How would you valuate this park?

19 Replies

I’m looking into possibly purchasing a mobile home park about 4 hours away from my home town.. it’s in a great growing market. The owner is 84 years old and sounds very willing to give it up as his kids want nothing to do with the park. Here’s what I know:

40 lots

39 lots full (all Tenant owned newer homes)

200 lot rent that includes w/s/t

4 wells

4 septic tanks

Walmart about 5 miles away

Another park about 3 miles away has lot rents at 431 plus tenants pay for sewer and trash. That park is 100+ spaces and only 1 vacancy.

The park I’m looking at is sort of down a back road but not too far away from everything obviously.. scares me knowing the park has 4 wells and 4 septic tanks as I hear nothing but horror stories about private utilities however, if I get a sweet owner financing deal (which I think is possible) I can factor that into the purchase price and monthly expenses. The seller doesn’t seem to have much of an idea as to the monthly expenses at the park and his book keeping sounds like it’s all over the place.

Would greatly appreciate everyone’s thoughts and input!

@Cody Godfrey , sounds like a good opportunity. I recommend asking the seller what he believes the park is worth. That's your starting point. Every park owner has a # in his/her mind. No point in throwing out a # that insults him and stops the conversation right there.

Originally posted by @Cody Godfrey :

Private utilities just require more due diligence and knowledge. These days the best deals are going to have something that turns other would be investors away. I would not let that deter me from pursuing a park. A lagoon maybe, but not well and septic.

@C.K. Ebert I kind of asked him that before and he just said "well I never really thought about it I don't know how much I want" He said maybe somewhere around $500,000 but truly doesn't have much of an idea.. Thats why I feel like I might be able to get an awesome owner financing deal here.

@Cody Godfrey ,

Very rough back of the envelop math and I'd say $500k is probably very reasonable. Especially if there are opportunities for seller financing, raising lot rents, and/or reducing expenses (bill backs, etc.). Personally, I would be very interested in a deal like this. Definitely worth pursuing at this point. My experience is you are usually starting hundreds of thousands or millions of dollars apart, not in the ballpark.

@Cody Godfrey  

I'd value it off of risk adjust return, just like any other asset. Figure out what your free cash flow  will be for the next five-ten years and see if that meets your criteria. 

There are too many unknown variables to get a narrow valuation, but going off of a quick and rough cap rate calculation, the as is price falls between$300k-$700k. With lot rent at $400, the park is worth between $500k-$1.3m, so there is a good return potential.

Something seems off with the sewer situation though. I've look over a hundred parks with septic and never seen one with 10:1 septic. Granted this could just be my limited experience, but that is a lot of homes on one system. 

Your largest challenge will be ensuring that there are no hidden risks with the private utilities, now or in the future. 

Good Luck.

@Bill F. You bring up a good point and something I was puzzled on as well.. Upside is there but lots of variables and work to be done in due diligence I suppose. Appreciate your input.

@Cody Godfrey

I agree, there is upside, potentially lots of it. However, as with any park on private utilities, there is also the chance to lose all of your money. Not an asymmetric risk return situation for sure.

That dives up my return criteria a lot.

Hello. 

I think $500k is a great #. I would put under contract ASAP (nicely be upfront that ratio of septic tanks to lots seems low) and do DD and budget/get estimates for adding septic. If the cost are crazy you can go back to the seller. Quick math 39pads x 200 lr x 60= 468k. Bump the lr 50 a year 

Park value

Year 1. 540k  250 lot rent

Year 2 702k. 300 lr 

Year 3 819k  350 lr

Year 4 936k. 400lr

Fill the last lot 

Buy it!!!

@Chris Pellicone hey Chris thanks a lot for your input! I did quick math and was prepared to offer 470k but trying to come up with creative owner financing to sweeten the deal for me (would need owner financing to personally make this happen) any ideas??

Maybe offer 470 w bank financing if he's insisting on 500 bring up seller financing and tax savings for him when he gets hit with the sale vs him getting cash flow from holding the note. He's used to the cash flow as it is why not keep it going.

@Cody Godfrey That's a big part of it. Tax benefits by "staying the execution" so to say, over a longer period of time. Second benefit, more money for the park. For example - if you paid 20% up front he carried $400K, at 6% on a 20 yr amm maybe a 5-7 year balloon, in the first three years he'd make an additional $70K on the deal just in interest.

I'd ask him what his plans are for the money. What's he going to do with $500K right away. If he has no plans, then pursue this hard. If he takes it in installments he stretches out his exposure and makes a ton of extra money on the deal. Show him how much interest he'd make holding the note. The challenge at 84 is that he probably won't want a note for very long seeing as he may not be around to see it all. I believe there are ways he can set it up so that his heirs would benefit from it. 

Thanks matt for the info. I stepped to the side waiting for someone w better info than me. I know if he does the seller financing he avoids a large chunk of taxes at the sale and then he’s the bank. I’m pretty sure everyone would agree with me that the banks always win. A good position to be in. 

@Cody Godfrey Sounds like a promising opportunity. With private utilities, you'll just have to work that into your negotiation. Explain your taking the risk and try to see if you can get any concessions and/or lower the price or get a good deal on owner financing for taking the risk. See what the seller wants to do in terms of owner financing. Then negotiate from there. Good luck with the deal! 

One problem with a seller this old is that they may not be around long enough to collect all of the payments on a seller financed deal.  A 15 year term puts them at 100 yrs. old...