OK - need the forum's advice on evaluating this current deal. 38 total pads, 31 of which are rented, 17 of which are park owned homes (so the mix is 14 pad only rentals and 17 park owned homes). The location is really good (within 10 miles of a city of 200k) and there are not other low income housing units within a 20 mile radius. The asking price is $500K, which seems high to me, but based on that price, I'm coming up with about a 13% cap rate. Lot rents are currently $135/month (which is way below market, market is around $200). POH rent for about $200/month. The POHs are older (about half are 15 years old and the other half are 20 years old). Park is on septic, and does not have water or any other utilities submetered. If I do my calc and take 31 pads @$135 and use a 60 multiplier, I get $251K value. Assuming this, that would mean that the POHs are going for about $14K each... Initially, I thought this price was way too high, but the market data is great, and if I could get rents to $200/month, it seems there is much upside. Can you guys help me with assigning the value to the park owned homes?
From what I've read and been told is that you value the POH on their blow away cost... 3-6k each depending on how well kept. I've seen some people value them at 1-2k and some add 8-10k each.
Watson, that's correct, and also you don't cap rate the home rent. Strip the cash flow to all lot rent. IE all 31 pads are paying lot rent. Then add in nominal price for the POHs say $3k each. Subtract off expenses to arrive at NOI. A cookie cutter formula is 30% expenses for an all lot rent park.
(#pads) x 12 x ($lot rent) x 0.7 = NOI / 0.1 (10 cap) = max offer price. You might offer at 11 cap or better.
This is very helpful guys. Thank you
Hold your horses here.... it looks like you are assigning the value of this park based on market rents where you are calling it a 13 cap.. On current rents, its grossly overpriced. Especially for a relatively smaller size park and on septic....
You say does not have water or other utilities sub metered. You need to clarify on that. Is the park paying water gas and electric???
Also, is the water well or city?
The best spot to start with older POH is..... ZERO. Its a headache and some might need a lot of $$ of fix up.
Sorry - should have been more clear about the utilities. Park does pay water and bills this out to tenants equally. Tenants pay eletric, cable, etc. Water is city water not well. They are on Septic. I know the park is a bit overpriced, but the area is fantastic, and the rents are drastically under market.
If I do a cap rate valuation for this park (using 10%) and assign $3K/home, I come up with $415K using lot rents only and using only the occupied lots (which is 31). The lot rent I'm using here is $140, which is where rents are currently. However, if I can get rents to even $175 or $185, I'd be looking at a respectable cash flow. My goal on the 17 POHs would be to see if I could sell back to tenants over a 3-4 year term. What do you guys think?
135x31*12 = 50 220 gross annual. *.7 = 35,154, theoretical 10 cap value of 351,154 value.
But .... being the lot rents are a bit on the lower side, park is smaller.. you might want to use a 60% valuation of NOI ( before you start to get the specific expenses) and with the septics , size of the park , i would use a high cap rate. Then I start getting closer to the 250k value based on my method.
The park owned homes are not real old homes so I guess thats good. IF they are in good shape, you might be inclined to give something for them... As you indicated, if market lot rents are 200 that is great but you want to make sure you are doing a lot of paying for potential. I would still offer much less than what you sound like you are wanting to do So if you are wanting to give around a few grand for each then you might start getting closer to 300 for the package if you really like it. Those are my thoughts.....
Thanks Jack - appreciate the insight.
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