Lease with Option Homes = Rentals or POHs?


#1

I am looking at a park and they have considerable number of Lease/Option homes in the park. I just want to check my mind here. Would those Lease/Option homes be considered “rentals” or Park Owned Homes?

Thanks in advance


#2

Still a rental until the tenant exercises option.


#3

The industry really only considers two categories: Tenant Owned Homes (TOH) and Park Owned Homes (POH). POH are by nature almost always homes which the park owns and rents out to tenants. So to answer your question, a Lease Option home would be a rental up until the point the option is exercised, then it becomes a TOH.


#4

In the real estate industry there is a value to options when buying and selling them. But it all depends on the terms - and how likely is it that the tenant will execute it.

If these are options for $40,000 on a $5,000 home then the option will likely not be executed and not have much value. But if they are priced right on reasonable terms that you are supportive then you can offer a very nominal amount to purchase them from the Seller - like to the tune of $250 or less. If the Seller cannot provide any information around how they arrived at the option price then walk away. Also understand what sort of option fee if any was charged to the tenant as this may need to be transferred to you as part of closing. The Seller should not be able to wash their hands of these with a simple sale.

But to answer your question - I would basically treat these as POH. Bake in the lot rent for the overall park value, then separately add the market value of the individual POH (for what you can actually sell them for in a month or less), and then add a nominal amount for each option assuming it meets your criteria as consideration for them. If they do not, then you should consider letting the Seller retain ownership of the home until the option is either exercised or otherwise sold.

Hope this helps.


#5

Thanks for the input.


#6

Keith, Thank you for the reply. That is what I thought.


#7

OK, let me make sure I have this correct from your last paragraph:
Add into the value of the park calculations the lot rent from the POH (Lease/Options) AND the value of the POHs?

Example: Income from only TOHs and other income gets you the total income. Then minus out Expenses to get your NOI. Divide your NOI by the CAP rate to get the “value of the Park”, so $186,000.
Then add onto that $186,000 Lot rent for the POHs ($72,420) + value of POHs ($347,000) to get a total value or what I would pay for the park of $605,000?

Is that what you were saying?
Thanks in advance
Pat


#8

I dug up an old thread I saw a discussion on the topic - I hope this is helpful:


#9

Thank You for your time.