CAP rate on rural park with high demand?

mobile home university
1

I am trying to determine the right CAP rate on a rural park with low population but high demand.

The park is very near a lake and has very high demand for vacation homes. 80% of the current occupants do not live on site but use this as their lake house. A park resident recently sold their 15 year old doublewide in the park for $100K. Other parks in the area have been selling new single wides for $90K. The lake is surrounded by RV parks that are full all summer and some of them are now refusing to rent unless the tenant agrees to a year round lease.

What is the right CAP rate for such an area?

Utilities are direct to tenants and the park only needs to repair the gravel roads and septic sewer.

Park is over 80% full. It would be 100% but the owner refuses to allow RVs and has not been selling homes.

Thanks!

2

Call some brokers and chat about the park and location. They should be able to assist.

3

I wouldn’t talk to a broker if you have a direct line with the owner. Have you asked the owner what amount he wants?

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4

I am working with their broker - broker claims to have no idea of the area rents and says there are no comps. He is asking a 9.2 CAP. Of course they also show a 19% expense ratio so we have to throw that out. I did 30 minutes of work and figured out he is way under market rent and drove by 4 other parks that look pretty full. But I do not know how to find the Cap Rate for such a rural location.

Ugly park - older paid off homes
Low population
High demand for vacation homes with people driving fom up to 3 hours away.
Gravel roads, septic taken care of by park. Water and Electric billed direct to customers.
Undermarket rent.

Do I guess a 10 CAP?

5

The right cap rate is the highest cap rate you can get. Rural areas tend to get a higher cap rate - but with the tons of investors in the mhp investing space that seems to not be the case any longer. What are the financials?

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6

Income is $7000 a month but rents can be raised immediately and bring it up to $9000. Seller claims a 19% expense ratio. By the time I pay taxes after the close and account for a little more labor I think I can estimate 30%.

Do I go for a 10 CAP that becomes a 12 CAP after I raise rent?

7

It sounds like a smaller park. Assume you have a 50% expense ratio because it’s small. Your NOI would be $3500. $3500 x 12 = 36,000. Try for a 10cap = $360,000. Yes, raise rents after you take over.

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8

You may wish to get and work with a broker that represents you. A broker worth their salt can find the information you seek or at the very least, help you figure it out based on the information currently available.

Keep us posted! I want to know how this turns out!

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9

You can try for a 10 cap, but again, chatting with a broker who knows the area and market will help. You don’t really know what the seller knows. The seller may know market cap rates are 8% and be expecting that. If you bid 10% but your competition bids, 8%, you’re probably out of the mix. If the seller has a broker, you better bet you’re not the only one their talking to. And you don’t want to underbid yourself.

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Toben,
I am in contract at a 10.5 cap on a park with RV lots on a lake in Texas that sound very similar to your situation. Happy to compare notes. What’s the best option to send my email address and/or ph# privately?

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