MHP Due Diligence


#1

Hello,

I am in the processes of purchasing my first mobile home park/community. I was curious as to what types of things should one look at while doing due diligence. I have run the numbers and the park will give me approximately 14% cap, and approximately 130% cf/debt service ratio. I am more interested in the physical due diligence check sheet. What things should one look at, or pay more attention to.

Septic

water lines

zoning

Any help would be greatly appreciated. Thank you for your time and assistance.

Brenton White


#2

#3

Thanks for the article. I appreciate it. Are there any due diligence items that you believe are specifically important to MHPs?


#4

Brenton,

I was done in by faulty infrastructure on a park I owned in Tucson. That and more than a bit of fraud on the seller’s part but that’s another story. You are smart to focus on the infrastructure as this can destroy any situation. The people problems are relatively easy to solve but, at least in my case, there was simply no way to bring the infrastructure up to code without putting in more money than the place was worth.

Here is what I learned:

  1. Make sure the electrical utility is responsible for the in-park electrical system up to the weatherhead. I had what the local electricians referred to as a sub-distributed electrical system. This is a fancy term for the utlity being responsible for placing a transformer on my property and letting me distribute the power from that point on. You wouldn’t believe the cost to do electical work.

  2. Don’t lose a lot of sleep over bad water pipes. This is predicated on having city water. I have no experience with wells. CPVC piping is cheap and easy to install. Pay attention to any local purge and testing requirements so as to avoid liability.

The one caveat here is to make absolutely sure you meet any depth and distance separation requirements for the water and sewer lines. This is critical. Even if you put in the system yourself without a permit you should pay attention to this.

Oh, and one more thing: Don’t be a cheapskate when it comes to putting in your pipes in sleeves anytime they go under a road. Throw in a couple of capped empty pipes inside the sleeves for unknown future needs. I do irrigation work (much more complicated than potable water supply) and I cannot tell you how many times this simple step has saved my behind.

  1. Sewers can be a big problem. If you have pipes made of Schedule 40 PVC or ABS, you are usually OK. These will last until hell freezes over. Send a camera down them and make sure the brown line is not higher than 2/3 the height of the pipe. If the top of the pipe is brown, you have serious back-up problems no matter what the seller says.

Cast iron sewer pipe can be OK depending on the age but be aware it will need replacing at some point.

Clay pipes? Open your wallet and get ready to pay for a new sewer system. Or investigate the possibility of pipe lining(trenchless technology). Had a 100+ year old home once and was able to reline the clay sewer line. Cost me only $10K vs. $30K+(California prices) to dig up the line and replace it with plastic.

There are 2 specific problems you need to be aware of:

a. A dip in the lines is really bad news. You will probably need to dig up this section as leaving it in place will cause you endless headaches.

b. This may not be politically correct but I found this to be true in my own experiences and was told this repeatedly by rooter companies. If you have many Mexicans in your park, budget money for water jetting on a regular basis. Mexicans often cook with lard. Think of cholesteral for sewer lines. This will stay liquid long enough to pass through their p-trap and then solidify in your sewer lines, especially in a dip.

Hope this helps. There is a lot more I could go into but these are the biggies in my experience.

Rolf


#5

Brenton,

Are you buying a park in NY state, 1st thing, check the property tax, because, the way NY state taxed, the property will always be over assess.

Sabrina


#6

Rolf: Thank you for the advice. Is there any easier way to get a hold of you? I would love to ask you more questions as the process moves along.

Sabrina: Yes I am buying a park in NY state. I would agree with you that NY taxes are rediculious. I am familiar with this unfortunately because I have only invested in NY for the time being at least. Where do you invest?

Thank both of you for your imput. It is greatly appreciated.

Brenton White