Here’s our latest interview with a millionaire as we seek to learn from those who have grown their wealth to high heights.
If you’d like to be considered for an interview, drop me a note and we can chat about specifics.
My questions are in bold italics and his responses follow in black.
Let’s get started…
OVERVIEW
How old are you (and spouse if applicable, plus how long you’ve been married)?
I’m 45 and my wife is 41.
We have been married since 2003.
Do you have kids/family (if so, how old are they)?
3 kids, 13, 11, and 9.
What area of the country do you live in (and urban or rural)?
I live in San Diego County. Suburban.
What is your current net worth?
$16MM approx.
What are the main assets that make up your net worth (stocks, real estate, business, home, retirement accounts, etc.) and any debt that offsets part of these?
I own five mobile home parks:
- My first park is worth about $9.0 Million. I bought it in 1999 for $1.85MM and I owe $3.9MM on it.
- My second park I bought in 2008 for $1.8MM. I bought it right before the big recession and I over paid by about $400k. It is now worth about $2.8MM. I owe $1.2MM on it.
- My third park I bought in 2016 for $3.6MM. When I bought the property, it had about 26 vacancies. I filled all the vacancies in 13 months. I refinanced it and pulled out $1.1MM cash. It is worth about $6.5MM. I owe $3.1MM on it.
- My fourth park, I have with a partner. We bought it for $375K. I put up $50K and so did my partner. We have put in 3 homes and the park is now worth about $550K. We stole it from the previous owner. He was having all kinds of trouble with the local Code Enforcement Office. We fixed all the problems and raised the rent.
- My fifth park is a nice turn around deal. I closed on Feb 2020 for $900K all cash. It has permits for 81 Units. The previous owner only had 10 spots occupied. The place needs about $1.0MM in rehab and upgrades, but once full (I need 1-2 years to complete), it will be worth about $6.0MM. 81 units at $650.00 per unit. Once I get it full, I will refinance it and pull out $2-3MM cash and buy another park.
I have about $1.2MM in Stock, bonds, IRA’s, 401K’s and 529 plans.
My house is worth about $1.3MM and we owe about $320K on it.
My wife’s business is worth about $1.5MM.
I have other miscellaneous business and personal property that adds up to another $1.0MM or so. Four cars, motorhome, dune buggies, two Bobcat tractors, fine art, jewelry etc. You know all the fun stuff!! My wife loves diamonds and I like to keep her happy.
EARN
What is your job?
I am a Licensed Real Estate Broker. My main job is to drive around in my big Ford truck, honk the horn and say “Where’s the Rent???”.
Ok so seriously, I stopped doing that a while back. Now I manage all the employees; I have about 20. Most of my time is spend looking for more property to buy and making sure everything under management is going as planned.
I spend about 1 hour per week speaking with on-site staff. I spend about 4 hours per week doing the overall management of each park. I have one employee helping me do the back-end management.
What is your annual income?
I take home about $30,000 per month. My wife takes home about the same.
Tell us about your income performance over time. What was the starting salary of your first job, how did it grow from there (and what you did to make it grow), and where are you now?
I started working at McDonald’s when I was in high school. I remember, equating each hour I worked to pay for a trip to the beach and back. Gas was $0.99 per gallon and I made about $3.50 an hour.
After college, I started working at a Consumer Finance Company. I was selling $500 loans to customers at 46% APR. I remember doing one deal, it was a first mortgage for a guy with bad credit. He paid 9.9% APR and 10 Points for a $220,000 refinance of his house. That’s when I knew I had to quit. I made the company a $22,000 profit and I saw ZERO of that. Back then this was a good deal for the guy. I was making $28,000 a year in 1999.
I moved on to another Sub-Prime lender by mid-1999. I was making about $60,000 a year. Part of that was a $30k base salary the other part was commissions. We were doing 1st, 2nd, and 3rd mortgages. The commission were a lot better and product was a lot better. A lot of the guys I worked with were making $10-20K per month. I was low man on the totem pole.
In late 1999 and early 2000 I got into the mobile home park business. My father got me started. He had purchased a park that was a bad investment for him. We made a deal where I was able to buy him out over 7 years and then I would own it. He really just gave me the park, but I had to turn it around to keep it. This amounted to $250K in seed money.
When I first started out on my own, I was making $1500.00 a month. My rent was $700. I remember having to raid the soda machine for lunch money.
My income has steadily risen over the years. As the rents have gone up the value of the parks have gone up. My real big jump in income came in 2016 when I bought the park with 26 vacancies. The rent is $650 at that park. The math is really simple: $650 x 26 – 35% expense = $11k per month extra.
My goal is to increase my monthly income by $1,000.00 per month every month. This amount translates to just about $1.0MM a year in increase net worth.
What tips do you have for others who want to grow their career-related income?
“Work harder on improving yourself then you do at working for someone else.” Jim Rohn
No matter where you work, you are actually self-employed.
JOB stands for Just Over Broke…JOB. If you want to become part of the 1% start your own business.
What’s your work-life balance look like?
This is a huge part of my life. Many people think that they need to work more and harder to become successful. That’s not true.
My daily routine:
- Monday. Get up a 5-6 am (no alarm), fix the kids lunch and breakfast. Read my bible, meditate for 10-20 minutes. If the surf is good, I’ll head to the beach to catch some waves. Get to the office by 10 or 11 am. Leave the office by 3 pm to pick up the kids from school. Take my daughter to dance and I hit the gym.
- Tuesday: Same beginning, but at 7:30 I leave for the gym. I get a solid 1 to 2-hour workout in. I head back home to shower, then I head to the office. I leave the office by 3 to pick up the kids.
- Wednesday. Wake up at 5 am. I leave for the beach. I surf for 1-2 hours with a few friends. Go out to breakfast and then back home. I get to the office between 10-11 am. I leave by 3 pm to pick up the kids.
- Thursday same schedule as Tuesday.
- Friday. I like to take Friday’s off. I either leave at 5 am to go surf or I leave at 8 am to go surf. If the surf is good, I surf a long time. Friday’s are a flex day for me, so I work if I need to get caught up otherwise I find something fun to do.
Miscellaneous: I do jump on the computer at home and work. It depends on what time of the month it is and/or what I’m working on. On average I work 3-5 hours a week from home.
My goals are to make as much money as possible and own as much real estate as possible so long as I am able to surf 2-3 times a week and be able to pick up my kids from school at 3 o’clock.
Do you have any sources of income besides your career? If so, can you list them, give us a feel for how much you earn with each, and offer some insight into how you developed them?
I have a few private money loans outstanding. They pay me about 10% interest and I make about $1500 a month from the payments.
SAVE
What is your annual spending?
- I budget $20-30,000 year for travel.
- $10,000 a year for parties and entertainment.
- Kids tuition is $30K a year.
- $2,000 a month for groceries. We eat organic. We also buy pasture raised beef, lamb, pork, chicken, and eggs.
- Health Care is $30k a year plus out of pocket for visits.
- Cars are all paid for.
- House payment is $4500 a month. We plan on paying this off within the next few years.
- Maids $300/week.
- Gas and Electric bills were $800 a month, but we just went solar. So now it’s a lot cheaper.
- Gym Memberships $200/month. Both YMCA and 24-hour fitness.
- I put $2000 a month into an annuity.
- $500/month HSA account.
- $3000/month into the Kids 529 plan.
- $1000/month into my simple IRA.
- $5,000/month into my wife’s 401K.
- $5,000/month into regular savings account.
- $4,000/month into business savings
- $1,000/month extra mortgage payment.
What are the main categories (expenses) this spending breaks into?
Our main expense is the house. We are working on paying that off.
Then the kids’ school and health care.
Do you have a budget? If so, how do you implement it?
No budget. Honestly, we make a lot more money than we like to spend. Since we both have high incomes, we just run anything over $1,000 by each other.
I tell my wife she can have whatever she wants so long as she pays for it.
What percentage of your gross income do you save and how has that changed over time?
I save about $9,000 a month out of the $30k. 30%.
My wife saves a lot more. She is probably at 40% savings.
When I first started working I was only able to max out my regular IRA.
What is your favorite thing to spend money on/your secret splurge?
Vacations. Life is all about experiences. Our ski trips are always amazing. Ski in, ski out.
We go to Mammoth, Utah, Lake Tahoe, etc. We also go to Hawaii and we travel in our motorhome.
I really like to drink good Scotch. One of my favorites is Glenfiddich 21.
We also like fine dining. My wife and I can easily drop $500-700 for one meal.
INVEST
What is your investment philosophy/plan?
Only invest in what you can control. A home is not an investment.
I consider stocks, bonds, IRA’s etc. savings. Not investments.
Save 10% or more of your income. Donate 10% of your income. Use 10% of your income to create a side business.
What has been your best investment?
My education and self-improvement. I gave Tony Robbins $10-12k a few years ago and that investment in myself has paid me back in millions of dollars!!!!
Real estate investments: The 1st Mobile Home Park. I basically put ZERO dollars down on it. I had to earn it. Sweat equity!!! The park is worth about $9.0MM now. I have refinanced it to acquire my other 4 parks.
What has been your worst investment?
A land deal we did. I lost $60K trying to develop a 3-parcel deal into 3 homes.
Luckily, I didn’t lose more. We were just about to sign a $900K construction loan. I backed out, then the recession hit.
What’s been your overall return?
I started with a $250K seed money gift from my Dad and am now worth over $16MM. Plus annual income.
How often do you monitor/review your portfolio?
I check in with my values for the parks monthly. I have a neat spreadsheet set up that calculates the approximate values based on the average expenses, rents, and a 7% cap rate.
My stocks etc. I only check those when I need to run a Personal Financial statement for one of my lenders.
NET WORTH
How did you accumulate your net worth?
My new worth was created by a lot of hard work and a $250k head start given to me by my Dad. I spent a long time working and improving the parks. This allowed me to raise the rents. I refinanced the parks a few times and pulled out cash to buy additional parks.
The real trick is to put as little down as possible. Buy a property that is in the path of progress. Make sure the loan’s interest rate is lower than the cap rate you are buying the property at. Buy as many units per property as you can afford.
What would you say is your greatest strength in the ESI wealth-building model (Earn, Save or Invest) and why would you say it’s tops?
Earn. The higher the rents on my properties the more they are worth.
What road bumps did you face along the way to becoming a millionaire and how did you handle them?
I got sued, right away after I took over the parks. We lost about $1.0MM in the settlement.
Luckily, we had insurance. However, our policy premiums went from $10,000 a year to $50,000 a year. In those early days I had to scrape by to make it.
What are you currently doing to maintain/grow your net worth?
I’m looking to buy more real estate. Interest rates are low. I want to borrow as much as possible.
Leverage out my cash to acquire as much real estate as possible.
Do you have a target net worth you are trying to attain?
My next goal is $20MM. I expect to hit that goal in the next 2-3 years.
After I hit $20MM then I want to hit $30MM. Being considered “Ultra High Net Worth” would be GREAT.
I also want to make it on the list of top 100 park owner’s in the country. The threshold as of 2020 is 500 spaces. One or two more parks and I’ll be there.
How old were you when you made your first million and have you had any significant behavior shifts since then?
I was a millionaire at 28 years old. Yes. I spend a lot more now.
Being a millionaire is far from being rich. I’d say you need $10 million before you start living a good lifestyle. You know cars, first class plane tickets, jewelry, etc.
What money mistakes have you made along the way that others can learn from?
I sold myself short. I set my goals way too low. I remember thinking I wanted to own 3 parks and 300 spaces then I’d be done. How silly that seems now.
I’d like to end up with 1000’s of spaces and $30-100 million net worth.
What advice do you have for ESI Money readers on how to become wealthy?
Improve yourself. Mindset is important. Get great mentoring. Hire a business/life coach.
Turn off the TV and get to work. Dream BIG dreams and set goals to get there.
Don’t wish for smaller problems wish to get better at what you do.
Don’t work for money, create value and money will come. Do more than what you are expected to do.
The best time to make money is while you are asleep. If you are clocking in to get paid then you are never going to get rich.
You need to leverage your time, money, and expertise.
I do not measure my hourly wage based on a 40-hour work week. I measure my income based on a 24 hour a day 30-day month. As of today, I only make $41.66/hour, but it’s 24 hours 365 days a year.
If you can switch your mindset to a 24-hour time clock you will be acutely aware of your earnings versus your spending.
Inspirations:
Tony Robbins, Jim Rohn, Earl Nightingale, The Bible, MJ DeMarco, The Go-giver, Think and Grow Rich, How to Win Friends and Influence People, Robert Kiyosaki, Zig Zigglar, and Art Williams. Plus many more!!!
FUTURE
What are your plans for the future regarding lifestyle?
I only work like 20-30 hours a week already. I plan on growing until my already amazing lifestyle gets affected.
What are your retirement plans?
No plans. I probably will never retire. Why would I? I haven’t worked for years as it is.
My “Job” is a pleasure. I get to provide quality, affordable housing to low income people. They love my services and it pays me a ton of money.
Are there any issues in retirement that concern you? If so, how are you planning to address them?
My only concern is health care. I plan on retiring with a HUGE net worth.
I’m also considering paying myself a small salary for Social Security benefits.
MISCELLANEOUS
How did you learn about finances and at what age did it “click”?
My Dad taught me at a young age to never work for an hourly wage. He said work at a job that pays you for the value you create not the time you enter on your time card.
He also taught me about leverage. Time leverage, money leverage, and people leverage.
I have over 300 families working every day so they can pay me 25% of their salary to live in my park. That’s people leverage!!
I also have a BS in Finance.
Who inspired you to excel in life? Who are your heroes?
My Dad inspired me. I want to beat him. He is worth about $20 million and is in his 70’s. I should overtake him in the next few years. By the time I’m his age I’d like to be worth $50+ million.
Arnold Schwarzenegger is one of my heroes. Donald Trump is another.
Do you have any favorite money books you like/recommend? If so, can you share with us your top three and why you like them?
The Millionaire Fastlane by MJ DeMarco.
The Millionaire Next Door by Thomas Stanley.
Secrets of the Millionaire Mind by T. Harv Eker.
Do you give to charity? Why or why not? If you do, what percent of time/money do you give?
Yes. I give to the Local Church and the YMCA. I give about $10,000 a year.
We also give to the local homeless shelter.
I am also very generous with my good tenants. I often pay for water heaters, windows, paint, etc.
I believe that God has blessed me with these blessings so I can use his money for good things.
Do you plan to leave an inheritance for your heirs (how do you plan to distribute your wealth at your death)? What are your reasons behind this plan?
They can have what’s left over. I plan on helping them get through college debt free and giving them a chance to earn some seed money from me. My hope is that they will not need my money.
If they get caught up in drugs then they are cut off.
We have a living trust so if I die unexpectedly, they will get the whole enchilada.
M-121 says
Excellent heros. 😉
Impressive work and values. I love 24/day wage perspective. Very well done.
MI160 says
Well done! I love your story and drive. And, you live in one of the best spots in the country. Keep up the good work. Did you mention what your wife’s business is or did I miss that?
ParkGuy181 says
She is a Financial Planner
MI162 says
As another real estate guy I am wondering about some things.
What are the terms are you getting on your loans these days? What terms are you *choosing*? (5-20’s….interest only?……Fannie multi loans….etc)
Why are you valuing a park with a 7% cap rate? If it was large commercial building with triple nets in place I would get it but a management intensive Mobile Home Park appears like a different animal.
How will 20%-35% of your park tenants not paying rent affect you during this short lock down time?
Mine are still paying and many are on section 8/assisted housing. But, If 1/2 suddenly stopped paying I would have to start pulling from reserves.
Parkguy181 says
The last loan we did was a 30/10 fixed at 4.5% 5 year prepay.
65% LTV
Local Bank.
The 7% cap rate is based on my last appraisal. The actual cap rate I would use for a sale would be lower. Three of my parks are in the San Diego Market. 7% Caps are actually high. There are parks on the market in SD at 4% Cap rates.
A 20-35% rent hit would hurt. Of Course, we are being flexible with our residents and allowing them a forbearance if needed. We have a lot of seniors in the parks, they will all pay. I expect to have a less than a 10% non-payment rate when this is all over. Unlike apartments, residents can’t just leave. They have ownership in their homes and if they do not get caught up then they will lose their homes.
C-S says
Does the current economical environment make you consider deleveraging any?
Apex says
I can’t speak for M181 but I am currently in the process of taking out two new loans with a local credit union on the two properties I have that were free and clear to get the funds for future purchases. I have a lot of really good loan products with rates between 4.25% and 5.50%. These are the best terms I have ever gotten on an investment product.
75% LTV
4.0% interest rate.
15 year loan.
30 year amortization.
5 Year fixed. Rate resets every 5 years to the 5-year treasury constant maturity + 2.00%. In the last 10 years, the 5 year treasury has only touched 3% for a month in the fall of 2018. It’s at 0.5% right now.
C-S says
So, you’re increasing to take advantage of the environment…how do you feel comfortable doing so?
Do you have secure sources of income?
Do you keep a lot of savings back to survive longer should the issues continue?
What if you have 25-30% of your tenants that are unable to pay? 50%?
By all calculations we’re safe with what we have but I always wonder…should I have more of an emergency fund, should I be safer, etc.
Apex says
Fair Questions. I suppose it might sound like I am throwing caution to the wind. I am not. I haven’t purchased anything yet. By the end of this list below I think you will see that this actually makes my liquidity and financial stability stronger and doesn’t actually increase my debt position in the short term.
1. I have other minor sources of income but they are not sufficient.
2. I do have good savings backup. See the story of Joseph in Genesis 41 for my business philosophy. Store up during the feast because the famine is coming.
3. I have significant lines of credit that are still available to me to use.
4. All of my tenants paid for April without anyone mentioning any difficulty. I generally have high quality tenants. That is not to say some won’t eventually have issues, but government payments and drastically increased unemployment insurance are already on the way. More will come if this continues.
5. I expect the government to continue to provide significant underlying support to individuals and businesses. If they let 1/3 of the population run out of money the death will dwarf corona. The cure cannot be allowed to be worse than the disease and eventually that would become the case. Weeks ago I had come to the conclusion that they would go to 10 trillion dollars of extra debt to support people and the economy if necessary which would be a 50% increase in the debt in a single year. The long term consequences of that may not be great, but what are the alternatives? Chaos in the streets. This isn’t Zimbabwe. They can’t let it happen. They won’t let it happen.
6. This money will be used to pay down existing lines of credit and keep powder dry. Those lines of credit are a little bit more expensive than the loans I am currently taking out so this will actually save money in the short term, while adding dry powder should an opportunity arise.
7. I don’t have any purchases earmarked at this time but I am exploring and expect some purchases later this year. If things were to get significantly worse I would simply not need to purchase anything and this would just increase my liquidity by giving me larger credit lines to draw upon without actually increasing any payments at this time since this new debt is offset by paying down debt on lines of credit.
This is also consistent with the way I run my business. I purchase using cash drawn from lines of credit. Cash purchases are way easier. Then I extract equity with new loans on the purchases and pay the lines of credit back down. This is staying consistent with how I operate and doing so at a time when the loan terms are spectacular.
C-S says
Your response 100% changed my opinion as you’ve utilized cheap loans to consolidate credit and free up access to more should you need it. If you ultimately do not NEED the liquidity then you’d utilize it to reduce overall costs on things you’d purchase anyway. It seems you’re less exposed than I presumed.
Always a pleasure reading your comments – thanks for the insight!
MI162 says
Apex: Which interview # are you?
I thought previously you were predominantly in equities by your comments?
Apex says
I have not done one of the millionaire interviews. A large number of my comments here have been real estate related since I have considerable assets and experience in that realm. I have recently started looking into dividend investing as a way of creating a second passive income source so perhaps those are the comments you are referring to. I have a considerable sum in equities but it is currently only in tax advantage accounts. I don’t hold any equities in normal accounts today. 75% of my net worth is tied to real estate.
MI162 says
You should definitely do an interview. I would love to see how you approached real estate.
It would be good to see if you are more residential or commercial.
Commercial seems like such a big leap to me because it requires much more $ down and the returns turn out to be lower because owners value their properties based off NOI and cap rates and its hard to find something well below market value.
C-S says
Agreed. Do it! Do it! Do it! 🙂
Based on your comments I’d love to see you do a post. I think everyone would be able to learn more from your perspective.
John says
Apex,
Let me join the others in urging you to do an interview. Not just for your comments on real estate. I’ve also enjoyed your comments when they touch on other things — like when to take Social Security, etc.
Your thoughts and comments on this website are one of the best things about this site.
ESI says
The crowd has spoken! 😉
parkguy181 says
No. I am not deleveraging.
I reached out to 2 of my lenders and asked to borrow more. They are overwhelmed with the PPP and forbearances right now. They advised to circle back in 2-3 months.
Hospitalist says
Impressive, well done. Congrats
Paper Tiger (aka MI-27) says
Wow, you’ve achieved so much in less than 25 years since college. Sounds like your wife is equally successful in her own right. Congrats to both of you on your accomplishments. Based on your drive, tenacity, and expertise, I have no doubt you will achieve your long-term goals.
M-124 says
This is fantastic. This site has essentially become an “I am diversified in the stock market – “
(That’s diversity in one asset class, so that’s not diversity across asset classes. )
So I’m find your sooty both informative and refreshing. I rarely see a truly high net worth without exposure to real estate – period.
“I consider stocks, bonds , IRAs as savings , not investments “.
Yes. Period – always. The IRAs are great tools for tax efficiencies. And let’s just say it – those investments are still Vegas without exposure to other asset-classes. I lost $250k in my market stuff during the past 2 weeks. Rent checks still came. We are buy and hold so we don’t really concern ourselves with downturns (rents increase during those times).
I like the way you speak of leveraging to grow. You picked a great sub-class in mobile homes and you obviously know how money works. It’s cool to see that your wife and you work in tandem and that your father taught you the business. My son has taken over our property management and is learning about the beauty of passive income now.
Great share. Great job.
parkguy181 says
Thank you.
I agree, “This site has essentially become an “I am diversified in the stock market –””
That’s why I wanted to share. I have read a lot of other people’s success stories and thought my story was completely different and hopefully ads value.
My “stock” portfolio is down about 10%. My net worth is barely affected.
ESI says
Uh, I’m not sure what you guys are talking about stock only investing on this site — here are just a few examples of the variety:
https://esimoney.com/financial-details-of-my-real-estate-investments/
https://esimoney.com/how-to-invest-in-private-real-estate-lending/
https://esimoney.com/why-i-sold-rockstar-finance/
M-124 says
The majority of the shares are just what I said. The higher net worth shares are here and tend to involve real estate. Seven of 10 shares here don’t own real estate beyond personal residences. That was what I was referring to – the shares. These are good links and thanks for posting them again !
Best
Jeff
ESI says
When you say the “shares” are you talking about the Millionaire Interviews?
Phillip says
Yes, this interview absolutely adds value as it’s a different path from many of the other interviews. I really like the working smart vs just work hard message. It’s not easy to figure this out for each of our unique situations but it’s nice to see success stories. Kudos to your 10% contributions to charity. At your income, that’s a nice chunk that I’m sure lesser fortunate folks appreciate.
m-121 says
a little rationality here–broad-based, diversified stocks crush real estate over the long term, period. there is no doubt that real estate offers a different exposure with lots of upside, and even less doubt that today’s millionaire is at the top of the real estate game, without question. but to say that you’ve “lost” 250k or 100k or whatever in the last two weeks because share prices have gone down isn’t entirely accurate–you own the same shares. they are worth less now than they were 2 weeks ago, and will be worth something else (more, less, but not the same) in two more weeks, 2 more months, 2 more years, etc. your holding hasn’t changed–values fluctuate day by day, but that isn’t untrue in the real estate market, either. values change regularly, and those dollars that “always come” in the form of rent checks are worth less today–literally, today, monday–than they were yesterday. point here isn’t to disagree with the sentiment that real estate is an excellent wealth builder, or an great diversifying tool, etc etc, but by and large, the true appreciation/yield over time is nowhere near the actual true yield in the S+P over that same length of time. regardless, congrats again to this interviewee–he clearly has this dialed in and well, and no wonder: he reads great book, has great heroes, and likes to keep his wife happy. 😉 pretty much the secret sauce right there. well done!
Apex says
There is really no way to make that statement unless you are just looking at appreciation as your only measure when you say stocks crush real estate. Real estate appreciates 3-4% over very long time periods, the stock market 8-10%. Presto, stocks crush real estate. However I would think you would know that is a bogus way to measure the total return on real estate. Most good real estate investors will tell you that appreciation is only a small piece of the puzzle. In fact, when I do my analysis I count appreciation as equal to exactly zero. Based solely on cash flow on invested capital I am looking for 8% cap rate returns. I usually get 9%. So if you add that to typical appreciation you are looking at 12%. That already beats stocks. But the real power of real estate is leverage. M181 is using leverage perfectly. With leverage the returns can more than double. Add in a little tax benefit and you start seeing returns that approach 25%.
No stocks don’t crush real estate.
Real estate crushes stocks for those who do it well.
Every time I point this out people get up set and talk about risk and unknowns and people who went broke etc. That’s fine. That’s all true. I accept that. So does M-181. The key is it is for those who do it well and know what they are doing.
Real estate is more work and less liquid, so who would do it if sitting on your “assets” and investing in stocks crushed real estate. Unfortunately this kind of a statement is too common and is based on ignorance of how real estate really works. Those millionaires who have done it know the truth and know why the statement is so silly.
Real estate crushes stocks. Period!
MI 162 says
I used to think that as well before I got into RE.
I didn’t realize I could easily get 100% to Infinite returns when I bought properties for under market value.
Its much easier to find property being sold for much less than market value than stocks for less than intrinsic/book value.
M-124 says
I think you completely miss out here when you fail to explain the tax efficiencies of real estate. It’s likely because you don’t understand them and that’s okay.
I personally choose not to have my money or income tied to one asset class – ex the stock market. So comparing one asset class to another really falls short of the mark when it comes to formulating a truly balanced, sufficiently broad portfolio.
Apex says
I will argue for real estate without any tax benefits at all. I have never quite understood why many real estate investors go to tax benefits as their first argument for real estate. Don’t get me wrong, the tax efficiencies are nice, but I consider them the least beneficial aspect of real estate investing and not necessary to make the argument for real estate over other asset classes. I have 75% of my net worth in real estate so I am well aware of the tax benefits.
In fact stocks can have even better tax efficiencies if held for the long term. Stock returns are 80% capital gains and 20% dividends (in most growth stocks). The 20% would be taxed at a very efficient capital gains rate and the rest if held would be taxed at zero. That would be a lower tax rate on total return for stocks than for most real estate portfolios even after accounting for depreciation.
Real estate tax efficiencies are simply deferred not eliminated, just like long term capital gains are for stocks. You can hold until death to make them go away entirely with stepped up basis, but you can do the same thing with stocks too.
If depreciation went away tomorrow, real estate investing would still give me far better returns than stocks. It’s not the tax efficiencies that make real estate beat stocks, it’s the cash flow+appreciation+leverage.
M-124 says
I made mention of the fact that he never contemplated the tax efficiencies of real estate. I personally invest for cashflow and the tax advantages and appreciation are gravy. Still – I deferred a 7-digit gain on a 1031 last year and took out a loan against the paid for asset. Tough to argue against that tax advantage.
None- the-less, my point is that I’ve had far better luck with more control in my real estate investments over my market exposure. And it’s your prerogative to “argue for real estate over stocks without tax benefits” – but that wasn’t the point I made.
M-121 says
The tax benefits of real estate are a good point that I failed to consider, largely because of one’s agi is high enough (which isn’t really all that high) they evaporate to near nil. Good point there though.
Mike H says
MI #181,
Thanks for sharing your story. When you are providing forbearance to your tenants over this period, is this just on a case by case basis or is this something that you are offering as a policy guideline?
You are doing a great job and it is very impressive to be one of the top twenty trailer park owners in the country!
-Mike
Parkguy181 says
We are doing a case by case forbearance.
So far we have less than a 10% default rate.
We are working with those that need help. We are also asking our residents to pay what they can. We still have bills to pay to keep my operation open.
Passive Income Investor says
Great story. Have you considered other types of real estate or are you sticking with Mobile Home parks in the San Diego area? Are you concerned about concentration risk?
Apex says
I am not sure how to assess the concentration risk, but unless mobile homes are at risk of going away in the near future that would seem to be minimal compared to getting into any other kind of residential real estate.
True expertise is truly under-rated. Many professionals are really just amateurs. Many people who are really good at one thing get the mistaken idea that they are a genius and can immediately do great at something else. That can often lead to disaster. Certainly expanding outside of one’s core area can be done and probably should be explored when the opportunities in your core area become sparse. This should be done slowly and carefully to gain expertise in the new area. Even if there is a lot of overlap there are still new learning curves and mistakes are made if you move too quickly.
M181 has proven his model over 20 years. He has developed true real world expertise. He can outperform most people who he would compete against because he has developed more skill than most of them. He can put in 1/10th the effort and perform 10x better than most others doing the same thing. Unless things dry up in mobile home opportunities, if it was me I would stick with what I know, what is working, and what I have proven to be really good at.
Dance with the one who brung ya.
Parkguy181 says
I plan on staying in the Mobile Home Park space.
I do worry that I am too concentrated in the San Diego Market. I also worry that I am too concentrated in Real Estate.
I do have one Park in Oregon and one in Maine. I’m open to buying parks in other states, but I’d still like to just buy parks.
I’m a specialist. I know the space. I know how to turn lemons into lemonade here.
In the past 2 years, I have upped my contributions to my annuity. I also switched from a regular IRA ($5000 annual contribution) to a simple IRA ($13000 annual contribution). I also bumped my monthly regular savings.
MI-119 says
Also mid 40’s with similar net worth.
Net worth distribution:
Primary business $7.5M
Real estate $6M
Market investments $2M
CD cash equivalents $2M
Total debt $500K
I have found business growth and real estate probably outperforming the markets. Most decamillionaires have similar experiences that got us here…personal businesses and real estate in addition to our market investments. They compound our income growth which then can be used to compound our dry gunpowder for market investments.
Congrats OP.
parkguy181 says
Since I am a Real Estate Professional I get special tax treatment. This allows me to use all my real estate losses to offset active income.
Real Estate provides tax shelter that comes in the forms of a non-cash expense called depreciation. A property is depreciated over a set term based on the MACRS table. For Apartments it’s 27.5 years, Commercial buildings it’s 39.5 years. You are not allowed to depreciate land. Mobile Home Parks have a highly accelerated depreciation schedule.
Under the Trump Tax cuts, I get bonus depreciation for all 20-year (or less) life assets of 100%.
Here’s the break down of my latest acquisition, and yes I’ve already discussed this with my CPA.
Purchase Price 900k
Land Value $85K
Buildings $200K (laundry room, cabins)
Land Improvement $615k. (roads, water lines, electric meters, grading for MH pads etc)
Land Improvements have a 20-year life.
Here’s my first-year depreciation expense. $615K for land improvements, plus $7,272 for buildings. Total of $622k.
So for 2020, I started the year with a $622K loss.
Since I am a Real Estate professional, I get to use this loss against my active income. My $360K a year income is now tax-free. Since my wife and I are married the remainder of the loss passes through to her. So for 2020, we will pay ZERO federal income taxes. Wow. We would have to make $1.2MM in w-2 earning to take home what we take home.
Now let us look at my 2019 deal. The purchase price was $375K. I put down $50K (I have a partner on this deal 50/50 split). This park has zero park owned stick build structures. Land Value is $75K. For my 2019 investment of $50K, I received a pass-through loss (K-1) of $150k. What are the taxes on $150K worth of income? For me, it would be $75K. So I invested $50K and received a $75K tax savings!!!! The park is free.
I’d like to borrow more and keep doing this over, and over, and over, and over… Until I die.
The current COVID-19 will be a bump in this plan of course. I hope that we will only see a 6-12 month recession. I hope that my strategy keeps me insulated from any major damage. In 2008 we lost about 10% of our families due to the recession. My model is quality affordable housing and that is always in demand.
Alex says
Hi,
Thank you very much for you story and teaching/explanations. Very helpful. And overall very eye opening. I am a bit younger than yourself and would love to learn how to get started in RE. I understand that you are very busy but if you have a some time during the week, I would love to connect. My email – balexy1983 @ gmail.
Look forward to hearing from you back. Thank you in advance.
Alex
Bahdan
M128 says
Hi Park Guy, I enjoyed reading your post. You should check mine out as we have similar businesses. I own more spaces (about 525), but most are in Florida where rent is lower. Avg rent of about 300 per lot. Therefore your properties are worth far more than mine. Some people are asking about delinquency rate in April. So far I have collected about 95% which I think is excellent considering the shelter in place orders and the eviction suspensions… Best of luck to you!
parkguy 181 says
Nice to meet you!!
525 puts you in the top 100 park owners in America!! Congratulations.
I have about 90% collected. Only 8 people out of about 300 have asked about rent Forbearance. I suspect that everyone will get caught up when they get their money from the IRS.
I’ll look up your interview.
JeffB MI20 says
Just curious, the stay in place didn’t take affect until mid march. from reading, most of your tenants are seniors? What income was affected? Why would they be late in April rents. Maybe I can see May or June, but I guess you have some younger tenants that lost jobs?
Parkguy 181 says
Now that the dust has settled a bit. I have 2 people out of +300 units that are not paying. One guy was late starting March 1st and I haven’t been able to evict him due to the courts in San Diego County being closed.
The other is a little old lady who is afraid to leave her house. She normally pays with money orders and she is refusing the pay. I suspect they will both up and leave as soon as the Courts reopen and I am able to pursue legal action against them.
While I do have mostly seniors, I also have a lot of families. The families that have lost their jobs are paying with their unemployment money and stimulus money. So far so good. It looks like the Feds are planning on doing another round of stimulus so I should be good for a little longer.
One unexpected thing that has happened is we are selling a lot of homes. My properties are all Rural. I think there is an exodus from the Urban and suburban areas for rural areas. We have seen 2 years worth of turn over in the last 4 months. Homes that should be selling for $60K are going for +80K. Rents (for new tenants) have gone way up as well.
We have waitlists at all but one of my parks. One wait list is 30 poeple long.
Vigaro says
Sounds like good money, awesome. Big time. Lifestyle differences, outcomes, whatever; I’m equally jealous guarding my time, for quality of life and other purposes. Always working smarter, not harder, yes, forever. The real estate vs. stocks ragging, though: major yawn, about as exciting as depreciation analysis or the tax code. Very defensive behaviors, too, not pretty at all (lol). When in Rome, the way I see it, just a different set of options and leverage. Owning a park, though, I personally would need to live on-site 24/7, because I’m like that. Any park or property I owned would be more beautiful than your average swanky golf course, but then I’d probably set easy terms, not charge enough. If someone got nasty or wanted to skip out, though, I’d want to strangle or kill them, not pursue the proper legal channels. So skip it, yeah. By a similar light, I am concerned about those ‘diamonds’ and flash cars. Sunny San Diego–lots of money, but not all nice, to be sure. Guys my brothers (drug dealers) used to run with, they see the ring, not the finger or precious feelings attached. Just sayin’ . . . you can be all you want to be, of course, but this is actually not that free country, just sort of, and some have NO respect for the law–including the feds, for heaven’s sake. Plenty of no-go zones for cops, too, not as many as overseas, but they do exist, especially down in Cali. I wouldn’t want to be some fat guy splashing in the ocean, making big ass noises. All the little fish wither and run, the females smirk or swoon, but those things that bite? They hit hard, brother, one and done. Hate to say it, but you know it’s true; good vibes and that Bible won’t protect you. Stealth wealth, always the better way.