I'm confused on how to value a MHP

[Christopher Hall]

Most MHP I see for sale have 60, 70, 80% MHP owned homes. The sellers show the NOI for the lot rents + rents on the mobile homes, and then CAP that at 10-15% and put it up for sale.

Isn't the proper way to value these homes from a buyer's perspective is to take NOI from lot rents + current sellable value of park owned homes and then CAP that?

If that is the proper way to value MHP as a buyer, but the seller has a totally different way of valuing the MHP, aren't we starting the negotiation from two vastly different perspectives to begin with?

I would think within the MHP industry, there would be a standard way of valuing them so that the buyer and seller could negotiate from there.  

What am I missing?

[Ken Rishel]

Originally posted by @Christopher Hall:

Most MHP I see for sale have 60, 70, 80% MHP owned homes. The sellers show the NOI for the lot rents + rents on the mobile homes, and then CAP that at 10-15% and put it up for sale.

Isn't the proper way to value these homes from a buyer's perspective is to take NOI from lot rents + current sellable value of park owned homes and then CAP that?

If that is the proper way to value MHP as a buyer, but the seller has a totally different way of valuing the MHP, aren't we starting the negotiation from two vastly different perspectives to begin with?

I would think within the MHP industry, there would be a standard way of valuing them so that the buyer and seller could negotiate from there.  

What am I missing?

 You are dealing with two vastly different issues. 

First of all every experienced buyer of land lease communities has their own method of valuing a community up for sale, often based on their own experience. When it comes to due diligence, almost everyone does it differently with people seeing different issues affecting value. There is no real standard past some really basic stuff.

Seller that have 60%+ community owned homes for the most part, live in a far different world than the majority of community owners, so it is no surprise to me that they are trying to convince you and other inexperienced prospective buyers of their idea of the value of these rental homes.

Try asking an experienced lender on manufactured housing communities what they think the value of park owned homes might be for lending purposes and you will have confirmation of what I am suggesting. You might find that many of the major lenders will not lend at all on the kind of communities you are describing.

If I were you, I would suggest hiring a reputable and experienced authority to help you determine values in communities like this, because I certainly would if I had any interest in buying a community like you are describing. Even if you do not end up buying the community you should learn a lot during the experience.

If you want some recommendations of experts to talk to, please feel free to email me.