Episode 371

24 Mobile Home Parks in 2 Years with Charlotte Dunford

Charlotte Dunford is the Managing Partner of Johns Creek Capital, an investment managing company that focuses on mobile home park investments, with a total investor subscription amount over $4.2M.

Numbers wise, they currently have 24 park investments, and Charlotte herself has also created over $500k in asset value in the past 12 months.

Charlotte really comes from humble beginnings and is a first-generation American citizen and college graduate after leaving China with just her belongings at age 16.

We chat about:

  • How moving to America at a young age with minimal goods and starting her life independently helped change her outlook on success.
  • The benefits of lots compared to houses, and how they offer more room for investment opportunities like raising rent.
  • How to get started investing in mobile home parks and build long-term passive income.

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"You can invest 10,000 hours and become an expert or learn from those who have already made that investment." - Jack

Transcript
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Welcome to the REI Mastermind Network where host Jack Hoss gathers amazing stories from leaders in real estate investing.

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In each episode, our guests will tell you what they're doing that works what they've tried that failed, and best of all, you'll learn actionable steps to take your real estate investing.

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To the next level now, here's Jack with another value packed episode.

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We have Charlotte Dunford on with us here today.

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Charlotte, I appreciate your time and take a look at their website because what they've accomplished in over the last couple of years is unbelievably fast.

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They started off with zero trailer parks. They're up to 20, is that right? Charlotte 24 now $4.6 million in in assets here.

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2424

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So, this is this is growing extremely fast.

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In the past two years and we're going to be talking a little bit about how she's doing it.

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What they're doing and and take a look at how they're making these work here. So, head over to johnscreekcapital.com for some more information and you can see some of their portfolio there. But Charlotte, I really appreciate your time here today.

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Thanks so much for having me.

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So, I always have to ask.

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What made you start in trailer parks?

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know, I graduated College in:

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As a business and.

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So, pretty much right after I took the job, I used my small salary to qualify financing to buy my first property and a single that was a single-family home in the South of Atlanta.

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And after that, using the experience I had, I bought another duplex using my salaries or qualified for financing and that was my second investment and after that.

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It became quite difficult to scale as my salary was not high enough or as a fresh college grad to qualify for bigger deals or loans, and it was not keeping up with my ambition and my vision of scaling this business with my salary jobs obviously.

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So, I took a pretty calculated risk.

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And based on the knowledge and experience I did have, I quit my job to start my own company.

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It was a pretty big risk for me because at the time my husband was still in in school in college, didn't have a job offer on the table.

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I didn't have a job and I started this company along with my business partner which grew to Johns Creek Capital.

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Today, so I saw this niche and saw the vast potential of this industry as the demand for affordable housing's ever growing and the supply states low as they are not a man.

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Any mobile home parks being built or will be built due to zoning regulations, so it was really a blue ocean for me and then had a quite low barrier to entry compared to multifamily, where the big boys have been added for decades.

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So, I wanted to be a monopoly in a small niche and then expand to a bigger market and that's how it started.

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So, let's.

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Talk a little.

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Bit about the acquisition process here.

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You know you've had some experience regarding probably some single-family homes.

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Is that where you started with some rental properties?

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The first one, correct, that's my first telling my person after.

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Yeah, So what would you?

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What would you say is the biggest difference there is?

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Is it just as easy to acquire a trailer park as it is a single-family home like let's do a little comparison there.

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Right, so to acquire a good asset, it's never easy, and it's never should be easy, so it's easy to buy some really unattractive and really trashy properties, and you will lose money on it.

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But it's never easy and never should be easy to buy any good assets.

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And same goes with mobile home parks.

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The reason why it wasn't necessarily.

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Easy for me to do mobile home parks.

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It is more profitable.

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I just saw more potential.

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So as far as the acquisition process as mobile home parks is really in the commercial property realm, even though you know you see people living in trailer parks and they are residential, but it really is a commercial property.

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The reason I say that is because the closest asset class to mobile home parks is a parking lot.

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So, it is a parking lot business so imagine.

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Mobile homes parking in your parking lot.

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Mobile home parks are just paying you parking fees, so that's what really a mobile Home Park is a parking lot, so it's a commercial property.

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So as with any commercial property, the evaluation process is based on strictly based on the net operating income and the cap rate, and that's how you get your value.

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And obviously we have.

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You know, based on the uniqueness of this asset class itself, we have 15 major different parameter.

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First, in determining whether or not this deal is a good deal or not, you know some of the major ones include the city population, whether it's in its MSA, MSA population, and then the ratio of the tenant on the bones versus park on homes, and that's important and also the utility infrastructure, because the biggest money loser.

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In this industry will be utility issues, pipe bursts and any infrastructure issues that.

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Is huge so.

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There are certain parameters and, but as far as getting into it and buying the asset is.

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Never easy, and it shouldn't be.

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Sure, so when you're acquiring these trailer parks, I know that.

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A lot a lot.

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Of especially major cities, they really don't have an appetite to rezone areas anymore to create anymore.

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It seems like whatever is available in the market today and that's what's going to be available.

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In fact, they're probably being absorbed in some ways, is and, and that we're probably seeing fewer trailer parks.

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So where are you?

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Where are you sourcing?

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Most of these are?

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Are they directly like mom-and-pop type trail?

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Their parks, or is it? Are you finding them off the MOS like?

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Loopnet, where are you finding them?

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So, they can be found anywhere to be honest and like you said you were spot on in that you know there are fewer and fewer trailer parks because cities and counties they don't like mobile home parks because of tax reasons mostly.

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And they want the mobile home parks to die.

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Then how do they do?

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Do that.

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They tell you that you cannot move into new homes into the mobile home parks after certain homes deteriorate and there is a life expectancy of mobile homes and they do die, and they want your park to die.

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That's why the supply is slow, but there are other things you can do to work around it, but it's very difficult to build a new mobile home parks like you said, and as far as.

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Sourcing them throughout, you know, I wouldn't say years, but it has been years a couple of years since I started doing this, we've built seller broker and you know, just relationships.

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That would send us those deals and knowing that we are a qualified buyer, and we can close the deal and we just have a lot of relationships going on in the industry and also obviously was accessible to everybody online on mobile number store and all the other good sources everybody watching them.

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And we are certainly sourcing them.

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Every single day there isn't a deal that goes by in the market as far as you know we can get hands on them online, definitely that we haven't looked at underwritten, either passed or pursued.

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Sure, so I know one of your strategies is focusing on the parks with higher cap rates.

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So, have you found that as part of the challenge or what type of trailer?

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What type of mobile home parks are you typically finding with those higher cap rates?

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ted when we started really in:

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Then you know, given the size of the park and we are the niche of small mobile home parks which makes the higher cap it's even more accessible.

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Past four two years later, in:

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Deal making is being able to getting to get what you want at a higher cap rate, and that's part of.

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The magic of negotiating really so it is.

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Difficult, but like I said, any good deal should be difficult, and it is what you make your money at acquisition.

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So, the acquisition process is really the bread and butter, the backbone of the business.

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Sure, so I know that another aspect that you try to do is raise the lot rents like what is that?

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Just market analysis, they're typically.

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Under underperforming today, where they probably should be?

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Or are you bringing in some more amenities in order to justify the rent increases?

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I faced both because most of the parks that we buy from and the most profitable ones that you buy from are going to be mom.

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And pop operators.

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If you don't have if you buy it from institutionalized operators, there's no meat on the bone and you'd be getting a 3% cap rate. There won't be much profit for you to share, so if you buy it from modern park

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Operators, usually the run is way below market and what we look at is this gap between mobile Home Park.

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Plot reads versus the apartment building rent or the amount that you would pay if you worked to qualify for mortgage.

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So those are two different housing products, and we want to make sure that there is a huge gap at least two to 3/2 to $400 of gap of lot rent and the other housing product to make sure there is enough demand and attractiveness.

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Of this way cheaper and more affordable housing product, so that's what our standard is as far as raising lot run 2 is that we don't want to raise it to the point that it's the same at the apartment buildings, then nobody will want to move into trailer park if they can afford an apartment building, is the same as the forward partner building.

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Though you know what we do provide, is this pride of ownership is that you know the homeowners.

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This American dream of owning a home, having some privacy, having your own home and having your own parking area.

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And that is the product that we do offer.

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So as far as raising runs, we don't raise it more.

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Than $50.

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Per year, yeah?

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Usually, it depends on when was the last time you know rap was increased and that is a very small expense for, you know, it'll be a one to two Chili's meal.

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So, it's more.

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You know able to handle them?

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You know if you're talking about renting an apartment and how they raise rent, it's not.

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$50 per year.

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aise it by the hundreds, not $:

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So, I think as far as raising a lot rent, it is profitable.

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It ask directly to your bottom line, however.

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We are careful with what we, you know we want it to be.

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A win situation for us and the tenants, not just you know, taking advantage of someone who can't afford rent that that would not never be sustainable.

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And it's never going to be a long-term strategy.

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Right, well, I know one of the clever ways in which to take care of some of these rent increases as well is to make sure that the utilities is pushed to the resident right I.

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I've run into, you know I've taken look at some trailer parks or mobile home parks in the past, and that's been one of the things.

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Is that some of the they don't even meter.

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The water to the to the.

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Mobile homes, so I'm sure that that's one of the many ways in which you can, in a way, increase rent lot rent.

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Right, yes, definitely.

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So that's a way to drastically lower expenses.

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And if you were to sub metering a submitted part, you can make your money back fairly quickly and that is a great value.

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Add strategy So what we usually do is that we were to build back utilities.

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We usually don't choose not to.

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We usually choose not to raise rent as much so.

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There has to be a balance.

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You can't do both and that are drastic, right?

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People will just be driving you.

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Just be driving people out and you'll be ending up with abandoned trailers.

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And that's your problem now.

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Just to remind everybody, head over to her the website johnscreekcapital.com so you can learn a little bit more, because what Charlotte you're you and your team are essentially, syndicating and acquiring these properties right?

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Correct, yes.

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So how can somebody get involved with that aspect and how does that does that work?

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Right, so come to invest with us, I think. Well, as far as process goes like you said, go to ourwebsite@johnscreekcapital.com and there is a contact form on the bottom of the homepage.

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Simply fill it out and we will reach out to you within the same day, and you know, as far as how it works with us.

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We are investors.

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it's pretty standard, seventy:

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% it jumps to:

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In the stocks there this hurdle, this waterfall structure resets every year, and it's a cumulative cash on cash return, which means that if the first year we don't reach the 8%, usually the first year is the lowest.

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We're looking at 4 to 5% so you know with the 3% deficit it adds up to the second year, so investors will always be.

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Great hole to get there. 8% and more so that's kind of the you know rough structure and if you would like to know more, definitely good or website and then fill out the form and I will set up a call with you to talk.

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Through everything in detail.

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Well, in order.

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To hit those goals, I'm going to guess you have to make some significant management changes when it comes to taking care of these mobile home.

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Parks, what are you doing differently or what are some of the bigger thing changes that you consistently seem to have to be making when it comes to management of these assets?

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Well, actually what's interesting is that we don't actually have to.

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Do you know?

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Drastic management.

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Here's what we think is that if the previous manager neglected their parks so much to the point that a new management is going to make that much of a change, then maybe it's not a good asset to go after.

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So, what we focus on is that we believe that you make.

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The money when you acquire when you buy after.

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You buy it.

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It might be too late, so what we mean is that you have to buy at a good cap rate, so you have to go in at a good cap rate, meaning that it's already making money for you.

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It's already at 10% cap rate, 8% cap right? And it's not at 1% cap rate and you have to do, you know, burn money, burn your capital to pour into those parks and make it.

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Work, so that's what we're really focusing on.

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Is the parks that are already performing well getting a good?

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We'll do value add, you know, activities such as you know sub metering is value add and adding.

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You know doing a from a management perspective, adding more along care, taking better care property, cosmetic upgrades, those things to make it the park more attractive for more tenants.

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So that's really what we primarily.

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Focus on and then the opposite is important as well.

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When you sell, you know as those if you are interesting, multifamily you know that, then you know I, it's, it's you know the value of the park space on it.

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Are so the Noid is definitely raised because of the efficient management and also the increased ranch and maybe in filling the value increases drastically.

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So, you make the most money when you exit.

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Sure, so with all of that being said, you know one of the things that I've always kind of struggled with as well when it comes to mobile home parks.

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Is vacant lots?

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So how do you?

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How do you handle that?

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Like you know it's all fine and dandy, thinking that people will move in a trailer house, but I would suspect that that in practice that actually doesn't really happen.

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You have to do that kind of.

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Yourself you mostly have.

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To do that yourself in today's economy with.

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The labor shortage.

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And everything is in short in supply chain, shortage is extremely difficult to buy a new mobile home and move it into your park.

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It's just almost impossible or old ones are, you know, it's really, it's rare on the market.

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So, we.

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Did have people you know move into our park?

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But we do have to pay the lot prep B and prepare the lot for someone to move in, and that that does happen because the track is more attractive now and for the majority of times you do have to do it yourself and there is.

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There are different ways to do it, and.

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There are.

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Different processes that surrounds that.

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Hopefully I think, as our economy improves.

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Then we get out of this.

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I would say recession Ish.

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Part of the economy for the past couple years.

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The used mobile home market would revive a little bit more, and then it might be back to normal as far as building a vacant lot, but right now it's extremely difficult to.

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Yeah, so when you do have like for the most part I would.

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I would suspect that when people are moving out, they probably leave the trailer park behind or they offer to sell it to you.

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Or you might.

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Just assume ownership of it because they're passed you on lot rent or what have you.

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What do you do then?

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Do you rent those trailers out?

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Do you sell them to new owners?

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How does that look?

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So, since we never own the trailers, we cannot sell them.

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So, the most thing that we can do is that encourage the last buyer to sell it to another.

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Correct and and then that tenant then becomes a new lot renter so.

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It's business as.

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Usual so and then another scenario would be we buy it from the tenant at an extremely low rate and then we sell it to someone else.

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And another scenario is probably the least favorable, and it's the most expensive for us as park.

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Owners would be that they simply abandoned the home.

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You can't find them, and you have to evict them as if they're there because you have to evict the trailer itself and the court will issue a order and you can start the process on the abandonment process that the court will eventually deem abandoned.

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Then you can start, you know, getting the title, but that is a long process.

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But you know the shortest ones take six nine months.

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So, it you're going to have six to nine months with no money coming in.

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So that's.

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Not very favorable.

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But it's something you can do, as long as you own the land you have the power.

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But do you do be aware that there are better ways to solve this problem.

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Yeah, so I.

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You know I've heard of some people having some success in in.

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Contacting that that original owner, especially if there's some rent that is owed, so that instead they think you know you're chasing them for a little money, but to kind of kind of be a part of the settlement, getting them to sign off on the title and getting it transferred quickly.

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Yes, definitely that kind of transaction.

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Ends up in all the time and it's just the deal with the owner saying that, hey, you know.

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You don't have.

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To do this, or it's a win situation.

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Sure, so you know with all that that you mentioned the old owner selling it to a new owner.

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What type of vetting?

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If, if anything, do you do to make sure that that new resident is a good fit?

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That's extremely important, you know, evictions are difficult to deal with and we you know that tenants are.

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Are not good news for anybody and a good tenant is as good that gold, and especially in this business, a tenant in the mobile Home Park we look at them as stakeholders because they have their home in our park and it's pretty stable there and they don't just you know it's not like apartment rent or they can leave just like that.

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So, it's important to vet them so we do have our own application process and our own criteria in vetting those 10.

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So, every time I, I'd assume that you're with the syndication and and the way you're doing this your kind of leading towards some sort of exit strategy of one way or another on these parks.

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What does that look like?

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Do you?

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Are you trying to hold on onto them forever, or do you?

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Right, right?

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So as our clients are mostly investors and they, you know what investors care about is the return on investment, right?

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So, what we care what we want is that those deals are usually three to five years hold, so they're not really long term.

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We care about velocity of capital.

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We want to make sure that we are investor have.

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You know the highest IRR internal rate return possible and the annualized Cash on cash return as well.

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And they're there.

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And then their equity multiple, so that's important parameters that we you know.

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First, we present to investors and then we must deliver at not deliver ads and above the promise.

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Great so we do.

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We do not hold them on forever.

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We our extra strategy is to sell them to, you know insulter always through a sale or refundings, but mostly through a sale.

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As a matter of fact, we're going through our cell right now that has delivered.

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you know. Since we started in:

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Sure, so are there certain parts of the country that you focus on, or is it?

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Much anywhere.

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But we do focus on the Southeast and the Midwest.

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The most will have the heaviest presence there, but we do have a couple parks up north, one in Maine, and the one out West in Arizona.

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But we are looking to expand more at in in the in out West in states like tech.

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Or in Arizona, and definitely to strengthen our presence already in the Southeast and Midwest.

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Sure, and then with those going back to the residents a little bit there are you focusing on certain type of residents like?

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I know I; I've talked to a couple other investors who do mobile homes and.

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They focus on like more retirement.

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Communities for example.

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Some do and some don't. I think for us we don't have a preference for over 55 retirement Community.

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What we care about is.

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The deal itself and an ally and all the good stuff at cap rates and.

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All the good stuff so.

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Yeah, well with 24 mobile palm mobile home parks now spread across the footprint you're at. I mean there must has been some challenges regarding boots on the.

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Ground management locally.

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How does that all work?

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Out for you.

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So, you know we're based in Georgia, so we kind of act like the corporate headquarter where all of our local teams that we assembled during due diligence and after acquisition.

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You know they consist the local city authorities.

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And local electricians, plumbers and other type of contractors to kind of be our eyes and ears and boots on the ground and locally.

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So, when a problem comes up.

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They we sent them a request and they take care of it, and we also have our in-house, you know, kind of a value Act coordinator employee who works for us and he is kind of our.

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I think the I will call him the officer that assembles all of these people, and you know, put them to work.

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So, we because we have those.

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Localized efforts in teams and boots on the ground.

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It hasn't been as much of a challenge as it sounds like it would be because, you know we have.

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We run parks out of 10 different states, but because of localized effort is pretty efficient and we haven't had problems with.

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But the challenge is regarding as far as you.

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Know the parks are far.

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Sure, OK.

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Just a reminder, head over to John Creek capital com.

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Learn a little bit more about what Charlotte and her team are doing and Charlotte, I really appreciate your time today, but I kind of warned you at what's coming.

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Is there a question you wished we would have covered here today?

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Well, I think something unique about, you know a company is not just the ITS operations.

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Also, about its founders and for me you know there's a story I always want to share.

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It's not a phenomenal story, but I think you know how.

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I think there's something that inspires some confidence in who we are and what we do because I'm immigrant to this country, so I the reason I got into property is because I was born and raised in China up until I was 16 years old, and we were actually unable to own properties under the Chinese community.

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Gene and I decided to go to the United States to pursue new opportunities at age 16.

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I did not come with my parents, any relatives or friends.

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I did not know a single soul in America did not have money or even a phone spoke very little English, so I pretty much had to start from the scratch to build a life so I.

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Absorbed as much knowledge as I could every day like a sponge, I remember I will put sticky notes on bedroom walls to help me remember.

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In new English, words and I force myself into the culture and wanted a full heartedly to become part of the American.

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Society I remember you know my host mom bought a Chinese cookbook and wanted to try make me Chinese food and I told her I want whatever you guys eat and wasn't it for the long haul and I started with eating the local food, so I think through the hard work as a high schooler I was able to get into one of the top colleges and and then.

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Became what I am today so I do want to deliver the message that you know we are in a place where everything is possible, and you know you're you.

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Know at Johns Creek Capital, that is the value that we believe in.

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Is this resilience and this curiosity towards the world.

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And you know, I've been.

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You know some things in my life given my experience, so investors do trust that you know someone with this background, you know, has gone through something.

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It's not just some 28-year-old kid who's gone through nothing, and you know, I've been through some interesting things, and I do have a pretty good resilience.

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In the background, so that's something that I do want to deliver to the listeners.

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No, that's awesome.

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And I think a great way to end this episode again, I really appreciate your time, Charlotte.

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I hope you'll consider coming back again sometime.

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We can dive a little deeper on maybe.

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Maybe some business aspects we can really nerd out on a couple things I have.

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I have a feeling, but I really appreciate it.

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Sounds good.

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Thank you.

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Thank you so much, have a good one.

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