Cap Rate

During the Rick Ewens interview there was a brief discussion about cap rates and park evaluation. I was taking notes as fast as I could and I think they said…when considering cap rate you have to split out the value of the lot rent & any notes the owner carries from the value of the land to get a true cap rate.

Can anybody tell me why you do this?


Alan (New Dude…CA)

You dont want to include any note income or rental income in the evaluation of a park. They are seperate assets and need to be evaluated differently. The main reason is that you would be paying way to much for the rental or the home with the note.

Example- a note brings in $300 per month X 12 months = $3600. With that said you would be paying $36,000 for that income stream at a 10 cap purchase evaluation or put another way $36,000 for the home on that lot.

I evaluate homes at a wholesale price which varies from park to park

Hope this helps

Rick Ewens


Thanks for your quick response to my question about cap rates. I understnd why you would not want to have note income included in the cap rate, but are you saying you don’t use the rental income in calculating the cap rate either?

If this is the case, what do you use for the basis of the wholesale home price, if not rental income?

Hope I’m making sense,



You would need to find out what the wholesale values are in the area. For example, a wholesale value for a 10 year old 14x70 SW in my area is about $10K. That same unit would sell for around $18K on a note in one of our parks.

On the flip side, a 10 year old 28x54 DW would have a wholesale value of around $15K. This unit would sell for around $25K in our parks.

Of course, you would need to deduct any repairs that might be needed on the home.


So do you factor in the lot rent that the rental is generating to determine the park value?

For example (in a park with $300 lot rents) if you have a rental mobile generating $650/mo of income ($350 from rent and $300 from lot rent) would you factor in the $3,600 ($300x12) that the rental generates annually by paying the lot rent? If so are you saying that you add the wholesale value of the mobile on top of that after coming up with the park value?



Use lot rent only to determine the value of a park- less deffered maintenance. Add the value of the homes after you have determined what the wholesale value for your area is.

These are the basics. There can be more to it though

Ok, that makes sense. Thank you!