How to value this deal?


#1

Hi all,

I have been reading the forum for some time and I think you guys are a great resource. I come from the single family home arena, where I flipped/ rehabbed/wholesaled/retailed houses for a few years, but have seen the light with the help of Lonnie Scruggs and others. I have located a park that I am very interested in pursuing and wanted to see if I could get a rough value out of some of you. I stole the formula for what you would need to know from RickG, so thanks Rick. This deal is in the Columbus, OH area.

1 - Number of Lots: 51

2 - Vacancies: 3 (no trailer, completely empty)

3 - Property size: 24 acre total, only around 10 acre is used for MH’s

4 - Average Lot Rent: $240

5 - Gross Income: $16810

6 - Expenses: $1800

7 - NOI: $15010

8 - Number of POH: 14

9 - Rent Amount or Lease/Option Payments on POH: 1x400, 1x450, 12x650 includes LR.

  1. Asking Price.: $1.5mil

I haven’t figured out exactly how the valuation process works yet, hence the need for your help. I know how to run the numbers to determine the monthly payments and cap rate, but the only other valuation tool I have heard of is the formula of 8 times rents. That formula tells me the value would be $1.632 mil. LR has not been raised in 5 years, and all pay their own utilities except for water, which is well and septic. Owner pays this, and does not bill back. Any help will be appreciated. Did I mention I need a partner as well?

Thanks,

Jason


#2

Check the archives here, type in 60/30 rule.


#3

I would really dig deep on those expenses( due diligence). They might turn out to be double or triple what you’re being told …especially when you take the park own homes into account. ( I 've heard the average length of stay for a tenant in a POH is ten months. How much $$ will it take to make that home rentable again each time. I’ve seen tenants stay 12 years in a POH and others only a few months.) Good luck.


#4

If you value the lots at a 10 cap and assume 30% expenses. That equals 14,000 a lot and about $700,000 for 50 occupied. Go to the library and get a NADA book for mobile homes. I value the home at 50% NADA retail plus up to $2000 for it being onsite, leveled and skirted. Assuming the 14 homes are worth $10,000 each, there are 140,000 of homes. Round numbers, I would put the park at $900,000. He’s asking 1.5 expecting 1.3 and is about 25% overpriced as are most offerings. With negotiating, maybe you can make a deal at 1.1. Don’t believe exceptionally low expenses. Don’t forget your property taxes will be higher. Insurance more if he is under insured etc. Some people figure at least $900 a year expenses for a park owned home. For example, think waterheater, wait until a furnace goes - you will be looking at $2000-$3000 for example. So, while his cost on rentals may be low, odds are the averages will catch up. Even if it is on a note, it will need work after they default. Most parks come on the market priced high. They are looking for bites, newbies. The numbers also have to work for the bank.