When doing a valuation on a park, I seem to be off on the numbers when I add in the capital reserve.
As I am already calculating repairs at $100 a lot. When I add in the capital at 5% the numbers don’t work out.
Do you keep the capital reserve, as part of the expense ratio? Or is this just for budgeting.
I am looking at a park with 22 paying lots at $225 a month. Water is submetered, however I get a 46% expense ratio when I have the capital reserve included in expenses.
We do not budget for a ‘capital reserve’ line item. I think you are double-counting. That said, if there are significant deferred maintenance issues, you need to reduce the purchase price of the MHP for those items.
Best,
-jl-
My background is in apartments. We’ve found that some investors make the mistake of adding the capex (above the line) with the expenses. You will need to budget for cap-x but, they are not typically figured in with the monthly expenses. The replacement of infrastructure like roadways or water systems is not part of the regular expenditures to run a MHP or for that fact apartments. However, NOT to save for the inevitable wearing out of these components would be a BIG mistake. I was taught that the capex should be subtracted from the NOI, resulting in the “Cash Flow After Capital”.