An appraiser was hired by owners of another park that I am looking at and they used the NOI evaluation method. Forgetting the 9% cap they used for a class c park with very little management, they deducted 30% of the value of the park for, and I quote the section here
“The net income was then capitalized by nine percent. This yielded a value of $242,577. A typical newer mobile home is now approximately 70 to 85 feet in length. Most of the lots in this park will only accommodate mobile homes up to 60 to 65 feet in length. Because of the size restrictions of mobile home lengths, we have reduced the value found by 30%, leaving a final value for the park through the income approach to $169,803. This has been rounded to $170,000”
Has anyone seen this type of deduction before? Is this something a bank appraiser would do as well or will they base it on the lot rents? I can understand different cap rates used by the bank and this only includes lot rents for revenue. I am trying to see what my targets would be to get to a 70 or 75% LTV value when I would refinance it in two years and this, seemingly arbitrary reduction in value, is causing me some concern.