Hi everyone. How would you evaluate a park that has rents $60 above market ($260 vs $200). Assume all competing parks in area pass through utilities (including subject park), so those are all equal. Subject park is fully occupied, best or second best quality in market. Also, limited vacancy among competitors so not much of a possibility of losing tenants to competing parks. Also assume it’s a smaller town, (~10,000 ppl) in the midwest.
My personal take is that so long as (1) the market has strong fundamentals, (2) you don’t see much, if any threat from other parks in area due to relative quality and availability of sites and (3) the park hasn’t experienced above-average attrition post-rent increase, then you would evaluate it in a very similar manner to a park that has rents at market.
Really curious to hear everyone’s thoughts. @erikhanson, can you chime in on how that would be treated by an appraiser?
I purchased a park like that and the reason the rents were higher was that the owner also gave every unit a storage shed and kept the place meticulously clean compared to all the other parks. The tenants also paid for water and sewer. You just have figure how clean the deal is and know that coming in your not going to be able to increase lot rent any or very little.
In every case I have seen a park that appeared to have above market rents there was a reasonable explanation. Rents included utilities where others don’t. Subject has more amenities, is walking distance to the school, superior onsite management (friendly staff, open during hours that make sense, actually keeps office hours), etc. biggest reason for the gap is condition of park vs the comparable. Number one reason why I drive through all the comaparables and talk to the managers. No way to get the sense of what the park is, or isn’t, over the phone. Once I find the true differences the lenders have no problems when we use actual rents.