SHOW NOTES

Welcome back to another episode of The Passive Mobile Home Park Investing Podcast with your host, Andrew Keel! In this episode, Andrew dives into a crucial aspect of mobile home park investing: utility infrastructures.

Utilities are a key factor that can make or break a mobile home park investment. Whether you’re a new or experienced mobile home park investor, understanding the risks tied to both private and public utility systems is essential for safeguarding your investment.

As part of Andrew’s ongoing series on some of the top risks in mobile home park investing, today’s discussion highlights the differences between private and public utility systems. Private utility systems include things such as well water treatment and septic sewer systems, lagoon sewer systems and wastewater treatment plants. Public water and sewer is always the most preferred setup when buying a mobile home park and Andrew discusses why…

You’ll learn practical tips on how to evaluate these utility systems during the due diligence process to avoid costly mistakes and maximize your returns.

Key Points Covered in This Episode:

• Utility Due Diligence in Mobile Home Park Investing: What you need to know when evaluating utility systems during your investment process.
• Private Utilities in Mobile Home Parks: A closer look at well systems and sewer infrastructure, and how they can impact your mobile home park’s operation. Why lagoon systems and wastewater treatment plants are potential red flags you should avoid.
• Public Utilities in Mobile Home Parks: Why are they preferred?
• Lift Stations inside of a Mobile Home Park: Understanding the role of lift stations and why they’re critical in both private and public utility setups.
• MHU (Mobile Home University) Reference Library: Discover how to leverage Mobile Home University’s due diligence checklist for utilities to ensure a thorough evaluation.
• Orangeburg Sewer Lines: Learn about the impact of aging Orangeburg sewer lines on utility decisions and how they can affect older mobile home parks.

By the end of this episode, you’ll have a better understanding of the challenges and risks associated with mobile home park utility infrastructure and how to potentially navigate them to make more informed, risk-conscious mobile home park investment decisions.

Don’t miss out on this essential information for protecting and growing your mobile home park investments!

Be sure to subscribe, rate, and leave a review for The Passive Mobile Home Park Investing Podcast to stay updated with more expert insights.

***Andrew Keel and Keel Team Real Estate Investments (Keel Team, LLC) do not endorse any interviewee. This interview is for informational purposes only and should not be depended upon for investment purposes. ***

Andrew Keel is the owner of Keel Team, LLC, a Top 50 Owner of Manufactured Housing Communities with over 3,000 lots under management. His team currently manages over 40 manufactured housing communities across more than 10 states. His expertise is in turning around under-managed manufactured housing communities by utilizing proven systems to maximize the occupancy while reducing operating costs. He specializes in bringing in homes to fill vacant lots, implementing utility bill back programs, and improving overall management and operating efficiencies, all of which significantly boost the asset value and net operating income of the communities. Check out KeelTeam.com to learn more.

Andrew has been featured on some of the Top Podcasts in the manufactured housing space, click here to listen to his most recent interviews:  https://www.keelteam.com/podcast-links. In order to successfully implement his management strategy, Andrew’s team usually moves on location during the first several months of ownership. Find out more about Andrew’s story at AndrewKeel.com.

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• Mobile home park due diligence questions
• How to raise capital from investors for mobile home parks
• Mistakes to avoid in mobile home park investing, and more!

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Talking Points:

00:21 – Welcome to the Passive Mobile Home Park Investing Podcast

00:53 – Key Considerations for Utility Due Diligence in Mobile Home Park Investing

03:00 – Deep Dive into Mobile Home Park Private Utilities: Well Systems and Sewer Infrastructure

03:54 – Mitigating Risks with trailer park Utilities: Why You Should Steer Clear of Lagoon Systems and Wastewater Treatment Plants in Mobile Home Park Investing

08:21 – Understanding the Importance of Lift Stations in Both Private and Public Mobile Home Park Utility Setups 

12:15 – Utilizing the MHU (Mobile Home University) Reference Library: Your Essential Due Diligence Checklist for Utilities

14:42 – The Impact of Orangeburg Sewer Lines on Utility Decisions in Mobile Home Parks

16:11 – Recap: Key Takeaways on Private vs. Public Utilities in Mobile Home Park Investing

21:03 – Conclusion

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Links & Mentions from This Episode:

Keel Team’s official website: https://www.keelteam.com/ 

Andrew Keel’s official website: https://www.andrewkeel.com/  

Andrew Keel LinkedIn: https://www.linkedin.com/in/andrewkeel 

Andrew Keel Facebook page: https://www.facebook.com/PassiveMHPinvestingPodcast

Andrew Keel Instagram page: https://www.instagram.com/passivemhpinvesting/

Twitter: @MHPinvestors

MHU (Mobile Home University): https://www.mobilehomeuniversity.com/

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TRANSCRIPT

Hello and welcome to the Passive Mobile Home Park Investing podcast. This is your host, Andrew Keel, and thank you so much for joining me today. I’m really excited. We’re going to continue our risks series, we’re going to talk about utility systems and utility infrastructure, and the different risks associated. 

When I first got into mobile home park investing, I had no idea of the importance of the utility infrastructure. Luckily I had a mentor who took me under his wing and taught me about all the different things to inspect and due diligence. I went to the MHU Bootcamp by Frank Rolfe and Dave Reynolds. Through that, I got a due diligence handbook that talks about the utility infrastructures and what to inspect. That really opened my eyes, and I was grateful that I took that bootcamp before I bought my first park because I knew what to look for. 

My first park had 67 septic tanks. Every single home has its own concrete septic tank behind it along with its own lateral lines going through the leach field. Going through due diligence on those and understanding and making sure that there is no problem is really really important. But I had the due diligence to look for. 

When I was actually at the MHU Bootcamp a few years later, I met a guy who bought a mobile home park, got a good deal on it, but then he got some issues with his septic tanks, and it ended up having fines with the EPA of $10,000 per day because he was causing contamination and it was an environmental hazard. 

There are big risks with the utility infrastructure, and I really want to step back a second and say hey, when you’re buying a mobile home park, most of us are buying the land, the dirt underneath the homes, the tenants, we prefer them to own their homes. What are we buying? We are buying the dirt and the utility infrastructure and the roads, the signage, fencing, and things like that. But the most expensive land improvement is going to be the utility infrastructure. That’s why it’s so important to understand that utility system and you do proper due diligence upfront. 

Just at a high level, there are private utilities, and then there are public utilities. Public utilities are much more preferred. That’s city-provided water and city sewer where you connect up to the main and the city takes care of the wastewater treatment plants, the water making sure that it’s clean and it’s maintained and it’s tested and so forth. That’s a much more preferred method when buying a mobile home park.

If you’re buying a park, which we have a few, and I’ve also invested passively in mobile home parks where they’re on private systems, the well systems, the well water require additional work. It requires additional chlorine reads typically daily. It requires annual testing or quarterly testing to check out contamination levels and so forth. 

If you have an issue with the system, with your holding tanks and so forth, you’ll have to shut off the water to the park and you’re basically a public water system since the whole park and all the different homes are feeding off of that. As you can imagine, there are additional risks and costs that come with that because now you’re in charge. Instead of just having the city maintain all of that, you’re in charge and you are the one maintaining it. There are additional risks with the private well system. 

Now, the sewer system, this is private sewer systems can be the most expensive situation that you can get into. This is why in the MHU bootcamp, Frank talks about your first park, or your first couple of parks, avoiding things like a lagoon system. Frank has said that the EPA is trying to discontinue those and different states are pro or against these lagoon systems.

That’s out of our purchase criteria. We don’t even look at parks with lagoons because it’s basically like a pond in the back of the park. Then there’s typically like an aeration system that’s spraying the gray water out, and that’s how it cleans the sewage. Lagoon systems have high risk. You have to be fenced in this pond and it’s in the back of the park somewhere, so there are issues with that. 

Then wastewater treatment plants are another big expense. That’s why when you’re looking to build a new park, you’re looking to connect into city utilities to get public utilities because the value of the park for a public utility park will be substantially higher than one with private utilities, typically. These wastewater treatment plants can cost upwards of a million dollars–plus to replace and their useful life is typically 50 years long. 

When you’re buying your first couple of parks, Frank always advises staying away from these systems. Go for a base hit. Go for a double with a public utility system because you’re not going to know what to look for. Then you’re going to have to research and really understand those private systems to get in depth and make sure you know what you’re buying. 

Remember, you have to realize that at the end of the day, what’s the biggest risk? Well, the risk is $10,000 per day in fines to the EPA because you’re contaminating a creek or something in the back of the park, and that all of your sewage is flowing into that. There are big risks there. That’s why due diligence on these systems are so important and why private, in my opinion, adds a little bit more risk. That’s one part of this. 

We talked about in one of our parks the well system needed to be replaced. The pump stopped working. It was at a very bad time, like during COVID, so it was going to be an extended period of time before we can get this pump replaced. We were doing whatever we could. 

We went out and bought a ton of jugs of water and we’re providing that to all of the residents in the park, but you can see where a private well system has additional responsibilities. I think that the goal of this podcast, just to educate everybody on what’s going on. 

I want to go back to that gentleman I met at one of the MHU bootcamps. He said I really wish I had taken this bootcamp before I bought my first park because I would’ve looked at these things before I bought it and he didn’t. Now he was taking the MHU boot camp after the fact and learning all of these additional due diligence items that he should have checked upfront.

Let’s go into this a little bit more. Understanding a septic system. Septics are more common. We own some parks with septic systems. But again, we don’t own any wastewater treatment plants or lagoon systems. That’s because there are just additional things you need to know. You have to have a licensed operator to operate those and to come check on them. 

Then we do have some well systems, which are a little bit more reasonable. I’ve invested passively in deals that have well systems like in Northern Michigan. The water coming just right out of the ground is very clean. There are just different parts of the country where there are better aquifers and things like that that can be tapped into. 

Septic systems, to replace typically the lateral lines, roots will get into those and that can be $3000 to replace some of those lateral lines. There are expenses associated. 

In some states, you’re not allowed to bill back. In some municipalities, they won’t allow you to bill back for private systems like well in septic systems so that’s another thing to check and due diligence. Hey, if it’s public, am I allowed to build back the tenants for their usage for private systems? Am I allowed to bill them back? If I am, how much? Typically you can only match what the city’s charging for their public utility, water and sewer. 

That’s again really important to understand upfront. Important to do proper due diligence and make sure that you’re not making a mistake there planning and you’re underwriting to bill everybody back for the costs of running a private utility system when the municipality won’t allow you to do so. 

The other thing I have on my list is lift stations. Lift stations are basically pits in the lowest point of the topography, and all of the sewer lines will funnel into this. It’s basically a deep hole in the ground and there’s usually a catch basin that will catch the solids, then the gray water will flow to the bottom, and there’s a pump that will pump gray water up to a mainline like a main public utility line that will connect in for the city sewer.

You can have a public city water, and city sewer set up, but you have a lift station that you need to maintain because that’s going to pump up your sewage to get into the main line. These lift stations are expensive. 

In one of the first deals I did, the lift station was actually going bad. We inspected it beforehand with just a local plumber, but he wasn’t the right outfit. He wasn’t someone who could actually build a lift station if it needed to be replaced. He was just a local plumber.

He said hey, the pumps are fine. I come out here and clean them out occasionally and I’ve rebuilt the pumps in the past for the previous owner. But he didn’t look at the walls because it’s typically a cinder block circle that goes down into the ground. This lift station was going bad, the one that we had purchased, and it was so old, I think it was 50–60 years old where the walls were starting to deteriorate and cause damage. We had to replace the whole lift station to the tune of about $150,000. 

You can see where that, not your average Joe plumber who has fixed the tanks in the lift station is going to know and be able to give you an in-depth analysis on how soon are we going to have to replace this whole lift station and then what does that look like? Is the whole park going to be shut down where the sewer system can’t be used for a week or so because you’re getting this replaced? 

This was a huge issue that again, in due diligence now, we know who to contact, but we only know because we made a mistake on this one park that I originally purchased without fully understanding the risks of a park with a lift station.

Another thing with a lift station is it can overflow. If it’s not pumping out the pump shuts down. Typically, there’s a light on top and a lot of neighborhoods have lift stations as well where you can drive by them and they’re usually fenced in and it’s basically this pit with a pump in the bottom. 

There’ll be an audio and visual alarm that will go off if the pumps shut off for any reason, and that will alert people that this is about to overflow. You need to contact authorities as soon as possible to get this taken care of.

In one of our parks in Iowa, it was about to overflow because the pump shut down, it was over a holiday and I was the only one that got the phone call that was like hey, all hands on deck. We need to figure this out and get the local plumber out there as soon as possible.

Typically it depends on the size of the lift station and so forth. You’ll typically have about 12 hours, maybe 24 hours, depending on the size to get this fixed before it overflows. But could you imagine, if there’s $10,000 per day in fines for a failing septic system, imagine the fines for a whole lift station, a whole pit where a whole park’s sewage is going into that.

Again, additional risks. I’m not trying to scare you. We own several parks with lift stations and they work great. Ninety-nine percent of the time there are no issues, but that 1% of the time that there is, you just have to have the infrastructure, the team, and the processes in place to jump on it right away to have a local contact that can get out there right away and do an emergency service call, or get a septic company, come out there and pump the lift station to pump the gray water out of there before it overflows to buy you more time. And that’s something we’ve had to do in the past as well. 

One thing I had pulled up is at the MHU boot camp, they give you a reference library. Inside of there, there’s a due diligence checklist that I’m pretty sure Frank and Dave have used to buy their portfolio of mobile home parks.

If you go to the private utility section, I notice that it’s literally three pages long, and the public utility section is only a page-and-a-half. You can see right there that, instantly, private utilities, things that you need to look for and due diligence, there’s a lot more to it like well water. It says how many wells are there? Have you reviewed the test results for the past 12 months? The construction details, getting like a blueprint of the construction of the well and what size the pumps are? Have you checked the license, the permits, and the inspection reports for the well over the last 12–24 months? 

The flow meter reading for the past 12 months, because yeah, it’s a private system, but are there any leaks in the system? Your bill wouldn’t technically go up, but there could be leaks if they’re using more than the average number of gallons per week or per month or per day per unit. That could be an issue. 

The original drilling report to know how deep it is is really important. The contractor name and contact info for the contractor that installed the well system. Is there an alarm if the pump goes down, the name and contact information for the certified operator? 

Then the regulatory contact information so if you do have a violation, who do you need to contact to take care of that and get it resolved? That’s just for a well system right there, all the things you need to look at. There’s a whole section on wastewater treatment plants and septic systems and lift stations as well. 

Just additional questions you need to ask yourself like on a lift station. Where’s the location of the lift station? Typically, it’s hidden in the lowest part of the park, which may be in the middle of two homes in the back in the middle of two homes in the park. 

Who maintains the lift station? How many pumps are there? Are there grinder pumps? Are there spare grinder pumps on hand in case one goes down? Then if the audio and visual goes off, who gets the alarm call that needs to run out there? Who’s your point of contact to solve this issue? 

I think all of that is really really important in addition to understanding what your utility lines are made out of. I think this is huge. We were doing due diligence on a park in Wisconsin and the park came back where half of the park had Orangeburg sewer lines. 

For those of you on YouTube, I can share my screen real quick and show you what this looks like. Basically, Orangeburg over time is like a paper mache, is what it turns into. Let me share my screen really quickly here and show you what Orangeburg sewer lines look like because it’s pretty gross. 

A quick Google search here and see some images. Basically, you can look at this stuff and see it just deteriorates. It was something that, back in the days during one of the wars, we were trying to use less metal, so we went to this Orangeburg stuff back in (I think) the 70s, and it’s just starting to deteriorate. It’s reached its useful life, and now it’s just deteriorating underground and causing a lot of backups and a lot of issues like that. 

You can see where that would be very expensive and if you don’t check for that in due diligence, now every month you’re having to spend $5000–$10,000 to have someone come out and clean out your sewer system and dig down because these could be 5–10 feet down underground—your main lines could be—to dig down, to replace those, and then to infill that back is very expensive. That can eat up your cash flow very quickly. 

In conclusion here, what the utility infrastructure looks like is the most expensive part of what you’re buying when you’re buying a mobile home park that’s all tenant-owned homes, and that’s what you’re going to be required to upkeep and to maintain.

Understanding when the useful life expectancy is up, maybe it’s in the next five years or so, and you need to raise more money and have extra cash available in case something happens. Understanding what your utility lines are made of. The sewer lines, is it orange clay sewer pipes, which is actually very common and okay or is it Orangeburg sewer lines, which is not very good and needs to be replaced and you need to have money on hand to replace those?

Then also with water lines. Water lines can eat you alive causing several thousands of dollars in repair and maintenance fees. We own some mobile home parks in northern Minnesota and literally the water lines are 10 feet down. Every year the ground freezes and thaws, and it shifts the whole ground.

When it does that, the water risers that are coming up off the main to connect to the homes move. When they do that, it moves them off of the main line sometimes and they’ll pop off. We have to spend money to dig 10 feet down, reinstall it, fix the connection, and then re-infill all of that dirt. It can be very very expensive, usually around $3000–$4000 per time that we have to do that. 

Understanding how deep are your water lines? What are they made out of? Then what part of the country are you buying this in? Just maybe have a little bit higher expense ratio on those parks you’re buying up north, because we don’t have any of those issues in our parks in South Georgia, for example. It’s just really really important to understand that and how utility infrastructure impacts your overall mobile home park investment.

Cold weather. When that gets under the trailers, it’s really important. You’ll see some mobile home parks, you go through them in the South, and the skirting’s not applied or they just put wood over the bottom of the trailers. 

Whereas you go up north, it’s really important that they have skirting and insulation around the bottom of the mobile homes, so that there are no drafts, wind, and snow getting underneath the homes. In that underbelly is where all your water lines are, so it’ll freeze up your water lines in the home.

It’ll also cause just a lot of issues underneath the trailer. It’ll make the trailer itself colder during the winter if you’re not insulated. Your electric and heating bills will be higher for the tenants, which again cuts down on the money they have available to pay rent.

We try to keep everything affordable. When we’re doing due diligence on parks up north, we check under all the trailers, whether they’re park-owned homes or tenant-owned homes, and we give them a grade on is their insulation good here? Is the skirting good? Is there heat tape underneath the homes and connected from the water riser to where the water goes into the home?

Then we also remind the tenants every fall, via a notice and a text message that we blast everybody, to double-check and check their heat tape. Then a week later, we go and check it for them and just confirm that they’ve connected their heat tape and they’ve plugged in because there’s typically an outlet you have to plug in to get the heat tape to turn on underneath the mobile homes. 

Little things like that an experienced mobile home park operator is going to do, where a first timer may not know to check. I’ve been burned and spent so much money on fixing broken water lines because of freezing, and thawing them out with a salamander in the middle of January is terrible and it’s very expensive. 

Think about it. If you’re a plumber and you’re going to go out and thaw out somebody’s lines underneath a mobile home in the middle of January, you’re not going to do it for $100 or $200. You’re going to do that, you go sit in the cold for four hours while these things thaw out so that you can fix the pecs lining that’s all frozen. You’re going to charge a hefty fee to do that. It’s better to fix these things in the fall than it is when you’re in the middle of a blizzard. 

Just things to think about and understand when you’re investing in mobile home parks. All of these things can add up and can really throw you off budget after closing if you’re not careful to do proper due diligence. 

Again, I think investing with operators that have done this before, that have owned parks up north before investing with someone, could be prudent to just make sure that you’re getting someone seasoned, that has learned from their mistakes in previous deals is pretty valuable in my opinion. 

Anyway, I hope you all got value out of this. I hope you enjoyed this. It was fun talking about it. I really love talking about mobile home parks whenever I can. It just gets me excited because I’ve learned so much, made mistakes, and I hope to help you prevent these mistakes if you’re an operator or someone looking to buy your first park.

Then if you’re looking to invest passively into mobile home parks, I think you should just be aware. Be slightly educated at a minimum of what a mobile home park looks like? What are the risks? What does utility infrastructure look like?

If you haven’t taken the MHU boot camp, which is typically $2000 or more for a three-day boot camp, at least now you would know, okay, right away. One of the first things I learned is, hey, don’t buy parks with lagoon systems and then stay away from wastewater treatment plant parks while you’re new until you have time and you have a team that can really dig into understanding these systems. Still, to this day, we’ve stayed away from those two things from getting educated. 

Hopefully, this passes that on to you all and I hope you got value out of this episode. Sorry for rambling a little bit. I appreciate you all. Thanks for tuning in. Have a good day.