The Biggest Beginner Mistakes in MHP Underwriting
Every new investor makes underwriting mistakes. What separates investors who lose money from those who do not is whether they catch those mistakes before making an offer or after closing. This episode covers the five most costly patterns we see.
Every new investor makes underwriting mistakes. That is not a character flaw — it is the unavoidable cost of learning a complex discipline without a structured roadmap. What separates investors who lose money from those who do not is whether they correct those mistakes before they make an offer or after they close.
This episode covers the five most costly underwriting patterns we see from investors in their first one to three acquisitions. These are not hypothetical mistakes — they are patterns observed repeatedly across students who have shared their deal analyses with us over the past several years.
Mistake #1 — Trusting Seller Financials Without Pressure Testing
This is the most common mistake and the one with the highest potential cost. Sellers present financials with a specific goal: to make the asset look as valuable as possible. That is not deception — it is negotiation. Your job is to understand the difference between what the seller presents and what the real operating picture looks like.
The specific traps to watch for:
- Revenue that includes one-time items — utility reimbursements, insurance proceeds, legal settlements — mixed into operating income.
- Expense lines that are systematically below market norms, especially management fees, insurance, and property taxes.
- Pro forma income presented alongside actual expenses, creating an artificially inflated NOI.
- Cash-basis financials rather than accrual, which mask delinquency and bad debt entirely.
The rule we teach: always build your own model from first principles, using your assumptions — not the seller's. Then compare your model to theirs and understand every gap. The gaps are where the negotiating leverage lives.
Mistake #2 — Underestimating Capital Expenditure Requirements
CapEx is the item most likely to turn a promising deal into a painful one. It is also the item most likely to be underestimated, because CapEx costs are not visible in trailing financials — they appear only when something breaks or requires replacement after you own it.
The two most dangerous CapEx categories in MHP underwriting:
- Infrastructure replacement: Private water and sewer systems have finite lifespans. A lagoon system installed in the 1980s may look functional during a site visit but be within five to seven years of requiring a $250,000+ replacement. Lot-level plumbing in parks with older infrastructure can be similarly expensive to replace at scale.
- Home replacement and infill costs: Parks with significant numbers of functionally obsolete park-owned homes often require home replacement programs to stabilize occupancy. The cost of a new HUD-code home delivered and installed in many markets is now $80,000–$120,000 per unit. Model this honestly.
Reserve guidance that holds up under scrutiny: $400–600 per lot per year for parks with private infrastructure. $200–300 per lot per year for parks with public utilities and well-maintained conditions. These numbers reduce your modeled NOI — but they reflect reality, and lenders know it.
Mistake #3 — Ignoring Local Management Constraints
Management cost assumptions are one of the most location-dependent variables in MHP underwriting, and one of the most frequently genericized. Many buyers apply a flat 8–10% management fee assumption regardless of park size, location, or local management availability.
The reality is more complicated. In rural markets with limited management company options, your effective management cost may be 12–15%. In markets where professional property management is scarce, self-management is often the only viable option. If you are not willing or able to self-manage, model the deal as unworkable — because for you, it may be.
The more specific your management plan before you make an offer, the more accurately you can underwrite the true cost. “I will figure it out after close” is not a management plan — it is a gap that will cost you money.
Mistake #4 — Anchoring to the Cap Rate
Cap rate is a useful shorthand for comparing assets of similar type in similar markets. It is not a substitute for DSCR analysis, and it is not the number that tells you whether your deal works.
The trap works like this: a buyer finds a park being marketed at a 7.2% cap rate. They know MHP cap rates in that region are 6.5–7.5%. The deal makes sense on a cap rate basis. They make an offer without stress-testing the income at their expected debt terms. Three months later, they discover that at current interest rates and their loan amount, the DSCR is 1.07x — below any lender's minimum. The deal does not finance, or finances only with a larger equity check than they budgeted.
Build every deal analysis around the financing scenario first. What is the maximum loan amount at your target DSCR? What equity is required? Only then evaluate whether that equity check produces an acceptable cash-on-cash return. The cap rate should be a final sanity check, not the starting point.
Mistake #5 — Treating Occupancy as a Single Number
Eighty percent occupied sounds like an asset with 20% upside. But the nature of that 20% vacancy matters enormously — and treating occupancy as a single number is how buyers miss it entirely.
Three scenarios that all show “80% occupied”:
- Scenario A: 20% vacant lots with good pad conditions, utilities connected, and a visible local housing shortage. Filled at market rent, the upside is real and likely achievable.
- Scenario B: 20% vacant lots that are physically inaccessible, utility-disconnected, or below minimum size standards for modern homes. This vacancy will cost money to address — it is not free upside.
- Scenario C: 20% of lots occupied by park-owned homes that are non-cash-flowing, in eviction process, or so deteriorated they require replacement. This is not vacancy — it is occupied problem inventory, and it is often worse than vacancy.
Always ask: occupied by what, and in what condition? The answers determine whether vacant lots represent genuine upside or a capital-intensive liability you are about to inherit.
Building Better Underwriting Habits
The antidote to all five of these mistakes is the same: slow down the underwriting process and build verification checkpoints before you submit an offer. Specifically:
- Require three years of tax returns for every deal over $500,000 — not just P&Ls.
- Conduct at least one conversation with the local utility authority before you submit an LOI.
- Build your CapEx estimates from a site visit checklist, not from memory or rule-of-thumb assumptions.
- Run your model past someone who will challenge your assumptions before you commit to an offer price.
”Every expensive mistake we have seen in MHP underwriting was visible in the numbers before close. The problem was never the data — it was the willingness to question it.”
The investors who underwrite carefully at the start build intuition that lets them move faster later. The shortcuts that save you time in deal one often cost you years in deal two.
