Episode 34: The Sexiest Real Estate Investment


Mobile homes may have a stigma, but to savvy investors they offer attractive cash flow and tax benefits. Kevin Bupp joins Tom to discuss the benefits of mobile home investing.


03:47 – What’s Attractive About Mobile Home Investing?

06:26 – What Happens If A Tenant Doesn’t Pay The Rent?

08:41 – What Is The Typical Cash Flow On A Mobile Home Investment?

10:13 – Why Are Land Leases So Attractive?

12:07 – What Are The Tax Benefits Of Mobile Homes?

15:27 – How Is Mobile Home Bonus Depreciation So Attractive?

16:12 – What Are The Value-Ad Opportunities In Mobile Homes?

Learn more about Kevin Bupp by visiting https://sunrisecapitalinvestors.com

Announcer: This is The WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.

Announcer: This is The WealthAbility® Show with Tom Wheelwright. Way more money, way less taxes.

Tom Wheelwright: Welcome to The WealthAbility® Show, where we're always discovering how to make way more money and pay way less taxes. Hi, this is Tom Wheelwright, your host, founder and CEO of WealthAbility®. So what if the least sexy real estate turned out to have the sexiest cash flow? Today, you're going to discover how to turn what we think of as ugly mobile home parks into absolutely the sexiest part of your real estate portfolio.

Tom Wheelwright: And I have an amazing guest with me that is an absolute expert in mobile home parks. I've had clients over the years that have invested in mobile home parks. I've got to say, not someplace I aspire to live in. At the same time, it's not about how it looks, it's not about where you want to live. And we always have to remember that the investment is about the return. And the primary challenge that we have right now is that a lot of real estate does not have real good cash flow.

Tom Wheelwright: The cap rates are really low in multifamily, so they're getting tougher to find. It's getting tougher to find good investments in multifamily, and so, where do we get good cash flow? And now, we have this amazing opportunity, I think. A good friend of mine reminded me that our guest is an expert.

Tom Wheelwright: We'd actually had some connections over the years, and she reminded me, “You really should have him on your show.” So I'm very excited to be discussing, really, the amazing both cash flow and tax benefits of mobile home parks with an absolute expert on it, Kevin Bupp. Kevin, welcome to The WealthAbility® Show.

Kevin Bupp : Tom, I'm excited to be here. Thanks for inviting me.

Tom Wheelwright: So Kevin, give everybody just a little 30 minute … Sorry, not 30 minute. 30 second, 30 second background, where you came from, and then we'll get in and start talking about mobile homes.

Kevin Bupp : Yeah, yeah. I'll keep it very brief. I've been a full time investor for 19 years. Basically it's the only thing I've really done in my adult life. I've never had a real job. I like to kind of brag about that. Just shy of seven years ago, I was introduced to the mobile home park space, which is something, just like a lot of others, I'd never really considered, Tom. I'd never really given it any thought whatsoever.

Kevin Bupp : And I met an individual that owned a number of communities here in Florida. I had lunch with him, and left that lunch with a new mission. A new mission to go purchase a community and either approve or disprove all these great things that … His name was Randy, that Randy had told me during that lunch.

Kevin Bupp : And so here we are, almost seven years later. It's what we've entirely focused our business on, at least up until this date. And we'd like to consider ourselves to be the mobile home park experts, and we're in the, we call it the parking lot space, right? We basically rent parking lots to folks that have a mobile home that want to live in our communities. And very rarely do they ever leave. Once they park that home there, they very rarely ever leave. And so that's what it is we do.

Tom Wheelwright: So, you've said a little bit of it, but what is it you particularly like about mobile home parks? Most people look at mobile home parks and they go, “Man, these are ugly. Do I really want to own that? They're run down, and, you know, this is not the best part of town.” So why? Why have you gotten so into mobile homes?

Kevin Bupp : Yeah, the good thing is that, I'll defend them a little bit, just like apartment complexes or even single family, there's kind of two different ends of the spectrum. There's really low end, just not a good place. And you've got the other end of the spectrum in the mobile home park space, which are very nice, high end communities.

Kevin Bupp : And that might be somewhat of an oxymoron, but there's some very nice communities that I wouldn't be embarrassed to have my parents live in, that have very nice, expensive mobile homes, hundred, 150,000, $200,000 mobile homes in them.

Kevin Bupp : And then there's kind of everything in the middle, right? In the middle means we're serving the working force folks that just literally, they want to provide the best for their kids. They want to be in the good school districts, they want to be near amenities, shopping, restaurants, things like that. But they need an affordable roof over their head. And that's typically who we serve.

Kevin Bupp : And so, the attractive part, there's many different aspects that attracted us to the space. Number one is, it's the only asset class that has a diminishing supply. There's a negative stigma with mobile home parks, just like you kind of alluded to in the beginning, there. They're not all bad. In fact, there's a lot that are really, really good. But however, municipalities, they think they're all bad.

Kevin Bupp : And so, trying to get a new one permitted to get built is a massive uphill battle. And there's only been a very limited number of new parks built in the U.S. in the last 10 years. So, the number's under a hundred of them, right? There's many more that have been actually torn down, demolished or redeveloped than there have been brought online.

Kevin Bupp : So it's got this diminishing supply, which creates a very unique barrier to entry. Another thing that we like is that, typically, comparing apples to apples, the other returns are typically higher in a mobile home park than that of an apartment complex or traditional multi.

Kevin Bupp : Another big, key factor is the turnover. We're essentially leasing lots, the folks that own the home. They can't just get up and pack their things up overnight and leave. In an apartment, you could throw your mattress on the roof and have a trash bag full of clothes, and that person could be out in the middle of the night. We don't really experience that in the mobile home park space.

Kevin Bupp : And then lastly, again, there's many more, but one other big one is the maintenance side of it. They own their own homes. And so, if their AC goes out, or their roof leaks, or their plumbing gets backed up, they're calling the plumber. They're calling the HPAC tech. They're not calling us. Whereas in an apartment complex, they'd be calling the manager. You have to come fix those items. We're only responsible for the common areas and the infrastructure leading up to the home.

Tom Wheelwright: So, let me ask you a question about that. So, they own their own homes, and what happens if they don't pay their rent? Do you make them move the home, or do you have a lien against them? Do you take it over?

Kevin Bupp : Yeah. That's a great question. So, we've been in this space almost seven years now. We own just at about 2,000 lots in a number of different states, and we've only ever had one eviction where that individual has actually, where they have owned the home, and they had been renting a lot from us, we've only had one real eviction. And we're very black and white in our no pay, no stay policy.

Kevin Bupp : And here's the reason why, Tom. That asset that they own is probably the most valuable asset they have to their name, that mobile home. It's more valuable, probably, than their car and any other personal possessions they might have. And what you'll find is, in any given city where we own communities, where there's communities throughout the U.S., there is no cheaper place that that person can live with their entire family for $350 a month.

Kevin Bupp : Literally, there's not another option for them. So what you'll find is, people will do everything in their power, they'll figure out how to come up that $350. So, we've only ever had one eviction where someone literally lost their home because they didn't make that allowance. And that's what would happen.

Kevin Bupp : Essentially, what would happen is, we would evict them from the lot. It would be their responsibility to move the home. If they didn't have the money to pay the lot rent, they're not going to have the money to move the home, which is typically about $5,000 to do. And then it becomes an abandoned title process. It works differently in every different state. Normally, it's anywhere between one to three months to where we can claim a new title issued in our name, and then we'll turn around and remodel the home and then sell it to somebody else.

Kevin Bupp : So, that's normally what would happen. We got into one instance where we actually had an eviction, Tom, it was an anomaly. The guy lived there for eight years, owned his home, free and clear. He just went missing one day. We literally searched for months. We called jails, hospitals, tried to skip trace him.

Kevin Bupp : Never found him, never reappeared. We waited four months, and we finally just had to go through the eviction process, because we didn't have an answer. So that was an anomaly. It wasn't that he just chose not to pay his rent. I don't know what happened to the guy. He just disappeared. So it very rarely ever happens. So we've got a lot of leverage there, because they're going to lose the most prized possession that they own, all over maybe $350.

Tom Wheelwright: Wow. So, from a cash flow standpoint, talk a little bit about the cash flow of mobile homes, and how that compares to, say, cash flow, not a single family, but a multifamily.

Kevin Bupp : Yeah, and again, it's hard. It's really hard to do an apples to apples comparison. A lot of that has to do with how you buy on the front end. I will say, I want to get some clarity here, there's a lot more competition in our space than what there was maybe four years ago. Lots of large private equity players are getting into our space and they've got cheaper cost of capital. They can pay a little more aggressive prices.

Kevin Bupp : So, what used to be a secret, a secret industry, mobile home parks, not a lot of people knew about or talked about it, now is in the limelight. Everyone knows about it. People are talking about it. And the big players are truly in this space. So, with that being said, what we've typically seen, historically, is, somewhere between a point and a half to two point yield premium.

Kevin Bupp : If you took the same size mobile home park and the same market at the same grade, if it was a B-class mobile home park, with a B-class apartment complex, same size, in the same marketplace, you'd expect somewhere between a one point five to two point yield premium owning the mobile home park than you might in the apartment complex. Now, there's other factors involved there.Tom Wheelwright: So, if the apartment complex, so, if the apartment complex were giving you seven percent, you would expect eight to nine percent.

Kevin Bupp : That's correct.Tom Wheelwright: So, cash flow is better, but what I like is, in an apartment building, what's really going on is that you are … You own the actual building. So, you have maintenance, you have property management, you have all that kind of stuff. But a mobile home park, it's really a land lease, right?

Kevin Bupp : That's correct, yeah. We're renting the lots. And I will offer one caveat here. There are instances where we end up owning the trailers. It could be one of many things. It's not really the business model we like to follow. However, we're not in a perfect world, and unfortunately, we end up with trailers.

Kevin Bupp : Someone might pass away, someone might need to relocate, they can't sell fast enough. We don't want that mobile home to leave the park. So we'll buy it, and then we'll turn around and resell it to somebody else. So we do own, I think, a few hundred mobile homes within our portfolio. However, we're always selling them off. And so, it's kind of like a never ending number. We never get to a net zero. So we do own homes, just not that many. That's not the primary business model. The primary business model is to literally own the lot, own the dirt, and lease it to the folks that actually want to sit their home there.Tom Wheelwright: It's a beautiful thing. So, here's the other thing. There are some things though, that you own in the mobile home park besides the actual dirt, right? There's electrical, there's, presumably, water, there's, presumably, sewage. There's other things besides the actual home, right, that you have to maintain and that you do have to take care of.

Kevin Bupp : That's correct. Typically, in most situations, we own all the infrastructure. So the water lines, the sewer lines, the electric meters, the roads, any common areas. Some of our communities, we have a clubhouse, we have a pool, we've got some type of office building, of the sort. And so every community's a little different.

Kevin Bupp : Some have more amenities than others, and some have more responsibilities than others, as far as the infrastructure. For example, there's a few communities that we own where the roads just happened to be county owned roads, even though it is a privately owned community.

Kevin Bupp : And so, the county, if we get a pothole, the county will come and fix it. Whereas, in other communities, it's our responsibility, we own the road itself. But most of the time, that is our responsibility to oversee all that infrastructure.Tom Wheelwright: Now, here's the good part about the infrastructure. So, from my point of view, of course, from a tax point of view, that infrastructure is equipment. And so, what we're finding is, with this new tax law, that in a mobile home park, we're actually finding up to 80% of the purchase price of a mobile home park is being of the depreciable value, not the land itself, but the depreciable value, about 80% is going to be subject to bonus depreciation. So that's an enormous amount of depreciation in the first year.

Kevin Bupp : It's a beautiful thing, Tom. We love it.

Tom Wheelwright: So, when I look at return on investment, of course, we want to focus, first of all, on clash flow. We always focus first on cash flow, folks. We never focus on capital gains or tax benefits, okay? Number two is tax benefits, typically, and number three is capital gains.

Tom Wheelwright: So those are kind of bonuses. But in this case, it's a huge bonus when you consider that much depreciation. So, you've done a few cost segregations lately, I'm aware of. Kevin, can you give us some kind of a proportion as to what you're seeing from a purchase price of the mobile home park compared to the bonus depreciation the first year?

Kevin Bupp : Yeah. It's somewhere in that 65 to 80% range that you had alluded to, is where we're ended up. It's a little different, some of the communities, but that's right in that range.

Tom Wheelwright: So if you bought a mobile home park, what does a typical mobile home park, and I know they vary, but give me an average, what would be a purchase price for a mobile home park?

Kevin Bupp : About three or four million dollars is kind of our average strike price.Tom Wheelwright: So if you had a three million dollar mobile home park, you're literally talking about a two million dollar plus depreciation deduction?

Kevin Bupp : That's correct.Tom Wheelwright: So, what we're talking about is, consider a two million dollar depreciation deduction. If you talk about your investors, and investors, typically, are going to be in a 40% tax bracket, then, on two million dollars, which, I presume, you're able to leverage this, right? You can get bank financing on a mobile home park?

Kevin Bupp : That's correct. Yeah. Our leverage points, on average, between 68 and 75%, depending on the park.

Tom Wheelwright: So, you put 30% down, and you get depreciation far more than your investment in the very first year. And when you consider that, and you consider, okay, so, on two million dollars, if you're getting 40%, that's $800,000 return. And on that, okay, so on that three million dollar, let's just look at the numbers a little bit, because I'm an accountant, I have to look at numbers.

Tom Wheelwright: So on three million dollars you've put down, if you put down 30% of three million, you put down $900,000, and got a two million dollar depreciation deduction. That's more than double your investment as a depreciation deduction. I don't, frankly, I just, I don't know anywhere else you could get that.

Tom Wheelwright: And I don't mean this to be an advertisement for mobile home parks, but when our mutual friend who does the cost segregations, talking about the amazing cost segregation of what's going on with the bonus depreciation, I'm just going, “Oh my heavens, that blows a multifamily and commercial out of the water from a pure tax standpoint.”

Kevin Bupp : We had certain expectations, but surely, they were actually blown away, as well. So, it was a space that we are incredibly excited about prior to, and one that we're even more excited about now because of that.

Tom Wheelwright: That's fantastic, Kevin. Thank you so much. So, is there anything … Give us a couple of recommendations. If people are looking at mobile homes as an investment, and they were looking at not just getting into it but really being serious about it, what would you want? What would you say? Okay, you need to look at this, you need to look at this, and maybe this is one thing you could do to, you know, take a mobile home park and make it even better.

Kevin Bupp : Sure, sure. As far as getting into this space, obviously, educate yourself. Determine if you want to be an active or passive investor. There's lots of different educational resources out there. We have a dedicated podcast that we've been doing for about three years now on mobile home parks. That's all we talk about there. We've got about a hundred and, I think, 20 or so episodes. So, it's free. Go listen to that.

Kevin Bupp : Go read as many posts online that you can about spaces, multiple different forums on Facebook, and LinkedIn, for mobile home park investing. As far as kind of the upside, how to add value, I think that was part of the question, is how to get in and add value to these communities. There's a couple of different ways we look at it.

Kevin Bupp : There's kind of like the low hanging fruit, the mid hanging fruit, and then the high hanging fruit. The low hanging fruit would be things such as below market rents. Something where we can go in and bring rents up to market fairly quickly. Right? That's a very low, easy hanging fruit.

Kevin Bupp : Another low piece of low hanging fruit would be, very commonly, when these communities were built, 20, 30, 40, 50, 60 years ago, water and sewer just wasn't a very significant expense. A lot of times, it was just included in the lot rent. The park owner took the brunt of that bill, paid at all, and the residents got free water and sewer as part of their rent.

Kevin Bupp : Now, nowadays, what we'll do is we'll go and put some [inaudible 00:17:35]. We want to control that expense. And so, a lot of times, we'll go into a community that's got a hundred thousand dollar annual water and sewer bill, we proportionally and proportionately go back to residence for that use.

Kevin Bupp : Number one, it eliminates, we normally end up saving about 30 to 35%, because it just eliminates the abuse that's happening, and the waste. And number two, that savings goes directly to our bottom line. It's a very inexpensive improvement to make, and one that literally pays itself back, typically, typically in a year, or sometimes even less than that, and it goes directly to our bottom line.

Kevin Bupp : So, that's the low hanging fruit. Middle hanging fruit, Tom, would be that of an operational turnaround. You know, the community just hasn't been run right. They've got the wrong element in there, and the wrong type of demographic, haven't been doing background checks, haven't been keeping up the community as far as maintenance, the roads are in rough shape, things like that.

Kevin Bupp : We'll go in and do some major improvements, and we'll try to turn any of the resident base that is, what we deem to be unsavory and not a good fit. And then a high hanging fruit, for us, is kind of like the … The last value add component would be …

Kevin Bupp : It's very common, we'll buy a community. Let's say it's got a hundred lots, but only 70 of those lots actually have physical mobile homes on them. There's 30 empty lots that have infrastructure there, but there's no mobile home. And so what we'll do for that high hanging fruit is we'll go purchase brand new homes, bring them into the community, and essentially, create a sales program to sell those homes to new residents that want to live inside that community.

Kevin Bupp : So that's capital intensive to do, a lot more labor intensive. However, it is a very, very achievable value add strategy. But it's kind of what we consider in classified to be the high hanging fruit. It takes the most effort, slowest to actually see a reward from it. But it's still a big part of our strategy.Tom Wheelwright: Those are awesome recommendations. Thank you so much, Kevin. So Kevin, tell us how to get ahold of you.

Kevin Bupp : Yeah, you can find me either on my website at kevinbupp.com. You can also listen to my, one of my podcasts, I host the episodes up there. As far as what we're doing in the mobile home park space, the name of our company is Sunrise Capital Investors. You can track me down on that website, sunrisecapitalinvestors.com. One of those two ways. I will not be hard to find.

Tom Wheelwright: Well, that's awesome, because I know that a lot of our listeners, some of them will want to get into, might want to do home mobile home parks themselves. But I know a lot of our listeners are accredited investors, and they're more looking at, how do I increase the cash flow into my portfolio, because while … And the tax benefits. Because while multi-families, again, they're struggling a little bit because of all of the interest from the big private equity.

Tom Wheelwright: It sounds like mobile home parks, they're catching up there, too. And so, real estate, that's the challenge. Real estate. Frankly, I blame it all on my buddy Robert Kiyosaki. He and Robert Allen started this thing years and years ago, and people actually, understanding real estate, other than the casual investor, and now it seems to have blown up.

Tom Wheelwright: So, it's still, when you consider the leverage you get and the tax benefits, it's still an amazing opportunity. And again, what I love about mobile homes, you're leasing the land, and that's primarily what you're doing. So not a lot of maintenance, not a lot of upkeep, primarily leasing land space, and getting bonus depreciation for doing that. And so, that's … Seems like a pretty sexy part of the portfolio.Tom Wheelwright: And thank you again, Kevin, so much, for coming on today. Really appreciate it, and appreciate your expertise.

Kevin Bupp : Thank you for having me, Tom. It's been a lot of fun.Tom Wheelwright: So just remember, when you focus on cash flow, and at the same time, you get tax benefits using leverage, you're always going to make way more money and pay way less tax. We'll see you next time.

Tom Wheelwright: Hey, thanks so much for listening today. As an additional thank you, I want to give a special gift just to our podcast listeners to help you jumpstart your journey to building massive wealth tax free. This is a group of not just one, but five of my top educational resources on this topic.

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