I wanted to ask a follow up:
If lot rents were $200 and there were 100 lots, and 50 were empty (numbers are to keep things simple),
then applying Frank’s formula:
$200 x .25 = $50 per lot
Would you then back out an expense factor of 40%?
$50 x (1-40%) = $30
$30 = NOI
$30 x 12 months x 50 lots = $18,000
Divided by a 10% Cap Rate
$180,000 as value of empty lots?
I guess my question is really - back out expenses from the 25% of lot rent calculation (or 50% in your case) or not?
Nice explanation as well. Thanks!
Wouldn’t an analogy be - it’s like buying a patent for an invention that hadn’t been produced yet? You’re basically buying the ‘potential’ to make money.
Have you ever heard of anyone structuring a ‘royalty’ fee on a deal, since it’s a similar analogy?
For every tenant that ends up occupying an empty lot in a 24 month period, the buyer of the park promises to pay (Annual Lot Rent x .6 / .1)?
Where .6 = NOI calculation and .1 = Cap rate
Maybe an additional .5 is multiplied of that total as a ‘fee’ for the operational excellence that the new owner had to apply to get that lot filled?