Asking Price: $1,175,000, My Valuation: $743,800 - Am I Missing Something?

mobile home university
1

I’m looking at a park with 42 sites: 39 POH (5 of which are vacant and, supposedly, habitable) + 3 vacant lots.

Lot rent is $160 / month with water, sewer, and electric direct-billed to tenants.

The seller is asking $1,175,000 because they are, of course, including the home rent ($412 including lot rent) in the NOI and then selling that at a 9-cap.

My valuation is:

39 lots x $160 x 12 months - 10% vacancy (POH turnover) - 35% operating expenses = $43,804.80 NOI * 10 CAP = $438,048 park value

I figure that I have to offer something for the 39 POH’s so I just checked the county assessor’s website where the park is located and found that the county has assessed the 39 POH’s at $305,800.

So, the most this deal is worth, in my limited experience, is $438,048 + $305,800 = $743,800.

Am I missing something?

Are my calculations off?

Should I even bother sending in an offer at $743,800?

Thanks in advance for your help and feedback.

2

You will probably lose money on the home rentals and your expense ratio is low. Very low lot rent will result in relatively higher E.R.

Also, the county appraised value is close to meaningless. Except for the amount of taxes you’ll have to pay ?1% = $3,000 per year…

Homes renting at $412 screams “run away” to me. There’s just not enough margin.

3

Good advice - thank you.

4

I am also new to the Park Game, but this seems to be my issues as well, everyone that I contact are willing to sell, but they want about 30-40% more than it is worth, or (more than it will cash flow.) the latest one I was pursuing was a 26 unit TOHs that was at about 76000 a year gross and I was valuing it at about 650K and only a 7% cap rate… Owners wanted $1M. there stance was they are clearing 65K or so a year with minimal headaches. so it was worth more to them to keep it.
i would also like to know how people are getting parks with 15% cap rate. unless they have lots of cash to upfit. which hurts the cash on cash return…
another 40 space POHs wanted 2.5 M…seem like they are way off.

5

Everyone seems to be paying a lot more for the MHPs these days. I feel the smarter ones have stopped buying them or only buy IF the returns work out. My suggestion is don’t get pressured to buy if this doesn’t make sense or the returns don’t work out. Keep looking and keep in touch with the owners. Something will pan out hopefully.

6

That’s really cheap rent. His ask price is too high. If the rents were $650 month and fully occupied , the ask price would be very close for our area.

7

thanks for the feedback

8

good advice - thank you.

9

Guys, keep in mind there are two ways to be in the business. Either like Frank who is in the land rental business or secondly, there are many in the mobile home rental business. If you want to only rent lots this park is over priced. However, if you want to rent homes it’s not a bad price. My son and I have three parks where we rent the homes and one, the largest, is lot rental only. These are two all together different businesses. We like both ways.

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10

That’s for your feedback - it’s good to get another perspective on things.