Real Estate Investing Basics

Mobile Home Park Due Diligence Checklist!

Expertise:
3 Articles Written

Due diligence done right can be the difference between a great investment and a loser that sucks an investor’s time, cash and enthusiasm.   The checklist below provides a new Mobile Home Park investor a comprehensive starting point or an experienced investor the opportunity to expand and improve their current due diligence process.  First, let’s cover the basics!

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Due Diligence Basics

  • The purpose of due diligence is to lower risk and increase the probability of achieving the target ROI over the hold period of the investment.   The process starts when a buyer asks that first question and ends when a commitment is made to purchase, close of escrow or cancellation of the purchase agreement.
  • The process is something like a solving a puzzle with the goal of building a complete and accurate profile of the property.  This is accomplished by gathering, validating and analyzing data in the following 3 areas:
    • Financial
    • Physical
    • Locale
  • Each due diligence process is different based on the unique elements of the deal and features of the property.  The “key” elements of the transaction are explored first and usually, the most intensively.
  • The buyer should provide the seller a comprehensive disclosure statement and include a term in the purchase agreement that obligates the seller to return the document within 5 days of acceptance.
  • Professionals are hired to complete Phase 1, 2 & 3 reports that identify potential or existing environmental contamination and all other elements of elements that are difficult for the buyer to effectively evaluate.

Financial Checklist

  • 3 years profit & loss statements
  • Rent roll with space number, name of resident, move-in date, renter or owner occupied, number of occupants, monthly rent, additional charges, current balance due and any relevant notes about the resident
  • List of capital expenditures for the last 3 years
  • 3 years of tax returns
  • 12 months of bank statements
  • Current accounts receivable statement
  • List of park owned home including copies of “rent to own” or sales contracts
  • Copy of all current insurance policies, binders and premiums
  • Spreadsheet detailing who pays all utilities including water, sewer, gas, electric, trash, cable, etc…
  • For all utilities and charge backs, formulas, calculations and meter readings for the past 12 months
  • 3 years of utility bills
  • Property tax bills for the last 2-3 years
  • Current staffing list including position, wages, job descriptions
  • Copies of any contracts that will transfer to buyer including laundry, trash, phone, equipment, etc…
  • Dates and amounts of the last 3 rent increases
  • Signed rules and leases for each resident
  • Names and contact information of professional service providers including lawyers, accountants, engineers, insurance brokers, inspectors, appraisers, realtors/brokers, etc…

Physical Checklist

  • Spreadsheet for utilities that details age, composition, capacity, physical locations, etc…
  • Any drawings or maps of the park and infrastructure including lot sizes
  • Sewer plant or septic system repair and maintenance records
  • Water well tests and compliance records
  • Disclosure from seller of current or recent problems with infrastructure including buildings, water, sewer/septic, gas, electric, etc…
  • Names and contact information of contractors  including plumbers, tree surgeons, electricians, gas inspectors, septic companies, roto-rooter services, etc…

Locale Checklist

  • Profile local housing market:
    • “Stick-built” – current foreclosure rate, months of available inventory, median home price, average rent per month, vacancy rate
    • Apartments – average rent per month, vacancy rate, prevalence of move-in specials…
    • MHPs Comps –  average monthly charges (rent, utilities, etc…), vacancy rate, # of homes for sale, etc…
  • Profile local economy including population, major employers, unemployment rate and trends
  • Copies of city, county and state permits, licenses or certificates of occupancy
  • Check zoning for recent or pending changes to target property and adjacent parcels
  • Check for known environmental issues with target  property, adjacent parcels or in the community
  • Check for major development or construction projects in the community
  • Review existing surveys or environmental reports
  • Consider geographic factors including elevation, annual snow fall, rain fall, proximity to bodies of water, etc…
  • Disclosure from seller of current or recent lawsuits, regulatory or compliance issues, fines, fees, etc…

If you have comments or questions please reply!  If this post could be of value to someone you know, please email or repost to Facebook, LinkedIn or your favorite social network!

    Jeff Brown
    Replied almost 7 years ago
    Welcome, John.
    John Vashon
    Replied almost 7 years ago
    Thanks, I’m learning the ropes (like how to reply!)
    Dave Van Horn
    Replied almost 7 years ago
    Pretty comprehensive checklist John! Out of all the Mobile Home Park investing I’ve done other big ticket items I look at today are usually: – what’s the overall quality of the park – onsite sewage treatment vs public sewage – falsification of financials – what is the ratio of tin cans to vinyl and shingle – what is the percentage of rentals vs. owner occupants – where current lot rents are in proportion to maximum market lot rent – what park improvement costs are necessary to increase lot rent to the maximum down the road Best, Dave
    Eran Greenburg from Lansing, Michigan
    Replied over 2 years ago
    “falsification of financials” – Do you have a process for this?
    Joel Ortiz Professional from San Diego, CA
    Replied over 1 year ago
    Bank statements during the time of profit and losses reported, then hire someone on fiver to cross-check it for you
    John Vashon
    Replied almost 7 years ago
    Thanks for these suggestions and I’ll incorporate them the checklist!
    Rick Meffert from newport ri , ri
    Replied over 4 years ago
    Dave How do you value PARK OWNED HOMES when looking at a park to purchase? approximately 42% of the homes rented are owned by 1 person who also owns the park.
    Brandon Turner
    Replied almost 7 years ago
    Good stuff, John! I’m looking forward to all the info on mobile home parks I can get!
    John Vashon
    Replied almost 7 years ago
    Thanks, much more to come!
    Kurt Woolley Real Estate Investor from Huntersville, North Carolina
    Replied about 5 years ago
    Thanks, this list will be really helpful to me.
    Kevin Renaud IT Engineer from Winchendon, MA
    Replied over 4 years ago
    Great info! I’m currently evaluating a small MHP and this is going to save me MANY hours of guesswork. Please keep the MHP content coming 🙂
    Hans Thurau Investor from Tustin, CA
    Replied over 2 years ago
    I turned down a decent size park (95 acres) with a good cap rate because it has a lagoon septic system. The park itself is 5 miles from town, but sits right outside the city limits. I’ve learned from the pros to stay away from parks with a lagoon septic system. The lagoon is basically a pond located somewhere on the property into which sewage flows. The sewage is broken down by bacteria in the lagoon and requires heavy monitoring to keep the pond healthy. If it fails, the costs can escalate quickly into the 6 figure range. Before contracting on this park, I contacted the city and county asking if there were any existing city sewer lines in the road leading up to the park, both stated NO and there were no plans for bringing city sewer lines to this area. Yes the numbers were looking great on this park; however, a failure of the lagoon would be catastrophic to cash flow. A park with a lagoon system is not desirable and you might find yourself sitting on a ticking time bomb that you can’t exit from. Another area of concern are vacant lots, where the lot is just a concrete pad, no home. Cheap older mobiles are getting harder to find; and some cities have rules against moving in pre-hud mobile homes from adjacent cities. Also, in one experience, the city required that any older (pre-hud) mobile homes being moved into a park had to be renovated by a licensed contractor(s) (egress windows, plumbing, electrical (gas if applicable), additionally, since this park was in an area where it snows, they required that I hire an engineer to come out and certify the roofs’ snow load. If it didn’t meet the snow load minimum, then they required you to sign a waiver. These are just some of my experiences, every case is different. Make sure you go to the city and confirm the zoning, also find out what the city rules are for moving in older trailers… check for zoning and grandfather clauses as well. Also try to get everything in writing from the city, they tend to forget what they told you and a written document helps when selling the park in the future.
    Evan Major Investor from Lancaster, Pennsylvania
    Replied about 2 years ago
    Due Diligence/LOI timeline Hi, great write up… here’s what i’m running into. How long is a typical due diligence timeline? On a recent offer for an out of state deal, which was owner financed, we offered 90 days for due diligence with settlement 30 days after. Is this too long? I feel if its out of state this is typical, but the broker said they want settlement in 60 days…thanks in advance!
    John Vahson
    Replied about 2 years ago
    90 days is fine for a contract period but too long for DD. The last thing the seller wants is to go 90 days and have the buyer fail to close on some insignificant due diligence item. I like 30 days with optional extensions (in the contact) if there are some items that need further investigation or effort.
    Evan Major Investor from Lancaster, Pennsylvania
    Replied about 2 years ago
    Thank you!
    Adam Arrington from Katy, Texas
    Replied about 1 year ago
    One more thing I like to ask sellers is that they provide a copy of the title for each park owned home.
    Blake Kirby Handyman from Orange County California
    Replied 5 months ago
    I am not sure if anyone is active on this but I really need some help and advice on a mobile home park I am looking to buy. I feel like I am missing something. I am in the middle of a 1031 exchange. This property hasn't sold for over a year but has a great cap rate. There must be something I am missing