Denver Mobile Home Acquisition Price - Price Per Lot

[David Flores]

Hi BP World! 

I am looking into a mobile home park in Colorado. I was wondering if anyone with experience in mobile home parks located in Colorado could guide me on a few numbers. I want to breakdown the acquisition price of the property. The way I want to do it is breaking it down per lot. From a really high level I am looking for the average price per lot in a normal Colorado mobile home park deal. The park is located about 1 hour from Denver. The park is only lots and they do not own any of the actual mobile homes. We are just talking about lots. 

Anyone with knowledge on this would be hugely beneficial! 

[Frank Rolfe]

You can't break down a mobile home park based on a per lot average unless you are comparing two identical parks. You need to evaluate the park based on its net income, and then apply the appropriate cap rate. Colorado is a very desirable market, and the cap rates tend to be lower than elsewhere in the U.S. (probably around 6% to 8% based on park quality and upside).

To figure out the basic price of the park, use the following formula:

# occupied lots x lot rent x .6 (if the park pays water and sewer) or .7 (if the residents pay water and sewer) x 12 = NOI

The divide this NOI by .06 and .08 to get the range of prices.

This is all strictly ballpark but much more accurate and effective than the manner you are considering.

[Jack Martin]

@David Flores I would echo what Frank has mentioned above.  To give a quick analogy, to be able to make it as simple as giving any park a value per lot, that would be like giving a value to any pickup truck as a general value.  That wouldn't take into account whether it is a Ford, Chevy, Dodge, Toyota, etc, whether is is a 4x4, if it has any additional features, a lift kit/ tires and wheels, and whether it runs on diesel or gas.  

In a similar fashion, each park is unique and will need to be valued on its own characteristics and merits.  Frank tends to run a very similar "back of the napkin" formula as I do, and I would only add a few items that could give more color to what he has shared.

If you can get clarity on what the cap rate should be in the market from a broker who is familiar with the market, that would help you narrow down the range of pricing.  You will find that lower star parks and parks that need more work will tend to come with a higher cap rate.

If you determine that the income is significantly lower than the market, or that the expenses are significantly higher than they should be, you might consider paying a price higher than the "back of the napkin" since there will be a considerable amount of upside. You can determine that with a demand survey, rent survey, and in general if expenses are in excess of 50%. 

All the best,

Jack