Posted by Karl (OH) on October 19, 2000 at 09:15:00:
When I first started a fellow Ohio investor said don’t pay more than $3k for a home in its 70’s, no more that $6k for a home in its 80’s. Max numbers if home is in great shape, pay less if they need work. Just ballpark numbers to help get started. At the time it seemed that every home for sale was two or three times more than these numbers he gave me. But with a lot of legwork, a friendly park manager, and some negotiates with motivated sellers, I started finding these kinds of prices, and better.
But you need to know your market. You’ve got to know what a home will sell for before you can decide how much to pay. And you need to decide how much of a return you require on a deal. I use Lonnie’s rule of thumb that I want to at least double the price of the home when I sell it. Of course tripling the price is more fun. So now I’m pretty comfortable looking at a home in my park, and saying “yea, I think I could get $9500 for that on a note”. Now I know what I would be willing to pay. Ask the PM what homes are selling for in their park (when financing is available), they might give you some helpful info.
NADA shows the “blue book” value of a home, just like cars. You can order one at nada.com. But there’s a danger with using the NADA to price Lonnie Deals. A home may blue book for $14k, but you might struggle to sell it for $9k in your local market. If you used NADA and paid $7k, it’s a tight deal. I use NADA just as a general guide. I show potential buyers the NADA printout for that home, and that I’m selling it below blue book. I tell them that the dealers sell for full NADA value, so I have to sell below blue book to be competitive, so they get a great deal. The NADA values seem to be very high in my market compared to what homes are really selling for, even with all the NADA adjustments for local conditions. If you’re working with a lender or a broker, NADA info is helpful, because that’s what the lenders use to help determine what they’ll loan on a home. But their appraisal has the final word.
Bottom line, NADA can be helpful, but the market rules. Learn your market.
Karl Kleiner