Mobile home park inspections

[Shaun Troyer]

I am under contract on a small mobile home park in my city. Just wondering what you want to have inspected for possible issues before closing. I talked to the local septic pumping company,he said that there aren't any issues with the septic systems that he can tell. But there are 2 wells on the property as well. Currently has 9 park owned homes and 3 empty pads. My first MHP so any advice would be appreciated.

[Jack Martin]

@Shaun Troyer to highlight the basics of DD, we like to break those up into 4 areas: financials, initial walkthrough, compliance, and paid inspections/services. If you are seeking to keep the initial out of pocket expenses low, begin with the items that require just your time, but not money. Get familiar with the financials to determine if the value of the park is in line with the seller's price expectations, do an initial walkthrough so you know what you really have, then spend time on the compliance to make sure there are no deal killers. After that, you will need to spend money on the inspections, surveys, environmental, etc.

Financials - Review of the financials can be tricky, particularly if the current owner has not kept the books correctly, or if they are trying to hide something. But the goal here is to underwrite how you would expect the park to operate and see if that lines up with what the seller is demonstrating. This is where you can begin to see where there are operational inefficiencies, cost overruns, or areas where income can be improved. If you haven't underwritten a lot of deals, you will probably miss things that experienced operators would catch. My advice is to look at lots of deals and underwrite them all. There are so many variables with MHPs that the more deals you see, the more obvious it will be when you find a good deal. 

Initial Walkthrough - Confirm 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 how they are running the park (collecting rent, problem tenants, sales of homes, marketing efforts, recurring maintenance items, problem areas in the park infrastructure, etc).

Compliance - this 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.

Inspections - If all of the above checks out, now it's time to start spending money on paid services. Inspections should include electrical, plumbing, and septic/sewer contractors (to address the underground infrastructure) but also can include pool, home inspections, asphalt, and more, depending on the park. The one item to pay attention to is to always try to work with contractors who are familiar with mobile home parks. That is not always easy but trust me, it is worth making 50 calls to find the right contractors who work in MHPs and understand them. When you meet with the contractors, have them help you understand what you have, what will be required to maintain what you have, and what you should be budgeting for future capital improvements. A survey and phase 1 will be required if you are getting debt and it's always smart to get those done either way just for peace of mind, so make sure to budget for those as well.

Congruent with the items above, we are also putting together our strategy and budget for the park, performing our rent survey, and performing our market demand study.

All the best,

Jack