Thoughts on what this park is worth? i need to make an offer

[Travis Elliott]

So i posted this in a deal analysis forum and got one reply. Thought I would post it here for MHP knowledgeable men and women. 

Hi alll!!

I could use a little help with putting together a deal on a MHP.

I dont have all of the numbers but here is what I do have,

18 pad sites

16 mobiles are owned by the park. They are older homes ranging from 1972 to 1978

Currently the park brings in $5890.00 a month gross.

Water, sewer and garbage is $ 80.00 per unit per month or $ 1440.00 total per mo.

taxes per month are $ 641.00 or per year they are $7700.00 

If i were to only figure in pad rent it would be $250.00 per spot 250.00 x 16 = 4000.00 a mo

Payment= ???

So that is the info that I have right now.

Can you guys give me some kind of idea what this place is worth?

Any info is appreciated.

Thank you

Travis

[Account Closed]

Don't make the mistake of overpaying for this because you are self-managing.   Self-managing is not the norm so you should at least pay yourself a management fee in addition to your return.  Here's are some other numbers you can plug in:

1. Insurance: Liability (If you plan on financing this and I hope you do, you will have to have it) $750-$1,000; 

2. Park owned homes will be .75% - 1% of your insurable value.  In this case, the amount required to bring another home in.  You can buy, move/set-up/renovate a home for $10,000 if you know what you're doing and if you are ok with mid-late 80's model homes.  $1,200-$1,600.  This won't go on your P&L because you are valuing the homes at a wholesale value.

3.  Speaking of wholesale value, the homes are probably worth no more than $2,000 a piece.  Most of these homes can be sold for around twice that for cash but it will likely take you 2-3 years to sell off 16 to residents who are worth selling to.  Most of your current residents won't be buyers.

4.  You may manage this yourself but that is not the norm.  For a park like this, your management compensation package should be around $400-$500 per month.  $250 for in free lot rent and $150-$250 in either free home rent or salary.  This won't buy you much but that's the industry norm on a park this size.  Your next buyer and your bank will use a number very close to this so you better put it in or else you've overpaid.

5.  Dirt roads require maintenance.  In addition, banks and future buyers are not fond of them.  Even if you can keep the cost of having them down, you still have the added headache of having less financing options and a reduced number of future buyers when you exit.  

6. Travel: Imagine you are self managing and imagine you have tenants who aren't trained to pay on time. Also imagine that you are in court every month for the next year after you buy this park. That will soon be your reality. I would again, re-think self-managing. Some states require an attorney to represent you in court if you own in an LLC. If this is the case, then you will need to make changes to my P&L below.

The annualized land-lease component P&L will likely look like this:

Revenue
Lot rent: $48,000
-Less Vac Loss: $2,640 (5%, you may be more like 10% in yr 1 considering the current owner probably doesn't have a screening process)
Total: $45,360

Expenses
Water/sewer/trash: $17,280
Insurance: $1,000
Taxes: $7,692 (this is an insane number for a park this size.  Make sure this is RE taxes and not personal property.  Your taxes on homes should not be included on this eval because they belong to the wholesale value of the inventory)
Management: $4,800
R&M on infrastructure: $2,700
Lawn/Snow: $1,200 (hard to estimate when I haven't seen it or know where it is)
Legal/Accounting: $1,000 (see number 6)
Travel: ? (you'll be there about 4-6 times next year even if you hire a manager)
Advertising: $500 (don't just rely on Craigslist)
Electricity: $900 (don't include electricity for homes here, this is street lights)
General Admin: $250
Reserves: $1,800 (there are people on these forums who will tell you that you don't put this above the line.  My mortgage broker says you do.  I trust my mortgage broker over some guy on bigger pockets)
Total: $39,122

NOI: $6,238

On a 10CAP, you would pay $62,380 and maybe give a total inventory value to the homes of $32,000, for a total of $94,380.  Changing the taxes above will make this offer amount much higher if those include the home taxes.

Your upside is in recapturing a portion of the water/sewer/trash. The best you can hope for is about 90% due to leaks and bad debt. So, $15,552 can be added to the NOI each year at a cost of around $4,000 for the meters and installation. If you bid it out really well, you can do it for $4,000 on 16 analog meters under the homes with digital displays on the side of the trailers. You may even DIY the labor since you plan on self managing. It doesn't take a rocket scientist to install a water meter.

I would find out what the RE taxes are on the park and fix my evaluation.  Then, I would take the $15,552 of upside and add it in to get an offer range.  For example, since installing meters is such easy upside, then you might say that the potential NOI is $21,790.  My criteria states that I want to be at better than a 13CAP after easy upside is achieved.  So, my max offer is $167,000 here plus the inventory of $32,000, minus the $4,000 to get it there, equaling roughly $195,000.  So, I'll start this seller out somewhere between $94,380 and $195,000.  Where I am willing to go on this range depends largely on leverage.  If the seller is holding the paper with really good terms, I'll usually be willing to go all the way up to $195,000.  If there is no financing (from seller or bank), I might not even be willing to do $94,380.  Your goal is to have something like this cash flowing better than 20% within three-four months and also have some equity.  If you self-manage, it should also pay you for your time above and beyond the return.