This really should be addressed in your evaluation of the park and in the due diligence phase. In most cases when you review a sales package for a mobile home park for sale it will not mention any reserve for capital expenditures.
Not every park has all of these expenses and some have additional expenses but this is a good starting point.Īdvertising Bank Service Charges Depreciation Insurance: Liability Insurance: Property Insurance: Workers Comp Interest: Mortgage Legal and Accounting Licenses and Permits Maintenance Labor Management Offsite Management Onsite Mowing & Landscaping Postage Rent Discounts & Incentives Repairs: Equipment Repairs: Property Reserve for Capital Improvements Supplies: Maintenance Supplies: Office Taxes: Payroll Taxes: Property Telephone Travel Utilities: Electric Utilities: Gas Utilities: Trash Utilities: Water & Sewer And so on.Ĭommon expenses for Mobile Home Parks.
If the park has vacancies and there is no advertising expense, then you need to plug in an amount for advertising. For example, if the current owner is managing the park, then you need to plug in an amount for management and payroll taxes and workers comp. The next thing to do is to come up with the anticipated expenses based not only on how the park is currently operating but also based on how the park will operate with you as the new owner. I usually use 3% as the collections expense. You can take the actual number of spaces in the park and multiply this by the actual rents being charged and subtract out a reasonable allowance for collections and you should be able to come up with a good estimate of the income. The key then is to reconcile the tax return with the profit and loss statement and then interject reality into the whole process.įiguring out the actual income is usually not too difficult. If by paying taxes on an additional 20k in taxes for a couple of years increases the value of the park by 200k then a real sophisticated and dishonest seller may be trying to pull a fast one. The financial statements usually have more income and less expenses and the tax returns usually have less income and more expenses.(however, I have seen in some cases that the tax returns are also overstated in order to show a better net income when it comes time to sell or refinance a park. In analyzing the financial statements and tax returns, they are often different. This return on investment will come in several different forms: The key is really deciding what you are willing to pay based on your expectations of what type of return you want on your investment. The value a mobile home park may be $2 million for one person and $1.5 million to someone else. If the residents of the park are paying this expense then you can expect the operating expense ratio to be as much as 15% less than the average. One of the largest expenses in a park is the water and sewer expense. The operating expense ratio can vary significantly from one park to another in the same city even if located adjacent to one another. In looking at the park in more detail, I will ask for actual operating income as well as actual operating expenses. Remember this simple calculation is very generic and may or may not be the true indication of the value of a mobile home park. If the park is on the market for $1,800,000 or less than I will probably look into it further. If the park is on the market for $3 million I will probably pass. For example if the park has 110 spaces with 10 vacancies, a monthly average space rent of $200. I want to know how many lots there are, how many are occupied and paying, what the lot rent is, what expenses the owner is paying, and who is responsible for the water lines, sewer lines, and roads.Ī good rule of thumb that I use to start with is that I take the number of occupied spaces and multiply this by the average monthly space rent and multiply this by 70. Excerpt from Mobile Home Park Investing, by Dave Reynolds
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