How to Worth a Mobile Home Park
Like most genuine estate the Seller normally wants too a great deal and the purchaser wants to pay as well tiny for a mobile household park. Certain buyers might have unique motivations for shopping for a particular park (1031 funds, ability to get improved financing, conversions to other uses, and location to exactly where they live). In this book we will only appear only at the worth of a mobile household park for the typical purchaser who will continue to operate it as a mobile property park.
Anybody that has noticed an appraisal on a home or most types of genuine estate will have heard mention of the 3 approaches to determining the worth of that real estate. They are the Expense, Sales, and Income Strategy.
Unless you are coming up with the worth of a brand new mobile home park or 1 that is predominately vacant, I do not see any explanation to use the expense method. It is not likely that a new mobile household park will be built nearby and what it would price to build a new park does not even take into account the amount of time, work, and funds it takes to fill that park up with occupied and paying residents.
As far as the Sales or Marketplace Comparison approach to value, this is also highly suspect. This is based on comparing the sale of the subject property with other recent sales and adjusting for variations that you may possibly or could not know about. Complications with this strategy include varying expenditures, rents, and management. No matter whether you are an investor or appraiser I would just use this approach as possible info and not draw any conclusions from it. Right here is a rapid instance of the improper use of this strategy from my experience:
House A: 50 lots, 100% occupied, Lot Rent of $179.00. Lots will hold a maximum property size of a 14′ x 60′ – Water and Sewer is submetered back to residents – NOI of about $75,000.
Property B (ten miles from Property A): 53 lots, 10 vacancies, Lot Rent of $150.00. Lots will hold 16′ x 80’s and doublewides. Park pays water and sewer – NOI of $45,000.
House B is sold in December of 2004 for $425,000.
The owner of House A(one particular of my LLC’s) goes to the bank to refinance the home in January of 2005. The appraiser appraises it at $400,000 and locations the most emphasis on the Sales Comparison Method as Property B just sold and it was a superior home in terms of size, appearance, and location. In sell my mobile home in the appraisal report, he claims that we had been charging as well considerably and that our numbers have been inflated.
After arguing with the bank and appraiser for a couple of weeks, we were refunded our cash for the appraisal. In the meantime, we had been approached by yet another investor who produced us an provide of $645,000 for the park and we accepted and the sale closed by the finish of March 2005. I definitely wanted to send the appraiser a copy of the closing statement with a good letter but decided against it.
The point is that even even though 1 park might appear good, be in a much better place, and have so a lot extra going for it on the surface, does not imply it is worth additional per space or even worth as a great deal per space as an inferior hunting park.
As a side note, once I found out that house B was sold for $425,000 I was in get in touch with with the new owner and tried to invest in the park from him – I offered him $50,000 more than he had just paid and he did not want any aspect of it. He knew he had just produced a tremendous obtain and was already raising the rents and beginning to get his lots filled up.
The third approach to worth is the Earnings method and I obtain that this is actually the greatest and only way to evaluate a mobile house park properly. I have come up with a basic formula in which I worth the park based on what it is at present performing, what it really should be performing, and what it will do as soon as I implement some fundamental adjustments and run it much more effectively.
Here is my standard approach in estimating the value:
I want to know how lots of lots there are, how several are occupied and paying, what the lot rent is, what costs the owner is paying, and who is responsible for the water lines, sewer lines, and roads. (Example Offered Under)
A very good rule of thumb that I use to get started with is that I take the number of occupied spaces and multiply this by the average month-to-month space rent and multiply this by 70.
For example if the park has 110 spaces with ten vacancies, a month-to-month average space rent of $200. Then my initial worth calculation is 100 x $200 x 70 = $1,400,000.
If the park is on the industry for $three million I will possibly pass. If the park is on the market for $1,800,000 or significantly less than I will probably appear into it additional. Don’t forget this basic calculation is pretty generic and may perhaps or might not be the accurate indication of the worth of a mobile residence park.
In hunting at the park in additional detail, I will ask for actual operating revenue as nicely as actual operating costs.
The operating expense ratio can differ considerably from a single park to an additional in the very same city even if situated adjacent to one a different. A single of the biggest expenditures in a park is the water and sewer expense. If the residents of the park are paying this expense then you can expect the operating expense ratio to be as a lot as 15% significantly less than the typical.