Like most real estate the Seller usually wants as well a great deal and the purchaser wants to pay too small for a mobile home park. Certain buyers could have various motivations for purchasing a certain park (1031 cash, capability to receive improved financing, conversions to other makes use of, and place to where they live). In this book we will only appear only at the value of a mobile dwelling park for the typical buyer who will continue to operate it as a mobile residence park.
Everyone that has seen an appraisal on a property or most kinds of true estate will have heard mention of the 3 approaches to figuring out the value of that real estate. They are the Cost, Sales, and Revenue Approach.
Unless you are coming up with the value of a brand new mobile property park or 1 that is predominately vacant, I do not see any cause to use the price approach. It is not probably that a new mobile household park will be constructed nearby and what it would price to construct a new park does not even take into account the amount of time, effort, and income it takes to fill that park up with occupied and paying residents.
As far as the Sales or Market place Comparison strategy to value, this is also extremely suspect. This is based on comparing the sale of the subject house with other current sales and adjusting for differences that you could or could not know about. Troubles with this method contain varying costs, rents, and management. Regardless of whether you are an investor or appraiser I would just use this method as potential info and not draw any conclusions from it. Right here is a speedy instance of the improper use of this strategy from my knowledge:
Examples
House A: 50 lots, one hundred% occupied, Lot Rent of $179.00. Lots will hold a maximum property size of a 14′ x 60′ – Water and Sewer is submetered back to residents – NOI of about $75,000.
Property B (ten miles from House A): 53 lots, 10 vacancies, Lot Rent of $150.00. Lots will hold 16′ x 80’s and doublewides. Park pays water and sewer – NOI of $45,000.
Home B is sold in December of 2004 for $425,000.
The owner of Property A(1 of my LLC’s) goes to the bank to refinance the home in January of 2005. The appraiser appraises it at $400,000 and areas the most emphasis on the Sales Comparison Method as Property B just sold and it was a superior home in terms of size, look, and location. In reality in the appraisal report, he claims that we were charging also a great deal and that our numbers have been inflated.
Right after arguing with the bank and appraiser for a couple of weeks, we were refunded our revenue for the appraisal. In the meantime, we were approached by an additional investor who made us an supply of $645,000 for the park and we accepted and the sale closed by the end of March 2005. I really wanted to send the appraiser a copy of the closing statement with a nice letter but decided against it.
The point is that even even though one particular park might look good, be in a far better location, and have so considerably a lot more going for it on the surface, does not imply it is worth much more per space or even worth as a great deal per space as an inferior seeking park.
As a side note, once I located out that property B was sold for $425,000 I was in get in touch with with the new owner and attempted to purchase the park from him – I offered him $50,000 a lot more than he had just paid and he did not want any component of it. acet.de knew he had just made a tremendous invest in and was currently raising the rents and starting to get his lots filled up.
The third approach to worth is the Income approach and I obtain that this is really the best and only way to evaluate a mobile dwelling park properly. I have come up with a basic formula in which I value the park primarily based on what it is presently undertaking, what it must be doing, and what it will do when I implement some standard alterations and run it extra effectively.
Here is my common approach in estimating the worth:
I want to know how a lot of lots there are, how a lot of are occupied and paying, what the lot rent is, what expenditures the owner is paying, and who is responsible for the water lines, sewer lines, and roads. (Example Supplied Beneath)
A good rule of thumb that I use to get started with is that I take the quantity of occupied spaces and multiply this by the average monthly space rent and multiply this by 70.
For example if the park has 110 spaces with ten vacancies, a month-to-month average space rent of $200. Then my initial value calculation is 100 x $200 x 70 = $1,400,000.
If the park is on the market place for $three million I will almost certainly pass. If the park is on the market for $1,800,000 or much less than I will most likely appear into it further. Keep in mind this uncomplicated calculation is quite generic and may or might not be the true indication of the worth of a mobile household park.
In hunting at the park in a lot more detail, I will ask for actual operating revenue as well as actual operating expenses.
The operating expense ratio can vary substantially from one park to yet another in the similar city even if located adjacent to 1 another. One particular of the largest expenses in a park is the water and sewer expense. If the residents of the park are paying this expense then you can expect the operating expense ratio to be as considerably as 15% significantly less than the typical.
