Our most frequently asked non-DD related questions...
Should I buy this park?
This may be our #1 question from investors that are new to the MHP scene. Check out our FAQ page for the answer to this question.
Is the survey & Phase I/II new enough?
Ordering up 3rd party reports is beyond the scope of DD. The exception is plumber/sewer camera cost. This is a pass-through cost. The other exception may be if DDP facilitates structure inspections. Buyer may elect to additionally hire a home, commercial inspector, or structural engineer for some structures such as homes, large buildings, pools, and private utility structures. The most common 3rd party reports are the survey and Phase I and the most common question is: "Is the survey and Phase one good enough and new enough?". Quality for an acceptable survey and Phase I can be in the eye of the buyer and lender since everyone has different needs and tolerances. However, our standard answer from a due diligence perspective is: THE NEWER SURVEY/PHASE I YOU CAN GET - THE BETTER. GENERALLY, A LOT MAY HAVE CHANGED TO THE PROPERTY IF PHASE I/SURVEY ARE OLDER THAN 5-10 YEARS.
Notes about survey: We always recommend an Alta that shows setbacks, easements, encroachments, perimeter homes, and structures. Note, many things can change year to year such as homes moving, structures being removed/added, neighbors adding encroaching structures, fence lines moving, easements added, and other items.
Notes about Phase I: A Phase I serves two purposes: (1) historical (is there contamination from former uses such as farming chemicals in the soil, gas station tanks, other hidden/abandoned tanks, etc.) and present (2) is there new contamination on the surface/underground - such as oil, chemical drums, or did tenant or owner set up a business with contaminants? A few items we have found that would cause a Phase I to fail - owner set up car shop with oil drums/chemicals and tenants that set up hair salons. Businesses are typically not an approved use for MHP zoning and secondly, a hair salon and other businesses can use toxic chemicals resulting in many liabilities.
What cap rate should I buy this park at?
Cap what? Okay, seriously, park valuations are in the eye of the beholder and beyond the scope of due diligence. Our goal for due diligence is to help you protect your investment by lifting the hood and revealing what lurks beneath. When it comes to cap rates, different operators have different wallets and different appetites for property types. We work with all types of operators ranging from first time buyers that may be seeking standard financing to larger operators with investor cash to burn through and no apprehension for private utilities or a distressed property. Some buyers purchase based on current performance while others buy based on proforma.
Should I negotiate a better deal?
Can't say, park deals are in the eye of the beholder and beyond the scope of due diligence. All buyers have different needs and different tolerances. Our goal for due diligence is to help you understand what the property is, so that you can make an informed decision. Negotiating a deal can be difficult but is beyond the scope of DD.
Should I increase the rent?
Can't say, post closing strategy is beyond the scope of DD. However, since we research the property and visit comps, we will report on comp rents found. Our goal is to gather enough comps to provide a market rent for the immediate area. Making a decision about how much to increase and how often can be difficult but is beyond the scope of DD.
How much should I increase the rent?
Can't say, post closing strategy is beyond the scope of DD. See above!
Should I evict these people?
Can't say, post closing strategy is beyond the scope of DD. Candidates for eviction may include reasons such as high balances, excessive violations, extreme hazards found, sex offender, and other reasons. Making a decision about who and how to evict can be difficult but is beyond the scope of DD.
Is this amount of deferred maintenance normal?
Normal is in the eye of the beholder. While some investors hope for little deferred maintenance, others welcome turn around opportunities with extreme repairs to make in exchange for upside. DDP's job is to uncover, identify, quantify, and grade deferred maintenance items. The completed onsite report provides a summarized list of deferred maintenance items. Client can then determine if the provided list is a fit for the investment type needed.
How much could I sell the homes for?
Can't say, post closing strategy is beyond the scope of DD. However, we determine type, quantity and grades for park owned homes and structures. With this onsite information completed, investor can determine what their home sell off strategy is if they plan to sell homes.
Should I fix the sewer issues found?
Quick answer is, most operators do not proactively fix or replace lines until absolutely necessary. However, it is pointless to comment on fixing any particular issues identified. Investor's strategies for fixing any deferred maintenance found will depend on severity, budget, and timeline goals for repairing some or all issues. For this reason, post closing strategy is beyond the scope of DD.
Should I fix anything found?
Can't say, post closing strategy is beyond the scope of DD. See above!
What should I fix first from the list of deferred maintenance items discovered?
Can't say, post closing strategy is beyond the scope of DD. However, we identify, quantify, and grade deferred maintenance items so that the investor can determine what needs to be fixed based on post closing strategy. Budget, liability and many other factors are considered by investors when determining repair priorities.
What kind of survey should I get?
This comes up a lot! We have answered it in detail on our FAQ page.
Should I ask for more DD time?
Can't say, this is a buyer strategy item and is beyond the scope of DD. Making a decision about how to ask and how much more time is needed for DD, lending, and other reasons can be difficult. Industry averages for due diligence timeline are a month for small parks, 45-60 days for over 100 lots, and over 60 days for larger or multi-community deals. These averages don't mean much since investors can adjust timelines to be shorter or longer for strategy. Buyer's may shorten or extend time for aggressively getting a park under contract, closing adjustment strategy, and other reasons. Purchasing and closing/adjustment strategies are not part of the due diligence process.
What do I need to do to transfer titles?
Any post closing items or strategy is beyond the scope of DD. However, DDP does audit titles, making note of missing titles, identification numbers and address. This audit list will help investor determine how much title work needs to be done. Titles come in different varieties and quality. For this reason, it is not possible for DDP to perform a comprehensive audit of exactly what needs to be transferred and how. Quality can vary greatly depending on how legible the title is, if the original exists, if signature is legible, if home has moved from original location, and if the name on title matches the correct person. For these reasons, DDP audits the copies of titles provided (typically uploaded to Dropbox) and identifies name, type, identification, and address on title. This list helps the client post closing to determine what and how transfers need to be completed. There may also be 3rd party services such as https://snickfish.com/mobile-home-title-services/ that help with title transfers.
Are private utilities bad?
Investment wise, we can't comment. Some investors have zero hesitation for a property that has ALL private utilities as long as the dollars and cents work. From a due diligence perspective there is certainly more to maintain, more cost, and perhaps more liability. For this reason, we have a 2K add-on charge per private utility. This covers the time it takes to work with the certified operator(s), research historical information, and document present condition and observed liabilities. We can only say that private utilities are more involved than city managed utilities from an operational standpoint. From an investment standpoint, it depends on the investor.
Please don't hesitate to ask any questions you have!
All investors start with that first property and may have questions like these.
Ask away - the more FAQs we can add to our DD & non-DD question pages the better!