How do I determine the value of this Unique property??

Question

A customer of mine mentioned she is selling off all of her properties as she is 80 and looking to enjoy the rest of her life task free.

My wife and I are going  to look at one of those properties this week but don't know exactly how we should calculate the properties value as its unique to the area so there are no comps. My customer also has no idea what the value of said property is worth in todays market.

The property consists of approximately one acre of land located in Maine. It includes a 3-bedroom, 1-bathroom ranch house along with a private street hosting a small mobile home park with 5 units. From what I have been told, these Mobile homes are grandfathered in as they no longer allow these in this area. ( I have researched further and found that these mobile homes can all be replaced at anytime with ones of the same dimensions).

I'm hoping for some guidance and any suggestions/ help is greatly appreciated.

The specifics of the property are as follows:Land: 1 acre

Income Generating Units: (built around 1995 all in good shape)

Ranch House: Rental income of $1,200/month

Mobile Home 1: Maintenance personnel reside here rent-free (not generating rental income)

Mobile Home 2: Rental income of $980/month

Mobile Home 3: Rental income of $1,000/month

Mobile Home 4: Rental income of $1,200/month

Mobile Home 5: Rental income of $1,200/month

Financial Information:

Estimated Annual Taxes: Approximately $2,500

Roger D Jones · Answer

This is why MHPs with homes attached are so difficult to market. First thing you need to do is separate the two entities- the house and the park.

The house- Get the appraised value of the home which should be easy enough to do.  Then because it is next to and attached to a MHP deduct 15% +/- off the value of the home's appraised value.  15% may be too conservative as I have heard some say 25% or more.The Park- Two ways to play this.  CAP rate or wholesale value.  With CAP rate take the annual rental income (of all 5 homes) annualized with the home #1 at estimated $1000 per month gets you $64500 per year gross income.  Pull 40% off for estimated expenses leaves you at $38736 for an NOI and with a 8% CAP rate your at $484200 for a value of the MHP.   Most large PE MHP investors will tell you to only offer on the pad rental portion of the income which assuming $500 each, 25% expenses and an 8% CAP your at $281250.

The other way is to offer her the wholesale value of the five mobile homes. You may be able to get NADA valuations on them or just do craiglist research. Remember though your not paying retail price... buying all five at one price should be more of a wholesale price.

Left the maintenance person with free rent out of the calculations... that is for you to decide after you buy the park. I am assuming you would be paying for materials and replacement appliances, etc... so $1000 per month for labor to take care of 5 mobile homes should be seriously looked at down the road.

Roger D Jones · Answer

Steven-

What I gave you was as rough an estimate on a couple ball park figures as you can get.  Total CAP rate on the POH income is one way, CAP on the pad return is another and then of course just buying the trailers and rolling on from there.  There are dozens of due diligences that have to be looked at on getting to a real starting number.  You know this but how you negotiate the deal is listening to your seller and seeing where you can take the price.  How are utilities delivered and who pays for what? What is the condition of the home and trailers?  Do they look good but need new roofs, have soft subfloors and ancient water heaters?  One of the things to remember in owning mobile home parks is you are not only building a business to draw profits from on a monthly basis but you are also building a business that you can sell for a profit down the road.  That house makes it a little more difficult to sell down the road.  Another reason to try to negotiate low with the seller.

Steven M. · Answer

Thank you Rachel

Every time I've mentioned seller financing she cuts me off and says she's too old for that .lol

Will Stewart · Answer

Use a local bank or credit union for financing. Bar Harbor Bank is that has lended on parks for me. Call around you’ll find one that will lend 80% for 25 years. Don’t expect to sell off the home you’ll likely need to rent it.

Rachel H. · Answer

@Steven M. Most investors I know who buy mobile home parks usually obtain lending through private lenders and/or partnerships. I've known some to buy on hard money and then refinance later as well.

Another option would be owner financing, if the seller is open to it. Hope that helps!

Roger D Jones · Answer

@Steven M.  Good work... you seem to be handling this like a pro.

Brad S. · Answer

@Steven M.  This is a complicated situation, but @Roger D Jones gave you some great insight and direction for your specific case. He seems to have a very good idea of the mobile home space. As a 27yr appraiser I'll add just a little more general clarification of the valuation consideration/s you have.

In appraisal, there are generally 3 approaches to value - sales comparison, income, & cost.sales comparison approach is typically best and most reliable for residential real estate (4 units or less), income approach becomes more reliable for commercial properties (5+ or more residential units), and cost approach is better suited for newer builds, unique, and/or income producing properties. And many situations use a combination of the 3 approaches.

The single family house (sfr) is real estate, since it is (presumably) permanently attached to the land, etc. Assuming the MH's are not permanently attached on foundations, those are considered personal property, not real estate. But, they are income producing personal property because of the real estate and the rights that the real estate owner has.

So, as Roger said, you may be able to find relatively similar comparables (recent similar sales) to the Subject (sfr) and get an idea of that value. Then discounting that value by a certain amount or % probably makes sense, since a potential buyer may discount it due to the presence of the MHP (mobile home park). Local experienced realtors or experienced MHP owner/operators may have a better idea of what those discounts might be.

The MH values may be somewhat of a combination of cost and income. Cost would be the cost to replace those MH's minus depreciation (physical wear and tear). And there may be somewhat of a combination of site improvements included (sewer/septic, water service, etc, to the MH sites).

Then the income approach would be looking at the cap rates, as Roger mentioned. Refer back to Roger's post for the specifics.

You have quite a bit going on with this and some of these following considerations may help:

* How much would the vacant land cost* How much would the sfr cost to replace minus depreciation* How much would the land with only the sfr be valued by the market* How much might a typical buyer discount the sfr + land, for the presence of the MH's. * What is the value of the "right" to have these income producing MH's on the land. * What is the typical cap rate (expected returns) on a MHP in the area* What cap rate/returns are YOU wanting* Obtain a copy of the past 2-3 years financials from the owner, to get an idea of actual income/expenses.* Verify the "legal non-conforming" status of the MH's. From what you say is that they are not legal to be there based on today's zoning (non-conforming), but they are legal based on when they were installed (legal). Also double/triple verify the conditions in which they can or cannot be replaced - in case of fire, destruction, etc. In some municipalities, you can't rebuild a non-conforming improvement if more than 50% has been destroyed.

All of this should go into your consideration of how much it is worth to the market and to you. And most importantly is what YOU want out of this deal! Valuation only makes sense with respect to what you are willing and able to do to get this deal. There's no easy answer to this valuation problem, but it sounds like an interesting opportunity.

Oh, and as I think about it, this may be perfect for an owner carry situation. Maybe she wants the income as a monthly check as opposed to a windfall sale with potentially higher tax consequences, etc. From what you say, she doesn't want the hassle any more, so take that knowledge and see if there is a mutually beneficial way to structure this deal.

Good luck!

Steven M. · Answer

Thanks so much Will!

Looking at reviews, it seems like a great bank. I even seen an article with Forbes stating they are on there 2024 list of  best in the world  😲

I sent them a email so hopefully they'll get back to me soon. If not I'll give them a call.

I don't plan on selling off the ranch. At this price I'm hoping to get financing for just the ranch and the five pads and leave the trailers out of the financing.

This leaves Open the opportunity to sell the trailers to the current residence along with responsibility for maintaining them and just overall leaves me a lot more freedom with more options imo.

Steven M. · Answer

Thank you Roger, God knows I'm doing my best. I appreciate that encouragement!

Steven M. · Answer

Just wanted to give a little update on this.

My wife and I finally made it up to see the property a couple of weeks ago after the seller had to cancel due to being sick. Everything we looked at was as expected in overall good shape. We only got to go inside the ranch house and the 3 bed 2 bath mobile home as the others were occupied. I have since been keeping in contact without pushing her and making her feel pressured.

I spoke with the seller again today to try to get the ball rolling and she mentioned her daughter is a realtorand she had her ask a friend that deals in larger MHP whom said the property is worth over $300,000 but stated that because of the size and lack of comps its hard to give an exact amount.

I asked her if $300,000 was what she was looking to get for the property and she said she was thinking more like $250,000 as she owns it out right and would rather see someone else benefit from it like her and her husband did.

A similar ranch home not even a 15 min walk is under contract for $280,000 currently. It has 1 less bedroom and no 2 car garage but 4 acers more land and obviously no MHP.

This seems like it could potentially be a great deal but Just wanted to get some feed back on this from you folks here…

Also, I know  fannie mae or freddie mac have lending on Manufactured Housing Communities. Does any one know if they would lend on something like this?

How do I determine the value of this Unique property??

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