Posted by ray@lcorn on April 10, 2000 at 11:22:50:
Earl,
The first thing you will have to have in order to evaluate the property are the actual operating numbers. The figures you supplied above are what is known as a “pro forma” statement. That tells you what the income SHOULD be, but not what it is. I don’t know how you got the monthly expense figures, but you’ll need annual figures to be accurate in a valuation. I would not recommend annualizing a monthly figure, nor would I divide an annual figure by 12 to project monthly income because the expenses will rise and fall with the seasons (especially water). Income will fluctuate with vacancies and late payments. All of these things combine to show you the actual operating history of the park.
I generally require a seller to furnish me with three years of income and expense statements, and sometimes two years of monthly statements. I would also verify those numbers with bank deposits and tax returns. I am especially diligent about checking water usage and costs. MHP’s are notorious for leaks.
Once you have that information you can begin to draw a more accurate picture of the quality of the property. Until you have actual numbers, you’re guessing.
From the info you posted it looks like there could be some potential for upside. However, be careful. That many vacancies (12) along with 8 vacant homes makes me question the market. I would want to know how many overall spaces and how many vacancies there are in other parks in the area. I would also want to know what the population trend is in the area, growing, declining, etc. You might also want to check with the local planning department to verify the property is zoned correctly and that there are no restrictions on placing new units. They can also give you information about the population trends in the area, as well as how many building permits have been issued for mobile homes in the past few years. Also pay attention to the size of the lots in the park. Will the newest homes fit? The density on this park is almost 7 per acre, which is fairly tight.
All this information will help you to make an intelligent decision about the worth of the property in its current condition, as well as give you an idea of what to realistically expect as far as upside. Every property has its own story. Your job is to hear it!
Hope this helps,
ray