How Do You Calculate the Value of Your Mobile Home Community?
There have been a lot of changes to the housing market recently. As such, you might be wondering how to properly evaluate the worth of your mobile home community.
If you have been keeping an active eye on mobile home park sales, you may have read about some selling for astronomical prices over the past few years.
While there are always specific reasons for higher-priced sales, it’s understandable that this information may lead you to want to know the value of yours.
A quick search online reveals that mobile home park investment opportunities are everywhere. Even parks with minimal lots are going for quite a bit of money. For example, a 14-unit mobile home park in Idaho is currently listed for $1,750,000, while a mobile home park in Wyoming with 245 lots is selling for $16,500,000.
More often than not, mobile home communities are worth a lot more than you might expect. Could yours be one of these high-value properties, as well? There’s really only one way to find out! Let’s explore some formulas for determining the value of your mobile home park.
Valuing Your Mobile Home Community
Before we jump into equations, let’s discuss rent. There are two types of rent that mobile home park owners tend to collect from tenants: Lot rent and home rent. The latter is what a tenant pays you if they don’t own their home and instead rent one from you.
It’s likely that some tenants within your mobile home park pay home rent, while others don’t. So what is lot rent? Lot rent is rent that’s collected from every tenant that occupies a space on your property. That rent is paid to use your land and utilities.
It’s important to understand the difference between these two types of rent, as they aren’t always used together when formulating your value.
Land Value Formula
Even if you aren’t particularly proficient in math, it’s easy to evaluate your mobile home park. First, you’ll need to tally up the average monthly lot rent (not home rent) within your community and multiply that figure by the total number of occupied lots.
It’s important that you don’t include any lots that are delinquent. So if the average monthly lot rent is $400 and you have 100 lots, you should come up with $40,000 a month.
The next step is to multiply $40,000 by 12, for each month in a year. Calculating those numbers comes out to $480,000 in annual income.
If you have tenants paying home rent each month, you might be tempted to factor those in with your monthly lot rent.
However, doing so would give you an incorrect value. Home rent income doesn’t apply to the overall value of your mobile home community at this juncture.
Back to the $480,000 we came up with in our hypothetical scenario, then. That figure gets multiplied by your operating income ratio.
If your operating expenses are 30%, then your net operating income (NOI) is 70%. 480,000 x 0.7 = 336,000. This shows that your value is $336,000 after expected expenses are accounted for.
*If you want to skip the math yourself, request a free valuation here. This service includes a detailed overview of your mobile home community's value completed by a specialized investment broker. We’re more than happy to help you know the true value of your asset!
What is a CAP rate? “CAP rate” is a term in commercial real estate that refers to the way a building is evaluated. It’s calculated by taking the net operating income, NOI, and dividing it by the cost of the building in order to give the rate of return.
The average CAP rates that mobile home parks sell for are between 8 and 10%. That’s nearly 10 times what the average annual income is for mobile home communities.
Now, let’s assume that your CAP rate is 7%. $336,000 ÷ .07 = $4,800,000
Not bad for a 100-unit mobile home park! Remember, we’ve already deducted your expected expenses, making $4,800,000 a rather profitable figure. If numbers like this seem enticing to you, they should! Now could very well be the best time to sell.
Again, if the math or terminology are foreign to you, our broker is more than happy to determine the value of your mobile home park and explain what his conclusions mean for you.
Sell Your Mobile Home Park
Are you ready to sell your mobile home community?
We encourage you to contact our broker, Virgil Nethercott, at Virgil Brooks Investment Real Estate. He’ll assist you in making the best decision for your future.
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