I know this has been discussed many times and the right answer is to not include income from POH into valuation of the park and to value homes as inventory at market price.
However, what do you do if everything is lumped together.
I am looking at a park that's has a 68% expense ratio (and i don't even think everything is included). And the big expense item is repairs and maintenance. However, i have no idea what % of that goes into repairing of POH and what to maintain the park.
For simplicity sake let's say that:
Lot income is: $90k
Rent income from POH: $47k
R&M expense: $50k
Other expenses: $50k
Net income $37k
Owner is also asking $13k for each home (total 17 homes). Mostly late 60s to early 80s.
How do you price such a thing?
So would you say that the park should be worth 37k * 10 + value of homes (which is anything between 3-5k each??? )
So realistically not more than $370 + $85 = $445,000
But the asking price is almost double that. How do you break it to the broker and the owner? If their expectation is so high? Or am i miscalculating?
There is probably upside. Expense ratio should not be this high. But i don’t want to pay for that upside unless i realize it.
Thank you in advance for the feedback!