BiggerPockets

Is monthly rent x's 12 x's 10 = a good basis for a selling price? Is now the time to be selling a cash cow investment?

Regards

Sonny

Mobile Home Park right now. Expenses are 10% total of gross rent if even that. Park is in a very desirable location. I have depreciated all that I can & because of my current situation tax on them profits will be stinging.

Obviously I could do a crap load of upgrades or even expansion, but park is located over 700 miles away in the heart of the Smoky Mountains.

Never a vacancy & a waiting list if ever 1 old tenant should pass - Senior all Adult Park -

The Real Estate Broker - said SELL SELL - but her formula was 100 - 120 x's the monthly gross rent receipts. I figured that to low, given the fact that there is room for expansion

Course in today's environment finding a all cash buyer will be tough & a trade is not really doable unless of course the property trade is located in my neck of the woods

Thankyou for your reply

Sonny

Sonny I might be interested in your park. Can you give me the info on it?

Sonny,

Before selling your mobile home park you might want to try to maximize the value of the park. Here is a list of 10 ways to increase the value:

1. Raise Rents: A $10 per month rent increase at a valuation using a 10% capitalization rate, can increase the per lot value of $1,200.

2. Submeter Water and Sewer and Trash: By installing water meters and billing the residents back for water and sewer and trash you are in effect increasing your bottom line. I often think this is one of the most equitable ways of to pass on expenses to the residents as they only pay for what they use. In my experience when meters have been installed the master water and sewer bill is reduced by 30-40% as your residents become conscious about the amount of water going through the faucets. Leaky faucets are fixed, toilets no longer run continually, cars are not washed every day, etc.

3. Enforce Rules and Leases: By enforcing reasonable rules and regulations your community will be regarded as a safe and comfortable environment. Get rid of problem tenants. If you are worried about losing the rent from one or two problem residents, consider that you may lose even more good residents and potential residents by keeping those that are causing problems and not obeying the rules.

4. Reduce your Property Tax Expense: Contact a company that specializes in going to bat for you with your county tax assessor to get your valuation and taxes reduced. Many states and counties base the assessed value on the purchase price. However, most mobile home parks should have a business value component that should not be taxed as property tax. These companies often work for a % of the reduced taxes thus no money out of pocket.

5. Reduced other ongoing expenses: Get multiple insurance quotes, evaluate telephone costs and extras, negotiate with plumbers and electricians to get a lower hourly rate, etc.

6. Fill vacant lots: How much is a vacant lot worth? In many cases, a vacant lot is actually costing you money to keep the grass mowed, the lot clean, and so on. If your lot rent is $200 per month and based on a simple formula that a lot is worth 60 times the monthly rent, then an occupied lot is worth $12,000. Would it make financial sense to spend $2,000 to cover the home moving costs of a potential resident? I believe it does. Other incentives I have used include, free or reduced rent for the first year or two, free installation of new skirting, free steps and decks, and the list goes on. Be creative and stay ahead of your competitors. It is much more effective to come up with 50 ways to market to one customer rather than 1 way to market to 50 customers.

7. Buy homes for Resale or Rental. Buying used homes and placing them in your community for resale or rental is another way to drastically increase the value of your community. As mentioned before, each time you fill a vacant space, the value of your park increases. As a community owner you have an advantage over most mobile home retailers in that you do not need to make a profit on the sale of new and used homes. If you profit by $12,000 per space in equity each time you add a new home, you can sell the homes at breakeven and be way ahead.

8. Increase the Curb Appeal: Encourage residents to clean up their yards and property. Hold clean up days on a monthly basis. Have new and attractive signs installed at the entrances. Repair roads and maintain adequate street lighting. Have monthly rent discount incentives to the residents for things such as: Property of the month, most improved property, etc. Additionally, financing for your residents such things as new skirting, paint, wood siding, and other outside improvements can get the homes looking better as well.

9. Add additional income sources: If you have some vacant land, consider adding some mini storage units, or fence it off and offer storage for RV's, Boats, and extra automobiles. If you have highway frontage, look into placing billboards or selling easements to billboard companies. Look into getting Cable TV or Wi-Fi for the entire park and in doing so, your residents will get a break on these costs and you should be able to profit as well.

10. Dedicate streets and utilities to the city. Although is not too common for established communities, if you can talk your city into making this happen, you just reduced your exposure to street repairs, utility repairs and metering.

Once you have done what you can to maximize the sales price you need to consider who your buyer is. Here are some additional selling tips:

Mobile Home Park Selling Tips:

One question we frequently get from individuals and companies that are listing their mobile home park for sale on our site is "How much information should I include in my listing to be posted"?

We have always taken the stance that you can place as little or as much information on the site and will continue to do so. However, based on my experience with selling my own parks on the site I have found that the following formula works the best:

1. Include a description of the park - number of spaces, occupied spaces, monthly rents, acreage, size of spaces, whether the streets are paved or gravel, and type of utilities and who pays what.

2. Include a description of the area - population, major employers, surrounding structures, and other important demographics.

3. Financing and Terms, if any. If there is not owner or assumable financing you may want to talk to some finance companies before listing the park to see what the potential loan and terms may look like for a qualified buyer.

4. Income and Expense Statement - I typically include Projected income based on current occupancy and Actual expenses from the previous year with adjustments for any differences. By including fictitious statements or those that are missing important information, the credibility of the seller will be compromised. If the income and expense statement looks bad, then either don't include it in the listing or else explain why it looks so bad and how it can be improved on.

5. If you do not want your manager or residents to know the park is for sale then for the location make sure that you make it General (like Colorado or Southern California). You are not required to list the park name and address.

6. A description of any park owned homes and notes. If possible I would recommend you separate the income and expenses from the park owned homes out from the lot rent portion.

7. Pictures - that is often the first question you will receive. If you don't have a way to scan these or email them to us to post them in the listing, then you can always snail mail them to us and we will scan them on. Like the saying goes... a picture is worth a thousand words.

As a general rule, the more information you post the better qualified the leads will be that you receive and the less information you post the more inquiries but the less qualified the leads will be.

As for the ultimate pricing of the park you will need to decide if you want cash or can owner finance. In today's market you will get a much better price if you can offer terms as the lending is tough for all types of investments. If you need to sell for cash then you need to keep in mind that you can only sell if the bank and appraiser will be ok with your selling price. The days of overvaluation are over.

As a general rule, on a park where the residents pay the water and sewer then the value of the park is around 70 x Number of Occupied Lots x Average Lot Rent.

If the park pays the water and sewer then use 60 instead of 70.

This is assuming about a 10 cap rate. On a senior park that is 100% occupied then you might be able to sell at a 8 cap and on a park with vacancy in a rurul market the cap may be as high as 13.

Long post but I thought it would be helpful.

Dave Reynolds

For valuing a MHP the site at mobilehomeuniversity.com has a rule of thumb formula. However, you need to take this rule of thumb with a grain of salt as it is designed for the bottom fisher to use to show a MHP owner that the value of their park is not all that high. I do not think that is exactly what you are looking for, but thought I would put it out for all to be aware of.