Mobile Home due diligence

5 Replies

Hi fellow investors! I have interest in buying a mobile home park and I have never dealt with a deal like this. Does anyone have a checklist or a list of questions to ask a mobile home park seller when doing the due diligence process? 

Any help is much appreciated!

@Brandon Thibodeaux

There is actually a lot to make sure of and things do change in a case by case basis, but here are some of the General things you should ask about (IMO)

1) check with the town/city if the park is legal or legal nonconforming and if so how many spaces .

If the park is straight up illegal, you can stop your questioning here. Don’t even go forward. You can be shut down as soon as you sign the paperwork to take control. Not a risk I want to take.

2) Does it run on public or private utilities?

City water and sewer, or wells and septic tanks?

Or even lagoons and waste water treatment plants? (I would avoid these personally due to expense and other issues that can come up)

3) is the park in a floodplain?

A very good thing to know especially if the area is prone to rain.

4) how many homes are owned by the park or the residents?

The model that is preferred here is to not own the homes but instead the land under the homes only.

5) a phase 1 environmental survey.

The other steps can mostly be done by some legwork and asking the right people but this one will cost you money. I think it’s better to do your own from an unrelated third party since there are some sellers out there that are less than honest.

If the phase 1 comes back as a failure, I’d say stop your due diligence here and Mose on to another deal. Environmental cleans up can be MASSIVELY expensive.

There are many other things to check like the metro area, crime rate, average rent of the area, etc. but these are the basic things I think you should know.

There are investors here who know a ton more than I do so they can probably fill in some more details. I hope this helps you a little. Good luck!

@Brandon Thibodeau  We look at over 100 items during the inspection period, and keep in mind, some those items require a fairly deep understanding of how the park will operate, given all the potential variables that can be present at a park. To highlight the basics of DD, we like to break those up into 4 areas: financials, initial walkthrough, compliance, and paid inspections/services. 

We like to begin with the items that require just your time, but not money.  Take a look at the financials to determine how the park is currently running, and then do an initial walkthrough so you know what you have. If everything is still a go at that point, spend time on the compliance to make sure there are no deal killers.  Then it makes sense to spend money on the inspections, surveys, contractor bids, etc.

Review of the financials can be tricky, particularly when the current owner has not kept the books correctly. But with experience, it is pretty simple to understand how the park should be running and see if what the seller has shared lines up. This is also where you can begin to see where there are operational inefficiencies, cost overruns, or areas where income can be improved. Many times you can do this prior to opening escrow, but there are cases where a seller will not deliver financials until you commit and put up EMD.

Once we open escrow, the initial walkthrough we do includes confirming the number of spaces, the general condition of the utilities at each space, the status of the home on each space (POH, TOH, vacant, RV, etc.) and the condition of the rest of the park and amenities (roads, clubhouse, office, pool, etc). We also like to sit down with the current manager and go through everything related to running the park (collecting rent, problem tenants, sales of homes, marketing efforts, recurring maintenance items, problem areas in the park infrastructure, etc) 

The compliance portion of our DD includes everything related to city, county, and state compliance to continue to run the property as a park. That includes zoning, (including a zoning letter to confirm legal use) building, permits, sales tax, licensing, etc. In addition to that, we like to check with the police, fire, insurance, sex offender status, and anything that might affect the operations of the park. The goal is to avoid surprises, understand what challenges may be present, and what impact the results of inspections may have on our future operations of the park.

The contractor inspections should always include electrical, plumbing, and septic/sewer (to address the underground infrastructure) but also can include pool, home inspections, asphalt, and more, depending on the park. The goal is to always work with contractors who are familiar with parks. That is not always easy to find, but trust me, it is worth making 50 calls to find the right contractor who works in the park arena and understands them. When you meet with the contractors, make sure to have them help you understand what you have, what will be required to repair and maintain what you have, and what you should be budgeting for future capital improvements, if needed.

Alongside our inspections, we are putting together the strategy for the park, performing our rent survey, running our test marketing to understand the demand in the market, and creating the budget for the project.

All the best, 

Jack