Based on Dave & Frank recommends not to overpay for MHP by using the rule of thumb formula: (total number of lots - vacant lots) x rent/lot x 60 or 70 (depending who pays water and sewer)
In today's market are investors using this formula to valuate and buy a MHP? I am new to MHP investing and it has been my experience that asking price for MHP is 50% to 100% over the formula number. Most of the seller price their MHP based on Gross Income - expenses = NOI / cap rate just as how apartments are priced.
Here's a realistic example of MHP with 10% cap rate:
51 Lot rent income = $207,850.00
Water/sewer charge back = 18,326.00
Pet fee = 5,915.00
MH notes income = 9,175.00
MH insurance = 710.00
Late fee = 1,930.00
Total annual income $243,906.00
Net Operating Income $164,002.00
Selling at 10% cap rate, asking price $1,640,000
Just from income/expense perspective, it seems to be priced right.
But If I use the rule of thumb the price would be 51 X $355 X 70 = $1,267,350
Over priced by $372,650
My question is how many MHP investors have used the rule of thumb to successfully purchase MHPs?
When I do find MHP that meet the rule of thumb valuation, they are either in middle no where with less 3000 population or in market with rapidly declining population or the MHP has some legal issues with the city.
I would like to hear from more seasoned MHP investors on their experience and how they go about realistically valuing a MHP. Thanks in advance.