Looking at a park
3 tenant owned homes - $360 monthly lot rent
12 park owned homes - $800 monthly rent each one.
Total rental income - $128,000 / year
Expenses are $30,000
My predicament is that the 12 Park owned homes are all less than two years old and cost approximately $43,000 per unit. The cost includes the mobile home, delivery, concrete pad, skirting etc. etc.
In the area that I am in, it would be very difficult to sell each unit for $43,000. The market is sub $20,000. Personally I think the current owners spent way too much money for these homes considering that the rents in the marketplace are $800 for each unit.
Since the units are relatively new repairs are almost nothing.
You don’t place any value on the income from home rentals. You can only count lot rent, and that’s also what lenders do.
The value of a park is always determined by the net income, which you can get by:
Lot Rent number x number of occupied lots x 12 (year) x .7 (residents pay for water) or .6 if the park pays for it.
That’s gonna give you your net income. After that divide it by the asking price, and you’ll get the cap rate to evaluate their asking price. Grab your net income again and divide it by the number that you want to buy the park at. The higher the cap rate, the better the deal is. But some markets, and if the property needs work or not, will ultimately affect the cap rate of parks. Parks in California and Florida trade up for very low cap rates. But parks that need a ton of work in a less well known area will trade at higher cap rates.
If you were to buy this park, forget about the idea of selling the homes at a profit. This only happens in affluent markets. You will most likely have to sell them at a loss to get out of the rental business.
Careful with underestimating cost of repairs and maintenance cost on rental homes. You’d be surprised how fast people can destroy a newer home. This is how a lot of park operators go under. There is a reason the seasoned guys get out the park rental business as best they can on each park.
15 x 360 = 5400/mo.
5400 x 12 = 64800
64800 - 35% expense ratio = $42,120 NOI
42120 Divided by (your location Cap Rate)= Offer Price
At a 7% Cap, The value is $601K
There is going to be some discussion about the value of the park owned homes. Start by saying “I don’t want them, go ahead and keep them and just pay me the lot rent.”
They will most likely say " No way" which confirms that it’s not as easy or valuable as they are making it out to be. If Owning the POH’s was such a great investment, then why would they want to sell them?
The second step once they realize how badly they DO NOT WANT them. You will need to negotiate some type of deal that works. I would take 2 times the earning on the homes and offer them that as an Interest-Free Silent Second. Explain that there is no way you can finance the POH’s and if you were to have to pay cash for them then you’d go look for a bigger deal.
If they want you to pay for the homes CASH, then I’d go looking for a different deal. You are a lot better off buying a Park with all TOH’s.
On these smaller deals, the financing is tougher. You are already climbing uphill based on the deal size.