I did a search of the forums and didn’t find an adequate answer to the question. I’m looking at a smaller park in GA with a 3/2 stick built home on it. In doing my valuation, should I cap the rental income or the market value of the home?
If you don’t have the option of selling the home (not on its own parcel, etc.), then look at it in a similar way to a mobile or any other rental, cap it but consider operating costs (utilities, R&M, etc.). If you could sell it, market value may be a better way to look at it.
Ok thank you. That makes sense to me.
If the home can not be sold separate from the park it’s only value is the rental income. Use the NOI to calculate Cap rate.
To get a minimal value you can use the 2% rule which basically states the monthly rent should be equal to 2% of the purchase price. If the monthly rent is $500 the value would then be $25,000.
Most sellers are unhappy with this valuation, but it is difficult to lose money if you buy according to the 2% rule.
It has been very difficult to buy rentals according to this rule since 2010. I try to hit 1.7% these days.
Thanks for the replies. The home is on the periphery of the property so it can be sold separately.
One other thing which you may know already: A stick built home that is inside or next to an MHP will probably rent for an amount closer to a MH rather than that of a stick built home that is in a regular residential neighborhood. In other words, if you’re looking at a stick built home inside or right next to an MHP, don’t count on renting or selling for normal market prices. There will likely be a “penalty” for the MHP location.