How do you value RTO income?

[David Denzy]

Hello,

I'm curious how investors value/underwrite parks where there is a component of RTO? For example: Let's assume there is a Mobile Home Park for sale with 10 homes in the park, site rent $200 (all utilities billed direct to resident). 9 homes are straight resident owned with 1 home on RTO contract. Let's assume that the RTO just began and they have all 24 months left in their payment schedule.

RTO Contract:

- Deposit: $3,000

- PMT = $500/month

- Term = 24 Months

Park Financials:

- Income = ($200 * 10 * 12) = $24,000

- Expenses = ($24,000 * 0.25) = $6,000

- NOI = $18,000

- Cap rate = 10%

- Total Value = $180,000

If you are buying this park between the time that the RTO paid their deposit and the time that they make their first PMT (resident has 24 months left in term w/ remaining balance of $12,000), how do you adjust the total value/purchase price for the RTO contract? Would this be a dollar for dollar increase to purchase price? (E.g. $180,000 + $3,000 deposit + $12,000 remaining balance = $195,000)