Hi,We are trying to get a good formula for putting a valuation on a park that has 100% tenant owned homes. Assume city water/sewer and tenant pays.Thanks,Matt-see you in September
Figure out the value of the lots and then add in the value of the homes. The lots should be at around a 10% cap rate (based on location) and the homes should be only based on their street value – not at a cap of income.
Thanks Frank. What about a discount for the higher tenant turnover? I would expect a lower occupation percentage in POHs. Thanks again.
Sure, you can never be too careful. At the same time, you can reach a point where it’s hard to buy anything because you load so many price discounts on that nobody will sell at that price. You are probably safe valuing the lots the same whether they are tenant owned or park-owned. But to hit your goals, you’ve got to move fast when the tenant does not pay or runs off. It’s kind of like that submarine movie with John Wayne, where he drills the crew over and over to be able to go from floating on the top of the ocean to suddenly closing the hatches and submerging nearly vertically while firing off the torpedoes, so that they can hit a ship point blank and then go underneath it at full throttle. Once you get the technique down to evict the tenant, race to get possession, do any necessary rehab work in a week or less, advertise aggressively, and get a new tenant in the home fast, then you will not have vacant homes for very long.
Gotcha. That makes sense. Thanks Frank.