I visit an imaginary park and want to know what price to offer. Say it has 100 spaces on 20 acres, no amenities, no zoning issues, crime is low, lot rent is $200, city water and sewer, infrastructure is in good shape, 30% vacancy, expenses are 50% of gross rents, asking price 1.2 million, no park owned homes, good schools and employment rate in the county - assuming a bank will give me a loan despite the vacancies at 9% interest, 200k cash down, 20 yr amortization, no seller financing.
But there are so many ways to do it.
The park breaks even at 50% occupancy at an offer price of around $800,000.
My cash-on-cash return is 10% when the occupancy hits a target rate of 80% at a price of $900,000
Applying the formula 60 x (#occupied homes) x (lot rent) + 30 x (#vacant) x (lot rent) = offer price of $1,020,000
At a 10% cap rate the offer price is $1,050,000
At a gross rent multiplier of 5, the offer price is $1,175,000
What’s the correct purchase price?