Due diligence


#1

I wonder if the fine folks on this board, who have purchased a mobile home park could give us a short or long list of due diligence items that we need to cover.

I know the basics, but for the benfit of the masses please cover all items.

I realize that I will need help on this, but I may be able to weed alot of deals out, without wasting much valuable time of others, not to mention my own time & $.

Thank You,

Rick


#2

Hmmm. Let’s see. Do you also want the history of the world in 100 words or less?

Am (hopefully) closing escrow in a couple of weeks and DD has consumed my life for the past couple of months. Here are some things to look at.

Start with the 60/30 rule and keep density to less than 10 per acre.

Sewers and city water are the only way to go IMHO.

Who pays for the water? If it’s you, you need to figure out how to make the residents pay.

What are the sewer and water pipes made of? Think plastic (schedule 40 PVC or ABS) good/metal (or clay) bad.

Send a camera down the sewer lines and expect unpleasant surprises. Also expect the slimeball, I’m sorry - the seller, to tell you there has never been a problem.

Can you fit 16x 80s in each space? The answer should be “yes.”

Avoid flood and other hazard zones. There are too many deals in non-hazard zones.

Are there any dealers or other mobile home related businesses in the area? If not, find out why.

Figure out how you are going to fill empty spaces before you close escrow.

Is the community legal? Does the seller have a permit to operate?

Assume anything the seller gives/tells you is a blatant lie and proceed from that point.

Who owns the electrical and gas lines? It had better not be you.

Amperage per space should be at least 100 with the ability to upgrade to 200 if needed.

Ignore the seller and agent and talk to as many residents as you can. There are many reasons the seller doesn’t want you talking to them. One of the big ones is that residents often will alert you to problems the seller would prefer you never became aware of.

Get pre-approved for a bank loan before you begin negotiations. Money (as in financing) talks.

Plan to spend much more money and time on DD than you ever thought you would.

Be very nice to City Hall and the local health inspector. Chances are you will see them far more often than you anticipated.

Join the statewide trade group.

Become familiar with companies like Edison Micro Utilities.

Get a phase 1. If you are too cheap to do this, then you have no business being a community owner and should stick to Lonnies.

Find the best inspectors you can and be on site when they are inspecting. Your presence makes them work harder.

Read this forum religiously and attend things like MHM, MOM, bootcamp, etc.

Get a survey that shows all structures at or above ground level except for the homes. Costs more but you will certainly need it.

Don’t stop asking questions of everybody but GOTC and do the needed legwork yourself.

Think long and hard before you enter this venture. The profits are there but it is an enormous amount of work and you could lose your shirt if you are not careful. I certainly did on my first community.

That’s enough. I suspect it will take you more than a while to digest all of this.

Rolf


#3

Thank you, Rolf for the reply,

I have not been ignoring you, I have been waiting to see if anyone else weighs in on the issue, and digesting this info.

I agree that city util’s are the best, but is well/septic always a deal killer?

I want to have a check list of sorts that I can use to quickly weed out the losers, so as to not waste any more time than necessary.

I think that we may have met at MOM, in the resturant next to the hotel. I appreciate your input.

Rick


#4

Rick,

Did we meet at the MOM in WA or FL? So many faces and names! Too tough for my tired old brain to handle:-)

Here is why I don’t like septics:

Suppose you have the best system in the world, sandy soil, long leach lines, concrete tanks, huge leach fields, low-flow fixtures, no inspection/licensing requirements, etc., etc. And then some piece of human trash cooks a batch of meth in their kitchen and pours the waste chemicals down the sink. You now just lost every single microbe throughout your entire system and are now the proud owner of a toxic waste site. Congratulations.

As far as wells are concerned. See above. That stuff has to go somewhere and it will make a beeline for the aquifer. Have you ever seen regulations decrease? At some point, it is almost a certainty (right up there with death and taxes) that you will have to start monitoring/treating the water you supply to the residents. I don’t know about you, but running a community is hard enough without having to also become a regulated utility. Also, water tables across the country are dropping while drilling and pumping costs are going up. That’s a lousy set of crosshairs in which to be caught.

Having said the above, if you got into a situation where city utilities are coming due to development or other factors, buying a community with wells and septics could be a very smart move.

Rolf


#5

Thanks Rolf,

We met at MOM this year in Edgewater, Florida at the resturaunt by the hotel on Friday nite, & then you sat near my wife & I on Saturday, at the front right side

I had not considered the “meth lab” aspect, that is scary, although we had heard that if a mh has been used for one, then it is virtually useless, as the authorities will not let it be used as a residence again.

I am looking at parks that are in the path of growth, & will have utilities available soon, in fact city water now. I really do not want to become a utility either, & have not made an offer on a park close to me (50 miles) because of the well/ septic issues & the owner in not testing well as required now, & I fear that could bite me hard.

No wonder there are so many parks available.

Rick

Post Edited (04-05-07 11:22)


#6

Rick,

I own a 24 pad park with 18 septic systems, some carry 2 homes.

I bought this park about 3 years ago. The seller had really let

everything go including the septic systems. Instead of replacing

the field lines he would have the tank pumped which worked fine

for a month or so. Of couse he told me that all was great. During

my DD I figured out that I would need 3 sets of new field lines.

I have spent about 7k on septic system so far and am having

very few problems. My biggest problem is grease, It forms a hard

crust on top and will have to be busted out after a long period of

time. Tenants have to sign a seperate form agreeing to not put

anything in septic except toilet paper. I also have installed cleanouts

so I can inspect for grease buildup in lines. We also treat each tank

with yeast and powdered milk every three months or so. I think it’s

cheaper in the long run to have septic systems. If your water bill

is one thousand a month, then your sewage will also be a thousand

a month, at least here it is. Hope this helps.

Tom