I vividly remember the day I decided to buy my first mobile home park.\u00a0 I was a complete beginner and didn’t have a clue what to do first, second or third.\u00a0 I spent hours reading and reading and talking with other investors.\u00a0 It seemed the more I learned the more confused I became.\u00a0 What I didn’t have was a simple and concise overview of the entire process from beginning to end. \u00a0 If you are beginner, you’ll save you a lot of time and money if you memorize and follow this step-by-step process to buying your first Mobile Home Park!<\/p>\n
Goals & Objectives are an investor’s best friend. A good investor is 100% clear about what they want to accomplish and why it is important.\u00a0\u00a0 Goals should be supported by short to medium term objectives that are specific, measurable, attainable, relevant and time specific.\u00a0 Here are some examples:<\/p>\n
Purchase Criteria are defined based on the goals and objectives and serve to focus the investor on a property type, geography, size, condition, price range, etc\u2026\u00a0 My current purchase criteria include the following: MHP, N. California, 30-50 spaces, city services, priced between $1M and $1.5M, 80% occupied or greater and rents 25% below the comps in the area.<\/p>\n
With goals, objectives and purchase criteria in hand, an investor can enter the “deal flow” to learn about the market and identify any good\u00a0prospects. \u00a0 Start your search on the Internet and visit websites like LoopNet, Craigslist and mobilehomeparkstore.\u00a0 Obtain a list of every mobile home park in your target geography and import it into Excel<\/a> (or another database tool) so you can add notes and quickly sort, search and select out parks that appear to meet your purchase criteria.<\/p>\n Call brokers who have MHP listings and ask them to provide their underwriting, package or a P&L and current rent-roll.\u00a0 The broker will want to get to know you so be prepared to share your goals, objectives and purchase criteria.\u00a0\u00a0 Work through all the numbers to understand how they arrived at their revenue, expense, cash on cash return, NOI, CAP rates<\/a>, debt to equity ratios, etc…\u00a0\u00a0 If the package includes comps, review them closely to understand how the subject property compares in terms of rents, vacancy, revenues, expenses, mix of singles to doubles, etc…\u00a0 Do a “drive-by” that includes the comps, other similar properties and of course, the subject property.<\/p>\n Within a few months you’ll have good knowledge of the market(s), be proficient at evaluating properties and quickly able to identify any that fit your criteria and look like good prospects.<\/p>\n So you’ve got something that looks like a good prospect, now what?\u00a0\u00a0 If you’ve not already done so, ask the seller or broker for underwriting, package, P&L’s and rent-roll and any other financial information they’d like to provide.\u00a0 Work through their data and reports so you understand how they arrived at their numbers and confirm their calculations.\u00a0\u00a0\u00a0 Then reconstruct the current P&L using the rent-roll as the basis for the revenue number, adding in utility reimbursements, laundry, propane sales, storage, etc.\u00a0\u00a0 Complete the same exercise on the expense side.<\/p>\n Build a projected P&L for the next 3-5 years that reflects your assumptions and plans for the property including increases in revenues, decreases in costs and the resulting increased NOI.\u00a0\u00a0 Now it’s time to engage a loan broker or MHP lender and see if they are interested in financing the deal and at what terms.\u00a0 Plug these terms into the projected P&L to calculate the cash on cash return and other key rates and ratios.\u00a0 If the numbers meet your goals, it’s time to “put it in writing” or disengage and let the seller\/broker know you are continuing to look at other properties.<\/p>\n When drafting the purchase agreement, in addition to the financial terms, make certain it meets all your requirements including: data and disclosures you want from the seller, contingencies and the timing or schedule to close.<\/p>\n You\u2019ve started the financial due diligence and need to continue forward and take your investigation to the next level.\u00a0 You’ll want to review copies of bank statements to verify deposits and see copies of actual bills for utilities, taxes, insurance and other maintenance items.<\/p>\n Physical due diligence is about understanding the current condition of the physical elements of the MHP including homes, structures, electrical, gas, water and sewer\/septic systems, etc… \u00a0 You want to make grounded projections about operating costs for the 3-5 year P&L and estimate any capital costs over your expected hold period for upgrades and replacements.\u00a0 Be sure to ask the seller for a list of all capital improvements that are not reflected in the P&Ls.<\/p>\n Locale is the final element of due diligence and it\u2019s about location!\u00a0 Locale considerations include the economics of the market, zoning, land use and development plans for the subject property and neighborhood and current compliance with respect to licenses, permits, restrictions and regulations.<\/p>\n Remember to triangulate all data and answers with multiple sources to ensure completeness and accuracy.\u00a0 Hire professionals to inspect the complicated and expensive infrastructure elements.\u00a0 Take a phased approach to releasing contingencies to demonstrate good faith with the seller and buy extra time to complete the investigation before a final \u201csign off\u201d and acceptance!<\/p>\n By now you should be working to clear those final contingencies.\u00a0 Hopefully, the due diligence process confirmed your initial impressions when the property was qualified.\u00a0\u00a0 If not, prior to releasing contingencies, final negotiations and adjustments to price or other terms can be made between buyer and seller. \u00a0 You should be contacting the lender every couple of days to ensure they’ve completed the appraisal and the \u201cfirst reviews\u201d by the loan committee have been positive.\u00a0 It\u2019s not unusual for the bank to ask for more documents, more signatures and more \u201cblood\u201d so be prepared.\u00a0 Get to know your title officer and periodically ask for an updated preliminary closing statement and work through the numbers and calculations.\u00a0\u00a0 Be certain to verify the security deposits and carefully review the prorations for rent, taxes, propane in the dispenser tank, supplies and pre\/post paid items like licenses and permits, etc\u2026\u00a0\u00a0 Finally, have the seller provide a list of inventory including tools, office equipment, furniture in the club house, etc\u2026<\/p>\nQualify the Property<\/h2>\n
Due Diligence<\/h2>\n
Close<\/h2>\n