Mobile Home Park Valuation please advise

[Shawn S.]

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

42 lots in all- 34 lot rent only, 8 park owned (only vacancy is 1 park owned home getting ready for a new tenant)

-Double wide lot fee is 225/month

-Singlewide lot fee 210/month

-City water to park (private individual meters) each tenant is responsible for paying water they-

-On septic

-Lots are mowed by tenants

-Trash paid by tenants

Brings in 155,000 per year gross, net is around 132,000 but is being self managed

expenses: taxes 2,000, insurance 1,000, gravel for roads 1200, septic tanks 2,000, park owned home maintenance 7,000, misc expense  5,000 (mowers, mailbox, other misc expense)

Currently there is no property manager

Adding in the cost of a property manager at 10% of gross is 15,000

Adding in the cost of lawn service for the common area is 3,000

Adding in the cost of a 10% vacancy is 15,000

Underwriting at 100,000 NOI 12.5 cap at 800,000

-12 acres

-4+ acres of flatland not being used ( ability to add around 6 more units)

-clean and well kept

-Main Road is paved with some speed bumps. side roads are gravel

-3 singlewides come with the property. Rent for singlewides is: 650/mo, 450/mo, 500/mo.

-5 doublewides come with the sale of the property ( 3 on foundations) Rent for doublewides is: 800/mo, 800/mo, 650/mo, 600/mo, 700/mo

-30 singlewides

-12 doublewides (5 of which are on a permanent block foundation)

Most lot rent only homes are 1990-2002

Most Park owned homes are  1995-2002

I put a value of 10,000 each on the singlewides

I put a value of 20,000 each on the doublewides

Please help me determine a valuation for this property.  I am wanting to offer around 800,000.  Please let me know of any downside or inaccuracies that you see above. 

I am somewhat concerned about the private water meters and the septic but don't think it is a deal breaker.

Thanks in advance for your responses

[Tyson Cross]

@Shawn S. Just off the top of my head, here are some things to think about:

Taxes and insurance are way too low. Insurance rule of thumb is $50 per lot per year, so in this case you'd be looking at $2,100 per year. My guess is his coverage isn't adequate for what you should have. The other thing you need to consider is insurance for the park owned homes. You'll likely pay this while you own the homes. You will also pay personal property taxes for the homes too. Additionally pull the real estate taxes on the county website. I'm sure they will be more than that - or at least check to make sure they won't change upon the sale of the property.

Are the water expenses billed back by the owner or direct billed? If billed back, there is likely some leakage. Also, what about any other utilities? Any common area street lights, office buildings using utilities?

Double check the septic expenses. I don't know much about septic, but I'm guessing there may be expenses related to inspections and maintenance that would bring that up a bit. Check with @phillipmerrill to get more info.

If you raise rents how much will those be? there will likely be people that move, you will have eviction fees, turnover costs etc. You'll likely want to budget for travel if you're not local, admin fees, possible snow removal, licenses/permits and capital reserves. I think your management fee is a little high, but that's okay you can obviously adjust that.

Without taking into account the park owned home income, I would target a price of around $700k, but maybe closer to $800k if there is upside in the rents, especially considering the park owned homes. This is the reason I asked about the upside in the rents. People always make a big deal about what cap rate you buy the property, when in reality it matters more where you can TAKE the property once you implement your action plan. If I buy a property at a 5 cap, but know the rents are extremely low and I can bill back water and cut out a huge management fee, so that in 6 months after taking ownership I have a 12 cap, then that is a great deal. It's really more about the upside and where you feel this NOI will be 1 year from now, using more realistic expenses.

I hope that helps. It was quick and dirty, but feel free to hit me up with questions.