I wold love some feedback valuation on a small park i am considering;
9 spaces on 4.25 acres outside city limits,
3 tenant owned homes with lot rent @ $160(below current market of $250)
3 park owned singlewide homes @$500
1 park owned [email protected] $650
2 park owned singles that are vacant and terrible condition
Monthly gross is $2630 currently
Tenants pay water via seperate meters and on septic
Is there a standardized expense ratio for the lot only rents?
hi Will, I am just a beginner myself, but I am also currently looking into a MHP.
I am sure others are better with the financials then I am...
I would definitely be concerned with the septic, make sure you get records, including installation, maintenance, etc. Is the water city water? I would be very cautious of water treatment plants as it has to be tested very frequently, at least thats what I have found, plus the enormous expense if there is problems.
9 homes over 4 acres? how far is this from civilization? are you going to have trouble renting the lots? maybe try a test ad on craigslist.
@Will Grabert Without knowing more details about expenses, maintenance records, vacancy, ect.. you can't get to a specific number.
For parks with POH you really have two separate transition, the mobile home park and the Manufactured Homes themselves.
The Park: 7 of 9 lots occupied at $160 a month= Gross rents: $13,440
Since its on septic and has majority POHs we will bracket expenses between 45-55%, which gives us an NOI between $7,392 and $6,044. At a generic 10 Cap, the park is worth between $73,920-$60,440. At a 12 Cap you get $61,660-$50,366.
Taking high and low: $73,920-$50,366
5 Single Wides @ $5-7K and 1 Double at $7-10k= $32-45k
Depending on the conditions of the homes, the CapEx required, deferred maintenance, basically how much work you'll have to put into the park, will drive how much of a return you demand from the park in order to compensate you for your time.
IF you can raise the lot rents and fill those two vacant trailers you could get the park value up to around $110k. The question is how much cash and time will that take.
Thank you for the replies. So few post in this section, it makes me think i am doing the right thing, but,
This park has a claimed yearly gross of $31560 with 4 poh and 3 lot rents.
The lot rents are 18% of the gross, rent from poh's being the rest.
@Bill F. should i not even include the rent (beyond lot rent) in my gross and noi for valuation?
currently have this under contract for $216k.
I really like the location, surrounded by nice acreage homes, fairly close to amenities, and lot rents have not been raised in 10 years
@Will Grabert You should not include the rental portion of the POH (that is any income above the lot rent). I view a MHP with POH as two separate business, even if the owner does not. First they have the MHP, which rents out pads to people with MHs. Second, they own a bunch of rentals, which they have chosen to place in this particular park.
1. Generally speaking, including rental income leads you to over value the homes and pay to much for the park. Using your offer price and the number I came up with for the park at full occupancy ($110k) as an example, you would pay $102k for six trailers. now assuming the double wide is worth twice a single (for the sake of argument) The single wides are worth $14.5k and the double $29k. I haven't seen the MHs, but most I know that are selling for $14 are at last habitable. Also remember, that's assuming the park is full, which it isn't, so that lowers the value of the park and thus increase the amount you are paying for the MHs.
2. You capture the rental income when, or if, you buy the trailers. This is no different than a SFR. You have this rental, its in this condition, Comps tell me its worth this much. Easy day.
Thinking about it another way:
If I owned those rentals in this park, would you count my rental income as part of the park's profit? No way.
Now if you tell all of this to the seller he/she could say something like, "well the rents could be raised to $200, you can fix up the other two MHs", or a few other helpful ideas that will raise the NOI and thus the value of the park. My first question is, "if its so easy, why haven't you done it?"
There are two schools of thought on paying for the opportunity to add value to a park. First is: pay for what you have now and not the potential. That is valid business logic and you won't go wrong following it, but can lead you to sometimes pass on value add opportunities. Other time it can keep you from buying a loser. The other is to include potential future cash flows, which it seems like you have done with your offer price. With this method you'd included, for example, the rental increase or infilling the park, into your cash flows, BUT you have to use an increased Cap Rate to reward yourself for the time, capital, and skill you will use to do this. Instead of buying at a 10 cap you'd go to a 12 or 13. What you don't want to do is include potential and pay the same cap rate.
Also, you want to make sure that any improvement's adds more value than it costs to the park. Lets say you need to spend $30k to bring a new home (MH cost, moving cost, site prep, advertising, management time...) at $250 lot rent,a 45% expense ratio, and a 10 Cap, this will add $16,500 in value to the park and will take about 8 years for you to get paid back; even more if you paid for the potential to fill the lot in your purchase price. Not saying you shouldn't add a home in this case, but just make sure that doing so fits within your long term strategy for the park.
Wow, thank you very much for the advice!
Taking the rental income out certainly changes the dynamic of the deal!
I spoke to a dealer in maryville who told me they would gladly put new homes on the lots and sell them from there(no cost to me) so I would ultimately end up with lot rents only, which sounded like a good way to go but, what does the industry assign percent wise as expense on lot rent only?
This park was listed @$250k and when the seller bottomed out @$216k i thought I would tie it up and see if it was worth it.
The nice part is that each home is on a large lot with it's own septic system, but never has been pumped out since late 90's
@Will Grabert Expenses are park specific, though in general a park with septic will run between 35-50%. Though that number has a lot of variables in it, who cut the grass, fixes the road, plows the snow, maintains the septic and who will you do all of this when you buy it.
What is the expense ratio for this park? I'm going to make a guess that its low since the septic hasn't been pumped since the 90's and it sounds like the owner manages it. That is the issue with these small parks is that you almost have to do everything yourself since the cash flow can't support the even a part time manager.
That's good you've reached out to the MH deal, though I'd be curious about who finances his deals and what kind of loan requirements they have, since that guy will basically fill your park for you. Remember, he is incentive to sell a home and make a loan. He does not have any obligation to put the best possible person in your park.
How far are you into DD? Reviewing their books, Phase 1, survey...?
Just a couple days into my 45 day DD period, still waiting on seller info, titles, septic permits, lease agreements etc. Just got off the phone with the neighbor and found out there is a problem with the separately metered water and extremely low pressures due to it being on a hill and far removed from the city water tap at the street! This one is not looking great so far.
@Will Grabert good luck with DD and don't forget that Phase 1!!
The water pressure doesn't bode well, but I'm not a city water expert. I have no idea how or who would solve that.
@Bill F. I spoke to frank rolf yesterday and he got a good laugh out of the situation! I was way off by counting the rental income and need to renegotiate price or move on. Thank you again for your input.
Join the Largest Real Estate Investing Community
Basic membership is free, forever.