Like any form of commercial real estate, there are unscrupulous sellers out there who are hoping to sell you defective property, or property that is massively over-priced. Mobile home parks, due to their general lack of understanding by the public and historically poor record keeping, are probably the most dangerous when it comes to buyers being taken advantage of. However, there are no attempts to defraud by a seller that cannot be guarded against if you follow some simple rules.

Never Trust Any Numbers Without Validation

There is no number that a seller can present you that you cannot verify. If the seller has he has 60 rented lots, go out and count those lots. If he says the lot rent is $180 per month, ask a couple tenants what the rent is when you are driving through the park. You can check the utility bills through the city or utility company, and the taxes through the appraisal district. You will need to re-build the income and expense statement for any mobile home park in this manner, to avoid deceit, and to make sure that the claimed income is accurate.

Verify All Operating Permits

Most mobile home parks in the U.S. were built years ago, from the period of around 1950 to about 1980. Over the years, many zonings and ordinances have changed, and the majority of parks today are what is called “legal non-conforming,” also known as “grand-fathered”. As a result, you have to be certain that the park has a legal right to operate. This can be verified through research at city hall. But even if the city says the permits are O.K., you still need to do some further study. Most mobile home park permits specify a certain number of lots that they can contain. You have to make sure that the park in question does not have more lots than the permit allows. You also need to check utility permits, such as for water wells, lagoons, septic systems and packaging plants. If there is a lift station, make sure that it has been installed legally. Nothing can destroy your mobile home park investment faster than having the city red-tag it and shut off its utilities.

Don’t Be Rushed

A general goal of the unscrupulous seller is to rush the buyer to make snap decisions without the time to verify information. For example, the seller may say that he can’t give the buyer more than a few days to do his diligence because he’s racing the clock to buy some other property, or going out of the country, or one of a thousand other excuses. You must never be in a hurry to buy a property. Everything must be checked for accuracy, and that takes time. Stick with your required time line and, if the seller says it is not fast enough, pass on the deal rather than skip the necessary steps.

Conclusion

Proper due diligence is absolutely mandatory when buying a mobile home park. Without it, you run the risk of being taken advantage of, and finding that your dream deal is, in fact, a nightmare. The good news is that all the seller’s information can be properly verified, and the real park income identified, before you ever buy.

About the Author: Frank Rolfe has ranked as high as the 63rd largest owner of mobile home parks in the U.S. He is a widely published author of books on the mobile home park industry, including the popular “Thirty Days of Diligence”, available online at www.mobilehomeparkstore.com.

Published: August 13, 2009

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