Mobile Home Park Investing Due Diligence

Mobile home park due diligence is an essential step to mobile home park investing. A few years ago I purchased a mobile home park for $36,000. Below is what I did in terms of due diligence.

Due diligence is an extremely important and lengthy process.  I developed a long list of things I wanted to check.  Some of these things could be checked from afar, but other things required me to be onsite.  Anything that needed to be checked onsite would have to wait until I had an accepted offer.

My overall approach was to utilize the 80/20 principle.  In short, I would focus most of my effort on the items that had the biggest financial risk.  The top two items I identified at the time were housing demand and utility costs. But, I’ll touch on other elements of mobile home park due diligence later in this article.

Housing Demand

Experienced mobile home park investors advise new mobile home park investors to only invest in large metro areas.  The primary reason is you don’t want to buy a park and then find out there is no demand for housing. 

In my situation, the mobile home park I was about to purchase was located in a small town. Going against the advice of experienced investors meant I needed to be sure housing demand wasn’t a problem.  One thing I had in my favor was that the park I was looking to invest in is the only mobile home park in this small town. 

To better understand demand, I did several searches for rentals and for houses for sale.  In addition, I spoke with people at the chamber of commerce, city hall, police station, the current park manager, etc. 

I also ran a for-rent ad in Craigslist to gauge interest.  Many experienced mobile home park investors recommend running an ad in this manner, despite not yet owning the park. Eventually I removed the ad, because I wasn’t comfortable advertising for something I couldn’t quite deliver at the time. 

However, while the ad was still active and people called, I explained I was in the process of purchasing the park and that I may eventually have a home for sale or for rent. As it turns out, a gentleman that called at that time ended up becoming a resident of the park months later. 

The best thing I did to truly test demand and test other things about my plan occupancy, was to convince the Seller to allow me to bring a home to the park before closing.  I’ll touch on this strategy in the original article titled How to Buy A Mobile Home Park.

Moving a Mobile Home to The Park to Test Housing Demand

One of my biggest concerns with purchasing this mobile home park was related to demand.  What if I bought the park and spent thousands of dollars to fill empty lots with mobile homes, but then I couldn’t sell or rent those homes? 

Such a situation would be a complete disaster.  I had already done research pertaining to vacancy rates, the available housing for rent or for sale, I had talked to realtors, etc.  And although my research indicated there was a need for more low-income housing, I wanted actual proof.

It occurred to me that one way to address my concern was to bring a home into the park to see if I could rent it or sell it, while still in the diligence period.  If I could not rent or sell the home, then I would back out of the deal.  On the other hand, if I was successful at renting or selling the home, then this would validate my plan. 

The worst thing that would happen is that I would own a mobile home in someone else’s park, if the sale of the park didn’t go through. However, I figured I could still recover most of my money one way or another. 

An additional benefit to pursuing this idea was that I would be testing every phase of the process of adding homes.  This includes finding a home, buying it, moving it, setting it up, connecting utilities, finding a buyer, etc.

Executing the Plan of Buying, Moving, Setting, and Selling a Home

When I mentioned this idea to the seller, he was 100% in favor.  And he went out of his way to help me execute the plan.  In fact, I didn’t have to make another trip to the park at all.  I was able to do everything remotely, which was a huge test of my overall plan. I could see in advance how it would work to remotely add more homes to the park.

This plan worked out perfectly.  I found a mobile home for sale for $5,000 and found a trucker that would take care of moving the home for $3,000. 

When the home showed up at the park, the seller took care of ensuring the home was placed in the right spot and coordinated with local contractors to connect the utilities.

Overall Cost of Buying, Moving, Setting and Repairing a Mobile Home

Although the home was only $5,000, by the time everything was done, the total bill ended up at $18,000.  This was a bit of a surprise, but keep in mind this too was good to learn early on. 

When the mover showed up to pick the home up, he discovered the frame of the home had some prior damage and had to do some repairs to the frame.  That cost $400. 

During transport several shingles in the roof detached and flew away.  At that point I made the decision to install a new metal roof.  That cost $4,145.

The seller had made it a bit of a habit to add a small mud room to each home he owned.  This is a very nice feature and I thought it would be good to continue to do that.  This ended up costing $3,053, or $24/SF. 

Now I know I shouldn’t spend money on mud rooms, but I had to go through this experience to learn that. 

Other expenses included the utility connections, some underbelly insulation, skirting, cleaning, etc. 

Selling Mobile Homes Rent to Own / Owner Financed Mobile Homes

Selling homes was another area of the business model I was happy to test before closing on the park.  For my overall plan to work I would need to fill one to two lots each year for several years. 

As mentioned earlier, one of the benefits of owning a mobile home park is renting out the land, rather than the homes.  Therefore, my plan was to sell any home I would bring to the park. 

But what low-income family has $18,000 in cash to buy a home?  Or what low-income family has credit good enough to get a bank loan?  Not many, at least not in this small town.  Therefore, I made the decision to sell the home I had moved into the park and finance the sale myself. 

I advertised the home as a rent to own deal and was getting enough interest.  I sold this mobile home, owner financed, two weeks before closing on the park.  The buyer’s total payment was $600 per month without utilities.  They were thrilled and so was I.

This decision to test the demand for housing by buying, moving, and adding a home to the park, during the due diligence period, was one of the best decisions I made.  Not only was I able to prove to myself that there was sufficient housing demand, I was also able to test the entire process of adding homes to the park.  

Utility Expenses

Utilities, especially water, can be one of the largest expenses in a park.  One important thing to understand about mobile home park investing is that sometimes lot rent includes some utilities (i.e. water and sewer).  Other times, lot rent does not include any utilities. 

In this park lot rent was $300 per month, but it included water, sewer and garbage.  As I investigated the water bills, it became evident the current owner was spending way too much money on water.  In fact, I was able to determine that there were two or three water leaks that needed immediate attention. 

The seller and park manager investigated my concerns and were able to locate and fix the water leaks.  One good thing is that all the leaks were easy fixes.  Two of them were leaky toilets and one of them was under a home, but above ground. 

This situation told me the park utilities had been mismanaged and that there was potential for improving the park’s finances by simply getting a handle on the utilities.

However, I was also interested in transferring the water bill to the tenants.  This would require installing meters under each home to bill each tenant according to their actual use.  Doing this would eventually cause tenants to reduce waste and eliminate leaks because now they would be responsible for the water bill. 

This is a plan I eventually implemented after I purchased the park.  However, I must note that it didn’t feel right to ask the residents to pay an additional $50 or so to cover their water bill.  Instead I lowered the lot rent from $300 to $255 when I transferred the water bill responsibility to the residents.

When the change was implemented, most residents saw an initial increase to their overall housing expense. However, once residents understood they could lower their water bill by conserving water they were able to lower their water expense.

Inspecting the Park

I didn’t think it was necessary to hire a third party to inspect the park.  I did however traveled to the park and spent a couple of days in town talking with the seller, the park manager, a couple of residents, a residential real estate agent, bank representatives, etc. 

While visiting, I took lots of pictures of the park and the park’s surroundings. I was also able to look inside a few of the park owned homes and meet a few of the residents.  The park looked clean and safe.  Most of the park owned homes were over 30 years old but were nice and clean inside.   

The park also has a newer building that has a small laundromat and bathrooms for RV residents.  Everything about this building was in good shape and clean. 

Other Due Diligence Items

Covering due diligence in depth would require writing a small book. My advice, is to always keep focused on the big picture. This is where the 80/20 rule comes into play. Start by focusing your due diligence effort on the 20% of the items that cover the 80% of the risks. Once that is handled, you can move on to other items. Other items include:

• Research and understand other costs such as taxes, insurance, repairs, maintenance, etc. 
• Talk to contractors that have done work at the park and find out what work has been done and what remains to be done.
• Talk to the police department to find out if there is any illegal activity in the park.
• Research the price of mobile homes for sale in the area.
• Research other mobile home parks, RV parks and apartment complexes in the area.
• Understand the infrastructure of the park, including electrical limitations.
• Confirm the park is permitted and is zoned appropriately.
• Confirm the seller has title in hand for the park owned homes.
• Obtain copies of tax returns, bills, etc.
• Talk to other park owners in the area.
• Understand other income streams (i.e. laundromat, RV income, late fees).
• Get copies of leases, park rules, and other important documents.

Mobile Home Park Due Diligence Resources

This website has a detail mobile home park due diligence checklist. There are many other websites like this out there. You’ll need to decide what items are relevant to you and what to ignore.

Below is a video from Steve Edel speaking at the 2018 TMHA Conference on how to perform mobile home park due diligence.

And here is a video from Kevin Bupp on the biggest due diligence pitfalls when purchasing a mobile home park.

That’s all for now. My hope is that this article has provided you with some perspective from an actual first time buyer and that it will be helpful to you in some way. Be advised that mobile home park due diligence can take a long time. As such, it is important buyers give themselves plenty of time to perform a proper due diligence.