Need guidance on valuing park. I have been to bootcamp and now am looking at parks.
20 pad park
14 units occupied with 13 POH
lot rent 285 (market approx 340)
POH rent approx 600
4 empty homes, 2 vacant lots
average market---- not super
high water and repair/maint.
13000 water/sewer
19000 repair/maint
other expenses higher or average
asking price 270,000
I feel by addressing the water issue by checking for leaks and submetering and selling back the homes to tennants I can reduce my expenses drastically and come to a more realistic mgt of this park.
so: 285 x 14 x 12 x.5 /.12 = 199,500 + 28000 for 14 homes = total 227,500
but when I use current number I get a park value of 9000 + 22000 (homes) = total 31,000
Should I discount the 199,500 value to account for my better management? I feel as though I am paying for something that should have already been done.
Thanks in advance for any help.
Obviously, the less you can pay for any park the better. But at some point, the seller is not going to sell, and you are then faced with making sense of the price. I think you’re valuation at $227,500 is reasonable, but it’s based on assumptions that you won’t know until you have done due diligence. I’m betting that the $19,000 per year of repair is on the homes, not the park. That’s a common trap of most moms and pops who never subtract the lot rent in calculating the profitability of renting their homes. That might be solved by selling the homes as opposed to renting them, but even then you are going to have to put up potentially significant costs in rehabbing them to get them sold. The water/sewer cost may be leaks or it may be tenant abuse, but you should be able to fix that.
Probably the biggest challenge you’re going to have is finding a lender who will underwrite a park with high costs and low NOI. You will have to make the case to the lender and appraiser on why you think you can operate it better and hope that they will believe you. Or the seller will have to carry the paper.
So you should try to negotiate it as low as you can go, then tie it up and check out your assumptions. Meanwhile, talk to some local banks or see if the seller will carry the paper.
These are all pretty standard items on most deals.