What cap rate do you usually look for in a mobile home park

[Abad Marroquin]

I am analyzing a mobile home park. At what cap rate does it start getting interesting for you? What cash on cash return is acceptable for most of you? Thank you!

[Account Closed]

CAP rate is largely irrelevant on the purchase Abad. This is especially true if you are doing deals that are distressed. We've actually done a few deals where the previous owner had a negative NOI. As far as what we do, we approach each deal from the standpoint of, "If we applied our business model to this property, what would it look like." Once we approach a deal from that standpoint, we are looking to achieve a 16% cash on cash return in year 1 and 20+% by year 2.

As an example, we bought a deal last September where the owner had an NOI of $35,000. We paid $750,000 for that property. If I annualize it's performance now, the NOI will be $90,000 for the first 12 months. We are hitting a 20% CoC on this and it would likely trade for $1,000,000+ once it's seasoned. All of our changes were very minor such as improving collections, a rent increase, leasing up a few vacant units, and cutting a few unnecessary expenses. This is an example of a 5CAP purchase that is turning out to be a very solid deal.