Help me evaluate please

Hi All,I came across this park and I’d like to have your comments on my valuation, please.Number of pads: 40POH: 2Vacant lots: 2Rent to own lots: 34 (owners responsible for maintenance)  Lot only rentals: 2 (owner owns the MH outright)Avg pad rent: $250Avg RTO payment: $400 (includes lot rent)Ave length of RTO term left: 2.5 yrs (30 months)Pads separately metered for electricWater is billed back to ownersCity Water/SewerNOI (Including RTO Payments) : 117K/yrMy valuation is as follows:Park Value:$2503870 =  $665,000POH Homes2 * $4,000 * 75% =  $6000RTO Notes:34 * 30 (months) * $150 (Actual note payment) * 0.65 = 100KTotal Value: $665K + $6k + $100K = $771KAm I on track with this analysis? Much appreciate your comments.

The multiplier is 60 not 70 for land value (assuming you want a 12% cap).  So that portion of your calculation should be:$2503860 =  $570,000Of course, you may be willing to pay more than a 12% cap, in which case that’s fine to use the 70x multiplier or anything you want.  But 60x is the multiplier if the park pays water, which it sounds like this is since you say ‘water is billed back to owners.’  If the water is ‘direct billed to owners’ and the park does not pay for it, then 70x is your number.Other than that, your calculations look fine.Good luck!-jl-

I would definitely make sure that the market supports you replacing the tenants who default on their notes.  My thinking is that with an assumed 35% default rate on notes you may also need to build a slight buffer into your lot rent calculations depending on how much time it will take to resell the homes.I would also knock off time on these notes to account for the time period you will be doing diligence and closing.  If you average 4 months to close, then you should further discount it by 344$150*.65 = $13,260.   This will probably be one of those deals you’ll wind up having to renegotiate once you tear it all the way apart in diligence so don’t worry too much about your initial offer. This is due in part to the likelihood that at least one of those notes will default during diligence and also because the seller may not have properly qualified his tenants to justify a 65% discount rate.  Each of your rent to own lots lots are worth $15,000+the remaining discounted note due, so definitely watch for defaults while you are closing on this.  

One more thing on notes.  One of the best things I’ve ever heard about MHP notes was from Mr. Rolfe.  His advice was to shop the notes to see if you could sell them and then take the results back to the owner when you renegotiated.  Generally, the notes are unsellable and if you do get someone crazy enough to buy them, they usually discount them at around 20-30%.  It may be a good tool for you to use when renegotiating for a lower discount rate.

I wouldn’t pay 100k for those mobile home notes either.  Since you would still own the homes until they are paid off, I would either buy the homes at wholesale prices(which I think would save you money depending on the age/size/condition of the homes), or discount that note significantly.  Chances are, close to half of those RTO homes will come back to you.

Thanks all for you input.@ JeffersonI use 70 as the multiplier because the water is billed back to the tenants i.e. it ends up being the tenants cost at the end of the day.The way I see it, whether water is ‘billed directly’ or ‘billed back’, the cost to the park ends up being the same.Am I missing something?Thanks

FYI If it is billed back may not be 100% bc of leaks etc… something to check during DD.
Can sometimes be an indicator of a problem,
Some owners just take the total bill and spilt evenly among everyone - which in my opinion is wrong and possible illegal .

When you say electricity is “sub-metered”, who gets the initial bill, the park or the tenant? The biggest problem with this deal, obviously, is the 34 notes. At a $100,000 valuation, that’s only about $3,000 per home. BUT THERE IS A BIGGER RISK YOU NEED TO BE AWARE OF.If any of those notes default, you will have to probably spend $4,000 per home (potentially more) to bring it back up to conditions of “minimum habitability” (the minimum standard required by law), so those 34 homes could cost you $136,000+ in extra cash to rehab them as a worse case scenario. You have to have a plan ready to address this cash need. If they are in really bad shape, it could be twice that easy.The biggest benefits of parks with lots of park-owned homes is that you can 1) raise the underlying rent higher, faster, as the tenant only cares about their monthly amount and not the break-down and 2) nobody can repo them because you’re the bank. The biggest disadvantages are 1) the capital required to rehab them and 2) the management intensity which goes up 1000% over a park without park-owned homes.What makes us buy a park like this, or not, is the rest of the story. The deal price. The location. The rent comps at other parks. All the good stuff. So the homes can be fine if there is enough good stuff to offset that risk and worry.