How to value POHs

I am looking at a small park, 30 spaces. Almost 100% are park owned homes. The park just started a rent to own credit program a few months ago. I can value the park, but I am not sure what value to place on the homes. The park owner has them valued at about the same amount as the park (making the purchase price about twice what I would pay if I could just buy the park and the tenants already owned their trailers). How should I determine a value for the trailers?

I don’t have concerns about financing the park, but how difficult will it be to get a bank to finance the homes?

If there is a bell curve mix of nice homes and older homes I usually do a blended average of 5-10K per home. I assume you’re not in California and that all of the homes are in decent shape (they don’t look like they were in a demolition derby).

The logic is that you can effectively rent credit them for a similar value to the tenants and as a result that’s what you should pay.

I would pay no more than half the note value. Beware of a nasty trap. The home note income will vanish some day, but the mortgage payments remain the same. You HAVE to factor that in.

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Also keep in mind you will be getting many of those homes back multiple times requiring maintenance and rehab to resell. There is a significant cost to maintaining/rehabbing those homes, loss of income when reselling and expenses directly related to finding reliable buyers. With this being a 100% new rent to own community management for a couple of years may be intensive so you will need to be available to manage the business.

Sounds like it might be a lot of work for such a small park?

Usually less than 20 pads is considered too small for many. 30 is still worth the effort in my opinion - at the right price.

Value them at what you can sell them for for cash. Typically in most parks, that will be about $1,500 to $6,000. There is no lending market for used mobile homes. So, if the seller insists they are worth $10,000+ because you can sell them for $10,000+ on terms, it is an invalid argument. Remind him you aren’t a lender by trade and remind him that the “borrowers” aren’t exactly people you would desire to be financing if you were into that sort of thing.

The reality is that you will have to dispose of most of them through rent credit. We’ve been lucky in our parks to sell a lot of homes for cash but our luck was made when we didn’t pay too much for them. We typically get $1,500-$6,000 cash and that’s not far from what we paid for most of these homes when we bought the parks.

As far as the banks are concerned, you will be going local on something like this. Local banks sort of do their own thing so it’s hard to say. It might come down to whether or not they like you.

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