Valuing and negotiating value of park-owned homes

New here; sorry if the topic has been covered before.

It always seems like the park owner wants to negotiate the value of his/her park-owned homes based on income. Yet the bank/appraiser won’t consider them as part of the income. And these homes are often really old and, rather than have value, are a LIABILITY because they really need to be removed and destroyed. Personally, I have no interest in the home-rental business, just the lot-rental business.

First off, my idea for disposing of the homes (not exactly original) is to give them to the tenant signs a 36-mo. lease and pays for maintenance and repair and makes 34 of their next 36 home-rent and lot-rent payments on time. If the home is renting for $300/mo., that means the maximum value to me is 36 x $300 = $10,800. But no 30+ year old home is worth that!

Seems to me (never done it) the strategy is to separate negotiations for the park and the homes. My goal would be to put all the homes in a separate LLC. The cap rate for the park can be negotiated fairly easily; it’s probably 8-14%. If the seller is stuck on using the income method to value the homes, then the cap rate for those needs to be HUGE: 20%, say?

Anyway, curious how others have negotiated the value of the homes when talking to the owner. Straight $3000 ea.? 18 mos. of rent? 20% cap rate? Remember, I don’t really want these homes…I just want the lot rent.

Marc

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So- a few things you can try… one might be ‘blow away value’. If you call to get the homes insured, what will the insurance company insure them for?
Second- look at the used home values in your area. Remember, if your homes are pre HUD, and can not be moved, they have far less value.
Last- check the area for a ‘year rule’. I have a park where any home being newly set can not be older than 15 years. So, sometimes even the ‘pre hud’ rule needs to be checked.

I would really have to go with straight value of the home.

It doesn’t make sense to me to buy at a cap rate when you have no idea what maintenance problems are looming… and they ARE looming.

At least in this regard I think you can make a pretty strong case with the seller that by including the rental income of the mobile home into the cap rate he is essentially asking you to pay an exorbitant price for an aged home that is very likely to give you grief over the span of time it is in your possession. Make it clear that you do not regard that home an asset, but rather a liability. The likelihood is the seller already knows what a pain it is to own it.

If you are happy with the seller’s price that is one thing, but you want to purchase those homes as cheaply as possible so you can be rid of them quickly as possible with the lowest exposure for potential loss.

Just my two cents.

Thanks for your suggestions, guys.

The seller and I decided on the option of using the NADA Guide to determine the value of each home…which is many thousands lower than the Seller expected, but probably the fairest way to do it.

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@MHP_Investor did NADA work for you? so do you just pay for a report for each mobile home? Is there a package deal you can buy to give you a value of multiple homes?

Thanks you,
G

The NADA prices were lower than the seller expected. We were unable to reach a deal.