Need help with park evaluation

I’m looking at my first park and would appreciate help with valuation.

52 pads 100% occupied
12 are POH and rent for $750 per month
The other 40 lots rent for $360 per month
There are two homes that rent for $1600 total monthly
There is also a garage that rents for $175 monthly

Town water and sewer
Property is 5 acres
Park owned homes - 6 homes are year 2007, 4 are 2012, 2 are 2016
Expenses are 31% to 35% the last 3 years

I would appreciate help from the experts.


Maybe as a first question.
What do you think its worth and what is the seller asking?

What are your pros & cons about this deal from what your initial view. If you wish to buy your first deal then I recommend that you first start learning to build your own valuation system, then review and start building confidence in your gut.

The value of the experts here is to help you think through your own assumptions, not tell you what to do. You’ll become a better MHP investor this way. Sorry if I sound like an ass, but this is the opposite intention of my reply.

Howard - I totally understand what your saying. I should have been more clear in my original post. I’ve come up with my evaluation but before posting wanted to see how close I came. I’m certainly a newbie but have been studying this site heavily for 6 months or so. I’m hoping I’m close but wanted to see what those with more experience came up with. I’m a little confused because of the 12 park owned homes and the two houses. The asking price is $2,600,000.

Who pays for the water and sewer? The tenants or the park owner?

Tenants pay water and sewer. Owner pays trash only.

This is how I would evaluate this park quickly. I would also advise you to get the profit and loss statement on a cash basis if it was not presented that way to you (i.e. a Tax return).

$360 x 52 x 12 = $224,640
$224,640 x .65 (35% expense ratio) = $146,016
$146,016 / 10% = $1,460,160

The park owned homes are only worth what you can sell them for for cash. If you could reasonably get $10,000 cash for those homes then that is what they are worth. Do not capitalize the income they generate. There exists a program within 21st Mortgage where they will act as a finance company for used homes. I don’t know much about it, but you might be able to get a higher cash sale price if you could arrange financing on the home. Discount the amount appropriately based on the hassle of arranging it.

The two single family homes will need to be evaluated by you based on the following:

  1. If they can be separated from the park and sold off separately, you need to evaluate them on a comparable sales approach. What I would do is take their comparable sales value and pay roughly 60% of that. You won’t be selling these off for top dollar and you also want to make it somewhat attractive for another investor or wholesaler to alleviate your headaches getting rid of them.
  2. If they cannot be separated from the park, then their max value would likely be between $80,000 and $160,000 together. SFH investors use 1% to 2% of monthly rent as short hand for determining a price that will cash flow.

The garage can probably be capitalized with the lot income. It’s hard to value without knowing the quality of your renter and having the lease at hand to determine the expense load. It is probably worth no more than $10,000 to $15,000 as an income stream though.

The max value of this property on a 10CAP is likely around $1,750,000. The real question I have is what is your goal? It is usually advisable to start out in any form a real estate by finding properties where you can add value. From the sounds of it, this park is probably already maximized (or at least very close). The market generally gives a more favorable CAP rate for a turn-key investment, like this seems to be.

For example, I own a property much like what you describe but it had an 88% expense ratio when I purchased it. The expenses were high entirely because the finances were poorly managed. Those types of properties are very easy to turn around and they are also much easier to buy at a “discount.”

Charles. Thanks so much for your advice. The owner was asking 2.6mm and turning down offers at 2.35mm. We came up with 1.9mm max but since he’s rejecting great offers we stepped away.
Thanks again!