First Buy and hold small mobile park evaluation help

[Bobby Larsen]

This is my first post!

I am looking at a mobile home park for sale. It has 8 lots. 7 of 8 mobiles are being sold with the property and one of the homes is tenant owned. There is not much maintenance associated with the property(land) that I can see. Each unit has its own water/sewer and electrical service. Water and Sewerage are public utilities(big plus!) The gross income at full occupancy is $3500/mo, rents are mailed to a PO box. The one lot is rented mont to month for $200. One unit is newly vacant and needs small repairs. All units are 30+ years old. Majority of tenants have been there over 10 years and one for over 25 years. Parking lot is in good shape and is limestone aggregate. Yard work cost $40/month Property tax is about $700/year on the land. 

The main reason I am interested in a mobile home park are the reduced maintenance responsibility if units are tenant owned (does not apply here). I would like to rent to own the trailers to the current tenants, it could be a win win for both of us, they a cheaper rent and I get less maintenance.  I am not sure how feasible this is. 

What would be a fair price for this park? Asking price is 275k negotiable. That seems like a high price to me. What are your thoughts?

Thanks in advance for any feedback.

[Bill F.]

@Bobby Larsen Welcome to BP. 

At first glance the asking price seems extremely high. 

The most common way I've seen to value parks with POH is to capitalize the park and homes separately then add them together at the end. That way you can separate rental income from lot rent and don't overvalue the homes. 

 A best case scenario valuation, using a 30% expense ratio and 10 Cap, values the Park at $134,400. 

Pushing the expenses up to 40% (it may be higher) and raising the Cap Rate to 13, so you reimburse yourself for the risk and work of running 7 rental units, values the park at $88,600. 

Making another bold assumption about the homes and saying they are worth $10k each, for a total of $70k. 

Adding the two means the deal is worth, at best, $204K but most likely something closer to $158K, IF there isn't any deferred maintenance on the park or the homes.

What is market lot rent in the area? Can you add more lots? Do the current residents have the credit and desire to buy their homes through rent credit?

The units are 30+ years old, but have they been rehabbed in the meantime?