Mobile Home Park Inspections and Due Diligence

[Mitchell Hart]

Myself and two partners are under contract on a 10 unit MHP in Greene County, NY with well water and septic. The property also has three houses and a 5 unit apartment building.  I am looking for an inspector and wondering what due diligence other than the inspection is prudent to do during the due diligence period.  Any suggestions or help would be greatly appreciated.

[Jack Martin]

Every state has its own MHCA (manufactured housing community association) which usually is made up of industry professionals, attorneys who understand the landlord-tenant act with respect to mobile home, owners of parks, and MHP management professionals.  With a quick google search, you should be able to find them and make a connection.  Seek to connect with the attorney on the board and that will be your best bet. 

With respect to the DD, 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.

Financials - Review of the financials can be tricky, particularly when the current owner has not kept the books correctly. 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 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.

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 inspections. These 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 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 contractors who work in the park arena and understand 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.

As we go through DD, we are also 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