#186: Investing with Owner-Operators in Mobile Home Parks & Self-Storage Units with Paul Moore

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Josh: So, hey, this is Josh, welcome back to the Accelerated Investor podcast. In this episode, I am interviewing Paul Moore. Paul is the founder and managing partner of Wellings Capital. He’s completed over 85 real estate investments and exits. He’s appeared on TV’s House Hunters. He’s rehabbed and managed dozens of rental properties. He’s developed a subdivision and a Hyatt hotel. Paul narrowed his focus to commercial real estate back in 2010 and today runs Wellings capital, which is a basically a private equity shop, if you will. They set up closed ended funds and recently raised over 30 million dollars to partner with operators who are investing in mobile home parks and self-storage units. 

Josh:So in this interview, you’re going to hear, number one, how Paul raised nearly 30 million dollars this year to put into his fund number, to his fund structure and how he partners with operators to help them with the down payment and the value add improvements on their mobile home parks and self-storage units. Number three, Paul is going to explain how he’s able to invest virtually all over the country by partnering with owner operators. Number four, Paul and I discuss his rules for real estate investing according to Warren Buffett. Paul is actually coming out with a book called Warren Buffett’s Rules for Real Estate Investing. And these are philosophies that Warren Buffett has for his investments that would apply to real estate investing. And finally, number five, you’re going to hear 10 ways to add value to mobile home parks and self-storage units to nearly double their value and their equity for investors. I hope you enjoy this interview on the Accelerated Investor podcast with Paul Moore. 

Josh: So, hey, Paul, listen, I’ve been looking forward to this interview on our Accelerated Investor podcast for a long time. Thank you so much for joining me today. How are you? 

Paul: I’m doing great. Thanks for having me on, Josh. 

Josh: Absolutely. So, Paul, listen, you know, I’m always curious when I get to interview somebody new, meet somebody new, what they’re working on, like literally today or like this afternoon or tomorrow, next week, that they’re most excited about whether it’s a new development deal or a new investment or a new book. So I’m curious, like, what are you working on right now that’s kind of getting you going that you’re passionate for? 

Paul: Yeah, I’m working on a couple of things. So first of all, we are raising thirty million dollars to invest in recession resistant commercial real estate. We are a few million dollars away from the limit. And so when we wrap that up, we’ll be taking a little bit of a break and then pushing start on a new fund in the next couple of months. So we’re very excited about that. I’m also really excited about my latest book. It’s Warren Buffett’s Rules for real estate investors. What we’re doing is we’re taking Buffett’s principles that he’s laid out for us so well over the last 30 or 40 years. And we’re taking that and applying that to real estate, investing in our tweets. Say, Warren, if you were investing in real estate, what would you do in this situation or that situation? It’s going to be about twenty-two chapters to be Morgan James Publishing, and we’re really excited to get that wrapped up. I’m only a few chapters away. 

Josh: Fantastic. So is there someplace that our audience can, like, preserve a spot? Is there something that’s there too soon? 

Paul: I love to tell you. I mean, you can always go to my website. It’ll be when it’s out, when it’s available, it’ll be on my website. 

Josh: OK, fantastic. So let’s peel back the Onion a little bit on that. It’s WellingCapital.com, by the way, for those of you that want to check out Paul’s information in this upcoming book. So let’s talk about the thirty million dollar raise. So you said recession proof, real estate investing, obviously covid created this recession that nobody forecasted. So when you say the words recession proof real estate, what do you mean by that? 

Paul: Yeah, I should have said recession resistant. So let me be clear on that. But, yeah, we’ve got you know, we’ve found that a couple asset classes have done really well through the last recession. And there’s just a lot of fundamentals that make these types of things work well. And that would be self-storage and mobile home parks. Let me focus on the second one. Sure. Mobile home parks are the only asset type that have a decreasing supply and an increasing demand every year. Josh, so we really like that asset type. People generally don’t move out. I mean, if imagine you had a mobile home that you’d spent thirty forty thousand on or maybe you were just buying and slowly, you know, owner financing or whatever, and you got seventeen dollars raise on your rent. You didn’t like that. You’re probably not going to spend five or six thousand dollars to move it down the street to save seventeen dollars or because you’re mad at your neighbor or the manager. It’s just not feasible to do that. In fact, it virtually never happens. And so that’s one of the reasons we like this. It’s sticky tenants. We also like the fact that the tenants generally own their own mobile home. So there’s no interior maintenance, there’s no building maintenance. We’re basically leasing land to them and providing them a beautiful safe place to live. And so those are some of the things we love about mobile home park investing. 

Josh: Got it. I love it. So recession resistant also because, you know, a lot of people can afford the price for a mobile home, whether they finance it or whether they own or finance it. Now, you said something that stuck out to me, which is supply keeps going down. Is that simply because the cans are aging out and they’re no longer usable? I’ve never heard somebody describe a mobile home park or mobile homes as actually having supply go down. So help me understand. 

Paul: Yeah, so it’s really hard to track because it’s such an extremely fragmented business. But we believe there are forty-four thousand mobile home parks in the US, 85 to 90 percent owned by mom-and-pop operators, which I’ll jump back into later. But the NIMBYism, which is the not in my backyard ism attitude of most cities and even suburban areas, don’t want new mobile home parks. And in fact, the city council’s planning and zoning people sometimes manipulate the owners of mobile home parks to get rid of them. So they will before they approve their next subdivision or whatever next project they want to do now, in addition to that, it’s actually quite unprofitable to start a new mobile home park. In fact, it often can take 10 to 15 years to get to break. Even for most operators, those that can get approved by city or county zoning are so far out in the sticks that they fill up really, really slowly. And so the combination of these factors means that there’s not a lot of new supply now as far as the decreasing supply every year. We believe that about 100 mobile home parks a year are being torn down or evacuated. In fact, I was in Fairbanks, Alaska recently and I saw a completely vacated mobile home park. All it had is a bunch of old pieces of decks and steps and stuff like that. In fact, there were three more that I found that were possibly going to be vacated as well. 

Josh: Wow. Wow. So between the cans, between the parks, between the lack of desire from city management all going down yet, we have an affordability issue, right, the United States is facing really for affordability crisis with apartments, with lack of supply for residential homes, prices going up for both multifamily apartments and for homes. And what I’ve always thought is one of the areas where you could easily replace that with affordable housing was mobile home parks, but cost of building, cost of developing a park, supply going down, but demand going up. So tell me a little bit more about demand. Is it because of affordability and affordable housing that people can afford those payments that are looking at mobile home parks, the cost of looking to move in? And because any time you can find a business model where you know there’s going to be more demand but less supply, prices have to go up and of course, your returns are there. So help me understand the demand side of mobile home parks. 

Paul: Yeah, it’s crazy to think this, but 10000 people just turn 65 every day in the US. What’s crazier is that six out of 10 have less than ten thousand dollars saved for retirement. But many of them have home equity and they’re willing sometimes to trade that home equity in to get a mobile home park lifestyle with lower cost of living. They don’t have paper thin walls next to their neighbor. They don’t have to climb a whole bunch of steps. They really are willing to do a mobile home park. A friend of mine’s father in California was a very successful doctor, got pictures of him with Gerald Ford playing golf. But when he retired, he decided to move into a mobile home park and he was very happy there. And so this is not your grandfather’s mobile home park. In some cases, some of them are pretty crummy and rundown, but a lot of the ones we buy are the same ones that Blackstone is buying right now that have top flight amenities, pools, community rooms, et cetera, playgrounds, dog parks. And you’d be surprised. I mean, Sam Zell, the top real estate investor in the US, in my opinion, has one hundred fifty-seven thousand mobile home park pads. He was buying these quietly while the rest of us were turning our nose up. I think he knew something we didn’t know. 

Josh: Right. Yeah. Sam Zell and you’ve already mentioned Warren Buffett, right essentially brought the mobile home park industry into the modern age with the financing, the way they finance these parks. And so the interesting to hear more about your book, what’s in your book, because Warren Buffett said, like, if I could go buy one hundred thousand single family homes, I would do it, but it’s not economical. So what did he do? He founded Berkshire Hathaway to sell properties and he invested in mobile home parks and created the financing around Mobile Home Park. So, Paul, for people who don’t know, talk about that evolution a little bit about the old school mom and pop parks and the financing around those parks versus what’s actually happening today that makes this so attractive? 

Paul: What’s so crazy is a lot of the sellers of mobile home parks, the mom-and-pop owners who have been with those parks since the 60s or 70s, they assume that everybody has to own or finance. So they’re already assuming that they might be owner financing. And if they haven’t kept up with the times, they might think that these are selling for a 10 or 12 percent cap rate. When they find out that they can sell for a six percent cap rate and the buyer can get Fannie or Freddie Mac financing. Right. Fannie Mae, Freddie Mac and other CMBS lenders are jumping into the space. It’s great for the seller and there are often quite surprised the buyer can sometimes get financing in the 3s in the three percent interest rate range similar to multifamily. And in fact, they have some of the Freddie programs have two guaranteed supplementals on them at the same interest rate right up front. So it’s pretty cool financing. And this has allowed, I think Sam Zell’s responsible for some of this. Like you said, Berkshire Hathaway has Birchard a mortgage. They also have twenty first mortgage that finances individual mobile homes, up to one hundred percent for a 30-year-old year old mobile home. 

Josh: In some cases, fantastic stuff. So you had mentioned I’m curious to hear more about this 30 million dollar raise. Is are you structuring the capital in a close ended fund where you’re raising the 30 million into a close ended fund and then going and buying the assets with that 30 million, matching it up with some commercial financing? Help me understand the structure and where the 30 million is going. 

Paul: Yeah, close. So we were actually a multifamily operator. I wrote a book on multifamily, humbly entitled The Perfect Investment and. We realize that multifamily is largely overheated, as you know, Josh, and so we didn’t have a great acquisition pipeline, we were kind of just well, we were really frustrated. And so we started looking at self-storage and mobile home parks, found out about the fragmented nature of that, those industries, which I’ll get back into in a few minutes. And we decided to set up a fund and go out and be due diligence partners for our investors. And what I mean by that is we go out and find the very best operators. 

Paul: We place capital with them and then they invest in the self-storage and mobile home parks. Right now we have nice we have twenty one million dollars placed right now across seventy four projects and by the end of the race will be closer to one hundred projects that we have invested in. So our investors get diversification across four operators right now, lots of geographies, lots of assets and different strategies as well. 

Josh: Yeah, I love it. I love it. And you know, to do it close ended type fund each year. Right. It makes obviously the accounting much easier because reading the accounting over year after year is very difficult. 

Josh: But I love the fact that, Paul, you’ve really structured your business to do what you know you’re good at. So going and sourcing operators, finding the best operators that are running the mobile home parks. Again, the Fannie, Freddie financing is there, but sometimes it’s only available at 60 to 65, maybe 70 cents on the dollar is a little bit larger downstroke on mobile homes. And you know that the returns are they’re decreasing supply, increasing demand, all amazing things. But what does the operator need is help with the downstroke to be able to match that up. And as we all know, multifamily real estate, commercial real estate is very much a team game, right. 

Josh: Where somebody signing to sponsor the loan, somebody else is running the operation, somebody else is raising the capital. And so if you’ve aligned yourself with the passive investors and the operators, kind of match the two up. And I’m sure there’s the economics there for us, some sort of general partner or equity owner. Love the model. Love the model. So how did this model you did this model come out of, you mentioned that multifamily largely overheated and you started looking at mobile home parks as an alternative. When did you realize that the structure was a winning structure? Like what did what when the light bulb went off in your head and you’re like, oh, my God, this is really going to work? Tell me about that epiphany. I always like those moments, those entrepreneurial moments when you’re like, oh, my God, I’ve got this idea. It’s going to come together. 

Paul: Yeah, well, I mean, as far as the fund model, that was pretty easy jump from doing individual syndications because, you know, like we all know, some go well, some are pretty mediocre. And I felt bad for the investors who were in the mediocre ones. I mean, I was one of them. And so I thought, wouldn’t it be nice if if four out of five are winners and a few fewer home runs and then a few are mediocre, wouldn’t it be nice to put it in a fund structure to give people diversification? So I love it. I don’t ever plan to go back to the individual asset model, though we’re willing to look at it in the future. The light bulb for me, though, went on when I realized the difference between intrinsic and extrinsic value, Warren Buffett said, What you pay for is essentially the extrinsic value. But what you get is the intrinsic value. In other words, the price is what you pay. The value is what you get. And so what I realized there was a massive gulf between intrinsic and extrinsic value on many of these fragmented assets, these mom and pop owned assets, the mom and pop owners don’t have the desire or the knowledge or the resources to increase income and maximize value. 

Paul:So we could pay. For example, a year ago last week, we bought a seven point one. We invested in a seven point one-million-dollar mobile home park in Kentucky. The operator went in and passed utilities back to the tenants, raise rates a little bit, slashed expenses, improved the part, and we had a target of hitting 12-to-13-million-dollar resale in three to four years. We got an offer of fifteen million in six months. So my property, yeah, sold the property in a total of ten months from ownership for fifteen million. That was a three and a half million-dollar equity in about ten million dollars of equity. And so a nice three hundred eighty four percent IRR. 

Josh: Good for you. Good for you. So, Paul, um, listen, I know you’ve got an obligation, I want to be mindful of your time, so but I am curious to peel back the onion a little bit more on this book. There’s probably some lessons that you’re going to pour into the book against things from Warren Buffett that you’ve learned and watched his style. So what are some of the other philosophies that Warren has, Sam Zell has, some of these other guys that are going to you’re going to have in the book, you know, the intrinsic value that I’m sure going to end up in the book. So what are some of the other philosophies that you really like about Warren style for real estate investors and maybe even some chapter titles? Maybe these are chapters of the book. What are some of the things that are going to enter the book that you think our audience should know? 

Paul: Yeah. So one would be this. There’s so many floating in my head. I don’t know which one to tell you about, but one that I really love is there’s a big difference between investing and speculating. Investing is when your principal is generally safe and you’ve got a chance to make a return. Speculating is when your principal is not at all safe and you’ve got a chance to make a return. Paul Samuelson was the first economist to win the Nobel Peace Prize from the US, and he said that investing should be boring. It should be like watching. I like watching grass grow, he said. If you want excitement, take eight hundred dollars and go to Las Vegas. 

Josh: Yeah, I love Las Vegas too. But, you know, that’s not where we invest, right? That’s where we speculate and have fun. That’s great. Is there is there another lesson that sticks out that you think is going to enter the book? 

Paul: Yeah. So my default as an entrepreneur for the early part of my entrepreneurial career, I left Ford motor company when I was in my 20s. And I started as an entrepreneur and my early years, my default as somebody who liked to take risks, who like to roll the dice, play double or nothing, my default was to say yes. Warren Buffett said successful people say no almost all the time, but the very most successful people say no virtually every time. And so that’s what Buffett does. And that just really shocked me because I used to assume that I wanted to figure out how to make something work. But now we try to figure out ways to shoot something down and only invest if it passes all the tests. And once we took that mindset, we grew a lot slower than we could have. But I tell you what, we’ve been a lot more successful. 

Josh: That’s great stuff, Paul. That’s great advice. I love that. And, you know, the interesting thing is, as an entrepreneur, everybody talks about, you know, going, networking, learning, constantly being in meetings with meetup groups or even Bigger Pockets or, you know, going to events and meeting people. So there’s this sort of dichotomy, if you will, between I’m going to go run and meet people and network. And a lot of the best deals are those kind of club deals that are done with people that we know that we like, that we trust. 

Josh: But you’re also saying you’ve got to say no to a lot of that stuff. And I think that’s where the entrepreneurial genius happens, is where someone is an entrepreneur and is out and has lots of contacts and gets involved in learning, gets involved in learning about a lot of deals before they get involved in deals and says no, says no, says no, says no. And then ultimately they’re really good at picking winners. And everyone’s nobody’s perfect. Nobody’s going to win one hundred percent of the time. But I think when I was a lot less mature as an entrepreneur and a business owner, I would go network and everything looked great. 

Josh: Everything was a shiny object. We wanted to do every deal. We said yes to everything. And then we’re like, Oh my God, I’m bleeding cash. My cash flow is terrible. I’m in 14 different markets and niches. What am I doing? I think that maybe is the ultimate lesson. I think that Paul’s pulling out here is let’s go network. Let’s spend time learning about lots of deals. Say no to almost all of them. Pick the winners. Fantastic stuff, Paul. So I’m interested to hear your take. You know, we talk about mobile homes. You also mentioned self-storage. Tell me why self-storage is, again, recession resistant and why you’ll be talking about that in the book as well. 

Paul: Yeah. So self-storage has an amazing runway over the last several decades. And one of the things I love about self-storage is that the tenants are very sticky. Imagine I was renting you a thousand-dollar apartment and I raised your rent six percent. Right. You might move rather than sign that lease and add sixty dollars a month to your payments and seven hundred twenty dollars. A year, but if I’m renting you a hundred-dollar self-storage facility and I raise your rent by six percent and you’re on a month-to-month basis, you’re probably not going to spend a Saturday or a vacation day loading up a U-Haul to remove all your junk. I mean, all your treasures down the street save six dollars a month. In fact, we were describing this to a doctor investor one day and he said, oh, my goodness, I just remembered I’ve had a self-storage facility charge hitting my credit card for seven years and I forgot about it until just now. Oh, my gosh. So he invested. And so the point is, self-storage is a small part of people’s general income or their net worth or their situation. So if they’re downsizing in a bad time from a four thousand to a two thousand square foot home or two thousand square foot to an apartment, they’re generally looking for a place to store their stuff. 

Josh: If they’re going through a divorce or downsizing or they’re moving, you know, they’re closing down an office to work from home or a restaurant, they’re generally looking for a place to store their stuff. If their parents pass away like minded and they’ve got a bunch of stuff they need to sort out, they might want to store it for a month. That turns into two point six years. And so self-storage has a lot of great stuff going for it. And while it’s overbuilt in certain markets Josh and we can all see that if we live near a city it’s under built in many, many markets still. And there’s a tremendous upside. We just invested in one in Ramsey, Minnesota, a few years ago, and that it’s the only facility outside an industrial park in Ramsey, which is a booming suburb of Minneapolis. So there’s great opportunities still in self-storage. The best opportunity is to take a mom-and-pop self-storage like we did in Beeville, Texas, add U-Haul, decrease costs, increase marketing, increase occupancy, decrease delinquency, and do some other things like add lockboxes, tape scissors, showroom, late fees, admin fees, insurance, all those value ads. And you can sometimes double the value of the investor’s equity, in fact, even more than double that in one to two years. And we’ve got one after the other case study proving this internally. 

Josh: That’s fantastic stuff. Paul, listen, I know you’ve got to run. I just I wanted to ask you if there’s any kind of final kind of words of advice that maybe you would give our audience or give your younger former self. You’ve had a lot of success if you know a lot about a lot, which I appreciate you sharing some of that today. But what, if anything, would you do different? What advice would you give your younger Paul that you might do differently if you could do it all over again? 

Paul: Yeah, back on that issue of speculating versus investing, you know, I used to think this: low risk leads to low return. High risk, therefore, leads to no, it doesn’t lead to higher returns. It leads to the potential for high return and the potential for lots of losses. Catastrophic loss in some. No kidding. Right. And I had that many, many times, including a wireless Internet company I started, which had no business doing in North Dakota, where the 40 degree below temperatures froze the radios. And also a number of other things I describe on my podcast called How to Lose Money. We interviewed two hundred thirty-eight investors, entrepreneurs and business owners, and they’ve told us their painful stories on the way to the top. And investing versus speculating, chasing shiny objects, quitting too soon or waiting too long to quit have been some of the greatest lessons that we’ve learned over and over on our show.

Josh: Fantastic stuff. Paul, listen, thank you so much for joining me today on Accelerated Investor and sharing all of this wisdom.

Paul: All right, Josh, it was really an honor to be here, man. Thank you so much.

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What would it look like to be in a niche that has a decreasing supply, but an increasing demand? Housing shortages across the country are even more pronounced in the affordable living situation. Mobile home parks and self-storage units are attractive asset classes for Paul Moore for their recession-resistant opportunity. As the founder and manager of Wellings Capital, Paul has completed over 85 real estate investments and exits. In 2010, he narrowed his focus to only commercial real estate, and he creates closed-end funds. Most recently he raised over $30 million to partner with operators who are investing in mobile home parks and self-storage units.

There are over 44,000 mobile home parks in the country, and most of them are owned by mom-and-pop operators. And even though they’re a great option for affordable housing, they suffer from NIMBY. Or, Not In My Backyard. Cities don’t want to give new parks permits, and neighbors show up at city council meetings objecting to them.

Plus, for new operators, it can take 10-15 years to break even. Mobile home parks are being squeezed from both ends, and new parks are simply not being built. Paul Moore loves this asset class because it has “sticky tenants” and no interior maintenance. That means the tenants that move in are going to stick around, and he doesn’t have to deal with toilets.

Investing is when your principal is generally safe. Speculating is when your principal is not at all safe. Investing should be boring, like watching paint dry. That’s what led him to mobile home parks, and that’s what pushed him toward self-storage units too. They’re safe and reliable asset classes that deliver fantastic returns no matter what state the economy is in.

What’s Inside:

  • ‌Ten ways to add value to either mobile home parks and self-storage units to double their value.
  • The evolution of financing in the mobile home park space.
  • How he invests virtually all over the country with owner-operators.
  • How he partners with operators to help them with the down payment and the value-add improvements.

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