I am looking at picking up a MHP in the near future. As I look at the numbers one the questions I have is around what goes into the revenue/sales/rent line in respect to calculating price based on the 2% or 50% rule.
The seller I am looking to buy from has multiple line items aside from rent from MHs. He also has late fees, utilities, legal fees, application fees, and mail charges.
While I agree with the planned income of rent, should I be including utilities income in there as it is truly being collected to be passed forward for expenses incurred on behalf of the renters? At least it doesn't make sense for the 2% rule if I am working backwards to calculate the price.
Also do all the other windfall incomes of application fees, and others listed above make sense to part of the calculations?
Any thoughts and advise would be appreciated!
I'm looking for MHPs to buy in GA.
The experts at mobilehomeuniversity.com forum use 40% expense ratio for a 100% lot rent park. I'd ignore all other sources of income other than lot rent use 70% as the NOI and divide by 0.12 for 12% cap rate and that's the offer price.
An all city utilities park should easily run less expenses than 40% so you'd get the park at a good deal if you pay close to this price. Add expenses for septic per pad etc etc and you'll run up to 40% or maybe higher if you have to pump / repair a bunch of the septic fields in a year.
So the only number you use to CAP the property is the space rent. The rest of the income is counted, but not capped. The utilities is an offset to expenses- or you hope that is all it is. I have looked at parks where where an owner was charging like $30 / month for gas charges, and the actual cost per unit was only $10. That- is a huge problem for lots of reasons. So your best off using an APOD / Cash on Cash / and IRR spreadsheet to calculate the return if you can not do it shorthand. If I am putting together a report for use in my internal meetings, or to present a property to a person that wants to partner with me, I use the program at rentalsoftware dot com. It is easy to use, and you can just crunch numbers or doll it up with photos, maps etc...
Expense ratios will vary depending on the size of the property, location and infrastructure. You can be anywhere between 25% for a really, really easy property, to 60% for a complex property that has no utility bill backs and private utilities. And that is if they are well run. I find parks all the time that operate between 70 and 100% income - expense. They need lots of expertise and/or cash to turn around.
Jim Johnson, MHP Holdings, LLC | http://www.mobilehomeparkbuyers.com
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