First small mobile home park, something off?

[John Pettas]

A small 5 unit mobile home park came on the market yesterday and the agent said they already have two offers in hand. Seller has 48 hours to accept so I need to get my offer in today. The agent said that the seller is liquidating his portfolio to move and retire.

I am evaluating this based on NOI and cap rate like a normal commercial property, but some of my research says to evaluate it based on price per unit as well. This would be advantageous because I would like to transfer ownership of the units to the tenants in a lease to own and just collect lot rent.

For some numbers: List price is $89,000, 3 units rented at $350 a month, two units newly vacant this month. I drove the area and went inside one of the vacant units yesterday evening. The area has a lot of nice older homes, the neighborhood and houses all look well taken care of, and the major area that everyone in town wants to live in with a mall and the airport is 20 minutes away.

It's hard to find such cheap housing of course in a decent area close to everything and rents haven't been raised in 6 years, so I am running the numbers at $400/month per unit, 10% capex since I don't know the condition of the water electrical etc, 8% repairs, 4% vacancy, 10% property management. The vacancy is low because I spoke to a mobile home park owner in a much worse off area about 10 miles away said the same thing as the owner of this one, that they can have it rented out in a day or two and have a list of people the day they list them.

400*5=2000/mo*12=24,000*.68 (32% expenses)= 16320-632.61 taxes- 700 (estimated insurance)= 14,987.39

14987.39/90,200 (89,000+estimated 1200 cash closing)= 16.65 Cap

Finally to the question, I love the cap rate and will be fine with 10-11 so I can increase my offer so I can win the deal or make unit/park additions, but even if I offered $100,000 for the 5 units, there is no way that each used single wide 2/2 is worth $20,000 each. So does one just be happy with the potential cap rate and cash flow, own all of the units long term? I would clearly be overpaying for the price of each mobile home but the cap rate does justify the price. Any thoughts? Would I be overpaying at 100,000+?