Morning Everyone,

I have a deal I ran across close to my house. It’s a 13 space park with 7 POH, a 3/2 house, and the other 6 spots are empty.

The house rents for \$600

6 POH rent for an average of \$542/month

Using the formula I get 7 x 550 x 0.3 x 12 = \$31,869.00

This guy is asking for much more.

The park is on city W/S and the tenants are long term. Some more than 10 years.

Apologies for my ignorance.

-John

You should change your calc to 7x550x12x.5 or.6 x10 You will get .5= 230k .6=277k hope this helps. The issue being that you are evaluating without a cap rate on the property. I use a 10cap to just see what it looks like and negotiate from there. So you go by the number of paying spaces times monthly average rent times 12 times .5 or 50% since they are park owned or if you want to be generous .6 60% and give it a multiplication of 10 for the cap rate.

John,
You should not capitalize the ‘rental’ portion of the homes, just the lots. What is the comparable lot rent for this area and type of park?
For this type of park you should break down your valuation as such:

1. Capitalize lot value: [eg \$300/lot rent] 6 x 12 x .5 x \$300= \$10800 => Then apply cap rate- so if 10 cap then \$108,000 for lot portion. Btw: smaller parks tend to be a higher cap rate in general and require a higher expense ratio as you do not have economies of scale as with large parks

2. Value of 7 homes : No idea so how about \$5,000 each = \$35,000.

3. SFR : If this can be parceled out and sold then its easier to attribute a value. If not, then value it like a rental. \$600 X 12 X .5 = \$3,600. For high level est use same cap rate => \$36,000

I know this takes a bit more time but you really need to start looking at parks in this manner. Breakdown the components and valuation of each component. The worst thing you can do is capitalize rental home income above the lot rent.

So using examples valuations above, park, homes, SFR worth \$179,000.

Note: My numbers are just examples - the key is how you assemble the numbers.

Hope that helps.

1 Like

My brain totally missed that part of the equation. Thanks for the backup.

Thanks to both of you.

I realize I didn’t 1) Put in my cap rate and 2) break it down like Howard suggested.