How are you valuing MHCs with a big number of POHs

2 Replies

I’ve come across a few MHCs with a good number of POHs in them. The problem comes that the seller is CAPing the POH rent which can be pretty substantial. 

Example Property:

Physical Occupancy: 60%

Economic Occupancy: 100%

TOHs: 70

POHs: 30 (mid-late 2000s models)

GI Lot Rent: $360k

GI POH Rent: $162k

Public S/W

Exp Ratio: 40%

How are you approaching these properties in today’s environment when it comes to valuation? 

If you don’t include POH rent in valuation, how do you present/discuss this with the seller?

I breakout two values, the lot rent with applied cap rate and then a value on the POH’s based on age, condition, etc. Usually, the two figures together result in a realistic price. If you approach the owner with The NADA value, perhaps they will see it your way. Of course, if the two numbers are close to their asking price, you don’t have to delve into how you derived your number. Good luck!

@Jon Dorsey The 'environment' does not change business fundamentals.

Parks with POH are two separate business: one is the MHP, which generates revenue and expenses from the operation of the park; this has its own value and risk profile. The other business is renting MHs, which has a separate income, expenses, value, and risk profile . You value the park using whatever method (Capr rate, DCF, IRR ect) you want and look up the appraised value of the MHs.

Figuring out intrinsic value is difficult enough without muddying your MHP valuation with rental income and expenses. 

Show your seller how you arrived at your valuation. If they agree, cool. If not, no big deal. Move on. Because someone else is willing to pay $25 for a $20 coin doesn't mean you should.