Re-creating Park Expenses and Valuation


I am looking into a park right now and need some opinions on the sellers stated expenses and my inclusions and revisions.

Seller gave me these numbers:
Built in 1960’s
44 lots, 1 duplex
28 occupied lots
2 apartments (duplex) occupied
Gross Income - $97,680

State License - $350
City License - $880
Taxes - $8,500
Insurance - $1,100
Trash - $6,360
Utilities - $4,800
Sewer/Water - $9,000
Maint/Repairs - $12,000
Lawn/Snow - $2,400

Total Expenses - $45,390
NOI - $52,290

I revised the expenses by adding the following:
Advertising - $2,000
Bad Debt/Collections - $3,907 (4% of Gross)
Bank Service Charges - $200
Insurance (Liability) - $2,930 (3%)
Park Management - $6,000 ($500 per month)
Workers Comp - $300
Legal/Accounting - $1,000
Postage/Office Supply - $300
Taxes (Payroll) - $600
Telephone - $500
Travel - $2,000

My Total Expenses - $65,127 (67%)
My NOI Calculation - $32,553

Any opinions are greatly appreciated

  • Jason

Is your goal with all this to better negotiate the purchase price or to see how it will actually perform after you take over?

A couple items are the advertising is way high and you shouldn’t double count the bad debt collections since that should already be reflected in Seller’s numbers. Do you need to adjust the property taxes up based on the purchase price? the Seller’s numbers for trash is high - same for maintenance are high unless there are POH’s or capital improvements being performed. Any trees that need regular pruning? Road repairs? Roto rooter?

You really shouldn’t have a 70% expense ratio unless there are some significant deferred items to take care of, and would not expect it to reasonably be beyond 40-50% year over year.


Here are some things I see that may help you get more comfortable with it:

  1. You need to separate the R&M. Ask yourself what repairs will exist if the homes are gone and what repairs are directly tied to the lots. This is actually something you should ask for all line items, including revenue. Your land lease component will typically have expense ratios that are 30%-50% and your POH component will typically have a ratio that is 50%-100+%. If this $12,000 in repairs will exist regardless of the homes, then you need to find out why because that indicates a bit of a problem. I’ve seen sellers expense some pretty weird things through R&M so it’s also possible that some of your missing expenses ended up here.

  2. Assuming the seller’s numbers were given to you on a cash basis, then bad debt/vacancy loss are already built into the number. Most people don’t do their taxes on accrual so take your numbers directly off of the tax return or have them run their P&L from their management software on a cash basis.

  3. How does the actual revenue compare to what the scheduled revenue should be? If this owner is only collecting 60-70% of the scheduled revenue, then this may also account for why your expense ratio seems a little out of whack.

  4. Water/Sewer seems very high assuming the seller bills back. It also seems low if they are not billing back. Assuming 30 occupied units, it is $25 per person/per month. That number really doesn’t make any sense either way you go with it so there is probably an opportunity there.

Your actual performance on the land lease side will likely be much better than 67%. From a negotiations standpoint I would:

  • Add in the management
  • Increase the insurance (this number seems like it’s only for the duplex.)
  • Increase the taxes based on a re-assessment (If you are paying more than the property is currently assessed for)

Thank you both for your insight. My goal is to see how this park would actually perform after I take over. But I also think he has left out some important expenses that would help me justify my numbers in negotiations. I have just started to look at this property so I still have many things to clear up.

@jhutson The seller gave me handwritten financials which simply said
15 trailers @ $245 per month = $44,100
13 trailers @ $255 per month = $39,780
2 apartments @ $1,150 per month = $13,800
Total Income = $97,680

This is why I added the bad debt collections in myself.
In your opinion what should advertising expense be?
No park owned homes, the roads and water lines are in poor - fair condition
I am still working on the property taxes adjustment
6 of the vacant pads need sewer/water repairs to become usable again

@CharlesD No park owned homes just old roads and water lines in poor - fair condition and has had to fix some big leaks. Still gathering more information on the water lines and roads. I agree the water number is odd. According to seller the tenants ran their water all winter instead of putting on heat tape and insulation. Seller has just installed meters and heat tapes and is charging for water and sewer now. Still waiting for a response from seller to clear this up a bit more.

To see how the Park will perform after you take over you need to set your lot rent at the market rate, and pass along the expenses you can.

For negotiating purposes get the actual revenue and expenses from the Seller instead of the generalities. Most of the time revenue is overstated and expenses understated.

A reasonable amount of money for advertising is zero. Pay your Park Manager an incentive to sell rehabbed or new homes in your Park. $500 bucks is common for your manager to handle everything to get the deal to closing. Putting out bandit signs, answering phone calls, showing the property, etc. If you have to pay a separate advertising fee more than a couple hundred bucks per year then something is wrong with the market or your marketing channels are wrong. Your test ad will tell the story.

Depending on the depth of the water lines there are cases where a massive leak exists and you don’t even see it since it’s 6 feet underground. Get comfortable with that as a possibility before closing…

Really need to know what that 12K is about…


It’s time to request copies of the actuals. Personally, I am not a big fan of assumptions so I’d personally need the seller to go ahead and send over the tax returns for 2014 & 2015. He doesn’t appear to be doing well in other aspects of running this thing so I’d be careful assuming he actually collects 96% of the scheduled rent.

On the assumptions side:

  1. Advertising should really be between $0 and $500. With no park owned homes, it’s hard to imagine that any advertising dollars spent will result in people bringing homes in. You’ll likely just need to have capital set aside to do this yourself.

  2. Water/Sewer should drop considerably if meters and heat tape/insulation were installed. Of course, you’ll want a plumber to really check the quality of his fixes while you are in diligence.

  3. Maint/Repairs will need to be itemized by the seller in order to really see where it could be under your management. Some of your upfront capital expenditures will likely provide permanent fixes to some of his ongoing problems. It may also be high based on some of the fixes he did the previous year.

My negotiation strategy here would be to get any financial documents I could and really drive the price down as hard as I could based on those docs. Once it’s as low as you can possibly get it, tie it up so you can put forth the effort to see if it makes sense. Really hammer home that this thing needs capital far beyond a downpayment for it to hit your returns, and he really should carry the financing for a while. Bringing homes in and providing permanent fixes to deferred maintenance items are vital to get this thing ready for long-term debt and you need the breathing room to get that done.

Thank you. I appreciate the feedback.