How do you value a park — what income actually counts toward NOI?

Question

I’m a broker and buy-and-hold investor in Rochester, NY (small residential and multifamily), and I’m starting to look seriously at mobile home parks. I’m looking at a 35 pad park with a combination of TOH, POH, and LTO.

Before I get too far, I want to make sure I understand how experienced park owners and lenders actually value these deals.

My understanding so far is that value is driven mainly by lot rent, and that most banks underwrite NOI on lot rent only — park-owned home rent and lease-to-own / rent-to-own income gets excluded or heavily discounted. Is that right?

A few specific questions:

• Park-owned homes (POHs): Do you count POH rent in NOI at all when you value a park? Do you split it out, e.g. lot rent at one cap rate and the homes valued separately as depreciating assets?
• Lease-to-own / seller-financed home notes: How do you treat that income — as part of NOI, as a separate note portfolio, or ignore it for valuation?
• Lenders: In your experience, how do local banks, credit unions, and agency lenders handle POH and lease-to-own income? Is there a POH percentage where financing gets harder?
• Sellers: How often do you see sellers blending everything into one NOI number to justify a higher price, and how do you push back?

Park-owned homes (POHs): Do you count POH rent in NOI at all when you value a park? Do you split it out, e.g. lot rent at one cap rate and the homes valued separately as depreciating assets?

Lease-to-own / seller-financed home notes: How do you treat that income — as part of NOI, as a separate note portfolio, or ignore it for valuation?

Lenders: In your experience, how do local banks, credit unions, and agency lenders handle POH and lease-to-own income? Is there a POH percentage where financing gets harder?

Sellers: How often do you see sellers blending everything into one NOI number to justify a higher price, and how do you push back?

Appreciate any real-world experience, especially from anyone operating parks in the Northeast or Upstate NY.

Roger D Jones · Answer

@Joseph Thon I think the key is to actually ask yourself what kind of investor you want to be. Do you want to be a park owner or an investor? Is your park a business or an investment? As a park owner I have all three types- all TOH park, a blended TOH/POH and a LT RV park. All are successful but my blended TOH/POH park is far and away my most profitable park. We have quality POHs in a high demand rental area with an inhouse maintenance department team. It is a business and we take care of our assets. If you were to come to me and tell me you want to buy the park just on the pad NOI I would have to give you both middle fingers- no offense.

I can throw my 2 cents in on a few of your questions (1, 3 and 4)
1- I am pretty good at park valuations but we have also had our parks valued by outside park appraisers and large successful MHP realtors/brokers. They have always included our POH NOI in the CAP valuations. This whole 'pad rental only' valuation guideline is pushed a lot by PE investors over the last 20 years who didn't want the challenges of rental homes regardless of the income. They are investors- not business owners.

3- There is no question our LT RV park and all TOH park would sell almost immediately with traditional financing if we were to put on the market. Our aforementioned POH/TOH park may require more localized credit union financing but you will need to bring in all the numbers and valuations. Having a blend of POH/TOH helps the bank value the stability of the loan as an asset. At the end of the day we value our parks on what they are worth- not on whether a person can get financing.

4- We are honest in the valuations of our parks- in particular the maintenance expenses of our TOH/POH park. We take very good care of our POH homes (wife calls them baby chick eggs) therefore we value the park accordingly. The best way to push back on the NOI inclusion of the POH homes is to get deep into the weeds on their listed annual expenses and then inspect every inch of those homes. From the top of gable of the roof to the underbelly of the trailer. If what you see is incongruent with the expenses they have listed then you push back. They don't get to sell you the elevated NOI after sucking all the life out of the homes with delayed/deferred maintenance.

Here is a couple negotiating options you can use on those POHs.
Ask the seller if they want to keep ownership of the POHs as rentals while paying you for the space rent. That is always fun and a good 'tell'.
Tell the seller you are want to exclude the rental lift of the POHs but will buy the homes in their current condition for what you feel is their fair market value as they sit.

Shuff Mauldin · Answer

@Joseph Thon I’m working through a smaller park acquisition right now, and these are exactly the questions I’m asking. My preference is tenant-owned homes, so I look at the lot-rent business first and value the homes and any notes separately.

POHs: If someone pays $800 and comparable lot rent is $350, I’d separate the $350 lot portion from the $450 home portion. Then I’d subtract realistic park operating expenses to arrive at the lot-rent NOI. That extra $450 has value, but it also comes with home repairs, turnover, and eventual replacement. I wouldn’t capitalize it at the same rate as lot income. I’d value the homes separately based on condition, titles, and realistic resale value.

LTO/notes: I’d want to read the actual agreements. A lease with an option to buy and a completed home sale with seller financing aren’t the same thing. For an actual note, I’d look at the remaining balance, payment history, term, and collectibility separately from park NOI. Those payments eventually end; hopefully the lot rent continues. I’d also make sure I wasn’t counting both the home’s full value and the note secured by it.

Lenders: I use a local bank, but I wouldn’t assume every lender will treat the income the same way. I’d send the lender the breakdown early and ask exactly what income and collateral they’ll recognize, along with any POH concentration limits.

Sellers: The biggest issue I’m running into is getting the revenue documented clearly enough to value anything. For every occupied pad, I want to know who owns the home, what the occupant owes, what that payment covers, what they actually pay, and whether they’re behind. Then I want the leases and collection records to support it.

I’m also separating what the park earns today from what I think I can make it earn. Selling homes, raising rents, or filling vacant pads takes money, time, and execution. I want the purchase price to leave me room for that work and risk.

The home income isn’t worthless. I just want to know exactly what I’m buying and avoid paying a lot-rent multiple for income that carries very different expenses and risks.

Joseph Thon · Answer

Thank you. That’s the honest feedback I’ve been looking for. I kind of felt that was how people viewed it after digging through financials for the past few weeks, acquainting myself with the valuation piece of the MHP puzzle.

I do intend to put forward LOIs on the parks I’m evaluating, and that advice confirms what my assumptions have been telling me. Very much appreciated

Joseph Thon · Answer

I’ve been using lot rent ONLY to determine cap rates and valuation because POH rent is not a given and fluctuates where lease to own contracts end and so does that income stream. I’ve submitted two LOI’s using that strategy and basically got the middle finger.

I acknowledge the fact I have limited experience in the mobile home park arena, but some guidance here would be appreciated

How do you value a park — what income actually counts toward NOI?

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