How would you value this community?

Looking for a little help as I try to value a community I’m working on. The community has 120 singlewide lots. City Utilities with new sewer and gas lines. There are 105 homes in the community and 72 are currently occupied with lot rent averaging $305. Of the 72, 30 are park owned rentals averaging $200/month rent (42 owner occupied). The empty homes (32) are park owned needing varying amounts of rehab ($1000-4k) to prep for resale/lease. The park is in a mid-size Midwest city which seems to have demand for homes and park is in a good location within the city. Park has a mix of homes from the 70’s through the 2000’s. Average resale value for park owned homes is likely $8000-15,000. The park needs improved management, but is in fair condition overall. Seller has been occupied with another business the past couple of years and has just let things slip. Upside includes the park owned homes, remaining empty lots and the ability to submeter water/sewer as the park currently pays these for the residents.

Would appreciate any input as to a ballpark value you might put on a park such as this. Thanks in advance.

I’ll give you my evaluation which is usually much more conservative than most. We are only buying 1-2 communities per year.

Revenues
Gross Rent: 7230512 = $263520
Vacancy Loss & Bad Debt = 10% (higher because of the POH’s)
Gross Effective Rent = $237,168

Expenses
Water/Sewer = $43,200 (Assuming $50 per resident/per month)
Trash = $12,096 (Assuming $14 per resident/per month)
R & M = $16,601 (7% of Gross Rents)
Management = $20,000 (Should account for the rent concession)
Taxes = $11,000 (Assuming 1% of $1,100,000)
Insurance = $3,600
Mowing/Landscaping/Snow = $5,000
Admin/Legal/Accounting/Permits = $6,000
Reserves = $3,600
Offsite Mgmt/travel = $10,000 (You’ll be there a lot that first year or two)
Total Expenses = $131,097

NOI = $106,071
Price = $1,060,710 on a 10CAP

When you value the home portfolio, I would evaluate them very conservatively. For a home portfolio of 62 homes, you are likely going to need a full time maintenance man. The vacant homes should likely be evaluated at $0. On your occupied ones, I would evaluate these at around 50% or less of what you think you can sell them for. At the end of the day, taking over a park like this means that you are going to have a lot of turnover and a lot of rehab on currently occupied units too.

One tip I could give is to get ahold of the seller’s tax returns before talking about value with him. If your seller is showing a lower NOI than your evaluation shows, then just negotiate off of their performance. For me, I would likely be at $1.2million at most on this. These are tough parks but they can be very profitable if you have a good game plan going in.

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Excellent write up Charles.