Hi,Looking into a park with over 60% rentals with 6 to 12 months in leases. 60% of these rentals have less than a year in the park. Would like advice in how to value the MHP since we will be losing the tenants when we convert this park to long term owners. Also, how do I find out if the market isthere for long term owners?Here are some more detail about the park:110 spaces, 60 in rentals, 40 in long term owners, lot rent is $300 and rentals are around $350. Surrounded by 4 apartments. expenses 80K (W/S/T billed back using RUBs to tenants)Please let me know if you need any more info to accurately value this park?Thank you.
One more addition is that these rentals are very small homes around 14x52s. So majority of the park has 2bd 1ba and 2bd 2ba
(1) Can you replace the homes if one leaves? (or burns down, is evicted, etc)(2) Is there enough demand for these small 2br to keep your 60 rentals filled (you’re going to rent while you convert, right? How long do you think that will take?) You want to have a waiting list of people to call when you have a home ready to rent (because you will certainly have turnover while you look for residents that wish to be long-term owners). If the average renter stays a year, you’re going to be looking to rent more than 1 home per week (in addition to your sales conversion rate). Brandon@Sandell
DallasMHP,In addition to Brandon’s comments above, you need to be sure that the market rent is actually $300/month. Assuming that this is accurate, and that the park is spacious enough to bring in larger units as the small units are replaced by obsolescence, I would value the park as follows:1) At fill up, you will have a gross income of $360,000. Expenses are going to be about $140k. There is no way that this park can be run on $80k of expenses even now. The end value will be just under $2,000,000.2) Now you have 40 homeowners and 60 homes that are virtually worthless. They have to be costing more than the extra rent that is currently being generated by them. Assuming that the homeowners are in homes that are worth keeping (better than the rentals), I would value the park based upon the income from the homeowners alone and add only a small additional value for the lot rental income for the rental homes since they cost more than the home rental but add something to the value.3) Based upon the above, I would value the park (including the homes) at around $900k at most. This is a park needing major “heavy lifting.” Based on the time, effort, risk, and money necessary to reach the end value, you need to calculate your return compared with other opportunities.4) Cost of money including owner financing have to be considered as well.This is just my opinion for a “quick and dirty” evaluation.Howard
Based on my past experience of buying rental properties having tenants with less than a year in the property I would assume the present owner had a empty park, due to shoddy management, that advertised below market rents and took every applicant with a heart beat. This was only done to appear to increase the value of the park. My guess would be that you have worse than the bottom of the barrel in tenants and most are probably delinquent on rent (or will be).I would not value the park at much more than the value of the 40 owner occupied lots and would want to get rid of most, if not all, of the residents renting homes.
- You can gauge the market demand by using a test ad as well as some common sense – look at the median home price, average 2-bedroom apartment rent, and % of vacant housing in the market, all of which can be found at www.bestplaces.net.2) To figure out the value of the park you need to inventory the condition of all of the homes. The formula would then be the 40 private homes plus the number of homes that can be salvaged x $300 x 12 x .7 x 10 = value at a 10% cap rate minus the cost to rehab the homes plus an additional amount of “fluff” to cover the homes you screwed up the estimates on. But the only reason I’d do this deal potentially is that the lot rent in Dallas is normally significantly higher than $300/month (we’re getting more like $400 per month there). That’s your upside: raising rents (potentially). It certainly is not pushing up occupancy or billing back water.3) We have had a very high percentage of renters convert to owners, but Greg is correct that the quality of folks renting entire trailers for $350 is awful. You may have to kick out half of them and replace them. Again, it’s all about the deal’s price and terms.4) Is the seller going to carry the paper, because that’ a tough deal to finance.
Hi,Thanks to all for driving sense into me on the risks of this deal. We don’t think we are setup to manage this big risk as well as the purchase price is priced for all 100 homes not the 40 private homes. We also looked at the move-in dates in the rent roll. This was even amazing. All the 60%+ people rented the homes in 2014!!! There were about 10 more homes that another relative of the owner has which he is not disclosing the move-in dates. So potentially 70% of the tenants rented in 2014.Thanks again Brandon, Howard, Greg and Frank for all the great and helpful advice. The better deals are the ones that you walk away from and this is that kind of a deal.