You Found the Park You Want to Buy: Best Practices for Due Diligence Before Closing!

Congratulations! You’ve navigated the search, analyzed the numbers, and found a mobile home park (MHP) that fits your investment criteria. But before you pop the champagne and head to the closing table, there is one critical phase left: Due Diligence.

In the world of mobile home park investing, due diligence is where the “real” deal is discovered. It’s the process of verifying every claim made by the seller and uncovering any hidden issues that could turn a dream investment into a financial nightmare. To help you navigate this high-stakes period, we’ve compiled the best practices for MHP due diligence.

1. The Financial Deep Dive: Trust but Verify

The seller’s pro forma is a starting point, not the gospel. Your goal is to verify the actual income and expenses.

•Audit the Rent Roll: Don’t just look at a spreadsheet. Request at least 12 months of bank statements to verify that the rent listed on the roll is actually being deposited.

•Verify Occupancy: Physically walk the park and match every home to the rent roll. A common red flag is “ghost tenants”—homes listed as occupied and paying that are actually vacant or abandoned. Check for signs of life: curtains, cars, and active utility meters.

•Review Tax Returns: Request the last 2-3 years of the park’s Schedule E or business tax returns. This provides a more accurate picture of historical performance than a polished marketing package.

2. Infrastructure: The “Underground” Risk

In a mobile home park, you aren’t just buying land; you’re buying a utility company. Infrastructure is often the most expensive part of the park to repair.

•Sewer and Septic: This is the #1 risk. If the park is on a private septic system, have every tank pumped and inspected. If it’s on city sewer, hire a professional to “scope” the lines with a camera to check for collapses, bellies, or root intrusions.

•Water Systems: Check for leaks. A high water bill relative to the number of residents is a major red flag for underground leaks. If the park has a private well, test the water quality and ensure the pump and pressure tanks are in good working order.

•Electrical Capacity: Modern mobile homes require more power than older models. Ensure the pedestals and transformers can handle at least 100-amp service (ideally 200-amp for newer homes).

3. Zoning and Legal Compliance: The “Grandfathered” Trap

Many mobile home parks are “legal non-conforming,” meaning they were built before current zoning laws existed.

•Get a Zoning Letter: Obtain a formal letter from the municipality confirming the park’s status. Specifically, ask: “If a home is removed or destroyed, can I replace it with a new one?” Some cities use “non-conforming” status to slowly phase out parks by preventing home replacements.

•Permit History: Check for any open permits or outstanding code violations. You don’t want to inherit the previous owner’s legal headaches.

•Title and Survey: Ensure there are no encroachments or easement issues. A fresh survey is highly recommended to confirm property boundaries.

4. The Neighborhood and Market “Vibe” Check

A park doesn’t exist in a vacuum. Its success is tied to the surrounding community.

•The “Buy Here, Pay Here” Test: Drive the surrounding neighborhood. Are there bars on the windows? Are there “buy here, pay here” car lots nearby? These can be indicators of a declining area that might struggle with rent growth or tenant quality.

•Median Income and Home Values: Aim for markets where the median household income is over $40,000 and median home values exceed $120,000. This ensures there is enough economic “meat on the bone” for residents to afford lot rent increases.

5. Environmental Assessment: Phase I ESA

Never skip a Phase I Environmental Site Assessment. This identifies if the land has been contaminated by previous uses (like an old gas station or dry cleaner). If the Phase I comes back “dirty,” you may need a Phase II (soil testing), which can be a deal-breaker or a major negotiation point.

The Bottom Line

Due diligence is your insurance policy. It’s the time to be skeptical, thorough, and unemotional. If you find a major issue—like a failing sewer system or a hostile zoning board—don’t be afraid to renegotiate the price or walk away entirely.

The best investors aren’t the ones who close every deal; they’re the ones who only close the right deals. By following these best practices, you’ll ensure that the park you buy today is the profitable asset you envisioned.

Happy hunting!