How do I know if this is a good deal?

[Andy Traum]

I am looking at a mobile home park in CT with the following details:

- 18 spaces fully rented for $455 / month (received as an HOA - owner does not own the mobile homes but rents the spaces and includes utilities as part of the $455 fee)

- Separate unit on the property:

- 3 offices rent for $400 each / month (currently rented)

- 1 apt bedroom for $800 / month (currently rented)

- A storgage shed that gets $1400 a year

Total Annual Income = $122,400

Total Annual Expenses = $92,701

They are asking $1.2M for this property, and I am new to this type of investment. My questions are:

1) Is their a good formula to understand what a fair price is for this property?

2) What are the other factors I should be researching to understand if this is an overall good deal? 

Thanks in advance for any thoughts. I like how this appears to be cash flow positive but do not want to seriously consider a property without doing all the proper research.

[Curt Smith]

Value for a MHP is NOI / 0.1 (10% cap rate) for a well run park. Higher cap rate for private utilities, risk, crapy old homes etc.

This park: 122-92 = 30k NOI /0.1 = $300k value. Yes this park is only worth $300k.

Something is up with $92k expenses. You'll have to get the financials. Some old park owners pile expenses from other businesses to reduce NOI to reduce income which reduces taxes.

You need to buy the 30 day due dilligence kit from Frank and Dave at mobilehomeuniversity.com.

The sellers (and or broker) are idiots taking raw income dividing by 0.1 (10 cap) to arrive at asking price!!!    Send in a written offer with a cover letter of how you arrived at your price.  Call back every 90 days.  These guys will be slow learners.

[Jim Johnson]

yikes- that expense number looks very, very high. I did some DD on a park many years ago where the owner was writing off his airplane... If that is a real number, the park has a serious, serious problem. ** I wonder if the owners is paying himself out of the gross, and you will not see it until you get the income and expense sheet... 

[Thomas Eigner]

You will have to look at their P&Ls. I imagine they are adding mortgage payments as an expense. Definitely buy the 30 day due diligent book from Dave and Frank. In the book they have a whole list of items to ask for from the seller to better help you value the deal. Along with a check list and a timeline for the process. I've found it very resourceful.

[Andy Traum]

Guys, thanks for the responses. My apologies but their is a serious typo in my initial post and I am unable to figure out how to edit my original post. The expenses are $29,701 (not 92,701). The expense includes taxes ($12K), sewage, water, and other various maintenance items. Updated thoughts?

[Rachel H.]

Beyond the numbers, you need to look at the neighborhood and the types of people living there. Are you comfortable working in this neighborhood with this type of clientele? Also, you'll have to look at the area on a macro level. Is the area growing? Are people moving in and out? How is employment? 

When investing, it's not just about the numbers. But the community and if there's growth. This will play a factor in your long-term success. Best of luck!