MHP deal...how much do I sell the park for?

Question

A family member of mine just inherited a mobile home park in Missouri.  She has no interest in maintaining it due to her busy schedule.  As i'm not sure how to value this mobile home park, how much should this be priced according to the market?

It is a mobile home park that has 12 lots. There are currently 5 people who own their own mobile homes and pay a rent of $230 per month for the lot.  There are 6 people who rent their mobile home from the park and they pay an average of $530 per month that includes water and trash utilities.  There is 1 person who parks his RV on a spot and pays $150 per month. The gross rent collected each month is on average $4300.

The water and sewer utilities are serviced by the city and they are individually metered.  The tenants who own their own mobile homes are billed directly for water and electricity. The mobile home community is a 30 minute drive from Kansas City, MI.  The park was owned for over 15 years and was managed well.

Anyone who can provide any guidance would be greatly appreciated! Thank you.

Mike G. · Answer

@Jay Keem

So typically the valuation goes # of TOH ( tenant owned homes) x lot rent x 12 months x .60 if utilities are mostly paid by park or .70 if the tenants are billed back for majority of utilities.

Park owned home income is not calculated in the valuation of the park ( hense the value ad opportunity to convert those POH to lease rent to own contracts so they become TOH over time. I will give consideration for the POH income however the homes are usually valued at a .50 ratio as they deteriorate quickly and have no real value (value is in the land not the homes).

So 5 TOH x 230 rent x 12 = 1380 x .70 = $9660 annual income

1 RV x 150 x 12 = 1800 annual income

6 POH x 530 x 12 = 38,160 x .60 = $22,896

since park owned take off 50% for repairs and maintenance ( this is standard deduction when purchasing POH )

so POH $11,448

So total annual income $22,908

if you sell the park for 150k it would sell at a 15 cap

if you sell at 200k it would sell at a 11 cap

if you sell at 250k that would sell at a 9.1 cap

As an investor i want to buy at the highest cap rate possible

what is a cap rate in multifamily? its the NOI/asking price= cap rate

as a seller you want to sell for what the park is worth.

the value add for a perspective buyer is to:

1. covert the POH to TOH

2. increase rents to market if the area allows for that

3. bill back the utilities to residents

streamline operations and rent collections

in effect, maximize profit and minimize expenses.

so i measure potential for upside to the purchase price and inherent risk involved.

Hope that helps

Tyson Cross · Answer

If you really want to get technical, I wouldn't cap the income on the park owned homes and only take a shell value of the home's worth as a stand-alone value. For example, take the income for the lot rent only portion of the whole park -

12 homes x $230 lot rent x 12 months - $33,120

Apply a 40% expense load to that - $13,248

Gives you a Net Operating Income - $19,872

If your evaluating the park purely on the lot rental income (which is really how you want to buy them) then it would be roughly a $200,000 purchase price based on a 10% cap rate.

Now since you have 5 park owned homes, you want to look at what the true market value of those homes are worth as if you were buying them from someone. For example, look at zillow or craigslist and see what mobile homes the same size, vintage and location are selling for. Discount them about 50% and that's your "shell value" for each home. Let's say they worth $10,000 each in that market. That gives you an additional $50k in value. Thus, the total sale price of the park plus the homes is around $250k. Let me know if you have questions on that. Good luck!

Jay Hinrichs · Answer

nice post  thinking these small mom pop parks are trading at 12 to 15 caps..

Mike G. · Answer

@Brandon Guite

thanks brandon. .  dont thank me, thank frank and dave for teaching me their valuation formula. it was only after evaluating several hundred park deals that Ive committed it to memory in a way that i can look at a park and within a few minutes formulate a snap shot of the parks income producing ability in its current state, visualize quickly the value add proponents and the income increase each of those would bring to ultimately arrive at a valuation to make a offer to the seller.

This way i can spend less time on parks where sellers asking price is over inflated and wont negotiate or see the actual value of their park and focus my efforts on dialing in the due diligence on a park owner who has a more realistic valuation of his park and is willing to negotiate on key selling points and understands the risk i take to have a shot at increasing income on the potential value adds present in the deal.

thats how i do it, and if it makes sense i make the offer and follow up.

Brandon Guite · Answer

MHP's are typically priced based on income the same way a multifamily building would be. The Basic Formula is Value=NOI/CAP, or Net Operating Income divided by the market capitalization rate for the area. The net operating income is the Gross Potential Income minus expenses (utilities, vacancy, maintenance, property management, taxes, insurance, etc.) . If the property has been well managed as you said, there should be good record of the last 12 months financials for you to get a good picture of what the expenses have been. A good rule of thumb for multifamily complexes a 40-50% of income should go to expenses, but I'm not certain how that translates to MHPs so definitely do your research. As for determining the Market Cap rate, reach out to any local property management companies, commercial RE brokers, investors, etc, to get an idea. Keep in mind this is a MHP and not a more traditional commercial property so it may be slightly different. Quick Example with your income and plug in numbers...Gross Rent = $4,300 per month or $51,300 per yearExpenses and Vacancy = $25,000 Per YearNOI = $51,300 - $25,000= $26,600Lets say the Market CAP Rate for the Area is 8%...Then you would calculate the Market value for the Property as...Value=NOI/CAP or $26,600/.08 = $332,500This is just a rough example but hopefully that rough explanation helps.

Jacqueline PinkettSmith · Answer

very interested in this as a deal, please send more info

Mike G. · Answer

@Jay Hinrichs

thanks Jay, 12-15 cap range justifies all the direct mail sent. . . heh

Jason Ray Richardson · Answer

Great points by all! If your family is still looking to sell message me and let's talk.

Andrew Bergman · Answer

I'm interested in your MHP as well, also I know a good PM if you are looking to keep it and have it managed.

Best!

Andrew

Aaron Olsen · Answer

Hi Jay,

Like Tanya, I would also be interested in seeing the deal.  I am very interested in purchasing a smaller mobile home park such as this.  Feel free to reach out to me anytime.

Best regards,

Aaron

MHP deal...how much do I sell the park for?

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