Re: Mobile Home Park - Posted by ray@lcorn
Posted by ray@lcorn on June 29, 2000 at 09:02:41:
(Note: This is a copy of the post on the commercial forum, with an added postscript.)
Murf,
The way I would evaluate this deal would be to value the pieces. That is to say that since the deal has several different elements, each element needs to be valued, then put it all together to determine overall value, discounted for packaging.
First, value the cash flow from the spaces. Use the historical rent revenue and apply an appropriate capitalization rate for the condition and location of the property. The two possible spaces have no value other than raw land value. Read “cheap”. You will need to count the four spaces with rental homes as space rent only when valuing the cash flow. Also, I can’t get a figure on a per space value without separating the value of the house out of the sale price.
Value the house in accordance with what similarly situated houses have recently sold for in the market. Pull some comp sales, establish market rent for such a house, determine whether you’re better off by renting it or selling it, and value accordingly.
The six mobile homes are pure liabilities in my book. The four that are in the park I would assign a very low, as-is sale value and explore the possibility of removing them if old and undersized. The two off-site I would not fool with unless they were at least 14’ wide and could be acquired for very little money. Remember that it will cost a couple of thousand dollars to set them up, and unless they are the types of homes that will be an asset to the park, why bother?
Next are the expenses. Just as Ernest mentioned, I am very skeptical that the expenses you list are complete. Remember property taxes, insurance, utilities, maintenance, etc. must be included. Use only actual historical rents for value. Potential rent is only used in projecting future value, as a result of YOUR efforts, not the seller’s.
Then pull all of your numbers together and see what you’ve got. I would need to see the actual revenue and expenses from each element of the deal (e.g. space rents, mobile home rents, house rents, etc.) before being able to go any further in structuring an offer. I’ll be glad to help you do that if you can supply the additional details above.
It sounds as if your seller may be becoming motivated. Has the property been on the market a while? If so, then it may be the right time to structure a good deal. You mentioned they will carry a note, do you know how much cash they have to have and for what? See if you can get some insight as to where the seller wants to be at the end of the deal.
Your job is to intelligently dissect the property and come up with a solution that solves the seller’s needs and provides you a return and reward for your knowledge, capital and effort. Good luck, and I’ll be happy to help further when you get more details.
ray
p.s.
For more on how to value the disparate pieces of a mixed property deal like this, Doug Ottersberg wrote an excellent series of articles in the Money Making Ideas section of this site called “Turning Trailer Courts into Communities.” In part 2 he illustrates the effect of rental home income on a valuation.