Valuing Park Owned Home Revenue (GRM)

mobile home university
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I was looking at a few properties last night and I realized that I might not have a clear understanding as to how to value park owned home revenue and I wanted to get input on the correct way to do it.

I understand that an accepted method to value the revenue from park owned homes is to take the difference between the lot rent and the park owned home rent

So if POH rent is $500 and lot rent is $200…the value you would assign to the park owned home revenue is $300.

The piece that I am having trouble understanding is the gross rent multiplier…From what I understand depending on the condition of the park owned homes you multiply the difference between POH & lot rent (total annual revenue) by the GRM and that give you the amount you would be willing to pay for those POHs.

Say you had a park with 40 lots (20 POH, 20 TOH) with the same rents as above and it’s a 7 cap market with a 30% expense ratio…let’s say the GRM for this area is 2.

20 TOHs @ $200 = $48,000 rev/yr

20 POHs @ $300 = $72,000 rev/yr

How would you value this park? Do you cap the $48k+72k?

48k+72k =120k x .7= 84,000 / .07 = $1,200,000 purchase price

Or…do you cap it on straight lot rent revenue for the whole park and then add back the value of POH using the GRM…$200/m for all 40 lots…$96,000 annual revenue x .7 = $67,200 / .07 = $960,000 purchase price on lot rent only

Then once you have the $960,000 purchase price do you add back in the POH value based on the GRM (72,000 x 2 = $144,000)

Purchase price of $960k + $144k = $1,104,000

Using a GRM of 2 this would say the 20 POHs are worth $7200 each…i know the value depends on the condition of the homes but I just want to make sure I am thinking about this correctly and not double counting revenue

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Are you going to continue to rent the homes or are you going to sell them and just collect lot rent?

I never consider the home rent portion because I will sell the homes asap. I’ll look at the home and consider what I might be able to sell it for and give a partial credit of the anticipated sale price.

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HI @JasonS thanks for responding to this. I wrote this as a hypothetical situaiton; however, my intent would be to sell the park owned homes upon acquisition of the property.

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Your example should multiply 40 (not 20) by the lot rent and cap it with expense ratio. So that would be 40 x 12 x $200 * .7/.07= $960k.

Then forget about the gross rent ratio and evaluate the homes on a market value basis ($5k each = $100k).

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Thanks @Brandon! That makes sense and is more straight forward.