Seth: Hey, everybody, how's it going? This is Seth Williams, and you're listening to the REtipster podcast.

Today I'm talking with Kevin Bupp. Kevin is a Florida-based real estate investor and bestselling author with over $250 million of real estate transactions. He has loads of experience with apartment buildings, single-family portfolios, medical office space, self-storage, assisted living, and his three favorite (and by far most profitable) mobile home parks, parking lots, and build-to-rent communities.

I'm really excited to talk about this stuff because I don't know anybody who's ever done stuff with parking lots. I've always known that's a thing. I just don't know anybody who does it. So, I'm really interested to learn more about this.

Kevin educates investors on how to locate, acquire, and create higher-than-average returns through commercial real estate investing. He shares his experience through one of the longest-running commercial real estate investing podcasts. I'm going to be sure to link to his website and podcasts and all that stuff in the show notes for this episode. You can find those at retipster.com/140 as this is episode 140.

So, with that out of the way, Kevin, how are you doing? Welcome to the show.

Kevin Bupp: Seth. I'm doing awesome. Always good to see you. Yeah, I’m excited to be here. I’m excited to be here with you.

Seth: Awesome. Yes, I'm glad to have you. So, beyond what I just said, who is Kevin Bupp, how did you get into real estate? What's your story?

Kevin Bupp: Yeah, that's a great question. You cover a lot of bases there at least from a higher level, and I'll try to keep it short here.

I'm 43 at present time and I always joke and say that I've never had a real job. About the realest it ever got was I tended bar for a couple of years while I was going to school. At the point in time when I got introduced to real estate and did that on the side until I started making money with real estate. And then real estate, it's been literally for the past two-plus decades. And so, I'm kind of proud of that, that I've never had to sit behind a desk or anything like that, or I guess, report to a real boss. I didn't really consider my manager at the bar a real boss, but I guess he was. He'd probably be hearing that right now.

Anyway, I got introduced to real estate when I was 19. I bought the first property right around the age of 20. It was within a year or so of being introduced to the investment space. And really it was the guidance of a mentor. I met a gentleman that was about double my age and met him through a girl I was dating, it was her mom who was dating this guy. And anyway, he was a local real estate investor in the town I grew up in and just generally speaking, he just seemed to live a little different lifestyle than what I knew growing up. I grew up in a very middle-class family, never went without… We did one vacation a year, and both my parents worked nine-to-five-type jobs. Just normal. It was all relative. I never went without, we always had food on the table. And like I said, probably looking back, there were probably money challenges here and there, but again, just nothing that really sticks out.

But David was this mentor's name. A little bit different. He had a lot of flexibility in his daytime. I remember he used to come over with my girlfriend's. She lived with her mom while she was going to school and he would show up during the week and I'm like, “Aren't you supposed to be at work?” That's what old people do. They go to work nine to five. But he'd be there at odd hours of the day and drove a nice car and just presented himself very differently.

Anyway, I just befriended him and found out what he did. And it didn't really register so much. He told me he owned rental properties and he collected income from the renters on a monthly basis. They helped pay down his mortgage and he kept the cash flow in between the debt service and what the actual rents were. And I'm like, “Okay, fair enough. That makes sense.” But again, the context to that just wasn't fully there. Obviously, he did well with that, but I didn't know enough to really fully understand it.

But the bottom line is fast forward a couple of months of knowing him, he invited me to a conference in Philadelphia, a boot camp that he had paid for. It was a three-day boot camp. His business partner couldn't go with him and he invited me to go. I don't know why he invited me, I guess maybe he saw a struggling 19-year-old at that time that didn't really have direction other than going to school with no direction and attending bar, having fun.

And I accepted the offer. I knew he paid like $5,000 for it. And so, I thought that it was very gracious of him to offer me to go and then that I would be absolutely stupid if I didn't go. There has to be something I can learn if he just spent $5,000 to go. I attended, and after that boot camp I was overwhelmed. I was excited. There were a lot of people I met there that were making a lot of money, mostly fixing and flipping single-family homes.

There were a number of folks that were doing rentals like he did, but I met a lot of normal people that didn't seem all that different than me that were in my eyes doing big things, talking to people that were doing flips and making $20,000 to $25,000. I was like, “Oh my gosh, on one property?”

I had this excitement in me. I went back to Pennsylvania, went back to my hometown and I was excited and overwhelmed, but I wanted to apply all this information, but I still didn't know where to start. This was all over my head. And I just went to Dave, and I thought about it how I would present my pitch to him of how I could help him so that he could help me learn the business.

And ultimately, I ended up working for him for free for a little over a year. Basically, I was at his house or his home office out in the field with him. Wherever he needed me to be and do for him, basically, I helped him. I was the unpaid assistant. I did whatever he needed to be done. And in exchange for that, I helped him where I could in business. And one of the big areas that he suffered was technology. I remember watching him struggle to put together a PowerPoint presentation for a private lender of his. And what would've taken one of us probably 10 minutes, it took him two days, and it still looked like crap.Anyway, we basically added value to one another and I learned the business. I got to meet a lot of people. A lot of his relationships became contacts of mine. That was the start of it. I bought a single-family home at the age of 20, and didn't really try to reinvent the wheel of what he was doing. He owned a lot of single-family and small multi-family properties. He was a cash flow investor. So, he always bought with the intent of holding.

I learned very quickly though, that first property I bought, I rented it and had a few hundred dollars a month of cash flow, that it was going to take me quite a long time to be able to save up enough money to buy the next one. Because I literally used the $7,000 that I had saved up from bartending to buy that first property paired with one of his private lenders that helped fund the deal.

I evolved my model a little bit to where I would end up flipping a few properties, wholesaling a few properties, and then trying to keep one. Wholesaling a few properties and trying to keep one. Basically, I did that for a number of years and built up quite a big portfolio of single-family properties and small multi-family properties.

And then after that, I got into commercial real estate. I've owned a little bit of everything from retail, to office, to self-storage. About 10 years ago, I got introduced to mobile home parks, which is where we've predominantly spent most of our focus over the past decade. You had mentioned parking lots and build-to-rent as well. And so, parking lots are something we can definitely talk about. It's something we've been buying for the last couple of years.

And then build-to-rent, which is probably what I feel is one of the best asset classes at present time. It's on a roar right now. And given the shortage of rental housing in this country, it's a phenomenal asset class that has a really, really long runway.

So that's a fairly condensed version of my last 20 years. 2008 hit me pretty hard for a couple of years. Had a lot of challenges that we had to work through, but all in all, real estate has been my life for two-plus decades, and I love every day of it. Every day is different, and every day is a challenge every day has sort of hurdles, but lots of rewards that come along with it all.

Seth: Yeah, that's awesome. That's a great backstory. I appreciate you sharing all that. There are so many different directions we could go with what you just said there. But you mentioned, just at the end there about how 2008 hit you pretty hard. I know that issue is something a lot of people are concerned about right now as we record this, because things have been going up and up and up for so long and we don't know when or how hard it'll hit, but most people are thinking there's going to be a huge recession at some point.

What happened in your situation? What was so bad about it? How did you get through it exactly?

Kevin Bupp: Yeah. That's a great question. I was in Florida at that time, I've been down in Florida since 2002. So, I've been down here a little over 20 years. I will say that Florida was a very, very different economy and real estate market than what it is today. So many different dynamics in place then back during the crash than what it is today. Back then there were the litany factors that kind of played into why the housing crash hit certain areas so much harder than others.

There were some parts of the country that they might have had some recessionary challenges, but their housing market didn't necessarily crash. Like Dallas never really saw a significant crash. There might have been home price reductions and things of that nature, but there were enough new bodies moving into that state that were absorbing that inventory. They didn't have a surplus of inventory like Florida did, California did, Las Vegas, Phoenix. There were builders that were building a supply for folks that weren't yet here.

In addition to that, you had a very different lending market as well. You had waitresses that made $3 an hour and tips that owned three properties and they were all no doc loans. They had to put any money down.

When things really hit the fan down here in Florida, what really occurred to me is that what ultimately impacted us in a severe manner was we owned rental properties, single-family rental properties. And in a lot of the markets where we owned there were, again, these builders building these rooftops for population that wasn't here.

When things finally hit the fan, a lot of those builders, they couldn't sell their homes anymore. They already had more than what there were bodies here to buy them. But the construction trade dried up, people were leaving. People had to go somewhere else to find work. In fact, that's where the original phrase was coined, “half-backs.” People that literally left Florida and went halfway back up north, ended up in the Carolinas somewhere because there was work there. It had a similar climate, maybe not as warm, but a similar climate. And ultimately there was work available. So, people were going to wherever there was work available.

We were losing population and we had the surplus of homes. These builders started renting these brand-new homes out and they became our competition. We were basically fighting for tenants. Again, a tenant now had the option instead of renewing my unit at $850 a month. Well, there's one right down the road, that's brand new 322. They could get for maybe $150 more, $1,000 a month. And we ended up having to give a lot of concessions and give discounts on rent and whatever we could do. We had a very rough couple of years where we lost tenancy, and our positive cash flow turned to a negative one.

We had given concessions and the refilling those vacancies went from maybe taking three weeks to now three months or three and a half months to get bodies back in there. You had to get a lower quality of 10 in order to fill your unit and you know how that all turns out. They're not as sticky. They don't necessarily pay on time. It was a downward spiral.

And ultimately, it was one that we tried to work through it and tried to hold on as long as possible, but the challenge was number one, the values had dropped. Literally, within a year, the values were 50% of what they were at the peak. And so, there was no fire selling, getting out of these units. People weren't buying at that point in Florida.

In addition to that, the banks, they didn't really have a loss mitigation department set up. They were not prepared for this onslaught of delinquencies and foreclosures. And most banks initially for the first year or so weren't willing, not that they weren't willing to work with us, they didn't know how to work with us. They were so overwhelmed themselves. And so, there were no loan modifications or no leniency from that standpoint. It got to the point where we had to make some strategic decisions on some of our properties. And unfortunately, a number of them ended up back in the bank's hands. By far it wasn't our choice, but it was the only way that we could ultimately work through it.

So, with that being said, we are in a very different situation today. We have a shortage of housing and a lot of that shortage really stems initially from the Great Recession. We literally stopped building houses for many, many years. And then, ultimately, as that excess supply in those various markets got absorbed, we still never picked up the pace again building houses for the population that was ultimately changed in the demographics that were changing. And those that were now turning into homeowners or looking to become homeowners, we weren't feeding that need.

And then COVID literally, it was like icing on the cake as far as the supply shortages. And just again, building slows down again. It's just a layered effect that ultimately has occurred that now where we find ourselves in a situation where we've got, again, depending on what data piece you look at, roughly a shortage of 4 million residences in this country.

And if every of the major national home builders that are out there, the big KB Homes of the world, if every single one of them literally doubles the amount of houses that they're currently bringing to market, we still wouldn't be able to resolve this shortage within the next 10 years, which is a scary statistic.

Anyway, it's a very different world today than what it was back then. And so, while we might go through an economic recession of some sort, I don't foresee it having that drastic of an impact on the housing market. I think there's some markets where for sale prices, we'll probably see a reduction. In fact, we're seeing that. There's a number of markets where there's month over month for the last three or four months and interest rates have crept up. They've seen 2%, 3%, or 4% month-over-month price reductions. I think we'll continue to see that, but what happens there on the flip side of that is all those individuals that want to be home buyers now, they're forced into rental scenarios. And so, the rental market hasn't seen much of slow down at all.

You've continually seen rent increases month over month, and many of the major markets across the country. And we still have such a shortage of rental housing that I don't know when that trend is going to slow down. Anyway, I'm not an economist. I just take what I see and piece it together and make the best-educated decision I can. That's how I feel. I just think it's a night-and-day difference to today from what it was leading up to 2008.

Seth: It sounds like when that huge catastrophic economic event happened in 2008, basically you pivoted by building it more, you just were buying existing stuff. I wonder, was it in that couple of years when it was a really rough time? And by the way, I can't imagine how hard that must have been.

Kevin Bupp: No, it was rough.

Seth: Yeah. I was just starting my journey at the time. I was just getting in as things were in the tank, so I was fortunate from that end.

Kevin Bupp: Good timing.

Seth: Yeah. I can just imagine from somebody in your position, I would be super gun shy about buying anything after everything crashes like that. It's such a shock to the system. I guess I commend you for sticking around. Because a lot of people just kind of got out of the business and didn't come back, because it was just such a horrible thing to live through.

Kevin Bupp: Yeah. I didn't buy anything for about three years. I did start a few other businesses non-associated with real estate because really three years was just more of damage control and just keeping my head straight more than anything else. I really focused on health and fitness and being in the right body and the right mind.

I picked a couple of businesses that I started that were health- and fitness-related that put food on the table and allowed me to manage damage control on the real estate side. Looking back, I wish I would've recapitalized and jumped back in sooner rather than later.

It's funny, the old adage of you want to buy when there's blood in the streets and it becomes very challenging to heed that advice when it's your blood. When you see “Yeah, great, I'm hurting and now's the right time to buy” but it's hard to get out of your bubble as well. In Florida, everyone I knew, even guys that had been through other recessionary periods, everyone I knew, guys that I felt were way smarter than I, that had been in business for multiple more decades watched them lose everything. It's hard to step away from that bubble and not realize that the world really isn't ending. It's just like your little world in Florida might be challenged. But ultimately, there are plenty of other areas where one could have still made money in real estate.

We missed some years of buying opportunity, but I go back in and started really getting back in 2011, but I bought, I guess you say the first property, late 2011, early 2012. And so, there's a good three-and-a-half-year span of just really not sitting on the sidelines, but just not active in real estate.

Seth: Yeah. It's interesting how in every situation, somebody's always winning. It's just a matter of, “How do I need to reposition myself so that I'm standing in the right place so that I will be winning next?” It's hard to do when things are rapidly changing and nobody really knows what the new normal is.

Kevin Bupp: But everything happens for a reason. I'm a firm believer in that. I don't think that, again, just looking back, if things would have been different, I don't think I'd ever been introduced to mobile home parks. I had never considered that as an asset class. But as things tend to work themselves out, as long as you're open-minded and willing to meet new people and expand your horizons, I got introduced to a guy that happened to own a few mobile home parks. It intrigued me enough to dive into that niche and learn a bit more about it.

And ultimately, aside from a small multi-family property eyeball, that first mobile home park was really the first real property, like the larger property that I purchased after the start of the great recessionary period. Again, after that three-and-a-half-year stint, that was really the first larger property I purchased. And again, it went incredibly well and it was really the foundation that really pushed us to build a company out of the mobile home park space.

Seth: Got you. And actually, when I first knew that you were coming on the show, my thought was that mobile home parks were going to be like the center point of discussion, but I don't know anybody who's doing this parking lot, parking garage thing, and I've always been fascinated by that.

So, before we go to mobile homes, I wonder if we can talk about that just to make sure we cover it and I can understand as much as I can. Because I've heard other people in the REtipster audience ask about this too. Tell me about this parking lot thing. Is it parking lots or structures?

Kevin Bupp: Both.

Seth: Where do you get them? How do you get them? Just tell me everything about it.

Kevin Bupp: Yeah, it's both. And again, just like mobile home parks, it wasn't an asset class that was ever really on my radar. As you mentioned at the beginning of the show, I have a commercial real estate podcast. I've been doing it for eight and a half years now. A lot of the guests I have on are fairly traditional nature. They speak to multi-family or self-storage or office or retail or industrial, or one of the major food groups, or even mobile home parks.

I've always been very intrigued by unique niches. I got on my way to find those that are in these unique niches, one of them being parking lots. And I happened to have a guy on the show. It's been roughly four years, maybe four and a half years. I interviewed a guy who was a broker. He owned some stuff as well. He owned a number of parking lots, but he was a broker, and there's only literally a handful of brokers that specialize in this industry. There are roughly 45,000 parking lots or structures throughout the country. But it's such a fragmented niche that there literally is less than a handful of brokers that actually specialize in that industry.

And so, I interviewed him on the show and I was intrigued by the business. I didn't know much about it. I just asked a lot of questions. I saw a lot of similarities to that of mobile home parks. Mobile home parks prior to where they are today were very mom-and-poppy. They're very fragmented. A lot of mobile home park owners only owned one. They were older and older in the years. They were aging out these assets. They might not have had an estate plan in place. I saw a lot of similarities to where I love fragmented niches. I love niches that haven't been consolidated yet by large institutional players. Mobile home parks are well on their way there now. Lots of institutional capital has been pouring into this space.

And so, parking lots seemed like a new avenue that wasn't highly competitive, that was very fragmented, that we could ultimately buy cash flowing covered land places and strategic phenomenal locations knowing that in its present state of a parking lot, let's just speak to a parking lot. In its present state of a parking lot there would never be a time where it has a lesser value than that of just an asphalt parking lot. The locations we're buying in will inevitably be a redevelopment at some point in time.

We don't pay for the future value of it being a redevelopment. We pay for what it's actually making a day as a paid parking lot, knowing that inevitably there will be a future upside. Whether it's 5 years, 10 years, 15 years, what have you. It will have a higher and better use of something else.

Another common theme when we compared apples to apples, mobile home parks to parking lots is that we saw that in the mobile home park space, lots of antiquated operations were in place with these old mom and pops. They were still keeping handwritten ledgers. They didn't have the ability for residents to have auto-pay or pay with a credit card or ACH. They just didn't run a tight ship. They didn't utilize technology or leverage technology to their benefit.

And there's still a lot of parking lots in this country that are run just that way. They've got parking lot attendance in place that collect cash, half that cash probably doesn't make it to the owner's hands. Depending where the parking lot is, there's different demand drivers, whether it be entertainment venues, or sports arenas, or courthouses, and there are different peak hours where one can charge more for parking than other times.

And so, these mom and pops would just say, “Well, it's $3 an hour, no matter what,” whereas more advanced technology allows someone to institute dynamic pricing to where on the 4th of July, well, it's $35 for four hours or for the day whereas other times it's $2 an hour in the low times. And just adjust it so that you can garner as much of that revenue as possible.

There's lots of opportunities like that that we have found in the parking sector that have major inefficiencies that we can ultimately come in and not necessarily take us over the operations, but find a better operator. There's not a shortage of operators across the country that manage and have a business of managing parking assets.

And so, a lot of those are fairly advanced with technology. A lot of them are not. There's an opportunity for us to go find the best management company to step in leveraging their technology and realizing the upside potential of that particular lot. I'll stop rambling right there if you have any clarifying questions, but it's an attractive space for us to basically have a value-add play. But again, in the long term, it's a cash flow and covered land play, and what seem to be irreplaceable locations. Main locations that just they're not making anymore. That's not in the outskirt of town. It's in downtown where it's in a beach location.

Most recent asset we purchased was in Clearwater beach here in our backyard. Irreplaceable location. There's a moratorium on parking. It can never be built again. And we literally purchased the most recent built parking deck, 700 spaces built six years ago and the city will not allow new parking to be built. And they won't allow new hotels that are being built to build excess parking. Everything that's getting redeveloped right now, they're basically taking waste surface lots, redeveloping hotels and condos, which is creating an additional shortage of parking. So, the demand is forever increasing for the assets that we're buying.

Seth: Now, I have a ton of questions about this. A lot of my questions are going to be pretty basic.

Kevin Bupp: Let's dive in.

Seth: But it's mostly just because I don't understand it and I would love to understand it better. Question number one, and I guess it's sort of two questions in one, but my first question was where do you find these deals? And it sounds like they come through a specialized broker. So, in that case, where do you find this specialized broker if there are not that many out there? How do you do a Google search for these people?

Kevin Bupp: That's a great question. In fact, we have not bought any deals through a broker at present time. The one guy I mentioned, he's not in the business anymore. So now it's down to probably four brokers in the industry. But we've looked at some deals through brokers.

Seth: Well, how did you find the deals then?

Kevin Bupp: Well, yeah, that's a great question. First and foremost, we always start with the market. Market is everything, location is everything. And so, we've identified markets across the country that we would like to own assets in. And the whole objective with parking is actually to find a market that's on a growth trajectory. So, most of these aren't like primary markets. Most of them are secondary and tertiary markets, but in a growth path.

Buying a surface lot in downtown Atlanta that is worth more today as a paid parking lot than that of a redevelopment probably doesn't exist. Because the developer at that point becomes your competition. And a lot of times them redeveloping it into a 500-unit multi-family tower, they're willing to pay more than that what it's worth as a cash-flowing parking lot.The objective is to find growth markets where the redevelopment value hasn't yet exceeded that from an income valuation on the parking asset. And so, that's tough to do, but there's plenty out there. There are a hundred markets at least where that exists, good markets to be in. And so, we've identified the markets that we want to be in. We basically go to county records and we dig. We've got a team that digs in and identifies the lots, the owners, reach out to them, cold call, direct mail, that has produced results and deals.

I'd say the number one way that we have found good opportunities is building relationships with these different management companies and operators. These are groups that that's all they do is they manage parking across. Some of them are local, some are regional, and some are national. There are some fairly small groups and there are some publicly traded big groups and there are a lot of them. There are a lot of parking operators throughout the country. And what we found is that the majority of them don't own parking assets, they just manage them. That is their business is they manage parking.

And so, building relationships with these different parking groups that literally they are boots in the ground, if it's a lot that they manage, they know what it's doing, they know what it's capable of. They also want to maintain that management agreement. So our pitch to them is basically to make us aware if this thing is up for sale or could be for sale.

And we'll work with you to continue the management of it, or if there's another lot that maybe one of your competitors is managing and you know it's a phenomenal lot, you know they're mismanaging it and that you could do a way better job, tell me where that is in that part of town, because you're boots on the ground. It's hard for me to determine what's the best corner of town to be in and we'll reach out to those owners and we'll try to strike a deal. If we do, we'll give you first right of refusal. And so, just getting referrals from these different parking operators.

The garage I just mentioned to you is a $34 million deal. It was a big deal. The guy that referred me to it was a parking operator that did not have the management contract on that deal. He's been trying to get it for years and he made me aware of the potential sale. And ultimately, we put it together and I gave him the first right of refusal to put an offer in to manage it for us. He won the bid. And so, he got what he wanted, which is a fairly significant parking asset to manage. And we got what we wanted, which is a really good deal. That's where the best deals are found, in relationships.

Seth: Could you just Google “Parking lot management company” to find these companies?

Kevin Bupp: Absolutely.

Seth: Got you. It's that simple?

Kevin Bupp: Yeah. And any city that you live in, if you live in any decent size city, just type in “parking management” and Google Maps will probably pull up parking lots in your area. Actually, a lot of times either the management company is the name that's on that lot. There's just a large number. There are hundreds of them across the country.

Seth: What exactly is there to manage? Parking lots are pretty simple, right? Is it just like the kiosk or something?

Kevin Bupp: No. Actually, they're not. Yeah. It depends on what type of parking lot it is. If it's in a downtown location.

Seth: These big parking ramps, like five store? Is that what we're talking about or is it just a one-layer parking lot?

Kevin Bupp: Well, it could be a surface lot with just maybe 50 parking spaces. It could be again speaking to the parking garage that we have, it's 700, two spaces on seven floors. And so, it's fairly substantial in size. It does have an automated, you go and you get a ticket, you got a gate goes up, you go park, come down.

A good parking operator stays in the loop of all the events happening in the area when they're happening, what events are going to drive demand. They know when the times of day are, when the demand's coming. They can staff up a little bit and have a couple of additional people there helping direct traffic and get people parked more efficiently. So, there's not a backlog of people coming in.

There is actually a lot that they do. But in addition to that, one of the other big benefits is that these parking operators that they manage other assets in that area, they also know what other businesses have a demand for parking, where their customers have need parking or maybe their employees need parking and they'll go negotiate with these various businesses for monthly parking passes or quarterly parking passes. They're on the ball. They're ingrained in that marketplace.

You could definitely do it yourself. If we wanted to build a management infrastructure to do that, we surely could, but it's not the most efficient use of our time. So, our kind of stick is finding the deal that has the opportunity upside, and then ultimately getting that management company to help us realize that upside with their technology. So, we're buying it right on the front end. If we were already buying it to where it was fully maximized, then probably a hard argument for us to actually buy. The asset we have there in Clearwater Beach, if we were to be the buyer today, actually we wouldn't be the ideal buyer for, because there's literally no upside left. These guys have helped us extract all the upside. It's a win for them. It's a win for us. But we wouldn't be the buyers at the present time because they've done a better job than we would ever be able to do managing ourselves and have maximized that value.

Seth: Thanks for clarifying that, because you're right. I can totally see the complexity behind this that I didn't even think about, but understanding events and that kind of stuff. So, is there like a kiosk?

Kevin Bupp: And they got parking enforcement, things like that too. So even parking enforcement, maybe not necessarily in a garage, but you got people that try to creep into your parking lot, if you have a service parking lot, depending on what kind of equipment you have. A lot of service lots don't have the arms. They've got a kiosk somewhere in the corner, you put your credit card in, but some people try to skirt that system.

So, you have to have the infrastructure in place to have parking enforcement. Someone going around and actually checking on cars and making sure that people aren't stealing parking from you. And just a litany of factors that a management company does. Again, that's their business, that's what they do 24/7. There are many owners that actually have built their own just like in any other asset class, that have built their own internal management infrastructure.

But again, we're really good at finding the opportunity to have a lot of meat in the bone and allowing them to have some of that meat works well for us to where they can maximize the value. And in turn, we get a great return on our investment. We don't have to necessarily build it out internally.

Seth: What percentage do you have to pay these management companies of your gross revenue?

Kevin Bupp: Yeah, there's different types of agreements. There are revenue share agreements. Some of them have kind of waterfall thresholds. Once they hit a certain amount of revenue, they might get some type of performance bonuses above that. Some are just flat percentages. They get 10% of overall gross revenues. And then there's also leases. We're actually a huge proponent of the lease deal. In fact, for all the lots that we own at present time and garages, we actually enter into a triple and net lease agreement with the operator. And so that really makes it hands off on us.

The only thing that we really have to asset-manage is they're responsible for the repairs and maintenance. And we try to outline a schedule over a five- and 10-year span, depending on what the lease states. We try to outline a CapEx schedule for them so that they're required to maintain it, but what we don't want them to do is hand us our asset back in 10 years and be in major disrepair. So, the only thing we keep an eye on is that they're abiding by that CapEx schedule or if something does need done that they're actually addressing it.

We write in a language that if we identify something and they don't address it, we're able to do it then we bill them back for it. But that's really the only involvement we have. It’s to make sure that the condition of our asset is preserved and maintained. But other than that, they handle property taxes, property insurance, and any repairs and maintenance that exist on that property. So, that's our preferred method, it’s the lease.

Seth: Now, that's fascinating. So, it sounds like, if you go the triple net lease route, your bottom line is probably the same as what it would be otherwise, but the benefit is it's kind of hands-off because everything is in their hand. Or am I wrong?

Kevin Bupp: It depends. Actually, normally you might make a little bit less on the lease from our side. But again, buying it right, the numbers work for us with the lease. And for us, it offers clarity and security for our investors. With a management agreement in place or some type of revenue share, you've got to be a little bit heavier on the asset management side of it, more managing the manager, just like you might do with multi-family.

You got to have someone on your team that's much more involved. And that might allow you to participate in some additional upside that you might not have gotten with that lease, because the upside on a lease deal, that's the operator. They're taking the risk of writing a lease with you.

And so, whatever upside above that flat lease amount, that's theirs. That's rightfully theirs. And so, they're going to work as hard as possible to achieve that upside whereas you might have to push a management company if you're just on like a management agreement. You might have to push them a lot harder to actually be able to achieve that upside. And there might be more of that for you, but you're going to have to work harder to actually obtain that upside. And it might not work out with one management company, so you got to go find another one.

Again, there are pros and cons to both sides of it. But for us, it was what is the most simplistic way that we can purchase high-quality assets that produce a great return without having to build out a complete infrastructure internally to help manage and asset manage these parking lots and parking garages. And the trick on the lease is the way to go. But it's all about buying it right. It's all about buying it right on the front end.

Seth: Yeah. Now, with these management companies, my only experience with management companies is multi-family residential and I just know there's a wide range in quality, at least in my market. Most of them were not that good. I found a couple that were pretty decent. When it comes to this type of management company, it's just a totally different type of asset and everything. Are they all pretty good or are some of them terrible? How do you vet out which ones are going to be a good fit?

Kevin Bupp: Same thing.

Seth: Same thing. Okay.

Kevin Bupp: Yeah. Some are terrible and antiquated. It's crazy some of these places are still in business. They've been around for 50 years and they still haven't adopted the technology. I've seen parking lots that are managed by a management company, a professional management company, and they don't even accept credit cards. It's like, where are you?

Seth: That’s crazy.

Kevin Bupp: I don't even carry cash around with me, so I wouldn't be able to park there because I always have a credit card most of the time. So yeah, it's a wide spectrum of really just low-quality operators to some that are incredibly advanced leveraging every bit of technology, geotargeting to advertise parking spaces, dynamic pricing models to capture the peaks and valleys of demand times.There are many that do it way better than the others. And finding the right one is really just putting out an RFP. When we have a property and contract, we'll put on the RFP to whatever we feel are the top three or five in the market and see what their expertise is. How many other lots are they managing in the area? And you can get a really good feel just from that alone. What else are they managing there? How long have they been in that marketplace? Who's their regional in that area? How much experience do they have in that local marketplace? How in tune are they with the local events and things of that nature. And again, who's willing to actually give the highest lease amount as well? That's another big part of it.

Seth: When you say RFP, what is that?

Kevin Bupp: Request for a proposal.

Seth: Got you. Okay. You mentioned the importance of buying it right. That kind of goes without saying. I'm curious, how do you know you're buying it right? Does the process work when you find one of these interested sellers, it's a similar thing that you would normally do if you were buying an apartment building or a storage facility where you're trying to figure out what's the unit mix, what's the rent role? Tell me how much you make. You get all that information and then you make an offer based on that and that's how you determine that you're making the right kind of offer?

Kevin Bupp: Yeah. Obviously, a lot of it has to do with comps as well. We get a general idea of how it's performing today. How many parkers that have on a monthly basis? What's the average ticket price of that individual that's parking? And then look at the comps in the area.

Again, just using this garage as an example that we just recently purchased. It had many different value-add aspects to it, but just one that was glaring you right in the face was, this garage, it's the newest parking asset in all of Clearwater Beach. And there are only two other parking garages on this entire beach. And this one, it was a partnership between the city of Clearwater and a private developer. They built it together six years ago.

Most cities are just bad at business and they make poor decisions. And the same thing here, nothing was new. They were only charging $3 an hour. And every other parking garage on the beach at minimum, and this is just a normal hourly rate was $5 or $6 an hour. And they made no adjustments on high demand times. And the public access to the beach literally it's less than a block away from the prime public beach area. And they never made adjustments for peak times Memorial Day weekend, Labor Day weekend, 4th of July, or any other special events.

And so, just those two things alone, I saw a ton of money being left on the table. And so, even if we paid a premium on actuals, I know that the demand for parking is inelastic. I mean, it's there. It's not going anywhere. If someone drives all the way down the beach and they deal with traffic all the way to get there. I know number one, there are not many parking spaces available. Number two, if it's $3 an hour or now if it's $6 and they just waited 45 minutes or an hour to cross the bridge to get into the beach area, they're parking there if it's $6 an hour, it doesn't really make a difference. They're going to park there one way or another, especially if they got screaming kids in the back.

And so, I knew very comfortably that we could literally double the bottom line revenue without doing anything other than just raising the minimum rate to what the market was. That was it. That was simple as that. There are other value-add factors as well, but just that alone was what we saw as an opportunity.

Again, you look at a multi-family property, you look at two class B assets, one is at $900 a month or it's $1.50 a square foot for rent and literally the same quality a block away, they're only at a $1.23 a square foot rent. And both of them are 98% occupied. It's like, that's pretty easy. If each one is similar in quality, I know that this one I could easily just raise rents, and I probably don't have to do many repairs to it or improvements. And I'm probably going to be able to capture that top of the market without doing much other than that.

Seth: Yeah. Have you ever built a new parking lot?

Kevin Bupp: No.

Seth: Or you're always just buying existing ones?

Kevin Bupp: No, I think there's enough opportunity to buy existing ones. We haven't seen the need. And in addition, a lot of municipalities don't like parking. A lot of the surface lots that we own or that we look at, most of them have been surface lots for many years. A lot of municipalities wouldn't even like it if you had a vacant piece of land downtown, it'd be a very tough go to actually get it converted to a paid parking lot. And so, they kind of think of parking lots as similar to that of what a mobile home park is like. It's like an eyesore. It's not attractive.

Seth: Yeah. I sort of see that.

Kevin Bupp: Yeah, it's got some tax revenue opportunity, but it's not a beautiful brand-new piece of architecture that you are going to shine on downtown. It's basically full of cars that are parked at all different angles and it's not pretty looking.

Seth: Yeah. Okay. I got you.

Kevin Bupp: So, we feel that it's better just to buy existing than try to go down that risky path of taking something that's not a parking lot at present and turning it into one.

Seth: Yeah. I'm just trying to think of if a person ever did want to go down that road, how would they know that it's a good one? Do you get a feasibility study for that kind of thing?

Kevin Bupp: Yeah. There are consultants in the industry. Yeah, absolutely. For example, we're looking at, I'm not going to say the city that it's in, but it's a major market in the country and there's a parking lot that it's not technically for sale, but it's for sale. It's got multiple demand drivers. It's an entertainment district. There's a Minor League baseball team literally a block away. There's the civic center literally across the street. Anyway, there are lots of demand drivers at all times of day and 24/7, basically.

They're priced a little high on it on, on the lot, at least from a per foot basis of raw land. From a revenue standpoint, from an income standpoint, it's still overpriced a little bit, but when you compare it to others, there are a couple of other vacant parcels in the immediate vicinity, it's way overpriced from a price per foot from a redevelopment standpoint. And so, if you bought it from an income standpoint, it would be probably a long time before it ever had a higher and better use of redevelopment if you paid for it from an income perspective.

But there's another lot right around the corner literally, it's a little bit bigger even. But it's currently just raw land. Sort of got entitlements in place for like a mixed-use development with a hotel and some multi-family and a few other things. And it's priced right now at $70 a foot but it's raw land. So, we've been in some conversations to see number one, if the viable strategy of us actually putting a surface lot in for the time being because we could make the numbers. I know there's enough demand just given how full this other lot is on a regular basis that we could definitely pull some of that demand over to our lot and our basis would be less than half of what we'll be buying this other one at.I think it's going to be an uphill battle to have them approve that. But if they were receptive to that idea, I would bring a consultant and then we'd really get down the brass tacks on how much of that demand we'd be able to pull over from that lot to this lot if we were going to go in and build it.

But there are plenty of consultants in the industry. We typically get a consultant involved every time we buy an asset or have one in a contract. Someone that's been in the industry for 30 plus years that has a wealth of knowledge. It's a very tight-knit industry where everyone knows each other. And so, relationships go a long way.

And so yeah, it's lots of value there from a consultant standpoint.

Seth: Seems like it would've been. I was in Chicago about a month ago and I've noticed this even in my hometown at Grand Rapids that a lot of newer parking ramps are like part of a building. It's like the first several floors of the building. And then the building is on top of that, that kind of thing. In those cases, does that mean that the developer owns the parking ramp? You couldn't buy just that part of the building, right?

Kevin Bupp: It depends on how the deed was formed. I've seen both. I've seen where it's all in one. And then I've seen where literally the garage itself is its own deed to the building. And so, a lot of times, there's some congruence there to where if someone were to buy the garage, they have to allocate a certain number of spaces to the office and this, that, and the other, because obviously, the office wouldn't be able to house their employees if they didn't have dedicated parking spaces. But no, it's both.

And so, I don't know if we would have an interest in something like that. The main reason being is that you don't have as much control over your destiny. Again, I like to revert back to this parking garage we bought in Clearwater Beach. It's 12,000 square feet of retail on the first floor. And then there are seven stories of parking. But we own the entire footprint. I think it's like an acre, acre and a half of. We own an entire footprint, the entire thing.

So, in 10, 15, 20 years, if there was a much higher and better use for that parcel of land than that for a parking deck, then we would be in full control over actually what happened with the garage and the land. Whereas if you didn't own the actual structure above now, you're in a precarious situation. At least that's kind of how we feel about it. We like to be in control of our destiny.

Seth: So, you own the retail space as well. Like, literally the entire thing?

Kevin Bupp: That's correct.

Seth: Okay. Got you.

Kevin Bupp: We're not retail guys, but the retail was pretty easy, it was such a small allocation of the overall deal and it's all tripping at leases. Really high-quality tenants. It was an easy decision to make based on the location and the quality of the tenants. And again, just the knowing that allowed us to own the entire asset from top to bottom.

Seth: Do you have any idea what the cost is to build a new parking ramp versus buying an existing one, like a cost per square foot or parking space or anything like that?

Kevin Bupp: That's a great question. They normally base on a price per parking space or parking stall is what they call. And then obviously what it might cost to build in a cold environment, like St. Paul or Minneapolis where you've got a lot of expansion and contraction due to the variations in temperature. You got salt that's going to be coming off cars. It's going to be a much different construction there and probably more costly construction than that of, call it a dry environment like Phoenix, Arizona where there is hardly any moisture at all. Not as much deterioration with rebar and concrete and things of that nature.

But I don't know the answer to your question. I've seen a range, obviously, there are lots of variables as well with construction costs nowadays and cost material, but I've seen a range anywhere from like the mid-20s to the mid-to-high 40s, $40,000 a space. So, I think it's just, it's all dependent. There's a wide swing there.

Seth: Yeah. In my old job, there was somebody on the board of our company who worked for the city of Grand Rapids. And he said that he had dealt with some parking ramps in the past. And this was like 15 years ago. He was saying that it was like $25,000 per space to do these things. I'm sure it's way more than that now. But he was saying that they would have to get like 50-year mortgages on these things to amortize them and make the cash flow work.

Kevin Bupp: Wow.

Seth: And I didn't even know that was a thing. But anyway, maybe it's a different thing depending on what type of structure and how complex it is or something, but it sounded very expensive.

Kevin Bupp: Yeah. It's definitely not cheap. It's definitely not cheap.

Seth: Got you. So how could a deal like this go sideways? I'm trying to think of how you could make a mistake, maybe buy a property or maybe even make the right decision, but then something bad happens that ruins it and a competing parking ramp is built. It doesn't sound like that's a terribly common thing, or maybe the local economy tanks and people move away and all of a sudden people don't need to park there anymore. Are those the two main things that would impact it or anything else that could get you?

Kevin Bupp: No, that's a really good question. You hit on a couple there that could be a big risk. I'll give you a perfect example of a lot we did not buy. It was in St. Louis. It was literally right adjacent to the Children's Museum which is a major attraction in downtown St. Louis, like a major, major attraction. Probably one of the most popular tourist destinations in all of downtown St. Louis.

But 88% of the parking demand for this lot was a direct result of the Children's Museum. 12% made up the transient amount, which one was from a boutique hotel right around the corner and the other, I forget, there's like a smaller shopping district there. But the majority of it is from that Children's Museum.

Well, the Children's Museum has been around for quite some time. It was just purchased by a new group like a year and a half ago. A big group, actually. I think it's the group that owns Busch Gardens. I forget the name of their holding company, but anyway, it's got a lot of money behind it, but that doesn't mean that it can't fail. That doesn't mean that there's no risk associated with it potentially failing.

And so, with that being said, that was one of the big red flags for us, is that literally, all your eggs are literally in that one basket. If something happens with that Children's Museum, which again, I don't foresee that happening but during hard economic times, are people going to pay whatever it is, $30 entry fee for each kid to go to this Children's Museum? I don't know. I don't know the answer to that. How bad times get and what people were going to decide against doing with their kids as far as recreation. So that was a big one, big red flag on that deal that scared us enough to move us away from that deal. But another piece of it was, in that part of downtown St. Louis we just went through one of the biggest economic booms that we've seen for decades. And there weren't a lot of cranes in the air. It's a part of town where there are a lot of redevelopments happening on old buildings. People are turning these old industrial buildings into lofts or things like that. There's that going on but I wouldn't say that it's a booming part of. St. Louis in general, it's a good linear market, but it's not a booming economy. There are not multi-family high rises being built downtown and it's not that type of city.

And so, if something were to happen with parking, what is the plan B? And if plan B, if it doesn't look like there's a lot of economic development happening downtown, then what the hell are we going to do with the surface lot then? At that point in time, it becomes not a worthless piece of asphalt, but definitely not probably anywhere near what we had paid for. And so, that's a huge risk to us. There's got to be multiple demand drivers. Courthouses don't move that often. But I would want more than just the courthouse being the demand driver.

I want to know that, okay, the courthouse is here but also within two blocks there's a stadium of some sort or a music venue, or there's a number of other factors. In the event COVID happens and they shut down the courthouse, or now they go to virtual trials or whatever, but the ball game is still going to happen because it's outside. What will offset the lack of demand from the courthouse in that temporary moment and help make it up on the other side? And so, you want to know that there's multiple demand drivers there.

Seth: That's really interesting. I appreciate you sharing all this. This is just like light bulbs going on. It's making total sense.

Kevin Bupp: We looked at some stuff in Memphis. I'm not a big fan of Memphis, nothing against Memphis, but we looked at some surface lots in Memphis about a year and a half ago that were, again, courthouse. 99% of the revenue was from the courthouse. A couple of the courthouses opened back up. I forget maybe the civil will open back up, but then this one, it had about 4% of the traffic from the civil courts. But there was a separate building that was where all the divorces happened, all the divorce courts. Almost all the other courts had opened back up, but they literally had not gone back in session with the divorce courts. It was all Zoom. All these hearings were being done via Zoom and they had no date set off when it was going to come back in person if ever.

And so, literally, that lot suffered basically a 50% reduction of revenue with no foreseeable future when and if that's going to actually come back. If they decide, “Hey, well, let's sell this building off where we used to do divorce courts in. And it seems like they're going well via Zoom virtually. Let's just stick with that pattern. It saves a lot of money, get one of these old buildings off our books.” That's a new way. So, I don't want that risk.

Seth: It makes total sense.

Kevin Bupp: And no one's redeveloping downtown Memphis right now, at least near the courthouse. That lot is never going to be worth any time in the near future. I don't know if you've ever been to downtown Memphis or been to the courthouse.

Seth: I have not.

Kevin Bupp: It's not a nice part of town at all. Maybe in our lifetime something positive will happen there, but it's right on the edge of some projects. There's not going to be a plan B for that lot. It's literally just going to turn into a deteriorated lot with potholes and whatever else happens there.

Seth: Was the pandemic pretty hard on this industry, just with people not needing to travel as much?

Kevin Bupp: Yeah, it was. Obviously, every market got impacted differently than others. I will tell you that Florida, surprisingly, I mean, not surprising, but it flourished. This garage, we bought it during the pandemic. It saw a couple of dips during the beginning of the pandemic for probably about two and a half months, it definitely saw a dip and then it picked right back up again and actually saw some record numbers.

And then, there was the second resurgence, the following year where they did one more lockdown. Florida did a very short period. They did a week or two lockdown and then it opened back up again and then everyone wanted to go to Florida. Florida, anything beach located or coastal located in Florida or any other markets that were a little more lenient with the COVID restrictions, they saw some hiccups, they had some challenges, but they did just fine.

The ones that suffered the most were in downtown scenarios where the lot was servicing the majority, an office building or a few office buildings. Those are still suffering today. I've seen a number of parking garages come into the market that predominantly serviced large office towers. No one knows what the future holds for those because no one knows how many people are going to come back into the workplace, how many people are going to renew the existing leases that are in place of these large towers.

Anyway, there's so much uncertainty there and no one knows what that looks like five years from now. Those are still having a lot of pain.

Seth: Yeah. Would you ever buy one of those? What would the price need to be for you to feel comfortable with that?

Kevin Bupp: No, unless there's absolute clarity as to exactly what the future holds. But no, because the thing is on a large parking structure, the capital expenditures will have your lunch. Just the ongoing upkeeping maintenance. I saw a garage literally in downtown Minneapolis, and I forget the exact location, but it was only built like 18 years ago. It was attached to a tower. It was across from the bus station and ended up going, at present, this was like seven or eight months ago, it was only doing like 25% of the revenues that had done prior to COVID.

Obviously, that market had some very strict COVID restrictions. A lot of the major employers that are based there still haven't come back to the workplace. I think it ended up selling for like $4 million. It probably cost them $30 million to build. And even at that number, you would be losing money every month just due to the upkeep maintenance. You'd be able to cover your debt service, but the upkeep and maintenance on that facility, number one, it's been deferred and you've got ice and salt and snow and all that stuff to deal with. You're looking at like $500,000, $600,000 a year just upkeep of that property.

If you don't have a clear path of rebound to pre-COVID or near pre-COVID levels, then you literally would be dying on the vine with just a big paperweight basically is what it comes down to. Unless you had the plan to knock it down and redevelop, which again, that's not really our MO to do that.

Seth: That's a good segue into another question I had is what kind of CapEx is there? Because when I think of a big cement parking structure, it's like just a big rock. What is it that breaks down? I assume you mentioned ice, salt, and snow. I'm sure you got gates, you got electricity. What are the kinds of expenses that would be weighty on that?

Kevin Bupp: Yeah, the gates and electricity, that's really not that big of a thing. Those are fairly inexpensive mechanicals in the grand scheme. A lot of it is just water intrusion. Underneath that concrete is rebar. And so, water intrusion from the top deck down. Water finding its way into every crack and crevice, if it's not sealed and over time that rebar rusts out and after the rebar rusts out the concrete cracks and falls off. We just actually backed out of a garage in Providence, Rhode Island we were in contract with and I went up to visit it.

It was an older garage, but just because it's older doesn't mean that has to be in horrific shape. And this thing had so much deferred maintenance that it would've cost us, we are in a contract for roughly $17 million. It would've cost us probably just guessing because no one knows until you start pulling all that concrete off. But I mean just visibly what we could see, it would've cost us nearly $2 million to get it what we felt was a safe baseline, but there were still other areas that you would almost have to continually band aid every year. Every five years you'd have to band aid.

And so, it would've been roughly $2 million out of the gate to get a decent foundation to work from. But then the couple structural engineers we worked with, one that was very familiar with the garage basically said, “You need to set aside from normal reserves and repairs and maintenance, probably another $200,000 to $250,000 every year to handle these repairs that we deemed to be five-year repairs.” That there's not really a permanent fixed for at this point in time. We just got to basically to Band-Aid it every five years. And I'm like, that's scary.

Seth: It is.

Kevin Bupp: But on a flip side of that, that didn't have to be that way if they would've maintained it from the get-go. They took money out of it for 25 years, the family that owned it and never really put it back in. Now they want to sell it. Now they've been trying to Band-Aid as fast as possible. And it's made that money, but it would be a very risky endeavor for the next buyer in line with the uncertainty of the future of the structure itself.

We've looked at assets parking garages. We just missed out a bid in Phoenix. A garage that I think was about 40 years old, but Phoenix is incredibly dry. There's no humidity and this has been maintained, but also the dry climate, and they don't get much rain there. So, there's not a lot of water intrusion or anything like that. And so, this one has stood the test of time way better than the one up in Rhode Island.

The one in Florida, we've got salt air to contend with, salt air makes its way into everything over time. So back to making sure that the concrete is sealed, so that it doesn't penetrate through that concrete, which is porous, and then get its way to the rebar. And then obviously salt does the rebar. But those are the big things. Those are the biggest ongoing expenses associated with a garage structure.

Everything else is so minimal in nature, lighting, electrical, plumbing. Elevators are another big piece. Elevators, you've got to be kept and you've got to have maintenance program on them and things like that. But then again, a good elevator that's been maintained will last 40 years. So long as you've got a professional company overseeing it and managing it for you.

Seth: Wow. So is the property manager, are they the ones who keep an eye on all this maintenance stuff and make sure that it gets done? That's their job, right?

Kevin Bupp: Yes. That's correct.

Seth: Do you have to police them and make sure that they're doing that? Or you just trust them?

Kevin Bupp: We normally visit every quarter. Yeah. We'll visit once a quarter and just take a look at things. If it's a service lot not so much because there's literally nothing that can really go wrong with the service lot. Really outside of a pothole and they carry liability insurance on their side. So, what I've found is that potholes are very inexpensive to replace. A lot of management companies, it's a detriment to them if they don't get that pothole fixed because someone might not park in that lot because of the pothole. It's impactful for their bottom line, which creates urgency on their side to get it done. But outside of a pothole on the surface lot, there's literally nothing else that can really go wrong. It's such minimal upkeep there.

Seth: The management company, do they typically install a kiosk for this, if there's not one there already or is there a different better way?

Kevin Bupp: Yeah, if it's just the surface lot. Yeah, if there's power to that lot, a lot of times there's not, but if there's power to that lot, they'll hardwire a kiosk, maybe a couple of kiosks depending on how big the lot is that accept credit cards. There are many different systems out there, but just generally speaking they accept credit cards. I've seen lots as well where there's solar-powered technology, where they can put a kiosk in that's basically powered by the sun and you don't have to have hard-wire or anything. It's a very inexpensive poor little concrete pad, bolted to that concrete pad and you're off and running.

They've obviously got it tied to their merchant account. At this point in the world, 95% of transactions are done via credit card versus cash. In fact, most of these systems don't even accept cash. And so, unless you have a credit card, then you're not parking. That's where the value-add is. You see some old lots that are only accepting cash.

Seth: Yeah, that's kind of crazy.

Kevin Bupp: We've flipped the script a little bit. There are definitely way more people in their cars that don't have cash and only have credit versus those that have cash that don't have credit. So, yeah, you're missing out on a lot of opportunity if you're not accepting credit cards.

Seth: So, are you saying that a parking structure would not have a kiosk or do those have kiosks as well?

Kevin Bupp: Well, it depends. There are different trains of thought here. If you talk to one group, they'll say that you want to have a frictionless operation to where you don't want people to have to stop at a gate because during busy times if there's a gate there you're going to have some backup and traffic either coming in or leaving the facility. But then on the flip side of that, you'll have people say, “Well, if you don't have a gate, you've got it frictionless, meaning that you've got maybe a kiosk on each floor, then you're going to have theft. Unless you are incredible at the enforcement, which no one's 100%, you're going to have people stealing parking from you because they're not going to have to actually stop at that gate.”

So, I don't know what right or wrong is. I could tell you that the garages that we have, the operators, they use gated systems, advanced, but gated systems. I've seen others that don't use them. And again, it's either a key fob that you have to go in if you're like a monthly parker or I've seen other ones where they'll scan your license plate when you go in. Others where it's just like you go to park and it's kind of an honor system, where there's a kiosk where you got to go put your license plate in and put that little parking ticket on your dash. But if their enforcement is good and then you're in there and you did not go pay, then you might end up with a ticket.

Seth: So how do people steal parking? Well, do they just ram right through the gate or something or they break it?

Kevin Bupp: They don't pay.

Seth: I got you.

Kevin Bupp: What I mean is if there's not a gate there. If it's a frictionless parking system is one that doesn't have a gate. They can drive right in and it's up to them to go to the kiosk on whatever area that they're parking and make sure that they're paying for their parking. If they don't do that and there's not good enforcement, you can't enforce against everybody, especially on a big lot. It's really hard to actually capture everybody. Because most of the time, if a management company is managing multiple lots in the area, they might have one or two enforcement officers canvassing these lots, but they don't have someone there all the time just managing and ensuring that someone is paid in that respective lot. So, they don't always have eyes and ears there 24/7. It might be a couple of hours go by. Someone can get parking.

People are creatures of habit, especially those that are a little above the law. And so, if it's someone that goes to that area often, they start seeing trends of when that parking enforcement officer is typically coming by. They know that they can go park there from 12:00 to 4:00. And now that person is not going to be by there and I don't have to pay for parking. They might never catch me. So, it gets expensive if you're talking like a place that charges $5 an hour they're stealing $20 a day and they're coming a couple of days a week. Yeah, it'll get into your bottom line pretty quickly.

Seth: If somebody did want to manage one of these themselves, or they just want to understand what is my management coming to even doing? We've already covered several things to do. There are understanding peak times, there are maintenance issues, keeping an eye on that. There are enforcements, making sure people have paid all this stuff. What other jobs are there that are required to manage one of these things in terms of just how difficult or time-consuming it is?

Kevin Bupp: Yeah, really having a handle on the events in the local area. What are the peak hours? Whatever you're serving. Are you serving at a courthouse? Are you serving a baseball field, a football stadium, a music venue? Whatever that might be, understanding special events, when they're happening, the amount of people that are expected to come to that special event. Is it going to be in walking proximity? Is it going to be in convenient proximity to your lot? Are you going to be able to capture 100% of those people, 80% of those people, depending on the location of your lot to the venue.

So just things like that, really having a firm handle on that local marketplace and it's really hard to do unless you're very familiar boots on the ground. So that's why I like a lot of these professional operators. If they're already managing a lot of lots in that area, then they know more than anyone could ever know that doesn't manage anything in that area. Because they're already tied in, they've seen Aerosmith comes every year to the civic center, and we know what happens when they come.

We know exactly how this lot fulfills that need for parking. We know how that lot does and that lot does. That one on the outskirt, they do good, but we have to lower the price to $5 for the event versus the $15 that we charge just a block away because people want convenience. They'll pay for convenience. So, understanding those dynamics is really tough to do unless you're very intimately familiar with that market. From block to block, there's a huge difference. Huge difference.

Seth: So, on that whole kiosk thing, if you have a kiosk and the kiosk breaks, what then? Is everybody just screwed? Can people get out or can they lift it manually or something? I always wondered.

Kevin Bupp: Yeah. Most of the garages, again, like the garage at Clearwater Beach, they got a gate. It's such a big garage and gets enough business, but they have a person there most of the time, like there's a physical person there. Not collecting money, but just helping if an elevator goes down or if the gate breaks or if there's a backup helping direct traffic and things like that.

If you don't have that in place, I'm sure that could create a massive challenge. If you've only got one ingress and egress and one of those breaks, and there's no one around to help you then normally there's a number that you can call to actually get someone from the management company. But again, there are good managers and bad managers, and I'm sure there are situations where that happens and there's no one around the help. I'm sure that people would probably take it upon themselves if you're the parker and you're stuck in there. That you'd probably get out at some point, lift the gate yourself or do something to get out of there.

Seth: Yeah. Got you. And maybe one of the most important questions that I haven't asked yet, how much money can you make from these things? Are they super profitable compared to a mobile home park or storage facility? What would be the cap rate on something like this?

Kevin Bupp: Yeah, it's all relative. Again, you make your money on the front end of the buy. Every time I tell someone that word, “We buy mobile home parks,” they're like, “Oh, they're cash cows.” I don't know, that's kind of played itself out because anything could be a cash cow if you buy it right. If it's a good asset and it's a good market, you buy it at the right price, absolutely it can be a cash cow or it could be a dog because you overpaid for it. So, it's kind of the same thing with parking.

Since we're value-add investors, a lot of times we don't look at caps on the front end because we know what the value-add component is going to be before we even buy it and we know how to execute on it. We bought a surface lot up in Wilmington, North Carolina. It's a small little service lot. And based on historical revenues, and this is during the pandemic, we paid like a five cap. And the guy thought he was winning huge, the seller. Old mom and pop running it.

But I already knew ahead of time that I had no operator in place when they put that lease in place that would've been effectively just shy of a 10 cap on levered. And I literally already had that in my back pocket because I'd done the research and I knew. And so, while I bought it at a five cap, immediately within a month, it was an unlevered 10 cap, because we had a trip lease ready to go on that property.

Cap rate is kind of irrelevant on the front side unless it's a fully stabilized property. If there's absolutely no upside at all and you're buying a coupon clipper, then cap rate and spread come into play a little bit more. But we don't necessarily spend too much time worrying about that. We really look at not what it is today, but what's possible tomorrow? And what's that effective yield on that stabilized aspect once we execute that business plan?

Seth: Yeah. Do you ever buy these things to flip? Make the improvements and resell them or is it always buy and hold?

Kevin Bupp: Not yet. No. It's hard to find really good ones in great locations. And so, if we find a good asset in a phenomenal location and performs well, we're of the mind that it's really hard to ever replace that asset. We've sold properties over the years. We've sold a number of mobile home parks over the last three years, which wasn't necessarily the plan maybe when we bought them, but times change, things happen. Some markets don't perform as expected, some perform better than others.

And you're like, “Okay, well, we kind of had expectations for this property” and it's like 3X those expectations. And we just got an offer that literally if I look back and say, I would never pay that for that property in a million years, and I know everything about it, then we might consider selling it. So, we don't ever go in with the mindset of “We're going to buy it to flip it,” but everything is for sale, I guess you could say, at the right price. We’ll kind of leave it at that.

Seth: Yeah. I ask because a lot of the storage facility owners I know, they're “get in and get out.” They want to flip things. That always kind of struck me as “That's weird.”

Kevin Bupp: It's kind of a job.

Seth: Yeah. I would want the cash flow. But it sounds you think more like I do in that standpoint maybe.

Kevin Bupp: Yeah. I mean, at that point, it's become harder. There's been more competition and pretty much every asset class, self-storage, mobile home parks, and all that. And so, when you find a great deal that's got a lot of upsides. Obviously, a rising tide lifts all boats. We've been in a booming economy where asset prices have continually risen for the past decade and it's becoming harder and harder to find these assets. I have a lot of value-add component without having to pay for that value add because there's a lot more competition. They have capital, they're looking to get a yield in their money.

If that's your business model, just adding value and flipping and moving on to the next, at some point I would think that, maybe even it's happened, is that it's become more difficult for you to find the spreads on these deals and make it worth your while. And so, then you look back, and you're like “If I'd have just kept those 10 I sold and done some cash-out refis along the way and repurpose that capital, I might not have to be even trying to find another one right now. I could probably just maybe go put my legs up and sit on the beach somewhere if I wanted to. And just let all the cash flow instead of having to try to find that next pop, the next pop.”

And so, we do both. We like holding assets long time. I've got some personal assets I've held for over a decade. And I’m not saying I won't ever sell. There's a time and place for everything, but cash flow is quickly important. At least for me. It depends on where you're at in your life as well. I've got young kids and I love spending time with them. We have a lot of flexibility. We travel a lot together and I know that those years will never get back. And so, I've been trying to emphasize spending as much time with the family as possible. I enjoy it, but also, I know that in five years I'll look back and be like, even now I spend a lot of time, I wish I'd have spent more.

And so, the only thing that can allow you to really do that is getting some assets that produce ongoing cash flow and residual income. And if it's always finding the next deal, it doesn't lend as much flexibility, in my opinion. That's just my opinion and that's not worth much.

Seth: No, I think it's worth a lot and I'm with you. It makes a lot of sense to me.

Now, I think you've already answered this question, but I just want to ask it one more time to clarify it or ask it a different way. So, if there is a parking ramp or parking lot location that is just struggling, like it's not getting much revenue, people aren't parking there. Is there anything they can do to make that better? Or they are just a slave to the location? If it's a bad location then you're just kind of stuck.

Kevin Bupp: Yeah. If it's a bad location, again, you can fix a troubled asset if it's mismanaged, but what you can't fix is the location. You can't fix a market per se. And so, I always like to say I'd much rather own a really rough asset that's not performing in a phenomenal market that's growing. It's got great demand because I can fix the other problems. You got a pretty asset, again, that St. Paul asset on some of that parking garage, it's in downtown St. Paul. It is a pretty property.

But I can't fix the challenges. Those challenges are directly correlated. It was always struggling for COVID, there were major vacancies in that office tower for whatever reason. And so, until that gets fixed, and now COVID, no one knows if that's ever going to get fixed. And so, I can't fix that. It's not just a matter of bad management or anything like that. And so, you need to identify what the problems are. Once you identify what the challenges are at the garage, then you can make a determination if they're fixable. Market, not so much. You just can't fix the market. People are moving out of the area or moving away, you can't force them to come back.

Seth: No, it makes total sense.

Kevin Bupp: Yeah. But if it's just bad management, all day long, all day long. Yeah.

Seth: Yeah, because I've heard this saying before that anything is a deal at the right price.

Kevin Bupp: No, I don't agree with that.

Seth: Yeah. I was going to say it doesn't sound like that is the case unless they're literally paying you monthly to take this thing. But that's never going to happen.

Kevin Bupp: Yeah, I completely disagree with that. Yeah, if it's in a crappy, crappy market.

Seth: So, if you could get a parking lot for free, like if it was just free?

Kevin Bupp: Again, this is a pretty extreme example, but look at some of the really bad neighborhoods in Detroit coming out and I don't know if they're still doing it, but I know they had a program for many years where they were literally giving houses away for a penny. And they still couldn't give them away. Definitely, yeah, I don't agree with that sentiment at all.

Seth: No, that's actually really helpful because it's similar to the saying, “Do what you love and the money will follow,” which I don't know if I agree with that either. There may be a seed of truth to it, but it's more than just that. It's not that black and white. It has to be monetizable, that kind of thing. So just this idea they're like…

Kevin Bupp: Yeah. I agree with that. And I've got another argument to that point. You'll find what you love and the money will follow. And I see a lot of people, everyone's got different hobbies. I don't think it's a great idea to always find because you might love multiple things. When you start mixing what was a hobby and a source of relaxation for you or maybe it's really stress, maybe it's riding a bike or running, or I don't know, just picking some things that come to mind. And then, “Okay, well, I'm going to turn it into a business.”

Now, you've basically taking what was a joyful hobby of yours, and now you've added undue stress to it that ultimately you might find yourself in a situation where you actually don't enjoy that as much anymore because now you've tied this business element to it.

I love real estate. I use cycling as an example. I love cycling. I do a lot of road cycling and all that, but I don't think I would ever tie a business to it because I don't think I would enjoy it as much at that point in time. I don't want to go do cycling races or sell bicycles or anything like that. I'd rather ride it and enjoy it. That's my outlet for reducing stress, but I don't want to tie a business to it.

Seth: Yeah. There are some things that work well on bumper stickers, but it's just not that simple, or maybe it's just not true when it comes down to it.

Kevin Bupp: Yeah, I agree.

Seth: But yeah. I know in the land business buying landlocked properties, which there's a surprising number of landlocked parcels out there. They're literally useless because you can't get to them. But money can still be made on those, believe it or not, if you buy it for almost nothing. If you get into it with $50 or something like that, you can probably sell it to somebody who doesn't care. They'll pay more than what you paid for it, but there's not this $250,000 a month expense tied to it like there is with a parking ramp.

Kevin Bupp: And so, at that point you're basically risking $50, using that example of $50. You're buying a $50 lottery ticket at that point thinking that you might scratch it off and it might be a winning number and you make your money back and then some. But you're okay losing the $50 in the event you can't sell it.

Seth: Yeah, essentially. Or you could sell it to a neighbor, but essentially it comes down to a bit of speculation. You're right. That somebody is going to want to buy that thing. And usually, they do, but there's a kind of a big problem with it. You got to either fix the problem or just hope somebody will buy it with that problem. So, a totally different thing than a parking ramp but to draw the parallel.

Kevin Bupp: To summarize that point, be really good at solving problems, identifying what the problem is, speaking to real estate, whatever the problem is, and get really good at actually solving those problems. That's literally how you make money in real estate. Identifying the problems, the real problem, and then finding the resolution to that problem. That's it. I'm not going to say it's as simple as that, but if you can't figure that part out, then ultimately, you're going to struggle. You'll find yourself in some challenging scenarios where you might lose money if you can't fix the problems.

Seth: Cool. Well, Kevin, I know we're kind of coming up on our time. I really appreciate you talking about this. This was fascinating. I learned so much in the past hour here. I don't know. I'm excited. I want to learn more about this and I can't always say that about every interview we have. I commend you and I appreciate you sharing so much information about this.

If people want to learn more about you or check out your podcast, can you remind us again what is your website and the name of your podcast?
Kevin Bupp: Absolutely, kevinbupp.com. You can go there. That's my website. I've got my podcast hosted there as well. And Seth, if you wouldn't mind as well, I recently wrote a book and released it and I've got a free copy. I’m doing free for the next couple of months. And so, if you wouldn't mind, I'd love to share that as well. They can literally get it on my website, but just go to kevinbupp.com/freebook. Again, kevinbupp.com/freebook.

And if you're looking at the video, you can kind of see the book part of it behind me. It's called “The Cash Flow Investor” and it's all about making money in commercial real estate. It's actually got a section about mobile home parks and parking lots in there as well as a few other asset classes that I really love. Anyway, it's got some more information there about what we talked about today. So, definitely grab a copy of that. It's for sale on Amazon right now for $20, but you can get it for free if you go to that link that I gave out.

Seth: Awesome. I will be sure to include that in the show notes. Again, that's REtipster.com/140 for a link to that and everything else we talked about here today. Thanks again, Kevin. I appreciate it. And hopefully, we'll talk again soon.Kevin Bupp: Yeah. Seth, thanks for having me, it's been a lot of fun, man. I appreciate being here. Take care.

Seth: You bet.