Failing & Potential Turn Around Park - Gut Check

We’ve been talking to the aging owners of a park in a good SE market for a few months now, and I’m about 90% sure we should walk away from this one, but wanted a gut check from this community. The owner is dying and his wife is eager to sell. They own the park outright and have been the only owners. They’re offering full seller financing. This seems on the surface like a great opportunity. But given that this would be our first park is raises a lot of red flags about deferred maintenance and potential environmental disasters.

Here’s the specs:

  • 35 acres close in to a 100k+ city
  • 70 permitted spaces
  • 53 occupied, 10 POHs
  • Lot rent $275, $500 POH rent
  • Well and Septic - 2 wells, each home has a septic
  • 8 different electrical meters that they then submeter

The park used to be larger, but they had to shut a section down due to environmental issues. The major issue at play here and the big red flag is that while their yearly gross rent income is around $200k, their expenses related to managing the well are getting astronomical. This year they’re almost operating at a loss because they’ve had close to $50k in environment fines and testing fees. Their NOI last year was $45k, and it’s trending about $10k this year.

I talked to a guy from the county and he wasn’t able to say for sure if the well needs to be replaced or if they’re simply not maintaining it. He did make a point to mention that they’d be really excited to get a new owner in and would work closely with helping them fix the issues. Either way, the owners have been behind on paying the environmental contractors - which is likely part of the major expense they saw this year. Obviously theres a lot of mismanagement happening.

My concerns about this are obviously the well issues, along with the unknown septic issues that may be lurking. Plus I’m pretty sure this qualifies as master metered electricity and I know that’s a headache. They’re asking 1.5 million, which they based on their tax assed land and POH value. I’m confident they’d negotiate to a significantly less than that.

I’m ready to walk away and tell them good luck, but wanted to get the experts opinions before I do. Thanks in advance!

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What are the issues with the wells? Hard to know if it is a simple fix or time for a new well.

Here is is a link to a due diligence check list for water systems with wells I put together.

http://merrillwater.com/drinking-water-system-due-diligence-questions/

Feel free to call if I can help you out in any way

Phillip Merrill
503 734 7400

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Thanks for the link. It’s hard to say really because no one is sure if it’s an operational or functional issue. They have reports of complaints about pink color and sulfur smell, iron & manganese taste, and some pressure issues in one section of the park. I’m told its a greensand filtration system.

at a projected noi of 10k and price of 1.5 m and all the other things you mentioned , walk

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The only way I’d stay interested is if:

  1. There is a nearby water line that can be connected into easily to get off the wells,
  2. The electrical company would take over the electrical system and bill tenants directly,
  3. Due diligence on the septic didn’t kill the deal, and
  4. The price was adjusted based on all of those items above.
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There IS a nearby water line…BUT it’s in the neighboring county 1/4 mile up the road. This property is on the outer edge of a rural county, but borders an fairly urban one. I imagine this would also be a headache.

You should at least give @PhillipMerrill a call to see if you can answer the water well issue, but if it will take a bunch of money to figure out the best option for long term clean water then I would run away from this thing.

I’d definitely be pessimistic about this deal working out. On top of the water well issue - the Seller’s debt obligations could be more than the Park is worth, and if they won’t take a loss on it then why bother?

Let us know how it goes.

What’s the harm in negotiating your price, making your offer, and getting it under contract…then doing your due diligence on the water issues? Who is inspecting the wells on a regular basis as per law? Can you talk to them? Can you get copies of their reports?

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Get it under contract, due diligence then low ball. If you have the time / energy to solve all the mysteries and can shift them to the seller it might be worth it. Sounds like they may be able to come down in price if they’ve owned it a long time and may not have a lot of obligations. Good luck!

@laurennelson, as per your post:

  • “But given that this would be our first park it is raising a lot of red flags about deferred maintenance and potential environmental disasters.”

My husband and I own 2 MHPs in the Southeast:

  • 1 Stable MHP
  • 1 Turn-around MHP

Personally, I would:

  • Run Away
  • Run Away
  • Run Away

Some of my concerns:

  • First Time MHP Owner: Purchase a Stable MHP as your first MHP - Then move on to a Turn-around MHP
  • Environmental Issues: “The park used to be larger, but they had to shut a section down due to environmental issues.”
  • Environmental Fines: “This year they’re almost operating at a loss because they’ve had close to $50k in environmental fines and testing.”
  • Deferred Maintenance: “The owner is dying and his wife is eager to sell.” - This probably equates to no one is able to oversee and maintain the MHP as needed. Thus, a lot of Deferred Maintenance.
  • Water = Well: “Their expenses related to managing the well are getting astronomical.”
  • Master Meter Electricity: Run…Run…Run…

Please for your sake and sanity:

  • Run Away
  • Run Away
  • Run Away

We wish you the very best!

Thank you so much to everyone who has responded. This is exactly what I needed to hear, and encouragingly aligned with my own thought process. I think I’m going to keep talking to them to gauge how low they’d be willing to go, because they pretty much just indicated via email they’d be open to dropping price by close to 50%. Because of it’s size, the park will cash flow pretty well below a certain price - even with major expenses. I’m apprehensive to put in an offer that would start due diligence because they’ve been moving SO slowly with sharing info and not being forthcoming with expense disclosures. Their records are a mess, so I’m not confident they’d even be able to provide everything we’d ask for in DD. Also being our first park I’m just terrified in general of screwing up. I’m going to keep the dialogue open and see what they do.

Thanks again to all for the wisdom and experience you’re willing to share!

@laurennelson , as per your post:

  • “Their records are a mess, so I’m not confident they’d even be able to provide everything we’d ask for in DD.”

As per your post this is a Mom and Pop MHP and Pop is dying.

I can tell you that they will not be able to provide you everything you ask for in DD.

Thus, if you need (or your Bank needs) specific items to calm your fears (or get a Bank Loan), you will not receive them.

We purchased a Turn-Around MHP from the Estate of a Mom and Pop in the Metro Area that we live. We could not even get the MH Titles at Closing (like when we were actually purchasing the MHP).

Previously to this Turn-Around MHP, we had looked at tons of MHPs (and wrote a few Offers). This was actually our third Offer (in 3 years) on this same MHP.

At the time we purchased our Turn-Around MHP we had “cut our teeth” on a Stable MHP. Additionally, our Turn-Around MHP was located physically close to our home (30 minutes).

As a First-Time MHP Owner you are looking at a lot of hurdles (like HUGE hurdles):

  • Water = 2 Wells
  • $ For Well Management = “Astronomical”
  • $50K = Environmental Fines & Testing Fees
  • Water Line = Neighboring County - 1/4 Mile Up Road - (First off will the Neighboring County even allow you to connect to their Water Line? If yes, how much would it cost to connect? The actual Water Line is 1/4 Mile up the road…then you have to run all the lines in your MHP.)
  • NOI 2016 = $10K (This is with 53 Occupied Lots @ $275 Per Month)
  • Sewer = Septic (Personally, I am not concerned about Septic…unless the wells supply the water…or the Septic has not been maintained. Both of these issues exist.)
  • Environmental Issues = Shut Down A Section Of The MHP
  • Electric = Submetered By 8 Different Electrical Meters

Sometimes a MHP is NOT a deal at any price, especially when you are a first time MHP Owner.

However, I find that a lot of MHP Buyers only want a “Cheap Price”. They do not look at all the costs associated with bringing the MHP up to a Stable Level.

I would not purchase this MHP at any cost based solely on the Environmental Issues and Electrical Submetered and those are not the only issues that this MHP has.

As per your Post there are 10 POHs which surely have Deferred Maintenance. Once the current Tenants leave you will be forced to dump lots of money into these POHs to rehab them and get good Tenants. Yes, you can give them away. However, do you really want the Tenants that will take them?

My advice is to:

  • Run Away
  • Run Away
  • Run Away

However, from your post I get the sense that you might purchase it if it is discounted enough.

Please remember that some things are not worth owning at any price.

We wish you the very best!

Thanks Kristin,
You’ve made a ton of good points, and I trust your judgement and experience more than mine. I really appreciate it. We’re going to walk away from this one.

@laurennelson , thank you for your kind post.

You might want to see if Frank or someone else on the Forum is interested in paying you for the lead to this MHP.

As per Frank he pays a lot of money for referrals to MHPs. I have not referred any MHPs, so I do not know the process. However, you might get some money to go toward another MHP.

We wish you the very best!

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We looking for parks with private water and sewer. Package plants, lagoons, wells dosnt matter. Parks that are distressed and under enforcement action failing treatment plants and lagoons or contaminated wells welcomed. Will pay referral fees if park is not currently on the market or listed.

Also offering 1hr free phone consulation for those who are buying or operating wastewater and drinking water systems in parks.

Feel free to call if you are interested

Phillip Merrill
Merrill Water Systems
503 734 7400

Definitely interested, and it’s not on the market. I’ll PM you.

Please pardon my late reply, but I dropped by looking for info as it relates to new requirement rules for footers, etc under mobiles, as well as reasons / fixes for flooring failures. Read your thread and would like to share some alternative info / fixes.

I have decided to become a biologic farmer, and in that I read an extensive interview ebook called Nutrition Rules. Two of the 22 interviews in that address problems that you will be acquiring; environmental and water. I would suggest you get the ebook and read it as it offers practical solutions that work in combination with nature.

the website for it is: nutri-tech.com.au