Re: Mobile Home Park Deal - Posted by ray@lcorn
Posted by ray@lcorn on January 15, 2000 at 13:43:30:
I like your deal. It sounds like you are a good ways down the road toward getting the deal signed up. I won’t offer anything on structure as the one you propose is fine.
The single most important function of due diligence is to document the income. That should go without saying. You’ll need bank statements and tax returns to verify that solidly, but can accept less if it is apparent either by way of estoppel letters from the tenants or an affadavit by the owner that the rent roll is accurate.
On the expense side, I pay particular attention to two items. Utilities are usually the largest expense categories, and of the bundle, water usage is the one that can cost you a fortune if you aren’t careful about examining the records for leaks. Get two years of monthly billing records showing the total usage. I like to put them into a spreadsheet. On the average, a household will use about 5,000 gallons of water per month. When you do the math with the water bills, divide the total usage by the number of occupied units. If it departs widely from an average number, then there are likely leaks in that area. That will also show you seasonal patterns.
The other category is maintenance expense. I want to know what is behind whatever number may be shown. If the expense is low, I want to know why. If it is high, I want to know why also. I want to know what exactly are the recurring maintenance items and what has been extraordinary in the past three years.
Make note of insurance costs, and find out about past claim history. That can give you some insight on what kind of operation you are inheriting.
I just sent JP an article on performing commercial property due diligence that should be posted soon. Keep an eye out for her update.