I am looking at a mobile home park, located at the edge of a town. The park roads are gravel. How should this effect my valuation of the park? Does it effect a lender’s willingness to loan on the park?
Gravel roads have no direct impact on the park’s value. Parks are valued based on NOI, not amenities.
That said, bankers tend to like whatever they are lending on to ‘look pretty.’ So banks are more likely to lend on a park that has paved roads. But that’s a different issue than park valuation (other than if no banks in the area will lend, then the price will drop because of lack of liquidity). My gravel-road parks are financed by the same bank that likes dealing with me. So for them the biggest deciding factor on lending was ‘me’ not ‘gravel.’
We’ve found our tenants want an affordable place to live, and do not care about paved vs. gravel. They are more likely to live wherever the lot rent is lower.
Hope this helps,
-jl-
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All things equal I’d take paved roads for the reasons cited. Banks, appraisers, certain owners. I think some of it depends on your market/financing needs. My park has gravel roads but I’m up in Montana, you can still find city roads up here that aren’t paved and people don’t bat an eye at it. In a major metro it may be viewed differently. My tenants could care less. I used a local bank for financing and they couldn’t care less either, nor did the local appraiser. Bigger banks, institutional lenders/investors, it’s likely an issue.
There are some not insubstantial benefits to gravel. I’ll never have a massive capital expense because the road base is bad or huge chunks of roads are failing. Grade the roads, fill some holes a couple times a year and 2-3K a year is the most I’m out. I had a sewer line collapse last winter. Didn’t have to tear anything up or repave. Same will hold true for water line issues etc. On a pure NOI perspective you may very well end up ahead with gravel.
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My addition is it depends on the park as a whole. One of my smaller parks ( a three star) has sand roads. It is appropriate and inexpensive for the community. Other parks that I’m involved in are not only paved, but striped and have curbs and gutters. It sort of depends on the community itself as to what works.
The previous comments by Jefferson about appraisers and banks liking pretty are certainly relevant and worthy of consideration.