Quote from @Eric Grunfeld:
Good Morning:
I am looking at a mobile home park in Arizona.
This would be my first property purchase for this kind of property.
What kinds of questions should I ask the seller's broker when looking at this potential opportunity?
I look forward to your thoughts/feedback.
All the best,
Eric
I think the first thing I would tell you is to ask yourself if you really want to buy a mobile home park?
Mobile homes are viewed as depreciating assets by lenders. In Florida, the homes aren’t considered real estate. Lenders will not loan the same way they do on brick and mortar houses. So you may have challenges getting financing for a mobile home park. I’m not an expert on them by any means, so I’m sure others may speak up to other suggestions, but unless it is an insanely great deal my suggestion would be to stick to brick and mortar properties (personal opinion).
As for questions to ask, I would pay particular attention to the sewer/septic system. A lot of times those systems are consolidated across multiple units, and can be more expensive to replace if it’s not on city sewer. If it is on a septic system, I would want to know how old the system is, and how often it has to be serviced.
Often, any paved roads are your responsibility - so pay attention to the condition there as well.
You don’t mention whether the the mobile homes in the park are owned by the park, or by the tenants, but I would make sure who owns the actual units. Then there is of course the question of maintenance and who is responsible for that as well. If you will own all the units, deferred maintenance items can quickly get expensive. From hot water heaters, to air conditioners, to roofs, etc - so note the condition of all the major systems in each unit. If 80% of the air conditioners are 20 to 25 years old, it could be a lot of maintenance and replacements in the coming years.
Also know that depending on the nature of the park, you could be dealing with a class of renters that is one step below typical brick and mortar renters. It really just depends on the nature of who they have put as renters before you take it over, but I would probably ask to tour a number of the units and do inspections so you can get a good feel for what you might be getting yourself into.
If the park is privately held, I would be very careful relying on the sellers financial statements. Anyone can say that something earns $10,000 a month, for instance, but show me where the $10,000 a month came in on a month after month basis. It’s like ARV values on flips… sometimes they are ballparking the actual numbers to you. I would probably ask to see a years worth of bank statements where he deposits his money into his business checking account. Obviously he may not be depositing all of it, but that would lend itself to other questions…. Like “How do I really know how much money this thing is taking in?”
I would also want to know how many people are behind on rent, and by how much. Depending on their management style, they may be letting people stay in properties when they are months and months behind - point being: the rent roll might not reflect all the rent that is actually being collected.
Also, it isn’t unheard of for the park to give discounts to certain renters for doing things at the property… Like mowing the yard, or even collecting the rent from the tenants. I’ve seen it where a person got free rent for kind of being the on-site manager. It’s not like that’s a problem, but it does affect your gross income on a monthly basis.
Odds are you will pay the water bill… I would ask the city to tell you the average water usage over the past months just to get a feel for what that expense looks like. Obviously check on electricity too… but it is likely it is just common areas that you have to cover.
Those are a few things that would come to my mind.
Randy
