the second one. Like there was a duplicative provision you red line one of them. Why’d you do that?

Daniel Weisfield: So what you’re describing sounds to me, it’s something I would never be able to get with a seller. The sellers I deal will push back on that all day long. So you rely on sellers who are represented by counsel or are you saying…

Ferd Neiman: Well, you’re right. Some sellers don’t. So if you represent, as the lawyer, I’m working on a case for an eight-park portfolio right now. And the seller has very competent legal counsel, and they redline half of those, most of those things, actually. I’m dealing with a guy on a 14-park portfolio. And the guy just insisted on using the standard realtor contract and then allowed us to make an amendment to it with my key provisions. And he just signed it. And he had a lawyer, but the lawyer, if you got a lawyer that’s a generalist. You know, some of these websites says I do divorce, speeding tickets, DUI, and a real estate lawyer, you got the wrong real estate lawyer. So if you’re buying higher dollar properties, you’re probably going to be represented by qualified competent counsel. But that’s just some of the examples. I’ll have to say a question, what do you do? What tips can you share? You know, not just in the context of a lawyer, what tips can you share how you guys operate and how you, you know, build a creative advantage for yourself, if you will.

Daniel Weisfield: I think the biggest creative advantage we have is how we analyze acquisitions and how flexible and creative we are when looking at deals. Because you know a lot of our competitors have a box. I only buy 55 and up, or I only do city utilities, you know, and a lot of people come out of the Frank and Dave Mobile Home University course. And they’ve kind of learned a defined by box, right which is everybody else who goes to Mobile Home University is also looking for. Basically means you need to have like 100 Walmarts within five miles of your park and a median home price of I think 500,000 or something crazy. So and we, you know, it’s hard to find deals, it is hard to find deals in the space, it’s a hot asset class, the days of this being undiscovered, are long over. There’s all sorts of sophisticated money in this space. So, you know, we’ve been able to close roughly 20 acquisitions in three years. And the way we’ve been able to do that is by being creative, and we bought some beautiful Class A parks at sub four caps. And we bought middle-of-the-road Class B workforce housing. And we bought some really rough, class C turnarounds in RV parks, you know, on private well and private septic systems. And so we price, risk, and return specific each deal. We try and look at each deal for what it is and make a risk-return decision. As I say, that is the biggest way we’ve been creating value and then on the operation side, we spent a lot of time building a real operating company, with a culture, and spending really a lot of time defining our values, hiring the right people, and getting them to understand what we believe in and how that translates to actions in the business. So we don’t have to rely on, an operations manual, right? You don’t need to go look at the rulebook. People have an intuitive understanding of what the right decision to make.

Ferd Neiman: No, that’s great. Yeah, we have a similar operating ethos, if you will, it is just, you know, what’s the right thing to do, so what you say you’re going to do and do the right thing. And then it’s pretty easy, right? I’m interested on that. You said sub-four cap, I’ve never bought a park, I guess I bought one pocket at zero cap, it was at negative NOI, but I bought it because of that 50 vacant lots and you can turn around. If you’re buying Class A park, I’m assuming it’s stable, and there’s not a lot of opportunity for infill. So how are you making that work economically, just have a lower yield requirement for your investors? Because it’s almost like a, you know, Coca-Cola is not going to double in size this year. But Coca-Cola is also not going to go out of business. So is it just a lower yield requirement like a dividend, coupon clipping deal? Or what’s the play there? I used to own like some triple net stuff. And then you have this coupon clipping for the investors on that, but you know, Walgreens isn’t going to miss the rent payment either. So risk-reward analysis, as you say.

Daniel Weisfield: Yeah. So I would say, if you’re looking at an institutional quality park, in the western United States, you know, the cap rate range is three and a half to four and a half percent. For anything that’s over 100 lots, city utilities, decent money. And the really nice stuff like, you know, highly amenitized, if you have enough communities, kind of in that three and a half to four cap range. And, yes, I think investors have rightfully seen that these parks stay full all the time. And they cash flow through the 08, 09 recession, they’ve cash flowed through COVID, you’re buying a bond. And I would say you get a bond-like return in terms of cash flow, but there probably is more upside than a triple net deal. Because I think the industry as a whole is getting more attractive and more institutional. And I think most investors project cap rate compression, right over the next decade or so. So you know, I’m not, the group’s buying those are, you know, operators like Carlyle, Carlyle Group, Blackstone, you know, groups partner with life insurance companies. And I think most of them are probably underwriting, you know, IRR in that 8% to 10% range for those types of deals, you know, when you apply leverage, and when you have rent growth, and when you look at your kind of exit cap rate assumptions.

Ferd Neiman: That’s what I assumed it just I just haven’t not messed with those myself, but it’s like, yeah, you’re not going to hit your mid-teen IRR when you’re buying …

Daniel Weisfield: Exactly. And Ferd this is something that it’s been a real journey for me. And I’d be curious to get your thoughts, you know, you and I both go to the mobile home park conferences, and we kind of you know, there’s a lot of institutional money trying to get into space.  And so a lot of people come to me and say, hey, you’re a highly qualified operator, we are now looking to partner and we’re looking for mid-teen IRR. And I’m like, alright, I’m not your guy. Like, no one in the western US is getting mid-teen IRR on parks, unless maybe you’re you know, you have a, unless you’re buying parks kind of in the kind of 10 space to 30 space range that are very small and sort of scale. Market cap rates, like I said, our markets are kind of in that 3.5% to 4.5% range for really nice assets and for middle-of-the-road stuff, you know, up to five cap. So you know IRRs in our markets are like kind of 10% to 12% of the deal level based on our underwriting. And so it’s really interesting, like, these are not stereotypical, you know, cash machine assets, you know, that you used to be able to get when this was more of a fringe asset class. That’s been my experience. But I’d be curious, it seems like you in the Midwest, you’re still getting, it seems like some really impressive returns based on your strategy.

Ferd Neiman: Yeah. I mean, we’re in a different market than you. But yeah, honestly, I would, If I ever had a deal that had less than 15 IRR net to the investors, I would be embarrassed to take it to the investors. We are going for, I just put caps on some deals where now it’s 25 and 30 IRR. And these are business plans that I’m signing recourse notes on them, but my reputation on the line for that I’m going to deliver on, and you can’t do that on stabilized property as easily. So like we just bought one here in Kansas City market, it’s 36 pads, that’s only got 24 occupied. So okay, I can sell 12 homes of that market and I could do it in one year, probably, I’d proforma two years, six homes, like we’re going to do that. I sold another park in the same market, we sold 50 in two years. So that deal is going to have an IRR that’s over, if I sold it right now the IRR would be triple digits, that’s going to be taking the value from 1.2 to 4 million. So I got another deal we’re closing here in about two weeks in St. Louis market. It’s at 95% occupancy. Okay, I can’t double the value that, right? I can maybe squeeze 5% occupancy, I can maybe squeeze 5%,10% percent rents, I can maybe decrease the expenses a couple of points. But that’s really that’s a longer-term play, but I got good debt on it. And I got, it’s going to get a 3.24% interest rate 25-year MO, I chose a recourse note over a Fannie Mae note because Fannie Mae currently has a COVID reserve. There is another 200K, it’s going to hurt the yield. And instead, I’ll sign the note, I don’t care, you know, there is lots of other notes. And again I got my local bank to match to Fannie terms, by the way, but without the COVID. So that makes the cash flow still strong.

Daniel Weisfield: Well, with the 25 Year MO, probably with minimal interest only right, or whereas Fannie would do IO.

Ferd Neiman: Yeah, Fannie would have more IO, and family would have 30. Yeah. So the plan is going to be on that deal is, get the last three lots, 67 lots, get the last three lots filled, get the rents up to market to about 95% there, 90%, and I can support an eight pref and then, you know, double-digit, cash-on-cash, and then IRR in the 17 range.

Daniel Weisfield: So what’s the endgame for your business? Like you’re buying these high-yielding parks, but deal size, it is small relative to what I’m used to seeing. $1 million deal, $2 million deal. So, I’m curious, like, do you need to keep buying 10 parks a year in order to support the overhead of your headquarter staff?

Ferd Neiman: Not at all. Actually, my staff is lean, I have like 12 people. And besides, you know, vendors and contractors. You do a deal with these metrics, I can live on one deal a year. Now I’m doing more than one deal a year. I can live well from two deals a year, three deals a year. So now the end game is, most of these deals are off-market, by the way. I mean, you know, I’ve never paid below seven cap. I’ve paid 15 cap. The deals I have in around the country right now, none of them are below seven cap. So when you get debt terms, this deals like a 7.9. And I got a 3.24% interest rate. That’s a lot of spread. You can create, you can do a better yield like that, and this isn’t a great market. So the end game, eventually, I may roll them up into a fund. But right now there are, some of them are just me, my dad, some of them I’ve got investors in, so they will be more complicated to roll them up. But for diversification may do that. But I’d love to buy $20 million parks. But the yield is so much less because they’re so competitive, right? I don’t have an investor pool big enough or conservative enough that would go for the eight IRR. So I’m not chasing those deals. I can’t, so I bought some deals on market. I think I probably bought, I don’t know, three or four deals on market. But that’s not going to be the norm and I can’t compete on price because I can’t raise money on five cap deal. At least I haven’t tried. I don’t think I can, frankly.

Daniel Weisfield: How much cap rate spread are you getting from sourcing off-market? Because I will tell you, in my experience 90% of our deals are off-market. Almost nothing we’ve bought has been marketed. But we’re buying off-market and we’re still buying it for five caps, right? Because at least in our markets, you know, every mobile home park owner gets three calls a week from a broker trying to buy their park or someone who went to Frankie Dave’s class and sending them postcards. And, you know, they know the value of what they’re sitting on. And so for us buying off-market is an opportunity to acquire an asset, which we’re excited about. But you know, we’re not stealing it. So I’m curious, how does that translate to your market in terms of cap rates.

Ferd Neiman: Well, I  mean, you’re talking spread from on-market to off, or spread from the interest rate to the acquisition rate?

Daniel Weisfield: I mean, on market to off, like if you’re paying seven or eight caps if they were marketing, where they also are seven or eight caps?

Ferd Neiman: No, they wouldn’t, they wouldn’t be. The spread is going to be at least 150 and in some cases more. In some cases, 300 to 400 you know, depends on the deal. We have a deal right now in Nebraska, we just got under contract. They didn’t counter our offer. We just made an offer and we’re buying it at like a 10 cap, that’s in a smaller market. It’s got upside too. It’s got, it’s a 100 plus lots. It’s about half full. And 10 cap on current, like, not even, no proforma all that. Deal in Iowa where we bought a couple of months ago, Des Moines, Iowa was really competitive. So, we actually bought it on market. But this is we got lucky on this one. It was listed as a development ground. It’s 20 acres of land adjacent to nice neighborhoods. And it is listed to the land broker national company. And we’re like, we’ll keep the mobile home park too, right? They are like, yeah, you can scrape it, you can build houses here.

Daniel Weisfield: No, we like that.

Ferd Neiman: It is crazy. The mobile home park is where it was appraised at like 150,000 more than we bought the whole assemblage for it and we have 12 acres of excess ground.

Daniel Weisfield: Are you keeping the park or sell it off?

Ferd Neiman: Redeveloped. I’ve talked to the city about expanding it. And they’re not that John’s about it. So what I’m probably going to do is just Landbank it. And then this is probably a shorter-term hold for me, I’ll probably sell this park in a couple of years, once it’s 100% occupied, because the market is so good. And there’s not a lot more upside on it, a small park. But then I’ll just keep the land and wait till the residential developer wants to buy it 20 years from now.

Daniel Weisfield: Yeah, look, I know we should wrap up. But let me ask you another question. Can I? So I got a question for you as a dumb Californian. Here’s my dumb California question. I understand the grocer in the demographics to buy in markets like Des Moines, Iowa, or Nebraska, or Indianapolis, or St. Louis or Kansas City, or Chicago in the suburbs. I get that. But I see listings or parks in like, you know, rural Illinois, rural Kansas. Looks like they’re half full. And I google it, looks like it has, you know, negative population growth, you know, Main Street got boarded up. And most of the, you know, the young kids have moved to the city. It sounds like you’re buying those deals and getting killer returns.

Ferd Neiman: I’m not buying a lot of those deals. Here is where I buy them, is If I get a price that I can’t say no to. So I’ve got a park in Illinois. This is not that rural, it is 20,000 people. But it’s in a metro, that’s got to 40,000 towns and a 50,000 towns within like 30 minutes of it, 100,000 people. I bought that for 15 cap. So on market, first day full price. But I couldn’t sell it at eight, but I could sell it at a 9.5 tomorrow. So I was kind of like you’re saying risk-reward on your four cap, risk-reward on the same tertiary market and then kind of like you guys get creative on, you know, some of your financing or utility structures and things like that. I’ll look at a specific town like my hometown of Quincy, Illinois, It’s a great trade area. But it’s only 45,000 people. But it’s got the hospital, it’s got a jail. It’s got, you know, super Walmart, it’s got the mall. It’s got the railroad business. It’s got lots of bag, it’s got a college, it’s got a junior college, it’s got the county…

Daniel Weisfield: That is the market I’d invest in.

Ferd Neiman: It’s only 45,000 people, you know, then the recession hit the prices went down to 1%, residential. So anyway, that’s how we kind of spread it around some too. Tell me something else our listeners can learn for scaling, you’ve obviously got to build a lot of parks in a relatively short period of time. So how are you scaling your staffing in particular, because that’s been a growing pain for me and my clients, they were trying to hire this and this, it is like, it’s hard to get the right people and turnover and training can be the Achilles heel of a business? So what tips can you share with me?

Daniel Weisfield: That is the most important thing. Getting the right people on the bus is the single most important thing is to find success or failure. And at the headquarters level, and it’s at the asset level, as you know very well, right. Like, kind of getting the right property managers you know, make your business plan succeed or tanks it. If they are not good at their job. So we spent a lot of time developing hiring criteria. And we really don’t care about resume. We’re trying hard to screen for aptitude, and we look for creative problem-solving. We look for a customer service ethos, we look for an ownership mindset. If you’ve got that, then you know property management experience is immaterial, you can learn property management, it is not rocket science. So, we’ve had really good luck finding smart people who might not have had all the advantages in life, you know, a lot of people, several managers who are working a retail job for 10 bucks an hour, and they responded to our ad and just knock it out of the park, right, I could see their aptitude. And we hire them, changed their lives. They’re now in a managerial role, on a growth trajectory. So that’s been exciting, the property manager level, and the headquarters team, this has been one of my biggest realizations. I used to think the bigger we got, the more parks we bought, my life would get more stressful, you’d have more work to do. The opposite is true. The bigger we get, more revenue coming in, the more we can afford to hire good professional people, so I can duplicate myself. So we now have an awesome director of operations we hired, she was one of our park managers, and she was, you know, knocking out of the park and we elevated her, the director of operations. We hired someone to do business analytics who had a wall street financial background, she’s helping us with all the investor reporting and strategic projects. And just this week, we brought on our first director of facilities and capital projects, which is a game changer for me as the owner, because I was doing all that stuff, right. Dealing with bids and contracts and it’s not my background. I don’t know about that’s what was done right. And so it’s liberating to have someone to be like, hey, jack, that fencing project, can you handle that? He’s like, yes sir, thank you, Jack. So the bigger you get, it actually gets easier.

Ferd Neiman: That’s great. It’s great to hear. And it’s hard to grow at time and growing pains. But yeah, I have a guy just, I only got him half-time. He owns his own Park, too. And he’s, but I got him half time about three weeks ago, and he’s been in the business like eight years. I am like, oh man, it’s so great. He doesn’t need supervision, because he supervises the contract and, like, man, this is good, has new ideas. So yeah, I’m with you to have building a good team, building the right team is crucial for growth, particularly crucial for success.

Daniel Weisfield: I also have a contrarian strategy for growth. And my contrarian strategy is, I don’t always try to hit homerun deals. I am happy accepting deals that are good enough, because we’re growing a portfolio, we’re growing a business, we are growing an operating platform. And so my bar for deals is, are we going to hit our business plan that makes sense given the risk and return profile for this asset? And I don’t necessarily need to hit a median IRR in every deal.

Ferd Neiman: Sure, yeah. That’s a good point. It’s kind of like growth stocks or value stocks. You know when I was doing stocks, Garmin is going to grow a double, triple and now they’re big enough. But I mean, you know, you’re not going to double Anheuser Busch, right, given year, right, different risk-reward profile. So yeah, that’s kind of like, and in some degree, we’re in different geographic portions of country. So we’re not competitors, from geography. But even if we were both in the same, we would not be competitors, because we’re looking for different return profiles and different risk profiles. So we would buy, there’s a park a mile away from Sonoma, and I would love to buy it, but it was a 500-unit park. So it attracted a different type of investor and it’s sold, and I don’t know what it’s sold at. But I’m sure, massive, massive premium. It was a great-looking park. Great clubhouse, great pool, basketball court, playgrounds, tennis court is great. I’m sure its sold at four cap or something. And that’s a different investment. It was a mile away from me, I already have a headquarter, every maintenance right there, but it was a different asset.

Daniel Weisfield: I know you said we’re going to go 15 or 20 minutes, it has been 45. So, you got anything else you want to ask me? Or should we should call it a wrap?

Ferd Neiman: Well, luckily, I charge by the hour.

Daniel Weisfield: No, backwards. I am charging you. I just donated 45 minutes of my time. So now I get a 45-minute credit for your legal fees.

Ferd Neiman: Yeah, I don’t know. We’ll see about that. Send me referrals I get from this episode. Where can people find you or reach you after this?

Daniel Weisfield: So again, it’s Daniel Weisfield. You can see us online at www.threepillarcommunities.com. Three is spelled out, www.threepillarcommunities.com. And you’ll see there’s a little tab to click in the upper right, which is you know, get on our mailing list. If you get on our mailing list, you’ll see our deals, our updates and it is the best way to keep in touch.

Ferd Neiman: All right, sounds good. Thanks, Daniel.

Daniel Weisfield: This was fun. Thanks Ferd, talk to you soon. Bye.

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