Hello everyone,We are reviewing a 130 space park in the Greensboro North Carolina market. Currently there are 50 lot rentals at $175 per month and 25 POH which rent on average of $500 per month. All utilities are tenant payed.We are assuming that it is a 10 cap market, and we have come up with the following:75 X 175 X12 X .6/.1 = $945,000POH: 25 X $5,000 = $125,000total value = $1,070,000. does this seem reasonable?
Yes, provided you are not sub-metering for water. If so, then .7 should be your profit margin, not .6.-jl-
Those rents strike me as a little low, so this could be a great pick up. I would expect to see them in the $225-250 range. Certainly northeast of Greensboro and in the southern part of the Triad, well run communities are seeing higher rents. Will
thanks for the input. We intend to do a complete market analysis once we are under contract.
I was under the impression high-vacancy parks typically were above a 10 cap due to the significant cost and headaches of infill. In this case, you need to bring in almost 30 (!) homes just to be considered stabilized.
Typically, the lack of stabilization rate can sometimes make getting a loan difficult or impossible. We still use a 10% cap rate on this type of park, but we also need a plan on how to fill those lots to 80%, so we can have a successful exit strategy.
Hi - I am a new and have a basic question. Based on the response by Jefferson, sub-metering allows you to reduce your expenses? Why exactly is that the case? Thank you for your help.
Thanks Frank. I guess I’m just a little surprised you’d “settle” for 10% when you’d have to do much more work than the typical 10 cap you purchase. Obviously most good deals require some amount of infill, but going from 70% to 80% is a little different than starting from 57% and getting to 80%. kwm, submetering allows you to reduce certain utility bills because you are passing the monthly expense from the “park” (ie: you) onto the tenants. In other words, if there is no bill back, you’ll be paying the water bill for the entire park. If you submeter, then you can bill the tenants for their portion of the water bill, thereby reducing the parks expenses. Do keep in mind it does cost money to purchase and install the meters, maintain them, read usage and bill back monthly, etc so there is still some cost to the park owner.
Can someone tell me what the multiplier .1 represents?
That gives you the value of the net income at a 10% cap rate.
Oh. I’ve been using 10 like the 12 in the example for a cap rate.
I’m not sure I’m fully understanding, but you have to have a 12 in the formula for 12 months, since the lot rent is a monthly amount.
I have been using Price of Park = # spaces x lot rent x7070 being some multiplier that I read someone using.
That’s the formula that Dave & I invented, but that formula gives you a rough 12% cap rate, which is a good way to get the ball rolling with a seller, but a 10% cap rate is more reasonable on what the park will sell for in the end. So use the 70 x (or 60 x if the park pays water and sewer) to make an offer or see if the price offered is even remotely reasonable, but use the 10% cap rate to see if the deal is worth going forward on (assuming that you are looking for 10% cap rate parks with upside).
ok, good because it has been accurate so far. Thanks for your all your help.