Small MHP evaluation with mostly POH

Hi everyone, I am trying to evaluate a park prior to making a offer. Any feedback would be greatly appreciated.

Asking price $600,000

Market --Median home price $164,000
Metro population 230,000

Owner financing
City water and sewer
Roads are limestone/gravel
24 lot park, with 20 POH- (mixture of 80’s, 90’, and 2000’s)
20 occupied lots
Lot rent $275
Mobile home rent $725
Park is full and no room for expansion because it is on small piece of land.

does $750 for a poh include lot rent? Seems like, I can’t imaging it’s $1,000 total. Is the water submetered? do the tenants pay water and sewer directly, or pay based on meter readings? Who owns the water and sewer lines and how old are they and what material are they made of? Is the power submetered? Gas submetered? How much land is there? Is the population of the area growing or declining? What terms is the owner offering. Great terms can allow a higher price.

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does $750 for a poh include lot rent? YES
do the tenants pay water and sewer directly, or pay based on meter readings? PAY WATER AND SEWER DIRECTLY

Who owns the water and sewer lines and how old are they and what material are they made of? MADE OF PVC
Is the power submetered? TENANT PAYS ELECTRICITY BILL DIRECTLY TO POWER CO

Gas submetered? NO GAS

How much land is there? NOT SURE BUT PROPRTY IS FULL

Is the population of the area growing or declining? YES, GOOD LOCATION

What terms is the owner offering. Great terms can allow a higher price. HAVE NOT FINALIZED TERMS YET,BUT WILLING TO DO OWNER FINANCING. ANY SUGGESTIONS WOULD BE GREAT
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It sounds like a nice find. The owner financing depends on how bad he wants out and how many buyers are lining up. No money down, a low rate of interest, and a long amortization obviously are best. Just like with the price, the first person to say a number on terms is dead and those terms can make a tremendous difference on the return. I would say put as much importance on the terms as you do on the price.

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Awsome Thanks for advice adk1guy

I see people asking lots of complicated questions, but to put pricing into a ballpark area, it is more simple than that.

20 lots rented is $66,000 per year. At 40% expense ratio, NOI is $39,600. Assuming 9% cap rate, park is worth $440,000.

Now let’s consider the homes. If the average home is $9,000, homes are worth $180,000.

If you add the value of the park and homes, the value is $620,000. Thus, the price is fair based upon the assumptions.

Of course my analysis is based on assumptions that may differ for you. The difficult part is accurately determining the assumptions based on your situation.

Good luck.

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The numbers mPark suggest are in line with the true value ASSUMING you sell off the homes after you own the park. If you do not or can not sell the homes in a reasonable period of time the value of the park is far lower.
The homes are a liability that must be liquidated. Don’t be blinded by the perceived income from the home rentals. Expenses on the homes will make that income a wash and the work load a burden on management.

I do not agree with Greg’s assumption. When I illustrated the valuation example previously, I based the value of the park solely on lot rent, giving it a value of $440,000.

I assumed the homes to be worth $180,000 whether you keep them or sell them. Of course you will have to validate this by inspecting each of the homes before you buy them to see if they should be worth more or less based on their physical condition.

If you sell the homes you will have $180,000 in cash, and your remaining investment is $440,000 for the park only. If you keep the homes you will earn home rent, which will offset holding and maintenance costs on them. After this offset, you still have $440,000 invested in the park.

I do agree that ownership of the homes will drive increased efforts for maintenance and management, but my opinion is that those costs can be absorbed by the rent achieved on the homes. The park is not worth less because the homes are owned by the park.

If you want to see this illustrated in the real market, take a look how the offering memoranda provided by the major brokers are structured. They are almost always structured with a price for the park based on lot rent, and an ADDITIONAL price for the homes. I have never seen where the park is worth less because homes come with it, unless they are dilapidated and have to be torn down. In that case, you will have to remove the demolition costs from the value of the park.

You are right mPark. I did not mean to suggest the park value based on lot rent should be lower… the 180K value on the homes needs to be lowered if the market is not conducive to a quick sell off. I personally deplore the idea of investing in a park and then still be a brick and mortar landlord. This is why I would place a lower value on the POHs. In the real world the homes do have a value I just don’t see it from my perspective as a investor and would attempt to beat down any seller with POHs.
Not wanting POHs gives me an advantage in negotiating. I would have no problem walking away.

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Good points Greg. Everybody has a different perspective in this business.

Thanks mPark This is good feedback, and exactly why I posted this evaluation on this forum. You make great points

Greg I really appreciate your feedback. I currently own a small electrical business and would not want a lot of burden managing a park. I like the point you made with all these POH, this investment may not be passive enough for me.