Posted by Skip (CA) on April 09, 2000 at 23:57:51:
Basically you’re buying the dirt and therefore the monthly lease fees are representative of what you are purchasing. Including the rental income to calculate the value of the park skews the purchase price upward. Besides, you really don’t want to be in the MH rental business from what I hear. Look up some of the posts or articles concerning this subject from Lonnie Scruggs, Doug O, and Ray Alcorn, and David S too, in the archives. As an example look up a response from David (S)egars on February 15th under the subject Mobile Home Parks 4 Sale. Yes 40% is killer! It may be too high, but I’d rather be a little too high and be safe than a little to low and not have any cashflow. If you don’t include something for management, even if you’re doing it yourself, you’re working for free. If you don’t include something for vacancies you’re kidding yourself. What about deferred maintenance? What about zoneing? Can the park continue as a park if it’s sold to a new owner? Have the utilities been upgraded? Be sure to get the owners Schedule E, rent rolls, etc
How about the size of the spaces? Are you limited by them? Are the MH’s mostly single wide,double wide or? Again, I’m not an expert on MH parks but it has been my experience that one of the major areas where an investment fails is if the expenses are undervalued. Again, in the archives, you should find a due diligence list by/from Ray Alcorn that is at least a page in length that will give you more information about the park than the present owner probably knows. With this information you’ll be better able to negotiate a “reasonable” price for the park. Hey, after reviewing all the information, maybe you’ll find out that the price they’re asking is reasonable.