Frank Rolfe on Making Millions with Mobile Home Park Investing – EP 029

Justin Donald: Well, I'm so excited to spend some time with you, Frank, and I am thrilled for our audience just to get a chance to hear about you, learn your story, and more than anything, I'm excited to share the influence that you've had in my life. And so, thank you for being on the show. 

Frank Rolfe: Thanks for having me, Justin. It's exciting to be here with you. 

Justin Donald: This is awesome. So, for those of you that don't know, Frank is like the godfather of mobile home park investing. And I learned so much of what I know and what I do because of Frank. In fact, I'm closing on a park today and I reached out to him this morning, even prior to this podcast, and I said, "Hey, I've got a real quick question for you on something." And so, I still use Frank as a resource as often as I can but I'd love to hear just kind of how you got your start. I mean, I know this story but I think it'd be great for people to learn it. 

Frank Rolfe: Sure. Well, Justin, it's basically I got out of college a year early, started a billboard company, never intending to do that as a career. I thought I would sell that off and go to business school but I continued doing that. I sold it off after 14 years and then I had to find something new to do because I was in my mid-30s. So, I called around various people that I knew is either advertisers or who had built billboards on their property. And one guy called. It was a guy named Ron who had a mobile home park called Glenhaven that I built two billboards on and he sold it to me right there on the phone on one call. He told me he would want $400,000 with $10,000 down and he would carry $390,000 for thirty years. So, I said, "Well, Ron, obviously you seem fairly anxious to get this sold and terms are more than attractive so I assume it's losing money." And he said, "Yes, that's correct. It's losing $2,000 a month." So, that's how I got my start with an old beat-up trailer park in the wrong side of Dallas that was losing 2,000 a month. Not a very smart beginning for most people but I thought it was a challenge and I'd learn a lot. And I assumed I probably would end up giving it back but it worked out and I kept it. 

Justin Donald: That's awesome. And in fact, there's so much unpackaged just in this. So, first of all, you had a nice exit on the billboard business that you had. You had some cash that you needed to deploy. This is an asset class that you had no idea about. I mean, it's not like you'd been studying these things. I mean, it was just, as I understand it, kind of like serendipitous timing where you called someone who owned a park, he was selling it, you were able to get them to sell or finance this thing. And for those of you listening or those of you watching, here's the thing with seller finance. Mobile home parks are one of the only places that you can go in real estate where you regularly get sellers to finance it. You don't have to get a bank loan. They'll actually carry the note, which is what happened in this instance. And so, that's cool. So, tell us what happened. They're losing 2,000 a month. Most people would say, "No way, I don't want this," but you said, "Let's do it." 

Frank Rolfe: Yeah. Well, what happened was, Justin, I figure that $10,000 was not a huge cost for big education. And I was a little intrigued with the park, I have to admit, mainly because doing billboards, you work in a world of zonings because billboards are regulated by the US government and you can only build them in certain zonings. And I noticed that that classification of mobile home, MH, was the rarest I had ever seen. So, when I built those two billboards, my brain made a footnote, "I had never seen MH zoning before," so I knew it was rare. I figured that was supply and demand. If it was rare, it had to be worth something, and then that the seller financing really drew me in because I thought, "Well, my worst-case scenario is I give it back. It was non-recourse debt." So, I poured over his books and records and everything he had going on. And there I unlocked the mystery of how I could solve 2,000 in one millisecond and that was he had a cable bill where he was paying cable for the entire park, all 83 lots at full market rate, no discount. So, he's paid back then, what was it, about $25 a lot for 83 lots. He was only half occupied. So, he's paying $50 twice retail for the occupied lots and it was on a month-to-month deal so I just canceled it. Cable company said I was crazy because they would then turn everyone's cable off and I noticed many people had Dish and DirecTV discs on the roof. So, I said, "Well, dude, I don't think you're going to impact that many anyway." So, we turned it off and I had virtually no complaints from that. And that solved it. Now, I'm at zero, but still zero isn't going to work, right? So, zero doesn't cover Ron's mortgage. Zero doesn't do me any good. So, next thing I do is I embark on making the thing profitable which was basically raising rents and filling lots. So, that's basically the story. 

Justin Donald: Well, it's incredible that you had the foresight to be able to see this, to dissect the numbers, and say, "Hey, I can make this move. I can break even. I can make one more move and now all of a sudden I'm profitable. And I think most people just look at the numbers as is versus how they would actually run it. What would they do differently? What expenses would they cut out? What expenses would exist with your management should you take it over? And I love that you did that. Something that you touched on that I think it's really important is the power of MH zoning. So, I'd love to know why this is your favorite or one of your favorite types of zoning because this is a very unique type of zoning and you're basically grandfathered into all the laws based on what was passed at that time. So, I'd love for you to explain that a little bit. 

Frank Rolfe: Sure. Yeah. Just when I got into it, again, I didn't know much about the industry and the scarcity of the zoning was attractive. As I got more into the industry, I found there are other things to me, even equally attractive, such as the fact you can't build any more mobile home parks which somewhat ties back to the zoning issue and that the homes can't move. So, I love the fact that my customers are very sticky, very easy to retain. And then as time has progressed, the industry has just gotten on the right side of all the curves. So, now you've got in the US more than ever before, a huge demand for affordable housing. It wasn't as big when I bought Glenhaven back in the mid-90s. Affordable housing wasn't a term you heard very much back then, but now that's hot. Just as this new national rampage after COVID moved from urban markets into suburban and exurban, almost all of our parks are suburban/exurban so that's helping hugely. The issue with inflation that's now popping up in the news, that's good for real estate, great for mobile home parks, because we can adjust our rents. So, really, I honestly can't tell you of any investment industry I find more favorable based on how everything aligned. Now, was it meant to be that way? A lot of that is just sheer random luck but nevertheless, right now, mobile home parks, to me, that's a place you want to be. 

Justin Donald: Yeah. And I'm trying to just make sure that I'm remembering this correctly. I think you have an Econ degree, correct? Is that right? 

Frank Rolfe: That is correct. 

Justin Donald: And so, one of the things that impressed me as I first got to know you is the way that you analyze deals, the way that you kind of run numbers and you're really good with math. You can do all kinds of stuff in your head, which is great, but I loved the way that you apply scarcity, supply-demand into the equation of real estate, into the equation of zoning, into the equation of, I mean, just a limited supply of mobile home parks in general so let alone limited supply of the zoning but there's, what, 44,000 mobile home parks in the US. And so, I'd love to know like just even have a snapshot as you first started getting in this, and based on what you know today, why else do you see this as such a powerful investment opportunity for, I mean, certainly institutional investors are getting into it now? I mean, it's becoming more of a main thing but just an average investor, like a first-time investor, someone that wants to create some cash flow. I'd love to know why you still think this is the best. And by the way, I do, too. 

Frank Rolfe: Sure. Well, Justin, go back to touch on your first issue, I was into scarcity from going back into the billboard industry because billboards are one of the few remaining federally-regulated industries. You have to have a license and you have to build them in only certain zonings and spacings. So, in the world of billboards, every billboard is a precious commodity because they're restricted, right? And the history of billboards where they used to not be restricted, they were not federally regulated until 1961. So, prior to that period, you could build them anywhere and since you could build them anywhere, they had no value. So, when you restrict the supply is when you create the value. So, when the city stopped allowing new parks to be built, that's really what kicked off the value potential of the parks. But the part right now that most people are investing in beyond the fact that it's scarcity is the room you have to grow the rents. And that's the most remarkable part. And when most people model that out, that's what blows people away, is how much money you can make simply from raising rents. I'm talking nominal raises, not hundreds of dollars, but if you have an 80-space park, for example, and you raise that rent up just a nominal amount, let's say you raise it up $50, that's going to create about half a million dollars of value. And that's the real turn-on I feel for most people in the industry. 

And that's why private equity groups are doing it is because they look at the rents of mobile home parks compared to the other housing sectors like apartments and single-family, and they can't make any sense of the numbers and no one can make sense of the numbers. That's why Charles Becker, an economist at Duke University, did a research paper on it and he couldn't make sense of the numbers. All he could come up with was the idea that the industry suffers from mom-and-pop quantitative easing, where the owners kept the rents very, very low and as a result, our rents are right now running 50% of what they would have been if you inflation-adjust when the parts were built. So, it's that room to push rents. That's huge. The other is, of course, filling lots. A lot of moms and pops never wanted to get involved in it, never want to buy any homes, bring them in. And so, it blows people away that we have certain parks. For example, we have a park in Fort Wayne, Indiana, right now that we're selling an average of 8 to 10 homes a month. And most people would say, "Well, how is that possible? Why didn't mom and pop do it?" Well, they just didn't want to do it. So, those are the big drivers basically is driving occupancy and rents. 

Justin Donald: That's right. And so, those are the two big drivers and then the other big thing to look at is to cut expenses, right? So, there are three ways to really grow the profitability of a park. And I'd love to hear you weigh in on some of the absurd expenses that you see because this to me is one of the biggest difference-makers between people who understand real estate and invest in real estate and those that don't is most people look at the numbers and they are what they are and they don't kind of dig in. Whereas you and I, we dig into these numbers because this is where you find the gold and you can say, "Wow. They're paying their management twice as much as I would have," or, "Oh, my goodness, they're being double-billed for something," or whatever it is. I'd love to hear some of the stories and experiences that you've had with excess expenses that you were immediately able to cut for a two or three or four cap rate increase. 

Frank Rolfe: Yeah. Well, let's first quantify it for people. If I can cut an expense in a park by $10,000 at a 10 cap, that's $100,000 of value, the five cap is $200,000 of value so obviously, every dollar I can cut has a multiplier effect of ten times or more that number, right? So, let me give an example from yesterday. I had a park owner. People find me on the Internet. I do not know them. This person called me up. They owned a mobile home park and they weren't making any money and I said, "Well, tell me a little bit about your park." "Well, it's a 40-lot park." "Okay. I got you." And then I asked him who went into it. "So, what's your manager?" And, "Oh, I have a manager and I'm paying him $40,000 a year." "Okay." And they said, "Then I've got an assistant manager and I pay them $24,000 a year," and I said, "Well, let me tell you the problem right off the bat. You're paying $64,000 in manager costs. And on a 40-space park like that, the going rate would be roughly $400 a month plus free lot rents so probably about $12,000 a year. So, you're spending $50,000 for no reason on your mobile home park, which I might add was full, which makes it even zanier. And so, basically, they were losing about half a million to three-quarters of a million dollars in value, simply off these two bumbling managers, manager A and manager B, and it's that kind of insane inefficiency that really blows your mind. 

You know, there are groups out there like InBev, the folks about Budweiser that Warren Buffett used to be all excited about that they would cut every penny known to man. I mean, they got rid of the Clydesdales. They got rid of everything that made Budweiser a holy beer enterprise because they wanted to shave every penny. But in our industry, it's not just pennies. It's literally giant bags of cash lying around the people with very poor management skills. They don't get it. And the average mom and pop just isn't very good in the analytics department. Our world record park is the park we bought over in Illinois where the sum of the manager and the assistant manager and the maintenance man was more than the gross revenue. And it's mind-boggling. You don't see that. And I've never seen it in any other industry. I mean, the billboard industry was somewhat inefficient. I was buying those mostly from moms and pops, but yet they were in the game. They were on the ball to some degree. And if I could cut the cost on a billboard, it was always a fractional amount, maybe by using a little less expensive paint or something. But our industry suffers from the greatest amount of mom-and-pop inefficiency I've ever seen. 

Justin Donald: Yeah. And that's also true with, you know, again, you talked about the quantitative easing effect of not doing rent increases. And so, moms and pops are notorious for not doing rent raises because they feel like they don't want to do it with people that maybe have become friends or they become closer with, even though in order for this land to be worth what it is and not be redeveloped, you really need to keep up with just market increases all across the board. Also, when I think about like water and sewer and when parks take those on and kind of irresponsibility that happens all the way around when a park pays for those utilities as opposed to the tenants or the residents. And so, I think that's a really big one that you can find a park that has a master meter that the park is paying for and then build those back to the tenant or just get submeters installed so that really the residents there are paying for what they're using, which is the fairest way of doing it, and it massively increases the value. And the moment they pay for it, it completely decreases the amount that they spend on water or usage. 

Frank Rolfe: That's correct. And then you have some other really odd items like the park we bought in Ellesmere, Kentucky, where the guy was running 5,000 a month in water leaks because he had this mythology that he could never find the leak. And if he did, it would require him to rip his street out. So, without ever having a licensed plumber or anyone detect/find the leak or even give him a rough idea from probing what the options were, he decided that he would just let the leak run forever. So, that $5,000 a month leak, when we went to buy the park, lowered the price down by about $600,000 or $700,000. And the weird ending was the appraiser who appraised the park, we had a conduit loan on it, he just assumed the leak could be fixed. So, his appraised value came out $600,000 or $700,000 more than what we were paying for the park because no one had ever seen a situation where you could not fix the leak. The weird ending was after buying the park, lo and behold, the leak was not a big deal. It was not under the street, easily detectable, easily fixed. So, the water-sewer in mobile home parks remains a mystery for most moms and pops. They do not understand the concept. The modern operator wants to try and do 90%, 95% recapture but many moms and pops are waffling around 20%, 30%, 50% recapture. 

Justin Donald: Now, you talk about conduit lending, and when I think about conduit lending, so, first of all, most people probably don't know what that is, right? And that's a form of CMBS lending and there are pros and there are cons but I'd love to have you dissect that a little more why you like to use it. I know you get a longer-term, typically like a ten-year term, but then there are defeasance that are involved. So, I'd love for you to recapture and kind of articulate the pros and the cons as you see them. 

Frank Rolfe: Yeah. You know, a conduit loan is perhaps one of the most attractive ways to borrow money because it's a 10-year fixed low-interest rate. So, you don't have to worry about finding a new lender for a decade. You don't worry about your interest rate going up. And most importantly, it's non-recourse, which means if the deal should fail, which hopefully it never would, but if it did, you would walk free. All you can lose is your down payment, regardless of what park sells for after foreclosure. However, you've already touched on the big problem with conduits. As good as a conduit is, if you want to sell during that decade, you are punished with something called defeasance. Now, the reason they have to do that is conduit lending is not a bank. So, it's a loan that's originated by a bank sold out on Wall Street and then serviced by what are called servicers but they can't re-lend your money. So, if it was a bank and I wanted to prepay my loan, they'll take the loan amount and they'll go out and lend it again, and they'll get the income stream going again with some time of delay. But the conduit lender can't do that. They can't go out and reloan it. So, you have to buy enough Treasury bills to cover the sum of all payments until the end of the loan. And it's punishing. We've seen the fees on some properties as much as 30% or 40% of face value. So, if you've got a million-dollar conduit loan and are facing a $400,000 defeasance cost, then it basically renders it illiquid until very near the end of the loan because you're not going to pay a penalty that big. So, that's the problem. You're pretty much locked into it. If unless you're willing to hold that asset for a decade, then you really shouldn't be doing conduit lending. 

Justin Donald: Yeah. And these are great points but it also brings up agency debt and Fannie Mae/Freddie Mac, which is very attractive. I know a lot of people like it. Pros and cons there as well. You've got yield maintenance and you've got some other things. I'd love to have you explain that in more detail as well. 

Frank Rolfe: Sure. Yeah. Fannie Mae/Freddie Mac kind of came out of nowhere. Back when I got in the business, the only other option you had beyond bank debt and seller carry was conduit. And Fannie Mae had a few programs back then but they were rarified air and no property I ever had would ever qualify for one. So, then when they had the Duty to Serve expose probably five to 10 years ago, they decided in Congress that the government was not doing enough to help the disadvantaged homeowner. So, the Fannie Mae/Freddie Mac decided to start making park loans more aggressively. And so, their product is actually superior to conduit. It goes up to a 12-year term fixed interest rate yet again. It also gives you ability to resize. You can actually internally refinance your loan. You're allowed to do that once a year. So, there are many reasons that the Fannie/Freddie program is more attractive than conduit. The only reason people still do conduit though is Fannie/Freddie, you're talking to an even larger loan. They typically like loans that are at least 2 million and up and also that they often want to see a higher quality property than conduit will finance. Now, the only weird wrinkle to Fannie/Freddie is they will do more rural properties because under the Duty to Serve Act, we're supposed to treat everything equally, regardless whether it's urban or rural. That's one unique feature. But by and large, both of them are excellent loan types. I mean, any time you can get a conduit loan or a Fannie/Freddie agency loan, you should definitely take it because getting a fixed rate 10 or 12-year money is it's insanely attractive. 

Justin Donald: And now we always talk about how seller finance is the best of all of them, but that probably just depends on the terms, right? How long of a term do you get? So, I'm curious, in your world, like what is the perfect term? If you could have a seller finance note, what would that look like? 

Frank Rolfe: Well, the perfect term on a seller finance would be no prepayment penalty, 30 or fully amortizing so you never have to get a bank loan. The problem is most moms and pops are in their 80s, sometimes 90s. They're not going to do a 30-year loan. The only reason Ron did 30 on Glenhaven was Ron wasn't that old. He was probably like about in his late 60s. And if you do a long loan and you're an older person, it's not the end of the world. If you should die, it would still go to your heirs. You’d still have a first lien note at a decent interest rate but they just traditionally won't go longer than about 10 years. So, the length of most seller notes comes out about the same as the conduit. Now, the benefits of the seller, if I could choose between seller or conduit on an identical 10-year note, I would go with the seller simply because a seller does not require nearly as much third-party reports in cost. Right? There also is no trauma. There's no loan committee. There's no vetting of any type but typically, our typical seller note we get is going to be in the range of a five to 10-year note. On the five-year, we try and do what's called buying an option to extend for typically two to three years, where if we needed at the very end of the note, we can pay them a pre-described amount of money to extend for 24 months or so. So, it comes down to about a seven-year note. But we love all those types and we do also do bank lending. Probably the bank lending is typically it's much shorter normally five-year term and it's harder to get fixed-rate interest. And so, it's just not quite as attractive. It would be the bottom of the barrel of the four. 

Justin Donald: Yeah. That makes sense. And generally, if you're going with a bank then it is recourse. So, if something goes wrong, they can come after all your assets to get paid back. 

Frank Rolfe: That's correct. 

Justin Donald: Every now and again, you can find a lender that will do non-recourse but that is few and far between. Now, I will say that I love seller finance because of all the things you just mentioned. And on my very first seller finance deal, that seller who was just an incredible guy, we just had a great relationship and bonded, he was willing to do a 10-year note with an option to extend for ten years. So, a 20-year note on a seller finance at a fixed interest rate, which is incredible. And so, I'm such a huge fan of it. 

Frank Rolfe: Yep. 

Justin Donald: You know, this kind of takes me back to when we first met and I thought about opening up the episode that way and I thought, "You know what, let's talk about some mobile home parks for a bit.". 

Frank Rolfe: Sure. 

Justin Donald: But I met you at a mobile home park boot camp. And one of my friends had gone to a boot camp and had heard about you and he was like, "Oh, man, I wish I would have gone to theirs. So, you should go see Frank and his partner, Dave." And so, Frank Rolfe, Dave Reynolds, you guys are known in the industry. And so, I did some research. Everything looked good and I showed up to one of your weekend boot camps and I was just blown away. I was blown away by the information. I showed up pretty sure that I wanted to do mobile home park investing. I left with all the certainty in the world and I was just ready to get some things done. And I felt so equipped to be able to do it. And it was fun. It was funny. You're hysterical. There's no doubt about that. And it was just neat seeing such an educated investor that has made mobile home park investing his career, and then the reasons why like I just felt like I got this well-rounded answer as to why mobile home park investing. Because at first, I was, you know, one of my friends was doing it and I was like, "That sounds weird." I like the idea of single-family homes, which is what we were - that was the thing, right? And then to transition to mobile home park investing, it wasn't like a smooth transition. In my mind, I was like, "Well, why would you do that? I don't know if that's better." And then learning everything I learned, I learned that it was better. And so, what was cool about this event, I said, "Well, hearing you speak, I need to make sure, A, that I can befriend you, B, I would like you to take me under your wing, and you certainly did that over the years. And I feel blessed, A, to have had the opportunity to go to your boot camp, but, B, to run into you at the airport and find out that we were actually on the same flight home. And one of my things is I just want to connect with people. I'm happy to take them out and I said I want to take you to dinner and you agreed, and we just had an awesome conversation. And that to me was kind of how we struck up our friendship. And I'm appreciative of that. 

Frank Rolfe: Sure. Great. Well, I appreciate it, too, Justin. You're a very interesting individual. I knew from the first time that we met that you yourself had a very colorful story. So, it was as intriguing for me as it was for you. 

Justin Donald: Well, I appreciate that. And for those of you, I mean, one of the things that I've talked about is how I spent a decade of my life taking someone out to eat and finding just someone that I thought would be interesting and someone that I could learn from. And so, I've learned a ton, obviously, from you over the years. And one of the cool things that I learned about you that I'd love to share, and I know you're an open book on everything, but you have this gorgeous, historic home that you have repurposed into a museum of sorts. And I'd love for you to share just some of these artifacts and documents and I mean all the cool things that you have collected because it is such a showcase. 

Frank Rolfe: Thank you. What happened was I was living in Dallas and I, in my childhood, had spent some summers in small-town America, Effingham, Kansas, predominantly. I really like the small-town feel. And so, I really wanted to get back and try out small-town living. So, the house that my wife when she was growing up that her dad thought would be the ultimate house came on the market about the same time. So, we bought that house and started restoring it. And it was built in 1808 and holds three firsts in American history. It was the first school west of the Mississippi, it was the first Christian Brothers school in the U.S., and it was the first court-ordered hanging was in the yard of the house. So, those are its three firsts. And so, as we were putting the thing back together, there were artifacts that came with the house that then there were many things I thought would be interesting to add on. So, over the last decades that we've been here, I've just been adding on and adding on and we opened the small museum downstairs. But the house over time, we give tours of it on a fairly regular basis and it ties just basically not only to the history of the U.S., but also the history of Missouri. Some of our unusual artifacts are I have a piece of Lincoln's shirt from when he was assassinated. That's probably the most unique item I have but I've got stuff from all areas of American history, letters to John Hancock, letter from George Washington, all kinds of crazy stuff. And then people keep donating things to my little museum. So, recently we got a bunch of new artifacts in from the Catholic Church because the fact the origin of the Christian Brothers, I have people in the Catholic Church who come by periodically to tour but that's kind of the story. It's kind of been a hobby, had a lot of fun, giving tours of it, and I'm a huge, huge lover of American history. So, it's fun living in American history for me. 

Justin Donald: Yeah. No kidding. And it's fun because I feel like you are one of the greatest wealth of knowledge of anyone that I know. I mean, you know, just I mean, the ends of the Earth when it comes to mobile home park investing and then when I got a chance to kind of have you tour, give us a tour of your unbelievable museum, I couldn't believe how much you knew about American history. And I was blown away with all the different artifacts and letters and just unique, even like old school guns and such cool collectibles that you have and I love that you open it up for people to be able to see it as well. 

Frank Rolfe: Yeah. We even do bus tours periodically. So, I think we've had everything from like fifth-grade school classes all the way to seniors out of a senior center in St. Louis. So, we hit all ages 

Justin Donald: That is so cool. I love it. So, I've got a question based on kind of where we are in the market cycle, where we are in this money printing. To me, it's kind of absurd how much money has been printed, how much more is in circulation. Obviously, being an economics major, you know, the value of investing in assets when monetary supply expands because assets then expand. But I'm curious where you are with the economy. What do you think is going to happen and how are you protecting yourself? 

Frank Rolfe: I think only bad things are going to happen, Justin, because, as you know, I'm 100% pessimist but also as a former economist, I can tell you that right now America is violating just about every law and rule of economics. And various people have pointed out, Charlie Munger, Warren Buffett's business partner recently said that it was basically the worst positioning he'd ever seen for the nation. I am far older than you. I just turned 60 recently. I remember back when we had a balanced budget. I remember under the days of Clinton, we actually had a surplus, and at that time, the goal was we were going to pay the debt down to zero, and then sometime during the Bush era, it went crazy. When we started the Middle Eastern wars, our deficit just went insane. And then just kind of like people just gave up and said, "Oh, well, since it's already 5 trillion, now 10 trillion, it doesn’t really matter anymore." And you're seeing that right now with a lot of the stuff that Biden is doing where we're just throwing trillions on as though they're nothing. And of course, with every trillion, comes a huge amount of debt for the average American household. We've got, I don't know, 150 million households in the US. When you start throwing trillions on, that's very expensive. So, it's not like we're made out of money. And so, what I envision happening logically based on the laws of economics would be a rekindling of inflation, which in fact you're seeing right now. That's why the market is dropping right now because people are concerned. 

Now, I remember back from Stanford that in times of inflation, there are only two investments that work and one is gold and the other was real estate. I think that was straight out of the textbook. And so, I remember that coming out of college and witnessing the various crashes I've seen, the Texas S&L crash, the dotcom crash, the Great Recession housing crash. It's always about there are certain assets that do well in times of peril and certain assets that do terrible. So, then you want to be in the stuff that's going to do good, not the stuff that's going to do bad. And to me, mobile home parks just always turned out to be the only thing I can think of that does good. So, let's just say we have inflation, and I've been through inflation. I lived in the 70s. I remember when prices were just absolutely insane. So, if we have big inflation, I don't imagine hyperinflation. I think the government will stop hyperinflation but if we have moderate inflation, 5%, 6%, I think there were years in where I saw inflation as much as 10% as I recall in the 70s. What's going to happen is you're going to have the value of real estate assets go up if and only if they can modify their income to go up with it. So, mobile home parks, in most cases, my leases are month-to-month. And even though I'm criticized for it, I'm no stranger to raising rents. So, if we did have big inflation, you would resultantly have big rent increases in mobile home parks, which will at least keep the values whole. But as those values are rising with those rent increases, all of that debt out there in the parks, it's fixed. The banks can't alter that. 

So, I think I'm very, very bullish on parks. I just recently, as part of my 60th birthday, look back both backwards and forward forecasting of where the future of America is that I'm more bullish now on parks than I've literally ever been before, simply because the way that the nation is getting more and more screwed up, parks seem to be the only thing on the right side of the dynamic. Because to have the right asset is something that not only will hold its value in inflation, but it has to be suburban and exurban. Can't be urban because people are fleeing. So, we once again just happen out of sheer luck to be in the right spot. Now, people might say, "Well, you must have seen that coming back in the mid-90s when you got in the business." No, not whatsoever. I never thought America would get this screwed up but it's basically the only way I know you can protect yourself right now is with income-producing assets that are in areas that have high levels of demand, that are on the right side of the megatrends. And that's why I still like mobile home parks. 

Justin Donald: That makes sense. And what do you say to people that feel like all real estate is overvalued? And even in mobile home parks, we're seeing some things that are way overvalued. There's a mobile home park here in Austin that was being listed at a 3.8 cap. We're talking 387 units going for $52 million. 

Frank Rolfe: Yeah. Well, the only thing I can tell you, Justin, is Austin is a very dynamic market. And if you go out to mean it is not out of the realm of thinking that you could have mobile home park lot rents in the four digits, I've seen it with my own eyes out in California. It is possible. Austin right now, as I recall, is about 650 I think in rent. You could model it can go higher. I mean, Denver's at 850. So, why would Denver be 200 a month more than Austin? Probably wouldn't. If you look at that 3.8 cap and you tack $200 onto it, you probably would have a fairly reasonable cap. Now, the problem is the person who bought that at that price, at that cap have built-in part of that profit into their purchase. So, that's not the kind of profitability that I would want. But I would far rather buy a mobile home park at a 3.8 cap than an apartment complex or a hotel or something else at 3.8 that doesn't have that room to move the rents. So, I can't say that whoever is buying things at the 3.8 cap is a genius. However, we ourselves have bought things that lower cap rates than that when we had a lot of movement on rents, cost-cutting, occupancy. So, you have to look at kind of like what will it be a year from now more than what it is day of closing. But I don't think parks are overvalued. I get asked that all the time because people are horrified with the sticker shock. 

But again, bear in mind, our sticker shock is based typically on net income. So, I recently read to her that there was a park that sold in California for $80 million about a decade or so ago, and that was the most anyone ever paid for a park. If you read the numbers on the park today, the park actually does pretty well. I mean, he's followed his plan. He's raised the rent significantly. So, in the end, we'll work out and plus its location in Newport Beach, you can probably just redevelop it in a single-family anyway, and it would still show a profit. But there are certain assets that follow life cycles. All of them do where they get too expensive and you look back and you say, "That was the moment you should have sold. That was the peak of the mountain and it was all downhill after that." And I don't think you're there in Mobile Home Park for the most part. In some select parks, yes, but by far the majority, no. 

Justin Donald: Well, in mobile home park, it's the least consolidated asset class for real estate and by a large margin at that. I'd love to hear your thoughts on that specifically. 

Frank Rolfe: Sure. Well, I mean, consolidation of our industry is a given because in all of real estate, what happens is you have certain players and a lot of it ties back to the ability to fundraise, ability to get debt. That's why Sam Zell was first in office and apartments and mobile home parks. He is extremely good at raising money and obtaining debt. So, a few people rise to the top. And in our industry, Zell is number one but Sun Communities has gotten just about as efficient at it. So, it's Yes! Communities, RHP, other folks. So, these consolidators, what they do is they try and come up with a model to where they can get everything kind of standardized. And then as long as they can find things that fit that model, then they'll buy it. And when they get rolling and when they get a lot of money behind them, they can be extremely dangerous as far as buying up large amounts of property. Now, they don't always do well because there was one in our industry called ARC that did terrible. They went public and later went private and they had, as I recall, massive losses. So, it also harkens back to being a good chooser of properties and an efficient manager. But our industry just hasn't had that many aggregators compared to storage industry, compared to obviously apartments, those private equity groups, and single-family doing the single-family rentals. They've been on much larger horse-powered engines with big turbochargers than that our industry has. But it's coming. I mean, if you go to a mobile home park event today, you'll see a lot of private equity groups and you had a lot in there like Carlyle Group has been in it. So, it's around the corner. 

We'll be harder to consolidate, though, because just as anyone does, when you look at the industry as an outsider, there's kind of a shock and horror on the front end because you're just not used to this quality of asset or customer. It takes a while to get comfortable with it and then to find your niche. And Carlyle has just been buying up properties one at a time, trying to find their niche but, yes, something will happen. I think where you'll see it really happening is when you have the first REIT that does the affordable housing sector. Right now, all the REITs have been lifestyle choice, which is the highest end, and they pretty much wiped that market out but it's a very small part of the American mobile home park market. So, that's pretty mature but the all-age family affordable sector is in its absolute infancy. There's really nothing going on. I mean, the rumor that's always been floating around the last few years is that Yes! Communities, which is the largest of the all-age would go public. And then with the strength of them going public, they would become the great aggregator. I think possibly that is still true. They're excellent managers, but they still haven't taken that step yet. 

Justin Donald: And so, when we talk about an industry consolidating, it's more institutional players that are owning it. And so, at one point in time, storage units were very much mom and pop, and eventually, they were kind of like there was a stigma for those like that there is today for mobile home parks but now storage units are kind of just a great thing to do and people like it and the name is sexy today. And it's interesting to see kind of this turn that's happening with mobile home parks. But that happened in storage units and now it's predominantly institutionally owned. You look at mobile home parks, it's the flip flop of it but the name, it doesn't have the negative stigma that it once had. You've got institutional players that are definitely in. There have been at least $3 billion transactions in mobile home parks. And I'm curious what you think the percentage of institutional owners in the space is versus mom and pops. 

Frank Rolfe: Sure. Well, I mean, we know roughly what it is because if you take the top 100 owners and take the number of properties they have and add them together, it comes out to a little less than 4,000. So, there are 44,000 parks. So, only about 10% are owned by what I would call institutional owners. But going back to storage, storage is interesting because if you study storage, you can see a lot of where the park industry is heading but also where it won't head. Because in storage, what you had happen, just like if you read articles about storage from the 70s, they call it a weird asset type. All the articles always put it in some disclaimer like it's weird, strange. Some will call it a fad. And so, it started off just as creepy as mobile home parks but it was embraced. And, of course, public storage had a lot to do with that. They were the great aggregator of it. But where the industry went wrong with storage is there are no restrictions on building. So, what happened was these guys, when they got all this super-powered money behind them in debt, they went on the strange building odyssey and they built billions of square feet just over the last few years. So, the problem is now you've got declining rents, declining occupancy in some markets. Parks you can't build new. And so, to me, that's the important part. It's kind of like if you had a giant sail on a sailboat, what makes that sailboat work is when you ratchet that boom tight and the sail therefore grabs the air and holds on to it. If I let go of the rope, boat doesn't move. And the problem with storage is with the ability to build pretty much anywhere, the industry itself can become its own worst enemy. And I like that aspect to our industry far more than storage. 

Justin Donald: And I think that's the same then also with multifamily apartment complexes because there's always the opportunity to have a bigger, better, nicer apartment right across the street from where your nice new best-in-class is at the time. What are the other issues you see with apartment complexes? I mean, obviously, we know that just like most other assets there, many would say that they're overpriced.  I would say they're overpriced. I'm curious, your thoughts there.

Frank Rolfe: Sure. The problem you have with apartments and, again, I'm not an apartment investor, the apartments we have are inside of mobile home parks we didn't want anyway. They just came with the property. But our experience with apartments are a whole lot of it has to do with being a good manager of the repairs, the maintenance, the CapEx items are constantly wearing out. Mobile home parks, in the perfect sense. I just rent land on a parking lot, so I don't have to get into the algorithm of remodeling or repairing the physical dwelling structures. So, it's a much more purer form of real estate because I don't have to mess with anything other than just the land. My other problem I have with apartments are that simply the pricing. I don't think you have the room. I'm not an apartment player, but I'm not sure that you have the room to push the rents on apartments like you do in mobile home parks. Many people would say, well, no, that's not true because when you're just renting land to see rent land for 400 and then the person has to have their mortgage on top, but 80% of all park people have no mortgage. The homes are owned free and clear. So, many of our markets, let's just take Austin, for example, if I was to go out and get a three-bedroom apartment in Austin, it's probably $1,600 a month, $1,700 a month, and even then maybe not even a good one. But that mobile home park down the street that maybe at 650, that's the all-in payment. So, if I'm at 650 all in then the alternative is 1,600. I can still go up significantly but I don't have any confidence of apartment rents in the 2,000-plus category. That's kind of where they're heading. So, I just think a much, much greater chance. If you look at the ratio, obviously, if I have a $1,500 a month apartment and I raise that up $50, it's a fractional amount of an increase. If I have a $300 mobile home park, I raise that up $50, it's a much greater percentage boost. 

So, I just never really been a big apartment fan. And I can't say that I've done it, that I'm an expert in apartments. I've never owned a freestanding large complex, but I've just never been turned on by it. When I bought the mobile home park from Ron, I looked at a number of different items. I looked at a guy that had a large commercial storage facility, didn't like it. It was also losing money, but I had no confidence in it and people tried to pinch me on buying apartments. And I went and looked at a few and I was just turned off. It wasn't my thing. So, I'm not that bullish on apartments. 

Justin Donald: Yeah. And you used an example here in Austin where we have a much higher lot rent than the rest of America, for the most part. You guys, I think, last I checked, I think you are the sixth-largest owners of mobile home parks in the nation. 

Frank Rolfe: Well, we were the fifth but we were slipping to UMH, so we may not be sixth. I have to look at the list. 

Justin Donald: Maybe you are fifth. You've always been fifth or sixth for like the last decade that I have known you. You've been in between five and six and the largest private owners. And so, like how many units do you have now? 

Frank Rolfe: Well, about 20,000. 

Justin Donald: So, 20,000 units. Are you seeing the average lot rent in the US, around $280 or so? 

Frank Rolfe: Yeah. I'm still seeing probably 280 is the average but like our portfolio, we're now closer to 400, whereas we were 280 not that many years ago. And I think that's the general direction. In fact, most of your larger metros, most of your 100,000 plus metros I think 400 is becoming the new 300 in a lot of properties with the annual creep of rents. 

Justin Donald: And so, you think about that, number one, you can see now how much room there is to move and rent just based on what a two-bedroom or three-bedroom apartment complex goes for, even Class B. I mean, even look at Class C, what that goes for. I mean, there's a huge margin there or huge delta, I should say. A lot of people don't realize that an apartment like a Class C is like it's smaller. It's louder. I mean, it's probably not anywhere close to the living conditions of being in a mobile home park. 

Frank Rolfe: Correct. 

Justin Donald: And so, that's one point to make but another one is for people that wonder, well, how can you make such good cash flow on a mobile home park if your lot rent is so low with an average of 280 or 350 or 400? 

Frank Rolfe: Well, Justin, it's the volume of units to start with, right? I mean, a lot of the apartments that we have inside our parks, the biggest we have is eight units. Our biggest mobile home park is 750 units. But if you take an average park and let's just say even 50 units, if I can raise that rent over time by $100, that's $5,000 a month of cash flow. I can probably raise any rent by 100 over a three-year span, going up roughly $30 a year. So, it's the volume of those widgets that really makes it happen. And then, of course, it's also the expense ratio. Our expense ratios tend to be lower than a lot of other sectors. I'm not really sure of the true apartment expense ratio, to be honest with you, but in general, your ability to boost income on mobile home parks is far greater than apartments. That's why so many apartment people have segued into a mobile home park. A lot of those private equity groups that are looking or have bought mobile home parks began with apartments, the biggest of which is Brookfield, which is a giant Canadian apartment REIT and they came down to the US and bought out RHP, the third-largest park owner. So, here they are, segueing from apartments on a large scale as an apartment REIT to buy mobile home parks in the US. 

Justin Donald: Yeah. And one thing I wanted to point out here, Frank, is because you had mentioned that you had this huge park, 750 or so units. I want to show I kind of want to demonstrate for our audience the power of a rent increase. So, let's say you increased rent in that park by $30. Well, that's a total of $270,000 over the course of that year. And at a 10 cap, that's $2.7 million added out of thin air of value, just literally manufactured because you have that ability and that is the power of this space. 

Frank Rolfe: Well, Justin, let's just use a case study right there in Austin where you are, the park that we bought and sold in North Lamar. We bought that park. Our rents were at 390 a month. When we sold it, they were at 580 a month. We bought it for 2 million, sold it for nearly 6. So, that's not a big property. That's a 68-space approximate park. So, that's just the power of the rents. And again, a lot of people who are outside the industry don't know it has that magical power, but that's why people get into it. You know, one thing I also throw out is that for anyone watching who's never been in a real mobile home park, not just seen things on 8 Mile or Trailer Boys or any of those shows, I would urge anyone to actually go look at a park because it's a revelation to most people what our industry actually is. I mean, I look at today is kind of in the high-density subdivision business. Our product doesn't in any way resemble what the average American thinks of as a trailer park, a mobile home park. It's basically a lot of nice houses, well-kept, that are just a little closer together than they might be in your neighborhood but it's not. Many people have a complete misconception of the business model itself. I myself did because, I mean, my first park, Glenhaven, was a pit, so I just assumed all parks were pits. And then when I started learning about the industry, I would even ask people so like, "What should I aspire to be?" then people would say, "Oh, you need to go look at this mobile home park. That's what a good park looks like." I was blown away. I'd pull in and go, "Oh my God, I'm not even in the same industry as this guy." And that's why over time, we kind of morphed our portfolio into the more quality asset because I didn't know it existed. But there's a lot of really nice mobile home parks out there. 

Justin Donald: Yeah. There's no doubt. I mean, it's still a large portion of our holding. I've been investing in it for about fifteen years, thanks to what I've learned from you. And we have many parks that have business owners and police officers, firefighters, and teachers and college professors. I mean, the list goes on and on. And so, sometimes what people do drum up in their mind about a mobile home park or what they've seen in the movies is not the reality today. There are certainly rougher parks, but there are also really nice parks. And what most people don't know is the parks that Sam Zell owns, most of those are gated community parks. 

Frank Rolfe: Correct. 

Justin Donald: Very nice, high-end. Anyone would be happy to live there. 

Frank Rolfe: That's correct. 

Justin Donald: Yeah. It's interesting. And so, we've always talked about how mobile home parks are resilient, pretty much recession-proof, and we are able to see this truly being tested with the pandemic. I'd love to know just some of your thoughts, some of the numbers. I know you're a numbers guy. What did that look like? What was the impact of COVID during and what is it now? 

Frank Rolfe: Sure. Okay. Well, COVID obviously came out of nowhere. I had never imagined we would see anything like it, more like being in a sci-fi, right? So, we had no idea what the impact to our business model would be. We were very happy when, first off, we were declared an essential business, which meant we could keep our offices open except in, I believe, in the states of Michigan and a few others where you were even allowed to have an office open if you were in a central business, virtually. So, that was a pleasing first item. Then we found our collections really weren't that bad because most of our residents are either retired or have essential jobs so we escaped pretty well. I think right now we are set up under different Reg D funds. But one I looked at recently, we have 6,200 lots in that fund and we had only 84 people who were 90 days or more delinquent. So, very, very small sampling. When you compare that to the apartment industry, for example, it's far better. So, I think what we learned from this is that when someone owns their own home, they have definite skin in the game, which comes in very handy in times of a national crisis. So, if you look at those who have not paid us are almost all exclusively folks who are renting mobile homes as opposed to owners of homes. So, our collections were better than we thought. The weird ending was our sales went up exponentially. So, going into COVID, our sales record was maybe 20 million in a year. In 2020, it shot to 30 million. 

What was happening was people were getting stimulus checks, they weren't unemployed, and they were using them as down payments on mobile homes. The other thing that happened was people in apartments found they hated the apartment and they wanted to have a detached dwelling with a yard. So, I have to be honest with you, COVID, although it was a terrible disease and killed many people, it was a great thing for most mobile home park owners. I mean, our sales during COVID have been stronger than pre-COVID. And again, once again, we aligned now with even more of the megatrends out there, this new megatrend surge towards detached versus attached dwellings. So, I think we escaped really well. Now, that being said, it was scary and it's still scary the way the government has treated landlords with the CDC evictions orders and the state orders. They're absurd. They're unconstitutional. You've had multiple courts, including just last week, Washington, DC declared them unconstitutional but yet the government won't give in and stop it. So, clearly, the alliance between landlords and the government has been forever severed because they clearly don't care. They're not trying to play fair. So, that's been a little disheartening because I did not know in the US you could actually have an evictions moratorium. That seems odd to me. But nevertheless, that's been the strange byproduct, I guess, is that loss of trust. Not sure you'll ever actually get that item back. And it hasn't been in bad on our business as it has with apartments and single-family landlords. But clearly, in the future, if the government ever wants a favor from landlords, they can forget it because they blew the relationship. And I don't know if they'll ever be able to get that back. 

Justin Donald: Yeah. That's definitely interesting and luckily in mobile home parks, you know, something that I learned from you is cash for keys. So, you don't necessarily have to evict. You can pay people to leave, which is often cheaper, faster, and just easier on all parties. 

Frank Rolfe: Correct. 

Justin Donald: And it doesn't take much cash to have someone just leave the home. 

Frank Rolfe: That's correct. 

Justin Donald: Yeah. That's great. So, I guess one of the things I'd love for you to share because I know you have boot camps that you run to teach and educate people how to invest, I'd love for our audience to know a little bit more about that. Can you share that? And can you share even a little bit about, you guys are the largest online brokerage of mobile home parks, so I'd love to hear some of that information. 

Frank Rolfe: Yeah. Well, what happened was if you go back in time to the 90s, nobody cared about this industry at all. And so, if you'd held any event or anything back in the 90s, no one would have attended because no one actually cared. So, back in those days, Dave and I started writing little books for our own amusement and we put them on Dave's website, which is Mobile Home Park Store, which back then was in its infancy and that is the nation's largest listing site for mobile home parks. So, we put little books on there and people would buy them. They kind of like them and we liked routing them. So, we'd write more books and stick them on there. And over time, we took all those little books and we sewed them all together, made it into this home study course. But even then, people wanted more. They wanted to have some kind of like person-to-person like three-dimensional event. That's what the boot camp here is kind of like organically grown like Ben and Jerry's ice cream. Our mission in it is to basically just give people the straight truth on the industry. So, we try and show them the science of it. Some people go to the boot camp and then say, "You know what, after I know how it really works, I don't want to do it." Well, that's fine. Then we save them thousands of dollars in jacking with something that wasn't a good match for them. Others say, "Yeah, I want to do it," and we have many, many, many people. New York Times estimated a third of all of our people to go buy a mobile home park. Some buy a park, some buy multiple parks, and then some go crazy and buy a ton of parks. But at any rate, that's what it is. So, basically, it's like a college class. It's always been intended to be like a college class. David and I used to coach these days. Only I teach. David doesn't like public speaking, which is fine. And Brandon, his son, is the only other person involved in it. He puts the stuff together. But it's just kind of an information fast. 

I mean, it's about thirty hours of learning and with a whole bunch of support items, the list of all the parks in the U.S., our evaluation software, our resource library of all of our contracts and forms. And it just kind of goes on continually. We just freely give all the stuff out. You know, Justin, probably the best way to explain it when people don't understand the whole idea because so much of America is about making money. But one of my things I like to diddle with is classic cars. But I cap it to ten so I can't be Jay Leno. I can only have ten cars total. So, at one time in the old car collection, I had a Corvair Monza convertible, which is a truly terrible car. It's the car that Ralph Nader declared unsafe at any speed, but it was a 65 model, so it was a little safer and I had to get a part from my Corvair. And there are only two people who sell Corvair parts. So, I go to this company called Clark's Corvair and I call them up and say, "I need this part," and when the box arrives, it not only has that part, but it has several more parts in it. And so, I called the guy up and said, "I think you messed up my shipment because I ordered this part, but you sent me three more." He goes, "Yeah. You'll need those three more because if that part goes at, you need those three parts because those go out at the same time." And I said, "But I didn't order it." They said, "Well, I didn't charge you for it. Look at your receipt." And then I suddenly realized, "Oh, my gosh, he didn't," and I was blown away because I'm so used to working in a world of people talking and trying to work with each other for money, that it blew me away, that this guy was giving me free stuff and free knowledge about the Corvair. And I found it hugely refreshing. And since then, I've just been obsessed with that kind of stuff, you know, like the car talk show on NPR where people would call up to a mechanic, he'd tell them everything wrong about their car for free and how to fix it. So, in many ways, the boot camp has been a little bit like Clark's Corvair, and as much as we just celebrate just giving out information and it's kind of fun. And so, that's kind of what makes our thing different. 

Justin Donald: Yeah. And I can attest to the fact that not only is it quality information, the price point is really low, and then there's no future costs for anything. And the document library is incredible. Brandon does a great job managing that. I'm just blown away. So, where can people go to find out about that? 

Frank Rolfe: Okay. To find out about the boot camp or any of our things, if you go to the website, MHU.com, that's where you'll find the repository of all of our writings, all of our speeches. I think there are 500 hours of recordings on that side, if not more, at this point. So, it's an easy resource to go to. There's various tabs. There's a lot of free content on there, all kinds of stuff. But it's just MHU.com, which stands for MobileHomeUniversity.com. 

Justin Donald: That is awesome. And is there anywhere they can go online to learn more about you? 

Frank Rolfe: Well, you can always just go to Wikipedia, I think. Enter my name in Wikipedia and it'll give you somewhat of the story. Basically, all of our workings in the mobile home park business, they're all in that MHU site. So, we kind of made that the central library of everything. 

Justin Donald: Perfect. And it is just an incredible resource. I do want to say that. 

Frank Rolfe: Thank you. 

Justin Donald: I'm a huge fan. Wonderful. Anything else that you want to say as we're wrapping things up here today? 

Frank Rolfe: Well, I would just urge people, in the sense of free and honest information, if you've never looked at a mobile home park and I've already said this, go out and look at one, not that nasty one that you drove by down by the river, but google up in Wikipedia or anywhere you want on the Internet. Find the name and address of all the parks close to you and go drive a few of them and get a flavor for what the business is. If I had stopped at Glenhaven, I would probably have never bought another park because Glenhaven was nasty and I had no idea that there was any such thing as a non-nasty park because my frame of reference was one mobile home park on the wrong side of town. And fortunately, I expanded my horizons, did my research, and I realized that there was a world beyond Glenhaven. Glenhaven was a great starter park, but Glenhaven was not the kind of thing I wanted to buy. I never bought another park like Glenhaven. That was just my foothold into the industry. But a lot of people labor under all these misconceptions that the media falsely portrays about what mobile home parks are all about. And it's sad that many people lose what might be the opportunity of a lifetime because they don't know what the product truly is and I find that a little disheartening because there may be people watching this. It would be perfect as a mobile home park owner and they're not going to look at it because they've not given it a fair shot. So, I think if you go in a number of them, you'll suddenly realize the product has nothing to do with this false stereotype that you have. 

[CLOSING]

Justin Donald: Well, I just want to thank you for taking the time to join us here today. This has been just amazing content. I love our conversations always. And I appreciate you taking me under your wing 15 some odd years ago. And I owe you a lot to the success that I've had in the mobile home park industry, in real estate in general. And to our listeners and those of you watching, I just want to encourage you to take one step towards financial freedom today in some way, shape, or form. Just take some sort of action to living the life that you desire on your terms. Thanks for tuning in and we'll catch you next week.

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