Deal Analysis & Due Diligence - Questions

6 Replies

Hi folks,

I was wondering if I could get some thoughts on a deal I have under contract, and also some guidance on due diligence.

I just put a park under contract in the Buffalo, NY area, with the following metrics:

Price: $640K (no vendor financing)

39 pads, with 35 occupied @ $285 per month (residents pay pay utilities directly; water is paid by the park, but charged back to the residents on a quarterly basis)

33 pads are resident owned; 2 are sold on a RTO basis for $100 per month

City water & sewer

Park tenants are mostly older and retired (no riff-raff; current owner is an older ex cop)

Based on a high level analysis, I would say the fair value of the park is:

$285 x 35 x 60% x 12 months / 10% cap rate = $718K (so the purchase price is +/- 90% of "back of the envelope" fair value)

There is potential upside in the rent, because $285 is very cheap for the area. Other parks are renting for closer to $390 (albeit, they have amenities, doublewide trailers and this is a plain park). I figure I can slowly raise rents by $50 per month, plus the potential to fill the empty lots down the line.

Overall, I think the purchase is okay, but I'm struggling with how to complete the due diligence. I know all the items I need to request from the seller (based on various checklists on this website, and from Frank Rolfe's website), but for the physical due diligence, what should I do?

Should I hire a plumber, electrician and tree specialist to help verify the condition of the property? Are there any other professionals who typically help with this kind of task?

I don't really have a real estate agent I work in the area (the purchase was negotiated directly with the seller), and I'm not entirely sure how to proceed. Beyond that, I have never bought a mobile home park, so I'm not entirely sure of the steps involved in DD.

Any advice would greatly appreciated. Thanks!

@Steve F. your numbers look good and that really is a good price.

If you haven't bought it yet get the Due Diligence book at Mobile Home University that Frank and Dave wrote. It's a 30 day guide on what to do. You'll also need to hire a company to do a Phase 1 inspection of the property. This will cost you a couple thousand or so but will give you what you need. They have a reference company on the MHU site as well.

Two things I'd be worried about with this purchase are the fixed incomes of seniors. Just because you can raise the rent on them doesn't mean they can afford it. $285/mo isn't too bad but pushing it up higher might cause you a lot of consternation. You should also make sure there is no rent control in the city or on the park.

-best of luck, Bruce

I agree with Bruce  on all accounts.   I've got older tenants and they are very very needy.  Also they do resist rent increase more than average.   But look for things that you can do to spruce up the place while raising your rents to help with the pain of raising.   you need the due diligencework book from Frank and Dave.    Looks like a great deal!  Congrats! 

Thanks guys. I know a lot of the older tenants are on SS, so raising the rent significantly right away may not be feasible, but I plan to do it slowly over time, because they are getting a great deal right now.

Patrick, would you mind giving some more details on how these types of tenants are needy? Is it because they have too much time on their hands?, and call to complain?

I plan to have a local, offsite manager to deal directly with the tenants - I don't want them calling me ten times a day.

Looks like a goodt deal on the surface. Good luck on due diligence.  Buy the formal guide it will give you thorough info ( as opposed to a general checklist online) . 

Originally posted by @Steve F. :

Thanks guys. I know a lot of the older tenants are on SS, so raising the rent significantly right away may not be feasible, but I plan to do it slowly over time, because they are getting a great deal right now.

Patrick, would you mind giving some more details on how these types of tenants are needy? Is it because they have too much time on their hands?, and call to complain?

I plan to have a local, offsite manager to deal directly with the tenants - I don't want them calling me ten times a day.

 Yes they have too much time on their hands.  Remember, they are retired and rarely leave so they are looking for things to keep them occupied.  My retired renters and among the best but require a lot of time.  It's not a bad thing though.  They keep everything in line but if it gets to a point where they become extremely nick-picky you'll have to push back.  Good luck.

Originally posted by @Steve F. :

Thanks guys. I know a lot of the older tenants are on SS, so raising the rent significantly right away may not be feasible, but I plan to do it slowly over time, because they are getting a great deal right now.

Patrick, would you mind giving some more details on how these types of tenants are needy? Is it because they have too much time on their hands?, and call to complain?

I plan to have a local, offsite manager to deal directly with the tenants - I don't want them calling me ten times a day.

 Yes the older people have lots of time on their hands and seem to be more of a community type mentality.  Which is good some times but not always.  Word spreads fast, "did you hear he is raising the rent and he's kicking Mildred out"  on and on.  They just take more hand holding than a normal family type tenant.  How ever they seem to stay a lot longer so you have less turn around.  Its just a little different animal.  You just train the tenants that you are not going to respond to every little complaint and request.  I like older people in the apartment world, I don't have any experience with them in the park world yet.  Best of luck!

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