How To Perform Due Diligence On A Mobile Home Park

What key factors should mobile home park investors consider when evaluating new acquisition opportunities?

Due Diligence for Mobile Home Park Investors

During the process of evaluating potential mobile home park acquisitions, and vetting properties under contract investors ought to be familiar with the following items.

  • Property inspections
  • Environmental inspections
  • Title and lien searches
  • Comparable sales
  • Holding costs
  • Operating costs
  • Actual rents
  • Leases and tenant status

However, even before getting to these property specific items thorough inspections mobile home park investors should also have performed wider market research, and evaluated the opportunity based upon the following factors.

Evaluating Mobile Home Park Acquisition Opportunities

Per Door Cost

One of the main attractions to mobile home parks is lower per door cost. That is the per unit cost in a park. For example; a $1M park with 10 lots would have a per door cost of $100,000. A $1M park with 100 units would have a $10,000 per door cost.

Price to Rent Ratio

Price to rent ratio calculates the rental income against the purchase price. Find this by dividing the purchase price by annual rents. So a $200,000 property divided by annual rents of $20,000 would give a price to rent ratio of 10. This same example would qualify for the 1% rule. This demands the monthly rents are at least 1% of the purchase price (or mortgage taken out). Those using financing will also want to ensure they are watching the debt-service-ratio. Most lenders will not want to exceed a DSCR of 1.2.

Local Competition

How much local competition is there between mobile home parks? Are there many parks or only one or two to pick from? How are they different? If there is a waterfront park or luxury park community and a low income park in a dry inferior area, or an over 55 aged community, they are probably not competing for the same tenants.

Supply and Demand

How are local occupancy rates? How strong is the demand for this type of rental? What are the forecasts and potential threats or bumps to demand and supply?

Rent Controls

Are there rent controls in place? Are there rent controls impacting the ability to raise rents on this property? Are there rent control regulations keeping the rents down on other local properties? Are there limitations in existing leases which could prevent rents from being raised up to market levels?

Compare Mobile Home Park Units to the Competition

How do the units in this mobile home park compare to similar local rental units? For example; local 2 bedroom, 2 bath apartments? How do the rents compare? Facilities and amenities? Qualifications to lease? Demand and occupancy rates?

Local Home Prices

How much are local homes being sold for? How do this compare to your per unit cost of acquiring a mobile home park? How does the cost of putting and maintaining a mobile home on your lot compare to buying a similar sized home in the area?

Location

How great is this mobile home park located? How well is it located in relation to the services, stores, and amenities your demographic of tenants needs and wants? Lower end mobile home parks may benefit from being within walking distance to grocery stores and fast food. Vacation and seasonal parks may benefit from being closer to attractions such as the beach and parks. Over 55+ communities may benefit from proximity to healthcare services. How does this location compare to other local parks, and competing housing?

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