How would you price this park?

Question

I'll have the option to buy the following park:

$300/month lot rent (All resident owned homes)35 lotscity water/septic sewerwithin 5 miles of a Walmart (tenants pay their rent there).Located in a county of approx. 40K people

The previous owner dealt in all cash, there was no records at all. The current owner (a person who owns several parks that I am working with to turn this park around), paid all cash & plans to renovate/build up records over the next 6-8 months, then it'll be ready for bank financing.

How would you value the above park? What do you think would be a fair price/good deal?

Jay Hinrichs · Answer

I would make an appointment with the state or county health sanitarian and go over this before I pulled the trigger..

I have owned multiple parks and one of septic that failed.. the new standard to replace it and this was also about 30 spaces was over 250k.. but we are Oregon and everyone wants to live here.. so we get gouged..

so based on that not so pleasant experience I personally will never buy a park that is not on city water and city sewer.. just not worth it to me.

Abraham Anderson · Answer

I heard them mention the expenses would be around ~30% (which would affect the NOI), at 30% it would put the property (at a 10 cap) at $882,000. Being that it's septic, I would wager the expenses would be closer to 35%, so your figure of $819,000 should be more accurate.

Aman S. · Answer

Just a high-level estimate :

Use actual rent.

So if all lots are rented total yearly rent = 300*12*35=$126,000

Estimated expenses, let's say  35 % of gross rent $44,100

Net Income = $81900

at 10 Cap $819, 000  (Cap rate depends on the area, capital improvements required etc)

Ingrid J. · Answer

@Abraham Anderson Good post.

For capital expenditures I've seen many recommend setting aside 10 % of their gross income. It's probably a little too steep for mobile home parks. Like C.K. Ebert I would recommend looking into what the installation and materials of a new septic system would cost. Alternatively consider what you would actually do if the septic system broke and had to be replaced in its entirety. Would you reinstall a new septic or look into options for hooking up to the city sewer? Get a quote for the latter if it's something you'd consider.

Chris Ebert · Answer

@Abraham Anderson, septic shouldn't be a concern if you have enough vacant land to replace a failed leach field. After you have the septic systems inspected and everything checks out you can assume each one pumped every 5 years (assuming 1:1 septic to home ratio). Call around for pricing. I pay $185/pump. I've also replaced two leach fields at about $3,000 each.

Abraham Anderson · Answer

Residents pay all utilities. The roads are also paved (a bit of deferred maintenance there), also the homes are laid out sideways like stick built homes, so it's going to look beautiful once it's rehabbed.

The only "risky" thing to me is the sewer is on septic. How much would you set aside per month, per unit, for period pumping/replacement of tanks that may fail? The septic's are hooked up to leach fields.

Chris Ebert · Answer

@Abraham Anderson, who pays for the water? Park or tenants? Based on the expense ratio it appears to be the tenants. If that's the case I would lower the cap rate closer to 9%. I do agree w/ @Aman S. on variables to consider and believe that metering of units is a big factor in pricing becuase of the ability to minimize variability in your expenses.

How would you price this park?

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