Park Evaluation

I am looking at a park right now and I’ve run into an interesting situation.  The lot rents in the park range from $125 to $310 with an overall average of $231.  The lowest lot rents are for the owner’s son who owns 8 homes.  If we take these lots out of the average, the average lot rent is $260.  The details of the deal are below.  The park makes sense with either lot rent figure I use, but I wanted to get some expert opinions when I run into this situation again.Lots: 48Occupied: 43POH: 32 (Son’s 8 homes convey with the sale)Well water/City sewer: Park pays sewerPrice: $800,000

I guess I should clarify where I am using the average.  I’m trying to use the average for the lot rent portion of all of the park owned homes on the rent roll.  

43 x $230 x 12 x .6 x 10 = $712,080 at a 10% cap rate, plus the value of the 32 homes (the amount you can truly get for them less the cost to rehab them to make them in a condition you can rent or sell).To me, a big part of this deal is what the MARKET lot rents are in the area. That range of $125 to $310 is enormous – what’s the lot rent at the other parks and what utilities does it include?Also, what’s the metro population, the type and condition of the streets, the age of the homes, etc.All those factors are going to make a difference on guessing the value.

The homes are in good condition.  Most of them are 80s-90s, but there are 5 brand new homes in that number.  Of the five vacant homes, only one needs minor renovations.  The market lot rent is in the $325-$350 range with the majority of parks billing back the utilities.  A few of the lifestyle choice parks are $400+, but I don’t think those are a good comp for this particular park.  This park is in a 700,000+ metro and the test ad performed well at the price point we intend to use for the rent credit.  As for the roads, there are a few small pot holes that need to be filled but they are in decent shape.  Overall, I have estimated that it will take roughly $25,000-$30,000 to make all of the initial improvements to the property.  This figure includes installing individual meters to bill back the sewer costs.  

Based on the information given, I would definitely tie it up under contract and do some due diligence on it.