I’m doing due diligence on a park with 25 resident owned homes 14 of which are owned by a single owner. All homes were park owned 2 years ago and the owner sold those 14 POHs a few years ago to a contractor who remodeled them, rented and is now paying lot rent only and collecting home rents, so there is a single owner with multiple homes who would have significant bargaining power. It looks like a good deal but the park owner wants me to sign an NDA stating that I would not talk to residents and the park manager and disclose the sale as he is afraid that the manager resigns once he finds out about the sale. Is there any way to verify how many residents have delinquent balances for lot rents without a breach of the NDA? I’m mostly concerned about the single owner with multiple homes.
Someone having power over the owner due to volume of homes owned by them is unacceptable to me. verification of the info you need will have to be through the current owner. You can send someone else in to talk to the residents as a prospective resident but other than that not much after signing nda
You need a cover story:
-you’re from the insurance company doing an inspection/audit
-you doing an annual inspection or refinance for the bank
The seller is probably right to be concerned about anxiety created on site if its divulged the park is for sale. Using a cover story to conduct due diligence though is a totally legitimate compromise, and the seller is being unreasonable if they balk at the request.
What questions should the residents be asked?
The owner needs to provide you a trailing 12 month operating statement. This will show you a breakdown of the collections for each pad month to month and any delinquencies. Without this information you cannot fairly value the Park and know whether you’re contracting it for a reasonable price.
Managers are easy to replace as they should be doing as little as possible - typically only reading meters or taking calls to sell a remodeled home. If the owner is concerned about the Manager jumping ship then the Manager should already be replaced.
A word of caution: some of the information about the Park best comes from the residents - things that recurringly break, information about bad tenants, etc. This will help you understand during diligence how many people you will likely need to evict and any pain points on infrastructure. To me it’s a big red flag if he is not willing to let you casually speak to anyone living there.
"Is there any way to verify how many residents have delinquent balances for lot rents without a breach of the NDA?"
There is no 100% for sure way. But, by reviewing the sellers bank statements and looking at the deposits you should be able to pick up on if anything fishy is going on and the bank statements don’t reconcile well with the sellers reported collections.
As Michael said also, a single individual having that much pricing power over the park is not good. If the homes are older I wouldn’t be super concerned since it’s less feasible for the contractor tenant to yank out a bunch of homes. If they’re newer homes though I would be concerned.
"What questions should the residents be asked?"
I’d highly recommend reading Frank and Dave’s “30 days of Due Diligence” book, it’s excellent
I would start with looking at the bank records. Specifically, deposits. Match the deposits against the rent roll and make the best determination you can about what percentage of the revenue the owner is actually collecting. Getting the seller’s tax returns on the park should also be your priority right now. Talking to the tenants provides absolutely 0 value when it comes to determining their payment history.
You’ll need to do a walk through of each POH at some point, but you aren’t there yet. Cross the tenant bridge when you get there only after you are sure the actual financials & bank statements line up with how the seller is portraying the park. At the end of the day, no one in the park ever believes any of those cover stories and they do nothing more than to put the seller’s mind at ease a little. You shouldn’t even be dealing with the tenants yet though.
Thank you for the info! If I still decide to take a risk and go for it, how long does a foreclosure take on a resident owned home in Florida?
Florida is always an interesting state. @Coach62 would probably know…
Foreclosure? I assume you mean eviction?
Questions to ask:
- how’s your plumbing, drains back up? Park drains back up?
- Any electrical issues.
- Roof, window, etc. leaks?
- Any issues with the park or residents you know of?
- Anything else I should be aware of? Dogs, problems with the neighborhood, etc?
- Hows the land drainage, standing water, floods, etc.?
The other issue I see is the rental tenants are generally NOT as good of a tenant as owners / residents. Owners usually care about the neighborhood more than tenants do. I would have an issue with this also on many levels.
As far as evictions, it’s not too bad at all. Just do as Frank recommends and get them on a month to month if they’ll sign it.
The only issues you may run up against is the mobile home park residents are treated differently than apartment residents under the law. Because I still own most of my park’s homes, I’m not legally considered a MHP yet, so I don’t have any experience with those laws yet.
If you were to buy the homes, I think you would own a large enough percentage to no longer be a MHP under eviction law. Then you could sell them off to whom you wish.
I hope that helps some, good luck.
Thank you very much, Coach62! Sorry, I did not make it clear - all homes are resident owned, residents hold titles, so as I understand it’s foreclosure, not eviction. They were park owned 3 years ago, then the park owner sold fourteen of them to a contractor who remodeled, resold them, and is now paying lot rents and collecting unit rents. The other units were sold to residents by the park owner. So, in worst case scenario, if it turns out that many of them are not paying lot rents, how long does it take to foreclose and how much does it cost in Florida?
Unless you hold a mortgage on the home, it’s an eviction. Foreclosure is where you take ownership of the home. It sounds like you don’t have much experience in rental property ownership?? I hope you at least take the boot camp. You need to read some books on rental property ownership and investment.
As to your eviction question, just read it from the source: http://www.leg.state.fl.us/Statutes/index.cfm?App_mode=Display_Statute&Search_String=&URL=0700-0799/0723/Sections/0723.061.html
It’s not a hard read. The laws in FL aren’t that bad at all. Frank considers it a tenant friendly state, I don’t agree with that. He mainly says that (as I understand it) because of a clause in the law that requires you to offer the park to the residents when you go to sell it. I don’t think that’s a huge deal. You offer it to them, if they don’t buy it you just put it on the market.
Actual eviction cost is not that bad and evictions are generally pretty quick, 3-6 weeks tops, usually 4-5 weeks. Court costs, etc. are a few hundred $$. If evicting for non payment, the tenant has to post a bond equal to the amount you claim they owe, which I’ve only had happen once in the last 10 years, and they still lost because they were short on the amount owed. It’s almost ALWAYS a default judgement, no matter how much they threaten to sue you. If they had the money for the bond, they’d just pay the rent.
Ok… I thought it was a foreclosure when you evict a home owner… If the boot camp happens to be in south florida I’ll certainly take it. Already read the due diligence manual. Anyways, this forum is great, thanks again everyone for your comments!
The MHU Home Study Course is a step up on Park operation and covers this better - great read.
True, but it’s also dated. Like saying you need a YP ad.
You are evicting the homeowners, who can take their home with them, or you can offer to buy it. If they abandon it, you can take it via abandoned property laws.