Park Analysis - Assigning a Low Cap Rate

Hi all,
Long time lurker but looking for some advice on making an offer on a park. 68 occupied lots paying $410 a month, all TOH. Park maintains two wells (they alternate), as well as ~40 septic systems (2 homes per). Paved roads, roughly 1/4 acre lot per home. Meticulously maintained.

Great market, ~9k population up 50% since 2000. On the outskirts of the Boston metro market in a rapidly growing town. $250k avg home price, 2.4% unemployment, $1,100 2br rent, $92k median family income.

Now the upside. Market rents are $450 (one nearby is at $550 with no loss of vacancy). 32 lots that can be developed.

My gut says something with this upside should be valued more at an 8 CAP than a 10 CAP, i.e. 68x410x12x.7/.08 = 2.9 million. My partner and I live nearby and own the necessary machinery to develop the lots/install septics on the cheap.

What would you offer?

I wouldn’t offer as its not something I’m looking for but i would just say that you can consider the fact that you can raise rents 10% to get to market as that might get your cap up. I am not familiar with that market but know sometimes valuations are higher so when the mkt is paying 7.5 caps across the board for something like this and you are getting it for 8.5 w/ upside, take that into consideration.

Lastly, check rent controls to see if its applicable in this scenario.

Is there a reason you are using 0.7 in your calculations as opposed to 0.6? Private utilities will cost more than public. This would make a ~$400k difference in your offer price at the 8 cap.

Advice you got above is good. Probably worth considering what the market cap rates are and how that compares, knowing you have immediate upside.