Hi all-
I get how to figure out a price for a park based on income brought in. I guess I’m a little confused when it comes to pricing a park “per pad”.
A park a friend of mine is looking at has only 40 out of 62 pads occupied and the owner said he wants $15,000-$18,000 per pad. I’m still in my research phase regarding this park but this definitely seems high considering occupancy and NOI.
Thanks for your time!
At $15k per pad times 62 pads the asking price is $930k.
At $18k per pad it’s $1.116MM.
Per occupied pad (income-producing pad) that’s $23,250-$27,900 per pad.
That doesn’t seem high. Replacement cost is likely to be higher.
Actual lot rent and how much you can keep after expenses matter a great deal, of course.
Empty pads are worth something after all, because they cost money to build. They also cost money to maintain, so maybe not worth too much; but having potential upside is better than no potential upside. Am I right?
Brandon
But if current lot rent is only $60-$125 (the owner hasn’t raised rent in 7 years), even estimating a 30% expense rate, this would make the pads worth $5,040 to $10,500 per pad at a 10 cap rate if you value based on income generated.
I do like upside, I even like the upside based on the really low lot rents and the possibility of charging more on day 1. However, I don’t want to buy something at a price that is based on future potential. What are your thoughts?
What are market lot rents? These days, you have to realistically bake in the price of what you intend to raise the rents to, within reason, when doing your analysis.
IF lots rents are that low , you def need to do a market comp to see what other parks are.
you make money when you buy not when you sell, i would never buy a park based on replacement
cost as there are too many factors at play, such as low lot rents.
and dont use 30% when a full park is at LEAST 35% and thats if all utlities are billed back.
i start with 50% for expenses and reduce based on what is included in the rent.
too much to go into here but def do your DD.
Thanks!
Market lot rent is $150 to $225 (a nicer park). It’s city water and sewer billed back to tenants. The road is maintained by the county.
Basically, he can ask what he wants but a bank wouldn’t even finance some outrageous price. So, I’ll do more research and keep the 50% of NOI estimate for expenses.
To me, you are speaking two different languages - cost per pad versus income approach. If I were doing the financial analysis, I would translate the cost per pad language into an income based valuation. That way you can analysis the deal based on financial performance and a cap rate. For a seller, who may be financially illiterate, you can translate the deal back to his language of price per pad. To me, price per pad is arbitrary, but every park obviously can be assigned a price per pad. Naturally, to appease a seller, you must communicate in terms he understands.