The Best Way To Value A Mobile Home Park

Like most actual estate the Seller normally wants as well a great deal and the purchaser desires to spend too tiny for a mobile residence park. Specific buyers might have distinct motivations for getting a particular park (1031 dollars, ability to receive better financing, conversions to other makes use of, and location to where they live). Within this book we will only appear only in the value of a mobile household park for the typical buyer who will continue to operate it as a mobile house park.

Any person which has observed an appraisal on a residence or most kinds of real estate will have heard mention in the three approaches to determining the worth of that real estate. They are the price, Sales, and Earnings Method.

Unless that you are coming up using the worth of a brand new mobile dwelling park or 1 that is definitely predominately vacant, I don't see any purpose to work with the price approach. It truly is not probably that a brand new mobile home park might be built nearby and what it would price to develop a new park does not even take into account the amount of time, effort, and money it takes to fill that park up with occupied and paying residents.

As far because the Sales or Marketplace Comparison strategy to value, this can be also extremely suspect. This can be based on comparing the sale in the topic house with other recent sales and adjusting for differences that you simply may possibly or might not know about. Difficulties with this approach involve varying expenditures, rents, and management. Irrespective of whether you will be an investor or appraiser I'd just use this strategy as potential information and not draw any conclusions from it. Right here is really a quick example with the improper use of this approach from my knowledge:

Examples

House A: 50 lots, 100% occupied, Lot Rent of $179.00. Lots will hold a maximum residence size of a 14' x 60' - Water and Sewer is submetered back to residents - NOI of about $75,000.

House B (ten miles from House A): 53 lots, ten vacancies, Lot Rent of $150.00. Lots will hold 16' x 80's and doublewides. Park pays water and sewer - NOI of $45,000.

Property B is sold in December of 2004 for $425,000.

The owner of House A(one of my LLC's) goes to the bank to refinance the property in January of 2005. The appraiser appraises it at $400,000 and places probably the most emphasis around the Sales Comparison Strategy as Home B just sold and it was a superior home in terms of size, look, and location. The truth is inside the appraisal report, he claims that we have been charging also a lot and that our numbers were inflated.

After arguing with all the bank and appraiser to get a couple of weeks, we were refunded our dollars for the appraisal. In the meantime, we were approached by a further investor who made us an give of $645,000 for the park and we accepted as well as the sale closed by the end of March 2005. I seriously wanted to send the appraiser a copy of the closing statement using a good letter but decided against it.

The point is that despite the fact that a single park might appear nice, be in a improved location, and have a lot a lot more going for it around the surface, will not imply it can be worth much more per space or perhaps worth as a lot per space as an inferior hunting park.

As a side note, when I discovered that house B was sold for $425,000 I was in make contact with using the new owner and tried to buy the park from him - I presented him $50,000 more than he had just paid and he did not want any portion of it. He knew he had just created a tremendous obtain and was already raising the rents and starting to get his lots filled up.

The third strategy to worth is definitely the Income approach and I discover that this really is definitely the top and only method to evaluate a mobile residence park properly. I have come up using a simple formula in which I worth the park according to what it is actually at the moment undertaking, what it should be carrying out, and what it can do after I implement some fundamental adjustments and run it much more effectively.

Here is my regular procedure in estimating the value:

I need to know how several lots you'll find, how numerous 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. (Instance Provided Below)

An excellent rule of thumb that I use to start with is the fact that I take the number of occupied spaces and multiply this by the typical monthly space rent and multiply this by 70.

For instance when the park has 110 spaces with 10 vacancies, a month-to-month typical space rent of $200. Then my initial value calculation is one hundred x $200 x 70 = $1,400,000.

In the event the park is on the market for $3 million I'll most likely pass. When the park is available on the market for $1,800,000 or less than I'll probably appear into it additional. Remember this very simple calculation is quite generic and may perhaps or may not be the true indication with the worth of a mobile residence park.

In searching in the park in more detail, I will ask for actual operating earnings and also actual operating expenditures.

The operating expense ratio can vary considerably from a single park to another inside the identical city even when situated adjacent to one particular one more. One of the biggest expenditures inside a park may be the water and sewer expense. When the residents of your park are paying this expense then you definitely can count on the operating expense ratio to be as substantially as 15% less than the typical.

I owned a park in Northeastern Texas a handful of years ago that had the lowest expense ratio that I have ever dealt with(I regret ever selling it). Despite the fact that this park had substantial lots 60' x 120' and up, it was filled with old homes (trailers). We even had some old RV's and campers renting lots. Ordinarily if you encounter a park which include this with old run down residences and trailers they are usually stacked on leading of one another with about 20 per acre. This was not the case. Every single home was on a big lot and each and every time I drove via the park it seemed that the houses had aged a number of a lot more years. Anyway, the park had 94 spaces and every single space was separately metered for all utilities by the city and utility firms. The streets were owned by the city, the city was responsible for the water and sewer lines up to each home. The city paid for the street lights. We had generally 5 costs:

Taxes: $1100 per year (the assessed worth of this park was below $60,000!)

Insurance coverage: $2,000 per year

Management: $700 monthly plus totally free lot rent - about $10,000 per year

Phone: $0 - the manager utilized his phone quantity

Repairs: $2000 per year on average (the only repair we had was each and every time a dwelling moved out as well as a new house moved in we had to update the electric pedestal - about 3 per year)

Workplace & Travel: $600 per year

In the 3 years I owned the park, the expenses never totaled far more than $16,000.

The gross collected earnings over these three years averaged just over $135,000. So this park had an expense ratio of below 12%.

This really is truly an exception towards the rule as well as the manager I had at this park was awesome and we had collections in excess of 97%. It truly is rare that you simply are able to find a park with such a low expense ratio but it is actually possible. The usual case is the fact that you find a park that is definitely listed for sale plus the projections or proformas have costs that are ridiculously low and might not have expenses listed for repairs, capital improvements, management, insurance coverage and so on.

The worth a mobile dwelling park might be $2 million for one particular person and $1.5 million to someone else. The key is definitely deciding what you will be willing to spend based on your expectations of what type of return you want on your investment. This return on investment will come in quite a few various forms:

o Monthly/Yearly Cash Flow

o Tax Savings

o Equity Buildup

o Appreciation

o Rent Increases and Expense Reductions

In analyzing the financial statements and tax returns, they may be often distinctive. The financial statements normally have additional earnings and less expenditures along with the tax returns usually have less revenue and a lot more expenditures.(however, I have seen in some cases that the tax returns are also overstated in order to show a superior net earnings when it comes time to sell or refinance a park. If by paying taxes on an additional 20k in taxes for a couple of years increases the value on the park by 200k then a genuine sophisticated and dishonest seller might be trying to pull a fast one. So be careful.

The key then is to reconcile the tax return with all the profit and loss statement and then interject reality into the whole process.

Figuring out the actual earnings is normally not too difficult. You may take the actual quantity of spaces inside the park and multiply this by the actual rents being charged and subtract out a reasonable allowance for collections and you ought to be able to come up having a good estimate in the revenue. I ordinarily use 3% as the collections expense.

The next thing to do is to come up with the anticipated expenditures primarily based not only on how the park is currently operating but also based on how the park will operate with you because the new owner. One example is, when the current owner is managing the park, then you need to plug in an quantity for management and payroll taxes and workers comp. When the park has vacancies and there is no advertising expense, then you need to plug in an amount for advertising. And so on.

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