Mobile homes park investor start up

22 Replies

Trying to determine the best way to value a mobile home park. Cap rate or income? Or any other options. There was a great article in here a few years ago but was hoping to get prospective from someone doing it, today.

@Joshua McFarlin Hard to offer concrete suggestions without knowing your investment criteria, parameters and constraints. Sourcing quality deals seems to the biggest impediment that most investors are facing. There are deals out there... most suck (lol!). 

I'm sure @Bill F. and @Ryan Groene can chime in and offer more substantial insights.

@Joshua McFarlin From my perspective, and this is just one man's opinion, Cap rate and DCF both have their place to value MHPs. 

Usually Cap Rate gets me into the ball park and facilitates the decision to make an offer or not and at what price. Once DD has stared and I can flesh out the operational details like what will CapEx look like month 15 when I have to replace XXXX and this county adjusts taxes biennially so in month 21 I can expect a 10% increase. Once you have that level of detail a DCF makes sense, but you only get that once you are in DD.

Like @Omar Khan said, valuation isn't the hard stuff. Sourcing deals and the ability to run a park are what hold most investors up in this niche.

Check out the Mobile Home Forum here on BP and the forums over at Mobile Home University to start learning about the unique parts MHPs.

Fees standards to do quick evaluations. Read thru the links that  @John Jacobus  posted. The book that was mentioned is good resource. 

Cap rate is based on the net operating income of the property. Like @Omar Khan suggested, finding quality deals is a little harder right now in the cycle. 

Quick evaluations are as follows, lot rent x number of occupied lots x 30 or 40% expense ratio(depends on who pays utilities) x 12(to annualized)=net operating income (NOIthen you apply an appropriate cap rate. Industry standard is 9-11%. divide the NOI by your cap rate. Do it in decimal form(I.e. 10% is .10).

These rules only apply for parks that aren’t in California or Florida, below 25 spaces and/or that have lot rent below 175 dollars. 

Keep in mind every park is different, what your financing source is is important, what kind of capital your bringing to the deal, timeline of investment, and what overall exit plan of the park is for you as an investor based on your goals. 

Thank you everyone. I live in Georgia and have found a few off market parks and some on market that are appealing. The cash flow seems to be wonderful but i am concerned that i am missing something as the on market park is still for sale. Bekow is the link: This park needs some rehab and is missing since homes. I had also found an off market park for 650k, 47 occupied homes with average rent at 265. Homes are in average condition. This still may not be enough information but would post it. Thanks everyone
@Ryan Groene So to follow the quick formula. The stats below are an actual off market park. 47 occupied lots. Total monthly gross income is 12,500. At 40% expense, i am left with 7,500x12 is 90,000. With a 9% cap rate, this is a 1,000,000 park? Did I did that correctly?. They want 650,000 as first offer, i bet i could get it lower.
@Seth Parmelee without doing a full due diligence, i believe that was a mixed bag of tenant and park owned homes. My guess is that this is mostly park owned homes. That would change my NOI drastically, i would assume. If a 10 cap, my expenses are 56% not 40 to get to a purchase price of 650,000.
@Joshua McFarlin poh are a mixed bag. You will have higher income but you will also have higher expenses. When determining value you really want to just take lot rentals. If purchasing you need to figure out a way to dump ownership of the park owned homes. Either see if seller will finance them to a separate entity or see if tenants will buy.
@Seth Parmelee can you help me with something. I didn't understand why the value of the park goes up when i lower the cap rate. Shouldn't it be that inverse. The example above, a 9 cap have us a 1,000,000 value but a 7 cap gave me a 1.28 million. If cap rate reflects health of the park to some degree, then shouldn't the price go down? This is where my lack of understanding is most pronounced. Ghana

No it is right. You gotta remember that the cap rate is a ratio between purchase price and NOI. So you change one of the numbers and something else has to change. The higher the cap rate the closer the NOI and purchase price will be. So when you went from a 9 cap to a 7 cap that distance grew.

@Ryan Groene why did you say above that those valuation metrics do not apply to parks in FL?

I am considering buying a park in Southwest FL. Any advice regarding what I should look for or consider out of the ordinary would be much appreciated. One obvious concern of mine is hurricanes, and I’m not sure if I should avoid MHPs in FL for this reason alone.