3 Bad Mobile Home Deals | Real Estate Investment

On the quest for your first or next mobile home park purchase, it is beyond important to make certain proper due diligence is performed and not hurried if at all possible. While investing in mobile homes and mobile home communities, I fortunately have taken the time to triple check our due diligence checklist for each mobile home park that is considered.

Below is a list of the few properties that have nearly tricked me into purchasing them under false pretenses, likely leading to stress and lost money. Learn from these examples and aim to perform all due diligence accurately and in a timely manner.

3 Bad Mobile Home Deals I Almost Fell For

1. Dave’s Property

One of the first communities I ever looked at had only eight mobile home pads in the park. All eight lots were occupied mobile homes that the park also owned. Four homes were rented out for over $450 per month, and the rest were vacant and in need of repairs. The asking price for this community was so low that it would allow me to recoup my entire invested capital back in less than 2.5 years once fully rented.

The immediate drawbacks to the park were that I did not want to rent homes, the mobile homes were from the early 1970s, and the amp service to each vacant home would soon need to be upgraded from 50 amps to 150. However, even after I planned to replace all the old homes with newer used mobile homes, this deal and the location was shaping up to be a small capital investment that could net a very good cash flow once fully occupied.

The Deal Breaker: It took four phone calls and two physical appointments to the zoning office to finally learn the truth about this park’s legal status. This group of eight mobile homes was not ever correctly permitted as an official “mobile home park.” Instead, the land owner back in the 1970s placed eight mobile homes on his land.

At the time placing eight homes here was quite legal, but 40 years later the zoning laws had changed, and the zoning department manager informed me that any time a mobile home is removed from its foundation, it may not be replaced with another mobile home. The zoning manager suggested that if I buy the land, I develop it into town-homes or condos. Seeing as I would not be able to replace the homes once removed, I politely backed out of the deal.

Lesson Learned: Always aim to first talk with the management in any government department you deal with for due diligence purposes. It wasn’t until I spoke directly with the manager in the zoning department that she quickly corrected her subordinates who had been telling me wrong information from the start.

Definition: Legal non-conformance means that although the current mobile homes on the land do not meet today’s codes and standards, they are allowed to remain as long as they are currently there because the homes did meet the requirements of the day they were installed 40 years ago. This is also know as “grandfathering.”

2. Pecan Street

This local 78-unit mobile home community looked gorgeous. The description online gave a detailed description of a lavish mobile home park that was approximately 40% occupied, with mobile homes, a pool, a clubhouse, and happy residents. Even checking the park through Google Earth showed a number of mobile homes, cars moving around, and even a traditional home acting as the park’s office. Best part of all was that the seller was very motivated to sell.

The immediate drawback to this park was that I was going to have to fill roughly 50 mobile home lots over the next few years with 50 new/used mobile homes. I mention that this is a drawback, but I was very happy and willing to add homes to the community so that I might have increased lot-rent revenues and resell the homes for a profit.

The Deal Breaker: After local flooding in the area 11 months prior, all the mobile homes and the office had been removed. The owner had failed to mention that the community was no longer producing any income and was free and clear of all mobile homes; the park was a blank slate with city utilities and some minor debris. After calling the seller and voicing my concerns, he apologized and admitted other folks had the same confusions as well.

Lesson Learned: Be ready for anything and laugh when you can. While the seller did waste a little bit of my time, I did get a good laugh as I was driving home and learned the lesson to always verify, verify, verify with current pictures what the park’s accurate condition is before an appointment is ever made to see the property in person.

3. Sullivan MHP

This 24-unit mobile home park located in a great Alabama city was being sold for a very competitive price and attractive owner financing terms. The real factor that attracted me to this deal was that this community had the vacant land to expand the park into seven more acres of mobile homes. This would add on 40-45 more future mobile homes and lot-rent payments.

The immediate drawback was that the community was only 50% occupied at the time I called the park owner/seller. However, this again was a problem I was more than happy to deal with over the next few years as I added homes and increased the revenue of the park month after month.

The Deal Breaker: This mobile home park was supplied water by its own private well. Additionally, for every two mobile homes, there was one septic tank that they shared. Based on these numbers, each extra mobile home pad would cost roughly $4,500 to develop — a cost I was happy to pay.

The deal breaker did not come until I contacted the state and Environmental Protection Agency. After making a few phone calls, I quickly learned that regulations had changed and any new mobile homes added to this community would have to comply with current regulations. This meant that only two mobile homes could be added to any single acre. This completely changed my exit strategy from adding 40-45 more homes to the community to now only being able to add a maximum of 14 mobile homes. When I re-contacted the owner, he tried convincing me the EPA would never find out how many homes and pads were being added unless there was a violation or complaint filed against the park. This was obviously an unsatisfactory answer, and I backed out.

Lesson Learned: Sellers may lie and/or omit truths for personal gains.

Conclusion

The deals in examples #2 and #3 are technically zoned and permitted as legal mobile home parks; however, always make sure you know exactly what you are buying and whether your future plans are legal in your city and county. When purchasing a mobile home park, you are purchasing a business. It is crucial to know exactly how this business has been operated in the past, how it is currently being handled, and what current laws, regulations and changes may keep you from achieving your financial exit strategies with this community. The way to know what you are buying for sure is to thoroughly perform your complete due diligence process for every potential deal with as much clarity and objectivity as possible.

What deals have turned out to be not worth it for you? What were the specific deal breakers?

Let me know with a comment!

Note By BiggerPockets: These are opinions written by the author and do not necessarily represent the opinions of BiggerPockets.