Re: Mobile Home Park - Posted by ray@lcorm
Posted by ray@lcorm on April 27, 2000 at 14:22:30:
Mobile Home parks are just like any other income property. What has value is the income stream. An all vacant park wouldn’t be worth much more than the land cost.
What determines the value of an income stream is a function of the risk and effort involved in maintaining it. The higher the risk and the more effort required to collect the income, then the higher the required return for the risk and effort, and hence the lower the price. In a nutshell, that’s what valuation is all about.
The most common way of valuing an income stream is through the use of a capitalization rate (cap rate) applied to the Net Operating Income (NOI). Cap rates are really nothing more than a way of quantifying the risk and effort involved in the collection of the income stream. You start with an accurate calculation of the TRUE NOI from the property (NOT pro forma numbers), and grade the investment on the rate of return as if the purchase were all cash. The higher the return, the lower the price.