What You Can And Can't Do Without A Signed Contract

Just like the Kentucky Derby, you can't jump the gate despite your enthusiasm to start the race. In this Mobile Home Park Mastery podcast we're going to review the typical protocol of what the buyer should, and should not, do in the absence of a fully executed agreement.

What is Mobile Home Park Mastery?

Welcome to the Mobile Home Park Mastery Podcast where you will learn how to identify, evaluate, negotiate, perform due diligence on, finance, turn-around and operate mobile home parks! Your host is Frank Rolfe, the 5th largest mobile home park owner in the United State with his partner Dave Reynolds. Together, they also own and operate Mobile Home University, the leading educational website for both new and experienced mobile home park investors!

There seems to be an unwritten code of behavior in every endeavor in America today, and mobile home parks are no different. This is Frank Rolfe with the Mobile Home Park Mastery podcast. We're gonna talk about that code of conduct regarding things that you can and cannot do before you are fully under contract to buy a mobile home park. Now let's remember on the first point that mobile home parks are private property. So you really have no right to go in a mobile home park unless you are either a resident or a guest of a resident. So there are some basic property law issues regarding things you can and cannot do before you go under contract. But would you be caught driving through a mobile home park without owning it? Probably not. Would anyone do anything if you said, "Oh yeah, well, I'm just kind of driving through, looking at the mobile home park"? Probably not really. So it's not so much a legal issue as it simply is things that brokers and sellers depend on you not to do because it could cause them problems with the residents, with the city. And could it open you up to legal consequences? Potentially. But these are just things that most buyers should never do or should do before they're under contract.

So let's first start off with the things that you can do. These are things that typically any seller or broker would probably have no issue with you doing prior to formally entering into an agreement to buy that property. The first one, of course, is all online research, and there's so much of it out there to be done. So if you're looking at a mobile home park, what can I do from the safety and convenience of my computer? Well, you could look up, for example, all the known issues on that market regarding housing and demographics, all available on bestplaces.net. So if you go to bestplaces.net, within mere moments, you can find out what single-family homes go for, what apartments rent for. You can learn about the age of the people in that market, how much they earn, just all kinds of incredible data, housing vacancy, you name it. And at the same time, you can also just go on Google and go onto Google Earth, and you can look at that property as an aerial, it'll allow you to tell how many lots there are. There's tools on your computer that can actually measure the size of the lots in that mobile home park. You can go to Street View and you can look at what the park looks like. You can Street View down the street to see what the neighbors' properties look like. You can go on the Chamber of Commerce website, you can find out who the top 10 employers are and how many they employ. You can get just so much information online, and of course, that's always fine. So gathering information online, sure, I can do that even though I don't have a contract yet. And I could theoretically even call and get comps on other mobile home parks, just identifying myself as someone who's looking at perhaps living in their mobile home park and what do they charge in lot rent.

Another way you can do that kind of work is back to online again. Go to any of the websites such as MHBay and look at the homes that might be for sale in that market, and often it will show you what the lot rent is to the mobile home. But getting comps in other parks is a very, very important part of the buying decision. You want to know how far you can raise the rents to go to market or maybe if your rents are already above market. And that's again something you can easily do without causing any alarm or problems. Also, you could talk to your current lender base about their interest in a mobile home park of a certain size and a certain generic location, like in a certain state, just to see what their basic feelings are. So if you've never bought a mobile home park in the state of Louisiana, you could call any number of lenders, MJ Vukovich at Bellwether, Security Mortgage Group, or John Metternack at First Secure Community Bank, whoever you want to talk to, and say, "Hey, just curious, do you make loans in the state of Louisiana? And anything I need to know about?" So those kind of basic lending questions, those are fine. And of course, you can run all kinds of scenarios as far as stress testing of the deal itself. If you have the numbers from the broker or from the seller, then figure out what those numbers look like. Based on the number of occupied lots and the current lot rent, you can run all kinds of scenarios. You can figure out just everything, how much profitability there would be in the property if you were to go ahead and buy it and raise the rent and fill the vacant lots. You can get all those numerical studies done easily before you're under contract.

But now these are some things you can't do really before you're under contract. Just not a good idea to do. Number one is talking to residents, because you really shouldn't be in the mobile home park to begin with. So asking residents, "Hey, what do you think about living here?" or, "Hey, does it flood?" Or these kinds of questions. Those are an important part of diligence later once you are under contract. But for the moment, you shouldn't be there. And more than likely, what's gonna happen is if you go in a mobile home park and it's private property and you shouldn't be in there, and you start asking questions of tenants, one or more of them may call the manager and say, "Hey, who's this weird guy in the park asking questions?" And that could really harm you because then it might be revealed that you're a potential buyer or that the park is even for sale, which the manager may not know, and just cause all kinds of issues. Even later, if you do get under contract, you told the manager at the time, "Oh no, I'm just someone out looking around at mobile home parks," and then suddenly you pop up back on the scene trying to do your diligence, it would be kind of humiliating. So I would say that going and talking to residents before you're under contract, probably not a good idea.

Also, simply walking around and inspecting the property, you really can't do that. This is private property. You're not supposed to be in that property. And by walking around and poking around in it, it's very possible someone might even call the police wondering what you're doing in their area. Remember, this is those people's homes, and you can't just come in off the street as a perfect stranger and park your car and start walking around through people's yards. So I would say that's something you certainly should not do until you're under contract. Also, calling the existing lender on the property, that's not allowed. So if for some reason you know the lender, the lender's name was given to you by a broker or the seller, you can't go to the lender and start saying, "Hey, if I was to buy this mobile home park, could I assume the loan?" Or issues like that. That could cause any number of problems between the seller and the lender, and that could be construed as tortious interference. So you just can't call the lender until you're under contract. Now, if you're under contract with the permission of the seller and you're thinking of having the lender grant a new mortgage to you as the buyer, that's different. But on the front end, until you're under contract, no, that's a definitely... Can't do that. Also, you really shouldn't ever be talking to the manager before you're under contract because you have to remember the sellers take this very personally. They may have not revealed in any way that the park is for sale, that they would even contemplate selling the park, and that could cause the manager to have a very sudden, sour relationship with the seller. So it's very, very frowned upon for you to ever talk to a manager prior to having the contract signed up.

And then finally, you should never talk to City Hall because you never know what you're gonna find when you talk to City Hall. In my 30 years of doing mobile home park diligence, you'd be shocked at how many times I've gone to City Hall to look up the permit on a mobile home park only to find there's no permit. I had one case where a city told me, "Oh no, there's no mobile home park at that address." I said, "Yes, there is. Here's some photos of the mobile home park. I just shot them." And they said, "Uh-oh, we got a real problem then, because that's only shown on property taxes as a single-family home." And it turned out what happened was the guy, to try and keep his property tax low, had very deliberately created this illusion that it was not a mobile home park, and the city had never really come out to look at it. It was in a small town area that the city had expanded out to and engulfed, and they had just never really bothered to go down and quantify, but the guy had given them a written statement under oath of what was contained on the property. That kind of stuff can get people in all kinds of trouble. So don't talk to the city ever until you're fully under contract, because the answers may be damaging, and once again, you could have some kind of tortious interference claim, theoretically.

The bottom line is there's lots of things you can do on any park prior to signing the dotted line. Lots of information you can gather, lots of research you can do, lots of economic modeling to be done. Just don't jump the gun and do that second set of issues. Those are all things that you can do once you have a signed contract, if it allows you to, during your due diligence, but you're gonna ruin the whole thing if you do them on the front end. More than likely, what could have been a great deal if you just stayed a little calmer and stayed within your lane will be ruined because you jumped the gun. This is Frank Rolfe with the Mobile Home Park Mastery podcast. Hope you enjoyed this. Talk to you again soon.