CAP rate versus Cash on Cash Return

I am negotiating to purchase my first park and would really appreciate some input on valuation strategy. Here are the particulars:

City Water & Sewer, 170 Lots with 50 park owned homes (all have been sold to lot renters with about 15 year term @15% interest). Park occupancy is 95%+.

Contract homes default every 18 months and refilled within weeks, with down payment covering any rehab expenses. Part time manager mows and refills any contract home turnover. There are also 15 undeveloped lots (which apparently can readily be tied into the city water/sewer system).

The NOI for Lot Rent only is $325k. Expense ratio appears to be a legit 18%. The annual income from the contracts on the park owned homes is $110k.

Because I would only have to put down 15%, with the balance financed at about 6.5%, my Cash on Cash return would be close to 30%

I negotiated the seller down from an original higher price to $3.8m, which appears to be as low as he will go. He feels the location, high occupancy rate and redevelopment opportunity (because of the vibrant local economy) warrants a CAP rate lower than 10. He is also ascribing value for the contract home income and undeveloped lots.

I can’t see putting any value on the undeveloped lots. However, if I justify a 3x multiple valuation on the contract home income stream ($330k), it would mean that I’d be valuing the park itself at $3,470,000, which would result in about a 9.3 CAP. While this is a bit less than the ideal 10 CAP, I feel I have to also consider the healthy 30% Cash on Cash return.

I know that the MHPS method is to only put value on lot income (which would make this an 8.5 CAP). The question is, with a 30% return and my strategy to not sell in the immediate future, is this an acceptable deal? Further, while I wouldn’t put any value on the undeveloped lots, isn’t it reasonable and fair to give some value to the steady annual income from the contracted park owned homes? Any other thoughts?

Thanks in advance!