Should I buy this mobile home park?

[Joel Ortiz]

I currently have a very motivated  seller of a mobile home park.  It's 11 homes in Illinois,  the homes are owned by the park , pay all utilities  and is Cash flowing for the past 3 years  50  thousand  to 60000  dollars every  year.  Would you buy it?

  I know there's many factors  but it's looking like I could get a 12% cap rate. If I give him a lower offer , cuz I told him I'm going to pass  and he said will you offer anything? 

He's asking 525k . 

I've been told to stay away from Park on homes , but his handy man does all the work for him. 

He also has some other real estate that he wants to get rid of and I'm thinking  of telling him I can sell his  house on owner financing  flip the note to my note buyer  and then use that as my down payment  along with owner financing .  No money out of pocket  deal.  

The site is  open for another  20  plus  sites , but takes capital for that Improvement .

[Jim Johnson]

ok. So this is just a rental park. Off the bat- it is very very very small unless you have another property in the area or live really close. Rents for the homes must be around $600 per month to come to a 50 - 60 net. 

Your looking at paying $47,000 per pad- which is very high. 

Adding homes will cost you the cost of the pad and of the home. 

I think the park is valued on net income and not by breaking the park into the park components and the rental home components. 

I do not even look at parks less than 40 pads- too small and not enough tenants to spread the expenses around. 

If your moving forward, your next step is to know prevailing space rent for parks in the same are with the same amenities. Then you can break the gross income into space rent and home rent.

Then you need value the park as a park, and then value the homes based on age, turnover, condition etc... 

Then you plug in the income to see if it all fits together.

I suspect, the park is overpriced by a long shot- again- unless the location can be a McDonnalds or a gas station. 

Value is 1 of 3 things- and the process is called 'highest and best use'.

1) market value (like regular homes most of us live in)

2) income approach (Gross income - expenses (no debt service) / CAP rate)

3) highest and best use... geesh- this corner is right were a Mc Donnalds would put a restaurant. So it is not worth $300,000 but is worth $750,000

To get that type of valuation you would need to use an MAI for your appraisal. Regular home appraisers are not accredited to make a valuation like this.