Welcome to our latest episode! Today, we’re thrilled to have Kevin Bupp, the Principal, Cofounder, and CEO of Sunrise Capital Investors, on the podcast. Kevin is an experienced real estate investor with over two decades of expertise and a portfolio valued at over $500 million. As the host of two top-ranked real estate podcasts, “The Mobile Home Park Investing Podcast” and “Real Estate Investing for Cash Flow,” Kevin shares his vast knowledge on navigating real estate investments to generate cash flow and build lasting wealth.
In this episode, Kevin delves into the challenges and opportunities in today’s real estate market, including the impact of rising interest rates and strategies for long-term investing in mobile home parks. He highlights the importance of choosing the right markets, understanding the value of patient capital, and finding deals with significant upside potential. Kevin also explains how his fund-based investment approach provides stability for investors in volatile markets.
If you’re eager to understand the latest market trends and discover valuable strategies for investing in mobile home parks and beyond, Kevin’s insights are a must-hear. Tune in now to gain practical tips and advice, drawn from Kevin Bupp’s extensive knowledge and expertise!
HIGHLIGHTS OF THE EPISODE
00:00 – Welcome to the BigMikeFund Podcast
00:23 – Guest intro: Kevin Bupp
03:40 – The value of investing in mobile home parks
06:15 – How Kevin started and built his investment portfolio
08:55 – The importance of cash flow and sustainable investments
11:10 – Current trends in mobile home park investing
15:00 – Kevin explains market dynamics and risk management
21:45 – How to handle challenges like rising interest rates
27:20 – Opportunities in the Midwest and key markets Kevin focuses on
32:45 – The evolution of the mobile home park industry and institutional interest
40:30 – Kevin’s long-term strategy and future outlook for real estate investing
47:00 – Final thoughts and how to connect with Kevin
If you found this episode substantial and want to dig deeper into real estate, or maybe you want to discover better investment opportunities, be sure to check out www.tempofunding.com.
CONNECTING WITH THE GUEST
Website: https://sunrisecapitalinvestors.com/
Linkedin: https://www.linkedin.com/in/kevinbupp/
Instagram: https://www.instagram.com/buppkevin/
Facebook: https://www.facebook.com/RealKevinBupp/
Linktree: https://linktr.ee/kevinbupp
Full Transcript:
Intro: Welcome to the BigMikeFund Podcast, where you’ll learn about advanced wealth building strategies from real estate investing to creating massive ROI and secure retirement profits. So pour yourself a cup of coffee, grab a notepad, and lean in. Because Big Mike has got the mic, starting now.
Mike Zlotnik: Welcome to the BigMikeFund Podcast. I’m the Big Mike, Mike Zlotnik, and today it is my pleasure and a privilege to welcome Kevin Bupp. Hey, Kevin.
Kevin Bupp: Hey, Mike. Thanks for having me, man. Excited to be here with you.
Mike Zlotnik: Thank you for coming on the podcast. A couple of words about Kevin. He’s a Florida based real estate investor, top Apple podcast host, and he’s the bestseller, the Cashflow Investor.
He has over 500 million in real estate transactions under his belt, and he has a wonderful podcast called Real Estate Investing for Cashflow. He’s also a bike rider. He’s done some cool things on riding a bike. So without further ado, Kevin, thank you again for coming on a podcast, but before we dive into business, tell us a little bit about you, your family where you live, kids, cats, pets, the whole thing.
Kevin Bupp: Yeah, yeah, no, no. Great. Again, appreciate Mike for having me on the show. So happily married going on our 15th year this coming March. So very, very happy 14 and a half years so far. I’ve got, got two boys seven and. Seven and 10 years old Jackson and Julian Jackson being the 10 year old Julian being the the seven year old and both October kids.
So both have birthdays on the same month, which is very convenient for mom and dad. But but, you know, awesome kids just enjoying life and really reason why we do what we do, at least for me, you know, big purposes is the family and spending as much time with them as possible and just be able to buy more time, right?
And and, and have flexibility and create memories with the family. So, but, you know, I guess as far as, you know, Some additional context there based in the Tampa Bay area. So actually I live over on the West coast near just North of Clearwater. Most folks know at least that, that landmark, you know, Clearwater beach.
So I’m just North of Clearwater beach and I’ve been down in Florida for 22 years going on 23 and moved down here. Shortly after getting into real estate, you know, I got introduced at a young age at 19 bought my first single family, run down crappy property at 20 used my 7, money I’d saved up to.
Buy it, you know, kind of teamed up with a private lender and, and bought it, renovated it, turned it into a rental. And that was the 1st, that was the 1st 1. and that was where it all started back at the age of 20. and then, you know, fast forward. I, in my early to mid 20s ended up building quite a big portfolio of single family homes.
Only with about seven of them being in Pennsylvania, but I moved to Florida back when I was 22. And I wanted to move to a larger, more progressive city, something that actually had things going on. There was companies moving here bigger population. And and I found that when I moved here, you know, you know, Tampa, Tampa became my home very quickly.
And And I very quickly met other folks in real estate game that were doing much bigger things than what I had ever envisioned. And that really became the catalyst for me is just seeing the bigger picture and again, started buying a lots of single family homes, gotten through some multifamily, you know many years back.
And, and then multiple other asset classes within the commercial real estate field. And along that journey, 2011 is when mobile home parks came to my radar. As you know, that’s what we, that’s what we mostly specialize in today are mobile home parks. So, you know, Got to do some mobile home parks, 2011 bought the first one 2012.
Now, you know 12 years later, I’m still buying parks and own communities and, you know, 18 different states and love the asset class as much today as what we did back then. We first started buying it, although more competition. So it’s hard to get good deals, but even then great asset class you know, very rewarding that we’re helping the affordable housing crisis that exists here.
I think it’s, I think it’s the best product that can help, you know, Really you know, create a solution for, you know, the affordable housing crisis that, that we find ourselves in throughout the country. However, municipalities that don’t really love us all that much, but it really is a solution.
Unfortunately, it has a hard time getting traction with new product being built and things of that nature. So, but anyway, I’ve been at this 20 years. Mike got a great family that supports me in the journey. Have a lot of fun doing it. And yeah, I think that’s, that’s, that’s the, that’s the, You know, the quick, quick snippet of, of me, my background and, and also the family. So I’ll shut up now for clarifying questions. If you have any,
Mike Zlotnik: well, that’s a wonderful introduction of you, your family, kind of your journey I think it’s important to tell the story. So it’s great to hear. And yeah, just a couple of, I guess follow up questions or, or thoughts. So obviously mobile home parks is an interesting asset class.
We just had industry experts panel last Friday. And one of the folks on the panel is a good friend. He does invest quite a bit in mobile home parks. And it’s one asset class that they don’t build too many more.
Kevin Bupp: That’s right.
Mike Zlotnik: So you have a limited supply, at least from that perspective. You, you, Florida has seen a boom, apartments boom, and then they, they don’t necessarily go through a bust, but you can, you can oversupply the multifamily markets.
Certain sub markets obviously see some negative rent growth. What’s happening with mobile home parks Rent growth. I’m just curious. They build a lot of apartments. Yep. Do they start grabbing folks who live in the mobile home park, say, go, go, go rent an apartment, or it’s just very different price? Price levels?
Kevin Bupp: Yeah. I mean very, very different price levels. Yeah. And I think it’s also a slightly different demographic as well that we’re serving and, and, you know, there’s, and there’s different, different you know, different classifications of even our asset, you know, within the industry itself, you know, down here in Florida and then Arizona are really too in California as well, but we’ve got a lot of, you know, what we like to call lifestyle communities down here, their mobile home parks, 55 plus, but they’re not necessarily affordable.
Most folks that live there they have a home up north somewhere or somewhere throughout the country. And this becomes like their kind of winter getaway. And they’re attracted to it because there’s a lot of activities happening. They’ve got multiple pools. They’ve got activities directors. They’ve got other folks, their age that aren’t working there.
They’re hanging out or maybe, you know, participating in various hobbies. And like, it’s more of a lifestyle. It’s not necessarily a means of affordable housing. While it might be more affordable than that of a beachfront condo. It’s still in the grand scheme of things, not really affordable housing. And so, you know, really the, the, the, the folks that we serve are, I’d say it’s really a mixture of 2.
We get a lot of folks in our communities, depending on where it’s located that are maybe downsizing from a single family home. And they just, they still like the yard. They still like the space, but they don’t want to take care of the yard. They just, they want simple living and they want a lower cost of living.
So that’s a big piece of it. The other piece is new families, you know, folks that are, they were, they’re having their first couple of kids. They can’t, they’re not. Yeah. They don’t make enough money to, to afford a stick belt home. You know, they’re, they’re both working, do working households or working at Walmart as an assistant manager or at the tire shop, you know, just good, hardworking folks that are, you know, raising their family, their young family.
And again, you know, don’t necessarily want the confines of an apartment. You know you know, they don’t want the, you know, neighbors above below. They, they, they want a little bit of their own space. They want their own parking spot out front which you get with mobile homes. But on top of that, you can take any of our, you know, I always like to take any of our communities and any of the markets we own.
And we own from, if you gave it a five, five star rating, you know, one star being like, you don’t even want to send your worst enemy into there. And then a five star being like those lifestyle communities, right? Like lots of amenities, amenity rich. Okay. Type environments, you know, we we own typically like the three to four star range.
So again, just good, hardworking folks, you know, clean communities, great locations but also fairly expensive locations where the median home prices are North of 250, 000 a year, sometimes as high as 500, 000 a year. And so you can take any one of our communities that we own and try it, whatever the apple to apple comparison apartment would be in the local marketplace, you know, whether it be a B class apartment, B plus class, A minus, what have you.
And. Most often we’re about 25 to 30 percent cheaper than that of what the total price point of living is in our community than that of the comparable apartment complex. So, you know, we, we tend to attract again, folks that are budget conscious but also looking for more of that home experience and not necessarily being confined into an apartment and also have a longer term mentality, you know, whereas maybe your typical apartment renter you know, might, you know, Might move every, you know, I don’t know what the data is today, but, you know, every 16, 18 months, maybe 24 months, you know, we’ve got our retention rates fairly high.
You know, we’ve got folks that have lived in our communities for over 40 years. You know, they’re almost generational in nature where they even have maybe other relatives that live in the community. They’ve moved in there because and they treat it just like a subdivision to them. It’s a neighborhood. And so Yeah.
Yeah. You know if that answers your question or not, Mike, but like, that’s, you know, as far as what I think the original question was about rents, what we’re seeing kind of the same thing, you know, I guess one of the one of the benefits of our space of what attracted me to it originally was historically and it’s still very much is it was, but historically, when we got it, when I got introduced to it was very mom and pop, like, literally 99 percent of the parks were owned by, you know sometimes the original developer still may be like, you know, second person in line within the family, but a lot of times still owned by the same family.
You know, maybe they own one community, maybe potentially two or three, but they were still very much a mom and pop run organization. They, you know, they didn’t bring in outside capital. They weren’t big institutional groups. There were a few in our space that own large portfolios, but it made up such a minority piece of the overall percentage of our industry.
And so, you know, what we’ve seen as we’ve taken over these, these mom and pop properties, they’ve. You know, kind of artificially kept rents low over time. They don’t, they don’t really pay attention to inflation. They don’t keep up with just, you know, smaller annual increases on a regular basis just to maintain you know, where the market’s at.
And so, for example, like we’re buying a park right now, and it’s very much a 4 star, it’s an institutional grade property owned by the same family that developed it back in the late 80s. The son owns it now, the son’s 68. He’s, this is, this is, this is all they own. They don’t own more than one. It’s a big window.
It’s 500 spaces. It’s huge. The market rents in this, in this immediate vicinity are on the low end, 750 on the high end 825 and their average rent across the board here. And it’s 85 percent occupied. So it’s stabilized. I mean, it’s a core plus type asset, but their average rents are 488. Which is absolute insanity.
And it’s only because they haven’t kept up with the market rents. So the industry has been trying to push and keep up with some type of normalcy and actually get rents a little higher. Cause it’s not sustainable to keep these things artificially low forever as taxes go up, as insurance go up, as operating expenses go up.
You got to be able to put the money back into the community and actually maintain it. And again, that’s one piece that we saw also a lot of deficiencies with these old mom and pop operators. They weren’t putting the money back in. They were just kind of taking out what they could not necessarily fixing roads and, and, you know, keeping, keeping the infrastructure up to, up to par.
But so I think the, you know, the industry has taken a positive turn with really more standardized practices that you might see in the multifamily space. And so it’s common practice now to start getting rents up and in turn. Put the money back into the community, invest, add amenities, add, you know, just redo roads, cut trees when, when needed, and just make it a better life experience and living experience for those that live there.
Mike Zlotnik: Yeah. I appreciate that overview. A lot of great nuggets, obviously education for me. I, I, I, I knew about the, let’s just call them luxurious communities. Maybe you will drive there. mobile home or their, I guess, gigantic RV and they park it there. RV.
Kevin Bupp: Yeah, that’s different. Yeah.
Mike Zlotnik: And that’s what I meant.
And then to the, I guess, lifestyle more affordable. And, but what, what you described, at least the project that’s coming up with where. The market may be 750, 800 and they’re renting them substantial lower. It’s a value. It’s, it’s, it’s a,
Kevin Bupp: it’s right.
Mike Zlotnik: Sort of a significantly undervalued on the price community that you can, you can improve just the gig. You can do the same multifamily, the same concept. You have to improve the property. You have to do a lot of work, but you can, you can bump up rent significantly. So that makes a lot of sense. So just, just curious. Where, you said, they’re all over the country, but where, where, where is the biggest concentration?
Is it Florida? Is it near Tampa? Or is it somewhere else? Where you find Yeah. Where you can get reasonable deals.
Kevin Bupp: But funny enough, although we’re based in Florida and I’ve been in Florida a long time and Florida, I think is second to only California as far as total number of mobile home parks, you know, like per capita.
We currently don’t own anything through the company in the state of Florida. Most of it, most of that, that is because all of them. Everyone that’s private equity institutional, they all, everyone wants to be in Florida. Everyone wants to have Florida real estate. And it’s been that way for the last, you know, 10, 15 years.
And so what we found is that there’s a certain quality of asset that we like to own certain demographic we like to serve, but also we got to, we got to be able to achieve certain returns, right? And it’s very difficult with our retail cost of capital and then kind of our projections to buy assets here that, that would, Model out that we would be able to actually comfortably know that we could hit target returns for our investors.
And while we would love just to own things here in our own backyard, I think the, you know, the, the, you know, the future is very bright for Florida. And so, you know, no one can argue that point. It’s just very difficult. The entry point is so high that our retail cost of capital, just, you know, the economics don’t work.
I can, you know, I could lie on the underwriting. I could, I could make them work, but most of the time they just simply haven’t worked for us. And so we focus our efforts. And other places the Northeast has been, has been great to us. The Carolinas have been phenomenal for us. But even the Midwest, you know, we’ve, we’ve we purchased quite a bit Indianapolis, Fort Wayne other respective markets around fairly large, you know, growing cities that, that have a lot of a lot of population growth.
And so the Midwest, I would say if I had to pick a region that has served Us and our investors incredibly well, as far as this profitability and just knowing that we can achieve returns going in, I would say it would be the Midwest.
Mike Zlotnik: Yeah, and I appreciate that. This is, it’s funny how you, you, you, you, you express this funny because the same way I live in New York City, we don’t invest as much here because everything is too expensive here.
You can’t get any, you know, with some exceptions it’s difficult to get any cash flow here. So you find the markets that work for you and, and yeah. And Midwest, like I love in India, Mar India’s a market. India is one of the steady Eddie. Really good, mm-Hmm. , landlord friendly type of business friendly markets.
Kevin Bupp: That’s right. So
Mike Zlotnik: Indiana is definitely a great place and they’ll get Yeah. Carolina’s a great story too. I’ve heard from a lot of people. Yeah,
Kevin Bupp: absolutely. Yeah. I mean, so we’ve owned it around the Raleigh Durham market, you know, a 45 minute to an hour radius all around that, that market that’s been phenomenal.
And basically anything, anything remotely close to that, the medical triangle there, you know, like it’s, it’s a no brainer. I mean, there’s just lots of growth happening, lots of positive influence from just a litany of employers moving to those respective marketplaces. And so and then just at least up until.
You know, the last probably, you know, five to seven years, it just wasn’t necessarily on the radar of a lot of institutions. Raleigh was kind of a little bit too small, you know, for major institutional capital would be going there, but now it’s not. Now it’s absolutely on the radar. But like, you know, we, we bought some great assets over the past five to seven years in those, in those markets.
What was I going to say? Oh, you know, back to Florida to the point of just, you know, It’s interesting. If, and you mentioned New York, you know, I wish I would have bought every mobile home park. That didn’t even make sense in 2018 and 19 in Florida, even if the underwriting didn’t work back then appreciation really carried that.
Right. I mean, it like literally what happened here during COVID as far as home prices and values, I mean, you know, basically turned into the equivalent of trying to live in California, right? Like it just, it priced everyone out of the marketplace and all values, Kind of follow a suit. Even mobile home parks, you know, the mobile home lot rents around here, at least where I live on average, I’d say are probably a thousand dollars, $1,100 a month, which is probably back then they were probably $600 a month.
They’ve almost doubled in value. And so again, that’s appreciation. Obviously it’s speculation at that point. No one knew that, that you know, that would, number one, that, you know, we would see double in prices in, in a four to five year span. And number two, no one thought that it would happen as a result of covid.
You know, everyone thought the world was initially gonna end and people weren’t gonna pay their rent. But as we know. It played out quite differently than that.
Mike Zlotnik: Let me ask you this question. So we, we saw that the post COVID boom everywhere. Then feds started to hike rates and then significant bust in valuations and cash flows happen.
Yep. Especially on value added projects, we have to borrow with floating rate. So has mobile home park industry seen this, this sort of a correction with fed pushing rates? I’m just curious. I don’t know the family where price of financing, availability of, of, of credit, leverage, all that stuff is basically dislocated the market the same way.
And are you finding great deals today as a result? Yeah. I’m just curious what, what, how has it happened?
Kevin Bupp: You know, I, I would say that that floating rate dead and true bridge type product was not prevalent within our industry. You know, our deal sizes are inherently smaller than that. Our average deal size is a lot smaller than that of maybe your traditional multifamily deal. And so, you know,
Mike Zlotnik: how many lots, like how many,
Kevin Bupp: Yeah. I mean you know, so for example, I’d say like today, our average transaction size is probably about 15 million. You know, this would, the example I gave you that 500 lot park, it’s a 40 million. So like, but that is, that is somewhat of an anomaly.
It’s a very large property. We’ve got a property up in Indianapolis or up in Fort Wayne. That’s, you know, 740 lots. That was a 45 million deal. So like, but those are anomalies. That is not, that’s not the norm. Most of our other Parks are, you know, 150 spaces, maybe 200 spaces in size. Some, some, something smaller than that.
So again, you’re talking, you know, 15 million deals, maybe 20 million deals on the top. And with those other ones being anomalies, but I guess you know, to your, to, to your original question, I’ve only, only one time in our history of owning parks. If I ever actually ever used like a, what we would classify as a traditional bridge product that, that was, that was a floater.
Most of the time, if we can’t get the deal, if it doesn’t qualify for agency today but we know that we won’t buy anything if we know that it won’t, it has to have a true, we have to be able to see a clear trajectory of getting it from nonconforming free agency debt, you know, Fannie or Freddie.
To being conforming to where it will fall within their parameters. We have to be able to see a clear path, how to get there in a couple of years. And so in those scenarios, typically what we’ll do is we’ll put a bank loan, you know, whether there’s a number of banks that are in our industry, there’s also the ones that we all know of, like Wells is a big lender in the space, but, you know, we’ll put traditional bank debt in place that I have a five year fixed term.
So, like, we kind of use that as we call that our bridge. It’s not really a bridge. It’s fixed. It’s five years. We’ve got some flexibility there. We’ve got a time horizon that we’re working with, and we’re not up against the time clock per se, like you might be with a traditional bridge product. And so I have not seen that much.
There’s been just, just, just like in every, every industry. I’ve seen distressed situations and we had a, as far as acquisitions last year was a great year for us. But most of what we bought seemingly was more distressed situations, maybe from partnership levels or other assets that were maybe dragging their funds down.
They had to divest of some things to create some liquidity. But it wasn’t necessarily, you know A property problem, a property level problem, but none of it, as I’ve seen, or what I know of is a result of maybe what’s happening in the multifamily space where it’s a lot of it’s related directly to the debt vehicle that was in place, or the debt instrument that was in place, you know, with a floater with the, you know, rate caps that are expiring and ultimately, you know, the cost to extend the cost to put new recaps in place, like, Okay.
That is this wreaked havoc on the on the industry. And so I have not seen that, that same scenario at all. And I’m not aware of anything. I’m sure there’s, I’m sure there’s a couple here and there that are ultimately having challenges, but it’s not written about. It’s not spoken about. I haven’t heard of the conferences.
I haven’t heard that being the issue. Yeah. Yeah, if anything, yeah, the, the biggest challenge I’ll see is, you know, from a, from, I guess, from a you know, our biggest, our, our biggest challenge that we see as, as, I guess, as buyers on the buying side is just, you know, there’s pros and cons of bigger institutional groups coming into the fray.
The benefits are is that they just bring more positive attention to our space most of the time. But it also, it, it, you know, it gives a better option as far as an exit. You know, what is our exit, you know, 10 years ago when we were buying stuff, the exit was you sell them one by one because all that’s buying are mom and pops.
Right. And so like you, you typically don’t have a fund that’s got a hundred, 200, 300 million that they’re looking to deploy. And so. You know, historically that would have been the case. We sell them one off at a time. That was our exit strategy. Whereas today, being that there are big groups out there that want to write big checks, it’s a much clearer exit.
We can also, you know, benefit from cap rate compression by selling a portfolio than that of just one off properties individually. And so on the flip side of that, their cost of capital is typically less. You know, they’re, they’re, they’re really IRR driven. They’re, they’re looking at, you know, just short term, three to five year horizons, whereas we typically model things out seven to 10 years.
We like to be able to buy things and truly hold them for the longterm. If it’s a, turns out to be just a phenomenal asset because we know they’re not making more of them. Right. It becomes inherently more difficult every year for us to find great assets and great markets that we’d like to hold for the longterm because the industry.
Very not slowly, but very quickly becoming consolidated. And they’re not making, you know, they’re not bringing new inventory to the marketplace. And so we got that weird dynamic to where it’s a good supply demand and balance. If you find good assets, good markets, cause they’re not building more. So barrier to entry is there, but on the flip side of that makes it really difficult to find new deals and continue growing the portfolio.
And so for that reason, we’ve got a much longer term vision and look to hold things for Typically we underwrite for 10 plus years. And we’ve sold things over the years, took advantage of some peak pricing on late 2020, 2021 and 2022 kind of pruned out the portfolio. And it just really set up really set us up really well for 2023 to have a big year as far as new acquisitions are concerned.
So, yeah, but I’m not seeing the distress, not the same manner of distress as you’re seeing a multifamily. I think if anything, Mike, what we are seeing is a lot of folks that got into this industry recently. It’s not a set it, forget it. Everyone doesn’t pay their rent on time. It’s, you know, it’s, I mean, like there’s a lot of moving parts of the business.
There’s not just the, you know, managing the existing homes that are in the park, but a lot of times if you’re looking to bring new homes in and fill vacant lots, you’ve got to have a whole sales and leasing strategy, just like you might in a, in an apartment complex, right? Like a whole lease up, but more related to sales, actually home sales.
There’s a lot of moving parts. And I’ve seen a lot of folks kind of get into the business, just thinking that it was a truly set it and forget it. And not realize how operationally intensive it really is, but I think that exists in any industry. Right. But more so here, I’m seeing a lot of if there is the stress, I’m seeing it from that perspective of like, damn, like, I thought this was going to, you know, I had, I thought it was gonna buy me some freedom and time.
But all I find myself doing is managing calls from the community manager and putting out fires. And and that became the challenge. So,
Mike Zlotnik: well, I appreciate there’s a lot of great nuggets here and just sort of think a little bit, maybe ask some follow up questions. So it has similarity to an operating business, which is which is important.
I mean, we’ve seen this with senior living independent living, assisted living facilities. We’ve seen this with a number of other businesses, like car washes, etc. People talk about real estate. Even self storage has some level of operating. Absolutely. And for those who don’t understand, I guess, it is not a truly passive it’s a lot more active, which is an important element, but that’s where good manager can make a difference while a weak manager can have it underperformed.
Kevin Bupp: That’s right.
Mike Zlotnik: I understood and agree. And it’s interesting to learn that it’s more of a fixed rate. Very few people bought on, on floating rate that although interest rates are impacting obviously cost of financing for everyone. Yes. The people who are buying today, the experience with higher rates is drastically different when the rates were low.
And so all that, they still need market forces exist, but the lack of supply is very interesting. You have no supply while multifamily has seen significant. New supply coming into the play. So it’s a very different experience from that perspective.
Kevin Bupp: That’s right
Mike Zlotnik: When do you see forward opportunities?
You said you don’t have that much product out there because the product is being is limited new product number one number two some institutionalizing Happening people are coming in at least Bigger checks want to buy a hundred million dollar portfolio. So you have no, no limited product. Your bargains happen typically when mom and pop needs to sell.
And are you finding great opportunities to invest? And then the other follow up question, if you have truly very long time horizon, like 10 year time horizon for a lot of investors, I know personally, it’s too long. How do people get comfortable writing a check into and do you run a fund or do you run like one off syndications? Just curious how you do it.
Kevin Bupp: Yeah, we run funds. We’re currently on our fourth fund, but you know, I think, you know, there’s a couple, couple questions in there and I’ll try to remember them all. So I guess I’ll hit on one that I, that’s top of mind. Related to like, just, you know, our investor base. I mean, most of the capital that we have is retail, retail source capital.
And I think, you know, years back when we really started kind of evolving our business model and really identifying, you know, what the, what the long term looks like in this asset class as it becomes more and more consolidated. And as it becomes more difficult to find deals, we’re still finding deals, but we definitely got to turn over many more rocks to, you know, to find those opportunities than what we had historically done.
And, and, you know, as, as, as we’ve identified that and also determined that we’d like to hold these, you know, given the opportunity, as long as possible, like who’s the right suited investor you know, to put capital in our fund. Like you want to make sure there’s an alignment of interest there. Right.
And so you, we always, we client classifying like three buckets, right? You got those that are willing to take on inherently more risk, but they need home runs, right? Like they’re, they’re looking to, you know, keep the velocity of the capital rolling. They’re maybe looking to take slightly more risk for a slightly bigger reward on the back end.
Right. But they’re still kind of growing their wealth. Like they’re at the beginning stages growing wealth. They need to recycle things on a regular basis. They’re not looking to just like set it and forget it for the next 10 plus years. They need to turn it into, to, to much bigger checks that you got to kind of have like the other end of the complete other end of the spectrum.
You’ve got the guys that they made the wealth. They just don’t want to lose it. They don’t want to deal with the tax consequence every three, four or five years when you’ve got recapture and capital gains and maybe not another vehicle to put that, put their, put their money into, right. To help offset that.
And like to them, that’s, that’s almost as big of a headache as, as like, they’ve already been there to grow it. That was a headache when they grew up, but now they just want to, they want to focus on other things. Like, just give me my, Distributions on a quarterly basis, make them consistent. I don’t need to hit home runs.
I’m okay with singles and doubles. Just don’t lose money, make money, but also don’t lose money. Keep it safe. And also don’t give me a headache every three years when you go to sell something and you got this big again, recapture consequence and and tax bill that I got to deal with. And unless you’ve got a solution ahead of time, don’t, don’t bring me that.
Cause that’s also a problem for me. And so we’ve really, and you got the middle bucket, right? It’s kind of, they’re somewhere in the middle there as they’re, as they’re growing their wealth. But we really have, right. Honed in on that, that, that wealth preservation bucket, you know, finding those that have the same alignment and interest.
They like the asset class. They like the tax benefits, but really they want consistent, you know, consistent distributions on a quarterly basis and just ensuring that their money is safe, secure and it’s, you know, it’s with the team that has a, you know, similar alignment of interest, what they do again, just looking to, they want to focus on other things in their life and they just, they want their money safe and.
Again, don’t want these these challenges that might exist every three to five years with the normal kind of buy fix and flip model. So that’s it. I mean, like that’s, that’s how we find folks that are a good fit for us. And, and, and, and how we think about things. And again, I think the merits of the asset class really sell themselves and also the supply demand imbalance.
It’s kind of a, Hey, like this, this, there’s long term opportunity here, but the long term opportunity is today finding the great assets and building a portfolio out of it so that in the long run, we could, you know, Really benefit from those, from those tailwinds that exist in the space. So yeah, there, there was another question in there, Mike, and I think it was before that one.
And I forget exactly what it was. I knew that was going to happen. Hopefully you remember, but there was a couple of questions kind of layered in there.
Mike Zlotnik: Different line. It’s fine. So, yeah,
Kevin Bupp: sorry.
Mike Zlotnik: This helps at least you explain three sort of groups of folks and the group you’re focusing on is a little bit more.
What kind of rates of return, I’m just curious exist in your space, what kind of cash on cash and what’s, what’s the total annual return generally investing into this?
Kevin Bupp: Yeah, I mean, so we model everything out. We always look at a five year projection, but as well as a 10 year, but realistically, we like to think that the 10 year is, is, is the truer picture.
You know, cause surely we could, you know, the IR looks much more attractive in a, in a shorter duration. And so we look at both, but realistically we want to be, we own a 10 year model. We want to be able on a, on a deal level somewhere between 14 and 17% deal level IRR with, you know It kind of rolling out to be somewhere in the 12 to 14 percent range. If we’re looking at a 10 year exit horizon. As far as
Mike Zlotnik: that’s that’s IRR. That’s IRR. Right. What about cash flows?
Kevin Bupp: Yeah, so on a cash flow basis, we like to be like our cost of capital is our blended cost of capital somewhere in like the. 8. 4 range, I think at this point in time. And so like, we, we like to know that.
We can actually get to upon stabilization that we can actually pay out on a real time. You know what, what the real time weighted cost of capital is with cash flows. And so, you know, we like to shoot for that eight to eight and a half percent, you know, cash on cash return typically by year four is like most of our business model is kind of run a range of, I’d say two year, two years on the short term and on the bigger properties.
It’s normally somewhere in like the four to five year range at the longest. But like. Somewhere between a year and four or five, worst case scenario, we’ll hit stabilization. We like to be able to basically achieve what that cost of capital is in terms of a cash on cash return.
Mike Zlotnik: So eight, eight and a half once you stabilize and that’s correct, the beginning, is it, is there any cash flow or it’s like,
Kevin Bupp: yeah, and a lot of it’s fun. So we do everything in a fund structure. So like right now we launched our current fund SCI growth and income fund four. We launched it last October. We’re still in buying mode. We intend to start making our first distribution January of 2025. So right now we’re still bringing new deals into the fray.
We’re still going through the stabilization game. With the the existing properties that we have purchased they’re all different stages. And so we always set the expectation that like, we’re not paying out cash. We typically don’t pay out cash for us for at least the first year of launching a new fund.
I think our last fund, fund three, I think it was about 18 months before we started making distributions. But again, it was, you know, It’s kind of difficult. And there’s a little bit, some convolution there when you’re making distributions out when you’re still bringing fresh capital in to buy new opportunities.
And so we like to kind of wrap up the buying and then at that point in time, start making distributions. But I’d say, you know, fund that I can give you an example of fund three, since we’re not making distributions and fund for present fund three is paying real time, about 6 percent right now. Yeah.
Fund three. Yeah. Fund three wrapped up. It’s buying activity August of last year. So there’s still actually there. There’s still, and there’s still a couple of deals in there that are actually, you know, kind of in the turnaround phase. Half of it’s stabilized. The other half is still in the midst of his, of his business plan, but we’re paying out real time. I think it’s like 6. 2 percent give or take.
Mike Zlotnik: Yeah. I appreciate the explanation. So it makes sense. It’s, it’s a couple of years or, you know, a year and a half value, then you turn into some light cashflow. You have an increasing cashflow. It’s really patient money. And the bottom line is, yeah, that’s right.
All right. This is not for somebody who needs immediate gratification or it’s not an immediate income product. It’s a mix of some kind of a little bit of a growth value.
Kevin Bupp: We call it growth and income fund. I mean, it’s a little bit of both. You know, there’s a little bit of both in there.
Mike Zlotnik: Makes, makes a lot of sense. And, and, and How many typically assets do you put in the fund? Typically how big of a package and sort of what’s the size of the fund equity raised and how many assets?
Kevin Bupp: Yeah, so currently like the, the fund that we’re, that we’re raising in right now, it’s it’s a hundred million dollar fund there’s currently There’s about about 70 million, give or take of assets that are currently in the fund.
We’ve got another 10 million deal that we’ll be closing on in the next two weeks. And then we’ve got that one I had referenced to you earlier, that one’s roughly a 42 million deal. And so that should, that will get us pretty darn close to you know, to fulfilling that fund. And then ultimately, you know, the perfect plan would be to roll out literally just a clean and concise, a new fund every year, every calendar year.
We’ll probably miss the timing on it, but, but generally speaking, that’s, that’s kind of where we’re currently at with the existing fund. And then how many, you know, so, so I guess to give you a better frame of reference, yes, how many deals are typically in a fund. So this fund four will probably end up with seven properties. Seven or eight, depending on how the law shakes out. Fun three.
Mike Zlotnik: Yeah.
Kevin Bupp: So like, that’s it. So like the thing is like the, you know, the, The business has changed. It’s morphed a little bit. It’s evolved over the years. Even our business has aware, like just there’s, there’s better scalability. There’s more efficiencies and larger deals.
And so like fund three, for example, it’s got some smaller mobile home park assets. And so fund three, our last fund, it’s got 13 assets in the fund. And it, and it’s, it’s slightly bigger in size than, than a hundred million, but. But it’s got some, you know, 4 million, 5 million properties in there. Whereas the smallest property in our current fund I guess we’ll be probably the one we’re closing on two weeks will be 10.
2 million. So that would be the smallest. And so it’s a great deal of variance there between maybe what historically our average deal size would have been to what it is today. And I think it’s just, it’s an evolution of the business, but also just even a slightly higher quality product. You know, I think we’ve done some really heavy lifts over the years.
And surely not scared of hard work. However, there’s a, You know, there’s a certain drain on resources and inefficiencies that ultimately come from doing too many, you know, heavy value add projects all at one time. And so we, we’ve kind of evolved more to a, a blended, you know, a blended of a stabilized value at like the one I spoke to with, you know, to where the big levers on that one are just basically, you know, getting rents to market.
And then there’s some very minor infill, but generally speaking, it’s a high quality deal. It’s in great condition, great infrastructure, stable cashflow out of the gate. So like that’s more of a core plus stabilized value added property. And then what we can blend in now, if we want to do a little bit of a heavier lift, but we won’t typically take on more than one or two that require massive infill, you know, millions of dollars of CapEx and just lots of time and attention.
So like that’s, that’s become kind of our, our primary game plan is mixing the two together versus that historically we used to just do. All fairly medium to heavy value ads like that, that, that was the game plan. And, you know, on a model, it looks great. But once you start doing many of those at the same time, there’s lots of other trickle down inefficiencies that start playing out through your organization.
Cause we’re all vertically integrated, you know, we’ve got all of our team in house, but there’s only so much bandwidth that you have as an organization, no matter how many people you hire, there’s still breaking points in that chain. And it becomes very difficult to do those really big projects and do a lot of them at the same time. So,
Mike Zlotnik: yeah, a lot of, a lot of great wisdom points here. And, and I appreciate. Very transparent, open conversation. A lot of people don’t understand there’s a complexity of growth as you bite more and more. Can you really chew all this stuff and chew? That’s right.
Kevin Bupp: Do it all the way before you swallow, right?
Mike Zlotnik: Yeah. Quality work. And, and it is And I understand funds. I understand funds really well. So lending in some income into growth and growth into income gets complicated because you’re mixing things up and you don’t always get the exact outcomes that you want, but the operating execution is a key. And, and that’s you have a great point that projections and performance on paper quite often are very different from the real world.
It’s kind of a funny thing that most people who raise capital need to make things look good on paper because otherwise you can’t raise capital. And at the same time, it’s hard to hit if you get too optimistic or, or, or too what’s the word for it? Too aggressive in your assumptions that I own, then you wind up underperforming the expectations.
Kevin Bupp: That’s right.
Mike Zlotnik: And it’s, it’s, it’s a beauty and a curse. So
Kevin Bupp: I think, I think they say there’s like one, there’s one promise I can always make you Mike, is that with my performance, either it’s, it’s going to be wrong or wrong, either it’s going to exceed expectations or it’s going to miss the expectations.
One, it’s never going to fall. Right on the mark. There’s no way it never, it’s never happened in the history of real estate investments ever happened.
Mike Zlotnik: Well, it’s kind of a funny how a lot of people don’t really understand this. And this is. This is, this is, this is going to be a great episode because you, you, you are explaining how the real world works.
It doesn’t work exactly how it’s planned. In fact, the last point is super important. Very few things hit exactly the way you project. They get better, they get worse. Sometimes a lot of things get worse when the interest rates rose, a lot of things got worse and when the interest rates fall, a lot of things can get better.
But at the same time it’s there’s volatility in execution. Every market is different. What kind of cap rates these things traded? I’m just curious when you, and I know if you sell the package.
Kevin Bupp: Yeah, I mean, I can, I can, I can spew off the green street data that just recently came out, you know, I mean, like it’s actually, it is, it is held its ground and, and as the lowest cap rate of any sector right now, at least in the last quarter of the reports, so I think, you know her green street data. The average, it’s like a 4. 7 cap which, which is insanity when you really think about it, but I mean, you know, it’s today, yes, yes,
it’s, it’s, it’s insanity. And I don’t know, I, I, I don’t know as far as granularity of of who all they survey with the green, I mean, green streets, a reputable source. I don’t know exactly who all they survey, you know, if it’s just the.
Publicly traded companies that have institutional size assets. That is a Primo product, or if they take a blended mix of all the above, I don’t know the answer to that. Nor will I probably ever get it. But with that being said I will say that it’s still, it’s still competitive. There’s a vacuum in our marketplace right now.
Like, you know, lots of institutional groups just given that, you know, the, the debt markets, lots of institutional groups are big players have kind of been pencils down either for that reason or. Maybe they just got out in front of their skis over the last couple of years with, with buying aggressively.
And now they’re more on operational focus mode. And, and and so it’s created a little bit of a vacuum in the marketplace, which we kind of see as the opportunity to get in and buy, you know, while the buying’s good. But even then, you know, just. You know, cap rates important going in a lot of what we buy, like the, you know, the core plus deal that’s, you know, stabilized value add, I’ll use that as an example.
You are going in cap rate on that is just shy of 5%. So it’s generally speaking, it’s negative, negative leverage. However again, speaking to, you know, the rents are 30, whatever, 30, what it’s like 34 percent below market. And then there’s a, it’s a phenomenal sub market with, Incredibly expensive homes.
And so there’s an opportunity for us to finish out the project and infill the remaining 60 lots that are there and feel very confident in our ability to do so. The average occupancy in that marketplace is 97%. And so, you know, the, the demand is there, the absorption is there for the homes. And so we don’t necessarily look at the, what’s going to cap rate on that deal.
It’s like, what’s realistically, what’s it going to look like in three years, once we execute, you know, 90, 90 percent of that business plan. And I feel very comfortable in our ability to create healthy returns, but also even more than likely you know, like our exit on that deal to our underwriting, our exit, we’re still modeling a 6 percent cap rate on the exit, which I think is overly conservative.
Given where the data is at today and knowing that as you’re to your point, when rates go down, typically prices, you know, buying activity is going to kick up again and, and, and, and more than likely we’ll probably continue to drive prices up. I can only speak. For our asset class, again, there’s no new supply.
There’s not like an absorption factor that has to occur like a multifamily. So there, maybe there’s a little bit of a lag in multifamily of prices getting back up, but inevitably that supply will get, will get occupied and we haven’t been building anything now for the last three years. Right? So, and then you’ll go through, we’ll go through that same cycle again, where there’s a lack of housing and.
You know, we’re running at a massive shortage and then we’ll run through a frenzy again of trying to build, build, build. And anyway, it’d be interesting to see what the future looks like. But we do look at going in cap rates, but it’s, it’s pretty I would say that’s, that’s probably the least important factor for the most part of our underwriting, at least when there’s a value add deal that we’re looking at. So I don’t know if that answers your question, Mike, but yeah.
Mike Zlotnik: Yeah, it does. It actually does. There’s this good amount of similarity to classic self storage too. The cap rates are still pretty low when you buy the negative spread. Everything you mentioned on the fact that some of penciled out because of the cost of money. Right. But because limited supply, the, the cap rates are not really, haven’t really expanded heavily.
Kevin Bupp: That’s right.
Mike Zlotnik: And the same is true in self storage. Interestingly enough, I think what has, what has happened is probably leverage has gone down somewhat. Maybe you’ve, you’ve, so with lower leverage, you can still pay a similar cap rate.
You just, just have to persevere a little bit longer. And the value of the component. That makes total sense, right? You’re not buying based on a current cap rate, you’re really buying based on what you can stabilize, where can you get the property. So if the math makes sense a couple of years from now, and you can execute, then you can make, you can make the numbers work. But it’s very interesting.
Kevin Bupp: We want to see like a, like our kind of thresholds, like a 8 percent yield on cost year 5 yield on cost. That’s kind of like, that’s like kind of our baseline that we work from. Again, yeah. Depending on what, what metric is important to the, who’s putting the money in or though, you know, however they want to, they want to hear it in their terminology, whether it’s a, you know equity multiple or, you know, yield on cost over a five year span, or, you know, what’s the average cash on cash return over the lifespan.
So by, by this using that, you know, knowing that you’ve got, you’re, you’re fairly sophisticated, I mean, you understand the fund business and all that. I mean, we look at all of it. But I would say that upon, you know, five years, knowing that we’ll, We never take a project that would take us more than five years to stabilize.
And in fact, like I said, most of the time it’s somewhere in like that three to four year range at the most. So we look at like a five year you don’t cost. And we like to have that 8 percent as the, I guess the floor or the minimum that we shoot for.
Mike Zlotnik: No, it’s a good target. 8 percent if there’s some similarity in this self storage industry too, I, I, I, I’m not, I don’t know your industry enough, but if you wind up with 8 percent yield yield and the prevailing cap rates still trade, as you said.
Under under five, even if you underwrite for six cap exit, you still can make pretty decent returns. You just gotta have enough of patient money that can persevere and execute value added. And ultimately either you refile at some point and the rates fall, or you know, you sell as a package, but it is, it is a patient long term horizon.
There’s nothing wrong with that. It’s more of a, it’s kind of a funny thing. I’ll just add one comment. I’m reading a it’s not a new book. It’s, it’s been around, but this is a classic way to think. I’m going back to, the book is called what it takes. Steve Schwartzman the founder of Blackstone. And one of the principles I’ve implemented there is never lose money.
I kind of like what you said is focus your investing on the deals that you may not give people fantastic, Ultra exciting returns, but at the same time, you expect never to lose money as part of the strategy, which is a, which is a positive
Kevin Bupp: yeah,
Mike Zlotnik: it’s a great way to think about it. So
Kevin Bupp: what’s that book called again? I like to, I’ve never heard of it, so I’m going to mark it down.
Mike Zlotnik: What it takes what it takes. And Steve Schwartzman, he is one of the most profound names in, in commercial real estate. Again, Blackstone is one of the largest institutional buyers. And it, it, it’s fascinating how they evolved and how they think.
And as I’m, I’m, I’m listening to the book on, on Audible trying to pick up some of the basic nuggets, how they think, how they run their investment committees. It’s really a great way to think if you’re an investor, trying to be trying to learn, grow, and improve. Some of these practices make a ton of sense. Now, the book is a, is a story. It’s tell, it’s a journey telling book. It’s, it’s, it’s a good book.
Kevin Bupp: That’s, I like that actually prefer that
Mike Zlotnik: information. But you get enough of these kind of, yeah. High level ideas and, and some of the philosophies. What, what’s really interesting how they, they run the investment committees where they have.
You know, veterans and then, and then new associates and everyone gets a chance to speak and you don’t get a big bullets to override everyone else. I love that. Agree or disagree. So at least everyone gets an opportunity to provide the input. And if they’re if they have something to say they get an opportunity to participate.
Kevin Bupp: Yeah, I love that. I love that. I mean, honestly, like, I’m sure that that fosters things. It fosters way more benefits than just ensuring that you’re, you’re buying a deal that everyone’s on board with. I mean, just retention. I can imagine that even having that type of structure where you’ve got everyone’s input, you know, all the way down to, you know, a much lower level, you get, you’re getting everyone’s voice heard.
Everyone’s at least has an opportunity to, you know, to share their voice and their opinion on something. The feeling of inclusiveness there is got to be much greater than that of where it’s just, you know, big boss, man. Yeah. That, that’s the committee. That’s who makes the decision. They don’t give a shit about anyone else within the operations or the other way, the finance side of the house that are going to ultimately be dealing with, you know, this particular project or this property after it’s after it’s purchased. So I love that. I’m excited to read that book.
Mike Zlotnik: And we have to wrap up I just wanted to say as I was, as I was listening to and of course this is an evolving process, but people who pitched the deal, people who found the deal, people who identify, you may have a team member, your acquisition director or somebody who’s looking, they’re, they are motivated.
They’ve spent a lot of work, a lot of time and energy looking for the deal and they have a bias, whether they like it or not, as much as they can be objective, they have some subjectivity. So you, you, you definitely want to have team members. We have no dog in the fight. But they do have long term alignment to make sure that the company buys the right type of assets and they invest.
So that kind of philosophy helps and at least in investment business, sometimes you, you do need a contrarian voice. Sometimes you need that person who is going to give you the view that nobody wants to hear and that view may be important at that time. So how would folks reach out? How would they is that good website?
Kevin Bupp: Yeah. Yeah. So, I mean, really two different places to track me down, I guess, you know, first and foremost, our company Sunrise Capital Investors. If you want to learn a little bit more about us and our business model, we’ve got a lot of resources on there. We even, we’re pretty transparent. The deals that we’ve done, we’ve provide third party reports and appraisals and a little bit of an overview of the business model.
And, you know, so just lots of fun, fun reading that you can find on there, but you can go to investwithsunrise. com. You there, you can also find access to our current offering and read about, you know, About that as well. And then me personally, Kevinbuff. com. It’s just my first and last name. com. I house my web my, my podcast on that website as well.
And then one way or another, either one of those contact us links on either one of those websites will track me down fairly easy. And then you can just, my last name is unique enough to where you can go type it into. LinkedIn and quickly find me as well. I don’t think there’s probably more than one or two other Kevin Bupps in the country.
Mike Zlotnik: It’s pretty easy to find. This is very smart way to get a great, great website without that kind of easy name. I, my name is a little harder, so I had to go big Mike fund. com for you. That’s just easy to remember.
Kevin Bupp: Short and sweet. Yep. I love it.
Mike Zlotnik: Thank you, Kevin. I appreciate your wisdom. Thank you for coming on a podcast.
Kevin Bupp: Mike, thanks for having me on. It’s been a pleasure.
___________________________
Thank you for listening to The BigMikeFund Podcast. To receive your copy of Mike’s how to choose a smart real estate fund book, head to BigMikeFund.Com or visit Amazon and type Mike Zlotnik.
Keep listening and keep investing, Big Mike style. See you in the next episode.
