Ep. 95 | Interview with MHP Due Diligence Expert Steve Edel – How To Work Through the Diligence Process

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On this episode of The Mobile Home Park Lawyer, Ferd is joined by due diligence expert, Steve Edel. Throughout this episode, Ferd and Steve tell us how to work through the due diligence process. Steve shares some tips and tricks for carrying out due diligence, as well as some stories and experiences of his own.

 

“For all those deals I brought in, I did the due diligence, so that’s what gave me the idea to formalize it, see what happens. A year later, it just took off and the rest is history.”

 

HIGHLIGHTS:

0:00 – Intro
0:42 – Steve gives us an insight into his background and how he got into the MHP industry and specifically, due diligence
3:40 – Ferd asks Steve where he starts when carrying out due diligence
8:45 – Steve speaks about one of the 30 questions he poses when carrying out due diligence
11:14 – Steve speaks about the next step in due diligence – which is dealing with everything offsite
17:29 – Steve states that there are a lot of clues that will give you information on how much turnover there is
17:54 – Steve takes us through a list of things to ask for that will help you understand the turnover of the property
20:36 – Steve informs us that owners should be getting paid by the company to supply internet service
23:08 – Ferd states that your budget doesn’t get blown up over a misprice, it gets blown up from a missed price – and that’s why an on-site inspection is helpful
24:09 – Steve mentions how on-site inspection has always been his favorite part of the job before sharing some tips and tricks with us
27:36 – Steve advises you to always ask/check if the sewer is capped. Steve tells us how if the sewer is not capped – that usually means it’s broken and that will be a cost to fix it
32:16 – Steve states that root systems destroy sewer systems over time
37:49 – Steve shares some final advice with us that will help you when carrying out your due diligence

 

FIND | STEVE EDEL:

Website: www.DueDiligencePartners.com 

 

FULL TRANSCRIPTION:

Ferd Niemann: Welcome back Mobile home park nation, Ferd Niemann here. Again with another episode of the mobile home park lawyer podcast, special guests today, he’s a due diligence expert. He’s a mobile home park owner, operator, investor. He really knows how to look under the hood and find lots of problems to keep you from stepping on landmines. So looking forward to today’s episode, please help me welcome Steve Edel. Steve, how you doing?

 

Steve Edel: Doing great. Thank you. Thanks for having me on.

 

Ferd Niemann: Yeah, no problem. Well, Steve, for our audience that doesn’t know you, you’re one of the principles of due diligence partners. Tell us a little bit more about your background and how you got into the MHP business and how you get into the due diligence operations as well.

 

Steve Edel: Yeah, So I was surprised I looked the other day of when I started acquiring properties and it’s actually been a dozen years and, in my mind, it’s been much shorter than that. So I had many other businesses prior, but I had a good buddy that owned parks. So that’s how I first heard about it and learned about it. And then my wife attended a bootcamp, Frank and Dave bootcamp. And she came back with raving reviews. And so I thought, yeah, there’s got to be something to this. This is cool. So that’s how I first heard about it. Maybe fast forward, I ended up purchasing about a dozen parks, really much more than that. I ended up with a dozen parks, so I still own a dozen parks in Texas. So over the last 10 years purchased a, you know, a few extra, a few more and sold a few. But then I slowed down buying parks sort of achieved my goals. And I had an epiphany of the part I like to do of the business the most, cause everyone has their part, right. For some of us it’s like financials and for me, which seems to be rare, I’ve always only liked the DD part. And so also, I used to source deals. I sourced probably easily over 50 deals, worked with a lot with Dave Reynolds. I bought parks with Dave. We shared parks and for all those deals I brought in, I did the DD on all of those. So that’s what kind of gave me the idea of like, Hey, why not formalize this? See what happens. A year later, I just took off the rest is history. So now we have a big team. Our niche client is mid-sized clients. And I say, midsize operator, that means 20 plus parks. So a lot of our niche clients, they have an internal DD person, but they can’t handle, they don’t have the bandwidth. So a lot of these parks are larger parks. Many of them are multi-property deals all over the place. There’s no way they have a team to go cover everything. So that’s where we come in and that’s how it all got started.

 

Ferd Niemann: Okay. Well, great. That’s interesting. Interesting background. So yeah, you’re one of the few guys that went to the bootcamp and then also got to partner with Dave that’s cool, man.

 

Steve Edel: Yeah. Yeah.

 

Ferd Niemann: So I’m sure being in your business that you get a million success stories and a million horror stories, maybe we could start off with, you know, what’s the DD process look like, what do you start with? And then I want to just also talk about what are the most important things and what are the things that are commonly missed? We can go over some of those and I’ve got some other horror stories my own I can share, but maybe start with, if I call you today and say, Hey, run my due diligence, where do you start?

 

Steve Edel: Okay. So we start with off-site of course, and that’s whatever you can do behind the monitor and talking to the seller. But I think what’s a little surprising is the city stuff. And I know you’re well-versed with this stuff, but it’s much more comprehensive than everyone anticipates, even our midsize operators that usually find that it’s a lot more to it. So to simplify that, I guess I’ll compare it to sort of what the rookie does. And it’s what I did. What all of us probably did when we started off, which was you contact the city and you say, Hey, what’s the zone Dez. And they come back, and they say, well, it’s, you know, legal, nonconforming. That’s what most of the 50,000 parks are in Texas. And then they may have something else to say, and it’s zoned XYZ, it is zoned, mobile home park, or commercial, or multiple things, residential/whatever. And that’s usually where the process dies. So what we have done is we have over many years, figured out every single possible question that needs to be asked. So on average, it’s like 20 to 30 questions they have to do with everything involving usability, compatibility, replacement, things like that. So on average, we go back and forth two or three times with the city, that’s on average. And the best case scenario is we go back and forth maybe twice, but in extreme cases, we go back and forth like eight times. And the reason for that is eliminate the gray. And in other words, most of the time, the answers do not come back black and white, especially these days there’s, as you know, there’s a lot of suits. You know, you may want to challenge a lot of the restrictions sometimes, but if the right questions are asked, often the answer for zoning and compatibility comes back with a lot of restrictions. So then you have to go back and say, okay, what are they like, reference the code? What are those restrictions? You’re saying it has to, it’s legal nonconforming, which doesn’t mean anything these days, but it has to meet the current code. Well, the current code has a dozen restrictions, has to do with square footage of the lot, it has to do with the setbacks, which none of them are currently met. It has to do with having paved driveways, etc., etc., etc. So we get to the bottom of it. We make everything black and white, as far as all of those answers go. And then at least the buyer as a buyer, you can make a decision of number one, am I okay with this? Number two is there something I need to challenge to protect my investment or number three, which is more rare, do I need to get my attorney involved and go in guns blazing and you know, and a lot of these things that can be resolved by just talking to the city attorney or whatever. But not always. So that’s how we kicked things off.

Ferd Niemann: No, I think that makes sense. I think, yeah, you’re right. That the attorney coming in guns blazing is probably not the best approach. And it’s typically and that’s coming as a zoning attorney, but it’s expensive, but it also really just changes the temperature and atmosphere. And we do some of the process where we try to, we’ll negotiate the zoning letter. I had a city recently, they said, we won’t even tell you, we won’t even know as to what the status of the zoning is. I can see it in the zoning map. I can see it on the parcel map. I want to know what the distractions are. And they just said, we’re not doing it. I said, what do you mean not doing this? We don’t think we have an obligation to do it. You can do your own research, like I’m going to, but I want to know what your opinion is of on your interpretation of the code. Because a lot of times these setbacks in particular, they may not be valid depending on when the code was passed, depending on when the park has being placed, depending on whether you exacerbate your grandfather use things like that. So I think it’s crucial to start with the city. And as you’ve mentioned, bootcamp Frank Rob always says, you know, don’t buy a park that’s illegal. You’ve got legal conforming, which is rare. I’d say 5% to 10%. You got a bunch that are legal Non-Conforming, i.e. grandfathered probably 90% of the country. And then you got some other single digit percentage of just purely illegal parks that aren’t supposed to be there, were never supposed to be there, and snuck in the back door. And that’s a big risk if you buy one of those.

 

Steve Edel: Yeah. You hit the nail on the head. Like how are they interpreting it? Because almost every first round answers comes back fuzzy. It’s like, guys, this is open records. Like answer all the questions we need you to answer until we get to those black and white answers. Like another interesting one. And again, it’s like 20 to 30 questions. I mean, that’s a lot of questions we’re asking. But like one of them is triggering new inspections. So something that’s happening now in different states and, you never know where you’re going to find this stuff, but you have to ask the right questions. And so like, one of them is a new owner can trigger a complete inspection. Like what that means is everything’s fine and dandy up until the new owner steps in and triggers everything. Now you have the fire department coming in going, oh, you don’t have enough fire hydrants. And that’s going to be like 15 grand a pop to install them.

 

Ferd Niemann: A lot more than that. I had a park I bought, they did that to them. They spent $400,000 on water main putting intwo fire hydrants, the fire chief said, I want this business license. Yeah. I’m with you, man. Crazy.

 

Steve Edel: Yeah. And setbacks and yada, yada other things come up and like you said, exactly. We had one bill add up to as far as just very rough quote. It was going to be 500K of items that needed to be fixed within, you know, the first two or three months of ownership.

 

Ferd Niemann: Wow. Yeah, definitely good to look for, I can definitely appreciate that. I’ve also seen, in addition to triggering new inspections, there’s a trigger in new licensure process or a new fee, tap fee, impact fee some of those things. I sold the park in lagoon and during the closing period, due diligence period, the permit was expiring and renewing, and the guys closed anyway, rather than ask for an extension. I was waiting on the governor to give me the permit. And luckily it got extended, it got approved, but they bought the park without even knowing that there was no valid lagoon permit. I had sent the check off in time, but it wasn’t a necessarily rubber stamp. They came in, they did an inspection and because they were behind, it took two months instead of two weeks. And during the two months, these guys closed on it and it worked out for them. But I mean, I see that happen all the time where people don’t think about that. And man, that’s why they need to hire guys like you. We talked city process. Okay. So let’s say that all checks the boxes and we’re still good. Are you then going on-site or you are other third-party reports or what’s, what’s your next step of analysis?

 

Steve Edel: Yes. So next is all the off-site stuff. And really, I mean the whole purpose of offsite is to uncover what the seller is not telling you, using whatever resources you have. And there’s a lot of resources. Find out the story of the park, right? And so, for example, I mean there’s historic areas, things like that, where if the seller says, well, this park has always been full, but you find out 10 years ago, the majority of the park took off and it was vacant. So what in the world happened? Was there a catastrophic event? You know, did the flood wipe stuff out just, you know, what happened. So that’s, so half of it is using the tools the other half is taking the seller and just making sense of them. And you know, the very first thing to do, I think when being new to the process is to the rookie mistake is to call the seller and ask all the rookie questions. You know, you call the seller, and you say, Hey, how many lots, how many occupied, what are the assets? But in actuality, you need to spend a solid week auditing every single item they send you before you have that good interview, because you need that context so that you can ask all the follow-up questions. Otherwise, it’s really a lot of waste of time. And you know, we all did that. I did that when I first started out too, you know, the rookie call, Hey, you know, what do you got? So don’t do that. And it’s the same thing. The off-site process is just making everything black and white. And it’s auditing the infrastructure and the agreements and taking a step back and double-checking that your purchase agreement has the stuff you’re getting. You do that again in the on-site process. But once thing we see a lot is purchase agreements that don’t include at all. So with that said, that can, part of that can also be strategy, right? You don’t want to overwhelm the seller. You just want to get the darn thing under contract. You want to get it wrapped up, but amendments are your friend, as you will know. And so the first week offsite, you find out that the park-owned home count is off. You find out the assets are off and buy assets again, as a rookie, or if you’re new to the process, you’re thinking, oh, that’s how many park-owned homes, no, there’s a lot more to assets than that. Any physical structures, anything underground, anything in addition to, anything outside of just, you know, the homes, the mobile home. And so that could be things that you know, are not disclosed because the seller wants you to deal with removing them. You know, that’s just one example. So once you figure out what those actual numbers the best you can, you want to do an amendment. So you want to say there’s X amount of park-owned homes. There’s apartment, there’s an office. There’s you know, there’s a two-story barn. We just seen many crazy things. There’s a, oh, there’s, you know, two tractors, whatever it is. And then, because inevitably the on-site never matches. So at least when you have it on paper, or even an email, you do the onsite, and then you can say, okay, here’s where we went off. This is not what we agreed to getting. So you know, a little bit more detail about the audits, it’s very, very detailed. When it comes to agreements, for example you want to ask for any active agreements and you know as an attorney, you know well, that captures everything, right. Something comes up later on, you can say, man, I asked you in writing for all active agreements, you held back that you had these side deals going on. You held back that you had these three year leases. I thought they were all expired. So we will actually audit not just every single lease, but there’s dozen things we audit and every single active agreement. So it includes deposits because that never adds up to what the seller says. Sometimes we’ve had buyers get back like 10, 20, 30K more than they ever would have, because they never even thought that you should add up the tenant deposits that are on each lease. So we audit the terms, we audit any chicken to scratch, any maybe custom terms they may have written on the lease, whether they’re typed or handwritten because there’s often many different versions of leases. Utility amendments, or anything having to do with utilities such as on paper they’re saying that they should be getting them for free when they’ve been illegally billing them for certain utilities, things like that. So there’s a dozen items. And that’s, you know, as you can imagine, that takes hours, especially when you’ve got hundreds, you know, hundreds of lots, or 200, 300 lot park. So auditing every single active agreement. And then beyond that, I don’t want to ramble too much about agreements, but beyond that is again, coming around full circle to what’s the story of the park is all the historical stuff. So there are a lot of clues that will give you information on how much turnover there is. And that’s just, I mean, that’s the critical piece as far as protecting your assets. So there’s six different items that we request that help validate reality of what that turnover is, ranging from an eviction report to historical rent role to, you know, who they think, or if they have any pending evictions right now, questions and info like that, paint the complete picture of the reality of what’s really going on after we’ve got the numbers and the stuff on paper.

 

Ferd Niemann: That all makes sense. I’ve seen some agreements that have become a problem. I know I bought a park and the manager apparently, it was a female. She had felt unsafe at the parks. She took it upon herself to hire a security company, to put it in, you know, like bank-level security cameras throughout the park. And she signed a, I think it was a 10-year contract with a five-year termination clause. And it was something like $1,200 a month, the security cameras. And I bought the park. It was apparently, it came up at closing, but it was a substantial penalty you know, I don’t know if it’s tens of thousands, but it definitely burns a $10,000 penalty to get rid of it. And they wanted me to take it over. I’m like, look, I’m not taking it over. I look at the contract, it specifically says, and I put this in my contract, all agreements, vendors, independent contractors, utility, anybody shall be terminated by seller immediately prior to closing, unless specifically authorized to remain by buyer in writing. So I may want the trash contract, but I may not, regularly I get a new trash company and the seller required, the seller requiring it to transfer to you. Well, I didn’t agree to that. And it wasn’t in record. It wasn’t recorded so I’m not on active constructive notice of it, and I’m not going to do it. And I said, and get your dumpsters off my property cause you’re trespassing. And I’ve been able to do that many a time. And then we’re going to stick you the bill and what do you do? You are going to the property. You don’t have a relationship with me, and you don’t have the permission to do that. If you had a relationship with the seller, it wasn’t in record. So I’m a big fan of reading the agreements, my kind of cart blush preemptive move is to just say, all must be terminated. And then they don’t apply to me unless they’re recorded, but I’m going to do entitled objection, re-easement, so I can find them in that regard. And that saves me not on every purchase, but pretty much every purchase there’s something in the contract that I don’t want to be a part of, the mowing guy or anything of the sort.

 

Steve Edel: That’s a great example. It just made me think of two more examples stories is, when we audit all the active agreements, for example, one is cable deals. Most owners don’t realize they should be getting paid by the company to be providing internet service, not the other way around. And we’ve run into deals where we’ve had these terrible contracts signed, where the owner is paying the cable company. And so when we audit all those deals, another one that’s super common, of course, is water bill back. Whenever it’s a third-party like Metron or something like that, that has an agreement. And so we audit all of those and really want to flag what the expiration dates are, what the cancellation terms are, like you mentioned. And what it is that the contract states. So is the contract saying that you know, they have 150 meters or that they’re contracting for 200 meters. So yeah, that’s a great example. And something else I thought about that of course is really critical for the offsite process that we do is we rebuild the P and L from the ground up. So we get all the utility bills in and that’s helpful, but having done this and having done hundreds of parks, like, you know, we know if anything’s missing. So we’ll rebuild it from the ground up. And if there are utility bills missing, which often theirs depends on if it’s a professional operation or if it’s a mom and pop, then we’ll just plug in the industry-standard numbers, but then onsite will compliment that. So when we get to onsite, we often find hidden bills. So that could mean that there’s additional utility electric bills, for example. They didn’t tell us that they’re paying for these particular park-owned homes, or they didn’t tell us that they’re paying for the apartment electric. And so that really finishes and completes the P and L rebuild when we do the onsite.

 

Ferd Niemann: No, I think that’s definitely keys. And I was telling somebody the other day, and I learned this from a contractor that your budget doesn’t get blown up from a misprice. It gets blown up from a missed price, something that you didn’t see. And that’s where the onsite inspection really is helpful. You’re like, wait a second. What is that building? What does that system there? Like, why is there propane? Is there propane gas? So things that you can’t see on paper at a mom and pop either don’t know or don’t share. So, I recently had a client that he bought a property without looking at it, I saw the video, the broker sent me the stuff. I’m like, how busy are you or how minuscule is this dollar amount to you that is not worth a single visit. I just can’t fathom that. I mean, but people do it right. If you’ve got somebody skilled on your team, do it maybe, but I just, personally, I’m not signing a banknote for something I haven’t seen. That seems like a dumb way to do it. So anyway, tell us some of your tricks and tips when you’re onsite. What’d you look for?

 

Steve Edel: Yeah. Yeah. That’s always the part of the job I’ve loved the most. That’s where you go undercover, and then it turns into the opposite. Because by the time we’ve left, every single tenant knows we’re there. The manager has caught on to reality of probably what’s transpiring here, if they haven’t been told that the property is for sale. So yeah, so the onsite process you know, generally takes a couple of days. And when I say a couple of days, couple of full days and a night, and that’s usually two or more people. You know, so thinking back to when I started DD and did my own DD, you know, the rookie way is I thought the on-site process was like an hour or two, and it couldn’t be further from the truth. And the magic really happens when you’re onsite all day long. So, you know, we end up, in that time, we end up interviewing all of the staff and especially the hidden staff, which is half the time. So often, you know, you’re given the standard, you know, the standard answer or the standard info for the manager, their contact info, what do they do? But then you go onsite, and you find out, well, there’s an assistant manager and there’s Billy Bob handyman, and he’s really doing most of the work. And there’s a second handyman. And there’s the third guy that picks up everyone’s trash, which is why everyone’s lots looked so good. So that’s something else we have to add into the P and L, or the new owner would have to notify the tenants that, oh, by the way, that was an amenity and it’s going away. You really need to clean up your own lot from now on. So I would say, you know, that’s always been the most, that’s what’s always drawn me to onsite. That’s always the most fun. And I always say, you know, there’s 50,000 parks in America and every single one is different and has its own personality. And to this day, I mean, I usually get some really unique things out of every single on-site process. So that’s, you know, so that’s about how much time it takes. As far as the different things that go on, the second you hit the ground you know, you should be auditing the infrastructure. So you’re auditing the exact lot count. You’re auditing every single lot number to see if it matches. Sometimes you have to create your own lot map if one wasn’t provided. If one was provided, you’re auditing every single lot number to see if it’s correct or not. You’re auditing a vacant lots and on vacant lots, it’s a big deal. I mean, there’s a dozen things that we’re auditing there. So we’re not just auditing, you can’t really audit usability if you’re not looking at the details. So we’re not just looking at, does it have, you know electric water, sewer gas, we’re making a note of the condition. So for water, does it actually have a water connection? It’s not broken, it’s not bent. Does it actually have one? Sewer, is it capped? So we’ll make a comment. We’ve actually, you know, we’ve got everything, all this information in different columns and, you know, for a sewer it is capped, because if it’s not, it’s often broken and there’s debris in there and there’s going to be a cost there to actually fix it. And then is there an electric box and does it meet code? So in other words, is it rusty? Is it leaning a certain percentage, which makes it not usable and it needs to be replaced. Is it old school? Does it have like old type like fuse types, you know, have you seen those, the fuse type breakers? Yeah, yeah, exactly. You know, the old school, which are definitely, the electrician is definitely going to require you to replace. And are they, you know, 100 amp, 150, 200, are they 60 amp RV boxes? You know, what are they? And so that really paints the picture of how usable really are those lots. And what’s the cost going to be to get them all to be usable. And the rest of the infrastructure would be the roads, the sewer, we always do a camera inspection. And finally the asset audit, which is any structures the park owns. And that covers the whole infrastructure audit. That’s how we kick things off. When it comes to sewer you know, again, back to my rookie days, I thought, you know, maybe that takes an hour or two, but especially for a big park, that’s why we need a team of two or more people. If it’s like a 500 lot park, we’ll have a team of four or five guys there for two solid days. Because we have to have one person that’s babysitting the plumber. And as you know, you cannot get an effective, you cannot rely on a sewer inspection by just saying, go do it. So we have to have a dedicated person babysitting the plumber, documenting what type the sewer lines are, what size they are, how it flows and all of that. Cause you know, I’ve run into cases where the plumber says it’s the wrong material. I’m like, no dude, that’s clay. That’s like not Orangeburg, you know.

 

Ferd Niemann: I want to ping you on that because I want to jump in there, because I just got under contract in two parks and one of them was Orangeburg and it was failed everywhere. We ended up dropping the contract. Second one, it was supposed to be PVC, but then we did a camera line and we found Warrensburg. So I’m curious what your opinion in general because I’ve gotten different opinions from different folks. Is it supposed to last 20 years, 30 years, 40 years. And then, you know, if it’s still there, it’s 40 years old, is it going to implode tomorrow or is it, you know, it’s made it 40, you know, and doesn’t seem to be a problem. What is your general tolerance of how much Orangeburg? And then I’d also curious, in these parks, especially a big part, are you camering every single inch of that sewer line?

 

Steve Edel: Yeah. So great question. So to address the first one Orangeburg, it’s not necessarily bad. It’s obviously a softer material. That’s a given and older, softer material. But I’ve seen all, but so the variables that determine whether it sucks or it’s just all right, and you’ll get another 20 years out of it is what’s the size of the line. So is it four or five, eight-inch lines. So I’ve seen an older park for example, had eight inch Orangeburg lines, which were just solid. I mean, run after run, just not a flaw in them. Because proportionally the bigger the line is, the bigger the shell is. And so like for Orangeburg, I mean, you can have like an inch, it’s kind of like this honeycomb material. It’s weird. It’s like cardboard, but it’s plastic. And you can be like an inch thick, so it holds up well, the other variable that really affects it is how deep are the lines and historically what kind of a ground saturation is going on and root intrusions. So we look up, you know, trees are, one of the huge cost buckets, so we always audit trees. What kind are they, how big are these things? Are they 20 foot trees? Are they hundred-foot trees? Cause root systems destroy sewer systems over time. So those are all the variables that are going to be involved that we note as we’re checking out the lines. The second thing you brought out was like, do you really inspect the whole thing? And our goal is greater than 80%. So as you can imagine, that’s why we have to have somebody dedicated to babysitting you know, the plumber for like a 500 lot park for example, that would take five to seven hours is what it took for this one, a couple of months ago. So, you know, main lines, what they also call laterals are usually accessible. And part of that too is asking all the right questions for equipment. So if you’re not super familiar with the video inspection process, if you don’t know the dozen things to ask for, for equipment, inevitably you are going to have the wrong stuff show up, and you’re going to miss your date and not be able to do the job. So I’m not going to cover all dozen things, but for example, do you have a 300 run? And that’s the foot, that’s how long the run goes, right? Especially if you have a bigger park. Do you have extensions? Do you have rollers to help feed it through, if you have bigger lines, if you have a bigger park, do you have a color system which is a newer system. How are you saving off if they go, if they say, well, we save it to DVD. It’s like, that’s an older school system. And that’s like red flags you know, we know a lot of stuff beforehand. Like, are there manholes, there’s manholes, it might be six to eight feet deep to actually get in the line. So do you have a sheath to feed the camera through, if not, you’ve got a million reasons the plumber will show up and go, oh yeah. Well, I don’t have a sheath, so I’m done. I can’t do the job. Or he shows up with a residential system that’s got a 50 to a 100-foot line. It’s like, well, this is not going to work out. Or it’s just a really old system. You know, you can, you have to verify all these dozen things, like, for example, is your recording working. You could have a guy show up with the camera system that says, well, I just assumed you needed to see the video. Not that you needed to actually record it. And then, but we also do double recordings on top of that. So just in case, because we do not trust anyone, anything that anyone does, we record everything. So even as they’re being lined, we take a bunch of still shots and even videos of like problem areas that come up. And so to tie off-site into onsite, one of the cool things we do is, again, we look at historical information and we have a lot of map resources. So almost always parks are built in different phases, and you need to know what phases it was built in before you go do your sewer inspection for example. So we have these historicals and we know, okay, for example, there’s like a hundred lot park. Well, we know that the first street that has 20 homes on it was built in 1940. We know that the second street that has 40 homes on it was built in the seventies. And then we’ve got that other street that is pretty darn new. I mean, it’s like a new park. Well, you can guess if they haven’t replaced any laterals since 1940, which, you know, do the quick math there 81 years, you’re looking at cast iron, or you’re looking at clay that’s completely crumbled or what I call a Frankenstein system. And we know almost always that we’re going to have a Frankenstein system based on the map information that we pull up. So we’re looking, I mean, my record is six different materials, and you can have even materials inside of different material. So you never know, you could literally have, you know, PVC, concrete, Orangeburg. I mean, you could have it all. And that’s often, you know, that is the case too with a lot of older parks. Cause they’ve never, they just fix as they go. They never actually go replace a whole line.

 

Ferd Niemann: Yeah. The band-aid approach is definitely the go-to approach for most. Tell me, yeah, I fixed it 25 times or something. Okay, it’s indicative of a problem. Maybe you shouldn’t replace the line and abandon that one. I’ve had, we’ve talked about caps on them. I’ve got a park, we bought it last year and none of them had caps on the sewer. So I’m like and I tried to camera, they didn’t even make it five feet. It was just like this third full of dirt and rock-like, okay, it’s going to be cheaper just to run a new line, going to budget like running in under 60 feet of similar line into the main, so definitely due diligence is critical. You’re obviously a wealth of information, very detail-oriented, which is what we all want indeed in our due diligence process. So this has been very good. Steve, before we wrap up any other kind of last tips or tricks you want to share.

 

Steve Edel: Yeah. Two things come to mind especially as you’re sharing you know, what you’ve seen too is the cap-ex. So we call that deferred maintenance on our reporting system. And we come up, you know, on average, we come up with 50 to 100 deferred maintenance items on every single property. And the biggest, one of the biggest things we did a month ago is, we went public with capex information on our reporting. So we use industry averages to apply to the cost buckets for all of the deferred maintenance items we find. So there’s like less than 10,000, 10,000 to 50,000 and over 50K. So for the example you were just mentioning, you know, you get in there and you can’t even run the line. You know, of course we run into stuff like that, right. But we can say based on everything, this is going in the 50K plus cost bucket. These are the conditions and it’s going to, the industry estimate for jetting the system, just so that you can look at the thing is X amount. And that’s all in the reporting. And so you’re using a third-party report to say, hey, seller, not me, these guys, here’s all the info, industry estimates. This is what I have been given. And lastly is the drone. We thought it was just cute in the beginning, but now it’s something that we can’t live without. And when I say droning the property, it doesn’t mean taking a video and a couple of cute pictures. What we do is drone mapping. So it takes thousands of pictures, stitches them together and creates an interactive, 2D and 3D map along with the topography map, which is accurate to the inch. So the topography map is color-coded because as you know, city-county topography maps are worthless. So this has really changed the world for DD and all of our clients, because with that topographical information, we’re able to spot problem areas, drainage issues, flood issues, regardless of what the flood plain is. And really look at it that way with the microscope.

 

Ferd Niemann: I mean, that’s cool. I used to be the county appraiser here in Kansas City, Jackson county. And we were always trying to get pictometry and a couple of companies to do the droning countywide costs 600,000 a pop, I think. It was a big number, but the technology is amazing. It can tell you, you get spot unpermitted additions like garages and sheds, and could tell you the square footage, save you from having to measure by hand. I was like, man, that’d be amazing. I have not used it on mobile home parks. So that’s great to figure out how to use. I’ve got a little drone for my kids, but that’s not as good as yours. Mine was $39 on Amazon, and I’m not very good at flying it, but I am going to see what model you got and figure reasonable business expense, I can flow through the company is a better drone. That sounds fun. All right, Steve, this is great. Before we jump where can people find you?

 

Steve Edel: www.Duediligencepartners.com is the website. So if you go to www.duediligencepartners.com we are, you know, very transparent. So even all the DD questions that are most often asked or even answered on their costs, everything is on there. So yeah, get ahold of us that way, if you need some help or just have any questions, we’re always available to just answer questions too.

 

Ferd Niemann: All right. Sounds good. Thanks again Steve.

 

Steve Edel: Yeah. Yeah. Thank you. Thanks for having me on, that was fun.

 

Ferd Niemann: All right. Bye now.

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