In Case Study #1, we will evaluate a 120-space mobile home park that has 100 occupied lots and 20 vacant lots.
Note: For the sake of simplicity, I’m going to use mostly round numbers in my examples.
Case Study #1 Evaluation of a 100-Space Mobile Home Park: A 120-space mobile home park that has 100 occupied lots and 20 vacant lots.
In this example let’s say we have an average lot rent of $300 a month, 35% operating expenses (that’s 35% of the gross rental income), with a monthly mortgage payment of $8,300. In this example the 20 vacant lots are worth nothing (as they don’t currently produce income), so Let’s figure out the NOI, Cash Flow and Value of the remaining 100 occupied lots…
NOI Calculation of 100 occupied lots: $300 (monthly lot rent) x 12 months = $3,600 of gross annual income per lot. $3,600 x 100 lots = $360,000 annual gross income for 100 occupied lots.
Now subtract 35% of $360,000 for operating expenses ($126,000) and you are left with an annual NOI of $234,000 for the 100 occupied lots.
OK, well how do we calculate the cash flow from our NOI?
NOI – Mortgage = Cash Flow: So, our NOI is $234,000 for these 100 occupied lots in this scenario. Don’t we have to pay a mortgage? Typically, yes. If you do have to pay a mortgage, you’d still have to subtract that from your NOI to figure out the remaining cash flow amount. For this example, we are using $8,300 for our monthly mortgage payment.
$8,300 x 12 (months) = $99,600 in annual mortgage payment.
Our annual NOI is $234,000 – our $99,600 annual mortgage payment = $134,400 in annual cash flow.
Note: You can divide this by 12 to get the monthly cash flow for 100 lots ($134,000 / 12 = $11,200 monthly cash flow) then again by 100 to get the monthly cash flow per lot ($11,200 / 100 = $112).
NOI / Cap Rate = Value: We have our NOI and cash flow evaluations, so let’s take a look at the value of each lot and the total value of the park.
Annual NOI for one lot = $2,340 (as calculated above)
Now apply a 10% cap rate to that NOI ($2,340 / 10%) and you end up with a value of $23,400 just for one lot.
Now multiply that by 100 lots and you have a $2,340,000 value for this MHP.
Additional Considerations: For simplicity sake, I have not taken vacancies/delinquencies (or applicable late fees) into consideration for the small percentile who are late on rent. Also, if the park owned some of the homes, we have to discount the market value of those homes by about 30% then add that discounted home value to the value of the park to get the total value of the park and the homes. If immediate repairs need to be done to the park (e.g. repave roads, replace electrical pedestals etc.) then subtract the immediate repairs $ amount from the total park and home value to give us our purchase price. For the sake of this exercise, let’s keep it simple and assume all homes are tenant owned and the park doesn’t need any repairs.
Check out my next blog “Mobile Home Park Evaluation – Case Study #2… the benefits of forced appreciation”, where we look at the same 120-space mobile home park with 120 occupied lots (forcing appreciation by having an extra 20 lots paying rent).
To learn more about the ins and outs of mobile home park investing, how to avoid pitfalls and maximize profits, all from the comfort of your own home: Get your hands on the “A to Z of MHP’s – everything YOU need to know about mobile home park investing – Home Study Course!” https://bryce-s-school-cb49.thinkific.com/courses/a-to-z-of-mhp-s-home-study-course
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