Mobile Home Parks Due Diligence

14 Replies

Anyone with experience purchasing Mobile Home Parks able to give me some advise on things to ask or look for in the due diligence phase?  What metrics should I use to determine if it is a good deal?  Thanks in advance.   Todd

ask for the last three years of Schedule Es and bank statements. Ask for last two years of rent roll. Call up all the sources or the expenses (like the water company and electric company to verify the expenses are accurate). Do test ads on Craig’s list in that city. Find out what other parks are renting their lots and homes for. 

depends on your own personal business model and investment philosphy.  But the draw of the industry is tenant owned homes are better business model and more profitable dollar for dollar over the long run with less management oversight

If you are planning on making a living or becoming financially independent, it will come much faster owning the homes. In my area a rent will bring $400 - $500 more per unit than just lot rent. As an example, 30 lots with no park owned homes. 30 x 275 = $8250 per month. 30 x 725  = $21750 per month, $13500 difference. One full time guy can handle 30 with occasional outside help. Even with $50000 labor  and $50000 in repairs per year. Own homes $161000 net , pads only , $99000. From our experience in our area, labor and repairs is closer to $50;000 so the difference is over $100,000 per year. From my experience, the extra effort to oversee one person pays a lot. You could also outsource it if you wanted nothing to do with it. Another consideration is the difference in park value based on cap rate. Granted some don’t want owned homes but many of us do.

As @Ryan Groene said it depends on your business plan.

@Todd Hoffman First things first, how to know if it is a good deal (what metrics)?

I look primarily at COC (20% min) and opportunity to increase profit (add homes, submeter water, etc).

What questions to ask and what to look for during due diligence?  Absolutely everything. I aim to know more about the park than anyone.  There are some good podcasts on due diligence. 

@Ed Emmons  I believe the opposite is true.  Investing in TOH parks is a faster way to financial success than investing in POH parks.  An apples to apples comparison should include the park price.  

The bottom line is if you have $200K down it wold be better to buy a 50 lot TOH park than a 15 lot POH Park.  Now, if you can buy a 50 lot POH Park with quality homes for the same price, then you would be right. 

@Ed Emmons What is your strategy for filling lots with POH?  In most cases this requires a capital expenditure that should be factored in a Comparison analysis. 

Say you own a park with some vacancies and another park comes for sale. What is the best return for your investment the new park (assume 50 lots for $200K) or adding 7 POHs to an existing park (for $200K). 

In the first scenario you could be sitting on 100 pads with a $400K investment . In the second scenario you could be sitting on 20 to 25 pads and homes for a $400K investment.  Then there is the economies of scale factor. Raising rent $25 on 25 pads vs 100 pads is a difference of $22,500 at a cap rate of 10% you created $222K with $0 additional investment. The same economies of scale would could apply to submerging utilities and other cost cutting areas. 

@Jeros C.  I have bought more than 75 homes and the most I have paid is $8500. In my area you can’t buy pads for $4000 each but rather about $15000 to $22000. I usually get about 100% return on my purchases of good used homes. If I have $7000 into the home I will get all of that back within a year in rent.

You Should ask: 

1.  How many lots

2.  How many vacant lots

3,  Any park owned homes

4.  Any rental homes

6.  What is the lot rent

7. What was the NOI for the last three years

8.  City water and sewer

9.  Master metered

10. Why are you selling

11.  Do you need all cash or do terms work 

12.  Does the seller have three years of tax returns they are willing to show 

13.  What is the best price for cash

14.  What is the seller going to do with ALL the money

I prefer to ask these exact questions in that order.  Take it slow and Listen to what the seller tells you and good luck out there!

I have bought more than 75 homes and the most I have paid is $8500. In my area you can’t buy pads for $4000 each but rather about $15000 to $22000. 

$8.5K to buy is good, but by the time you move the home, skirt it, ad steps, hook it up, make repairs, I suspect the total cost is easily $12K to $15K per home. 100% of which will be out of pocket. 

Compare that to the financing you get when buying a park. Say the pad is $15K to $20K, then out of pocket of $4K is not unreasonable. 

Thus, looking at the numbers in a “per pad basis” we find that when you buy a home (to add to a park) you use 3x more capital than when you buy a park that already has a home in that given pad.

Unless an investor can obtain financing when adding homes, it is fair to ask:  What is a better investment, adding homes to an existing park, or buying another park.  Likewise, what is a better investment, owning a 30 pad park full of POHs or owning 2 parks for a total of 100 TOH pads (for roughly the same out of pocket investment)?