Help screen a deal

Interested if the forum has any thoughts on the following deal that I came across:

-20-30 homes (half park-owned)
-Fully occupied
-City water / city sewer
-Gross income in the $200k range
-5 miles from nearest WalMart
-Proximity to several large MSA’s
-Median home value in market +$140,000
-Median household income in market +$50,000
-Not listed on google places
-Not marketed on Loopnet/Mobile Home Park Store
-No park website or signage
-Asking price would suggest 8-10% cap rate

A few questions before answering:

-How far do you live from the park?
-Is water/sewer direct-bill or master-metered?
-Is this your first deal?
-Does the cap rate include POH income? 8 cap on POH income and that size park seems aggressive.

-Within an hour of the park
-Direct Billed
-Yes
-It does…not including POH income it would be in the range of 6-8 cap

What would be a more realistic range? Would you expect to see cap rates in the range of 10-12% for a small park with some POH? Why should a small park trade at a higher cap rate? Worse income diversification?

What is park lot rent ?
What is market lot rent ?

POH’s will be more hands on so your distance from the park is helpful. It’s also good that it’s your first park because (in my opinion) your starting out small, have direct billed utilities and will gain experience w/ POHs. If things implode or you realize that MHPs aren’t for you, your downside financially is lower.

To answer the question around valuation, Cap Rate is a function of park value. At its core, value is a function of supply and demand. The demand for a small park is significantly less than the demand for a 100+ lot park, hence the lower valuation/higher cap rate. However, demand for a small park will benefit from the metro that it’s in as there are more local investors to pull from.

I hope this helps.