100% POH idea- need feedback

Requesting advice here… park is listed for $399k in strong market (few affordable housing options). 100% POHs with rents at $525 = $88k in gross with historical NOI (including all maintenance exps) running ~$62k. Homes appear to all be in good shape and mid-late 80s vintage (but px = $28k/unit). So while cap rate is high at 15%, I understand the trap is the unknown maintenance expenses. Is there a good way to look at this park, take all things into consideration and say “despite the POH risk, $x makes sense as an asking price”… effectively, as many have stated, I’m looking for a starter park but the only ones in the $200-600k range have mostly POHs in the areas I’m looking in. And yes, all utes are submetered and billed directly. Thanks for the advice-

What’s the lot rent in that market and who pays the utilities?

To clarify, when you say “all utes submetered and billed directly” are you including water and sewer – as those are rarely billed directly by the city?

Correct. Water baked into rent as he charged per person. Annually water bill pretty consistent.

What’s the market lot rent?

I don’t know mkt lot rent, but from what I can tell in the area it’s $150 -180/pad w all in at 525 w mkt closer to 580 or so.

This sentence makes no sense to me. Does the city bill direct to the tenant for water and sewer?

Maybe I’m just misreading it, but you first say everything is submetered, then you say it’s billed directly, then you say it’s “baked into the rent” It can’t be all 3, which is it?

Not water and sewer. What I was saying is that seller pays water but unit rent is based on #of people in home so he’s trying to accommodate for water usage. Overall rent is likely low, but homes are not in great condition from what I can tell. And I would recommend being more patient with starter park buyers, I’m quite certain Frank is a great example for any experienced park owner who wants to help but often sees questions that they would deem rudimentary. For some beginners, we’re just trying to learn as much as we can before committing our hard earned capital.

I came up with 14 lots by dividing your gross revenue of $88,000 by the POH rent.

If that’s the case, even if you raised the rent to $200 per month, and even assuming that the utilities are paid for by the tenant, the value of the park is 14 x $200 x .6 (extra deduct for the park being so small) x 12 x 10 = $201,600. At her price, she’s valuing those 14 homes at an additional $14,000 or so each. For 1980’s homes, you are overpaying by around $8,000 per home. And that’s assuming that none of the homes need any renovation.

Bottom line, the deal is not one that we would do. At that price, the only one making money is the seller.

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Thanks Frank, I appreciate the math and will be able to use that going fwd.

Best, Sam