I’m looking to buy my first MHP very soon. I haven’t finished reading the due diligence manual yet but how important is it to actually visit the park before closing on it? Is this a vital component to a successful MHP purchase?
You absolutely need to visit the park prior to closing on it. This is a commercial asset and this is not like a SFH where you can sometimes send an inspector out and use their best judgement. Your diligence schedule will typically look like this:
Review of financials, obtaining pictures and videos of the park and homes, phone calls to the city
On-Site visit - full walk through with current manager, face to face meetings with city officials, face to face with banks
Third party reports
This is a condensed nutshell, but the on-site portion is critical once you’ve decided the park makes economical sense. You can also re arrange and combine the days in the diligence manual as needed. Last park we closed we only took 4 weeks from contract to close. Our earnest money went hard after 17 days. We wrapped up most of our off-site stuff during negotiations and were comfortable with the financials, the area, and the demand prior to signing the contract so we started diligence in step 2.
Last thing on that subject. No matter how much you do off-site, the on-site visit will always reveal surprises (good or bad) that you hadn’t anticipated. Our on-site visit is generally 3-4 days long, but these are usually full days.
Gotcha, thank you @CharlesD!
You are buying a business not just real estate so you must go to the property, meet the owners, meet the current manager, inspect condition of the park, the homes, roads, etc…
If you have good systems in place and a somewhat decent manager it will be a very part time venture but if not it can be a headache.
Thanks @Brian_Z, I totally agree. I assumed it would only be the smart thing to do but I’m so used to being able to make things happen over the phone and through proper delegation that I wasn’t sure if this was one of those things.
I quite agree with @CharlesD, about the 3-4 very full days. I did 3 or 4 of these trips before closing on our most recent park and each time they add a little something to think about for next time.
I appreciate everyone’s contributions to my original question above! I would also like to know @frankrolfe’s viewpoint on this. I have been managing a small Chinese restaurant for the past 8 years every single night of the year except Christmas night and it’s extremely hard for me to do any kind of travelling whatsoever so I’d like to minimize the time I would physically have to be at a park I would want to buy. Like I stated before, I’ve become an expert at successfully handling and delegating most things from my phone or via email due to the fact that I’m always at work. I also run multiple small businesses so there is always something I’m having to take care of. I have no problem “doing whatever it takes” in efforts to purchase a great MHP but I could use some pointers on how to manage my time most effectively if and when I should ever have to physically go visit the park I want to buy. By reading through the due diligence manual, it appears that a lot of the items can be taken care of over the phone or via email. Any thoughts?
While you might be okay with remote working, the tenants won’t pick up their phone for you to interview them, the contractors will tell you whatever you want to hear so they can get paid, and the Seller will manipulate whoever comes out there on your behalf to make sure the deal flies through. The park just needs a little TLC - trust me! You need “someone” knowledgeable and vested on the ground to make sure you don’t get screwed…this should be someone you have an operating agreement with or similar business arrangement - not Joe contractor from Angieslist with 5 A+ reviews.
This is your money and getting this step right determines if that money grows or shrinks. All parks are different and reading the Due Diligence Manual is not sufficient to think you can do it remotely.
If you’re an expert at delegating most things then delegate your manager position for 3 days and go out to this Park. This is what it takes.
That makes sense and I agree @jhutson, however, the “one” thing I haven’t been able to delegate effectively is my managerial position at the restaurant. I live in Central Florida…there’s not a lot of competent individuals here to pull from even for the simple stuff unfortunately. Perhaps competent in intellect but not so much in work ethic, lol
If the goal is to spend as little time in the field during due diligence, here would be my observations:
The number one way that most people buy a bad deal is not as a result of failing to spend enough time in the field analyzing it, but in not spending enough time analyzing it at home or on the phone. The key deal killers are 1) not having a permit to operate 2) failing private water or sewer systems 3) master-metered gas or electric that is not in perfect condition 4) having significant POHs owned by one party that can pull them out at will 5) not running the numbers properly 6) not verifying the occupancy 7) not verifying all operating costs based on past historical performance 8) having survey or title issues 9) floodplain that is not analyzed 10) a lousy market with poor dynamics 11) not having a large enough metro area and 12) not being able to get or retain a loan. Of all these items, the only ones that you verify in the field are the physical occupancy and the quality of the location (which is further verified – and more accurately – on-line. You don’t actually create a ton of value by standing in the park and staring at it. That being said, you’d be crazy to ever buy a park without physically visiting it. When you get there, you need to 1) walk the park both on the front and back of the lots 2) look at the competition and see how you size up 3) get a complete handle on the location 4) visit with the city if there seems to be any doubt about your permit and 5) make a list of the nicer homes as these will be your manager candidates.
How much you need to physically visit a park is a function of the type of park you buy. If you buy a park in a good market with few to none POHs, city utilities and no master-metered gas or electric, you can get by with a fraction of the effort that is required for a park that has lousy dynamics. We bought a park in Black River Falls, Wisconsin, ran it for years, and sold it, and only visited it once. It always had perfect collections, full occupancy, and no utility problems. On the other hand, you could buy a park with a failing lagoon and visit it every day of the year and still go bankrupt with it.
If you’ve been running a restaurant for 8 years, you probably have the ability to “manage the wave” as Dave Thomas said, the founder of Wendy’s. That means you can spot the risks before they happen, and fix them smoothly and proactively. Dave Thomas gave the example, in his book on Wendy’s, of two managers: one comes up on lunch time and finds he does not have enough pickles and buns, and the other thinks the night before “I better buy some buns and pickles” and even starts cooking the burgers slightly before the noon rush so that they are ready. It’s a skill that you either have or you don’t. If you have this knack, it makes managing both the diligence and actual operations much simpler.
You can get around physically meeting your manager/greeter using phone or skype interviews and pre-screening them by seeing the condition of their homes and yards in your park (based on that first visit). Your skills in running in restaurant will probably give you the ability to train and manage people better than most people.
You should take a complete HD video of the park when you’re there, so you can re-drive it many times without having to be there in person. You can also have your manager video the park every month and send it to you and watch it together on team viewer.
To properly manage a park you have to follow just a few gauges 1) collections 2) occupancy 3) water usage and 4) property condition. You also need to do a monthly comparison of your budget vs. actual performance. None of these require physically being in the park.
Can you spend too much time at a park? Yes. I’ve done it. Wasted a whole year at my first park for no reason other than my nervousness, and all I got out of it were some crazy stories of hookers, carnival workers and such. Can you buy and operate a park while visiting it only one time? Yes. But I think the best blend would be visiting it before buying it, visiting it one more time before closing to make sure that the park and market has not changed in a negative manner, and then visiting it at least once every 6 months unless you find that you have no value from being there, and then scale back to once a year.
Thanks @frankrolfe that’s exactly what I needed to hear and great points! I definitely think it’s important to visit the park, I just want to make sure I can maximize my time and efforts while there in the small window I’ll probably have to get away from work to go visit it. Thanks again!
If you think finding someone to manage a restaurant is difficult wait till you try to find a competent park manager. The pool to draw from can be extremely sketchy but you may get lucky first time out.
Imagine having to ask the guy driving your meat deliver truck to manage your restaurant.
I can only imagine @Greg lol! I’ve been lucky here in Central Florida to find a great property manager for my single family home rentals but even they are far and few between. If I wind up buying a park close to where I live instead of out of state, I’ll just have her manage the park as well unless there is already an outstanding manager managing the park when I buy it. Unfortunately though, I have a feeling 9 times out of 10, that won’t be the case.
Frank, your advice is impeccable, as usual.
If you pay attention here, you will find the banker can be your best friend. If the bank is willing to get into bed with you, you can hopefully rest assured that at least someone with some minimal sense has glanced at your paperwork, and asked you the kinds of questions you should be asking yourself. You may have to guarantee that loan, though, which makes this less risky for the bank and riskier for you. So, as @Jefferson says, ymmv.