First Time buyer --Help

We are looking to buy a park in Texarkana,tx It has 50 units out of which 44 are RTO .It is very close to highway. current lot rent is 260. Park needs repair about 30 to 40K. Near by park lot rent is around 275. but it is a much bigger and nicer park. Seller is asking about 965k. is this a good deal?

50 x $260 x 12 x .6 x 10 = $936,000. So the park is basically worth around $936,000 plus the value of the homes (44 x $2,000, for example, = $88,000 in homes). This is kind of a worst case, as I assumed that the park pays water and sewer (not the tenant) and that the homes are older units in poor condition.

The bottom line is that the price is not unreasonable, and you might want to tie it up and do some due diligence on it.

Here are some what exact numbers:
Rv units : 2 (vacant)
Lot : 10 ( 4 vacant)
RTO: 40 ( all of them will be converted to Lot only in 3 years)
Water is billed back to tenants.
All RTO units are very old.

Sorry, noob question: why do you multiply by 6 (.6 x 10) when determining the park value? (Edit: wow, just realized this is an ancient thread! Still, if anyone’s listening, I’d still be interested to know why.)

General rule of thumb is that average op ex cost is 40% when park pays water bill (30% if tenants pay water). This results in the .6 number (100% gross income x .6 equals the estimated NET income).

Multiplying by 10 is just to get the asset value after determining your desired cap rate (in this case a 10 cap). You can adjust this number to meet your desired ROI. As an example- if NOI was $100k and you wanted a 10% return, then you would figure the property would be worth $1,000,000 (100/10). However, if you only wanted a 5% return then you would multiply the $100k by 20 (100/5) and be willing to offer $2,000,000 for the asset. Hope this helps!

Thanks Davie! Yes that’s very clear.

The 40%/30% figures (for park-/tenant-paid water) are clearly useful rules of thumb… but they only apply to TOH-only MHPs, right? My guess is that POH repairs could/would blow out those estimates.