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# How do I determine the value of this Unique property??

Steven M.
Posted Apr 30 2024, 14:48

A customer of mine mentioned she is selling off all of her properties as she is 80 and looking to enjoy the rest of her life task free.

My wife and I are going  to look at one of those properties this week but don't know exactly how we should calculate the properties value as its unique to the area so there are no comps. My customer also has no idea what the value of said property is worth in todays market.

The property consists of approximately one acre of land located in Maine. It includes a 3-bedroom, 1-bathroom ranch house along with a private street hosting a small mobile home park with 5 units. From what I have been told, these Mobile homes are grandfathered in as they no longer allow these in this area. ( I have researched further and found that these mobile homes can all be replaced at anytime with ones of the same dimensions).

I'm hoping for some guidance and any suggestions/ help is greatly appreciated.

The specifics of the property are as follows:
Land: 1 acre

Income Generating Units: (built around 1995 all in good shape)

Ranch House: Rental income of \$1,200/month

Mobile Home 1: Maintenance personnel reside here rent-free (not generating rental income)

Mobile Home 2: Rental income of \$980/month

Mobile Home 3: Rental income of \$1,000/month

Mobile Home 4: Rental income of \$1,200/month

Mobile Home 5: Rental income of \$1,200/month

Financial Information:

Estimated Annual Taxes: Approximately \$2,500

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This is why MHPs with homes attached are so difficult to market.
First thing you need to do is separate the two entities- the house and the park.

The house- Get the appraised value of the home which should be easy enough to do.  Then because it is next to and attached to a MHP deduct 15% +/- off the value of the home's appraised value.  15% may be too conservative as I have heard some say 25% or more.

The Park- Two ways to play this. CAP rate or wholesale value. With CAP rate take the annual rental income (of all 5 homes) annualized with the home #1 at estimated \$1000 per month gets you \$64500 per year gross income. Pull 40% off for estimated expenses leaves you at \$38736 for an NOI and with a 8% CAP rate your at \$484200 for a value of the MHP. Most large PE MHP investors will tell you to only offer on the pad rental portion of the income which assuming \$500 each, 25% expenses and an 8% CAP your at \$281250.

The other way is to offer her the wholesale value of the five mobile homes.  You may be able to get NADA valuations on them or just do craiglist research.  Remember though your not paying retail price... buying all five at one price should be more of a wholesale price.

Left the maintenance person with free rent out of the calculations... that is for you to decide after you buy the park.  I am assuming you would be paying for materials and replacement appliances, etc... so \$1000 per month for labor to take care of 5 mobile homes should be seriously looked at down the road.

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Steven M.

Thank you so much for all that information Roger!

With the CAP rate method are you saying I COULD expect to pay \$484,200 for the MHP? Or are you saying if you were calculating it this way , you would always place a offer on the pad portion only bringing that price down to \$281,250?

Also, I have all the info on the mobile homes Manufacturer, year, model numbers, beds, baths length, width as well as what was paid for each unit. I will try to find actual real-world values and maybe with the two methods I can find a middle ground?

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Quote from @Steven M.:

Thank you so much for all that information Roger!

With the CAP rate method are you saying I COULD expect to pay \$484,200 for the MHP? Or are you saying if you were calculating it this way , you would always place a offer on the pad portion only bringing that price down to \$281,250?

Also, I have all the info on the mobile homes Manufacturer, year, model numbers, beds, baths length, width as well as what was paid for each unit. I will try to find actual real-world values and maybe with the two methods I can find a middle ground?

Steven-

What I gave you was as rough an estimate on a couple ball park figures as you can get. Total CAP rate on the POH income is one way, CAP on the pad return is another and then of course just buying the trailers and rolling on from there. There are dozens of due diligences that have to be looked at on getting to a real starting number. You know this but how you negotiate the deal is listening to your seller and seeing where you can take the price. How are utilities delivered and who pays for what? What is the condition of the home and trailers? Do they look good but need new roofs, have soft subfloors and ancient water heaters?

One of the things to remember in owning mobile home parks is you are not only building a business to draw profits from on a monthly basis but you are also building a business that you can sell for a profit down the road.  That house makes it a little more difficult to sell down the road.  Another reason to try to negotiate low with the seller.

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Quote from @Roger D Jones:
Quote from @Steven M.:

Thank you so much for all that information Roger!

With the CAP rate method are you saying I COULD expect to pay \$484,200 for the MHP? Or are you saying if you were calculating it this way , you would always place a offer on the pad portion only bringing that price down to \$281,250?

Also, I have all the info on the mobile homes Manufacturer, year, model numbers, beds, baths length, width as well as what was paid for each unit. I will try to find actual real-world values and maybe with the two methods I can find a middle ground?

Steven-

What I gave you was as rough an estimate on a couple ball park figures as you can get. Total CAP rate on the POH income is one way, CAP on the pad return is another and then of course just buying the trailers and rolling on from there. There are dozens of due diligences that have to be looked at on getting to a real starting number. You know this but how you negotiate the deal is listening to your seller and seeing where you can take the price. How are utilities delivered and who pays for what? What is the condition of the home and trailers? Do they look good but need new roofs, have soft subfloors and ancient water heaters?

One of the things to remember in owning mobile home parks is you are not only building a business to draw profits from on a monthly basis but you are also building a business that you can sell for a profit down the road.  That house makes it a little more difficult to sell down the road.  Another reason to try to negotiate low with the seller.

Got it!

With the information you provided and that of what was accumulated through google, it looks like there is no exact way to come up with a value.

Originally, I was using the 1% rule to try to come up with a number. In this case, I am at around \$550,000 for a value of MHP and Ranch Home. But I am unsure if the 1% rule is used in these situations.

She also stated she is going to have an appraiser she knows come look at the property to find out what it is worth which could be worrisome as I am sure they do not specialize in this type of property and could really throw a wrench into the works.

I know she didnt pay much for the trailers so this may be the best direction to go with finding the value.

All manufactured between 1988-1993

NO. 1 14'X72' 2 BED. 1 BATH \$8,250.

NO. 2 14'X75' 4 BED. 2 BATHS \$10,000

NO. 3 14'X70' 3 BED. 1 BATH \$10,000

NO. 4 14'X'80'  3 BED. 2 BATHS \$3,000

NO. 5 not sure

Looks like I have a bit more time to research as she called and postponed my wife and I going there to look at the property this weekend due to she may have covid..

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@Steven M.  This is a complicated situation, but @Roger D Jones gave you some great insight and direction for your specific case. He seems to have a very good idea of the mobile home space. As a 27yr appraiser I'll add just a little more general clarification of the valuation consideration/s you have.

In appraisal, there are generally 3 approaches to value - sales comparison, income, & cost.
sales comparison approach is typically best and most reliable for residential real estate (4 units or less), income approach becomes more reliable for commercial properties (5+ or more residential units), and cost approach is better suited for newer builds, unique, and/or income producing properties. And many situations use a combination of the 3 approaches.

The single family house (sfr) is real estate, since it is (presumably) permanently attached to the land, etc. Assuming the MH's are not permanently attached on foundations, those are considered personal property, not real estate. But, they are income producing personal property because of the real estate and the rights that the real estate owner has.

So, as Roger said, you may be able to find relatively similar comparables (recent similar sales) to the Subject (sfr) and get an idea of that value. Then discounting that value by a certain amount or % probably makes sense, since a potential buyer may discount it due to the presence of the MHP (mobile home park). Local experienced realtors or experienced MHP owner/operators may have a better idea of what those discounts might be.

The MH values may be somewhat of a combination of cost and income. Cost would be the cost to replace those MH's minus depreciation (physical wear and tear). And there may be somewhat of a combination of site improvements included (sewer/septic, water service, etc, to the MH sites).

Then the income approach would be looking at the cap rates, as Roger mentioned. Refer back to Roger's post for the specifics.

You have quite a bit going on with this and some of these following considerations may help:

* How much would the vacant land cost
* How much would the sfr cost to replace minus depreciation
* How much would the land with only the sfr be valued by the market
* How much might a typical buyer discount the sfr + land, for the presence of the MH's.
* What is the value of the "right" to have these income producing MH's on the land.
* What is the typical cap rate (expected returns) on a MHP in the area
* What cap rate/returns are YOU wanting
* Obtain a copy of the past 2-3 years financials from the owner, to get an idea of actual income/expenses.
* Verify the "legal non-conforming" status of the MH's. From what you say is that they are not legal to be there based on today's zoning (non-conforming), but they are legal based on when they were installed (legal). Also double/triple verify the conditions in which they can or cannot be replaced - in case of fire, destruction, etc. In some municipalities, you can't rebuild a non-conforming improvement if more than 50% has been destroyed.

All of this should go into your consideration of how much it is worth to the market and to you. And most importantly is what YOU want out of this deal! Valuation only makes sense with respect to what you are willing and able to do to get this deal. There's no easy answer to this valuation problem, but it sounds like an interesting opportunity.

Oh, and as I think about it, this may be perfect for an owner carry situation. Maybe she wants the income as a monthly check as opposed to a windfall sale with potentially higher tax consequences, etc. From what you say, she doesn't want the hassle any more, so take that knowledge and see if there is a mutually beneficial way to structure this deal.

Good luck!

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Steven M.
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Steven M.

@Steven M.  This is a complicated situation, but @Roger D Jones gave you some great insight and direction for your specific case. He seems to have a very good idea of the mobile home space. As a 27yr appraiser I'll add just a little more general clarification of the valuation consideration/s you have.

In appraisal, there are generally 3 approaches to value - sales comparison, income, & cost.
sales comparison approach is typically best and most reliable for residential real estate (4 units or less), income approach becomes more reliable for commercial properties (5+ or more residential units), and cost approach is better suited for newer builds, unique, and/or income producing properties. And many situations use a combination of the 3 approaches.

The single family house (sfr) is real estate, since it is (presumably) permanently attached to the land, etc. Assuming the MH's are not permanently attached on foundations, those are considered personal property, not real estate. But, they are income producing personal property because of the real estate and the rights that the real estate owner has.

So, as Roger said, you may be able to find relatively similar comparables (recent similar sales) to the Subject (sfr) and get an idea of that value. Then discounting that value by a certain amount or % probably makes sense, since a potential buyer may discount it due to the presence of the MHP (mobile home park). Local experienced realtors or experienced MHP owner/operators may have a better idea of what those discounts might be.

The MH values may be somewhat of a combination of cost and income. Cost would be the cost to replace those MH's minus depreciation (physical wear and tear). And there may be somewhat of a combination of site improvements included (sewer/septic, water service, etc, to the MH sites).

Then the income approach would be looking at the cap rates, as Roger mentioned. Refer back to Roger's post for the specifics.

You have quite a bit going on with this and some of these following considerations may help:

* How much would the vacant land cost
* How much would the sfr cost to replace minus depreciation
* How much would the land with only the sfr be valued by the market
* How much might a typical buyer discount the sfr + land, for the presence of the MH's.
* What is the value of the "right" to have these income producing MH's on the land.
* What is the typical cap rate (expected returns) on a MHP in the area
* What cap rate/returns are YOU wanting
* Obtain a copy of the past 2-3 years financials from the owner, to get an idea of actual income/expenses.
* Verify the "legal non-conforming" status of the MH's. From what you say is that they are not legal to be there based on today's zoning (non-conforming), but they are legal based on when they were installed (legal). Also double/triple verify the conditions in which they can or cannot be replaced - in case of fire, destruction, etc. In some municipalities, you can't rebuild a non-conforming improvement if more than 50% has been destroyed.

All of this should go into your consideration of how much it is worth to the market and to you. And most importantly is what YOU want out of this deal! Valuation only makes sense with respect to what you are willing and able to do to get this deal. There's no easy answer to this valuation problem, but it sounds like an interesting opportunity.

Oh, and as I think about it, this may be perfect for an owner carry situation. Maybe she wants the income as a monthly check as opposed to a windfall sale with potentially higher tax consequences, etc. From what you say, she doesn't want the hassle any more, so take that knowledge and see if there is a mutually beneficial way to structure this deal.

Good luck!