Due Diligence Ideas When Looking at MHPs

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After viewing the details about a potential property you are interested in, your first step may be a Letter of Intent (LOI) outlining the parties’ initial understanding before entering into a binding contract. Be sure your offers provide substantial time to complete your due diligence on the property.  DO NOT SKIMP THE DUE DILIGENCE.  Income is often overstated, and expenses understated, or maintenance is deferred. You will need to verify, financially and visually, what you are told about the property.  Talking to residents can give you some insight.  (Do not share information about the potential purchase/sale.)  

To aid in your due diligence, items you should request from the seller include:

  • 3-5 years of Profit and Loss Statements
  • 1-2 years of monthly Profit and Loss Statements
  • Balance sheets for the past three years 
  • Rent roll including terms, deposits, and payment history
  • Three years of tax returns 
  • All insurance policies, including riders
  • Existing loan documents with all contact information
  • Deed to the property
  • All leases with addendums and riders 
  • Any contracts for services and advertising (trash, maintenance, extermination, vending, etc.), along with any that might be assumed in the purchase 
  • Recent appraisals 
  • Engineering and environmental reports
  • Survey with the legal description
  • Business license
  • Physical inventory
  • Two years of utility bills
  • Permits for sewage and water and any others that might be needed in the area
  • 12 months of bank statements
  • Documents regarding computer, security, and phone systems
  • Three years of property tax statements
  • Fire systems inspection reports
  • Litigation history, including past and pending (if none, get signed statement from seller). 

Additional requirements will typically include: 

  • Phase 1 and Phase 2 
  • Engineering and Environmental Inspection and Survey
  • LUST survey (Leaking Underground Storage Tanks)
  • Appraisal and financial audit
  • Tenant and mortgage Estoppel letters, verifying that everything is accurate
  • Title search with tax and legal verifications

With so many individual owners having a wide range of circumstances that have taken place within their parks over the years, parks are often unique. Sometimes it is a challenge to decipher what the operations and financials genuinely are.  The professionals on your power team will guide and assist you through this process.

Investing in mobile homes offers excellent returns with little capital required to get things started.  Mobile home parks provide excellent opportunities for long-term wealth. Start by learning about these homes and parks in your investment market.  Determine which strategies will work best.  Line up your teams and funding sources. Get your marketing plan up and running.  Make offers! Evaluate the potential. And, finally, execute your plan if the investment meets your criteria.

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