If you’re asked to name three ways to invest in real estate, what would be your response? You’d likely mention rental properties or house flipping. Perhaps even raw land or note investing – all of which The Agent of Wealth Podcast has covered (in depth). Today we’ll get to the bottom of two alternative real estate investments that might not have come to mind: self-storage and mobile homes.
In this episode of The Agent of Wealth Podcast, host Marc Bautis is joined by Blake Templeton, a seasoned Real Estate professional who is passionate about helping investors invest confidently into alternative asset classes. Templeton is the President and CEO of Boron Capital, a regular contributor and writer for Forbes as a member of their Business Council, and a member of the Young Entrepreneurs Council.
In this episode, you will learn:
- The benefits of alternative asset classes.
- How to determine the best niches to invest in.
- Self-storage facilities, as an investment.
- Mobile home communities, as an investment.
- And more!
Resources:
For more information about Boron Capital, text “Info” to 31996 | Bautis Financial: (862) 205-5000
Welcome back to The Agent of Wealth Podcast, this is your host Marc Bautis. On today’s show I brought on a special guest, Blake Templeton. Blake’s a seasoned real estate and cryptocurrency hedge fund manager who is passionate about helping investors invest confidently into alternative asset classes like blockchain, cryptocurrency and specific sectors of real estate. Blake serves as a CEO of Boron Capital. Blake, welcome to the show.
Glad to be here, man. Excited to speak with you.
Same here. I’ve dedicated some episodes of the podcast to different alternative investments, and gotten a lot of positive feedback from the listeners. And I think there’s even more interest right now, with what’s going on in the global economy and the markets.
Absolutely. I think unconventional world events lead us to be good stewards with unconventional strategies.
Definitely. So, can you start off by explaining how you got started in the real estate space, and then specifically in the niches of self storage and mobile homes?
I started in 2006, ironically without a penny to my name. I knew I wanted to own a business — some way, somehow — but I didn’t know what that was. I had drive, and I wanted to provide, to get ahead and to go against the norm. Long story short, I was living at my parent’s home when they got a letter in the mail about a real estate conference. I went, and ended up getting multiple, very successful mentors. On the front side of that, I started in residential real estate. In my first year, I flipped houses and made six figures. I doubled that the next year, and so on. I started realizing that it was more than just a solopreneur thing — it was a business, and I wanted to scale it with employees.
In 2012, I went into commercial real estate: apartments, corporate housing and the oil industry. I was always interested in emerging markets. I realized that you can’t go where everyone else is going, because where everyone else is going becomes saturated, leaving you with lower-level returns.
I’m always aiming to be on the cutting edge: versatile and agile. I realized I had to make more money than everyone else thinks is necessary, because when issues happen, you have to have the money to solve them. And that allowed me to never get stuck in a certain niche.
Finding the Right Investment Niche
Fast forward into 2017, Boron Capital began doing market analysis on each real estate industry. We realized that in cumulative returns, self storage outpaced every single industry — office space, retail, lodging, industrial, residential, apartments, healthcare and even the Dow Jones. Every industry. And manufactured homes was second.
This was mind blowing, because we weren’t in those sectors at the time. We realized that these two sectors had massive X factors, factors that actually kept others out of the market. These really put us in a strong position once we decided to enter these spaces.
Right. How do mobile home parks and self storage perform during inflationary periods?
That’s a great question. Let’s talk about self storage first.
Key Characteristics of Self-Storage As An Alternative Asset
Self storage is a very unique product because there is always a use for storage no matter the condition of the economy. During a boom time, everyone buys an abundance, therefore requiring storage for the overabundance. In a downturn, everyone downsizes, therefore requiring storage for the possessions they can’t part from.
During the COVID pandemic, we had an average occupancy of 93% occupancy. At this time, people were confined to their homes — not going to their storage units — so most people spent more money for the storage than the true value of the products that they were storing.
That’s the key, self-storage has strong returns. It’s also a stable asset class, because it’s needed in both strong and weak markets.
And it has low maintenance costs. When there’s low maintenance costs, it allows for sustainability. We aim to keep everything at a five star level, which is a lot easier when you can copy and paste all your facilities. It’s simple, unified and beautiful. And again, it’s low delinquencies because people keep their stuff stored even when they spend more money than the items are actually worth.
Key Characteristics of Mobile Homes As An Alternative Asset
Now, moving on to mobile homes manufactured home parks… When most people think about manufactured homes, they think of a trailer park, but what we invest in is more of a manufactured home community.
At Boron Capital, we buy massive communities — to give you an idea, they cost something like $30 million — that retirees seek to reside in once they downsize. The community members feel safe and sound, and because of that, there’s a low turnover. The average resident lives in the community for at least five years.
And, like self-storage facilities, mobile home communities have a strong rate of return.
Why are people staying in these communities so long?
Well, because most mobile home communities are that typical trailer park type, so many cities have ordinances that protect areas from mobile home community building. For example, mobile home communities are not allowed to be built inside of city limits, so only 10 or so are being built a year. This creates a massive supply and demand disconnect — there’s plenty of demand for mobile home communities, but little supply available.
I’ll give you an example. Mobile homes are great for the baby boomer generation, who are on a fixed income. They need a housing solution, and typically want a community feel. So mobile home parks are a powerhouse in a down market.
How Boron Capital Funds Are Structured
Structure is everything. For self-storage and mobile home parks, a fund is composed of 16 massive, $20-30 million properties. The investors get all of their principle back first, and then make 8% pref. It’s a beautiful thing — they get all of their money back, make a pref and can stay in the deal long-term.
And the best part of the structure is, because we borrow at such low leverage, we refinance the property every three to five years. That refinance comes from the appreciation of the property, because self storage and mobile home parks appreciate greatly. So we refinance the property, and then we pay out the distributions to the investors. Because it’s a refinance versus a sale, the proceeds of the equity are tax free. And then the best part is they’ll have ownership in the property.
With the manufactured home communities, who actually owns those homes? Do the tenants own the homes, like a traditional mobile park? Or do you as the owner of the community actually own the home?
The tenants own the homes, we own the community. For members of the mobile home community, their cost basis to move is about $5,000. So for them to up and move, they’d have to have a true life shift to take their home somewhere else.
And I haven’t mentioned this year, but the mobile home community is really a culture. Some of these people grew up in a trailer park, and over time they raised their status to a community, and got a nicer manufactured home. This is how they think, how they live, this is how they process.
So that’s why the average tendency is five years, which far outweighs apartments or single family homes.
So you alluded to this a little bit… that some cities have ordinances against building mobile home communities. Are self-storage facilities and mobile homes sort of the opposite, in terms of abundance moving forward?
Let me answer that in a couple of different ways. First of all, most cities have a zoning where self-storage can and can’t be. In most larger cities, you’re out of luck when it comes to building self-storage facilities. This then creates a strong point in the competition, because sometimes the next facility is five miles away, so the whole population in that area uses the closest one.
We only buy large self-storage complexes, and we don’t build very often, because to scale we’re looking for property that already exists. This way, we provide a value-add situation.
When buying, we look at the optics and metrics that tell us what’s happening in the area. That includes any new housing, or other information like a new Amazon distribution center. Seeing where traffic is going to be helps us understand if a specific self-storage facility is going to be a value-add.
For instance, we purchased a four-story facility that had swamp coolers on the third and fourth levels. They hadn’t been updated, and the swamp coolers were not working. But, the facility was 65% occupied, right in the middle of Houston, so we bought it, replaced the coolers with nice HVAC units and it filled up immediately.
Then you start building a culture. And just like there is with mobile homes, there’s a culture of people who use self-storage. Perhaps their dad or mom used it growing up, so they’ve been taught that this is what you do with your stuff.
Also geographically, people work in different ways.
But these are two markets that are growing massively. For the self-storage market, rents typically appreciate 5-7% a year, similar to manufactured communities. These two industries have really stood the test of time in real estate.
I know a lot of real estate investors that get started in residential real estate, or multi-family investing. One of the questions I can see them asking about mobile homes is, what happens if a tenant doesn’t pay? In housing, there’s an eviction process. How does that work with self-storage and mobile homes?
For self-storage facilities, if a tenant is not paying, they will get evicted. At that point, the property in the unit becomes property of the facility, which is where you see a “Storage Wars” situation play out – the items get auctioned off just like you see in the show.
If it is the mobile home itself that the property owner quits paying, we follow a legal and binding contract, which outlines a process of eviction and foreclosure on that unit. The property owner could then lose their property, which is why we don’t see that situation playing out very often, because they need that mobile home to live in.
But to give you a better idea of the community, these mobile homes are not a $50,000 trailer. Depending on the area, some of them are $100,000, while others cost all the way up to $400,000. So these mobile homes are not small. They’ve got money in them.
Makes sense. Well, we’re just about out of time. Blake, I want to thank you for being on the show. How best can someone find out more about you, and the funds that you offer?
If you have any desire in self-storage, mobile homes or even cryptocurrency, the easiest way to reach me is to text “Info” to 31996. We will reach out to you immediately through text. We’d love to serve you in any way we can.
Perfect, we’ll link to that in the show notes. Thank you again, and thank you to everyone who tuned into today’s episode.
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