Thorough due diligence is crucial when investing in mobile home parks to minimize risks, evaluate asset potential, and ensure long-term success. In a recent interview, Mario Dattilo, an experienced mobile home park operator and customizable fund manager of Equity Growth Capital with Avestor, shared his detailed approach to due diligence.
From analyzing market data and zoning laws to spotting red flags like vacant properties misrepresented as occupied, his process outlines the essential steps investors must take to protect their investments and make informed decisions. His insights offer valuable guidance on navigating the complexities of mobile home park acquisitions.
[Mario is a seasoned mobile home park operator and fund manager with a keen eye for strategic opportunities in the mobile home park industry. Having begun his career with single-family homes, Mario quickly transitioned into commercial real estate, where he discovered the potential of mobile home parks in 2013. With a focus on delivering consistent value to investors, he now leads with a deep understanding of both traditional syndication and innovative customizable funds.]
1. Initial Assessments and Market Data
“The first step in the due diligence process involves a high-level overview of the market data surrounding the potential investment,” said Mario.
Mario and his team prioritizes assessing the median household income and home values in the area. They focus on markets where the median household income is over $40,000 and the median home value is at least $120,000. These indicators help determine the economic stability of the area, which is crucial for the long-term success of their investment.
“Equally important is checking if the property is in a flood zone,” Mario added. This quick yet vital check can save significant time and effort during the underwriting process.
Discovering that a property is in a floodway after detailed modeling can result in wasted resources, so this is one of the first items the investor verifies.
2. Neighborhood Analysis
Once the initial data checks are complete, the next step is a more detailed review of the property's location. “You need to visit the area to assess the local neighborhood and look for signs that indicate the overall quality of the environment,” Mario explained.
Indicators such as bars on windows, strip clubs, or "buy here, pay here" lots are red flags, signaling that the neighborhood may not be ideal for investment.
3. Zoning and Legal Compliance
“Zoning is one of the most critical elements in mobile home park due diligence”, Mario emphasised. Many mobile home parks are classified as "legal non-conforming," meaning the current use of the property does not conform to modern zoning laws.
This creates challenges as many municipalities prefer these properties be redeveloped for other uses.
During the due diligence process, its important to contact the local zoning department to gauge whether the municipality is supportive of the current use.
If the zoning authorities are likely to become adversarial or oppose continued operations, this could significantly impact the investment. Ensuring that the property can continue to function as intended and replace homes is a top priority before proceeding.
4. On-Site Due Diligence and Utilities Assessment
Once the property is under contract, on-site due diligence begins.
You need to perform a comprehensive assessment of the property's utilities and infrastructure, as these are critical to maintaining the long-term viability of the park. Since much of the business involves common area utilities, understanding the condition and functionality of these systems is crucial.
Mario’s team conducts a physical inspection to ensure the utilities are in good working order and can support the property. This step is essential to avoid costly repairs or disruptions in the future.
5. Vacancy and Occupancy Verification
Mobile home park due diligence involves layers of complexity, especially when it comes to verifying the occupancy status of homes on the lots. It’s important to differentiate between a vacant lot, an occupied lot, a vacant home, and an occupied home.
To avoid discrepancies, its best to conduct an on-site audit to verify the status of each lot and home. Mario’s team checks the rent roll to confirm that homes listed as occupied are indeed habited.
One common red flag is when a rent roll shows a home as occupied and paying, yet the property shows no signs of life, such as electricity being turned off. This could indicate that the seller is attempting to misrepresent the occupancy status to inflate the value of the property.
6. Red Flags to Watch For
During the process, the operator need to stay vigilant for any signs that could disqualify a deal. Zoning issues, as mentioned, are a top concern.
Misrepresentation of occupancy is another significant red flag. If a seller claims that a home is occupied and paying but the physical inspection shows otherwise, this is a major issue.
Catching these discrepancies early can save the investor from making a bad purchase.
Ready To Start Your Mobile Home Park Fund With Avestor?
The due diligence process for mobile home parks is both detailed and critical. By following a structured approach that includes market analysis, neighborhood assessment, zoning verification, and physical inspections, mobile home park operators can make informed decisions and avoid potential pitfalls.
If you’re ready to start your mobile home park fund, we want to help you scale.
To learn more about how an Avestor Customizable Fund can work for a mobile home park asset class, schedule a free strategy call with our team at www.avestorinc.com/demo
