Mobile Home Park Purchase

[Rohit Jindal]

Hi All. I am entering into a contract for a Mobile Home Park (MHP) soon. The seller and I have already agreed on a price and I have received the contract. Before I move to the next step I have been reading a book from owners of Mobile Home University that says they only value the income from the pads only in calculating the value of the park, and not the rent from the units the park owns on those land. The park I am looking has just about 100 lots and of which 40 lots have park owned homes. While I understand their concerns, I want to know if anyone else share their point of view. Does anyone have any experience with this type of a situation? Any guidance would be appreciated. RJ

[George N.]

Applying a 10 cap to park owned home rent is a great way to get yourself in a bind and drastically changes the value of a park, especially with that many POHs. As was mentioned they are depreciating assets and, in any case, the best case scenario is you selling them to their residents and offloading that income. Even if they cash flow the expense ratio is going to be substantially higher, as is the headache factor. Just buy on lot rent and pay what the homes are worth on the open market. Some homes are literally worth a negative number. Soon after I closed on my park I had a tenant abandon the worst junker there, I inherited my only (thankfully) POH. It's not worth rehabbing, in fact, it will cost me money to remove. If someone applied a cap rate to its rental income (especially for multiple cases) they'd be in a world of hurt. Applying a cap to MH income feels like a way to try to force the numbers to work correctly when they don't.  I'd think long and hard before discarding anything you learn from MHU but in this case especially it's one of the cardinal sins and leading causes for getting upside down in a deal.