I once read on this forum a formula used for park values when purchasing.

It has since slipped my mind! But it went something like:

(lot rent ) X ( ? ) = value of occupied lot

Or any other formulas would be appreciated.

I once read on this forum a formula used for park values when purchasing.

It has since slipped my mind! But it went something like:

(lot rent ) X ( ? ) = value of occupied lot

Or any other formulas would be appreciated.

Jim,

It is 60 x lot rent x # of spaces (occupied) + 30 x lot rent x # of spaces (unoccupied) = Value (ballpark)

This formula is based on a 12 cap rate.

Corey

Corey,

Could you explain what the 60 and 30 represent in this formula? Also, how does the cap rate play into the formula? How does the formula change for different cap rates?

The 60/30 rule is based on a 12 cap rate. This is a formula that Ernest Tew created. You would value an occupied lot twice as much as a vacant lot as it is producing income.

By increasing the 60/30 to 70/40 it would produce a lower cap rate.

corey,

Is this formula different if the park owner do not owner any mobile home.

Thanks.

The formula is derived from a lot-rent-only situation; standard expense ratios, management costs, etc are all figured in to those numbers. One could do the long math, but it would require time, and getting numbers for the park before even having an idea if it is worth any pursuit. Our mentor has derived a basic, quick & dirty thumbrule for at-a-glance evaluations, so no one even needs to be contacted unless teh ask price is close to or within our 60/30 criteria.

Generally, a buyer will want to discount any value as much as possible for park-owned homes, or rentals. Deferred maintenance can be used as a counterbalance to any value perceived in a park-owned unit, unless of course they ARE nice. Then you just assign a wholesale value to the home, which is negotiable. Rental income and M & R expenses for the units then come into play separately.