How to valuate a mobile home park

Question

Andriy Boychuk · Answer

@Gulliver R. "the industry standard" is 10 CAP. However, I would recommend to use the rule of thumb formula # of lots x lot rent $ x 12 x 10 cap x (.6 if private utilities or .7 if public utilities .5 if park has less than 30 lots).  FYI, it is a rule of thumb only ;)

Tyson Cross · Answer

@Gulliver R. you do research in the market! No seriously, look at the most recent sales or talk with brokers in the market - that's probably the best way. Just call up a few brokers and get a sense of what prices are like, cap rates, rents etc. Good luck!

Tyson Cross · Answer

Guys, cap rates vary based on location. Having said that, mobile home parks tend to have some of the higher cap rates used for any asset class, primarily because of the stigma that is associated with them. Certainly not because of their ability to perform over time. And yes, parks in the markets I'm looking in, trade on a 10 cap often.As @Andriy Boychuk said, you basically value a mobile home park just like any other asset, only you focus solely on the lot rental income for the true value. Not saying that there isn't value in park-owned homes - there is. But when you're stating "market value" trust me, the best way to get market value is by determining how a bank will lend on it. Banks never look at park rental income with mobile home parks. Once you know that, you can start to identify value for parks a little easier.

So, @Gulliver R. to answer your initial question, you really need to look at the market you are focusing on. This applies to any and all real estate, generally speaking. All asset classes trade on cap rates primarily based on building type, vintage, condition and location. If you are looking in the Seattle area, for example, you might find that cap rates on parks are a bit lower than 10. In Portland, parks trade anywhere from a 6 to 8 cap based on the location of the park and the type of park that it is. I hope that helps.

Jason Yarusi · Answer

Hi @Andriy Boychuk so I am understanding you correct you are taking total lot rents and multiplying that by the cap and then by the perspective utility use to determine purchase price as a ballpark? If homes are owned by owner as well how do you weigh your rule of thumb?

Andriy Boychuk · Answer

@Adam Adams yes you are correct you just divide by cap rate. I am sorry, I just used to multiply by number 10 :) that's why I said "multiply"

Andriy Boychuk · Answer

@Adam Adams it all depends on the market as @Tyson Cross said. However, if we talk in general and we are talking not about hot markets like New York, California and Florida the Cap rate is 10

Andriy Boychuk · Answer

@Jason Yarusi total occupied and paying lots. We do not count the empty lots in the formula. If there are park owned mobile homes, you do two types of evaluation (the park evaluation and inventory evaluation).

Adam Adams · Answer

1) you actually DIVIDE by the cap rate not multiply. 2) it's Net operating income, not total rents.

example 100K Gross Rents

60K Net Operating Income

on a 10% cap = 600K

(60,000 / .10)

on a 9% cap = 666K

(60,000 / .09)

on an 11% cap = 545K

(60,000 / .11)

How to valuate a mobile home park

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