If you are thinking of selling your mobile home park, it is likely that you have a lot of questions. One of the most important questions will be ‘How do I determine what my mobile home park is worth?’ This is a great question that will help you figure out what amount to list your property for, what kind of offers you can expect to get and which of these offers will be worth accepting.
There are many factors to consider when trying to determine what a mobile home park is worth and some of these will include concerns from the owner’s perspective while others will include concerns from the buyer’s perspective. Here is how you can break it down.
The Owner’s Perspective
The owner will want to consider certain factors so he or she can determine what price to ask for when putting their mobile home park on the market.
Number of Lots: The number of lots on a property will be an important factor in determining the value of the park. Generally, the more lots a property has, the more income an owner is likely to make. Therefore, a property with a lot of lots will be worth more money.
How Many Lots are Occupied with Paying Tenants: When a new owner takes over a lot, they will want to have a high percentage of occupied lots with paying tenants. This means they are already guaranteed income off these lots. It will also mean the property is desirable and is likely to be rented in the future. A high occupancy rate will allow owners to charge more.
What the Lot Rent is: The lot rent is another factor that will determine what buyers can look forward to as far as income once they buy your park. If there are a high percentage of occupied lots with owners paying reasonable rents, this means buyers can look forward to a healthy income and it will allow owners to ask for a higher price.
The Expenses the Owner Is Paying
When you own a mobile home park, it is likely you are dealing with a lot of expenses. Repairs and maintenance on outdoor and indoor areas come with the territory while owners could also be paying for certain utilities, WiFi and more.
The condition of the property should also be considered. It there is a need for a major repair, this could be extremely costly for a new owner.
Of course, any expenses will take away from the potential income an owner could be receiving and may decrease the value of the home.
Who is Responsible for Water, Sewer Lines and Roads
A mobile home park takes up a huge amount of space. The roads, water lines and sewer lines must all be accounted for. In some cases, these may be owned by the city, in other cases they may be owned by the property owner.
Property owners who own water lines, sewage lines and roads will have to pay extra fees, although these may be added to tenant’s utility bills. These owners will also have to pay for maintenance on these items. These are all expenses that will affect total income and the value of your mobile home park.
When a buyer sees your mobile home park, he or she will take your asking price and certain factors into consideration before making an offer. Here are some things a prospective buyer will be thinking about.
- Financial: Buyers will consider the expenses they will incur and income they will stand to make from their purchase to come up with a reasonable offer.
- Insurance: When buying a mobile home park, there are many types of insurance involved. General liability should cover the park, any home sales and all associated operations. If you have employees, you should have workers comp in place to cover medical expenses and lost wages if a worker is injured on the job. It’s also a good idea to list and insure any improvements made on your property including things like ground utility infrastructure, signs, fences and smaller buildings. Failure to include data breach and tenant discrimination coverage can also result in loss for park owners.Insurance is another expense to consider that can affect the value of a mobile home park and making sure it is up to date and up to code adds to the responsibilities of owning.
- Licenses: You must have a license to own and operate a mobile home park. You must also obtain a permit to make certain modifications. Although fees for these can be minimal, they must be maintained to avoid fines.
- Occupancy: As stated before, it will be advantageous to the buyer to invest in a mobile home park that already has occupied lots. This will ensure that there is income coming in to cover expenses.
- Employees: Most mobile home parks have employees on hand that help them out with repairs, expenses, financial matters, customer service and more. A new buyer must consider whether they want to keep these employees, hire on new ones or add or make cuts to the staff. They must also think about whether they want to decrease or increase salaries. Employees are a major expense for any business and prospective buyers should consider how this will affect their income.
Number of Tenant Owned vs. Number of Park Owned Lots
When someone owns a mobile home park, they can offer lots up for sale, rent them out or both. Selling lots can be a good option because the owner of the lot will then be responsible for its upkeep and it is no longer the owner’s burden. Owners can also get a nice lump sum of money from the sale.
However, while tenant owned lots are good for the owner, they may not be as advantageous for the buyer. Although the buyer will not be responsible for the upkeep of the tenant owned property, he or she will also not be collecting any sort of income from this property and obviously has no financial gain from the previous sale.
This lack of income may bring the value of the property down.
Features and Amenities: There are certain features and amenities that will make your mobile home park more desirable to live in. Things like location, entrances, streets, landscaping, parking, lights, storage sheds, swimming pools, clubhouses and more should all be considered in the total value of your property. Although these items can make the property more desirable to live in, and allow you to charge a higher rent, they will also add on to maintenance expenses.
Using the Capitalization Rate
A savvy investor will use the Capitalization Rate to determine the value of your mobile home park. It helps measure the return on investment for an investor and is calculated by dividing the property’s net operating income by its current market value.
To figure out capitalization rate, start by calculating net operating income which is revenue minus operating expenses. So, if a property generates a revenue of $300,000 but costs $200,000 to maintain, NOI will be $100,000.
Once you determine NOI, divide it by the property’s current market value to get its capitalization rate.
So, if this same property was on the market for $800,000, cap rate would be 12.5%. The means a buyer would stand to make 12.5% of the property’s value each year assuming NOI and market value remain constant.
One mobile home park may be priced higher than another, but it can still be a better investment. Finding the cap rate can be a great way to find out if this is the case.
Preparing for Your Sale
If you own a mobile home park and are getting ready to put it on the market, you will want to get it in the best condition possible. Make it look attractive and do as many repairs as you can as this will help to make the property more valuable and easier to sell.
You will also be preparing certain documents. Prospective buyers will want as much information as possible. Some of the things you will be presenting include:
- Profit and Loss Statements: These will help buyers determine how much they are likely to earn each month or year. If you do your own bookkeeping, the software you use should allow to prepare these with a few clicks of your mouse. If you use a bookkeeper or accountant, you can have them send one out to you.
- Inspection Certificates: If you own a mobile home park, you must get inspections regularly to make sure your property is properly maintained and up to code. New buyers will want to see this information to make sure everything is up the necessary standards and find out what repairs are needed or recommended.
- A List of Your Contractors and Contact Info: This will come in handy if there are issues with work that was previously done on the property. A new owner will be able to use this list to find out who was responsible for the work and find out if any warranties are in place.
- Staff Information: If you have employees, a new buyer will want to know who you employ, what they do and how much they are being paid. If they decide to buy, they will also need any sort of legal documentation like IDs and W4s.
Selling a mobile home park can be a great way to cash in on your investment. Understand that getting all the necessary paperwork together, coming up with a reasonable price, getting your property in shape, preparing for open houses and finding the right buyer can be a long, difficult and expensive process. If you want to make selling your mobile home park as simple as possible, talk to Mobile Home Community Buyers. We will evaluate your home, make you a reasonable offer and get you your money quickly. We buy homes in any condition to take headaches off your shoulders.
If you are looking to sell your mobile home park, call Mobile Home Community Buyers first. We are sure to make you an offer you will be happy with!