Ep 75 – How to Invest in Parking Lots, Mobile Home Parks, and the Benefits of Build to Rent with Kevin Bupp

Going downtown at night, you might find yourself paying $20-30 for parking. Somebody owns that lot and is making money off it, but how can you invest in that asset class?

Kevin Bupp, principal & founder of Sunrise Capital Investors, joins Adam Schroeder and Zach Lemaster to discuss not just the parking lot real estate market, but what you need to do to invest in mobile home parks successfully, and the rise of the build-to-rent market for real estate investors.

Learn more about Kevin Bupp HERE

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Transcript:

Adam 00:22

Hey, rent to retirement, it’s Adam Schrader here for another episode. And I’m joined by the man, the myth, the legend, Zack, the master the CEO and founder of rent to retirement. And today we are joined by Kevin buck. He is a Florida based real estate investor. And he is also the principal and founder of sunrise capital investors. He focuses a lot on the commercial real estate side of things. And so we wanted to bring him on to talk about that sector, and how that’s doing in today’s world. He’s also done a whole lot in mobile home parks. So that’s another that’s a method of investing. We haven’t touched on a whole lot, here and on the podcast, so we wanted to bring him in to talk about these sectors. So Kevin, welcome to the show.

Kevin 01:03
Adam and Zach, thanks for having me. Excited to be here.

Adam 01:06

Absolutely. So you’ve been in the game, a long time you’ve written several books is if you’re watching this on our YouTube channel, you can see the quantity of mass quantity of books behind them. But tell us a little bit about kind of how you got started. Did you start in single

family? Or did you start or you know, completely into commercial? Or how did you get started in your journey? And what are you doing today?

Kevin 01:27

Yeah, great, great question. Now a little bit of clarity, there only only written one book, but I’m pretty proud of it took me like three years to actually get it. And it just launched about about a month ago. So but one I think I’m one and done with the book thing, but we’ll see. That’s what I guess I guess. So. You know, as far as I got started, like, like a lot of folks do, I did get started in single family. It just happened to be that my mentor who I met back when I was 19 years old. That’s what his business was, you know, I lived in a small town, Pennsylvania and ultimately met him. And you know, he owned a number of single family and small multifamily, you know, like duplexes and triplexes rentals in our small town in Pennsylvania. And so just not looking to reinvent the wheel, and just really trying to comprehend the business as a whole. And again, just really trying to replicate his model, because it seemed to work for him. That model happened to be based on mostly single family properties. And so I ran that kind of business for many, many years under, you know, just again, not necessarily his guidance, but just really following his principles that he taught me. And it really, I didn’t have a lot of money. When I got started, I was a that was tending bar, and I was in college at the time. And so it was, it was more of a buy the first property with $7,000 in cash. And I had a private lender who David my mentor, introduced me to use all that $7,000 That was all the money in the world to me and bought that first property. And I realized very quickly, that David’s model of just, you know, you’ll hold for cash flow, like literally everything he bought, he held for, you know, monthly recurring cashflow that, you know, for me to make it to that second property, it would have taken a very long time, you know, for me to actually pull capital back out of that property or save up enough from the cash flow in order to put another down payment on another property. So very quickly, I learned that I really had to go more into a, you know, wholesale, to keep one or wholesale, three, keep one, whatever, that ratio wasn’t always the same. But ultimately I would, I would flip as many as necessary in order to have enough capital to to buy another property, then, you know, over time, I started building equity in those properties, I could refinance and take the capital out and things like that, but it took a couple of years really to get the wheels rolling, but long story short, build up equity, pretty big portfolio of single family properties in my early 20s, over 100, about 122 To be exact, and then a couple 100 Small multifamily properties. And that led me to the crash of oh eight was very challenging. That was down here in Florida. I moved down here in my in my early 20s, shortly after getting started in real estate moved down to Florida because I hated the cold weather. And it ultimately, you know, through through those challenges of the crash and leading into it actually I bought a couple commercial properties, but then really didn’t get a chance to scale that up. But then ultimately, going through the crash and looking at how to potentially rebuild the business, you know, postcrash timeframe, I really set my sights on initially multifamily. But ultimately, I was introduced to mobile home parks that’s kind of where the world of mobile home parks really came to light and from 2011 till present time. We’ve bought mobile home parks in about 18 different states and at any point in time typically owned anywhere between 15 to 20 parks and then aside from that, we also own parking lots of parking garages and other commercial type of assets. So we’ve been pretty well versed in the commercial space but our bread and butter at least over the last decade or so has been has been mobile home park so but I did get my start just like a lot of folks do and single family I just for me it was a more of a How do I build things back up quicker after the crash occurred? How do I get back to a scale faster, and going and

buying 100 single family homes seems really daunting to me just seemed like a little bit bigger of a mountain to climb that maybe going in buying, you know, 250 unit apartment complexes or something similar. So,

Zach 05:19

Kevin, that’s an outstanding story. Thank you for sharing that with us and walking us through it. I think so many of our audience is very interested in exactly what you’ve done. Starting in the single family space, it’s a very accessible place, very predictable, stable place to invest in, but scalability is the name of the game here to really get to the level where, you know, you have some sort of financial independence and your your portfolio is growing exponentially. And you can scale that and single family. But I think single family is a great place to start for many people, and then looking at compounding that over time, of course, to your point about scaling through single family. It’s a challenge if you’re just saving up the next downpayment. Yeah, you know, and then at some point capitals are the most limiting factor for everyone. And so of course, I’m sure that led into raising private capital from other sources to help you grow your business. But can you tell us just a little bit more? I mean, you alluded to the transition to kind of commercial initially, but what was it about? I mean, the single family space, I guess the first question is, do you feel that that’s a good place for people to get started, that maybe have capital, they don’t have a lot of experience? Or time? Or maybe they have limited capital? And what does that look like on a transition into commercial? At what point? Should people be thinking about that? Or things they do now to position themselves to do that? Yeah, it’s

Kevin 06:34

a great question. And, you know, for me, I Well, that answer yeah, there’s a couple questions kind of loaded in there. But you know, is residential a good place to get started? I absolutely think it is. I mean, and don’t get me wrong, like, I know, I know, you’ll guys today that still are predominantly focused on running like their primary businesses, they they either fix or flip, you know, two or 300 homes a year, or they’ve got a rental portfolio of a few 100, single family properties, right, like, that’s their primary primary business, but a lot of times you’ll, you’ll see that they’ll take their profits, and they’ll take and put that in, you know, limited partner investments. And most of the time, large multifamily properties are gonna be self storage properties, or a litany of other different larger scale projects. And that’s kind of where they’re, you know, kind of redeploying the capital and putting it into something that’s gonna be a little more of a longer term cash flow play, that’s a little bit more of a passive nature for them. And so but, you know, single family is great to get started, I mean, you literally can’t beat the financing options that are out there, right. I mean, even even even like, you know, up to a duplex, right, like, it’s still considered, it still qualifies for a conventional mortgage, I mean, you literally cannot be at a 30 year amortization, with Noah balloon on a, you know, literally on a on a on a residential loan for four four Plex. And so if you’re looking to get started, you’ve got limited capital, absolutely think it’s a great place to start. In fact, I always tell people that you know, even if you think that, if you think that like it, like your grand your vision is I want to go buy 100 unit apartment complexes or you know, whatever side larger side larger scale apartment complexes, I always think it’s best to risk your own capital first, right and prove your prove the concept first with your own money, before you go taking capital from friends, family or work associates, what have you, there’s a lot of capital flowing out there today. And, you know, people are looking for a place to put and so more than likely, you could probably go pitch

a compelling story and probably get money, even if you hadn’t done another deal yet. But I would suggest that maybe you take your own money, do a smaller project, again, you know, speak into like a four unit property. And, you know, if you’re gonna be a value add investor, if that’s what you kind of see yourself as go buy a value, add for Plex execute on the business plan, and document every step of the way. And then when you go to actually raise money, it’s going to make a little easier as well, because you’re gonna say, Hey, here’s what I did here, here’s kind of what I hear the basis, I bought it at, you’ve spent $12,000, in each one of these units, I knew that I was going to be able to generate, you know, you know, $300, in additional market rents in each unit, as the lease is turned after I did those renovations. And based on, you know, new evaluation, I paid 500, I was all in for 500. And new appraisal came in 800, whatever, you know, I’m just throwing random numbers out there, that makes it a lot easier to raise capital, but it also proves that you know what you’re doing, you’re able to execute in a small scale. And, you know, doing on a larger scale, adds complexities, but ultimately, that’s what I suggest folks do and you can do it with a conventional mortgage. So I’ll give you the circling back around it you could do with a conventional mortgage that has the best terms of any loans out there. So

Zach 09:34

that’s a beautiful way to position yourself in the future to be real successful. Yeah, you got to have a proven track record. That’s obviously going to build confidence of anyone giving you money, but also scaling up to the commercial side as you go through those commercial loans. Those banks also want to see a track record, right. I mean, they’re not going to feel very confident in I mean, most people are not jumping right into large multifamily or commercial type of assets. They’re, they’re building their track right record in their path and their experience level. But whether you’re raising private capital to expand your portfolio or trying to apply for a commercial type of investment property, they want to see a track record, they want to see a business plan that actually works. And you don’t always have to be a value add. I mean, just simply holding real estate for a few years looks really good. I mean, if it’s if it’s profitable, you don’t always have to be flipping, but just showing that you’re a successful investor is always a good way to position yourself moving forward. What is the right time for someone to say, I mean, obviously, this is an individual type of question for each person, but what is the right time to scale to multifamily if they’re not looking to potentially syndicate or, you know, they actually want to own the physical asset, when should someone look from breaking out to that wonderful unit to something mid or large size multifamily?

Kevin 10:46

You know, I don’t know if there’s necessarily a right time, it’s I guess, it’s whenever you feel comfortable, when the right opportunity presents itself, I’d say maybe start looking, you know, just if you know, you want to go that route, you know, start looking at larger deals and underwriting larger deals and, and modeling them out and understanding the mechanics behind a larger deal versus a smaller deal. But I don’t know if there’s necessarily a time other best time other than, like, whenever you’re comfortable. And assuming that you have the confidence to bring in the appropriate capital, if you got the confidence on the from the team side, like you’ve got the right team in place to actually execute on a bigger deal. Because a lot of those bigger deals, if you’re gonna go buy 100 unit apartment complex, most of the time, you don’t see those typically taken down by just one sole individual. And I know that exists. But

like, that’s not the norm. Normally, it’s a couple partners. But also behind the scenes, there’s probably some additional team members, right, they got a property management team, maybe not vertically integrated. But they’ve got a relationship with a local firm in the market that they’re they’ve already interviewed probably a few local firms in the market that they’re looking to buy in, they knew who can help them execute that business plan, because in these larger scale projects, what happens a lot of times is that you the general contractor, component of the project management component, while there, there are aspects of it that are going to be in house that you’re responsible for, like you’re ultimately accountable for the entirety of it, but you’re going to be relying upon probably the team that the project or the property management company puts in place, they’re going to be essentially a conduit to the to the general contractor and to the teams that are on site doing renovations or doing the work or improvements that are necessary. And so there’s a lot of moving pieces and things that are happening there. And so I just I would say, you educate yourself, surround yourself with others that are actually doing some bigger deals now and just understand what differences exist between a larger scale project and maybe those four unit properties that you were doing. And once you feel comfortable, take the leap, you know, there’s no better time than today. But you got to make sure that you’re comfortable in taking that leap.

Adam 12:44

And so you mentioned just there, you know, finding the right team. And you know, we talked to people about vetting your property managers doing this doing that. What is the difference between vetting a property manager for single families versus, you know, a multifamily commercial property? I mean, it’s Is there is there a difference? First off?

Kevin 13:03

Yeah, I think so. I mean, there’s, there’s a number of other groups out there that all they specialize in are multifamily properties. And in fact, they’ll basically have kind of a floor of like, we won’t even really consider taking on a client that you know, has anything smaller than that of 100 unit property or 150 unit property, because they know there’s economies of scale once you get to a certain size. And so you basically want to, you want to interview property management companies that, that have other clients that have projects that are similar to that of yours that actually again, it’s kind of same with like being an investor having a track record, well, you definitely want to go with a property management company that has a track record of taking on projects or properties that are just like yours in that same marketplace. Again, same goes with single family properties, you know, find, find the property management companies that are managing, you know, your hundreds or maybe even 1000s of single family properties. And the bigger is not necessarily better, you can find some small mom and pops that do a great job as well. But you know, today’s world, you definitely want to find a group that embraces and leverages technology. I mean, like there’s there’s so many advances and so many advantages of the different software that’s out there and technology that’s out there to your market the property to present it’s in its best light. I mean, guys nowadays, I mean, you shouldn’t even have to have a physical leasing agent showing a property. I mean, I met with one of the one of the partners of progress, residential, they literally are the they are the largest property management company in the single family house space. They they manage like 90,000 single family home properties, mostly for the institutional guys and I met with him the other week just we’re doing to build the rent projects out in Phoenix, and we’ve met with them had how to

conversations, some of their best practices and some of the things they do and I mean, they literally do not have leasing agents. They kind of have an in house person but there’s it’s all literally touches That touchless entry as far as you know, they get their license and put into the system not touch, if they have a key, you know, keypad on the on the door, they plug it in, you have someone in the main corporate offices when that individual is there, and those wins when they leave, ultimately, they do all the applications online. I mean, like, it’s all it’s all seamless, there’s not like a physical person, there’s not inefficiencies associated with a leasing agent driving them spot, the spot the spot, and you want to definitely be with a company that’s leveraging and embracing those technologies and an ultra because really, it’s going to it’s going to be savings for you. Because every dollar that that property management company spends to manage your property, I can promise you is getting passed back to you. And it’s getting taken away from your potential profits. So

Zach 15:40

leasing is one of those one of those expenses that I mean, yeah, it was not necessary. And you can have, you know, just as effectiveness as being having someone actually show the property and leasing it out and fantastic. That’s it. That’s a huge expense.

Kevin 15:54

Yeah, absolutely. But as far as the as far as the interview, I think the question was, like, how is it different, it’s not a different process. I mean, again, just you know, get get, get references, you know, talk to other investors that have a, you know, a portfolio of properties being managed by this group and talk to them, give him a call and find out what their experience has been. And very quickly, you’ll be able to identify the ones probably stay away from and the ones that, you know, are probably more worth your while to spend time with.

Zach 16:21

And if you have a network of legitimate brokers and people that are operating at a high level in the space, I mean, recommendations from them, I think are key, you know, just because they’re going to know who the key players are literally in the area. Switching gears a little bit, Kevin, because you you operate in a space that we really haven’t interviewed someone on extensively. So this would be mobile home parks. And also, I think you said, like parking facilities and storage, right?

Kevin 16:48

So well, yeah, so So our company, our vertical, internally, we own mobile, home parks, parking lots and parking garages, and then you know, build to rent. Those are kind of like our three food groups that we do internally.

Zach 17:00

I want to talk about all three, but I’ve I’ve never actually had a conversation with someone that

I want to talk about all three, but I’ve I’ve never actually had a conversation with someone that operates in the parking lot space. Can we talk about what like what that even means? What that looks like, from an investment? Like, you know, just give us a high level on that.

Kevin 17:13

I mean, it really is, it’s when you really break it down, it’s about as basic as basic gets at least a surface parking lot. Right. And so it’s what attracted us to that space. And, you know, is that it had a lot of similarities to the mobile home parks that we operate right, in most of our mobile home parks, not all most of them, we don’t own any of the homes, any of the mobile homes. So we’re basically renting the lot, you know, we’re responsible for the infrastructure for the other common areas, and then the water lines and sewer lines and the roads and things like that. But as far as the homes themselves that are sitting on those lands, they pay us lot rent. And, you know, if the roof goes, you know, starts leaking or their AC goes out, they’re calling the the maintenance person themselves, they’re not calling us to come fix it. And so, we started looking at parking assets as a, really a cash flow and covered land plane. And you know, the attractive nature was that it was very similar to that and mobile home parks. We started buying, like 10 years ago, 10 years ago, mobile home parks were incredibly fragmented. Mostly Mom and Pop owned a few institutions in the space, but nothing like it is today. Today, there are billions upon billions of private equity institutional dollars trying to pour into the space. Unfortunately, there’s limited supply of it. And so there’s a massive supply demand imbalance, which is good if you own parks today, and if you’re a seller, but it’s been a little more challenging to buy, you know, buy, right, I guess you could say, with the parking lot space, it’s very fragmented, lots of mom and pop owners, you know, and I’ll give you an example a parking lot. We bought North Carolina and it kind of helps you better understand the business model. And the opportunity we see in that space. Downtown Wilmington, North Carolina Historic District phenomenal location. There’s a surface parking lot that back in 2007 was owned by a local developer, he was going to go over I think it had I think it’s got it’s got 20 or 24

Kevin 19:09

storeys of air rights. 2008 happened, that developer did not develop his property. And it had been a just a surface that’s a hard signalized intersection. It’s small, it’s only 20 it’s 23 or 24 spaces. So it’s tiny. It’s not big, but it’s literally on the main strip, all the restaurants are the historic waterfront, it’s a prime location. And a local doctor bought it in 2009 as an REO, you know, the bank took it back, he bought it for I don’t know, 300 some odd $1,000 And basically it was running until we bought it, you know, roughly a year and a half ago and he had his you know, his son was you know, there on site taking payments from people. I mean, they didn’t have a credit card machine. I mean, they’re pretty antiquated in nature, but they were for him. It was a cat like he paid he paid like 350 for it. And, you know, his his noi, the prior year to us buying it, I think was 38,000 And so like, for him, it was a huge win. Like he’s collecting cash, he’s probably not reporting all of it like he’s rolling in the dough, right? Well, we looked at it, and we went and interviewed, we found out who the top three operators were in that marketplace, you know, parking management operators, there’s local, regional and national companies, there’s a ton of them. I mean, there’s hundreds of parking management companies throughout the US, again, you know, some local, some more regional scale and someone entirely national scale. But we found the three local that manage the most lots in this area, and basically put out a, a, a proposal forbid, basically, Hey, guys, like we’re buying this product

under contract, give us your best offer on a trip. And at least I knew I wouldn’t count, we literally spent two days there, we counted cars coming in out, we knew the rates were low, we knew that they were missing cars, because they weren’t accepting credit cards, I don’t carry cash, I want to park there because I didn’t have cash, right. And so they were literally missing like 40% of the potential revenue, because they literally weren’t taking credit cards. Just little simple mistakes like that, like just antiquated, you know, mindset of a mom and pop operator. And one of these operators came back with us, they gave us they basically gave us a triple net lease, a five year triple net lease at $72,000. And with 3% escalators over the next five years. And we paid 695 for the lot. And so this doctor was he was winning, like he doubled his profits in the years he had it. When he bought it, it was basically a 10 cap. And we were able to see the upside value by handing it off to another operator, they knew there’s upside above their triple net lease, right. But they instituted you know, credit card payments, they have local enforcement. And you know, for us, it was a basic unlevered 10 cap going into it. And we literally do nothing. It’s a triple net lease, we don’t handle anything. And it’s a prime location. And there’s lots of lots out there that are just like that, that, you know, have you ever parked in a parking lot where there’s like those metal boxes where you shove your dollars into it, because obviously those things, those, it still exists in some markets that can promise you that if it’s in a good location, it could do way better. If it was actually listed on like Waze and Google, a Google Business Directory, and people knew that it existed, you know, people that want more for the immediate area. And also if they took credit cards, right, and so another thing that they instituted that had never existed as dynamic pricing, and you know, that’s a big thing with these Mom and Pop on parking lots, you know, this guy, they only ever charged $3 An hour $3 An hour no matter what, how busy it was, and whatever. And so yeah, and so, mainly, this operator came in, and they institute like there’s some weekends where they do a lot of I guess they do a lot of films and Downtown Wilmington, I did not know that. It’s a prime location for a film set. And there’s like $25, flat rates, you know, and anyway, just little things like that. But, but ultimately, it’s, it’s no different than any other value add, like just understanding where the upside potential lies. And I’m gonna give you guys some additional insight because this is where it’s really powerful to understand. So that log and we paid 695 They give us a $72,000 a year triple net lease. I became pretty good friends with the operator of this lot. He’s a CEO. They’re a big outfit, but I’ve become really good friends with him friends enough to where I say, Dan, I said, I would love to know just for my own internal knowledge and you gotta lease so I can’t do anything. Can you please show me what this thing did last year? Right? Like I just I want to know, just what what’s possible of this little 23 Space lot. In 2021 you gave this to just a couple like a couple months, we had this conversation he gave me 2020 ones numbers. This thing grossed $137,000 This little rinky dinky lot, and I can promise you their expenses. Just look at the delta is pretty big. Expenses weren’t all that. Grand. Yeah, yeah. So So,

Zach 23:54

man, that just blows my mind. I think Adam and I are gonna start looking at monpa parking spaces now. But I guess the interesting thing is you so you’re not actually hiring a management team to come in and operate the space for a person. You’re, you’re leasing it out?

Kevin 24:11

Yeah. Because a business. That’s right, because ultimately, we don’t, you know, they manage like 13 Other lots in the area. They’ve got they’ve got staff that enforces, you know, you know, does enforcement, they’ve got, you know, subscription agreements with, you know, merchant

company, you know, like credit card processing companies, and I mean, they got all those things in place already. And for us, if I can make the numbers work now, don’t get me wrong. I mean, if you’d told me this thing did $137,000 I’m sure we could have probably figured out a way just to throw a credit card machine there and deal with it. Right. But again, that’s not scaling your model. Yeah, that sounds good. That’s not scalable, right, like doing one off little things like that. It’s not a really a scalable model. And so, and I want those guys to win too, right? Because I want them to be my, I want them to come to when I have another opportunity. I want them to be able to be my lead is on and like, give me some insider knowledge because they’ve been doing parking for 20 years, I haven’t, right. And they can see things that I can’t see, they can see opportunities that I don’t see. And so these are that’s one example. And there’s many more like, that’s the whole objective of finding a good parking lot, either in like a downtown CBD or tourism tourist location is to find it before it has before the markets so, so thriving so much that it has a now it has a higher and better use to be redeveloped. So to where a developer would see a higher value in buying it to build something than that of what it can produce as far as cash flow. So like today that we bought a year and a half ago, we would not be able to buy that today because Downtown Wilmington. Now it’s cranes everywhere, like it kind of we bought it at a weird time during COVID. And things were halted. And anyway, just no one knew what was going to happen in pre COVID. It wasn’t it was growing down there. But like they’re they had a bunch of projects about to come out of the ground, but they had not come out yet. Now in a postcode, where we see the dead areas thriving, and developer would have been the buyer of that. And so you get to it before it’s got that higher, better use component, but where it still makes sense as a cash flowing parking lot.

Zach 26:14

So could you take that and sell it? I mean, I don’t know how financing works on parking spaces. But I mean, could you sell that to just an end buyer that’s gonna pay what a six cap or whatever the

Kevin 26:25

nudity? Yeah, I mean, we actually we bought at cash. And so we’re actually putting debt on it right now, we had not put that on it. Like I said it did. It meets all of our, you know, all of our target metrics. As far as though it’s in a fun with a bunch of other properties, but even unlevered, it meets all the target metrics. So we were never in a rush to put debt on it. But we’re actually putting some debt on it through a just a local bank. It’s a smaller deal. But they they valued it at I think it was, I think was one point 1.35 or 1.4, something like that, just from a cash flow perspective. And they’re willing to give us a 70% loan on it. You’re just saying it’s really based on the the power or the the lease itself, the underlying lease that’s on the property. And so that lease is guaranteed by by this up global I mean, yeah, they’re firm that’s got, I don’t know, they’ve got four or 500 parking assets that they manage from Maine, all the way down the Florida. So

Zach 27:22

did you get their evaluation be prior to closing on it? Did you put it under contract, get the get the valuation on performance, and then Close? Or did you know, you know, buying a cash, pretty high confidence that you were going to be able to do something with it.

pretty high confidence that you were going to be able to do something with it.

Kevin 27:36

Um, I didn’t have a, you know, so we tied it up. And then we spent a couple days there kind of counting cars, and I had enough confidence that it was going to, I thought it was going to probably grow somewhere between like 70 90,000, like, just from my very back of the napkin valuation again, literally just counting cars on a on a Friday and Saturday, I tried to get like one week day, and one weekend, day and, and ransom, just really basic math on it. But I had no idea that it could do is what it done. So anyway, I was pretty confident that that we would make the deal work one way or another. I didn’t realize it was that much of a Delta there. But anyway, I was very confident going into Yeah. So anyway, but I again, I want them to win too. And I wouldn’t have known if he wasn’t my friend. Most companies wouldn’t have given that information away. But it was good to know, it was good to know, how

Adam 28:26
do you how do you find those deals? Let me know you don’t really see parking lots with the for

sale sign on him

Kevin 28:34

wasn’t for sale? Wasn’t for sale? How do you find that? That was that one was a direct mail. So that was a direct mail blog. The other lots that we’ve purchased have been, I’d say the majority of the others have been just getting building a relationship with the again, like I said, there’s a ton of parking management companies. And here’s the interesting thing that blew me away we started looking into this niche was the hundreds of marquee management companies that exist throughout the US, the majority of them, there are a few but the majority of them do not own real estate, they do not own the real estate. They’re strictly a Fee Management Company, which blew my mind absolutely blew my mind. Even this group that we’re using here, I met them at a conference and I got to talk with them. And that’s kind of how we, you know, grew lovable bond, and they just happened to be one of the operators in this market. And anyway, I was like wow, like, I get it that you guys have a it’s a cash flow business, right? It’s asset light. And so it’s you know, it’s he bootstrapped it. He started us and 910 years ago and now they do like, I don’t know $9 million top line revenue. I mean, like it’s, they’re they’ve grown up pretty substantially but I’m like, but you know, I want anything after it’s all said and done. I mean, slowly these things get redeveloped and I get there’s there’s not a lot of new parking coming online, but like it’s every day is a battle How about buy some of this stuff and so and so anyway, you know, one of the ways that we find lots now is we just build relationships with guys like him or other we don’t really tell them all the secrets of why they should be buying it. Now we do Say, Hey, if you guys know of a lot that’s for sale or could be for sale, because they’re always canvassing these areas that they’re managing, and they have competition with other operators. And so if they know of something that’s maybe being mismanaged by another operator, I’ll say, give me some insights, I’ll go look it up, I’ll contact the owner, but like, you keep me in on a lot, that’s a phenomenal location, maybe it’s one you’d like to manage. And you tell me that information, I’ll give you first crack at, you know, the proposal if we end up buying it. And so this, you know, in direct relationships with parking lot, so So what was his

Zach 30:33
answer, though, as far as why not hold the assets, I mean, I get a

Kevin 30:38

lot of them just don’t know that. Now, there’s, again, like I said, there are a few, like, there’s one group called last, and they’re a huge, they’re the largest private company, in our space. And so they’re huge. But they have they do third party management, they manage their own as well. And then they have a big real estate division. But a lot of them, you know, a lot of just, they don’t know that side of the business, they wouldn’t know how to go raise $20 million, if they had to, you know, buy an asset. And so it’s very different for them, again, having an asset light model, you don’t have to have $20 million to start a local parking company. I mean, that login, like I said, Love bootstrap it, you know, they get a couple lots underneath management, and they got some cash flow coming in, all they have to be able to do is hire staffing to actually manage these properties, it’s very different than buying an actual physical asset. That’s really the only answer I have for you.

Zach 31:29

I mean, that makes sense. I mean, we’ve seen a lot too, in the you know, as we spoke on your show about commercial retail, I mean, a lot of those businesses too, it’s like an owner operator medical space, it’s like, it never made sense why they would not just own the space, but as they’re expanding their business, they want to keep their capital in the business and working for them, not tying it up in the asset, and they’re not doing the value add type of scenario, I

Kevin 31:53

mean, the way to do would be, you’d have to have two separate divisions of the company like it has to be two standalone companies. And again, a lot of them just kind of fall into the trap of of the management side, and it becomes a cash flowing business and, and they do fine with it. And they probably take that cash flow and deploy it into other investments, hopefully, and a lot of them they don’t own the the parking assets, which always baffled me.

Zach 32:14

Well, they say the same question could apply. I mean, we have some discussions with some of our investors too, is like, you know, why are renters ever renting a house? You know, if they have such good financials? And they’re earning six figure income? Why would they, why would they? Why would they just buy it, you know, and there’s good, there’s some people that are just renters for life, or whatever the situation is. So yeah, anyway, it’s

Adam 32:32

like if, if you ever want to find a group of people who don’t invest in real estate, talk to real

estate agents, Pam, everyone I’ve talked to none of them actually own rental property, they’ll sell properties, but they don’t bind and

Zach 32:44

flippers to and in the turnkey space, it baffles me how many people make money in real estate. And don’t put it back into holding real estate, which is where your real wealth is created long term, but we I think we all digress here.

Kevin 32:56

Now, even commercial brokers, I mean, so it’s all the way around, I mean, like a very small percentage, you know, they see what the money is that their clients are making. And they’re like, well, I need to be on both sides of the table. But most of the others, like just want that commission check. And they’re okay with that. So doesn’t make sense to me.

Zach 33:11

Tell us a little bit about mobile homes, too. I mean, we don’t have to go through a specific example. But one thing that blew my mind, Kevin, when I was on your show, there was we were talking about cost segregation studies. And I was kind of going through my recent castex that I had done and you had mentioned that some of your mobile homes are like 80% Plus, you know of the bonus depreciation that you’re able to take and then that just blew my mind first of all, since there’s you don’t own the houses I was like well, what are you

Kevin 33:40

appreciating? Yeah, cuz you’re buying the land with the infrastructure. That’s it, like you’re not buying the house. And so the value is in the land and the income that the land generates, but you know, the infrastructure the roads, the electric pedestals, the sewer lines, water lines,

Zach 33:52
things that that’s all polar. That’s depreciation.

Kevin 33:55

That’s it? Yeah. Yeah. I think that I can’t recall I think I think we’ve made we’ve had one go over 80% But I think most of them fall in the realm of like high 60s to you know, high 70s in that range, but still, it’s really high it’s by far the most tax efficient of all you know, the only other asset this is just recently I just invest in some car washes like the Express car washes and you do it all I guess Yeah. And I’m so these are like Pat Lee’s are like you know, you know, personal you know, live your passive investments live in partner investments with other syndication

groups, and that I know I just I’ve gotten to know a lot of people in different niches like you can’t be an expert at everything, but there’s niches that I like I love self storage. I love medical office, I love multifamily, but like we can’t be that every week. We can’t, you know, go venture in all those niches and chase those shiny objects, otherwise, we won’t get anything done. And so but I love them enough to where I’ll find that the sponsors and syndicators that that are experts in those spaces and those verticals and put money with them. But your car washes are pretty tax efficient as well. Pretty taxing efficient as well.

Adam 35:01
So on the mobile home parks, are you doing triple nuts on those two? Are you managing them

yourselves? Or what are you doing?

Kevin 35:07

Yeah, unfortunately, now that’s, you know, it’s I guess it’s one of the, I don’t know, if I call it a downside, but they’re, you know, you could look at as a pro or con. But unfortunately, there’s not really any, it’s unlike the multifamily space where you, if you go to any major or secondary market, you can find a property management company, you’ll find a number of them to kind of choose from mobile home park space, not so much. There’s a couple of management companies, one that’s national, you know, we kind of went down that road a few years back and had horrific experiences. And ultimately, you know, we always had been vertically integrated, and we tried to hand it off a couple years back, and it was disastrous, and then just realized that like, in order to be in this space, like you have to have your own property management division, and so we have an internal it’s the unsexy part of the business. You know, it’s, it’s just not fun, right? Like, it’s, it’s operationally intensive, but it is what it is, it’s a necessary evil. And so that, you know, I say it’s a, it’s a con because of that, like, we just have a another division, our company that it turns a little bit of a profit, but it’s, I would never own that by itself. Like, it’s not worthy of owning it by itself, it’s not profitable enough to deal with the headache associated with it, but we have to because we own the assets. But so the pro behind that would be that those that are getting into the space that they’d like to own more than just a few mobile home parks, they very quickly realize that, you know, they own the first one, and they’re kind of spend their time out there kind of be they’re the main guy, maybe they got an onsite manager. But they’re kind of they can’t afford a bookkeeper. So they’re doing the bookkeeping and do a little bit of everything, it’s not really passive. And then they buy a second one, they just to x, you know, their time and their business. But they probably still can’t afford an employee at that point in time. And so they hit like, kind of a wall at a certain point of like, what am I need, actually, more than just one employee, I can’t just hire one person to be the entire property management company. And so they have to make a decision, do I want to build out a property management company, and probably go on the read for a period of time, and then but also be forced to actually buy a number of more assets to get to the point where I’m in the black with the property management division. So it’s a weird, pivotal moment that you run into, and that scares a lot of people away. They just don’t they don’t want to do that. They don’t want to be running, you know, in a staffing company, just to own these investments. And so again, it’s a pro and con i guess you could look at it either way but you have to be vertically integrated or to be in this business

Zach 37:25

with with a mobile home park I mean what’s what’s the big value add with attic as I’ve also heard some extraordinary stories of people buying under performing parks and just like blown it out of the park. Now, it’s a lot of work and, you know, takes, as you mentioned, much more competitive type of situation. But what are some key things you can do to value out? I mean, what does it even really like look like from an investment standpoint on your mobile home park?

Kevin 37:51

Yeah, and it’s very similar to that of, you know, the different value add leverage, you can pull in like a multifamily property. So you know, we always kind of look at like the high hanging fruit, the middle hanging fruit, and then the low hanging fruit. And so low hanging fruit would be something as simple as a rent increase, like that’s a low hanging fruit, like we’re buying it today. Owners owned it for 30 years hasn’t raised rents in 10 years, right. So a lot rents are 250, they should be $400. Right? Like that’s, that’s a really low hanging fruit, because all that really takes is a piece of paper and a notice to the residents that the rent is going to be increased by X number of dollars on this date. And so that’s low hanging fruit. Kind of the middle hanging fruit would be your back when a lot of these parks were built, you know, 4050, even 60 years ago, water, water and sewer expenses just weren’t anything anyone care, like they weren’t expensive, like they didn’t make up a percentage of your of your monthly expenses. It was such a minut number that most parks were built with just a master meter at the front of the park. And it just that was included in your rent, you got water and sewer, so they didn’t have individual meters at each location. And so over time, water and sewer has gone up significantly. But also over time, these parks, the infrastructure ages, and so you’ve got your water lines that, you know, have breaks more often, you know, than what they did when they were newer. And so you’re losing water and your costs, your costs are significantly rising. And then you also have people that just irresponsible you got residents that are irresponsible for water, right, you’ve got the the household that takes eight showers a day washes 10 cars a day as their friends over wash their cars. And anyway, I see a lot of parks will go in, and their line item for water and sewer expenses is you know, high six figures. I mean, it’s you know, 150 $200,000 a year that they’re eating that the parks actually paying for and and so that’s middle hanging fruit because we can build that back. But in order to do that, we’ve got to put some equipment in so we’ll go install individual sub meters at each one of the respective lots, each one of the sub meters, you know, with installation and the cost of equipment is four to $500 a pop and so but the payback period is fairly significant or it’s fairly quick and also that, most of them, if you’re if your infrastructure is in half decent shape, most of the time, you can recapture roughly 85. And if you’re doing really, really good, you’ll recapture about 90% of that water and sewer expense. And so basically, almost all that what was above the line goes now to your bottom line. And so, you know, you put a cap rate on saving $100,000 a year, I mean, you guys can do the math, I mean, it’s a very significant value increase and, and a very quick payback on the cost of that equipment to install it. So that would be like middle hanging fruit. Also, middle hanging fruit would be operational, you know, inefficiencies fixing those, just, you know, managing collections better, you know, having a your pay or no state policy in place, getting rid of any low hanging over delinquencies that are there, or just retraining the residents to essentially pay on time, or this is not the place for you, we see it all the time with mom and pops, they become friends with the residents, and they just let things slide. More often than not, and so that’s a big one. And then high hanging fruit, high hanging fruit would be bringing in, you know, homes on the vacant lots. And so a lot of lot of

the parks that we come across, just giving the example, we just bought a park up in Illinois, two parks, it’s about three or 64. Lots in total between these two parks, but one of them, one of them has 52 vacant lots, all the lots were fully developed when they built this park. So the infrastructure is there. Not a huge set of infrastructure, but like the water, the sewer line, the gas line, all that’s there, we do have to do a little bit a lot prep, in order to put up put a home on there, but ultimately, it’s their zone for it, we can bring in 52 homes, you know, it’s high hanging fruit, because it’s capital intensive, it takes time, there’s obviously risk associated with because we got to have a big outlay of cash and we’ve got, you know, it’s gonna be sitting out there until we can resell these units, which could be, you know, six, eight months after we actually outlaid the cash and so, but it’s still it adds a ton of value to the community, it greatly improves the aesthetics of the communities, you’re bringing brand new homes and, and just really, you’re bringing things up to a modern, a modern state estate and, but it’s very expensive to do. And so an end today with the, with the, you know, the shortage, the massive shortage that we’re seeing on many different types of goods, what used to take us like three months to buy a new mobile home, meaning like, Hey, we’re put an order in and the factory is going to spit out a mobile home, we’ll have it on our lot, three months now. It’s like 12 to 15 months, and so much more challenging to actually get homes into communities due to the, you know, the, I guess, post COVID challenges that we’re facing here. So that it’s just that there’s many different ways, but like, those are like kind of the big ones, if I wanted to categorize them.

Adam 42:44

So whenever we’re looking at single family homes, we’re doing a lot in the south southeast, we’re doing some in the the Midwest, are these the same markets that are good for mobile home parks, or are there you know, a little bit more landlord friendly laws that are in areas that you would not want to own single families because then your tenant can stick around for eight 910 months without paying rent?

Kevin 43:07

Yeah, it’s it’s really just that it’d be you’d be looking at the same areas and kind of having the same mindset of, you know, I want to own a landlord friendly states. The same applies to mobile, home parks, we’ve owned some stuff, we own some communities up in New York, we no longer do. And gorgeous communities. Just were an absolute nightmare, just from a regulatory standpoint of doing business in that state, all the way down to you know, very, very unfriendly to landlords, when it came to folks not not paying the rent. So just life is too short, much easier to make money to do and dealing with landlord friendly states where people actually want to pay the rent. And so it kind of same thing applies. But as far as you know, like our businesses, affordable housing, right, and so we basically want to go to markets where there’s an affordable, we want to buy products and markets where there’s an affordable housing crunch, which believe it or not, that’s not that’s not entirely across the entire United States, there’s actually still plenty of markets that are fairly affordable, especially like some of the, you know, smaller, you know, Midwestern markets and not like a, you know, major city, but something like the secondary tertiary market, it’s still they didn’t see the impacts that a lot of us saw with like price increases after, during COVID or after COVID. Give an example like we just looked at a park in Ohio today, some small town, Ohio, and, and the median home prices there is still like $109,000, which blew my mind because that means probably prior to COVID, it

was like probably under $100,000. And you can still rent a three bedroom home for $700 a month, that’s affordable. And so owning a mobile home park there probably wouldn’t take the risk. It might work. But more than likely, you’re going to be competing against an apartment or a home that someone could rent and so why would they rent a mobile home if they could rent a stick built home? So

Zach 44:53

just kind of as we wrap up here, Kevin, the last asset class is build to rent and that’s the space that you We operate quite heavily in and are fond of, but I mean, if you just few bullet points, benefits build to rent why you like it? You know, if you go through that just quickly, yeah, no,

Kevin 45:09

absolutely. So the projects that were that we’re building are in Phoenix and Phoenix Metro. And these are urban infill type projects, and so unique in that we’re not building on the outskirt, we’re not getting big plots of land on the outskirts of town and building, you know, 100 200 unit, detached subdivisions. We’re building, you know, very high end, urban infill townhome, townhome developments. And so first and foremost, at least as it pertains to these particular projects, their main and main locations, I mean, they’re irreplaceable locations, they’re walkable to all the, you know, the restaurants and the hip spots. And so they’re in areas where there is no additional excess land to build. And so I like that, and because I it provides a good bit of insulation I feel from the risk associated with when that day comes, I don’t know, I think we’re still years away from but when that day comes, when we have an oversupply, right, it will just it might take five or six years or maybe even longer than that. But when that day comes, typically the areas that get hit the hardest, are those areas that are on the outskirts, you know, where the push is continuing to happen. Those typically get affected before those that are in the, you know, in the prime core area do and so, again, that’s one of the reason we’re excited with those. And number two is, you’re in the market, again, speaking to Phoenix that, you know, Phoenix is a thriving market, very diverse local business economy. And so like that just tons of jobs flooding into that marketplace. It’s incredibly challenging. At this point, if you wanted to go buy a newer built multifamily property, you’d probably be paying a sub four cap for it, and possibly even closer to a three cap for it. If you’re in a that type of desirable neighborhood and it doesn’t really exist, all they really exist in these little urban infill are these, these infill type projects. And so our basis even with the you know, the cost and the labor being higher nowadays, our you know, our bases going in is about 150 basis points higher than that of what we’d be buying an existing project four. So it’s worth taking the development risk on something like this, because our bases is in a much better position than than if we bought an existing product, in addition that we need to build them how we want. And so we get to actually not use inferior, you know, inferior products or inferior materials, where you see a lot of things that go up nowadays, I mean, they are literally using the cheapest stuff, to build absolute builder grade stuff that you and I have seen all these apartment complexes going up with the wood and then this little bit of stucco slap slap on the side, I promise you that stuff is not going to look all that great and 789 10 years. And so we’re trying to build something that’s durable, that’s long lasting, that ultimately will stand the test of time as we serve that that higher end clientele. And so I like it because our basis is higher. And then we’re again, we’re in a main and main location, which is irreplaceable. It’s absolutely replaceable. So just some of the aspects of

why I like the projects that we’re working on there. And Phoenix and Phoenix is literally it has been the number one growing market in the country for like the last 567 It’s a long time this entire run up. It’s been one of the fastest growing markets in the country.

Adam 48:12

Absolutely. Well, Kevin, thank you so much for joining us today. Really appreciate it. We were also operating like Zach said heavily in the build to rent and it’s a it’s, I love it. It’s what I’m buying right now. You know, the the rehab stuff is still like I’ve got that in my portfolio, it does well. But I feel like the market over the past four or five years has really shifted a lot towards build to rent something that wasn’t there whenever I started investing, but So continuing to grow. Are you seeing with your build to rents are you building to hold? Are you building curves?

Kevin 48:45

Yes, yes. Yeah, I should have, you know, should have clarified there. But yes, we are building to hold. So everything that we were building, it’s it’s a, at least a 10 year hold. That’s kind of how we’re modeling it out. And again, things change, there could be a chance that we sell one of the developments. But ultimately, we’re building it with the mindset that we’re not just looking to build at least up and then flip it. And so we’re using a little bit higher end materials, things are gonna be a little more durable in the long run than that of if it was just gonna be something that we’re just going to turn right after least upstage

Adam 49:14
not just waiting for that hedge fund to come around. And yeah, that’s,

Kevin 49:19

you know, hit anyone and for that, that’s a that’s a model where you can make money, right, and there’s plenty of buyers out there to take that, you know, maybe a little bit more of an inferior product off the shelf quickly. But, you know, I think another thing driving the build to rent space, and now we got rates going up, right? Like I just heard something the other day that loan app loan applications are down like 40% right now. I mean, it’s there’s just been a massive shift of those that could afford a house that you would still like to own a house. There’s been a shortage they haven’t been able to buy and now rates are so high that they literally in prices haven’t come down and so they literally got priced out. I mean, they’re they’re gone. Now they’re not even they’re not even a prospective homebuyer anymore. They have to be a renter and unless rates you they’ll come back down to the pre COVID levels, which I don’t see them getting there. But we’re going to have I mean, we really are pushing more towards that nation of renter’s faster than ever before. And so which is again, perfect for the bill to rent space?

Adam 50:16

Yeah, absolutely. Well, everybody, you can check him out at Kevinbupp.com. That’s Kevin bu pp.com. He also has a free book that he is given out to listeners here. And that is that Kevin bought.com/free book, that should be pretty easy for you to remember if you want a free book. So Kevin book.com/free book, Kevin, anything else you want to leave our listeners with today?

Kevin 50:39
I don’t think so, guys, it’s been a pleasure being here. I appreciate everything you guys do and

just grateful that you had me on.

Adam 50:44

Absolutely. Well, pleasure to have you to everybody else. Check us out at rent to retirement.com. That’s rent to retirement.com. You can find everything we do there from podcasts or YouTube to inventory. We have anything and everything schedule a call with us. You can leave us a review on your podcast platform. we’d greatly appreciate it. You can also check out Kevin’s podcast, and leave him a review there would really he I’m sure he’d appreciate that as well. So you can find out everything about us at rent to retirement.com and we’ll see you on the next episode.

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