Ep. 81 | Interview MHP Owner Apurva Shah – Becoming an MHP Owner While Working a W-2

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On this episode of The Mobile Home Park Lawyer, Ferd is joined by MHP owner Apurva Shah. Ferd and Apurva discuss becoming an MHP owner while working a W-2, why new MHP investors should carry out their own due diligence, how the current MHP market is recession-resilient, and more!

 

“The skills that you’re learning in the real estate side are certainly transferable to your W-2 role. Whether you’re just starting out, or you’re a real estate professional full time, on both sides the skills are transferable.”

 

HIGHLIGHTS:

0:00 – Intro
0:28 – Apurva shares his background and gives insight into how he got into the MHP industry
1:22 – Ferd asks Apurva what he likes best about MHP compared to the other asset classes
4:02 – Apurva speaks about the current state of the market and how what he currently sees with MHP is recession-resilient
5:55 – Apurva tells us what he and his team do to stand out in the market
6:59 – Apurva advises people who want to enter the MHP industry to not believe what the seller gives them. Do your own due diligence
12:55 – Apurva shares some learning lessons he and his team have experienced over the years
17:24 – The skills that you learn from real estate can be transferred into your W-2
23:13 – You can find out more from Apurva through his website, jaysinvestments.com, and on LinkedIn

 

FIND | APURVA SHAH:

Website: jaysinvestments.com
LinkedIn: Apurva Shah

 

FULL TRANSCRIPTION:

Ferd Niemann: Welcome back mobile home park nation, Ferd Niemann here again today with another episode. Today, I’ve got a new guest for us. He’s based at Raleigh, North Carolina, grew up in the real estate business, focuses now on mobile home parks, owner, operator, getting involved in syndication as well. Please help me welcome my guest Apurva Shah. Apurva, welcome to the show.

Apurva Shah: Awesome. Thank you, Ferd. I appreciate being here.

Ferd Niemann: Yeah, man. Well, tell us a little bit more about yourself for some of our audience may not know who you are, and tell us a little about your background and how you got into MHP.

Apurva Shah: Sure, sure. So a quick background, like you said, I grew up around real estate. We started in the office space basically doing office to luxury condo conversions. So did a few projects growing up and then thought that was great. But when I moved down to Raleigh, North Carolina, wanted to separate myself from the family business and started like many other investors, started flipping houses, single-family houses started wholesaling them, started building up that capital stack. Coming out of school, coming out of college didn’t really have much. So, that was a really great way to transition into what we do now, which is mobile home park investing as well as that multi-family apartment complex investing.

 

Ferd Niemann: Great. So I’m with you. I’m biased. I like the multi-family, like the mobile home park. What got you into this space other than maybe scaling up? What do you like best about MHP compared to some of these other asset classes you’ve been involved in.

Apurva Shah: The returns hands down. So to jump into that a little bit more, I’ll start with my first deal in mobile home park investing. So it was just, it’s a very creative industry compared to apartment complexes and the more institutional style investing, which I’m sure, mobile home parks are going towards that. But with my first deal, it was a mom-and-pop owner out of Michigan, my buddy who was investing in single-family, so together him and I started the business together. And then he said, Hey, why don’t you? He found a deal at Michigan, and he said, okay, it’s $550,000 purchase price. I think it was 63 lots. But the seller will finance it.  So they’ll hold back basically the note and it was like 10% down.  And when I saw that I was like, Whoa, how does that even make sense? Like that’s not a normal thing if you were to do that on a true apartment building. So it just worked out really well. We went through the deal, there was some deferred maintenance and things that just weren’t working out with the seller and so when we went in, we added our value, we operated pretty well. Cut down some of the expenses that just didn’t make sense. And then basically flip the property in about three years. So for us, it was all in basically $550,000 and basically sold it for about 1.6. So 1 million profit there, which was what really got that hook especially in that mobile home park investing side of it.

Ferd Niemann: Yeah. I’m with you, man. Mobile home parks are a rare breed that you can have massive gains of value due to, basic operational efficiencies of increasing rents, decreasing expenses, obviously operational efficiencies are one thing, but another one is infill, right? You can increase the number of lots and then you can buy it at a reasonable cap rate and sell it at a less reasonable cap rate. And there’s a spread there. So I used to do duplexes and we just had a couple of good transactions here this quarter. And my dad was my business partner and he just looked at me. He goes, well, how many dozens of duplexes would we needed for that one mobile home park? I was like, yeah, exactly. Like, I don’t know, a hundred. I mean, it’s just like, and I’m nothing against single-family duplexes. And that’s how you got to get started a lot of times based on where you’re at financially, but man MHP is just something special as far as the way to make it work.

Apurva Shah: Yeah. I mean, especially in the market we’re in right now, right? I mean, we’re seeing A class, C, class B apartments, even class A,  there’s folks that just can’t afford to pay. And what I’m seeing on a mobile home park out of it is, it’s more recession resilient, right. And continuing down that path and investing and folks are always going to need a place to live. For us, our business strategy is try to have everything tenant-owned homes, but certain markets that of course, that doesn’t work out. And we have that mixture of tenant-owned and park-owned homes, but then we try to convert those into rent own programs or some sort of other way to help lower that expense ratio. Because, at the end of the day, a mobile home is still considered a personal property appreciating asset.

Ferd Niemann: Right. Yeah, I mean, irrespective of even the asset depreciation or appreciation the challenge with the park-owned homes is financing. It’s hard to get good debt on personal property. And then it’s hard to get good debt on land if you own too much personal property on it. So I’m in the process of a Fannie Mae refund right now, and I’ve got to get my park-owned home accounting. I got five more houses to move and I’ve got to sell four out of five. I can’t lease them because it’s going to, otherwise, I am going to have two hired accounts. So it’s okay, I know how to do that and just make it work. But it’s definitely a factor when it comes to financing. And as you know, with all real estate debt and leverage is key to getting the outsize returns relative to wall street or a lot of other asset classes.

Apurva Shah: Exactly.

Ferd Niemann: What tips and tricks have you learned that you can share with us and maybe you’ve got any horror stories as well. You’ve told us kind of how you found the industry and why you like it, but what are you doing that sets you apart or what have you done that you wish you want to again.

Apurva Shah: So operations has been the core competency for our team. Just a real quick introduction for my team. We’re Jay’s properties LLC, and basically, what we have kind of, I guess the core values is operations of, you know, taking value, add properties, properties that just aren’t working for the seller or losing money, starting day one, but basically doing complete conversions, whether it be a renovation on park-owned homes or converting them into rent to own or just really cleaning up the park with raising the rents and bringing it back all to market value. So that’s our core. Some of the deals that we’ve done here, most of them are in North Carolina. We like major Metro areas right out of Raleigh North Carolina and MSA. So we have properties in North Carolina, Louisburg, Spring Lake. Those are the core areas that we like to invest in. But what I really recommend for anyone who’s trying to go after this asset class and try to continue to invest in mobile home parks is don’t believe what the seller really gives you, make sure you’re taking your own due diligence. I mean, I’ve run into time and time and again, every single, like almost every single deal that we’ve gone after, there’s just something that doesn’t line up, whether it be the financials or the septic tanks or the well, or just you really need to do your due diligence. I mean, it’s easy to just call an inspector for a single-family house and just say, Hey, tell me what’s wrong with the house. But then with a mobile home park, there’s just so many little things that you want to probably, you want to look at the wells, you want to look at the infrastructure. You want to look at the homes and since there’s multiple units typically we, we purchase 20 plus units for the home, for the parks size of it. And with that being said, right, you want to really walk the park, really understand that financials, especially, when it’s a mom and pop owner, right. A lot of times the spreadsheets not there, they have like receipts and like papers all over the place, and they’re not really able to gather it all. And also, they don’t have the proper tax return that we can really look at. So the big thing for us has just been spending the time creating the models and the processes around doing that due diligence.

Ferd Niemann: No, I agree completely. I mean, I think Ben Franklin said diligence is the mother of luck, right? We’ve got a big checklist we go through on every single property. And I jokingly say don’t trust and verify, don’t trust anything from the sellers, you are in the business long enough, you’re going to hear, you’re going to find and hear every story on the book. I kind of chuckle because I was telling somebody last night, I’m about to close on a deal this week in the park in Illinois. And I’m completely trusting the seller, which is outside of my norm. But the reason is I tied the park up, I don’t know, eight months ago. And they told me there were some problems. I found some more problems and I verified everything. And, you know, everything they said was true. And they were a father, son team, and my dad here a father, son team, we bought a park half a mile away. And then we ended up dropping that contract for other reasons, but it went around the block for six months and now the price has become sensible. And he called me back and he said, Hey, it’s yours if you want it, I was going to accept this other guy’s offer, I was going to seller carry, but I know you can deliver. So he gives a handshake deal. I don’t even have any contract. We are signing the closing statement with no contract, like  against advice. But this guy is just like, I’m not doing a contract and show up with the money and you’re good. I was like, and he paid for a survey and he was like, and I’m literally trusting this guy. Because I’ve verified stuff previously and verified stuff now, even so too. And the pricing is right. The risk-reward analysis makes it okay.

Apurva Shah: Yeah. I mean, the big thing for us, I mean if you’re buying right. And whether, I mean, if you have investors or if you have other people’s money in it, and if you’re buying right, and there’s still some room to work with, I think that’s a win-win. I mean,  I’m seeing folks, especially in Raleigh, right? Like there’s institutional money coming in. They’re buying it like three cap and four cap. And I’m like, how does this make sense? And especially from my side of it, like I’m not getting debt that’s basically 0% interest or whatever that is. I’m definitely not an institutional buyer, but on the flip side of it is, you know, making sure that we find opportunities that do make sense. We’re seeing folks that have lost money just because they’re not doing due diligence. And they come to us and say, Hey, we’re trying to sell this thing and just offload it. And because we didn’t, I guess, in my opinion, they didn’t do their homework to figure out what was actually happening.

Ferd Niemann: Absolutely right.  I’m under contract on right now in Nebraska and I’ve only owned it for two years and they were investors. It’s like, why are you doing it? Well, we didn’t really run the frappes on this very well. And they were halfway across the country and they’re like, yeah, it’s kind of hard to manage it. So they’re going to sell it at a loss, that is unfortunate. I have the biggest example I’ve run across, I bought a park in Kansas City about three years ago, and it’s got 93 spaces and there’s 117 pedestals. And I said, what are those pedestals? Those are the expansion pedestal, that’s for the expansion. And I talked to city about it and said, oh yeah, you can’t use that expansion. Why not? They said, well, we were driving by one day. We saw all those pedestals and asked the owner, what are you guys doing? He said, well, we’re putting in RVs because they’re really together. And you could probably only get, you probably got to limit the extra 20 or so down to like half like 10 or 13. And the city said, Oh, we don’t allow RVs in this town. Then the owner goes, what?  Did you get permits? The owner looks at the contractor, you got permits right? I thought you were in charge of permits. $474,000 of electrical upgrades to rerun the line electrical and water sewer. And they never pulled a permit.

Apurva Shah: Talking about a horror story.

Ferd Niemann: Unbelievable. And I’m like, wow, you guys literally didn’t do your due diligence and read the code or ask, they didn’t even ask city planning or permitting. Like, so I felt bad for those guys, but I  can’t give you any money for that. It’s not worth anything to me. It’s in the way, I got to mow grass around those things, they are negative value. So unless I can change the city, which is going to be pretty tough, but anyway, yeah, due diligence is key. Do you have any horror stories of your own in your career here?

Apurva Shah: So we’ve had some learning lessons and we’re trying to make sure this doesn’t become a horror story, but yeah, I’ll certainly share it. So we have 76 units, 76 lots in Louisburg, North Carolina. This property has a pond in the, it’s very small one acre, or maybe even smaller pond in the back.

Ferd Niemann: I know where this is going.

Apurva Shah: Okay. Yeah. So, for us, okay pond, a little Lake, whatever it is, we didn’t care about it. You know, we’d looked at it. We said, okay, there’s not going to be an issue. We didn’t really pull any documents from the city. And because there are other properties, they have ponds and no issue, especially here in North Carolina. But then a few months ago, the dam safety folks in North Carolina send us a letter saying, Hey, one, this pond is basically classified as a dam and it is considered high hazard. So now they want us to do an inundation study, an overlay mapping, and then basically want me to get like this, not just an environmental, it’s like a dam safety engineer to classify this half an acre to an acre pond saying that it’s not going to destroy a bunch of homes and other things, if this pond just breaks, like if something happens to it, floods all these homes.

Ferd Niemann: That’s not where I thought it was going.  I think you’re telling me, and then it turns green at times, I thought it was a lagoon. You didn’t realize it was a  lagoon. Cause that would be really bad.

Apurva Shah: No. That would’ve been even worse.

Ferd Niemann: Did you get a baseline environmental in that part?

Apurva Shah: It wasn’t, we didn’t need to get one. I mean it’s been a mobile home park ever since, you know, day one, it was like 1900’s or something like that, where the sellers dad or grandpa basically like, it’s been in the family line for so long. Where they owned it and they built this 76 unit lot.  And this pond just been there. They’ve never had an issue. The sellers, they’re great guys to work with and they’re super easy. I mean, we got the survey, we got all the items done, but I don’t even think even if we did a phase one, I mean, on the environmental side of it, like, I don’t think we ever would have caught anything.

Ferd Niemann: Yeah. I don’t know, interesting. Sometimes they catch those, cause it’s a, they call them a recognized environmental condition, but obviously it’s not hazardous by its nature. For example, a well that you drink at, but drinking well will fail the phase one or at least be called out of phase one because by its nature, anything that goes into it goes downward and goes into what was at least at one time a drinking source. So I wondered if a pond had some similarities on that, where it would be flagged, but anyway that’s a tough one man. Yeah, pond.

Apurva Shah: Yeah. I mean, you never think that okay, this is going to be a major issue or possible major issue. I mean, this thing is pretty small. It’s not really next to any homes, even if it started raining or if there was a little hurricane or anything like that, we don’t see an issue with it. Because it’s basically, there’s still an elevation difference. The pond is basically down below, and then our homes are up top.

Ferd Niemann: Man lessons learned, right?

Apurva Shah: Lessons learned. Yes. Now for us, I mean, for all the properties that we have, the ponds on where we’re like, let’s scatter, let’s make sure, you know, everything’s just, it’s clean, it’s clear. There’s no issue. It’s not considered a dam.

Ferd Niemann: Yeah. So, well, that’s a good one. What else do you got for us, lessons or tips you want to share?

Apurva Shah: Yeah. I mean, me being in that the, I’ve W2 role, right. So I think that’s been managing the W2 side of it, having that day job and then also investing in real estate. I mean, that’s huge. I mean, a lot of listeners, whether it be your listeners or other folks that are just interested in real estate and mobile home park investing, I think that’s huge, right? I mean, it’s very difficult doing both, but I think my biggest recommendation to folks that are interested in real estate starting out, whether it be just investing in mobile home specifically or mobile home parks is really the skills that you’re learning in the real estate side are certainly transferable to your W2 role. Whether you’re just starting out or you’re trying to be a real estate professional and do this full time. I think both sides are certainly very, very, the skills are transferable. So for me, I’m an engineer, I’m a product manager at an engineering firm. And I’m learning the technical ins and outs of certain operations, voice of customer. And I’m actually transferring that to real estate, trying to negotiate these contracts with our contractors and understanding the engineering behind the electrical and all that side of it with these homes. And then from the backward side of it, for mobile home park investing, where me being able to negotiate. I’m actually able to save our company significant dollars with our different vendors that we’re utilizing.

Ferd Niemann: No, that’s cool. I think that’s great to take, you know, take skills from your prior life or from the current life in a different job and cross train and cross-pollinate each other. That’s great. I mean, I went a couple of years around in practicing law, I was doing retail development and, but I used my legal skills on a regular basis on a daily basis. And then vice versa, my negotiation skills, my market analysis, my business optics, things like that, they cross over. So in MHP you get lots of opportunities for personnel management, project management, process management, financial analysis, risk mitigation analysis, legal analysis, marketing, sales, and there’s just a whole myriad of operational tactics and strategies and processes that are necessary to run these little cities. That’s what I call them. I mean, this is the operations business. I’m running a city, some of the city of 20. Some of the city of 200, but you know, I don’t know of any mobile home parks that are 20,000, but it kind of, I used to work in government, and we’d run a County and I was in administration. And there’s a million little things to do, and mobile home parks are kind of like that, with the limited budget.

Apurva Shah: Exactly, exactly.

Ferd Niemann: And we don’t have the power to tax.

Apurva Shah: But you have the power to bill water back. Depending on if you have the wells.

Ferd Niemann: I did look at a mobile home park one time that was actually individually plotted to States and it was its own municipality of like 90. And I was like, I could literally vote myself mayor and impose the power to tax. It was unbelievable.

Apurva Shah: Wow. Wow. Wow. Wow. Was it like 90 specific parcels like, wow!

Ferd Niemann: They had their own water system and stuff. It was crazy.

Apurva Shah: Yeah. I imagine the title work on that is a..

Ferd Niemann: Yeah. It never got that far. I was super jazzed about it. It was a nice location, but because there were no dual parcels, the seller had been selling some of them for like 80,000 a piece to individuals for the homeowner. So he want to sell the last 60, he wanted some crazy number. I was like, well, I’m going to buy it as a park. It’s not a park.

Apurva Shah: Trying to buy 80,000, that is quite crazy.

Ferd Niemann: So what I’m interested in, anything else from like your engineering background and project manager that you can share that helps make your MHP operation more efficient?

Apurva Shah: Yeah. So for us, I mean, especially learning that single-family housing, the fix, and flips, we actually gathered a good amount of really, we build a lot of relationships with these contractors. We actually use those contractors on homes that we need to be renovated. At the end of the day, these mobile homes are, you’re not trying to put granite countertops and crazy things in them, but at the same time, they still have HVAC and things that you still need to fix or to replace. So for us, I mean that was really big. I mean, a lot of our parks, especially the ones that had deferred maintenance, we had to replace HVACs or just fix them up, there’s fours that are just destroyed. And the folks that were with us back in the day, they’re here with us today, trying to work through a lot of the issues that we have on these different homes. From the engineering side, with the electrical engineering side, I mean, that’s my background in electrical engineering and robotics, great to have. But at the same time, I’m not using that every day by any means on the mobile home park side of it. But a lot of the skills are still transferable, right. I mean, you got to get creative when you’re trying to do your due diligence and put together these packages for the sellers and put together these deals. So for us, I mean,  we’re still growing. We’re looking to continue to add units to our charter portfolio. Right now I think we have about a 200 and a little bit more than that. And then hopefully over the course of 2021, we’re looking at about to double that. So it’s  still organic growth, but you know, we’re hungry. We’re out there. We’re trying to figure out how to continue to keep growing.

Ferd Niemann: No, that’s great. And I mean, I tell people a lot of times you being a smaller operator, you’re going to have some advantages from being nimble. You don’t have the bureaucracy, you don’t have to go through the, you know, just the channels of command and you can react faster, and you can react you know, sometimes you can compete with the medium-sized players than the large players. So that’s great. Anything else before we go you want to share, or if not, where can people find you?

Apurva Shah: Sure. So definitely take a look at our website. It’s www.Jaysinvestments.com, J-A-Y-S-I-N-V-E-S-T-M-E-N-T-S, investments.com. And then feel free to follow me on LinkedIn Apurva Shah, A-P-U-R-V-A, Shah, S-H-A-H. Yeah, looking forward to connecting and seeing how it can add value.

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

Apurva Shah: Awesome. Thank you Ferd.

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