I’m having a hard time doing evaluations with parks that have a high % of park owned homes. For instance I was looking at a decent looking park with 50 lots that has 37 park owned homes. The breakdown was 4-60’s 11-70’s 8-80’s 8-90’s and 6 from 2000 and up. All are single wides and in good shape.
The park has an NOI of about $80,000 and the asking price is about 750k. After looking at the rent roll,I see the income from the 32 homes that are occupied exceeds the lot rent by about 10k per month. So if I apply the negative 120k,the park has a cap rate of less than zero. If I do a 30-60,it comes out to about 435K. This property had 50 spaces and 39 were rented.
What I’m having trouble with is the park appears to be worth more than 435k. The broker felt the 37 homes were easily worth about 275k. If we put a value of 6k per home the number would be around 220k. He also stated that the park would assess for around 530k without the homes and the owner would do a 2nd for the worth of the homes. When I look at the expenses,they are very high and part of it is maintainence and repair. This makes me woner if it is accurate to pull income from home rentals from cap calculations but the go ahead and leave the expenses the owner had on the homes in the formula. I understand that you don’t want to pay 10x’s (if 10 cap) the amount taken in on rent,but on the otherhand is it “fair” to deduct 10x’s the expenses he incurs on the park owned homes ?
Am I doing something wrong when I try to evaluate parks that own homes or is it possible that you just have to go with your gut a bit more on these ?