Value of a pad paying lot rent

mobile home university
1

What is the value that you would put on a pad that is bringing in $500 in monthly lot rent?

We put a park under contract with 25 lots paying monthly rent of $500 but now there are 24 lots paying monthly rent of $500. If I were ask for a price reduction based on this alone what would you recommend?

2

1/25 th of the total value of the park.

3

There are several ways to look at this, and Jeros brings up one approach. Another approach is to assume that you will lose $6,000 per year in revenues, but your expenses will be almost the same whether you have 24 or 25 lots. Thus, your annual net income will drop by $6,000. If you are priced at a 10% cap rate, that brings the value of 24 lots to $60,000 less than the value of 25 lots. That does not mean that I recommend you drop your offer by $60,000. You should consider the various approaches and strike a balance keeping in mind how difficult it will be to rent the 25th lot.

4
  1. Figure out your cap rate if you had all 25 homes.
  2. Figure out your cap rate if you only have 24 homes.
  3. Reduce purchase price until you’re back at your 25 home cap rate.
  4. Receive price reduction!
5

Everything is negotiable, and if you think the seller will perceive a discount request as reasonable then might as well ask for it. If I was selling the park though I wouldn’t give a discount for one person moving out unless the circumstances were unusual. Tenancy fluctuates, people move in and out, and one person moving out isn’t an unexpected event. Plus, I would assume any realistic financial projection had a collection loss provision in it.

1 Like