evaluate this deal on a mobile home park

5 Replies

The property is in north ga. 9 single wide mobile homes from 1980's to 1998. They are in decent condition. Each home is individually metered electric and water. Rent is $375 a month. The homes are park owned. I do not know the taxes or any other specifics. I am in the beginning of negotiations. The asking price is $135,000.00. Any opinions are greatly appreciated. Thanks.

In CT mobile homes that age are worth $10-12K and the value generally bottoms out around $8-9K. So that's only about $90K of value. The mobile home park model in CT is the homes are owned by the occupants and the occupants rent the lots. What kind of acreage are they on? Could you bring in more mobile homes? Could you make new lots and sell new mobile homes to fill them? You'll need to know what the other costs incurred by the park are (snow removal, sewage, trash, taxes, etc.). Without any more information it sounds like it's over priced and the rents are very low. I lived in GA for 3 years and I know it's a lot cheaper than CT, but here in CT the lot rent alone is around $425. What's your goal for the property?

Commercial properties are valued based on NOI and cap rate. Acres of land is ignored generally but some salvage value of MHs is included. $11k each is too high is my guess. I'd check in craigslist for similar aged single wides that need to be moved. The needs to be moved drops a MHs value significantly.

Formula for park owned homes:

(# homes) x (rent) x 12 x (0.5 which is 50% expense ratio) / 0.1 (10% cap rate) = $202k + salvage value of the homes, say $5k each = $247k

BTW for tenant owned homes use 30% expense ratio or 0.7

The rent sounds too low.  Even in the South home rent is $450-$550.  You quoted what sounds like "lot rent", meaning Tenant Owned Homes.

The #1 question for small parks with lots of park owned homes, is how will you manage the park?  Do you live 5 minutes away?  Will you live in the park?   Study the seller, how are they managing the park?  The probably live in a stick built a few minutes away.  Park owned MHs have some "drama" each month and not just at the 1st when rent is due.

Study the garbage that is put out.  How many monstrous bags of 18 oz beer cans?  Ask the seller about repairs?  Repairs to home walls, replacing entry doors etc.  Symptoms of stuff being kicked about.

But I hear tenants "up North" are a decent lot, nothing like down here in the South.  

Originally posted by @Curt Smith :

Commercial properties are valued based on NOI and cap rate. Acres of land is ignored generally but some salvage value of MHs is included. $11k each is too high is my guess. I'd check in craigslist for similar aged single wides that need to be moved. The needs to be moved drops a MHs value significantly.

Formula for park owned homes:

(# homes) x (rent) x 12 x (0.5 which is 50% expense ratio) / 0.1 (10% cap rate) = $202k + salvage value of the homes, say $5k each = $247k

BTW for tenant owned homes use 30% expense ratio or 0.7

The rent sounds too low.  Even in the South home rent is $450-$550.  You quoted what sounds like "lot rent", meaning Tenant Owned Homes.

The #1 question for small parks with lots of park owned homes, is how will you manage the park?  Do you live 5 minutes away?  Will you live in the park?   Study the seller, how are they managing the park?  The probably live in a stick built a few minutes away.  Park owned MHs have some "drama" each month and not just at the 1st when rent is due.

Study the garbage that is put out.  How many monstrous bags of 18 oz beer cans?  Ask the seller about repairs?  Repairs to home walls, replacing entry doors etc.  Symptoms of stuff being kicked about.

But I hear tenants "up North" are a decent lot, nothing like down here in the South.  

 Hi Curt. Thanks for the info. I ran the numbers. It came up to $202,500.00. So with that being said that would be the value of the park with the homes included? Thanks for your input!

Yes, for park owned homes parks, you include a nominal value for homes. In commercial you are buying NOI not the assets perse. Of course one takes into consideration defered CAPEX, how desirable the location and homes etc etc, just saying NOI is the main criteria for working up the value.

BUT I will add, that very small parks should NOT sell for 10% cap rate.   My offer would be 15% cap rate (divide by 0.15).

How are you going to manage this park?   50 pad parks are worth 10 cap, not 9 pad parks.  Just giving you help to negotiate.

DOH!!  ha ha his $135k IS 15% cap rate and no value for the homes.   Funny!!!   In the interests of negotiation, offer $125k,,, with 90% seller financing.   Small parks ALWAYS (or almost always) sell with seller financing because they are so hard to sell.  Poof: there you have a negotiation strategy.