There is a thread somewhere on the forum where Frank and Jefferson talked about the max price of a home to fill a vacant lot given a certain lot rent, but I can’t find the thread anymore.
If I remember correctly, the discussion went something like this…
If your lot rent is Y, then the max price that you would want to pay for a home to fill the lot = Y x 7 x 12. For example, if your lot rent is $200, then the max price = 200 x 12 x 7 = $16 800.
I think Jefferson recommended Y x 8.5 x 12, e.g., 200 x 12 x 8.5 = $20 400.
This is all well and good, but what do you do when homes that are available don’t fit these numbers? It doesn’t look like any new homes available under the CASH program will come in under these limits for my park. Also, if you are selling the home, either cash or on an RTO basis, does the sales price as calculated by the above formula matter so much? The buyer is paying it off, not you. What am I missing?
If you buy a home and sell it outright to a buyer the price is irrelevant. Assuming it is a new or newer home that upgrades your community.
Depending on the quality of your community the higher the price the better as it upgrades the quality of your tenant base.
The best way to do it is hard to represent with a simple formula.
I built a valuation spreadsheet that calculates the incremental NOI from adding an additional pad (you need to separate fixed and variable costs to do that, but about 30% of park costs are fixed). I then calculate the value added to the park using my valuation cap rate (typically 10%). Lastly, I multiply that figure by the loan LTV (typically .75) as I don’t want to spend money I can’t get back on a cash-out refinance.