40 Unit MHP Valuation on 10 acres Vs Apartment Syndication Invest

5 Replies

I am trying to value this off market potential deal. Here are the specs:

  • -40 lots, I understand trailers are all owned by tenants
  • -$350 per lot
  • -10 acres
  • -most homes are newer and well kept
  • -outside city limits on well water
  • -large central sewer plant
  • -park is owner managed, his overhead is 25% but he is jack of all trades
  • -owner told me he had appraisal within last few years and value was $1.5 million then
  • -room for addition of at least 20 more lots

I have seen formulas online using a multipliers  of either 60 70. I am not sure which applies here? So I dont know what overhead would be if I owned it and I am paying someone to maintain and fix the things that he currently DIY's? Its not listed and I approached him.

Lets say 35% overhead? If my math is right, then this would be at a 7.25% cap, right? So my only value add component here would be to add more spots and fill them, right? If so, what is general cost of adding 15-20 spots?

So, I also invest in multifamily syndications. Typical conservative projections are 7-10% investor return on those plus and addition of potential refi cash down the road driving that higher.

In order to justify the extra work of dealing with sole park ownership vs passive investing I would have to have much better returns on buying a park vs putting that cash into multi passive investing. Also, I would expect that if the homes are not park owned, there is little depreciation on the park vs multifamily?

So, how hard is it to expand by 15-20 units and at what expense? Enough to drive cap rate into better returns?

Is it worth it?

Thanks

Tim

The multipliers of 60 is for private utilizes, like your deal. 

You’re looking at 40-55% expense ratio. 

OK, so 60*350*40= $840,000 valuation

At that value with 55% overhead, should yield a 9% return on investment? Am I missing anything? Would someone have really valued it at $1.5 million?

@Tim Rainey

Would personally pass due to the sewer plant and well water. You need to be getting a great price in order to take that on imo.

Regarding valuation, again for private utilities I would project closer to 45-50% to be conservative, but again the sewer plant and well water could be very expensive if you have to do any capex projects on them.

My concern with the sewer plant is that if it goes down its all homes that are down. dont know if it has an addvantage over separate septic tanks

@Tim Rainey

There is no direct way to compare passive syndication investing to an active property ownership. Keep in mind, that with the MHP purchase (or any property for that matter), your work as a property owner will not stop after the closing. As you already know, when you invest in syndications, once you evaluated the offering and invested in it, your job is done. This fact alone elevates your return to a higher level. What's different is the amount of time you put in and the pace at which you earn the returns as there's more or less a direct correlation between the two. 

Bottom line, it comes down to how active you want/can to be with your investments and what returns it will produce based on your time devoted to this business.

Here're a few articles on the topic for you:


https://www.biggerpockets.com/member-blogs/10850/84064-what-type-of-investor-to-be-when-i-grow-up-active-or-passiv

https://www.biggerpockets.com/member-blogs/10850/85836-should-i-buy-a-turn-key-property-or-invest-in-a-syndication

Create Lasting Wealth Through Real Estate

Join the millions of people achieving financial freedom through the power of real estate investing

Start here