Is my valuation accurate? Please help!

[Adam Philpot]

Evening BP’ers, I’m currently trying to put a fair offer together on a MHP outside Huntsville and hoping those that are in this space can help validate my numbers. Any feedback is much appreciated because I keep losing deals. I’m not sure if my numbers are too tight or everyone else is overspending. Here it goes: 1.) i valued the business at 3x EBITDA (gross revenue - expenses) using their last year tax return. I thought this was reasonable because it hasn’t been ran well and any small business I buy I will give a 3-5x multi on EBITDA. It’s 33 pads but based on the numbers I saw it looked like they’re only collecting on 26 so there is upside if I come in and run it right. The cash flow would be better at full occupancy, but My thought is why should I pay them today for what I have to achieve tomorrow. Value of the business: $103,000 2.) value of assets - I generously priced the land 50k above last years appraisal value. The area is hot right now so I ran it against comparable land for sale in the area. It got me to 10k/acre for 18 acres -$180,000 Infrastructure- roads, water and electrical (MHP established 2006). Last years improved value of the land at appraisal was 50k so I used that number Asset value: $230,000 Overall offer price: $330,000 Please let me know what you think of my numbers. I hate to lose this park because there are nice subdivisions being built only a few miles away.

[Sam Hales]

Hi Adam. I have experience in both real estate (running PE funds for the past 10 years) and have been an angel investor in multiple tech companies here in California. The EBITDA multiples you are talking about are more applicable to service related businesses without many "real" assets. Real Estate generally trades at a CAP Rate (NOI/PurchasePrice). We own a couple of MHPs in Phenix City, AL and have looked at Alabama generally. I would expect a small park like you are describing to trade for something in the 8-10% CAP rate range. Interestingly, a 10 CAP on what you describe is almost identical value: about $340k ($103k business valuation / 3 = $34k in NOI). However, I would need to look at the expenses to see if that valuation is correct. I typically evaluate the expense ratios under current operation to what we achieve (30-40% expense ratio range). You are correct, you don't want to pay for upside (that's why you are buying it). Also, the valuation can shift based on other factors such as: 1) private vs public utilities 2) location [all sorts of factors here such as median home prices, population, job market, potential for redevelopment, etc] 3) size [larger parks provide better management scale and thus usually trade for a lower CAP]. It would be interesting if you can share the financial information you have received and we can start a dialogue on the forum for analyzing it. Good luck!