How to Analyze A Mobile Home Park Deal
Updated: Nov 10, 2020
Getting the most returns out of your investment primary relies on three things – timing, market trends, and the best deal. Ideally, you should buy an asset at an asking price that is lower than its intrinsic (true) value. This rule is especially applicable when it comes to property investment, including mobile home parks, as the initial costs are often higher. In this article, we’ll educate you on how to analyze a mobile home park deal and better know whether you are getting your money’s worth out of it.
Net Operating Income
The first variable you should take into account when analyzing a property deal is its annual Net Operating Income (NOI). This is the income you earn after taking in all the legitimate expenses such as repairs, taxes, insurance, etc. into account.
If possible, you should ask the current owner to provide an NOI statement of the past 12 months, including a detailed breakdown of all the expenses.
The asking price listed for an MHP would often be that of what the current owner wants and doesn’t always reflect the market reality of its true value. You can arrive at a good estimate of the real value by taking the service of a professional property appraiser.
However, if you find such an option to be reasonably costly, you can consult a trusted real estate broker who may give you a fair assessment of price for free. Alternatively, you can research similar properties online and arrive at the average cost per unit square. Afterward, factor in such variables as infrastructure, location, utilities, security to arrive at a more accurate judgment of the true price.
The capitalization rate presents the ratio of NOI to property value. For instance, if an MHP has an assessed price of $200,000 and an NOI of $20,000, for example, then the cap rate would be 20,000/200,000, or 10%. For buyers, a higher cap rate is better as it implies that your initial investment is relatively lower.
Expected Capital Gains
The last factor you should take into account is the expected capital gains from the property. Just as with any assets, the value of properties increases (or decreases) over time dependent on a whole host of market conditions. Some of the main variables you can take into account in your prediction are projected economic growth, rate of development within the area and what recent class of tenants the MHP is attracting the most.
If you are new to MHP investment, it is highly recommended to take the help of a reputable real estate broker who specializes in the sector. Their expertise and experience in the industry can help you better analyze the attractiveness of a deal and whether it would be a worthwhile investment over the long-term.