Another MPH valuation - Posted by JC

Posted by Tim on May 06, 2006 at 11:37:00:

I agree 100% that dollar for dollar you can get a better return from a rented trailer than from a rented piece of dirt. There is no doubt in my mind that $3000 spent on a trailer to rent out will bring in more cash than $3000 spent on a MHP. I also know that with a good system it’s not much more trouble renting trailers than to rent the dirt. You post quite a bit & seem well informed, my reply was aimed at the original poster, no offense intended.

Another MPH valuation - Posted by JC

Posted by JC on May 05, 2006 at 17:18:22:

Here is the details:

20 pads, resident owned, $130 per month
one home, rented for 450/mo
1 warehouse, rent $300/mon
noi 35,615
expenses 9,985
cap rate 9.5, GRM 8.2

What should be an esminated value of?

I came to about 250-300K range.

Re: Another MPH valuation - Posted by Don-NY

Posted by Don-NY on May 06, 2006 at 14:38:49:

Just figure it Tony style. Add it up and subtract out your salary. And you have the “net” minus debt service. A park this size should have a cap rate of 12-14% IMHO

Re: Another MPH valuation - Posted by Sailor

Posted by Sailor on May 05, 2006 at 20:36:42:

In my limited experience, the $$$ isn’t in lot rent, but in the MHs. If all the units are tenant-owned, you are limited in your money-making potential. I have just one rent-only lot & I would LOVE to have the guy fall behind enough so I could evict him. If I put my own unit in, my income on that lot would more than triple. Yes, you can raise lot rent a bit each year, but not much more than enough to keep up w/inflation. Some folks see a park like that as having a captive clientele, but I view it as the owner being held captive–


Re: Another MPH valuation - Posted by JC

Posted by JC on May 06, 2006 at 16:29:44:

I am not familiar with Tony’s technique you described.
Any good archived you can point me too?

Also I value home and rent amount separately? Value of home should be a wholesale value menus depreciation/maintenance?


Re: Another MPH valuation - Posted by Daphne Lowe

Posted by Daphne Lowe on May 06, 2006 at 17:04:41:

Park residents are captive because most can’t afford to relocate their home. Most often they will have to move, leaving their home behind. Rental parks can be profitable if purchased right, but they are management intensive. Unlike an apartment building, there are X # of individual roofs for tree limbs to fall through, X # of thermocouplers in individual furnaces to fail on a cold winter night, X # of decks to be sealed/siding to be pressure washed/skirting repaired and a myriad of other ongoing home maintenance issues. This is in addition to the normal park owner responsibilities like maintaining the streets, water lines, snow removal, lawn, etc. I’m not saying park rentals are a bad, with a high enough cap rate, anything can be made worth my while. If you look at the ratio of unit rent to unit price, its quite attractive. An 8,000 MH may rent for 300/mo (not including lot fee), it’s impossible to find a SFR or apt building to match that (a 100k home would have to rent for 3750/mo). All I’m saying is that its easy to wind up buying yourself a job, there’s a reason so many of these setups are ma&pa operations.

At any rate, JC’s is a pad rental community.
NOI = gross income - expenses. I don’t know how you came up with that NOI. The expenses are significantly below industry average and need to be scrutinized. Are they low because of deferred maintenance? Are they leaving some expenses out, like paying a management fee, even if to themselves? Regardless of how it will be purchased, I always do my initial number crunching assuming 100% financing, for ease of comparison.

Here’s my paper napkin analysis:
gross income 40,000 (20*130 + 450 + 300) * 12
expenses 14,000 (assume industry average 35%)
noi 26,000
debt service 23,500 (275k, 7%, 25yr)
cash flow 2,500 (amount of money put in your pocket when its all said and done)


Re: Another MPH valuation - Posted by Tim

Posted by Tim on May 06, 2006 at 07:09:58:

If you search through the archives I think you would find that most people agree that valuation of a MHP should be based on the lot rent, not the home rental. Nothing wrong with renting the homes, but don’t get caught in the trap of valuing the income from the homes the same as you would the lots. Plenty of good posts on this subject from people that know a lot more about it than I do.

Re: Another MPH valuation - Posted by JC

Posted by JC on May 08, 2006 at 14:08:32:

Thanks Daphne. Is it typical (at least from what I have seen) that most sellers always inflate their asking prices 100K-300K range? Do they know that potential buyers with good knowledge are going to offer lower prices which might insult them? I guess all I can do is make an offer to see what will happen.

Re: Another MPH valuation - Posted by Sailor

Posted by Sailor on May 06, 2006 at 09:09:19:

I didn’t mean to imply that the valuation should be based on home rentals. In fact, did not discuss value. All I said was that you simply can’t make as much $$$ on a mhp limited to lot rentals. This was a valuable Boot Camp lesson for me that has held true as I’ve looked @ additional parks.