How To Perform Due Diligence on A Park ONLY Using AI

    Okay, full disclosure: the title is clickbait. While AI can be used for some offsite tasks it cannot be used for onsite. That is until Due Diligence Partners unveils their first onsite droid. Some AI applications and tactics to use will be revealed in part III of this three-part article.

*** Tune in next month for Part II (Onsite) ***

Part I: Offsite Due Diligence – Expert Level

    Let’s skip the standard Due Diligence (DD) basics which includes (1) requesting all DD docs, (2) asking about problems, and (3) doing a basic compliance audit of park licensing and zoning.

Now that you have the basics down, here is what you do:

1.  Get Intense on Historical Data

    A seller can’t hide all the evidence! If you don’t have at least a dozen historical maps, then you need resources. Get historical maps from EarthPro, QGIS, Maptitude, ArcGIS, USGS, Historic Aerials, Google Earth, and 3^rd party reports such as old/new plats or surveys and Phase I. Red flags that might impact your target value include lots that have never been used before (Why haven't they been used, and what are the hidden infill costs?), sections that remain abandoned (Could this be related to hidden utility easements or drainage/flooding?), and the park's history (Why was a section wiped out a decade ago? Has the layout made maximum occupancy impossible?). Your goal is to understand the history before starting onsite.

2.  Zoning Doesn’t Matter

    What? That’s right, just because something is zoned MHP doesn’t mean that you don’t have a usability and infill nightmare on your hands. We’ve run into this problem with many of the hundreds of parks we’ve looked at. Timing is critical here – within days of contract execution, you should have 20-30 questions for city departments to answer, while giving the city a deadline reply date that works for your DD timeline. Having a municipality response contingency (extension) in your contract could be helpful here, too. 

    What to ask – ALL USABILITY/COMPATIBILITY/RESTRICTION related questions that are specific to the park you are purchasing. Can you use the property as intended... or not? Ask all utility and inspection/infill related questions as well. Asking the city the right questions can help avoid so many unexpected requirements and penalties. Here are just a few examples: $400K spent by new owner for fire hydrants, non-reported infill inspection and prep costs of $4K per pad, lots deemed abandoned and disqualified for having a home placed on them, home age restrictions, home type restrictions, abandonment by time restrictions, new requirements triggered by new owner, and unusable lots due to new code standards. Plus understanding the municipal expectations and requirements will tell you about the mac daddy of municipality threats "health and safety," which trumps ALL zoning ordinances.  

3.  Assume the Worst Until Proven Otherwise 

    This is a motto we live by, and it keeps us out of trouble. It’s not being pessimistic - it’s being practical and helps force scrutiny. Motto #2: Remove the subjective and only accept black or white answers. Both rookie and experienced investors fall into the same traps time and time again – “the answer seems to be right”, “manager’s answer seems trustworthy,” “handyman’s reason for home problems seem legit…" STOP. Either learn from mistakes or hire someone that has the time to dig in. If you don’t have days and weeks to dig up the good stuff, then it is cents on the dollar of what it will save you down the road by outsourcing it. 

    What are some common red flags? These may include missing private utility records, missing leases (get estoppels), missing historical occupancy and move-in dates, reported strength doesn’t match historical evidence, neighboring comps that not even the park owner knows about, ALL the unreported expenses (you should have a list of 100+ possible expenses to check), expenses paid out of management or other account, why certain assets have stayed vacant or unused, and understanding the true economics if bank deposits or tax returns do not align or exist.

We hope you enjoyed reading our top three Offsite Due Diligence items to be aware of. Stay tuned for Part II next month – Onsite Due Diligence! Looking for more information? Comment or shoot us an email, we would love to chat with you!