Valuation of a MHP?

[Kate Miller]

I have been Offered the opportunity to buy a MHP. How do I determine if the asking price is too high? The city tax data has the property appraised at $220k. None of the MH's are owned by the seller. They just collect lot rent. There are only 8 units with no opportunity to add anymore. The lot rents are $400. There is also a small SFH that is included in the deal and is part of the $220 k appraisal. The SFH is a rental unit as well and collects $800. Is there a formula to use for this? This is more complicated than just a SFH or just a MHP. Two of the MH owners are currently over 6 months past due on rent. Thanks!

[Curt Smith]

Yes in general commercial property has developed simple cap rate based formulas for each property type.  For MHP park with city untilities (I'll assume city sewer and water directly billed to the renter)

# of units x monthly rent price x 12 x 0.7 (30% expense ratio) / 0.11  (11% cap rate for an offer, then settle on 10% cap rate).

So for your situation:

10 (the SFR counts as 2 units) x $400 x 12 x 0.7 / 0.11 = $305k offer price. Settle for $336k

30% expense ratio is an accepted ratio for occupant owned homes (just lot rent).  If park owned homes expense ratio goes up to 50%.  If park owned wells and or septic, higher then 30% expense ratio for occupant owned...  The devil is in the expense ratio and the park details re utilities and park owned vs occupant owned.

If the seller will agree to $220k that seems like a good price.

Unless this is in FL or some high lot rent place I doubt $400/mo is just lot rent.  A risk is that it's home rent and the homes are really park owned.  Then expense ratio jumps to 50%.