Well, it happened—I had to cancel the park. Back in October, I didn’t think it would come to this. Honestly, buying a park with 188 lots was a game-changer for me, the company, and my investors. It was a step up in this industry and was going to help us reach our goals faster. Back then, when I contracted this deal, you couldn’t have convinced me I’d be here today writing this. Nothing pointed to cancellation.
188 lots. $43k in revenue. Close to my other park. It ticked all my buy boxes: park-owned homes, a mix of tenant-owned homes, a good number of vacant homes to rehab, empty lots to infill, and on public utilities.
Maybe I was blinded by the deal at the time, but I honestly thought this one was in the bag. We jumped straight into due diligence (DD), as you know from my previous article. While my team sifted through the seller’s DD and financials, I started working on the pitch decks, marketing, and gearing up for capital raising. I talked to my investors, matching goals with what we planned for this community. I obtained soft commitments, called vendors for quotes on the usual park improvements, wrote the business plan, and started calculating the capital improvement budget.
Needless to say, we were in full takeover mode at the office. This was a high-priority project. We lined up our mortgage broker to secure lending term sheets, negotiated terms with a loan sponsor, and even countered the lender to improve financing terms. We were putting all our ducks in a row so that, once DD cleared, we could launch the full capital raise and syndication process.
So What Happened?
How did I get here, writing about a deal I didn’t close?
Inspections—that’s what happened. A couple of findings coupled with a failed price renegotiation, and you’ve got a canceled deal and a lost opportunity.
The Findings
If you recall from my last article, here’s what the inspections uncovered:
- Orangeburg lateral sewer lines
- Clay main lines
- Sewer lines running down the middle of all the roads
- Galvanized water lines
- A hidden pond
I informed the seller’s rep that I’d be triggering the extension, which they weren’t happy about. They threatened to fight it, but I told them to refer to the contract. I followed every detail—sent my notice via email, mailed the extension letter to the contract’s specified address, and made the $5k deposit with the earnest money verification letter. After that? Radio silence. No emails, no phone calls—nothing.
Digging Deeper
I started by getting quotes on the infrastructure, working with the plumber who had been servicing the community since he had the best knowledge of what we were dealing with.
I also had to uncover the original plans and designs of the park. I called the city to find any drawings or layouts of the sewer lines they had on record. While I was doing that, I wanted to investigate the pond and whether sewage was present. I had a vendor from my other park take a sample of the pond water and get it tested. I was curious if this was being used as a dumping site or if it was a treatment pond. When the test results came back, they confirmed there was sewage in the pond, but not at levels high enough to suggest active dumping. The pipes running into the pond were drainage pipes, not sewer pipes.
Further inspection led us to assume there was a failed main line- which ran parallel to the pond- leaking into the pond. The main line, made of clay, showed damage and leaks throughout the park. This likely caused the pond’s water to test positive for sewage, even at low levels.
The city was able to find the sewer layout for me, confirming that all the main lines ran directly under the center of the roads. At least now I had a layout and could estimate the repair costs. The layout also showed where the sewer lines converged and emptied into the city lines, which was useful for estimating future repairs. When a park gets to this age and has changed ownership multiple times, critical facts like this often get lost. Back in the 1960s, everything was recorded on paper, and those records were often lost or discarded. Fortunately, this community had retained its records, unlike another park I own in a neighboring county where no such luck existed.
What I wasn’t expecting was to find that the main water lines also ran under the side of the roads. This meant that every time we needed to fix a section or replace the main water lines, we’d have to rip up the roads again. Numerous leaks had already appeared, and the water lines, made of old galvanized steel pipes, were prone to failure and leaks due to their age.
I worked with the plumber to determine costs. We had a couple of options: handle repairs as things failed, like the current owner was doing, or replace everything at once. Either way, I needed the money to cover repairs, and it came down to how much and over what timeframe the funds would be spent. Would the money come from the initial raise, or would we use rental income to pay for the expenses as they arose? Personally, I’m someone who prefers to budget for repairs upfront, raise the money, and get the work done all at once. Doing it right increases the value of the park. Any future buyer paying top dollar for a 188-lot, fully occupied park would expect solid infrastructure. That’s what we do, after all—transform and improve communities.
I obtained a previous invoice for the last lateral line replacement in the park, which cost around $2,000. Using some basic math, 188 lots at $2,000 each equals $376,000 to repair just the lateral lines—not counting the roads, main lines, or water lines. Luckily, the back road of the park was a newer addition, with approximately 50 homes that didn’t need updates, nor did the main line in that section. Excluding those, I calculated costs based on 140 lots, reducing the lateral line estimate to $280,000.
Next, I measured the roads. There were approximately 4,815 linear feet of roads, or 95,000 square feet, that would need repaving after being torn up. At $3 per square foot, the road repairs added an estimated $300,000 to the bill. Without even accounting for the main lines or water lines, we were already over half a million dollars.
Speaking with the plumbing vendor, he offered a discounted rate for completing all the work at once due to the volume. Even so, the cost of replacing the water and sewer lines was projected to exceed $1 million, excluding the roads. I also discussed cost-mitigation strategies, like rerouting lines to avoid the roads, but the plumber insisted an engineer would need to create a detailed plan. Hiring an engineer to provide exact layouts and measurements was a cost I wasn’t willing to incur during DD, nor did I have the time to complete this step. As a result, I worked off rough averages, estimating total repair costs between $1M and $1.5M for new water lines, sewer lines, and roads. Naturally, I assumed the higher end to cover unknowns.
I understood costs could go higher, but with only 30 days during the holiday season, I struggled to get other vendors to review the original drawings or visit the site to provide estimates.
In the end, I knew my original budget wasn’t sufficient to handle the magnitude of the issues we uncovered or the scope of work required to repair the park the right way
The Negotiation
We were buying this community for $4,150,000. Before making the offer, I had accounted for everything I knew at the time in my initial budget. We built in a healthy reserve to cover expected issues: rehabs, infill, transition reserves, typical plumbing repairs, minor infrastructure upgrades, and landscaping. My CapEx budget totaled $2.4M. We were expecting to raise approximately $4M, which would have provided our investors with a net 2.25 equity multiple.
After uncovering the plumbing and infrastructure issues, we realized that even the healthy cushion I’d assumed at the initial offering was short by almost $700,000. Additionally, the rent roll showed less revenue and higher expenses than expected, and lenders required a larger down payment of an extra $250,000. Altogether, we missed our original projections by $1M.
The original budget and cushion I’d set for infrastructure repairs was $800,000, but estimates to repair all the lines turned out to be closer to $1.5M. This left us short by $700,000 to repair all the lateral and main sewer lines, the water lines, and the roads after the work was completed. Plus, the raise would need to cover the additional down payment.
If we could negotiate the price and account for some of the additional funds needed, we could still realize the minimum 2x multiple expected for a deal like this. I knew I had to get the seller to meet us somewhere in the middle.
I called the seller two weeks before our extension expired and explained what we’d uncovered. He claimed he had no idea the lines were made of this material or that they were a major concern, saying he simply repaired issues as they arose. While I understand that’s how most owners operate, I found it hard to believe he had no idea about the lines—especially since, as mentioned in my last article, I learned of a previous buyer who scoped the sewer lines and backed out immediately after.
To address the unexpected costs, I proposed a $650,000 reduction in the sale price. He immediately refused, saying he thought my estimates were too high. When he asked how I arrived at that number, I explained that I worked with the same plumber he’d used for previous repairs in the park. The vendor and I calculated the cost to replace the remaining lateral lines, repair the main sewer and water lines, and restore the roads afterward. Despite this, the seller insisted the entire job could be done for half of my $650,000 estimate and offered only a $150,000 reduction.
I couldn’t make that work. He stated he wouldn’t go lower and claimed other interested parties would buy the park without addressing these issues. He also suggested they might just keep the park and continue repairing it as needed.
What Do I Think
The seller is losing money every month. They do not have a handle on their operating expenses, and the rent roll is constantly decreasing as tenants leave. They fail to repair units quickly, leaving them vacant and increasing the park’s overall vacancy rate. During my due diligence period, new leaks were springing up, and the plumber even mentioned he was scheduled to replace another lateral line at the park. I doubt the owner will be able to repair what is needed to stabilize the park. Without a substantial capital infusion, the condition and revenue of the park will continue to decline.
Most likely, they are looking for a buyer who won’t perform the level of inspections I did or, at the very least, will buy it without properly budgeting for the true cost of repairs. I informed the seller that I was canceling the deal but remained interested in purchasing it down the road. I explained that I had completed all my due diligence and was confident I could turn the community around. If they wanted to have a realistic conversation about pricing, I’d be ready to move quickly since the inspections were already done.
I hope the community comes back to me, but in the end, I knew canceling was the right decision. The $650,000 reduction I proposed was fair. It would have brought us back to a net 2x multiple for our investors—not a grand slam, but a solid return and a great investment at that price. It would have provided the kind of returns our Capital Partners have come to expect. I had room to negotiate that $650,000 reduction and still make the deal work, but a $150,000 reduction simply wasn’t realistic. The seller was adamant they could complete the work for less, which I couldn’t justify.
Lessons Learned
This deal may not have worked out, but it highlighted some key principles that guide every decision we make:
- Thorough Inspections are Non-Negotiable: Never rely solely on the seller’s word or skip inspections to save time or money. Digging deep uncovered issues that could have turned this deal into a disaster.
- Budget for the Unexpected: Infrastructure surprises can derail even the most promising deals. Always leave room in the budget for unforeseen costs and be ready to reassess if the numbers don’t add up.
- Stick to Your Standards: Compromising on price reductions or projected returns might make the deal work today, but it can damage your long-term vision and investor trust.
- Solid Contracts Protect You: An automatic extension and well-crafted terms saved us from financial losses and gave us the flexibility to make the right decision.
- It’s Okay to Walk Away: Not every deal is meant to be. Protecting your investors and reputation is far more valuable than closing a risky deal.
Conclusion
Canceling the deal wasn’t something I wanted to do, but I had to. Nobody likes someone who re-trades or backs out of deals. However, I believe the seller and their representatives likely knew the type of material the sewer lines were made of and could have disclosed it. While I can’t prove this, it’s hard to believe they didn’t know after the issues they’d already repaired and the previous buyer walking away. I backed out because of something I couldn’t have known at the time of the offer or when the seller’s DD items were provided.
More importantly, moving forward on this deal-“as-is”- would have been a step back for our long-term vision with our Capital Partners. We strive to provide realistic projections and aim for a 2x multiple on every deal. We ensure we can take a park to the valuation required to deliver those returns at the time of resale or refinance. Accepting this deal as-is or with only a $150,000 reduction would have jeopardized that vision. It would have underperformed for our investors and damaged their trust, ultimately hurting our ability to raise capital in the future. Transparency with our Capital Partners and delivering consistent performance is critical, and this deal would have undermined both.
I’m also grateful my contract included an automatic extension. It protected my deposits and allowed me to unilaterally secure a full refund without requiring a signed termination agreement—an agreement the seller still hasn’t signed a week later. This experience has reinforced the importance of having a solid contract, sticking to deadlines, and conducting thorough inspections. Relying solely on the seller’s word or skimping on inspections to save money would have led to massive headaches, poor performance, and missed investor expectations. Worse, it could have left a mark on our company’s reputation.
Walking away from this deal wasn’t easy, but it was the right choice. Our commitment to doing what’s best for our investors and our vision of creating valuable, sustainable communities is what sets us apart. Every deal teaches us something, and this experience reinforced why thorough inspections and unwavering standards matter. Deals come and go, but reputation and trust are forever.
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Lock N’ Load
The MHP Operator
Disclaimer: The information provided in this article is for educational and informational purposes only. It is not intended as financial or legal advice. I am not a licensed financial advisor, lawyer, or CPA, and you should consult with a licensed professional before making any legal or investment decisions.
