Investor · Willow Spring, NC · Member since 2013 · 788 posts · 285 votes
I'm looking at purchasing a MHP, asking price is $220,000 with CAP rate = 12%. With 25% down and after expenses my ROI is about 21%.
I'm pretty sure the seller determined the price by starting with the CAP rate to get to $220,000.
Another way Frank Rolfe suggests is:
Rents x 12 x 70 = Purchase price. So $2850 x 12 x 70 = $192,500
Sitting in my local REIA meeting yesterday, the speaker said properties in the area are selling on average 5% less than tax values.
Tax value on this property is $187,000 - 5% = $177,650
How would you go about determining an offer price?
Investor · Jackson, GA · Member since 2011 · 228 posts · 126 votes
13y
I would make an offer based on current income, how frank does it. It's the only sure fire way to succeed. There is a lot to be said for owner financing though, and I'd be willing to pay a little bit more in that instance. Of course, it would be nice to buy at that 5% below. I think an offer of 177k would turn the seller off pretty quick.
Investor · Willow Spring, NC · Member since 2013 · 788 posts · 285 votes
13y
Hi John Vashon Right now, everything I do in real estate is planning for the long term. My goals for the park would be to maintain the park, keep the tenants satisfied and enjoy years of cash flow. I would use that cash to either payoff the park or reinvest in other real estate.
Depending on the market, I plan to increase monthly rents $5-$10 each year. The current rents are fair and can be increased with the next lease renewal.
Expenses are pretty low. Its on city water with separate meters. It does have septic which requires maintenance. There is a little bit of grass to be mowed and a gazebo that needs power washing & staining. The homes are all tenant owned, no rentals. Its a small park but 11 of 12 lots are filled.
Investor · Sarasota, FL · Member since 2008 · 18k+ posts · 17k+ votes
13y
I would treat it like any other income generating asset -- do a pro-forma to evaluate your NOI, and determine a price based on the returns you're looking for.
Real Estate Investor · Concord, CA · Member since 2013 · 55 posts · 19 votes
13y
In response to your initial question, J Scott "hit the nail", build the pro-forma and determine price. Have you written out buying criteria? If the property is good fit, as a long term hold, price might not be your primary criteria. I prefer under-managed parks with upside. This involves simple improvements, resolving problem tenants and then raising rents and reducing expenses.