What is this mobile home park worth?

[Rick D.]

I need help from some experienced mobile home park investors. This is not a product type with which I am familiar, so I’m looking for advice on how to value a current opportunity.

Let’s start the discussion by first considering a “single-tenant net lease” example … a free-standing CVS/Walgreen’s at a busy intersection. This being a product type with which I am very familiar. I realize this is a completely different type of investment from a mobile home park, but please just play along.

If I own the pharmacy, I have:

1. Rent - a premium, high-rent payer,
2. Credit – tenant has great credit,
3. Building - vertical improvements in the form of the building,
4. Site Improvements - in the form of a parking lot, curbing, storm controls, etc,
5. Zoning – I own real estate zoned for a broad variety of commercial uses, and
6. Real Estate - I have a great piece of underlying ground on the hard corner of a signalized intersection with the highest traffic counts in the area.

There is a market for this type of product. These things change hands all the time, so I always know the value. Even if the doomsday scenario hits in my pharmacy example, and CVS/Walgreen's goes out of business and a tornado destroys the building, I lose #’s 1, 2, and 3 above. I still have #’s 4, 5, and 6. As doomsday scenarios go, this isn’t terrible.

Now switch to my mobile home park and consider the same factors.

1. Rent - low rent payers ($200 per lot for 15 lots),
2. Credit – my residents probably have mediocre credit at best,
3. Building – I own nothing here, as the residents own their mobile homes.
4. Site Improvements – I own nothing here, as there really are no site improvements to speak of,
5. Zoning – zoned for the park
6. Real Estate - an otherwise poorly located piece of ground jammed up against an airport.

The seller/owner created the park 15 years ago and claims to have never had a vacancy, so if my doomsday scenario hits and all the trailers are wiped out by a tornado, I’m left with a poorly positioned piece of ground which I suppose I would eventually repopulate with mobile homes.

So why consider this at all? I’m interested in collecting “ground rent” with little to no tenant complaints ever … no trouble calls about leaky roofs or plugged up toilets or air conditioners that go out on the hottest day of the year.

If the only real value here is that of the rental cash flow, what’s this thing worth?

Thanks in advance.