Investing Trends

Like most existent estate the Seller usually desires too much and the buyer desires to pay too small for a mobile place park. Certain purchasers may have got different motives for purchasing a certain parkland (1031 money, ability to obtain better financing, transitions to other uses, and location to where they live). In this book we will only look only at the value of a mobile place parkland for the typical purchaser who will go on to run it as a mobile place park.

Anyone that have got seen an assessment on a house or most types of existent estate will have heard reference of the 3 attacks to determining the value of that existent estate. They are the Cost, Sales, and Income Approach.

Unless you are coming up with the value of a trade name new mobile place parkland or one that is predominately vacant, I make not see any ground to utilize the cost approach. It is not likely that a new mobile place parkland will be built nearby and what it would be to construct a new parkland makes not even take into business relationship the amount of time, effort, and money it takes to fill up that parkland up with occupied and paying residents.

As far as the Gross Sales or Market Comparison attack to value, this is also highly suspect. This is based on comparing the sale of the topic place with other recent gross sales and adjusting for differences that you may or may not cognize about. Problems with this attack include varying expenses, rents, and management. Whether you are an investor or valuator I would just utilize this attack as possible information and not pull any decisions from it. Here is a speedy illustration of the improper usage of this attack from my experience:

Examples

Property A: 50 lots, 100% occupied, Batch Rent of $179.00. Tons will throw a upper limit place size of a 14' ten 60' – Water and Sewer is submetered back to occupants - NOI of about $75,000.

Property Type B (10 statute miles from Place A): 53 lots, 10 vacancies, Batch Rent of $150.00. Tons will throw 16' ten 80's and doublewides. Park pays H2O and sewerage - NOI of $45,000.

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

The proprietor of Place A(one of my LLC's) travels to the depository financial institution to refinance the place in January of 2005. The valuator appraises it at $400,000 and topographic points the most accent on the Gross Sales Comparison Approach as Place Type B just sold and it was a superior place in footing of size, appearance, and location. In fact in the assessment report, he claims that we were charging too much and that our Numbers were inflated.

After arguing with the depository financial institution and valuator for a couple of weeks, we were refunded our money for the appraisal. In the meantime, we were approached by another investor who made us an offering of $645,000 for the parkland and we accepted and the sale closed by the end of March 2005. Iodine really wanted to direct the valuator a transcript of the shutting statement with a nice missive but decided against it.

The point is that even though one parkland may look nice, be in a better location, and have got so much more than than than departure for it on the surface, makes not intend it is deserving more per space or even deserving as much per space as an inferior looking park.

As a side note, once I establish out that place Type B was sold for $425,000 I was in contact with the new proprietor and tried to purchase the parkland from him - I offered him $50,000 more than he had just paid and he didn't desire any portion of it. He knew he had just made a enormous bargain and was already raising the rents and starting to acquire his tons filled up.

The 3rd attack to value is the Income attack and I happen that this is really the best and only manner to measure a mobile place parkland correctly. I have got come up up with a basic expression in which I value the parkland based on what it is currently doing, what it should be doing, and what it will make once I implement some basic alterations and tally it more than efficiently.

Here is my criterion procedure in estimating the value:

I desire to cognize how many tons there are, how many are occupied and paying, what the batch rent is, what disbursals the proprietor is paying, and who is responsible for the H2O lines, sewerage lines, and roads. (Example Provided Below)

A good regulation of pollex that I utilize to begin with is that I take the figure of occupied spaces and multiply this by the norm monthly space rent and multiply this by 70.

For illustration if the parkland have 110 spaces with 10 vacancies, a monthly norm space rent of $200. Then my initial value computation is 100 x $200 x 70 = $1,400,000.

If the parkland is on the marketplace for $3 million Iodine will probably pass. If the parkland is on the marketplace for $1,800,000 or less than I will probably look into it further. Remember this simple computation is very generic and may or may not be the true indicant of the value of a mobile place park.

In looking at the parkland in more than detail, I will inquire for existent operating income as well as existent operating expenses.

The operating disbursal ratio can change significantly from one parkland to another in the same metropolis even if placed next to one another. One of the biggest disbursals in a parkland is the H2O and sewerage expense. If the occupants of the parkland are paying this disbursal then you can anticipate the operating disbursal ratio to be as much as 15% less than the average.

I owned a parkland in Northeastern Lone-Star State a few old age ago that had the last disbursal ratio that I have got ever dealt with(I repent ever selling it). Although this parkland had big tons 60' ten 120' and up, it was filled with old places (trailers). We even had some old RV's and campers renting lots. Usually when you meet a parkland such as as this with old tally down places and dawdlers they are usually stacked on top of each other with about 20 per acre. This was not the case. Each place was on a big batch and every clip I drove through the parkland it seemed that the places had aged respective more than years. Anyway, the parkland had 94 spaces and each space was separately metered for all public utilities by the metropolis and public utility companies. The streets were owned by the city, the metropolis was responsible for the H2O and sewerage lines up to each home. The metropolis paid for the street lights. We had basically 5 expenses:

Taxes: $1100 per twelvemonth (the assessed value of this parkland was under $60,000!)

Insurance: $2,000 per year

Management: $700 per calendar month plus free batch rent – about $10,000 per twelvemonth

Telephone: $0 – the director used his telephone number

Repairs: $2000 per twelvemonth on norm (the lone fix we had was each clip a place moved out and a new place moved in we had to update the electrical base – about 3 per year)

Office & Travel: $600 per year

In the 3 old age I owned the park, the disbursals never totaled more than than $16,000.

The gross collected income over these 3 old age averaged just over $135,000. So this parkland had an disbursal ratio of under 12%.

This is truly an exclusion to the regulation and the director I had at this parkland was amazing and we had aggregations in extra of 97%. It is rare that you are able to happen a parkland with such as a low disbursal ratio but it is possible. The usual lawsuit is that you happen a parkland that is listed for sale and the projections or proformas have got got disbursals that are ridiculously low and may not have disbursals listed for repairs, working capital improvements, management, coverage and so on.

The value a mobile place parkland may be $2 million for one individual and $1.5 million to person else. The cardinal is really deciding what you are willing to pay based on your outlooks of what type of tax return you desire on your investment. This taxation return on investing will come up in respective different forms:
• Monthly/Yearly Cash Flow

• Tax Savings

• Equity Buildup

• Appreciation

• Rent Increases and Expense Reductions

In analyzing the fiscal statements and tax returns, they are often different. The fiscal statements usually have got got got more than than income and less disbursals and the taxation taxation tax returns usually have less income and more expenses.(however, I have seen in some lawsuits that the tax returns are also overstated in order to demo a better network income when it come ups clip to sell or refinance a park. If by paying taxations on an further 20k in taxations for a couple of old age additions the value of the parkland by 200k then a existent sophisticated and dishonest marketer may be trying to draw a fast one. So be careful.

The cardinal then is to accommodate the taxation tax return with the net income and loss statement and then interject world into the whole process.

Figuring out the existent income is usually not too difficult. You can take the existent figure of spaces in the parkland and multiply this by the existent rents being charged and deduct out a sensible allowance for aggregations and you should be able to come up up with a good estimation of the income. I usually utilize 3% arsenic the aggregations expense.

The adjacent thing to make is to come up up with the awaited disbursals based not only on how the parkland is currently operating but also based on how the parkland will run with you as the new owner. For example, if the current proprietor is managing the park, then you necessitate to stop up in an amount for direction and paysheet taxations and workers comp. If the parkland have vacancies and there is no advertisement expense, then you necessitate to stop up in an amount for advertising. And so on.

Common disbursals for Mobile River Home Parks. Not every parkland have got all of these disbursals and some have further disbursals but this is a good starting point.

Advertising

Depository Financial Institution Service Charges

Depreciation

Insurance: Liability

Insurance: Property

Insurance: Workers Comp

Interest: Mortgage

Legal and Accounting

Licenses and Permits

Care Labor

Management Offsite

Management Onsite

Mowing & Landscaping

Postage

Rent Discounts & Incentives

Repairs: Equipment

Repairs: Property

Modesty for Capital Improvements

Supplies: Maintenance

Supplies: Office

Taxes: Payroll

Taxes: Property

Telephone

Travel

Utilities: Electric

Utilities: Gas

Utilities: Trash

Utilities: Water & Sewer

In most lawsuits when you reexamine a gross sales bundle for a mobile place parkland for sale it will not advert any modesty for working capital expenditures. This really should be addressed in your rating of the parkland and in the owed diligence phase. Items like replacing all the H2O lines or sewerage lines for aged parks, resurfacing the roads, topping all the trees, are big disbursals that tin happen in the hereafter and they should be budgeted for. While they are not expensed for income taxation intents they are capitalized and depreciated over 15 old age or so, and are therefore existent costs. I would include at least 2-3% of gross income as a Modesty for Capital Improvements in your Numbers when determining the value.

You will happen some Sellers that disbursal everything and then happen the antonym where proprietors capitalise as much as possible to do the underside line expression better. Spend some clip going through all the disbursals and estimating hereafter working working capital improvements.

After coming up with the income that the parkland is currently generating and deducting from that all the awaited operating disbursals including the modesty for capital outgoes you will have got what is called the Net Operating Income.

If you take the Net Operating Income and watershed this by the terms you come up up with the Capitalization Rate (Cap Rate). Also, if you split the Net Operating Income by the Cap Rate you come up up with the terms and so on.

Now this is where subjectiveness come ups into play. I retrieve not too many old age ago you could purchase 50 -100 unit of measurement mobile place Parks valued in the 12 – 14% cap charge per unit range. It is difficult to happen these trades anymore. Add into that the fact that the involvement rates were so low for the last few old age and the 12-14 caps are now 7-10 caps. The demand for good quality mobile place Parks is and have been much greater than the supply. There are even stabilized Parks that I have got seen purchased for 5 & 6 percentage caps. These were not just for renovation intents either.

What is a good cap rate? The reply is really up to the buyer. Some purchasers state me they desire at least a 7 cap, some state 10 cap, some say 15 cap(I say good fortune to these people).

So in reality, a certain mobile place parkland will have got a different value to each and every person. The thought is to do up one's mind what you desire or will necessitate in footing of your investing and then work to make the trade tantrum these requirements.

If you desire a 10 cap on a place priced at a 7 cap, it makes not necessarily intend you should go through on the deal. For instance, what if the parkland have rents that are $50 under marketplace and through your reviews and owed diligence you cognize you could raise the rent to marketplace rates in 2 months. What if this would do it a 10 Cap? Another possibility would be to set it under contract and then in your owed diligence you state the marketer that you desire to travel forward with the purchase but in order to do so and to fulfill your loaners requirements, obtain an adequate appraisal, and/or make the needed tax return on your investment, you necessitate to have got him direct a rent addition notice out right away so the rates are where you desire them at closing.

In another example, say the parkland have an NOI of $80,000 and is priced at 1 million. Also, say that the parkland is currently paying for H2O and sewerage and this disbursal is running approximately $30,000 per year. You cognize that you could put in H2O metres and go through this disbursal on to the residents. You desire a 10 cap on your purchase. You could very well buy this parkland and recognize the tax return you desire very quickly in states of affairs such as as this. If the rents are under marketplace or there are disbursals that tin be reduced or other ways to increase the nett income with minimum work and hard cash spending you might pay other for a parkland if it otherwise rans into your investing criteria.

As my general regulation when dealing with Parks that are boundary line but have got the possible to increase in value and offering an acceptable tax return on investing by raising rents or reducing expense: I generally will add up to 50% of the value from these speedy holes to my offering on a park. So if I can increase the rates to marketplace and cut down disbursals and this additions the value of the parkland by $100,000, then I would see adding $50,000 to my offering terms if necessary. After all, we should gain something from our expertness and doing what the proprietor could have got done already.

Other considerations on the value of the parkland will be the entrances, streets, landscaping, utilities, parking, lights, storage sheds, figure of singles versus doubles, swimming pools, clubhouses, etc. The nicer the parkland typically the less the cap charge per unit and the easier it will to tap into better funding programs.

Other Value Considerations:

Vacant Lots:

When buying a mobile put parkland that have vacant tons which are ready to be occupied, what value, if any should you place on these lots? We just came up with the value we are willing to pay based on the NOI and the cap charge per unit we are looking for. So, unless these homesites will fill up up with minimum attempt and investment, I would not put much of a value on them at all. In fact, having empty homesites that are difficult to lease out volition end up costing you money in footing of monthly care and time. I would definitely point this out to the marketer as a negotiating point. Many Sellers like to state there is upside on all the vacant spaces. However, if this top was easy to obtain, then the marketer would have got most likely realized it before selling.

In some cases, you will be able to fill up up the homesites with minimum investing and attempt so you may put a value of 25-50% depending on your comfortableness level. I would definitely thin toward the 25%.

Park Owned Homes & Notes:

When buying a mobile place parkland where there are parkland owned rentals, rent-to-own homes, and mobile place short letters it is of import to interrupt out the income and disbursals from this part of the concern from the lot/space lease portion.

Many modern times the income and disbursals from the full trading operations are lumped together and the marketer or agent states the place is priced at say a 10 cap.

Here is the job with this attack of lumping it all together:

Suppose you have got 10 mobile places that are renting for $350 above the normal batch rent per calendar calendar month and that there is an further disbursal of $100 per mobile place each month. You basically have got a nett of $250 per calendar month for each place or $3,000 per year. If you are capping this income at a 10 cap, you are placing a value of $30,000 per mobile home. Now there may be some nice doublewides that are being rented in some Parks that are deserving $30,000 but it is not the norm. Most of the time, these places are aged singlewide places that may have got a value from $3,000 to $10,000. So if you are valuing them at $30,000 you are paying too much!

Another state of affairs happens when you have got mobile place short letters or rent–to–own homes. Lets state you have got a short letter payment of $200 per calendar month in improver to the batch rent and that the balance left is $8,000 on the note. The monthly payments of $200 per calendar month will add up to $2,400 per twelvemonth and if you crest that at 10% then you are paying $24,000 for an $8,000 note. Not a great investing move!

So what make you pay for these types of further income sources?

Mobile Homes Rented Out: Many people will state that you should pay what the place is deserving on the marketplace if sold for hard hard cash or for cash with outside financing. My expression is that I will pay about 75% of what I experience I can sell the place to the current tenant for on a rent-to-own agreement with a term of 3-5 old age and also increase the batch rent in the process..

Here is an example:

A place is being rented for $425 per calendar calendar month and the batch rent is $200 per month. I will near the current tenant and state them if they go on paying rent for 3 more than years, then I will delegate the statute title over to them and the place will be theirs. In the rent-to-own agreement, I stipulate that the batch rent is $225 per month(not $200) and after 36 monthly payments of $200 asset batch rent, the place statute title will be transferred to them.

In this case, I would not only be receiving 36 x $200 or $7,200 for the home, but I have got also increased the batch rent for that place in the process. When I acquire ready to raise rents for other occupants in the park, I can always state that there are other people already paying the higher rates. So, in this lawsuit I would pay somewhere in the $5,000 to $6,000 scope for this home. ($7,200 x 75% = $5,400)

Mobile Home Notes and Rent-to-Own Agreements: When I am purchasing short letters and understandings that have got already been created by the current seller, I will typically utilize the less of the value of:

• 75% of the value of what I can resell the place to a new tenant in lawsuit of default as deliberate above; or

• 65% of the hereafter short letter or rent-to-own payments.