How much is this PA park worth?

Question

I'm a novice to MHP. Looking at a park in PA.  Based on the below limited information, what is it worth?

43 lot rentals- $150K Annual (~300 per lot)

20 park owned- $150K annual

$70K expenses

Water/Sewer Resident paid

Curious to get independent perspective and understanding of analysis.

Thanks

Account Closed · Answer

@Adam R.  I just assumed those were all the pads.  What may happen if your vacancy goes up, your expense ratio can go up .  Think fixed costs like plowing, roads, taxes don't have as much room to be spread around so might be a few expense percentage points higher. ( and you will always want to hammer down on actual numbers).

Typically on something like vacant pads, in a perfect world you give zero value.   You say potential so does that mean vacant pads where you have to plop down a home or develop infrastructure ( i.e. roads ,sewer, electric   )   .  Sometimes you have to assess value if you need to get the deal done.  Does the seller have an asking price?  Say if its 5k per pad and you know the demand is there and you will get a 30k equity gain upon filling, does it still work ?   I don't think this is cut and dry but i typically try and see what might need to be done to occupy it, how strong the market is and what do you have to do to get a deal done because you don't want to pass an opportunity for paying a little on the upside but also don't want to overpay on something that has some question marks on it as well ( plus this is work you have to do which it would be good to be compensated for )

Account Closed · Answer

@Adam R.  On the basic Frank and Dave Formula

You take the 43 lots and then 20 lots for 63 lots.  Then the lot rent of 300 per month is a rent roll of 18,900 annualized is 226,800.  Then the expense ratio rule of thumb (since you indicated tenants pay their own water ) is 30% ( if the park paid it, would be 40% rule of thumb) .

Your Net Operating Income , theoretically, should be $158,760.  Depending on what your market cap rate is , lets say 8.5% ( some parks trade at this today, some higher , some lower) gives the park a market value of $1,867,764.

Now , you will have to add value for the homes , so this will depend on age/condition etc but lets say 20k per home  so 200k on top of the park value will make the "package" be 2,067,764.In this example rule of thumb, looks like actual expenses are close to rule of thumb ( now you are going to want to make sure that you have all expense factored in such as mgmt fee 5% , plowing etc).

Lastly, you may need to make adjustments, say the lot rent is 100 dollars low and they want a premium for the park .  You might have to pay a little more knowing that you have upside ( but take  caution especially as a novice to ensure you are making an overvaluation mistake) .   Additionally say the roads are shot and will need replacing, you may have to make an adjustment on that.

Thats the basics of how to look at something like this.

Adam R. · Answer

thanks. $2M offer rejected.

Rachel H. · Answer

@Adam R. Try to get real numbers including what was reported to the IRS. If you can get invoices of all work done to the park over the past few years, that would help too. Talk to the contractors who worked in the park. They'll give you a better idea about infrastructure and what type of work will be needed in the future. Good luck!