LTV and NOI. How do I find out Property Vallue of Mobile Home?

Question

I am looking at a MH in ohio. I am from NYC. Currently 18 units rented, 11 empty,  owner offering seller finance 5-6 % with balloon in 5 years.

Not sure how to determine LTV or NOi, cap rate 11 percent.

How do I analyze Market Value of MH>

:roll:

Joel Owens · Answer

How do you know it's an 11 CAP rate without knowing the NOI?? I sure hope you are not blindly believing the sellers numbers.

Are these mobile homes older or newer ? Are you just getting lot rent or do you own the mobile homes as well ?

Is the owner local and if not how do they manage them ?

Currently 18 units rented, 11 empty- CURRENTLY being the key word.

Before you make a serious offer or not you need to see the financials.If the seller keeps bad records and wants you to believe them then you need to price in for that risk.

Is the mobile home park in the county or the city?

If so how does local government feel about mobile home parks? In other words have they been giving the owner a hard time and hitting them with expensive fines and sewer and water connection fees to pressure them to sell??

In my area local government hates mobile home parks.They would much rather have homes with higher tax values bringing more revenue to the counties and cities.Plus they are not an eyesore where they receive constant complaints from homeowners to DO SOMETHING about the place.

As far as the worth of trailers they are expensive to move and just like old cars many aren't worth the cost of moving.

What you really need to know is about THE LAND.Is this out in the middle of nowhere or is commercial or residential development coming that way??

If so you can sell off for much more money if you have the right land and location.I find mobile home parks on corners or close to corners prime targets. These sellers only usually understand the cash flow of their properties and NOT the highest use for development.

In these cases you can make a ton selling off for development or doing the project yourself.

Joel Owens · Answer

Are you putting any money into this deal??

Does the seller want some down and then owner finance??

Mobile Homes have a much higher turnover rate with tenants than multifamily and houses in general.

The maintenance required is often more frequent.

___________________________________

Net Operating Income

Definition

NOI. Income after deducting for operating expenses but before deducting for income taxes and interest.

Cap rate is NOI divided by a sales price.

So for example after expenses the operating income was 50,000 a year you would divide 50,000 by 600k sales price to get about an 8 cap rate.At 500k sales price you would have about a 10 cap.

There is way more that would need to go into analyzing a deal. For instance what kind of capital expenditures are needed?? How frequent is the turnover rate??What is the cause for the high vacancy?? Is it deferred maintenance or are the rents being charged too high or both??

Is the park in a bad location?? Hard to access?? Is crime high in the area ?? Can you add more trailers in for more revenue??

Could you copy and paste the spreadsheet in this topic?? You would just take out the address if you didn't want people knowing about the deal.

Joel Owens · Answer

Call the other owners. Ask them WHY their park is better then the one you are looking at ?

Ask why are all the parks selling?? Usually one of them will spill the beans.

Some sellers are guarded and others talk your head off. Let them talk but then use subtle questions that get them to open up.Many times when they didn't see a questions as a question they will give away the farm.

For instance the guy that is the bad partner.Ask that guy what the problem with is partner is?? They will go on and on and then talk about something with the property they hate.

This is information you use later in negotiations.

If you can't get them down on price too much say you want to pay 100 but they will go down to 140 then after that avenue has peaked hit them up on the owner financed interest rate. If they are at 6.5% you start at 1% then when they go down a 1/2% you come up a 1/4% to a 1/2%.

Tell them if your goal is say 4% interest tell them that you won't do a deal above 3% after you have gone back and forth.Make them believe they have gotten one over on you.

Taking multiple points and drilling down on each facet takes a great deal into a fantastic deal.

Learning to be an expert negotiator will be a key to your investing career.

Remember is a seller isn't motivated keep them in a file.Eventually the seller will become motivated at some point.Most throw these leads away but time is on your side.

good luck :)

Joel Owens · Answer

Yes Washington,New York,and California for example are all overinflated markets.

Many investors purchase there on the on an appreciation gamble than the CAP rate.

I have many investors buying down here because they can leverage their cash for so much more greater returns than where they live.

In some areas that I mentioned acquiring the land is the real goal and the CAP rate is an afterthought.

Here in Atlanta the only 7 to 7.5 cap I am seeing is CORE assets in trophy locations.Example A class newer multifamily that a REIT or PENSION fund is buying. Also a Walgreens or CVS with a new lease is drawing a 7.5% CAP for the mailbox money with  the triple net lease.

Riskier asset classes such as trailers here the CAP rates go way up versus the risk.

Dale Osborn · Answer

Joel:

The MHPs I see that actually close are usually in the 7-7.5% Cap range. Where exactly are you finding the 14-17% ones? I could use a few of those!

Joel Owens · Answer

They are wanting you to take over a problem.Anytime they offer owner finance that is a red flag that they will use owner finance to try and get an inflated price.

Banks try to provide financing on some of their commercial properties but you have to make sure you get a great price and great financing.

Since they are owner financing they are also trying to charge an above market interest rate. After due diligence if it is determined to be a good investment then you will need to push them to see how desperate they are to sell.

Amount down,interest rate,sales price,terms of the loan,etc. NOTHING is off limits. Ask for everything and see what they give you.

If this is your first deal and you have limited money down you need to make sure it is a grand slam. I find it odd that you aren't able to find better deals closer to home.

If the seller self-manages and you won't be you have to also include that in your cost analysis.

My mom's friends have about 100 trailers and have been in the business over 40 years.

I hear nightmare stories from them all the time.

Ask to see the sellers schedule E tax returns for the last 3 years of the park to get valid numbers.

I think what drew you in is a 11 CAP RATE but trailer parks often trade for 14 to 17 so the deal appears overpriced.

Dale Osborn · Answer

Lot rent is about $200 per month X 18 = $3,600.00/month X 12 = $43,200.00 per year possible gross income. The Expenses eat up 55% of this amount so that leaves a NOI of $19,440.00 possible. At your above mentioned 11 cap the max price you would look at would be $176K. Their asking price of $200K is a little high for their advertising. Next you need to determine why 11 units are vacant. Do they require septic tanks? Have the septic tanks failed and it is no longer allowed to put a home on that space?  The above numbers did not allow for a vacancy or collections amount either. That would probably bring the price down closer to under $150K. If you cannot use the 11 vacant spaces where is the upside? Do you have the money required to buy repo homes and bring them in to fill the vacant lots? Looks like you need to step back and really look at this one! What are your plans for management with you in NY and park in OH?

Steve Babiak · Answer

Looks like stuff from a spreadsheet, but unfortunately it is no longer nicely tabulated like in a spreadsheet.  Try uploading the spreadsheet to google docs (or some similar service) , then edit out on the google site anything you don't want to have exposed to all, and then put a link to the uploaded spreadsheet here.  A web browser can then view the spreadsheet without need for any office software.

Elizabeth F. · Answer

what i like to do:(i have a few dollars ) i would love to add to that. if i took the wholesaler approach. i know a few buyers. but i do not know how getting the house and facilitating it to the buyer

Elizabeth F. · Answer

plus i dont know how to approach what i am trying to accomplish.

i dont know whether to wholesale, flip, or hold. im confusing myself

LTV and NOI. How do I find out Property Vallue of Mobile Home?

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