Park Valuaton -Need a Little Guidance

Been talking to an owner of park that has
16 MHP Spaces(5 are parked owned) x 275 lot rent
3 RV Spaces x 400 lot rent
4 unit apt(1BR) 400/per unit
3 unit apt (1br) 400/per unit

Has some frontage commerical land on busy thoroughfare that can be split off

Resdients pay their own electric
Owner pays water, sewer, trash.
Seller is asking 525k

Quick Calculation:
$275 lot rent x 19 x 60 =313500
7 units x 400 =2800 x 12/.50% expense ratio/.12 cap = 140000
5 POH = 25000

Park Value =478500

Is this about right…?

Not sure how to really value the RV lots… and if any value should be placed on the 10000 sqft commercial lot that could be split off.

Thanks in advance.

I would run the numbers slightly more conservatively:

the value of the lots is 16 x $275 x 12 x .5 x 10 = $264,000


7 apartment units x $400 x 12 x .5 x 10 = $168,000


one RV lot (assuming 30% occupancy) x $400 x 12 x .5 x 10 = $24,000

GRAND TOTAL $456,000

If you really like the market, then try and tie it up for $450,000 or so and then put a microscope on:

  1. market rent levels

  2. the dynamics of the market itself

  3. the test ad

  4. the local apartment market

  5. the condition of the apartment units

  6. the condition of the park infrastructure

  7. the permits (are those apartments really up to code?)

Just to throw a little caution on this. We’ve looked at a ton of small apartments inside of parks and those things rarely ever seem to cash flow. Plus, they always have a lot of deferred maintenance it seems. Only having $2,800 per month of revenue on 7 units is probably more in the realm of a 60-70% ratio if you were to factor appropriate reserves based on the age & condition I am picturing in my mind. Plus, when you raise the rent on that thing say $50-$100, you’ll get some churn. Just food for thought since this component is such a big piece of your deal.

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@frankrolfe @CharlesD Got it so you would factor in expense ratio on smaller parks at 50% +. The three unit house could potentially be split off . Would you place any value at all on the commercial frontage land or leave that out ?

Thank you much

On a small park, it’s a safe bet that you should increase the expense ratio since you have some fixed costs that are not as diluted. So a 30% expense ratio should become 40% and 40% should become 50% – but that’s just a basic guideline, and should be fully verified in due diligence.

On the commercial land, that’s a 100% crap shoot. We’ve had land sell for $5 per foot and also for $1,000 per acre. It all depends on location, location, location, as well as the negative impact of having a mobile home park next door. Safest to value it at -0-.

@frankrolfe Last question this park is adjacent to railroad tracks. Seller of course say doesnt bother the tenants and it doenst go by all that often. Seller has had this park for years. Would this be necessarily a deal killer?

We have several parks with railroad tracks next to them. In one case, the most occupied street is the one that backs onto the train tracks. I think that mobile home residents see the train tracks as a “buffer” and like the privacy so much that they are willing to endure some noise a few times a day. In addition, there are SF across America that back onto RR tracks, and I’m told that you develop an immunity to the noise over time.

So, no, it would not be a deal killer.

Why you putting the lots at .5? Is this new math now?

This isn’t new math. When you have nonstandard Park items, like apartments, small number of lots, and RV lots you will have a significantly higher expense ratio. If we were talking 75 pad park and none of this other business it would have been .7

Just curious on two things:

  1. First off OP, how did this deal work out for you? I am looking at something similar but triple the size.

  2. I noticed that Frank didn’t assign any value to the 5 POH. Was this an oversight or intentional?

The seller was dragging his feet on it , decided he wanted cash vs orginally agreeing to seller financing, and I had decided at the end of the day that this deal was really too small of a park to pursue. POH"s I was taking out of the offer but I placed each home at about 5k/each as they were older homes.