How Charlotte Dunford built a strong portfolio of mobile home parks

Charlotte Dunford is the managing partner of Johns Creek Capital. She brings a unique perspective to mobile home park investing as she comes from humble beginnings. Charlotte is a first-generation American citizen and college graduate of the Georgia Institute of Technology, where she earned her B.S. in Business with a focus on business analytics and technology. After leaving China with just her belongings at age 16, she has come a long way to now owning over 20 mobile home parks. Charlotte, along with her business partners, currently sponsor the repositioning of 24 value-add and turnaround mobile home parks. In this episode, she will share her journey as well as her process for finding trailer park deals, property management, and her tips for passive investors. Charlotte has great insights for anyone interested in investing in this asset class. Episode Links: https://www.johnscreekcapital.com/ --- Transcript Before we jump into the episode, here's a quick disclaimer about our content. The Remote Real Estate Investor podcast is for informational purposes only, and is not intended as investment advice. The views, opinions and strategies of both the hosts and the guests are their own and should not be considered as guidance from Roofstock. Make sure to always run your own numbers, make your own independent decisions and seek investment advice from licensed professionals.   Michael: Welcome to another episode of the Real Estate Investor. I'm Michael Albaum and today I'm joined by Charlotte Dunford, who's the managing partner of Johns Creek capital and today Charlotte is going to be talking to us about mobile home park investing and how she got her start and it's ultimately syndicating deals across the country. So let's get into it.   Hey, Charlotte, thank you so much for taking the time to hang out with me today. I really appreciate you coming on.   Charlotte: Thank you so much for having me.   Michael: It's so my pleasure. So we're gonna be talking today about a topic that I know very little. But before we get into that, I would love if you could give our listeners and audience just a brief background on kind of who you are, where you're come from, and what it is that you're doing in real estate.   Charlotte: Right, perfect. So my name is Charlotte Dunford. I am the managing partner of Johns Creek capital, which is Johns Creek capital is a private equity firm, focusing on small mobile home parks syndications. So this niche, our niche features value add properties, with higher cap rates in the 7% and up range at purchase. So we currently have 24, mobile home parks under management with over $4.6 million investor subscriptions and we started in 2020.   Michael: Oh my gosh, and how did you find yourself in that space?   Charlotte: So it's interesting how you know, how I find myself here. So I am a firm believer in escaping competition, one of my favorite books of all time, called from Zero to One by Peter Thiel, he is the co-founder of PayPal, and he suggested this strategy called, you know, it's kind of like Blue Ocean Strategy but it is all about escaping competition. So when I first my first job, out of college at 25, I started doing real estate on the side, using my salary to qualify for financing. But after two deals, I shot myself in the place where my salary wasn't keeping up with my ambition of scaling up the real estate business as much. So I took a calculated risk and quit my full time job about three years ago at 25 to start this company, and pretty much right after I started the, you know, it was a big risk for me, because my husband at the time was still in school, he didn't have a job. So now I quit my job. So to launch this venture, but I took a calculated risk because I saw the mass potential in the mobile home park space because of the demand of for affordable housing just kept growing, but the supply remain very low because zoning regulations and people are not building new mobile home parks. So that's what I saw in it and the big boys, they have been doing multifamily for decades. And for me, a 25 year college grad, wasn't really competitive for you know what, I had no leverage. So I decided to enter in a place where it was blue ocean, where it was a fresh start, and there's a lot more meat on the bow. And think I stopped my diamond in the rough there with mobile home parks.   Michael: I love it, I love it. So talk to us about your first two deals where they kind of traditional single family rentals.   Charlotte: Right, so I haven't even heard of mobile home parks when I graduated college, you know, very much ignore is still a niche today. So the first deal I got was a single family home in the south of Atlanta. I used my salary to qualify for and the second one was a duplex moving up by one unit, it was North Georgia. But after that I was capped out as far as from a banking perspective, I've talked with different commercial loans, you know, if you want to go up to four plex or even more multifamily, you know, you got to be at a net worth of blah, blah, and liquidity of something, you know, but I had no none of that. So the maximum I could go at was a two unit duplex. So yeah, that's my first two deals, and it worked out pretty well. But I wanted a lot more than just yeah, a single family duplex.   Michael: Well, I think it makes so much sense. And I think you're kind of very natural progression is what a lot of real estate investors do, also single family duplex, but then most people go to TriFlex, not quitting their jobs starting their own company to syndicating mobile home parks. So how did you get involved? I mean, how did you take such a hard turn?   Charlotte: Right, so you know, I was young, I was 25 years old and I've always wanted to be an entrepreneur and I've always wanted to own real estate and now that I'm about to you know, a duplex so I you know the multiple the buy triplex but they might be older or far advance in their career than I was and I was an associate business analyst. And there's no way within the time period I want and I see a property, I want to get a property but the financing wouldn't work out. It was a turning point for me because I realized what I really wanted to do, and I was young, and I was not afraid to take a risk and this is a that was was a calculated risk for me because I've learned so much from podcasts just like yours   I had a three hour commute every single day on public transit and from where I lived three hours per day, so three hours a day, five days a week, that's 15 hours, that's almost like a part time job. So to not waste that time, I would listen to podcasts on the train and every single day there to work and back, I learned so much from listen to different podcasts listening to different business audio books. So I pretty much learned for a year and a half straight, took a pretty much a morning and night class on the train. So it was calculated for me and always something I wanted to do. So you know, buying it one deal per year, or per two years, just not knowing enough for what I wanted, so…   Michael: That's incredible. So you went and got like a master's degree in your spare time via your transport to and from work.   Charlotte: Yeah, Master's degree issued by myself. Yeah, but…   Michael: It's the cheapest kind there is, it's a great UC Berkeley…   Charlotte: Yep…   Michael: Oh my god. Okay, so let's shift gears here a little bit and talk about like the meat and potatoes of actual mobile home park investing, because it's something that I've heard about for a while there's some of the guys over bigger pockets talk a lot about it. They're really excited about it. So what is it about mobile home parks that attracted you to it as an asset class?   Charlotte: Right, so there are a few things about mobile home parks that is super attractive to me. One is the niche that I'm in is small mobile, home parks, where the cap rates are high when we get into it. So you hear the saying that we you make the money when you buy, which is what you have to get in at the right price. If you overpay, then it's too late after whatever you do after that. So first of all, you know, is possible to get things at a high cap rate. So that's the first thing. And then financing of it, I was able to get most of my deals, 25 Parks, 24 parks with investor subscription, obviously, and we were able to get either cash or seller financing. And one of the better seller financing deals we've got gotten was 20-30, I think 30% down with 3% interest rate 30 year amortization and 10 year blue, so you're able to get this sort of terms, mobile home park.   Michael: What…?   Charlotte: Yeah, exactly. That's one of the earlier parks, we got. So at a very good cap rate at a very good financing term. So that just sets you straight, you know, right on the right path at the beginning and as far as operational after acquisition, mobile home park is a different animal than multifamily and single family completely different the closest asset class to mobile home park would be a parking lot.   Think about those homes, your park as a parking lot. You're not really in a rental business anymore. You are not fixing furnaces, you're not fixing their refrigerators, like you would in multifamily. You are charging lot rent. So they are on your lot and they're in anything but mobile, they can't really move their home, it's called mobile homes. But older homes, you can't move it without shattering on the road, newer homes, it is possible but it costs 10… you know, at least $10,000 to move it at a tenant in a mobile home park might find a little bit difficult to come up with the money to move in mobile home park, mobile home, so this there's a stability of it.   And on top of that, because you're doing lot rents, the lot, rents are incredibly low to start with. So there's a lot more meat on the bone with multifamily, especially during recessions like we are in kind of in today, it's hard to raise rents, the rents are going up, they raise it by $200, or even more for $500. It depends on where you are. But mobile home parks, we don't raise rents more than $50 per year. Because, you know, it's a big percentage. And there is meat on the bone, because we're buying it mostly from Mom and Pop operators who don't raise rents for years and they're the market rent is maybe one to $200 more than what a lot rent is charging. As long as your mobile home park product is the best value for money product affordable for affordable housing in town, you will have a good edge. So, you know, given the above points, we just find this you know, we still do find this asset class so fascinating. With so much potential just because of demand and supply and just the affordable housing crisis we're experiencing right now. We want to be part of the solution.   Michael: Yeah. Oh, that's so cool. So I love the analogy of like getting it to like a parking lot because I've said for years that I would love to own parking lots because pretty much maintenance free fit, you know, fairly risk research is so easy to operate. So right, what are the typical operational costs or expenses that you encounter in mobile home parks?   Charlotte: Right, so just like a parking lot operational expenses, including maintaining the ground, whatever is on your park. So for mobile home parks, specifically, it will be tree trimming, lawn care in the common areas, utility lines, if you're on septic, septic tanks, if you aren't public water than water lives, for example, you know, in the winter months, there might be increased cost in water pipes bursting, especially if the winters really cold and roadwork maintaining, you know, just the general peace and quiet in the neighborhood, cosmetic upgrades for the common areas, including adding a new sign, fences, all this stuff. So it's really about you know, making it successful. It's really about making, boosting the pride of ownership in your, in your park. So people don't want to leave and it's really creating this new neighborhood.   Michael: Yeah, that's incredible and so from a purchasing perspective, I mean, I'm curious to get an idea of what some of these purchase prices are, that might make sense for an investor. And then if you're not doing syndication, I mean, can you go to a bank, like, can you go to Wells Fargo and be like, hey, I'm gonna buy this mobile home park, can you give me a loan? What is the what is the financing typically look like?   Charlotte: Right, so for us, we haven't financed our deals, like I said, we either financed through cash or seller financing, but I did seller park, and we've been selling, we're in the process of solving a couple parks. So you know, the one that I sold was my personal park without syndication, but I owned it through seller financing when I bought it, but when I sold it, the buyer got a loan from the local bank without a problem, and we close. So you know, it was a quite a small amount it was in the 100,000 range. So it's a very small loan and that goes to show that banks are getting more comfortable with this idea of a mobile home park financing and especially if you're bigger, they will be more interested. I think it just like any lending product, you have to have this relationship with your bank, and you want to make sure that they they trust you, they trust this asset class, like any commercial loan, yeah…   Michael: Okay and if somebody wanted to go get involved, and invest in mobile home park directly, what are some of the price points that you're seeing?   Charlotte: So it depends on the, it depends on the market, obviously and it really depends on the NOI and the cap rate. So and then the occupancy right, so MT mobile home park is worth a lot less than a mobile home park, mostly occupied just like a parking lot, you know, it indicates your business success. So as far as pricing, you know, where I am, small to medium level mobile, home parks, we're looking at anything from 100,000 to, you know, over 2 million, so it's a big range it depending on how many lots you're wanting, so you'd be expecting to pay it depending on the market 22k to 30k per lot...   Michael: Okay, okay and is it similar to multifamily in thinking about scalability and kind of building a buffer, whereas the more lots you have on a park, the more resilient that park might be to occupancy issues or to repair maintenance issues?   Charlotte: Right, that will be similar. I mean, obviously, the more locks you have the if someone moves out, you wouldn't have to worry about it. But the important thing to remember and something that we have gained knowledge in through our experience, the only mobile home parks is that for small parks, where we get into at a high cap rate, the important thing is to have enough reserves in order to counter anything that is someone moves in, do you have the reserves needed to counter any problems because cash flow sometimes for a small park is not enough to cover like a big accident. That's where your reserves come in. But as long as the overall numbers work, that the small deals are solid, and we look at a lot of 15 Major, 15 Major parameters in determining whether a deal is good or not.   Michael: Okay well, interesting. And I know you're mentioning purchasing at a high cap rate and then of course exiting or refinancing at a lower cap. What are, where are you purchasing? What's your purchase cap on on some of these parks?   Charlotte: So one example would be a park that we're selling right now we actually got offers and we are you know, looking to exit… the offer the purchase contracts you see in progress. So we bought this park at 10.5 cap and we're selling a five cap.     Michael: Holy smokes, when did you buy it?   Charlotte: We bought in 2020, mid 2020. So it's only been 1.9 years less than two years and we are turning around and selling five cat because there are certain things that we do to increase the value of the park and the mark is getting higher obviously so the appreciation to market goes up and also, we just got a really great deal. So it comes to different points. So you have to buy it, negotiate it harder so that you can get a good cap rate. And you have the value add to make to kick it up a notch so that you can make it a better quality asset and you sell it on the natural curve of the asset class, and you sell it a better temporary, so….   Michael: God for you, Charlotte that's amazing.   Charlotte: Thanks.   Michael: That's really exciting.   Charlotte: Thank you.   Michael: So another question for you is when you talking about someone not paying their lot fees, I mean, what do you do if someone's like, yeah, like, I'm not paying my fees anymore? Because they own the home, right, so can you evict them and what does that look like?   Charlotte: You can definitely get them however, as we all know, if you're a real estate evictions, never fun. The only person wins in eviction is the eviction attorney. So it's true, you've spent a lot of money, I've done that before with my single family home, and it was a nightmare. So during the eviction moratorium, we had a lot of issues with tenants not paying because they know that we cannot do anything about it.   So how we handled it is that we are, you know, we would like to be advocates for our tenants, you know, we want to speak for them, we want to make life better for them, instead of just kicking people out, we're fair, right. So what we did during the eviction more term, people couldn't afford rent, to be honest, we reached out on our tenants behalf to different agencies, state authorities on the city authorities, and all kinds of governments on different levels, city county, and state and even local ministries to apply for rental assistance. So all of those rental assistance programs are either applied on behalf of our tenants, where we encourage our tenants to apply for them, that is being advocates for our tenants. So through those programs, we were able to have the income and the tenants were saved. And they were helped, and we got our income. So that's, you know, something we had to handle and you know, in general, if a tenant just doesn't want to pay, so it let's say, you know, they're they don't want to be paying you and no matter how much you want to help them, they just are not paying the walkaway right.   So if they abandon their home, there are several things you can do, we always put it into our lease contract called the first right of refusal, meaning that if they are considering leaving their home, or selling their home, we have the first, the first opportunity to buy this home, once would buy their home, then the home becomes ours, then we sell it to another tenant that passes our vetting process, and then that becomes occupied again, or we encourage our tenant to sell it to another qualified tenant, you know, park, then that, you know, we're a parking lot. So we don't care whose car parks there as long as you pay your lot fee, and then that new tenant will pay us.   And then the third and the worst scenario and the most costly, and I don't encourage anybody to do this, but it is a possibility is that to go through the legal process called the abandonment process. If someone leaves it abandons it, the tenants nowhere to be found. We have we've had death in our parks during COVID. What do we do with it with the abandonment? So you know, there's no estate, you know, assignees, you know, everybody's, you know, they don't have family here. So what do we do? We have to go through the court process in saying, okay, well, maybe the court deems this home abandoned, because no one's there to claim it, then court give it to us, and then we rent it out or give it to someone who sell it. So the third one is very lengthy and expensive. So the first and second approach are much better.   Michael: Okay, interesting. And I don't have like any real concept or frame of reference for what a lot fee a typical lot fee is, and of course, understood that's like asking what is rent for an apartment, it all depends on the market. So in the park that you're selling right now, maybe that'll be a good trial case. What were the lot fees when you bought it? And what were you able to do? Did you move them much when you're when you're selling?   Charlotte: Right, so it depends on the area, right… So for the south east, you're looking at around $150, average…   Michael: Okay, a month?   Charlotte: A month… $100 to one $50 in the Southwest. In the Midwest, and then we don't have that many parks in the outwest. We only have one Arizona, and that's kind of a special one. So we have heavier presence southeast in the Midwest, in the Midwest, you're looking at three to $400 a month, so different markets. So for the one, you know, for the one that we're selling right now is it is within that range. And we did raise the rents to 25 to $50 per year but granted, we did, haven't owned it for that long. We haven't… we own it less than two years, so some brand increases along with some improvements. Yeah, so that's about the average price.   Michael: Okay, interesting. And is there much of a market for like overnight rentals like RV parks as opposed to mobile home parks?   Charlotte: Yeah, RV parks is interesting. We're don't… have any, I think, you know, there's definitely markets for that and they are similar to mobile home parks in a way that it is kind of a parking lot as well. So but we don't own it. We're not too familiar with it. But a lot of cities you know, they don't allow your mobile home park to become an RV park, there's a strict zoning regulations and you can't just pull an RV in your mobile home park. It's meant for mobile home parks non RV parks. So that's, that's about all I know about RV is I'm not sure you know, much more, but I think I would say, you know, to add on to my previous point a lot rents is interesting, because, you know, 101- $150 is the average here in the southeast and what we have to do when we look at a deal is compare this lot rent, with whatever other housing products in town, for example, if the apartment building is also renting for a 150, then nobody wants to go to your mobile home park, if they could move to a an apartment building, same with house, you know, buying a house or mortgage. So you want to make sure whatever, you know, we're in affordable housing, because it's an inexpensive way to for housing for lodging, so you want your lot rent to be at least $400 below what they would have been paying with other housing products.   Michael: Okay, and so that's your metric kind of throughout?   Charlotte: Yes.   Michael: Got it, got it. Interesting, interesting. Well, surely, if you could recommend knowing what you know, now, to people that want to get more involved, or that want to learn more about mobile home park investing, where should they go?   Charlotte: Well, they should go to me, not to be served self-serving.   Michael: Ohh, I love it…   Charlotte: They should come to well, I have other don’t worry, I have other recommendations, I'm not just going to be self-serving on this episode.   Michael: But no, it's great… Charlotte: Just go to our website at https://www.johnscreekcapital.com/ and fill out the contact form. Talk to me, I usually respond within a couple hours and I think other resources, I highly recommend would be Frank Ralph's, a mobile home, Park University, I've learned myself, learned a lot myself from there and there's just a lot of good forums, a lot of good books and his boot camps, and lots of investors, if you want to invest, you know, actively by yourself, you know, we take passive investors, but if you want to do everything yourself, here's website and these boot camps will be a great start, I never attended myself, but I've heard a lot of good things about them and yeah…   Michael: Okay, fantastic. And from a passive investing standpoint, I know, you said it's kind of a blue ocean, and you think the returns are fantastic. So what kind of returns have your investors been seeing over the last couple years?   Charlotte: Right, so when we started in 2020, and now we have, you know, let's just use the oldest park that we have our overall returns today, it has been 22%. And not per year, but 22%, to date, and the one that we're selling right now, we are offering, you know, we originally usually, with our deals, we usually offer in at least a 15% internal rate of return over the whole time and with this one, we are, we offered I think 15 to 19% internal rate of return over three years, and we're exiting at two years, with the offers we're getting right now, if we're to go through, you'll be far exceeding 19% IRR will be in the range of 21 to 22, so that is the performance and that's that's been the track record there.   But I think, you know, it's a process where the first year is usually on the lower side, though, we've been achieving averaging 6%, around 6% for the first year, so which is pretty good for home parks and, and then goes up and up and up in the preceding years, and then the one that you know, our preferred returns, sorry, preferred way to return is 8%. So and then after, after that will be followed by a waterfall just like any, you know, pretty standard syndication structure. So, so that's the performance and that's, that's kind of our structure.   Michael: Oh my gosh, Charlotte, this has been so insightful. Any other thoughts that you want to share with our listeners before we let you out of here?   Charlotte: Oh, I think that is pretty much you know, you asked a lot of good questions.   But one message I do want to deliver is that we we are extremely proud and excited to be part of the solution to affordable housing crisis. There is a big market out there and I also would like to share a personal story of how I came about so I you know, I came to this country at age 16, I did not come with my parents or anybody, I didn't have any friends so I pretty much came to this new country new land to start a new life but I saw vast you know, opportunities there back where I was from in China up until I was 16…. I, we could not own properties. There was you know, you have you only had was communist is still is a communist regime. So you have to lease it from the government for 70 years. So I was always fascinated with the idea of owning real estate, so that's why that's what I'm doing today. So I think it's important to when you look at a company like Johns Creek capital, looking at the founders profile, and their stories, and that's my story and that's kind of where I came about and I've gone through some challenges in my life, and which gives me the resilience to carry forward, a firm like Johns Creek capital, and my business partner as well. He has even more interesting story but I am the face of the company. So that's why I'm here talking about my story. But someday he'll, he'll tell my story as well. So that's one last thing.   Michael: Well, Charlotte, thank you so much, again, for sharing your story and for coming on and imparting so much wisdom to all of our listeners and viewers. And I'm so excited to stay in touch with you and see what Johns Creek capital goes from here.   Charlotte: Thank you so much, thank you so much for having me.   Michael: You're welcome. Take care, talk soon.   Charlotte: Thanks, you too. Bye.   Michael: Okay, well, that was our episode a big thank you to Charlotte for coming on the show. Really, really interesting. And we always joke that these episodes are very self-serving. So I get to ask all the questions that have been on my mind anyhow, but I hope that you got some value out of it too.   As always, if you liked the episode, please feel free to leave us a rating or review wherever you get your podcasts and we look forward to seeing on the next one. Happy investing