We are looking at a park that seems extremely over priced, actually double…When we dug into the numbers we noticed that they were including the value of the homes that are park owned. The values they used are the values that they sold the homes to the tenants for. Basically my question is this… When looking at including homes in the deals what prices given for the homes:2000s … ?1990s … ?Late 1980s … ?Thank you for everyones help
But if they sold them to the tenants, how can they still be park-owned?
We give a value of $5,000 to $8,000 per home. I think its really neat that owners have homes that are newer or nicer, but at the end of the day, they are still originating notes to people with 500 or less credit scores. The churn rate on those things is pretty incredible.Homes are personal property and you don’t want to pay too much for them. They are not vast sources of income and even worse, they are a time consuming nightmare to deal with. For me, I don’t care if the home is a 1970s or a 2000 model. I focus more of my attention on the number of bedrooms. For example, we looked at a deal with 30POHs recently. All were 2br (mostly newer and habitable). We tested the market and we determined that we can’t move those very effectively. Therefor, the homes aren’t worth much of anything. Despite the fact that the owner had a lot of money in them.Personally, I love seeing the older 3br vacant, habitable home in a park. I know that thing won’t ever be moved out and a 3br can always be sold off relatively quickly.
Complicated questions. First you need to know how they are being sold. If this is a rent credit system you will need to know the ‘value’ of the rent credits promised, which will offset some of the value of the homes. If the homes are sold, you need to know the seasoning of the notes. You will also need to know the terms.A home that is park owned and not ‘sold’ is worth the blow away value, tops. What would the insurance company give you if it burned down or blew away. Another way to value them is to say in your market, what would it coast to replace the home. A 2010 single wide with a year of $350 / month payments left is probably worth $3,000. A 1970 single wide, 3 bed 2 bath in great shape ready to be sold might be worth 6 or 7 thousand… maybe more. In short, each home stands on its own. You need to build a financial profile for each home, and value each home according to what it is, and what its potential is.
Thank you all for the feedback. They provided me the mortgage terms they provided to the owner. They are trying to put the outstanding value on the notes into the cap rate. I have learned from this forum alone, that is a NO NO. So, I am trying to determine some fair value for the homes.
I think there are two questions here: 1. Are these loans any good?2. Assuming I can achieve comfort with the loans, how much should I pay?One of the places I always look is the quality of the loan files. Are they legible and organized? Do you know who is actually responsible for the mortgage/RTO? Does it look like a credit report or job verification was performed? How large was the initial payment? How long have they been paying?I’d welcome other’s thoughts, but my experience is that default rates on loans/RTO climb as you approach months 18-36 before declining pretty quickly. 2. What to pay?Figure your cost of capital, because that will set the upper bound on what you’re willing to pay for the pool. Banks, if they’ll accept the homes as collateral at all, will generally require recourse of some sort and will not provide the same loan to value on the pool of homes that they would on the land. Take a look at the length of time remaining on the RTO or loans. If they mature in 6 months, I’d recommend working something out with the seller since there’s no reason to transfer all the documents for something that will be paid off weeks after closing. If you have a lot of longer term maturities, then obviously your discount will be greater to reflect future uncertainty. Another approach is to assume a % of loans that will go bad, based on what lenders call “seasoning” (i.e. how long someone has paid), size of down payment, prior loan history at that property, delinquency, or other factors. If you believe that 20% of the loans will default, then you would estimate your cost for recovery, eviction, and rehab and either apply that to 20% of the loans, or allocate some of that cost across all the loans.I certainly struggle with this question, and appreciate that you’ve spurred some conversation.