Economy Proof Investing - Episode 3
Brant:
All right. Well, I'm Brant Greathouse.
Carl:
I'm Carl Moore.
Brant:
We're with True Star Capital in Midland, Texas and we are investing in some pretty cool stuff right now, specifically mobile home parks. And what we're wanting to talk to you today about, just one of the biggest reasons why we chose to invest in mobile home parks to begin with was having to do with how well they do in up and down economies. And so there's two huge examples that we have in recent memory that we wanted to go through and talk to you just about some of the logistics of what that looked like for us and what that looked like for the asset class in general.
Carl:
Yeah, so there are a couple of different things that I wanted to hit on, but in short I think you can give a direct answer but then I want to elaborate or have you elaborate on why we jumped into this. Are mobile home communities able to withstand an economic downturn?
Brant:
Yeah, so great question, and I want to dive into a couple of key things that I think you'll find interesting.
Carl:
Thanks, that's why I asked.
Brant:
Yes, I'm glad you did. I'm so glad we planned this. So we've got a couple of components here. When you're looking for something to invest in, you got to be able to realize, okay, the economy's not going to always be good and then it's not going to always be bad. And you don't want to be swimming with everybody else because they're usually way behind the eight ball on what is the best practice or best investment to be doing. When things are high, everybody's buying and that's when they should be selling. When things are low, everybody's selling and that's when they should be buying. And so you want to take the opposite approach.
Well, in affordable housing, you have a high demand when the economy's good and an even higher demand when the economy is down, because people need affordable when the economy's down. So if you just go back in your memory to 2008, we had the real estate market bubble crash. That was crazy. And investors, I'm talking about big, big investors, they were out there investing millions, if not billions, and everything was burning down. Retail, single family, you name it.
Carl:
I mean, we've completely changed the way that we do mortgages because of 2008, because of the crisis that happened nationwide.
Brant:
Absolutely. And so they were looking around and thinking to themselves, "What in the world is not burning down?" And then they found mobile home parks.
Carl:
At least we did.
Brant:
Well, back then, it was much more of a secret than it is now. Now, it's getting out into the atmosphere. People are turning their eyes and thinking, "Wow, that? Yep, that. Okay, we're going to jump in." Because, while everything else's rents were going down, in mobile home parks, if you look at it across the board from 2007 to 2008 and 2009, rents actually trended up. Well, why? Well, because supply didn't increase, but demand increased. So naturally rents went up during the crisis, during the bubble. Not after, not as much before, but all the way through. And, in 2007, your average mobile home park was actually only about 82% occupied. 2008 hit, 2009, everything went up to an average occupancy of more than 95% during that time.
Carl:
That's incredible.
Brant:
During the worst economic collapse that we've seen in recent history, mobile home parks were not just making it through and squeezing through, they are thriving. So we saw that, we started investing in that for that purpose, and then something that has never happened before, that's unprecedented in our lifetimes, happened. You want to talk about that?
Carl:
Yeah, so I don't know if you guys know, listeners, but the coronavirus came out.
Brant:
Have y'all heard about that?
Carl:
Yeah. It's new and trending here. We are almost two years into it. So as COVID hit and the world began to shut down, I actually was on my 11th anniversary flying home from Mexico and there they stopped allowing flights in from all sorts of countries within a week of us landing back. And I remember coming into the office and you said, "Hey, something's going on. We need to meet." And so you and I, we gathered in our office and we said, "Hey, they're starting to lock stuff down. They're starting to shut down retail. They're not letting people go and do certain things." And we got some sort of report that retail space had gone down to 30% or 40% collections in the month of March.
Brant:
Meaning 60% or 70% delinquency.
Carl:
Right. Nobody's paying their rent. And so when that was the case, I remember us gathering in your office and just absolutely preparing for the worst case scenario. If all of these people lose all of their jobs and nobody can pay their rents, what is going to happen to our business? Because we weren't thinking two years down the road. We were thinking, "Hey, we've got bills to pay next month. We've got our own families to feed. We've got employees that we have to take care of and what are we going to do to weather this storm?"
Brant:
Well, if you remember that time, it was so unknown. There was just very little knowledge about what exactly was happening. And it was being built up to be very devastating and, in fact, in a lot of industries, it was. But then the next month came and what happened?
Carl:
Yeah. I mean, our rent just came in. So we pulled back. I don't know if you remember, but, I mean, we stopped every project, everything that was capital expenditures and anything additional, and we were bare bones minimum. And we got, I think, 97% or 95% in March followed up by the opposite, either 97% or 98% in April. And we looked at each other like we knew that when we got into this industry that we claimed it to be economic proof, that no matter what the economy did, whether it went up or whether it went down, we were going to be okay. But this was not something we prepared for.
Brant:
And we thought, well, maybe it's just because of how awesome we are. We're just doing so amazing. And then we found out there were some more reports, because at this time, man, as the CEO and CFO, we were really wanting to make sure we're staying on top of the curve. So we were researching, we were reading up on all sorts of reports and everything that was to get us the latest cutting edge information. We knew that normally they bring in about 98% collections and it's usual or it's pretty standard to have about 2%, 1% to 2% in uncollected rents. We were finding out that across the nation it was 97% collected during the worst months I would say of 2020.
Carl:
Yeah, which was unbelievable.
Brant:
So unfortunately we weren't just that awesome, even though we are.
Carl:
High five. And so, yeah, it was just the moment the whole world shut down, we were able to just keep everything. Because we had prepared, we actually had a little bit of backup cash because we'd stopped all those projects. So we ordered in toilet paper, and even though the world couldn't find toilet paper, which is a big problem apparently, people were able to come and we gave the first roll away for free and the second roll was a dollar. And then we sat down and we wrote individual newsletters for every single community to show residents, "Hey, this church, that soup kitchen, whatever, this one's offering lunch, that one's offering dinner." So even for the people that were having a hard time making rent, we gave them a bunch of options and that bled into when the roll out of the government program started out and we said, "Hey, this is another way that we can continue to serve and love and care for our residents."
Brant:
Putting people in contact, yeah.
Carl:
Yeah. So we just used that. We used some of the government programs and said, "Hey, fill out this paperwork, we'll fill out our side, and you can continue to live here." And there was one lady and she sadly did lose her job and she got about four months behind, and when the government check rolled through, they had paid six months out. And so now she had two months of credit. And I remember the manager calling me and telling me with tears that, that lady came in crying because she had never had any place she had ever lived care for her on that level. And I think for us, it's always been our desire that we would do the safe, clean, and affordable. And this just brought a level of devotion from our residents that they had never had anywhere else, that we cared more about them than we necessarily did the rents.
Hey, it didn't require us going to farmers and finding eggs and giving eggs away in our community. That was something that came about because of this, and so we're just ready and flexible, able to roll with the punches, and make changes along the way. And I think that's one thing that's nice about being a smaller investment firm that, as these things happened, man, we're flexible. We can bend and we can change and we can switch gears and we can make stuff happen to care for our residents.
Brant:
Well, I think it's important as a business owner to always be asking yourself, how can you serve your customer better?
Carl:
Absolutely.
Brant:
What do they need? What do they need, what do they want, and how can we help them achieve that? And so the more you serve people, the more it comes back to you in multiples. And so that's a principle of life, that's a principle of really anything you do. And if you hold that kind of a standard rather than, how can I get mine, you just refocus on other people, it's going to help you thrive.
Carl:
Absolutely.
Brant:
We did thrive throughout that. Mobile home parks in general thrived throughout 2008. And, I mean, occupancy went from 82 to 95 plus in 2008. Rents went more consistently going up 2007, '08, and '09 and have been. It's turned a lot of eyes to this space. Two years ago was the first $1 billion transaction in the space. So, because of how resilient mobile home parks are in the affordable housing space, it has turned so many people's heads towards this as an investment asset class. And once you get over the fact that it's not the prettiest type of thing that you buy or invest in, it's not like you have epic bragging rights, but you have bragging rights in the cash flow, you have bragging rights in the type of returns that you're able to see, and the fact that those things happen because you serve people well is just the icing on the cake.
Carl:
Oh, absolutely. Absolutely. So let me ask you again, are they economic downturn proof?
Brant:
I would say that based on the last two examples they absolutely are. I can't imagine. I mean, there's certainly always something or a spin on, they say that history doesn't repeat itself but it rhymes. There could be something similar that happens in the future and I just can't imagine. The fact is everybody needs a roof over their head. A place to stay warm from the elements.
Carl:
Absolutely.
Brant:
And when you've got that and a safe, clean, and affordable option, it's just going to work out well I think in the long haul for you. So if your investment is backed by that type of economic proof, I would even say, type of an asset, then you're sitting in a great position because we don't know what the future hold.
Carl:
That's right.
Brant:
We're sitting here in 2021 and it's like, all right, where are we going to go? What's going to happen next? And instead of being the type of person that hunkers down and prepares for the worst, or instead of being the person who's burying their head in the sand and acting like nothing's wrong, how about out we be the kind of people that even in the face of economic problems, we're going to be skiing through the worst types of things and thriving.
Carl:
Well, in the words of Mater, "I'm happier than a tornado in a trailer park."
Brant:
That's a good quote.
Carl:
It's one of my favorites. Just to wrap up, we're looking at in 2022 doubling the amount of assets that we currently own, and I'm really excited for next year and all the great things that that's going to bring about.
Brant:
Oh, don't get me started there on that. I'm super pumped about it as well.
Carl:
Better hold that for another podcast.
Brant:
We'll hold it for the next one.
