Mrs. 1500 and I are in the process of closing on one of the biggest investments of our lives. We’re partnering with a couple of others to purchase a trailer park. Our share will set us back $170,000.
And I know almost nothing about the investment. What could possibly go wrong?
I love real estate and it has always been the goal of Mrs. 1500 and I to own rental properties. Since we moved to Boulder County in 2013, we’ve made offers on several, only to be outbid by cash buyers willing to pay ridiculous prices. I knew we would never own investment real estate in our town last year when a 4-plex sold. It came on the market for about $800,000:
- Me: $800,000 is just crazy. They’ll never get it.
- Mrs. 1500: Yep.
A bidding war broke out and the 4-plex sold for $960,000. We gave up on owning rental property.
But, there are other ways to invest in real estate. We’ve been doling out private loans ($290,000) and investing with syndicators ($200,000).
We love these deals. We make a healthy return with zero hassle beyond depositing the paper checks with a phone app. However, we weren’t done.
Our ideal portfolio balance is 50-50 split between the stock market and real estate. With our personal loans and syndication deals, we were at 66%/33% in the stock market and real estate respectively. Then came the trailer park…
Trailer Park Puzzlement
A very wise friend asked us last month if we’d be interested in investing in a trailer park with him and another partner. Similar to our other real estate investments, our role would be a passive one. The other two partners would manage the property. I like that a lot. I have enough things going on and don’t need something else to add to my busy days. However, there was a major problem:
I know nothing about trailer parks or investing in them.
I hit up the Google, but was quickly overwhelmed.
Too. Much. Information.
I dismissed the investment. I’m not going to throw money at something I know nothing about and don’t have the time to research. But then, I had another thought.
The other other two partners are successful real estate investors. They both have years of experience and have executed many successful deals. Perhaps I was looking at the situation all wrong?
Instead of considering it an investment in a trailer park, maybe I should look at it as an investment in the other partners. Since I trust them, I can invest with confidence knowing they’ve done the research. So, Mrs. 1500 and I pulled the trigger on the deal.
The trailer park was under-managed for years and needs work. It will take at least a year to stabilize. This will take work, but I won’t be doing any of it.
Once all of the issues have been resolved, this investment has the potential to return around 14% or $24,000 per year. This will cover about two-thirds of our primary expenses. I’ll be thrilled if a $170,000 investment covers most of our spending. If we didn’t have a mortgage, it would cover all of it.
Another fun fact is that we invested in the park through our self-directed solo 401(k), so we’re not going to take a tax hit from it, at least not until we draw from the account in a couple decades.
After I reframed how I thought about the investment, I was comfortable with it. And this isn’t much different than how I think about some of stocks that I own. I invested in Tesla because of Elon Musk, Facebook because of Mark Zuckerberg and Berkshire Hathaway because of Warren Buffett/Charlie Munger.
I admit that it still feels weird throwing $170,000 at an investment that I’ve never seen and know nothing about. However, I don’t lose sleep over it. Time will tell if this was a crazy brilliant move or just crazy stupid.
And there is a lot more to tell. I haven’t gone into any of the numbers or details about the park, but I plan to in future posts.
Would you do it?
One more thing: After realizing just how cheap it is to live in a trailer park, I had this conversation with Mrs. 1500:
- Me: We have $400,000 in equity in our home!
- Mrs. 1500 (with deep suspicion): Umm, yes?
- Me: We could sell it and move into a trailer!
- Mrs. 1500 (very firm): No.
- Me: But we could then invest the $400,000 and live for dirt cheap!!
- Mrs. 1500 (even firmer): No.
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