I'm looking at a deal right now that has two parts: a 5 plex & 6 plex next to each other, and a 27 lot MHP. Combined NOI is $87,000. The 5 & 6 Plex are pretty standard, all brick, and decent. The buildings are older (1970s) and could be rehabbed to raise rental value. I feel as though I can assess this part of the deal better than the MHP.
The MHP is more complex. The seller owns 19 of the mobile homes and 8 are owned by the residents. It is not on city sewer or water. It has a lagoon for solid waste and a well for water. Asking price is 1.2 million and seller financing could be a possibility. Lot rents are soft and could be bumped $25-$45 dollars in the next year or so.
How are MHPs appraised? How would a bank value it? NOI seems decent, but is asking price to high? What are the red flags I should look for with the MHP? Any thoughts or help would be appreciated! Thanks!
I'm new to this, but I believe bank's valuation of the property will be very dependent on their familiarity with MHPs and their comfort level with them. As I'm sure you know, there's virtually no value in the MHs themselves, but a good deal of value in the cash flow they can generate. Some banks will get this others won't. I would propose to lenders that you're planning to convert the park owned homes to owner occupied as quickly as you can via 3-5 year seller financing. Owner occupied MHs are more stable tenants of the MHP and more likely to help revenue be consistent. Some lenders will only consider lot rent in their valuations of non owner occupied MHPs.
Following this one. Hope you get some good replies.
I would move on. It appears the Cap rate is too low and the lagoon situation is very undesirable.