Mobile Home Park Seller with Low Expenses and Poor Records

[Keith Meyer]

Hi All,

I'm currently evaluating a park with 65 pads with no vacancies, at a lot rent of $450 for a Gross Income of $351,000. The Seller is willing to finance the park with a low Down Payment, between 5-10%. The Seller is very proud of his low quoted expense ratio, and is using this as leverage to command a higher monthly payment based on his existing cash flows. 

The park currently includes water/sewer/trash with rent. Below are the expenses which have been provided to us so far with some digging:

Operating Expenses
Property Management Fee	$ 9,600
Accounting & Admin
Utilities	$ 60,000
Insurance	$ 2,000
Repairs/Maint	$ 6,000
CapEx Reserve
Legal Fees
Advertising
Property Taxes (% PT)	$ 35,000
Licenses, Permits & Dues	$ 100
Landscaping
Offsite Management Fee
Collections Loss
TOTAL EXPENSES	$112,700

The property tax figure I calculated is based on an assumed reassessment after the sale of the park. This comes out to an Expense Ratio of 35%, on the low end for a park which pays for water/sewer/trash. For the expense categories I have listed which are blank, the Seller has said his expenses are "negligible", and I can see it's going to be a real struggle to get his historic records on this. Assuming we will conduct thorough due diligence on the park infrastructure and utilities, I'm looking for guidance on the following:

1) Does anyone have experience in extracting this type of information from challenging Sellers? Since we're planning to Seller finance, I won't really be able to pull the "the bank would need to see this type of information" card in this case.

2) With submetering and billing back utilities (assuming a 15% bill back loss), we would be increasing the cash flow by $50k per year. At an 8 CAP, this would increase the value of the park by over $600k. While this is a strong improvement, I'm worried about further upside potential to the park. The current Owner has done very little in the way of capital improvements, and already has rents pretty close to the higher end of the market. Are there any suggestions on how to add relatively inexpensive value to a park after takeover? We will certainly fix up the entrance to the park, and I'm also considering adding security cameras.

3) As an older park, the lots are somewhat small and close together. I've verified that the park is grandfathered to be able to swap in new homes for the existing pads and not have to meet modern setback standards, so we could fit 65' - 70' homes on virtually all of the lots. Though the park has had minimal turnover I'd like to ensure we're in a good position to bring in new homes when needed. What's the best way to verify the lots meet minimal clearances needed to bring in new homes? Would a Dealer be able to tell me if certain areas of the park are too tight to be able to install a new 70' home? 

Thanks all in advance for the helpful advice.