What’s a quick way to estimate value of POH when looking at a deal prior to making an offer? Can you use the tax appraisals as a proxy, or some discount to the tax appraisal? Or is it better to have an educated guess based on the make/model/year?
Thanks!
I basically try to class them in approx ranges for a quick idea. Older non peak. Maybe 5k. Older peak but clean exterior, maybe 7500-10k. Peak+ vinyl, maybe 10-15k however to realistically sell them for that you would have to sink money into them in most cases.
The other issue related to that I’m trying to hash out is do you really ever get that money back that you pay for them on rent credit if it costs up to 50% of rent to insure and maintain them. That could be why some people basically don’t put any value on them.
Look forward to more comments on this.
Louvie is on the right track when it comes to valuing the whole asset to give a price to in order to go under contract. An additional step after you go under contract is to split the value of the homes away from the real estate. What I typically do is have the seller do this for me. Our typical valuation when talking to Mom’s and Pop’s almost never involves walking them through an evaluation based on what the homes are worth vs. what the RE is worth. It just gets too confusing for most of them because they usually value the asset differently. Instead, they are usually running the asset as a whole so poorly that the NOI figure on their tax return represents a lower price than we are usually willing to pay for just the RE. So, once we agree on price and go under contract, I’ll have the seller create a list of all of the homes and value them individually with a general condition (VGood, Good, Average, Fair, Poor). I need a value to put on the bill of sale so I’ll have them come up with it themselves.
Before setting them off on this task, I stress that they need to be realistic in this evaluation based on the fact that a home in a park depreciates rapidly once it enters the park and that the customers can’t get financing or usually afford a cash purchase at a retail price. Tenants know this all too well and it’s why you’ll see someone sell their 1980’s home for $5,000 when they paid $10,000 for it 15 years ago. This is usually how I counter, “Well, I have $x in these homes.” All owners know this to be true also.
When I show up to do diligence, the seller and I will inspect each home and we’ll talk about the value/condition they assigned to the home vs. what him/her and I found in the inspection. Usually, I don’t need to beat them up on price based on these inspections (although I usually can justify it). Instead, I use this to get other things I might want such as a longer amortization on the note, a few months of deferred payments, a slightly lower interest rate, etc.
The above really didn’t answer your question, but hopefully it helps. As far as a quick value, I use a number that I feel I could sell these homes for cash for. 1970’s: $1,000-$3,500, 1980’s: $3,500-$5,000, 1990’s: $5,000-$8,000, 2000’s: $8,000-$15,000. There sometimes exist ways that 2000+ model used homes can be financed so even though I don’t like the value I usually have to give here, I am usually confident I can get a few cash sales at this price point. As an example, I spoke with an owner where a few of his tenants got FHA loans for newer single wides. How they did it is still a mystery to me.
It is impossible to value a home without researching the surrounding market. A $2000 home in one area may be worth $20,000 in another. In some communities value of homes increase with the economy of the surrounding area and in others the park may be so depressed that the homes may be worth nothing due to zero demand. The condition of individual homes in a given community will effect value but the base value of homes in a community is driven by external economics.
If you want a quick method to assess value you must drive the surrounding communities and determine the resale market.
Or, instead of driving it, you could “drive” the area on google street view. Then look on Craigslist, Facebook, and other community websites to determine the resale value of homes inside of parks. Probably a 15 min exercise instead of an all day exercise. Far less expense too. Especially if your buying area is larger than your immediate area.
Great feedback everyone, I appreciate all the reaponses!
The above really didn’t answer your question, but hopefully it helps. As far as a quick value, I use a number that I feel I could sell these homes for cash for. 1970’s: $1,000-$3,500, 1980’s: $3,500-$5,000, 1990’s: $5,000-$8,000, 2000’s: $8,000-$15,000. There sometimes exist ways that 2000+ model used homes can be financed so even though I don’t like the value I usually have to give here, I am usually confident I can get a few cash sales at this price point.
Hi Charles, I recent listened to your Podcast 25 where you talk about selling off your used homes via the CASH program. Given the information presented in the podcast, does that change your feelings on valuations above? I can’t remember what year you guys said you could sell off to CASH (maybe 1986?). Just curious. Thanks for your time.
Nate,
The used homes we are currently selling with CASH are 2002 model homes. We gave $5,000 in value for these and 21st is comfortable financing these at a price point close to $15,000. Their valuation was 120% of NADA value plus some other allowances. We are almost all set-up there so we should start selling in the next month or two.
I would still stick to the valuations I gave above though. Homes need to hold a book value in the neighborhood of $10,000 on NADA to qualify for this program so it’s tough to say if most late 80’s or early 90’s model homes will make the cut. We currently have about 30 or so mid-late 90’s model homes between two of our NC parks and we’ll be looking into trying the same model there in the coming months. If it works out, we’ll be sure to mention it in a future show.