Mobile Home Park 1st purchase, need advice

[Craig Anderson]

Hi there BP! I've stumbled across a package deal to acquire 3 Mobile Home Parks.  The seller will carry 50% if I purchase all three parks.  The prices are right, and they all cash flow with tenants owning all but 2 of the homes.  These are smaller parks, but they cash flow nicely. 

What are some pitfalls with mobile home parks? 

What are some things that I should be mindful of before making this deal?

Are there specific questions that I should ask?

I've asked for the financial statements, and they look solid. This would be my first deal of this magnitude. I don't want my excitement to cloud my judgement, so any advice would be helpful.

Thanks!

[Clark Love]

The big one to check first is county/city ordinances.  Some counties and cities are very hostile toward MHP owners (for example, I have seen multiple municipalities with regulations in place that will not allow any additional homes to be brought into an MHP even if it is appropriately  zoned.  For example, if a home burned down then you or a tenant could not bring in a new one).  Also, if it has private utilities check these closely.  Ordinances and utilities can be major show stoppers. 

Here is a list of due diligence item I use on my MHP investments:

Check zoning and permitting compliance (city zoning)

Check local law compliance (with Sherriff and/or Police)

Search City Council minutes for any adverse mentions

Check with State Department of Public Health's Division of Community Environmental Protection (CEP) for compliance violations

Check with property neighbors for any disputes or pending legal actions

Water - Check with water provider for any open or recent issues

Sewer - Check with Sewer provider for any open or recent issues or complaints

Electricity - Check with electricity provider for any open or recent issues

Rent roll with space number, name of resident, move-in date, renter or owner occupied, number of occupants, monthly rent, additional charges, current balance due and any relevant notes about the resident

List of capital expenditures for the last 3 years

Get last 2 years of Profit and Loss statements

Get last 2 years of Tax Returns for the LLC/Park

12 months of Bank Statements for the LLC/Park

Current Accounts receivable statements

Build proforma for next 5 years using rent roll and expenses

Get owed taxes to City/County/Local gov

Get Insurance Quote of commercial liability insurance

2 years of utility bills

Property Tax bills for last 2 years

List of park owned home including copies of “rent to own” or sales contracts

Get list of vendors and contract status for each vendor

Talk with on-site property manager regarding issues

Conduct Onsite Property Visit with property manager

Spreadsheet detailing who pays all utilities including water, sewer, gas, electric, trash, cable, etc.…

Copies of any contracts that will transfer to buyer including laundry, trash, phone, equipment, etc.…

Dates and amounts of the last 3 rent increases

Signed rules and leases for each resident

Names and contact information of professional service providers including lawyers, accountants, engineers, insurance brokers, inspectors, appraisers, realtors/brokers, etc.…

Spreadsheet for utilities that details age, composition, capacity, physical locations, etc.…

Any drawings or maps of the park and infrastructure including lot sizes

Sewer plant or septic system repair and maintenance records

Disclosure from seller of current or recent problems with infrastructure including buildings, water, sewer/septic, gas, electric, etc.…

Names and contact information of contractors including plumbers, tree surgeons, electricians, gas inspectors, septic companies, roto-rooter services, etc.…

Hands On inspection of each POH (Be sure to identify SCRAP homes and assign a negative value)

Professional inspection of on-site electrical systems (document any deficiencies); Are box amperages up to code? Map of all boxes.

Professional inspection of on-site Septic systems (document any deficiencies)

Get current pad plat map (including lot numbering, occupied lots, and open lots)

Current map of infrastructure locations (e.g. sew lines, water lines, electrical junctions boxes, culverts, etc.…)

Review Survey and Survey Exceptions in Detail

Police Incident Reports for MHP