Somebody's raising a $40M park fund and wants $50k. What do I ask?

Four parks bought and three still owned is the line I'd sit with. What happened to the fourth? Sold at a profit, sold to get out from under something, or handed back? Ask for the closing statements on the buy and the sell, and ask what the actual investor return was on that one if he had investors in it.

Also 300 lots to 12 to 18 parks is a big jump in the same person. I'd want to know who he's hiring to run it before the money moves.

On the expense ratio question, I can answer that part from the other side. My small multifamily runs about 55 percent expenses. Roof, siding, HVAC, water heaters, appliances, turn costs, and the turns are the killer, a few thousand dollars every time a unit rolls.

In a park with tenant-owned homes the resident owns all of that. The owner has roads, water and sewer lines, common area, management, insurance, and taxes. That's why the ratio lands closer to 35 to 45 percent. And turnover is low because moving a home costs the resident real money, often several thousand, so people stay.

Where that breaks is park-owned homes. If your guy's plan involves buying homes to fill vacant lots, he's now the apartment landlord again on those units, with the expense profile to match. Ask what percentage of lots in his target parks are park-owned, and what he budgets per home.

The part I'd hold on to is that nobody entitles new parks anymore. Supply is fixed and shrinking as parcels get redeveloped. That's a durable position and it's why I like the dirt.

It doesn't tell you anything about whether this particular person can run twelve of them. Good sector, unproven operator, and you're paying 2 percent a year for the operator, not the sector.

The claim I've stopped repeating is the counter-cyclical one. The logic is fine, in a downturn people move down the housing ladder and demand for the cheapest housing rises. What I can't find is a lot of evidence about how a leveraged fund performs in that scenario, as opposed to how occupancy performs. Occupancy holding at 95 percent doesn't help if collections slip and your bridge lender wants a paydown.

So when he says counter-cyclical, ask what happens to his loans. His waiting list is a separate question.

I'll say the uncomfortable thing. The business model in the value-add version is raising rent on people who can't move and can't easily afford it. That doesn't make it wrong, the parks need capital and a lot of them are held together with tape, but you should know that's what you're buying into and decide whether you can hold it.

Practical version of the same point: ask him what his largest single-year rent increase has been across his three parks, what happened to delinquency after, and whether any resident group organized. The answer tells you both what kind of operator he is and how much regulatory attention his plan invites.

I read your post twice and I don't see the answer to a basic one. Does the fund buy the homes or just the land? @cairn's reply made me realize those are completely different businesses and I'd assumed they were the same thing. If he's buying homes to fill lots, where does that money come from, the fund or a separate line?

Zoning question to add to @thicket's list. Ask whether the target parks are legally conforming or legal nonconforming uses. A lot of older parks are nonconforming, which means they operate under a grandfathered right, and depending on the local ordinance that right can be limited or lost if the use lapses or if a large share of the homes are destroyed. That's jurisdiction by jurisdiction, no general rule.

It matters to you as an LP because the exit buyer's lender will ask, and a nonconforming park with a thin zoning letter can trade at a discount or not at all.

The infrastructure numbers people use in these decks are usually too low. Replacing a water main in an occupied park means working around homes, hand digging near lines nobody mapped, and restoring roads afterward. Sewer lateral replacement per lot in an occupied park has run me well past what the desk estimate said, and electrical pedestal upgrades to modern amperage are their own project.

Ask what per-lot infrastructure number he underwrites and whether an engineer put eyes on the systems or he used a rule of thumb. If it's a rule of thumb on 12 to 18 parks, that's the risk.

Who actually manages these day to day? Twelve to eighteen parks spread across markets is either a regional manager structure with software and a call center, or it's one guy driving. Ask for the org chart he plans to hire and what he's budgeting for it, and check whether that cost is inside the property expenses or charged as an extra fee to the fund.

Reading this thread taught me more than the last month of podcasts. The fourth park question from @wren is the one I'd want answered first.