Rejected Certificate of Occupancy - Andrew Keel

Andrew Keel:   0:00
so long. Story short, We, uh the inspector revokes our certificates of occupancy for several of the homes to due to the power issue. So we were really in a in a rough spot because you know that we're planning on that income and on our pro forma we had planned for that income. So we had to do a $60,000 capital call

Jerome Myers:   0:23
as an operator. I know other investors are romanticizing multi family investing, and I'm looking to learn from other investors. Mistakes. I know you are, too. You found the right place. Welcome to Myers Methods Presents multi family missteps. Hey, everybody, welcome to multi family missteps. I'm your host, your own. And I've got the great pleasure of having Andrew killed with me today. Andrew, how are things where you are today?

Andrew Keel:   1:05
Things air good. I'm in AA Oviedo, Florida, which is just outside of Orlando. The sun is shining, so Ah, you can't beat. It's nice.

Jerome Myers:   1:13
All right, So tell the listeners a little bit about you and your background, How you got into the space.

Andrew Keel:   1:19
Yeah. So I started out as a Lonnie dealer. I was flipping houses around Central Florida and came across two mobile homes through a yellow letter that I had mailed out and these mobile homes. I didn't know what to do with them how to make money off of them. They were in, Ah, Mobile Home Park in Ocala, Florida and I knew I could make money on him somehow because there were 2200 bucks cash and I could buy both of them. And they were like vinyl side shingle roof mobile homes like really nice homes. So I bought him, didn't really know how I was gonna like, make money off of them. But I bought him and then went home and got on YouTube and typed in How to Make Money with mobile homes. And I came across this guy named Lonnie Scruggs. And he wrote this book called Deals on Wheels, and it tells people how to generate mailbox money through buying mobile homes in people's parks and then selling them on contract to an end buyer. So I took these two mobile homes and then a flipping him. Ah, and selling them. One of them I got three grand down is like a down payment which covered both of my cost right there. And then the other one I got like, $1500 is the down payment. And then off both of them. I got 250 bucks a month for five years, so the returns were crazy. I put the put these on Craigslist to sell him, and the demand was just off the charts like it was insane. And I mean, the stigma that's around mobile homes and mobile home parks. Ah, you know, was like, still in my mind, right in the very beginning when I got into this. Ah, but the demand was so strong that I was just instantly obsessed with the whole asset. Uh, the whole mobile home parks and mobile homes in general, on manufactured housing. So I eventually did like 20 more of those deals with the individual mobile homes. And through that, I met a mobile home park owner that told me, Hey, you're doing it wrong. You need to own the real estate. That's where the real wealth is built, not through the individual homes, which is technically personal property. There's tax benefits, etcetera. Ah, he gave me the low down, and I was I was like an ah ha moment for me. And I was like, All right, I need to somehow get into owning mobile home parks. I didn't have a lot of money. Didn't come from money s o. I basically just was like, Hey, I'm gonna I'm gonna figure this out. I went to a couple like boot camps and seminars on mobile Home Park investing. And then I just started cold calling, and I ended up cold. Calling throughout the Midwest is where I was looking for their some strategic reasons why we want to buy in the Midwest. Ah, but yeah, ended up finding deal in Edwardsville, Illinois was a 67 lot mobile home park. Five states away from me, and it was actually a homerun dealing with a 10 cap. Ah, we went in, I got it under contract. And then I contacted someone that I met at the boot camp one of those mobile home park boot camps, and they agreed to fund the investment money needed to purchase the property. Ah, which was like 300 grand. So we took it down. 18 months later, we were able to refinance, pull out all the equity pay back the investor plus a great pref. And ah, yeah, that case studies now on my website, it's is one of our better deals. And I bought five more parks with that same investor. And since then, I've syndicated money and raised money from a large group of investors to do, ah, to do deals. We took down a five part portfolio back in 2018 and we have a couple deals under contract right now that we're syndicating as well. So things were picking up nicely.

Jerome Myers:   4:59
Wow. But every story doesn't end that way, right,

Andrew Keel:   5:03
you know? No, it definitely doesn't, man. But that was Ah, yeah, That's how we got where we are today.

Jerome Myers:   5:10
That's amazing. Maybe I should change asset classes. Got it for me in a thin this whole environment. And you're like, Well, maybe what part of multi family actually works? And so you were telling me about a deal where there was a $60,000 adverse impact break? It

Andrew Keel:   5:31
s s so basically we bought it. We bought a property. Ah, in Tennessee. And during our due diligence period, we had an electrical inspection that was done. And, you know, we hired a local electrician's come out. He checked out the pedestals at every site and basically told us that, you know, there was some minor things that needed to be done, you know, less than $3000 worth of work. So we negotiated that with cellar and got that completed before we closed, which was basically, like, you know, putting some conduit over some exposed line and things like that. Ah, later, down the line when we were bringing in homes to fill vacant lots in this community because we had to bring in about 10 homes. Ah, when we went to hook up the power to these new homes, we found out that the electrical through this property was what's called Daisy chained. So the main line that comes at the power company is responsible for is basically one run down a whole row of homes, and then it spices off to each of the individual trailers. So the the last home in the line was having electrical issues. You know, if if it was like, you know, 78 o'clock at night, you know, there'd be people in the in the homes and, you know, using electricity, you know, hair dryers using uh, lights used in the furnace using everything. So the last person, the last home in the in the chain, was getting the not getting full power. Eso had the electrical company come out and were like, Hey, you know what's going on here? And basically they didn't have enough transformers. You know, they should have transformers that, like every three or four homes so that there's not just one line feeding all of these 25 homes. So long story short, we, uh the inspector revokes our certificates of occupancy for several of the homes to due to the power issue. So we were really in a in a rough spot because you know that we're planning on that income and on our pro forma we had planned for that income. So we had to do a $60,000 capital call. This was a jayvee agreement that we did with one of our original investors. And, you know, we had to raise an additional 60 grand to come in and, you know, install several transformers to redo the electrical. Ah, in the in the park, basically like the mainline electrical. So the you know the lesson learned is you know, you got to dig a little bit deeper. And this they don't teach this in the boot camp. They don't teach this in the 30 day due diligence handbook. But you know, there's more than just the pedestals when it comes to mobile home electrical infrastructure. You got to make sure that you also ah, you know, meet with the power company and communicate with them on. Hey, we're gonna be bringing homes to fill these vacant lots. What is the process look like to do so? So you know, now we have the engineer, the local engineer for the power company, come out to every property and we tell them, Hey, we plan to put a home on each of these vacant lots. What does that look like for you? Is it gonna be overhead? Is it gonna be underground? You know who pays for that? Who does the trenching, et cetera, And ah, that's just, you know, saved us quite a bit of money, so Ah, the $60,000 mistake. You know, in the long run, in the short run, it was like, Oh, my gosh, is this catastrophic? But thankfully, our investor on the deal was very reasonable and understanding.

Jerome Myers:   9:14
What's that guy's? Is your host your own? I just want to let you know we watched my methods in the follow 2019 with ambition to inspire a new breed of multi family. If you are interested in getting in a multi family, are scaling your current business up over to our Web site at my methods dot com grabbing free forceps guy How to get Now let's get back to the O

Andrew Keel:   9:40
Uh, all in all, we bought that park for $1,012,500. The initial equity was 358,000. Ah, the capital call of 60,000 you know, was additional on that came in around like month 12 of ownership. Ah, that property is getting refinanced right now with Fannie Mae, and it just appraised for 2.8 million. So even though we had that little bit of a misstep, we were able to finish the business plan and get it fully occupied and, you know, do a lot of improvements and do some modest rent increases and ah, ultimately, ultimately it was a home run, but it it just took you know it took ah, took that extra 60,000 to get it done.

Jerome Myers:   10:29
Yeah, I think so many people skip over that piece that you shared with this, right? Everybody just wants to get to Hey, it just appraise. We're getting all of our money back out, and then we're getting some and we get to continue to enjoy the cash flow. No, guys, he had to go back to the investor and asked for I don't know what 60 over 300 is but pretty large chunk of change in the grand scheme of things from a down payment respect to come in and fix something that, depending on the investor may say. Andrew, how did you not know that? Um, the funny part is my last job in corporate America. I worked for a construction company that was called insulting back to the power company. And I work for the power company for a number of years before I got in that role. And you know this whole voltage drop issue that you're having having partial lights and that kind of thing happens very frequently when you get into development. The fact that you guys were bringing in new beau Mobile homes. And I was part of your business plan having that conversation up front like you guys have changed a process to do, I would have saved you because the property was operating fine with the homes that were there. You didn't really have that issue. But as you're adding, it's no different than, you know, adding units that ah, apartment complex. You know, if you just want to feel like you're gonna put up a new building or go up a new floor, whatever you want to do tow, get more money out of the apartment building. Gotta make sure that the electric works got make sure your sewer and water or good, like all of that infrastructure stuff, you have to check that before you add additional load. And so this is cool that you guys were able to come in. And so you said that the was it the building inspector that rejected your certificate of occupancy for those new homes that you run into the part.

Andrew Keel:   12:13
Yeah, it was from the from the city. But when we did our initial inspection with the electrician's, you know, these were vacant lots. There were homes on those lattes at some point, so I think he kind of assumed that. Hey, no big deal. There were homes there that worked in the past, you know? But what? What we didn't account for was that, you know, he didn't have experience or a vast experience in dealing with manufactured housing to know that older homes, older mobile homes maybe only needed ah 100 amps service or maybe 60 amp service. So now, you know, with brand new homes coming off the factory floor, they require 200 service. So, you know, that just changed the whole dynamic. Ah, but yeah, definitely a learning experience. Ah, you know, thank God it played out. You know, the way it did. And, you know, we're covered there and ah, you know, were ableto repay, you know, plus a very healthy return, but ah, yeah, it was It was a tough deal.

Jerome Myers:   13:16
Yeah, injury. I mean, some people may say Hey, why not just leave the lots vacant? Why? Why go through making the capital call and spending the money? Um, would you be willing to walk through? Hey, adding these homes added excitement.

Andrew Keel:   13:30
Definitely valuation. Definitely so the way we value our mobile home lot is we take the lot rent. We multiply it by, uh, you know, one multiplied by one lot. You take that by an expense ratio, which this is a city sewer city water park. So it's typically a 30% expense ratio. So you take that 30% off, multiplied by 12 and that's what the value of unoccupied lot is to us. So in this park, the value of unoccupied lot was about 35 to 40 grand based off of the lot round. So if you look at that and you look at the cost involved with, you know, fixing these electrical pedestals and bringing a home in, you know, the total all in cost was about 20 grand to bring a home in for the cost of the home to get the electrical upgraded, do the plumbing hookups, the skirting the steps, uh, so forth. So it's technically a two for one, you know, deal there. Ah, where you're doubling your money. So it's still made sense in the grand scheme of things to raise the additional capital.

Jerome Myers:   14:34
Beautiful, Beautiful. What words of wisdom would you offer to the listeners? Andrew

Andrew Keel:   14:40
my my word of wisdom would be, you know, definitely do due diligence Get with people that I've been in the business a while. Ah, especially if you're trying to do your first deal. I would say, hey, contact somebody that's already been in the business and already have done several deals because not every seminars gonna teach you everything you need to know. You know, you gotta You gotta get your hands dirty. You gotta dig in a little bit. S o. I would say hey for your first deal. Go out, find a deal, contact someone that's in the business and partner with them on that first deal. Learn operations learned due diligence. Learn. You know, the pro forma process, et cetera. And, ah, you know, then you can do your next deal by yourself, possibly with what you learn.

Jerome Myers:   15:23
I think that's amazing. If I could dig a little bit deeper on the on the partner in peace, What is it that you brought to the table that may this investor, that partner with you on this, still interested in partnering with you? Because calling somebody say, Hey, can I pick your brain over a cup of coffee doesn't translate into a partnership. So when did I'm sure you're pretty strategic and prescriptive in your approach. What? What was that?

Andrew Keel:   15:52
Yes. So I presented a business plan along with a pro forma. And, you know, we had met at the same boot camp, so we both were, you know, had common interests. I think it also helped that my background included Lonnie dealing. You know, where I was buying mobile homes in parks and then selling them on contract. So I had some experience there, but I think the pro former really told the story of the value that could be added in the returns that can be achieved. And that is really what caught this investors, I ah. And then on top of that, you know, me being the boots on the ground guy that's gonna be handling operations where he could be completely passive. Ah, was was very attractive as well.

Jerome Myers:   16:33
Awesome. Awesome. Thank you very much, man. Um, if the listeners want to get in contact with you, what's the best way for them and do that?

Andrew Keel:   16:41
Yeah, if they wanna. If they're interested in investing with me through, like a syndication or possibly If they want to bring a deal and Javy on on a mobile home park acquisition, they can check out my website. That's Kiel team dot com. That's K E l team. Like a basketball team dot com. Click on the console button and set up a time to chat with me, and we can take it from there.

Jerome Myers:   17:05
Awesome. Thank you for coming on the show. Andrew. Thanks

Andrew Keel:   17:08
for having me, Jerome. Appreciate it. You

Jerome Myers:   17:11
made it to this juncture. So you really love what we shared on this episode of Meyer's methods? Presents multi family. Mr. Do Us a favor, give us a five star rating, give us a review and share this with somebody who's interested in things.