How to calculate a MHP value for purchase

[Joshuah Fowler]

I am interested in possibly purchasing another MHP and i wanted to see if someone could tell me a good formula for evaluating the parks purchase price, i know the current owner is gonna be a little high and i want solid numbers for our first meeting.

[Account Closed]

Basic Frank and Dave rule of valuation is take the lot rent rent, multiply by number of lots, then apply a 30% or 40% expense ration ( 30 % if tenants pay utilities, 40% if park pays for it) . Then you will want to apply a cap rate to find the value ( will vary by market and slew of other factors) . 

50 lots x300 lot rent x12 months = 180,000 Gross revenue less 30 % expense of $54,000 ( tenants pay their own rent here...) = NOI of 126,000. Using a 9 cap valuation park value is 1,400,000.

Caveat, this formula is best used for a minimum park size of 40-50 spaces.  As you get smaller, you don't have as much room to pack in overhead so you will be running a higher expense ratio. Additionally, park may have homes and you may need to add in wholesale value of the homes or may have mortgages that would typically be purchased at a discount.  Other things that can effect value ..... what type of utilities, any capital repairs needed, size, market, upside , vacancy. Some of those may skew the value up a little and some down but this should give you a good blue print.