Valuing A Mobile Home Park: Benefits And Mobile Home Park Expenses
In the tough real estate market, investing in a mobile home park is a beneficial deal. From lower cost to easy maintenance and less tenant turnover, there are plenty of perks to enjoy. If you are investing in one, learn about mobile home park expenses and how to value a mobile home park.
In the modern real estate industry, a mobile home park is considered as a safe and smart deal. When the property prices are regularly fluctuating, a mobile home park is a low-risk investment. In addition to low prices, it comes with a range of additional benefits, such as lower repair cost and less competition.
However, the investment comes with plenty of questions, including many around mobile home park expenses. How many mobile homes are there? Who is responsible for facilities like roads, sewer lines, water supply, etc?
How To Value Mobile Home Park Expenses
If you are thinking of investing in a mobile home park, there are plenty of things to consider.
- Initial Value Calculation
The easiest way to begin with is to consider the total number of occupied spaces, average monthly rent, and vacancies. After that, multiply the available numbers by 70.
For example, there is a park with 210 mobile homes, and there are 10 vacancies. Here, the occupied spaces are 200. Assume that the average monthly rent is $300. Now:
The initial value calculation is: 200 X $300 X 70 = $4,200,000
If a park is asking for $6,000,000 or more, it is wise to pass. On the other hand, an offer within $5,000,000 can be a good deal.
Here, it should be remembered that the calculation is very generic, and the actual valuation can be different from it. While investing in one, ask for actual monthly rent and mobile home park operating expenses. Apart from that, keep in mind that the operating expense ratio may differ from one park to another.
- Type of Return
There is always a possibility that the cost of a mobile home park is different for different buyers. For example, the price of the same mobile home can be $5,000,000 and $5,100,000 for different potential buyers.
What amount should you pay is based on your expectations and the type of return you want in return. It comes in multiple forms, including:
- Tax savings
- Cash flow (monthly or yearly)
- Net Income
Generally, parks have a high net income. As per reports, the average rent of a mobile home park in the US can be $280 per month. Also, the average expense ratio is around 40%. It means, the yearly average mobile home park income is $2,016. If there are at least 50 spaces, you can earn at least $100,000 per year, which is a good turnout.
Apart from that, mobile home parks sell for cap rates between 8% and 10%, which can be around 10 times the yearly income. It means a lot of 50 homes can be an over-one-million deal.
Although the average monthly cost of a mobile home is very low in the US, it may rise in the future. However, it may remain a cost-effective option for buyers.
Many factors come together to figure out mobile home park expenses, but the best way to find them is to ask around. Talk to real estate experts and mobile home park owners to know the actual expenses. The correct figures will help you understand whether to make an investment or not!