By the end of this article you should have a better understanding of how to quickly analyze whether a mobile home park seller is asking a competitive, fair, average, or inflated asking price for his or her park.

While individual mobile home investments are my typical topic of choice, this article concerns helping you quickly evaluate a seller’s asking price in relation to the income and cap rate of their mobile home community.

You likely already understand that individual mobile homes are lucrative. Investors that start buying, renting, and selling individual mobile homes inside parks can find themselves wanting to own an entire mobile home park. This can be compared to going from the minor leagues to the major leagues.

First let us understand a few basic terms with regards to investing in mobile home communities.

Net operating income: For the purpose of our quick calculation the net operating income or NOI will be based on the last full calendar year of income. To calculate the NOI you will add up all the mobile home park rents and other income for the year and subtract all the legitimate expenses during the same year. For the purposes of this quick calculation do not take into account any mortgage payments or interest paid on mortgage loans.

Asking price: A mobile home park seller can ask any price they wish for their park. Looking through a listing service of mobile home parks for sale you will see mobile home parks in all price ranges, sizes, and conditions. Some of these communities will have been on the market for a year or more and others will have sold after only a few days.

Capitalization rate or Cap rate: The capitalization rate is the yearly rate of return the average investor expects to earn on this type of mobile home park. There are typically three cap rates involved in each mobile home park for sale you see; there is the cap rate the investor-buyer wishes, the cap rate the seller expects, and the cap rate given from an experienced property appraiser. Cap rate changes based on the risk, location, and other factors of the park. When using the cap rate in math equations change this percentage to a decimal.

Using the asking price, cap rate, and NOI you can now quickly analyze if the asking price matches the income.

Asking price of the mobile home park X Cap rate = Net operating income

Example: \$200,000 X 0.1 = \$20,000

Said another way.

Net operating income / Cap rate = Asking price of the mobile home park

Example: \$20,000 / 0.1 = \$200,000

Using this quick formula can give you the confidence to explore or pass quickly on a potential mobile home park investment. The above quick calculations are only the tip of the iceberg when it comes to proper due diligence with regards to screening an entire mobile home community for investing.

Related: Step By Step Process to Buying a Mobile Home Park!

In addition to the three simple criteria above there are also infrastructure issues to consider, utilities, management, rent rolls, empty pads in the park, extra build-able land included in the price, the number of mobile homes that convey with the price, financing included, any single family homes or other buildings that convey, current zoning headaches, future path-of-progress plans, and of course your desired exit strategy just to name a few.

In a coming post I will be discussing your possible exit strategies with regards to profiting with mobile home communities. If you are experienced in this field please do not hesitate to add any value in the comments below. If you have any questions please add them in the comment sections below for us all to learn and grow together.

Love what you do daily,

John Fedro

Photo: Lynn Friedman

Investing since 2002, John started in real estate accidentally with a 4-bedroom mobile home inside of a pre-existing mobile home park. Over the next 11 months, John added 10 more mobile homes to his cash-flowing portfolio. Since these early years, John has gone on to help 150+ sellers and buyers sell their unwanted mobile homes and obtain a safe and affordable manufactured home of their own. Years later, John keeps to what has been successful—buying, fixing, renting, and reselling affordable housing known as mobile homes. John shares his stories, experiences, lessons, and some of the stories of other successful mobile home investors he helps on his blog and YouTube channeland has written over 300 articles concerning mobile homes and mobile home investing for the BiggerPockets Blog. He has also been a featured podcast guest here and on other prominent real estate podcasts, authored a highly-rated book aimed at increasing the happiness/satisfaction of average real estate investors, and spoken to national and international audiences concerning the opportunities and practicality of successfully investing in mobile homes.

1. Here are a few additional thoughts on mobile home park valuation:

1. If the park comes with park owned homes, make sure to segment out the lot rent vs. the home rent (which you can identify from the rent roll as the excess amount above the lot rent). The safest way to value home rent is by attributing a value to each park owned home. If you cap the home rent at the same number as the lot rent, you’ll likely be overvaluing the value of each home.

2. Strip out any home promissory note income, then discount the aggregate principal value of the notes that convey with the park and than add that number to your component valuation.

3. Adjust your cap rate accordingly for the age and condition of the infrastructure. If the park comes with private utility systems, you need to be “compensated” for the meaningfully higher capital risk.

4. Adjust your cap rate accordingly for the location and population of the town. If the park is not located in a sizable metro area, you’ll need a much higher cap rate to make it worth your while.