Valuing a park with all park owned homes with no established lot rent and chip seal road

Hello. I’m looking at a park currently where the owners have never established a lot rent for the park. They just charge a specific amount to rent the homes with no mention of lot rent. I’ll require bank financing, so I’m just curious if any one knows how an appraiser for the bank would value this park with no record of lot rent. Also, curious of how I should value the park using the income approach, if they don’t provide that information. I know that it’s built into the home rental, but when I ask they act like its a foreign concept to actually have lot rent and home rent broken down.

From my perspective, I would plan on selling all of the homes, so I would ultimately put the lot rent at the top of the market, but they obviously haven’t done that so I’m not sure that I should pay for that. Also, I’m not sure an appraiser would see it that way either?

Lastly, if anyone has any feedback on chip seal roads and how that would effect the value that would be appreciated too.

Thanks in advance for any input or feedback you can provide.


You can ‘set’ the lot rent. When you close on the park, you’ll get the tenants on new leases setting lot rent and put it at market. When you have lot rent and home rent it really is just an internal designation in a sense. No tenant is running out saying I pay $300 lot rent and $400 home rent. They just say I pay $700 rent.

Assuming you’re getting a mortgage, the appraiser for the bank will ‘set’ a lot rent when valuing the park. So he/she could choose something higher than you, or lower. This could vastly effect your value. Make sure you are conservative with what the market lot rent is when putting the park under contract. Also make sure to include rehab costs for the homes into the valuation and come up with an amount you may need to rehab before selling.

Just like JD said, you simply “pick” whatever lot rent you want. However, you should be reasonable. Take a look at competitors and base your lot rent on theirs. Banks have never questioned us on the numbers that we picked, but that is because in our bank offering memo, we include a market analysis showing our lot rent versus others in the area.

Thank you both for your insight!

Hi All - isn’t this a major no-no according to Frank, i.e., buying all park owned homes? And it’s imperative to have the titles to all of the homes if you are intending to sell them off, correct?

get an appraisal , see what lot rent they would place on the park, i would put the lot rent at the top of the market. The money is in the dirt not the home. then sell the homes depending on the years 70s or below -give them away -just get lot rent
80s keep the term short to purchase
the rest charge market prices - used homes are hard to find. if you play this right you can create alot of value

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I’m not specifically looking to purchase a park that has all park owned homes, because the large lenders with the best terms don’t like them, the maintenance cost, lack of pride of ownership, etc. However, there can be a benefit in purchasing a park of this nature, because you can sell all of the homes and immediately reset the lot rent to top of the market once a home is sold.

For example, if the lot rent is $150 below market, instead of doing gradual lot rent increases over a 3-5 year period to get to market, you can immediately put your lot rent at market as soon as you sell the home. This can add some significant value to the park once the plan is executed. It can take a lot of work to sell the homes though, so you have to have a strong sales plan and the right people in place to execute properly. I’m not speaking from experience, this is just knowledge I’ve picked up from others.

As far as your comment on the titles goes, if you’re speaking specifically to a paper title, it depends on the state the park is located in. For example, Texas stopped using paper titles in 2003. Everything is online now, and the titles were replaced with a Statement of Ownership, so you would want to make sure that is all in order when you purchase the park.

@Dayne…When I see a community like that, my plan is to eliminate ownership of the homes. As @JD suggested, determine lot market rent and that is your baseline. Then there is the valuation on the homes and you start with the fact that it will cost you $3k-$5k just to bring in a home so if you have 10POH, then add $30k-$50k to your offer and that is followed by the condition of each home and a value that you place on those homes. My plan would be to eliminate the POH’s as quickly and efficiently as possible. Good luck!

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Very educational - thanks, Dayne.