Deal Analysis & Due Diligence - Questions

[Steve F.]

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!

[Bruce May]

@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