Mobile home park on septic and well, pros vs cons??

Question

I am looking at a MOP with ten park owned homes renting for 650$ and 4 rv hook ups. It’s gonna be around 400k. My question is that it is on a well and on septic. Does anyone have any Pros or cos on being on well/septic??

thanks in advance

Frank Rolfe · Answer

You're scaring me on much more than just the well and septic.

Mobile home park values should be based strictly on real property income. The formula on this deal would be #occupied lots x market lot rent (since you are renting the homes you can't use the home rent but have to comp the going lot rent, which is about $300 per month on average in the U.S.) x .5 (50% expense ratio on a deal this small, best case) x 12 = net income and then divide that number by .1 to get the value of a deal like this.

If I assume $300 per month lot rent and that you have 10 occupied mobile home lots, then the value is around $180,000 and not anywhere near the $400,000 you are talking about. I don't know if those 4 RV lots are occupied with long-term RVs or not, but you can't use the RV lots so they are much less valuable.

Then comes the well and septic issue. Personally we would never buy a park this small with private utilities, because the cost of fixing a well for 10 lots about the same as 100 and your numbers can't survive the stress.

Again, I've never seen this deal or location, and for all I know it's located next to the Empire State Building, but I'm just trying to keep you out of trouble.

Jordan Walker · Answer

Thanks for the great feedback!

John Teachout · Answer

I personally wouldn't be afraid of the well/septic but do agree it's overpriced based on its earning potential.