Posted by ray@lcorn on October 17, 2005 at 14:50:54:
Rob,
Sorry for the delay in responding… I missed this post.
The technical answer would be to value the property based on replacement cost to set the upper limit. That’s the land value plus the permanent improvements, less deferred maintenance and depreciation. With MHPs the zoning itself often has value, so the hard costs are not always the whole picture.
However, in practice deals like this usually come down to plain old dealmaking… what I call finding a mutual level of pain… which is the least the seller will accept and the most the buyer will pay. A deal is only possible when those numbers overlap.
In 25 years I have never had a seller give a darn how I came to the value. They care only about the number and whether it’s below their pain threshhold. Throw in the possibility of structuring seller finance terms and you’ve got plenty to talk about other than price. I often create multiple scenarios… sometimes I share them with the seller and let them choose, sometimes not. That’s a judgment call based on the circumstances.
To craft workable offers the investor must first flush out the seller’s hot button. Then craft a deal structure (price and terms) that addresses the hotspot, and also provides an acceptable profit for the level of risk involved. Your thought of a cash-flow mortgage is the right thinking.
ray