Buying/Selling a manufactured home park: Selling a manufactured home park.
This is Part 3 of a series of posts outlining the basics of buying your first mobile home park. If you haven’t read Part 1 or Part 2, please click on their respective links to access them.
Whether you’re a first time manufactured home park buyer, or a seasoned investor, it’s important to know the pros and cons of specific types of utility setups. In this article we’ll go over the different types of utility setups. We’ll also discuss what to look out for in terms of utility main line construction materials.
Utility Systems
Public Utilities: This refers to communities that are served by city maintained utility boards, whether that be the local municipality or a regional utility board. This is considered the “safest” option for manufactured home communities due to the utility board being responsible for the overarching city or board maintained treatment plants and drinking water supply. The park owners are still responsible for the maintenance of the main lines for sewer and water in this instance, but they do not have to worry about the costs associated with the supply source for water or the sewage treatment system.
Private Utilities: Private utilities refer to the park being responsible for the source of the water and the sewer treatment. This refers to a well system for water, and can refer to many different options for the sewer including: septic, lagoon, wastewater treatment plant, and even hybrid options. Below we’ll explore the ins and out of each of these options in more detail.
Well Water: Well systems are private water systems that provide the property with water through an onsite water pumping system. Most of these systems require regular testing and maintenance in order to ensure clean drinking water. Some investors are wary of wells due to the multitude of factors that can require large capital expenditures. When a property is operated by a well system, there’s often a permit associated with the property and water samples will have to be within a certain range to stay in compliance. Well maintenance and replacement are costly factors, which is why I don’t personally recommend well systems for first time buyers. If you are looking to purchase a property with a well system, it is a good idea to contact either the DNR or local health department to better understand the requirements of operating a community with a well.
Septic: Septic tanks are relatively straightforward and relatively safe compared to other private sewer systems. Solid waste is stored in tanks underground and treated water is usually filtered into the ground. Most communities will have permits for these systems depending on how many tenants they service. These systems are fairly inexpensive to service, replace, and operate compared to other sewer treatment options.
Lagoon Systems: Lagoon systems operate similarly to septic tanks except the solid and water waste is stored in a pond like structure, with the water acting as a seal to prevent odors from escaping. Lagoon systems can be very expensive to replace, and new state, local, and federal regulations can also mandate them to be altered or replaced, adding another potential large expense to owners over time. These systems are almost always permitted by a local government agency and will require testing to maintain compliance. These systems can be very efficient and long lasting, but it’s vital to do your due diligence when considering properties serviced by these systems.
Treatment Plants: These systems operate similarly to a lagoon system, but with additional mechanicals involved such as pumps and store houses. These systems can be very costly to maintain and replace even in comparison to lagoon systems. Like lagoons, properties served by treatment plants require extensive due diligence to ensure the system is in good operating order.
Infrastructure Materials
Infrastructure material is an important thing to understand whether you’re looking at public or private systems. Depending on the type of material, buyers will need to be prepared for increased capital expenditures over the length of ownership. The material can also impact future sales price which is important to keep in mind when planning your exit strategy.
Cast Iron: Cast Iron is most commonly found as a water line material in parks that were built in the 60s and 70s. Cast iron is prone to leaks caused by the corrosion of the lines and especially the joints as they deteriorate over time. Buyers should have a plan to detect and stop leaks quickly to avoid large water bills.
Clay Tile: Clay tile was commonly used as sewer line in the 1960s and 1970s and can be prone to clogging due to tree root intrusions and gaps forming between sections of the pipes. While all sewer lines run into issues with tree roots, clay tile is especially susceptible due to being a lighter material. If you discover a park is served by clay tile sewer lines, it’s important to have a sewer scope completed as part of due diligence, especially if there are a lot of trees in the community.
Orangeburg: Orangeburg was a common sewer line material used in the 1950s. Orangeburg is essentially a tightly pressed cardboard material, meaning it deteriorates and warps over time. This material can be a significant hurdle for financing and buyers should be prepared to replace the sewer line over time. Orangeburg is also susceptible to intrusion by tree roots.
PVC: PVC is a high pressure plastic that is used for both water and sewer lines. Older PVC used in the 1970’s is more brittle, but is still a better material than those listed above in terms of durability. PVC is less prone to breaks, blockages, and tree root intrusion.
PEX: Pex is a commonly used high pressure water line material. While PEX has been around since the late 1960’s it has only gained wide popularity over the last 20 years. Pex is less prone to leak and is durable even in freezing weather.
Why is this important?: Whether you’re buying or selling a mobile home park, all of these factors are important to know. Buyers will need to budget more for routine repairs, maintenance, and in some cases replacement depending on the type of utility (public vs. private). It’s also important to note that parks on public utilities generally trade at a premium versus parks on private utilities in order to offset the additional long term costs associated with private utility systems.
Starting Your Search
If you’re a buyer looking to get started in the manufactured home park industry. Start analyzing deals and familiarizing yourself with the industry verbiage. A few great resources for finding parks for sale are Crexi, Mobile Home Park Store, and Industry Brokers. Brokers are also a great resource to answer questions and help connect you with other industry professionals such as insurance agents and Manufactured Home Community Lenders.