Hi everyone,
We are a total newbies to mobile home parks, and desperately need an advice.
We are looking at buying small park in north part of Florida, with 11 sites (2 tenant owned, 9 park owned), well and septics. Well and septics are working fine, and demand in the area is quite big. We are ok with maintainence on park owned homes. Owner asks for 100k and is willing to finance 50k for a 2 years, which is ideal for us.
So, now after we agreed on a price, what is next?
Do we go to the lawyer first and after contract is signed do due diligence?
What are the things we need to check when doing due diligence?
Thanks in advance.
Get a contract – probably you’ll want a lawyer if you don’t know what you’re doing. It should allow you to cancel the deal for any reason if you are not satisfied during DD.
DD – check
Infrastructure – all utilities and their condition. Roads, lights, electric pads & pedestals, gas, sewer, water. Sewer & Water especially tricky. Get a professional to inspect. Is capacity adequate? Are all the sites & homes actually usable & working?
Legal – all permits & licenses. Code violations? Legal property description matches what seller owns & what you think you’re buying? Any encroachments? Easements?
Government – check in with the police chief, fire marshall, code enforcement, etc. Is the city going to be with you or against you?
Get informed on local laws & codes. (Notice period for lease changes, for example)
Demand – are you sure?
Phase I environmental for sure you will want this.
Seller’s expenses – are they for real? Get copies of the bills.
Seller’s gross receipts – are they for real? Get copies of the bank statements (to see that the income actually is coming in). It should equal # of lots X lot rent.
Leases? What do they say? Is anyone on a long-term lease (this is bad because you can’t change it when you take over until it expires.)
How long have tenants been there and what are they “like?” Do you need to make changes?
Make a list of all changes you are going to make on day 1. During DD is when you ask all the questions that allow you to be the “expert” when you take over. You should know everything there is to know about everything by the time the DD period is over. Even things that are not “make or break” the deal should be documented during DD because the Seller is unlikely to be interested in answering your questions after closing. Like, “where are the utility shutoffs?” and “Who do you use for plumbing repairs”
There’s probably more, but that’s a good start.
Brandon, thank you very much for detailed answer, totally makes sence!
Does it makes sence to do some due diligence (like calling city, inspecting well and septics) before we sign a contract? Park is not on the market so there are no other buyers.
I would not spend money on DD prior to a signed contract, but there is no harm in checking out as much as you can for free (by telephone, by internet, etc). I would not recommend talking to the residents or manager before asking the current owner for permission. Unless you are sure you’ll stay anonymous.
Also, I forgot to mention COMPS. Get a list of all the comps (other parks) in the area and find out as much as you can about them. What are you going to do differently from them? You will likely do about the same.
Thank you again Brandon, really helpful info!
Some mpre questions if you don’t mind, what should I talk about with police chief and fire department? And also, I read all the topics about private utilities and it is still unclear to me why private utilities considered evil. Of course city water amd sewer are easier, but still if we can keep up with maintanence of well and septics for 10 units, would it still be very costly to have them? If 70+ yobowner can handle them without property manager, I guess we can either, with all our experience in construction that seems doable, but still here everyone says small park with private utilities is a no-no.
If I can put in two cents,
You should talk to the police department and fire department for local health and safety codes, crime rate, and other safety concerns the city has about the park and directly surrounding area. Ask them about drug traffic in the area, thefts, any people they have run ins with that live at that park. They are usually very helpful if you are open to them for why you are asking.
Private utilities can go over capacity very easily. If they have a 2 house septic for example and have three houses attached to it, that is not a good thing and will require expense to fix on your end when the city sees it change hands. Septics and wells fail faster than city water and sewer. When there isn’t a city doing regularly scheduled maintenance on sewer and water lines for example, its easy to miss things or not be completely sure what is needed for repair. Wells can have some nasty bugs in them that can kill people, not to mention the daily upkeep that you have to have time to manage and be skilled with water quality testing so you don’t get sued by some one that could get sick by fouled water (either by over or under treating). I do pool balancing each summer, which is equally gross. Wells boggle my mind.
Private utilities can open the owner up for litigation if anything goes sideways. There might be more to it but that is what I see.
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