What were you doing on the morning of January 17, 2020? As the world learned about a strange new virus approaching our shores, my business partner Ben and I were visiting Louisville, Kentucky.We’re meeting with Mike (not his real name), our largest operating partner, to find out mobile home His company is acquiring the park. Our fund will be the largest investor.
This park looks like many of the parks we invest in, but is bigger. There are 315 lots in total, but about 50 are vacant. We saw a range of typical cars – from garbage trucks to Jaguars. People walked their dogs, kids boarded buses, and maintenance workers walked around carrying coffee.
But this park is different from most parks of this size. look, The homeowner lives three states away, and she hasn’t been here (or raised the rent) in at least five years.
This institutional-sized park is owned and operated by a typical mom-and-pop operator. she have no idea How to maximize revenue and value. She was distracted by other pursuits.
She was ready to quit.
Our operating partners indicate Variety The downside of our visit to the park. He told us how the landlord pays all the tenants’ utility bills. He explained how she paid her employees exorbitant wages to avoid getting involved. He also described the profitability of building new mobile homes on vacant lots — something sellers never dreamed of.
us Flying home to Virginia after lunch and begin raising capital for this new fund That Will invest in this park and more than 200 others commercial real estate assets.
Mack completed the acquisition on February 25, just as headlines were reporting on the coronavirus threatening everyone in humanity on this planet. He paid $7.1 million – about half debt and half equity (including ours).
We raised millions of dollars in February and March while American investors watched trillions of dollars in value evaporate from Wall Street casinos.
A surprising call amid the chaos of the pandemic
middle As unrest in the country escalated, Mack received a surprising call: Within a week of the acquisition, a competitor called and offered to buy the facility for $9 million.
This is where I might screw up if I were at the helm — especially given the uncertainty surrounding COVID-19 and Wall Street steep reduce.
Mike told me about the offer. I Did a quick calculation Turning $3.5 million in equity into $5.5 million in about a month was a decisive win for investors in our third fund. and the knowledge i haveI might have accepted the offer and redeployed that capital into other assets.
Fortunately, I’m not the one in charge.
look, Our funds do not acquire and operate commercial real estate assets. We conduct rigorous due diligence to find the most skilled operators possible. Together with more than 800 accredited investors, we invest in the assets of these operators through our diversified funds.
We are not in a dominant position in asset management. We don’t want this. (I’m not that capable!) Our firm carefully selects operators with deep expertise and experience in commercial real estate asset classes and strategies:
- Carriers you’ve probably never heard of or been exposed to on your own.
- Players who acquire underperforming assets like this.
- Increase in operators with driving records net operating income and optimize investor returns.
microphone flatly Even though they raised the offer to $9.5 million, he rejected the offer.He developed a strategy to transform the park Increase Realize value effectively.He hopes to sell it for $13 million or more Only about three Year.
While his strategy was similar to others he had successfully executed dozens of times, he reminded me that it was an unusually large one There are so many operating and revenue deficiencies in the asset. He’s excited for his team to get to work.
They did get to work.They executed several Their main Although COVID-19 has plagued the team, they have achieved their goals within the first six months. they created a significant better place of residence, them cost cutting, and them Increased revenue.
Second surprising call – from a different competitor
As they were making final plans to begin the most challenging phase of their strategy, building new homes on 50 vacant lots, Mike got a call from another large mobile home operator. He asked Mike about the park and the improvements they had made. He asked about their plans and current income.He proposed $15 million.
remember That was later the same year that Mack purchased the park for $7.1 million. Mike accepted the offer this time, and it closed a few months later.
Here are the final statistics:
- Acquired in February 2020 for US$7.1 million
- Sold for $15 million in December 2020
- Real estate level internal rate of return: 347%*
- Property-level MOIC (multiple of invested capital): 3.4x*
Part of the equity was reinvested Convert to other assets Take further advantage of potential profits. Some be distributed For investors, they did not expect that the long-term foundation would distribute dividends so early.
what will you do?
Like I said, I’m glad I wasn’t in charge.I am happy Mike is more experienced than me.and i am happy Hundreds of our investors (the fund is no longer available) benefited from this transaction and many others like it.
Hindsight is 20/20, but I still not sure Without the help of a crystal ball, here’s what I would do amid the uncertainty of COVID-19 if I were in Mike’s shoes. While no one ever went bankrupt on a profit, Mike’s wisdom and experience resulted in far better results than buying an asset and then selling it immediately.
what will you do?
Thankfully, we investors don’t have to answer this question. (I can confidently say they would never have gotten such a deal in the first place. Neither would I!)
our investors Trust us, trust our operating partners Acquire, improve and ultimately divest underperforming and undervalued assets like this. While this is a dramatic example, many other examples follow a similar pattern.
Additionally, diversify across recession-resistant asset types, operators, geographies, strategies and sectors Capital stacking These positions provide a safer investing experience for accredited investors (those who want to benefit from real estate but are busy with careers, families, and interests).
final thoughts
i just read this Exceed It’s kind of funny – like me Just bragging exist Our operators and funds. While I’m proud of the team, that wasn’t my intention. my intention is As a reminder to busy professionals, it is possible to outsource your active real estate investing. That’s okay, I even believe it’s better to trust others to do the heavy lifting.
Finding expert operators and conducting in-depth due diligence is reasonable and often profitable in them, and trust them with your hard-earned capital.i am mine my own Case study here.
I have been investing in real estate since 1999. and I have raised and made over $140 million in real estate investments for decades. Even so, I still feel that I am completely unqualified to do such a transaction.
I would never consider taking the deal I described. And I couldn’t find this opportunity anyway.
I believe I can Make more profits and build more Gaining wealth by finding the best operators and deals I could never find, and Passive investing Follow them.
but This is not necessarily the best path For you. You may have joined the BiggerPockets community to learn how to trade on your own. You may be happier and richer by buying and operating your own residential or commercial real estate property. Or you might become like Mike, and hundreds of investors might end up giving you cash to invest on their behalf.
If this is your situation, I encourage you to try whole-heartedly! But if you are a busy professional looking to trade on the side, I want to warn you: You may play a role in the story I just told.
Your career and family, lack of focus, lack of team, and lack of experience may put you in the role of initial seller of this product wonderful assets. You can become a mom-and-pop shop owner. While the woman selling the park made millions, she also left millions in potential proceeds.
I’m writing this article to tell some of you that there may be a better, healthier, less time-consuming, and less frustrating path to growing real estate wealth. I invite your feedback, comments and complaints!
Are you ready to succeed in real estate investing? Set up a free BiggerPockets account to learn about investing strategies; ask questions and get answers to our community of over 2 million members; connect with investor-friendly agents; and more.
*All investments are subject to risks, including Loss All principal invested.Past performance is no guarantee of future returns, and The investment objectives of the currently open Wellings Real Estate Income Fund may not be achieved. Please read the offering memorandum before investing so that you fully understand the risks, and consult your tax or advisor before investing. Wellings Capital and BiggerPockets are not affiliated.
Notes on BiggerPockets: These are the opinions written by the author and do not necessarily represent the views of BiggerPockets.
