Small mobile home park valuation

[Monty McLamb]

I’m a beginning investor with 2 properties (1 duplex and 1 end unit of a triplex.) I own 2 rural acres on which my personal residence sits. Directly across the road from my property is an 8 unit mobile home park that has just gone up for sale. Only the lots are rented as residents own their own homes. Lot rent is $200 per month. There is only 6 homes currently which leaves room for 2 more. These lots are on a shared septic system and well. Owners are mid 60’s and I’m guessing they are looking to retire and cash in during a seller’s market. I just looked tonight and see that the 4.5 acres this park sits on is land locked. No direct access to the hwy, I’m not even certain what here is an easement. How would any of you pros begin estimating a value for this property? What approach should I use to express my interest in this. It is listed with a local agent but there are no signs on the property noting the sale. Side note: my sister owns the property adjoining this park and the highway. Asking price is $285,000

[Jack Martin]

@Monty McLamb there is a basic "back of the napkin" evaluation that will usually tell you if the deal is worth pursuing. Keep in mind there are a host of variables in mobile home parks, such as: number of POHs, number of vacant POHs, number of MH spaces, number of RV spaces, the park amenities, the age of the park, underground infrastructure age and condition, park location, size of the market, value of SFRs in the market, city water or well, city sewer or septic, other utility sources and whether or not they are direct billed, deferred maintenance, cost of management, etc. 

Since this is a small park some of these variables may not apply, but just keep in mind every park is unique and without understanding all the variables, it's possible to misinterpret the value. With that said, similar to other commercial real estate, the formula for value is the NOI divided by the market cap rate. On a park, you can calculate the NOI like this:

1 - multiply the number of spaces (occupied) by the lot rent, and then multiply by 12 months, to arrive at the gross rent. 

2 - subtract the expenses (can range from 35-50%, that % depending on the variables above). If you are not familiar, use 40-45% for your back of the napkin analysis. 

3 - once you have the NOI, divide the NOI by the market cap rate (in today's market conditions, the cap rate will likely land between 5% and 8%, depending on the quality of the park, the location, and the market you are in. So if you are in a 6% cap rate market, you would divide the NOI by .06 and that would give you the general value of the park.

This will simply give a general assessment of value that will tell you if you are wasting your time if a seller is too far apart, or give you a place to negotiate from if you are close.  

All the best, 

Jack