As I look at more and more deals I am finding I like a lot about certain parks but the P & Ls provided either stink or seem to be a little BS. While the handy (lot rent * occupied lots *60 or 70) can give you a nice back of the envelope view on whether to start digging into the financials begins the frustrations. I know that we cannot take what the broker or owner says as bible, so…What do you recommend is the best way to recreate a P&L on the park to come to a more accurate NOI for prospective parks.
I always re-create the financials based on how I would run the Park, not how the Seller has operated it.
You can use their revenue as a starting point, but will need to adjust it depending on your plan for POH’s and also subtracting non-collections expected. Some people add a small sum for the one time purchase of vacant POH’s, and others not. On top of that I personally don’t give anything for empty pads since they don’t make any money, and won’t without an additional investment.
The same type exercise for expenses - okay I will have a management fee, accounting and marketing, insurance, lawn / snow service, fixing roads, reserve for capital improvements, utilities, and whatever else.
If you haven’t already purchased the MHU Due Diligence Manual it comes with a lot of templates that maps these buckets out as a good starting point, and I have tweaked it over time to meet my specific needs. Once I have filled it out I know what the Park is worth at various capitalization rates and use that to craft my offer.
What you have to do is re-build the P&L from the ground up. You need to verify exactly how many lots have humans residing on them and what the lot rent is. That’s your revenue. On the expense side, you get the last three years of any actual cost directly from the provider (water. sewer. electric, gas, trash, etc.), get the property tax based on the new sales price, and three bids for everything you can’t verify (mowing, roto-rooter, etc.). That will give you an educated NOI number to further negotiate from. In your final diligence, you will test all of these numbers a final time, augmented typically by an appraisal and the negative attitude of a bank.
The good news is that the typical mobile home park you are buying has upside in rents, occupancy, etc. so you can survive making a few mistakes – but keep them small.
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