How would you guys determine market value in the following scenario:
Target park’s lot rent is $400. All the comps have the same amenities but the curb appeal varies.
Comp 1: $670 (Better landscaping, bigger lots, same mix of old and new homes) Distance from target park = 1 mile
Comp 2: $450 (Similar landscaping, lots, and homes) Distance from target park = 8 miles
Comp 3: $650 (Better landscaping, bigger lots, same mix of old and new homes) Distance from target park = 20 miles
Comp 4: $545 (Same size lots, better curb appeal, same mix of old and new homes) Distance from target park = 20 miles
Do you just go with Comp #2 or do you take an average?
Thanks in advance.
J
I’d use comp #1 and comp #2 – the other two are really too far at 20 miles to be good comps (other than ballpark). I’m betting the rent you could hit would be $495, in a couple jumps. But you did not say what utilities are included. If comp #2 include water and sewer, and you don’t, then you will have trouble hitting $450 day one, possibly. But then again, mobile home park tenants rarely are good shoppers, so you could get by with it without any problem. Plus, they can’t afford $3,000 to move their home, so they are not going to move as long as the rent is even remotely reasonable.
The target property as well as all the comps include water, sewer, and trash with the lot rent so from that standpoint, they are apples to apples comparisons. Thanks for the reply, Frank. This was very helpful.
J
You need to sub-meter for water ASAP. It will enable you to reduce your expenses AND increase your rents. If residents can afford to pay $400 lot rent with everything included, I bet they are consuming at least $60 in water. If you lower your rents to $340 and charge for water, you’ll find they only consume about 2/3rds as much water ($40) and you’ll collect $380/month.
So I’d suggest lowering rents to $380 and charging for water, which will average $40. This way tenants will pay $420 total, but your water expenses drop $20/pad/month = $240/year = $2,400 improvement in property value from the expense reduction (assuming a 10% cap rate), plus you increase rents $20/pad/month which gives you another $2,400/pad increase in property value.
Meters tend to cost around $200/home parts and labor, so your payback is less than a year just on the expense savings. Not a bad investment to invest $200 and get $2,400 back immediately, eh? Plus you can probably combine it with a net rent increase (perhaps lower monthly rent, but no longer including water). Plus it’ll help save water and the environment.
Best,
-jl-