Can you skip Survey and/or Phase I environmental study?

This is our first park purchase and we are doing due diligence following the workbook from boot camp.

When we asked the seller for a copy of the survey and environmental study, the sellers agent said they did not do it when they purchased the park a few years ago and they also did not get it from the previous owner.

Some agent said these two items are not required by bank so it is not necessary. However, I am concerned.

Based on your experience, can I skip these two items?

No, you cannot skip them. I would say double no if you involve a bank as they have three to four times more money at risk than you do.

These two items are cheap insurance policies to protect you from potential, but rare bankruptcy-causing problems down the road. In addition, if you are working your deals backwards from your exit, then you already know that your next buyer will be doing a phase 1/survey. You can’t have any confidence in your exit if you skip this step.

I have had Phase 1 and Phase 2 ESA’s performed buying properties in the past, and wholly agree with the Due Diligence manual and @CharlesD feedback.

While the likelihood of there being contamination is small, the impact of it could be in the millions if the government requires you to remediate. It’s worth the $1,500 you MUST spend to avoid this scenario.

Charles and jhutson - thank you so much for the insight. I like the way you compare it to insurance policies. I will never go without fire insurance for my properties.

Another question I have is about inspection. The park is 50 spaces with 4 stick built houses and 10 park owned home with the rest being tenant owned trailers. A commercial contractor/inspector told us that inspecting the infrastructure only will be about $1200. That includes checking all sub meter, electricity panel but not including running camera or pressure test gas line which he recommends us to get a licensed plumber. Do you think that is a fair price or should we just go with a plumber and an electrician and then use the inspector only to do inspection for stick built houses and park owned home? Sorry for so much details.

I think you can get a better deal getting a licensed electrician and plumber to do the inspections. You should be able to come under 1,200 for both electrical and plumbing, including the camera job and pressure tests.

You should be able to get a good electrical inspection for about $500 and plumbing for $500 for a 50 pad park. This won’t include inspection of the stick homes, or the park owned homes like you mentioned.

Awesome. Thank you very much!

The $1,200 for those inspections is a great deal if the inspector is any good. Check him out thoroughly. I’d probably charge twice that.

As far as getting the plumbing and electrical done for $500 each, maybe you live in a cheap area. I’d think that would be about twice that also, at least in my area. If you can get it done for that great. Just make sure they’re competent.

The inspection field runs a huge gamut in quality. From very good to absolute crap.

My wife is still not convinced that we need to do Phase I and Survey. She had two reasons:

  1. The bank did not required it.
  2. We have purchased a couple of apartment complexes and many single family, 4 plex, tri-plexes, we have never done any of these two. (Phase I or Survey). What makes mobile home park special (compared to apartment and houses).
  3. The park is located in a central area surrounded by shopping, houses and other mobile home parks.

Do you have any talking points I can use to convince her :smile:

Yeah, it’s stupid :wink:

Seriously here’s the deal. I just finished up my phase 1 cert and will be performing them starting next week.

If there is an issue that you’re unaware of, say some buried tanks of heating oil on the property that are leaking. If you don’t get a phase 1 you are 100% liable for all cleanup costs no matter how many millions it could cost. It doesn’t matter that it was done 50 years ago and you didn’t know. YOU ARE LIABLE!

If you get a phase 1 you qualify for the ILD or innocent landowner defense and can get out of the liability and may qualify for a superfund cleanup.

It’s very cheap insurance and peace of mind and honestly you’re a fool if you don’t do it. Not to be insulting, just a fact.

Frank has a story where he bought a park without a survey or a defective survey or something like that. Turned out he didn’t in fact own much of the park he’d bought.

Someone correct my Frank story here, I know that’s wrong.

Let’s just say you don’t get a survey. Everything goes along fine until one day when the neighboring land owner sells his property and the new owner of that property does get a survey. Come to find out, a row of homes are all 6" over the property line and all need to be moved 6". Moving just one is more expensive than getting a survey. That’s one scenario that could play out and has played out for numerous park owners who didn’t get a survey.

You are potentially investing $100’s of thousands of dollars into a park the size of what you are talking about. Not doing a phase 1 or a survey is just insane. It would be in the same league as operating the park without insurance. Also, just because you didn’t do this on your apartment purchase, doesn’t mean you were correct. Professional apartment buyers also do phase 1’s & surveys.

The Frank story is he bought a Park where the Title Commitment’s legal description did not match the survey’s legal description and the transaction ended up being like 1 acre of the 10 he needed. If these legal descriptions don’t match up you cannot guarantee what you’re getting!