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Updated over 4 years ago on . Most recent reply
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Mobile Home Park Due Diligence Tip #1
You've done it! The postcards, the cold calls, the schmoozing with brokers - it's paid off. You've got your first mobile home park deal (mhp) under contract.
Now comes the fun... wait fun?
Okay, there's not much fun about due diligence. Unless you like looking at blurry snapshots of bank statements and asking for the umpteenth for the seller to send both sides of the title.
One way to at least keep things interesting - think of yourself as a detective who's been given a bunch clues. Your job? Find out if the "deal" is telling the truth or not. (I used to play dungeons and dragons so maybe that's why I think that way LOL)
Alright, here's a practical tip
You should have a list of diligence items that you'll be requesting from the Seller. Put that list in an Excel or GSheet.
Then as the items comes in, put links to each one in your document.
In the process you'll create a 'document's library' that you can easily reference as you go through the process.
Later as you progress and have questions about documents, you can copy and paste part of that document into another document to share with your seller.
I've included here a screenshot of a sample documents library from a deal closed.
(This is the 'final version' and differs slightly from the working version which is usually in a spreadsheet form)
Keeping files in a folder also works but I like this process because it's easy to reference later and I can also easily add notes about each document in one central place.
Hope this is helpful for others.
Anyone else have a Due Diligence Tip to share?
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![Jack Martin's profile image](https://bpimg.biggerpockets.com/no_overlay/uploads/social_user/user_avatar/239232/1621435424-avatar-jackmartin.jpg?twic=v1/output=image/crop=871x871@113x69/cover=128x128&v=2)
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The way we like to approach due diligence begins with determining if the value of the park is in line with the seller's price expectations. To properly value a park requires a fairly deep understanding of how they will operate, given all the potential variables. Some of those variables are the size of the park, number of vacant spaces, number of POHs, number of vacant POHs, number of MH spaces, number of RV spaces, the park amenities, the age of the park, underground infrastructure age and condition, park location, size of the market, value of SFRs in the market, city water or well, city sewer or septic, other utility sources and whether or not they are direct billed, deferred maintenance, cost of management, and more. I won't dive into that evaluation here, since this thread is about due diligence, but just keep in mind every park is unique and without understanding all the variables, it's possible to misinterpret the value the park.
With that said, if you determine the value is there, then it's time to start due diligence. We look at over 100 items during the inspection period, and keep in mind, some those items also require a fairly deep understanding of how the park will operate, given all the potential variables that can be present. To highlight the basics of DD, we like to break those up into 4 areas: financials, initial walkthrough, compliance, and paid inspections/services.
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.
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.
Once we open escrow, we do the initial walkthrough where we 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)
The compliance portion of our DD 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.
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.
Alongside our inspections, we are 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