On this episode of The Mobile Home Park Lawyer, Ferd is joined by Jefferson Lilly. Ferd and Jefferson discuss the importance of expanding your in-house teams and why you should commit to hiring full-time as soon as possible. Enjoy!
“Outsourcing is going to be critical, do it sooner than you’re probably comfortable with. Key areas to outsource are accounting and then everything around marketing.”
0:00 – Intro and background on Jefferson
5:15 – Jefferson talks about how he got set up and how he made his first hire
9:30 – Ferd asks about how Jefferson’s fund is set up, and Jefferson talks about a client pulled out because his wife wouldn’t let him go through with the deal
15:28 – There are no cookie-cutter deals
16:03 – Outsourcing work is critical and you should probably be doing it sooner than you are comfortable with
17:10 – Having people sourcing and evaluating deals is beneficial
18:45 – Make fulltime hires as soon as you reasonably can
20:55 – You can find out more at parkavenuepartners.com where you can sign up to their mailing list, Jefferson also has the first mobile home park podcast called Mobile Home Park Investors
FIND | JEFFERSON LILLY:
Ferd Niemann: Welcome back mobile home park nation. Ferd Niemann here again today with another interview of one of our mobile home park owners. Today’s guest is a big deal. Glad to have him on here. He’s got a lot of publicity for being in the space. One of the faces in the industry. He’s a mobile park owner, operator, he is a syndicator. He’s got his own podcast, our guest today, Jefferson Lilly. Jefferson, thanks for coming on.
Jefferson Lilly: Ferd, thank you for having me. That’s a wonderful introduction. Whatever I’m paying you, I’m doubling it.
Ferd Niemann: Oh, great. That’ll put my kids in private school with that. Well, I know a little bit about you, but not enough. And I’d already some of them same way. So, tell us little bit about you and your background, and then we’ll get into some MHP stuff here as well.
Jefferson Lilly: Sure. Yeah, so I’ve been in the mobile home park business now going on 13 and a half years. I got started back in, actually I first kind of discovered this space back in 2005. I had been working in high-tech at a couple of different startups and kind of been through the dot com boom and bust. And initially, I thought well, you know, let me buy an apartment building. It’ll provide some passive income and smooth out some of my startups, you know, stock options. And then just in like going to LoopNet and searching on multifamily, you know, and I knew I wasn’t going to find anything out here in San Francisco where I lived, that would cashflow. So, I was already looking, you know, in Lubbock, Texas and Peoria, Illinois, whatnot, but just in searching for multifamily, there’d be like, you know, 99 apartment buildings. And again, this was 15 years ago or so, you know, 99 apartment buildings in Lubbock, Texas at an eight cap and then one random trailer park at like 12 cap. And I thought that’s absurd. I’m not buying a frigging trailer park. Are you kidding?
Ferd Niemann: Okay. But the 12 cap caught your eye.
Jefferson Lilly: Well, it did, but it just sort of seemed like such an odd thing to buy and, you know, there must be some trick to it. Anyway, probably that 12 cap deal, you know, had a lot of mobile home income in it. And I would not have known that at the time, but anyway so I went through several of these searches and kept discarding mobile home parks just because it seemed too weird. But then maybe after getting hit over the head, you know, fifth, eighth time, you know, I finally thought, well, you know, mobile home parks do seem to be multifamily and I assumed they, you know, throw off cash flow, like an apartment building. Why don’t I look into this? And then it clicked pretty quickly. You know, why it’s a great little niche and I kind of built up an unofficial advisory board of about 10 guys that were all in the business. I would run deals by them. I bought books and tapes. I went to seminars. I just started learning about the business specifically as well as some related things like land trusts, other asset protection, that’s generic to real estate. But anyway, spent a, it took about a year and a half really of kind of education looking at deals, putting in bids, getting turned down before finally I got a deal bought. That was then I got interested in the space in late 2005. It was early 2007 that I actually closed on my first park. All my own money. I was still working a day job. After about a year transitioned into this and you know, it was kind of taken on a life of its own. So anyway, I got into it part by plan and part by dumb luck.
Ferd Niemann: Yeah, whatever works. That’s great. A little similar background for me where I was. Yeah. I started a day job, and it was at a law firm and was like, you know what, I’m making more money on MHP than I am practicing law. I should just started doing MHP full-time. And it worked out. Now I do a little bit of both, but you know, I like being in the field. I like being in the deals, underwriting deals and negotiating deals. So, it can be a fun space. So interesting too, obviously when you started out, you know, part-time, well, you had a day job, how’d you decide to make the leap and how did that work? And then as you’ve grown, tell us about your first hire or two, because I think that’s a concern, I think a lot of my clients have is like, I’m doing everything. I need to have somebody else run the numbers and I’ll do the books, but I need to have the books, but I need somebody to do the ads and the Facebook. And I don’t mean the first hire, like the first park manager that’s showing the units. I mean, like from a headquarters operation, I think that’s where like, now I’m really bringing them a salary. You know, that’s where I think a lot of people in my opinion, a lot of people get overworked and they get nervous because they’re afraid to bring on that next person.
Jefferson Lilly: Yeah, exactly. So, you know, I would be a far wealthier man if I didn’t think I was Superman. I spent many years trying to do it all myself and indeed, if there were an infinite number of hours in the day, I could, I could have done all the accounting and been my own general contractor and put all the ads up on Facebook and I absolutely could have done absolutely everything. It’s just, you know, getting to the point where you realize that it’s just about time and you do need to hire other people to do that. So honestly that whole first deal, and then even my second deal were all me doing most, all of the general contracting asset management type stuff. Those properties did have managers again, I’m here in San Francisco. These first couple of properties that I bought were still are out in the Oklahoma City, Oklahoma metro. So, I have now more thoroughly outsourced those, but really kind of the first hire, I would say other than really like a manager or of course having any number of contractors, plumbers and electricians. Really don’t think I made my first hire than until my first fund which was now about six and a half years ago or so. And honestly my partner and I raised some money, bought several parks and it probably took us about a year into that partnership to realize that, Hey, we actually need a controller, somebody to be doing kind of all the basic bookkeeping on, up into some payables and receivables. So that was really it at that point. And that person, of course just supported the fund, not my two properties, but at that point I think we had probably seven or eight deals under our belt, all averaging about a hundred pads. So, we got to 700 r 800 pads doing bookkeeping and stuff, all that on our own, which was a mistake. Again, we should not have been super men. We should have hired. We really, and I’ve done things differently with my current Park Avenue fund, you know, where I brought on accounting and asset manager people even before having a single deal purchased. So, I guess, you know, fool me once, shame on you fool me twice, shame on me. So, I wasn’t going to let that happen again. But that was it. We were up to 700 to 800 pads before we brought on a controller. And we then got another couple of deals done and we were at around 1,000 pads or 1,100 pads in that first fund before we hired our first asset manager, obviously somebody to oversee the community managers. So those were our first couple of key hires, and we made them too late. But thank heavens we did make them.
Ferd Niemann: That’s great. Yeah, I think I hear the same thing from everybody that your first hire and your, each hire is always a little too late, but you’re glad you did it. It’s always like, you resist, you resist, resist, but then when you’re like, what was I doing beforehand? I mean, and now that I am, I know rent manager, but I’m like good grief, if I was the one doing rent manager entry, I’d lose my hair. It’s just like, you know, it’s still much monotonous tedious work. So, it’s like, you want to have, I think a bookkeeper or controllers is a great first hire. And then yeah, as you get bigger, you obviously the asset manager and I guess, you know, I have so many my team that does the combination of entry, bookkeeping and marketing and the ads. And does, you know, just kind of general office administration stuff too. It’s like, that’s so helpful. So valuable. And then obviously at some point, like you said, you bring, raise your fund, you got to bring in some equity partners, right. Cause you either run out of money or your wife doesn’t let you spend it all on one deal. You know, that’s gone. But tell us a little bit about that next step, how you decided to get into, you know, raise the fund and is your fund, I’m not familiar with it. Is it like a private place memorandum where you have one deal at a time and you raise capital or is it you pre raise 5 million bucks and then you go buy it, then you go look for deals.
Jefferson Lilly: Yeah. So, what I’ve always done for better for worse has been more the latter raising funds. Our investors are typically really all our accredited investors. We’re still relatively small that this last park Avenue fund was about 15.8 million. That’s still a little too small for, you know, institutional money and I think that’s fine. I’m not necessarily looking to, you know, raise a hundred million bucks, just to raise it and charge fees. Frankly, something that makes us different is we charge no fees at all. So, we don’t raise money just for the sake of raising money and charging, you know, a management fee on it. But yeah, it became pretty clear. Obviously, I bought those first couple of deals that pretty well maxed out my net worth and I needed to do something else. So, I formed, actually my former partner Brad reached out to me just kind of out of the blue and said, Hey, let’s form a partnership and go buy mobile home parks. And it was something I’d been thinking about doing as well. So, we raised our first couple of two funds there as a partnership. Again, what I’m working on now is just me at park Avenue. But that was really it. And I’ll give your listeners some encouraging, an encouraging word you know, our first deal, we kind of went and guardrail to guardrail with investors. By that, I mean we had a deal lined up, which we still own and is doing quite well. And we had a guy from Wyoming lined up to finance it and he was going to; he had some prior experience in real estate. He was more like sort of McMansion million-dollar fix and flip. But he had some real estate experience, seem to be a high net worth guy. You know, he kept asking all the right questions, although somehow, he kept repeating them. But this gentleman, we sort of refer to him as Mr. Wyoming. He kept saying he was going to do the whole deal. Chewed up a lot of partner time. We got wise that he probably wasn’t going to do the deal, at least not the whole deal. Again, we got wise just a little later than we should have, but we started talking to other folks. But ultimately that prospective investor who was so gung-ho to take down the whole deal himself sent us a one sentence email, just saying, my wife won’t let me do this deal. He didn’t even have the chutzpah to pick up the phone and just tell us. One sentence email. Meanwhile, you know, I had sent an email to a former sort of neighbor of mine. When I lived in Boston, he lived in the unit above me. We had kept loosely in touch. I sent him an email; we’ll call him Mr. Boston. I said, Hey, if you’re still interested in mobile home parks, you know, we’d love to have you in on this deal. Let me know if you want to talk about it. He texted me back and said, okay I’m in, what’s your bank account number? And I said, well, when do you want to talk about the deal? And he texted me back and said, no, Jefferson I’m in, I’m wiring a hundred thousand bucks in the morning. What is your bank account number? So, the next morning a hundred grand showed up from like one email and two text messages. So, I’ve never yet had it as difficult to raise money as Mr. Wyoming. I’ve never yet had it be quite as easy as Mr. Boston. But just kind of interesting we went guardrail to guardrail. So, it’s generally on the whole gotten easier to raise money. Our funds have generally gotten larger. Again, not that size specifically matters that much. You could raise several smaller funds and deploy them in a year or one bigger one and take two or three years to deploy. But generally, we’ve gotten more investor interest. We’ve got a pretty good track record. Folks are telling other folks. And again, they’ll typically invest with us some amount of money. And then before we close the fund and we send out that proverbial train leaving the station email as the fund closes, then usually the amount of money triples in that last month, for us anyway, it’s been about 3X higher, whatever it has been for the preceding 11 months. Anyway, so we’re about to launch another fund probably in Q2 of 2021 next year. We’ll see how large it is. No right or wrong answers, but it will be the same. People can invest and then make the subsequent follow on or whatever. We’ll just see where we end up and we’ll be buying deals all the way through.
Ferd Niemann: All right. That’s good stuff, man. Definitely the next level is when you start bringing on investors and there’s pros and cons to that, I’ve done some of that myself. And sometimes I wish I hadn’t. Because it’s like, oh no, now I’m doing all this extra regulatory stuff and all that, doing a craft and a PPM is a huge pain and all this stuff. It’s necessary, right. It’s part of the next step of the game. I’m like you, I don’t like to charge the asset management fees and all that kind of stuff prefers to do kind of a split, a deal by deal basis, sometimes an acquisition fees, sometimes not. But yeah, I mean, I’ve seen a lot of PPMs, a lot of funds that it’s amazing how many different structures, different hurdles and waterfalls and everything. There’s people actually asking me sometimes, how do you set this up? I’m like, there’s a thousand scenarios. How do you want to set this, what was your ultimate goal? What are you trying to get to for your investment? What are you trying to get them for you? And then we can set it up, you know, one way or another. And we do PPM for people, but they come to me like as if there’s one cookie-cutter deals, like there’s not. And if it’s a heavy infill or, you know, a big infill flip, it’s a different Performa. So, it’s a different, it’s probably a different general split than a deal that’s right down the fairway that’s 95% occupied market rent. So, I think you just continue to look at in each investor in each projects, case by case basis kind of navigate it.
Jefferson Lilly: Yep. That’s very true.
Ferd Niemann: What other, I won’t take too much of your time, what other tips or tricks do you have that you could share that our listeners can learn from?
Jefferson Lilly: Yeah, I just say so again, outsourcing is going to be critical do it sooner than you’re probably comfortable with. Key areas to outsource are accounting and then everything around marketing, just keeping a presence up on Facebook marketplace, Craigslist of course, Zillow, MH village, all those. Sometimes you’ll have community managers that are skilled enough to do all that marketing. But we’ve also outsourced some of that, but you probably don’t want to be the guy doing that either. And then if you have gotten to the fund level probably then you need to outsource or at least make a key hire for somebody just reviewing deals and filtering out, you know, for every 10 deals to get down to one that, you know, it looks like it might be interesting and you kind of define what your own internal metrics are around size, cap rate, upside. But we’ve found it’s been very good to have people just sort of saying and evaluating deals for us again, just to filter through to get down to the 10% of stuff that might be then worth, really digging into. So outsource early and often probably, but then I would say as soon as you can, as soon as you have scale, if you start keeping somebody busy 40 hours a week we’re somewhat close to that. I’d say again, you might want to then just bring them in-house as an employee. We found it generally helps when you get up to that level and you’re then somebody’s total mind share. It’s not just like, Oh, I found this guy through Fiverr and I do five hours a week of marketing for Jefferson, whoever that is. But like, we get somebody that’s like already busy, 30 something or towards 40, just bring him on again, probably as an employee could be an independent contractor, but just get a relationship with them where they’re working for you full time. We’ve found generally you’ll get better work. There’s just something about, you know, being somebody’s real sole focus and giving them a sense of that sort of stability. Like hey, this is, you know, it’s not just like some job on Fiverr and I need five hours this week and then it’s zero next. Like, you know, you’re now our marketing person, our controller, our deal guy. You’re now working here full-time. Basically, as soon as you can get to that, again I really advise folks to then try and actually make full-time hires as soon as you reasonably can.
Ferd Niemann: No, I think that’s great. I agree. I’m a big fan of bring people in full time. Cause in this, like, they feel like they’re part of the team. You don’t mind spending the same amount of time investing in them and helping you learn the trade. And then you got that you’re their boss, you get their full attention. So yeah, I’ve hired three full-time people in the last 10 days. Like I’m really trying to do that and just, you know, outsource, down source all that stuff and get people, you know, you’re just the acquisitions guy, find preliminary underwrite. You know, you catch them, the finance guy is going to cook them and I’ll clean them, you know, let’s get this thing all kind of team where I did and not to be too siloed. I liked crossbreeding all that, but that’s definitely, definitely good advice. And I’ve even noticed that in with the laborers. Maintenance guys where I first had a park, it was like 54 lots. We didn’t have enough work. It’s like 10 or 15 park-owned homes renovate. We had full-time work for a while to give this guy, but then we ran out of work and he went and got a roofing gig. Well then, we needed him to fix the toilet or something. He goes, Oh, I’m out roofing for the next three days. I get to it on Saturday. Like I need you today. Well, then I got a plumber for $50 an hour, this guy was $15. So, then I realized, okay, we need to buy enough work, buy enough stuff in this trade to keep this guy busy full-time and that’s been our goal. And like right now, today I’ve got, so I’ve got three full-time guys, maintenance guys in Kansas City. I sent two of them to Illinois today. Because I’m running out of work on the homes, waiting for the next one to come in I’m sending them to work on remodeling a duplex. That’s on a park, in some park-owned homes in Illinois, keep them busy. I am paying for them and put them in a hotel, then I don’t have to go find them again. So, if it makes sense for the maintenance that I thought of definitely makes sense too, for things like the marketing and the bookkeeping and all that. So definitely seems to be better for team building. Don’t go out there looking for jobs, don’t cut the mowing grass on the weekends. I need you and I can pay you. And once you do that, they believe you. So that’s great stuff. That’s great stuff. Well, Jackson, I appreciate it. Where can people find you or how can they contact you? Any information you want to share on that?
Jefferson Lilly: Sure. So, our website is simply www.parkavenuepartners.com and I think there’s a signup link for our mailing list, right at the very top center of the website. Honestly, we don’t email probably even once a month on average, but that’ll keep folks in the loop on our deals and the upcoming fund. There’s also, you can also email me, just fill out the form also. I think that towards the bottom of that homepage and then, and as you mentioned, I did also start the industry’s first mobile home park podcast called Mobile Home Park Investors. And folks can find that and our LinkedIn group simply by going to www.mobilehomeparkinvestors.com.
Ferd Niemann: That’s great. And how many episodes do you have on your podcast? I haven’t stayed up on it, I have to admit.
Jefferson Lilly: I think we’ve gotten to 121, so about a hundred hours of content up there. And yeah, we’ve got a range of folks. We actually sort of the biggest name, we actually interviewed Jim Clayton, obviously of Clayton homes. The guys we think of billionaire, sold his business to Warren Buffet. We’ve got a good interview with him up there. And then various other folks that, you know are mortgage brokers, designers of mobile home parks. There’s also just a fair amount of content and war stories from our experience, finding diligencing of parks and hiring people and going through all that you have to go through with the trenches to be in this business.
Ferd Niemann: All right. Well, great. I appreciate your help and your insights today Jefferson, take care.
Jefferson Lilly: Okay. Thank you Ferd bye-bye.