Any experts out there know how to estimate the value of a mobile home park that already exists? Do you base it on some sort of rule of thumb when you buy? A certain amount per lot? A certain amount per lot owned trailers? The parks I see listed on loopnet.com seem to be pretty high. Do you base it on a cap rate?
I am new to this mobile home idea. I presently buy stick built rental houses in low income areas and get a 15-20% cap buying wholesale property.
I don’t visit this forum much but I seem to always see valuation questions here. This is just my two cents on the subject in general:
You should ALWAYS value an investment (stock, bond, real estate, pixie dust, or whatever) with discounted cash flows. The model will get more complex with a mobile home park versus a single family home but it’s all the same in the end: How much cash does it throw off after all income and expenses are tabulated? Your discount rate should reflect your cost of capital (CoC) for any financing and your desired ROI. Don’t rely on a simple rule of thumb like CAP or GRM. They are quick and dirty and have their uses but nothing replaces doing the proper homework.
This may not answer the question specifically but I am wondering if anyone has any other thoughts?..
The problem I see with determining value by a real estate investments cash on cash return is it doesn’t help in providing an outlook if you are making a smart financial decision as capitalization rates do once you know what a good CAP rate is in your area or for a mobile home park in general.
The reason cash on cash returns seems to be a little risky to me is if you decrease the cash you put down on a property, your return significantly goes up. The more you decrease it the higher your return is leading to an over leveraged property susceptible to the risks of market fluctuation.
This is exactly the reason caps rates are used for screening only; they are risk neutral and make relative comparisons easy. Ultimately, the value of a deal to you depends upon your risk tolerance and the ROI you need. This varies from person to person; cap rate does not.
If you are using a lender to help finance your deals, then their risk tolerance plays into this as well. It’s no secret that lenders lately are increasingly risk adverse, are demanding greater down payments and are thus, driving down returns as well as the associated risk. The goal is to find deals that make everyone happy. Focusing on cap rate ignores all of this.
Ultimately, it boils down what the seller will accept and what value you can extract once you buy. Most, but not all deals, will make sense at some price. The obvious first place would be to call and meet some local MHP brokers and investors. If you have money to invest, they will be interested in talking to you. In addition, if you do a quick Google search, you’ll find a number of message boards that specialize in mobile home parks. Lonnie Scruggs is the generally accepted guru on the subject.
You may not be checking this topic any more. But,
I just wanted to weigh in on how to determine a parks value. At one time I was a business broker and researched the rule of thumb for valueing a park.
This is the rule of thumb companies like Gulf Coast Financial (one of the leading national business valuation companies) would use as a basic rule of thumb. After determining amenities, the rule states $3K to $8K a lot. A value must be put on the amenities such as location to a metro area, community center, pool, mail center, fitness center, paved roads, curbs, playgrounds, 200 amp service, gas, etc… i.e. a park that has very few amenities if any would have a per lot value of $3K or possibly less. A park with a lot of amenities would bring $8K a lot.
Since vacant lots produce little or no value I would be inclined to apply the above rule to occupied lots only. I feel also that a park with little or no amenities and it is not in good repair (rented lots are junkie looking with car parts or old funiture) would definitely bring less than $3K.