I am doing an analysis on a park, and I wanted to run by you guys to see if I’m doing my math correctly.
The park I’m looking at has
10 park owned avg $250.00 rent (excluding lot rent)
16 pad rental @ $100.00/lot
4 vacancies
Owner bills tenants utility charges
So I know you guys mention not to include the park owned home income. So, if did 16 x $100 x 60 = $96,000 does that seem like
a good valuation for the park? I know Frank mentions to use the x 60 multiple.
If the current owner is billing back for water/sewer then you would want to multiply time 70. So 16x100x70 = $112,000
Remember that this is just a rough way of calculating the value of a property (and will give you the value at a 12% cap). Its likely that for a smaller park like this, you could have a higher expense ratio (maybe 40% to 50%) and so that will push the value of the property down. Also, $100 lot rent is low compared to the average across the country. Before you go too far, you should research that market and make sure you are buying in a place that is vibrant and strong. Typically, those kinds of low lot rent parks are in very economically depressed areas.
How would you value a 42 lot park:
15 Lot rent @ $125.00/mon
18 Park owned homes being rented for @ $400.00/mon
Would you just disregard the 18 park owned homes completely?
There’s a bunch of good postings on this forum about park-owned homes that you could search. Frank and Jefferson, Jim and Brad, and several others have some really good insights on this subject. In reality, the seller isn’t going to simply give you the homes for free, so you cannot disregard them as part of the purchase. You will need to negotiate as best you can and pay as little as possible for the homes because, yes they do have value and will provide some cash flow. But in my opinion, I’d rather not own any rental homes - so I will pay as little as possible for them.
got it. thank you Rob!!
Actually if the utilities are included in the $100, then you multiply by 60, not 70. If utilities are included, then the lot rent is less profitable, so it is ‘only’ worth a 60x multiple, not 70. But if the utilities are billed in addition, then you multiply the lot rent by 70.
You then add in the value of the homes. By ‘value’ we mean what the homes can be sold for on terms in the park. You’ll basically want to sell them at cost, help others become homeowners, and keep the lot rent for yourself. Frank & Dave’s books go into this more, but a rough rule of thumb is that old 1970’s mobile homes in decent condition might be worth $2,000 - $4,000. Newer 1990s mobile homes might be worth $10,000 - $15,000. But one does not cap the income from mobile homes. They are just worth what they can be sold for in the park. So you should inspect each home, and run a few test ads and really see what they are worth to your market.
Frank & Dave generally stay away from parks with really low lot rents (anything under $150/month or even under $200/month). Low lot rents are generally a sign of a poor economy. Many of the $80/month - $150/month lot rent parks are in the southeast, which has a perpetually weaker economy than the midwest or either coast.
Frank and Dave’s books will step you through the due diligence you need to do, but the only way I’d buy a $100/month park is if the park was in good physical condition, the surrounding economy was strong, and every nearby park had $200/month lot rents. That would indicate the rent was mispriced, rather than a reflection of the surrounding economy.
Best,
-jl-
Thank you Jefferson!