So you’ve decided you want to buy a park, but it isn’t under contract yet. Congrats on taking your first step towards joining the mobile home park industry. It can be a tough road to navigate, but with the proper support and preparation, you will succeed! This where pre-due diligence is key.
With that said, there are many considerations to be had, even at the earliest stages. Think of a scenario where you’re buying a park that’s not under contract yet. You’re still assessing whether it’d be a good deal for you. You should consider the following categories: financial, municipal, management, and lending. These are the four biggest concerns for pre-due diligence.
Financial
Your first step in pre-due diligence here is to get a copy of the park’s rent roll and PNL for underwriting. This helps to ensure that the revenues are as reported by the seller. This should also be the case if you were to annualize the rent roll. It is also important that all revenues are funneled to their appropriate destination. From here, you’ll have to go through all of the expenses. You’ll need to determine if what’s reported would be a feasible outcome in your hands.
This can help you to plan for adjustments, like management, taxes, insurance, and more. It is also advisable that you consult with lenders during this time. This determines your loan eligibility (down-payments tend to be 30% plus or minus. Be prepared for credit, income, and property inquiries.
Municipality
Municipalities play a large role in the mobile home park industry. Having a solid knowledge of the areas procedures can come in handy. They have the power to show lenience, as well as swing the hammer. This can mean consistent violation citations, possible tax hikes, city connections, and more. If you’re looking to own a park, you’ll want to build a good relationship with the municipality.
It’s also good to do your pre-due diligence on the city’s locale and demographics. Is there a lack of economic growth? Is it a growing or shrinking population? Do predominantly young people live there, or retirees? While there’s usually always a diverse crowd, it’s still good to get a read on these. They can mean the difference between loan approval odds, successful resale, and more.
Management
The following are some good pre-due diligence questions to ask with regards to management. How is the current owner managing the property? Does he handle the money directly? Does he have an on site person that’s licensed and handles everything? If not it could that you’ll need to get your own manager. It’s good to know how the property is handled in its current state. It can present implications about the property, and what it’ll take once you’re the owner.
You’ll also probably consider bringing on a third party manager. This position would handle off-site managing. Bookkeeping, reporting, overseeing on site staff, and more. You can use a national group to find them, put together your own group, or be this manager yourself. It’s also good to know about the utilities arrangement sooner than later.
