Welcome back to the latest installment of our MHP Evaluation series. Previously, we discussed how reviewing expenses and adjustments gives you a huge leg up. The process includes separating several different factors; i.e., incoming expenses, lot rent expenses, insurance, real estate taxes, and more. You can also review the first installment here.
The MHP Expert has long been dedicated to assisting fellow members of the MHP space. In the past, we’ve offered our signature MHP masterclass to the public. In it, we provide templates that act as sort of a check off list to keep your expenses and adjustments on track. They help paint the full, complex picture, allowing your efforts to be more pointed and effective.
More Adjustments, More Problems
When we last left off, we discussed how an ideal park is one with no POHs, and clean expenses and income. Also, the less adjustments, the easier the underwriting. But in truth, most parks will have a pile of adjustments needed. And as stated, the inclusion of POHS in the mix makes things even more complicated.
That’s not to say it’s an impossible figure to get. There are actually a few equations that can assist. Adjust your expectations now though. These will often still be general, ball park values for the home itself. NADA is a great resource to obtain this number. Think of it as an equivalent to Kelly Blue Book, except for MHPs. Again, it isn’t without its limitations. NADA doesn’t take the condition of a particular home into account when spitting out a number.
What The Condition of Your Park Means For Value
Keep in mind that even a vacant, disgusting home is worth $5,000 in today’s market. But a brand new home can easily reach up to $80,000 in valuation. This discrepancy can have a dramatic effect on how the pricing works for the rest of the equation. If you’re only getting $100,000 per home, but there’s actually $500,000 worth of homes, that’s affecting cap rates from the underwriting model.
You also have to be meticulous about carving out each asset group within a completed package of a park. I.e., lot renters, POHs, RTOs, apartments, single family homes, storage units, and RV lots. Segmenting each of these values and equations will get you a good idea of the value. A house, apartment, or RV lot can even be thrown in with underwriting on tenant owned home equations.
A Final Note On Park Evaluations
Be careful when merging all of these factors together; it’s easy to muck things up on the value side. For example, let’s say you have 20 MHP lots, and 100 storage units. It wouldn’t be wise to claim having 120 units. If you do try to use that number against the sale price, you’re looking at a lot of inconsistencies in your figures.
Our third installment, and we haven’t even begun to scratch the surface! By now, you know just how difficult of a process this is. Don’t try to do it on your own when there’s so many good brokers out there to help maximize your time and get your results. For more questions about getting started in the MHP industry, contact us today!
