Formulas for evaluating a MHP

[John Hixon]

Hello, I am trying to transfer over from owning SFR's to investing in MHP's. I have been reading on this forum and people mention different formulas for evaluating what a MHP is worth.

So, what are the formulas I should be using to run a quick eval of what a MHP is worth and if it is worth looking more into?

Thanks.

[Account Closed]

I can give you that and I understand where you are coming from. What I'm saying is that if you are in the MHP niche, more often than not, you are buying nothing more than the broken pieces of someone's horribly mismanaged property. There is a large brokerage firm and a few newsletters devoted to our industry that attempts to give some average purchase CAP rates. These typically fall between 6-9 depending on who is evaluating and which parts of the country they derived their data from. It'll also largely depend on who is doing the trading in the transaction. About 60-70% of our industry isn't consolidated yet so you can imagine how different this is from other multi-fam assets.

Most parks we look at are so broken that buying at even a 6CAP on current NOI would still represent a purchase price that is less than replacement cost. (Sometimes below the value of the raw land) In these situations where the problems are blatant and easily fixable, you need to dip a little into your upside to find some middle ground. That's been my experience. Trust me, I turned down enough deals and dropped enough in diligence last year to know that I didn't overpay for what I do own.

Some of the things I've personally come across to highlight how broken some of these properties are:

1. A 220 space park in Raleigh where the lot rent was about half the market lot rent. It was a REIT quality property.

2. A 150 space park in IN where the owner pays his two daughters a total salary of $120,000/yr to do what basically amounts to what we have one person doing in our 131 space park in NC for $25,000/yr

3. A 52 space park in VA that paid 3 employees an annual salary totaling $70,000. These employees did nothing more than mow and blow leaves around. We own this now and we fixed it by having the tenants all mow their own spaces.

4. A 240 space park in SC where the upkeep on the pool was nearly $80,000 per year.... Person who bought this one filled the pool in with concrete and cut that expense plus lowered the annual insurance. This was another REIT quality property.

The list can literally go on and on like this but hopefully you see where I'm coming from a little.