I’m trying to determine how to price a park in a decent metro. It has 75 spaces, about 10 tenants paying $230ea, homes are metered and tenants are paying utilities - park has new roads and water/sewer lines. Park also has about 30 empty POH’s that need to be rehabbed. I understand the park isn’t making any money - it’s losing money. What would be the best way to price this? I have the means to rehab the empty poh’s. Is the value of this park equal to the market/assessed value of the land plus $X for the POH’s and infrastructure?
On a park as screwed up as that, the only way to look at the deal is from the end of the movie and working backwards. If you could fill all 75 lots at $230 rent with billing back water/sewer, then the value would be at a 8.5% cap rate = $1,704,705. To get to that value you would have to remodel those homes that can be salvaged, demolish the rest, and then bring in new and used homes to fill it.
To make the risk/reward healthy in this deal, in my opinion, you’d have to make $1 million in profit for the risk and effort. So the most you could pay is $700,000, all bills paid. So out of that $700,000 you’d have to subtract your estimate of what it would cost to renovate the homes (assuming you can save 50% of them then 15 x $5,000 = $75,000) and then $2,000 each to demolish the other 15 = $30,000. Then you have to subtract the lot preparation cost in your state (concrete slab?) as well as any out-of-pocket cost to bring in new and used homes (21st ?) and also subtract any capital needed to bring the common areas, roads and infrastructure back to life (sounds like most of that is new).
When you do this formula, you may end up at a value of $300,000 to $400,000. That’s about $5,000 per lot or so, which is at least $10,000 per lot under construction cost. But it’s also just a 5% cap or so on existing net income. So it’s essentially a fair deal for both parties.
That being said, the seller may not agree to it. Then it’s back to you to see if you are happy with that return level and the risk/reward consideration. For that there’s no playbook – it’s entirely up to you.
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