Mobile home park appraisals are a bit like snowflakes. No two are alike and they don’t last very long. The process of appraising a mobile home park is similar to that of valuing any commercial property, though: the appraiser looks first at the potential to generate income. Since a park’s income can fluctuate, it’s not unusual to see its appraised value fluctuate as well. As a result, when you go to sell your park, you might have a hard time setting an asking price that appeals to investors.
If I think I can fill a park, I’ll buy it—but only if the price is right. If I see someone has seriously overvalued their park, I’m not going to waste time trying to talk that seller down. I’m just going to move on to the next park. Most park investors are the same. They see an overvalued park and, instead of trying to negotiate, just walk away.
Before you put your MHP up for sale, you need to know how park investors decide if yours is a good deal or not. This mobile home park appraisal guide, based on my 25 years experience buying parks in Oregon and Washington, looks at the key factors that will affect your selling price—and how you can set the right asking price for your MHP. The first factor is going to be if you’re even selling the kind of park investors want to buy.
There are two basic types of mobile home park investing. In one case, you own the land and the tenants own their homes. The other route is that you own the lots and the homes on them and rent them out, or offer lease-to-own opportunities to your tenants. I personally stay out of the home ownership business—and you should too.
The potential for higher returns is in leasing spaces alone, not the homes. While some think owning the homes opens them up for more profit, that’s not actually the case. When you own the home, you’re the one the tenant calls every single time they have a problem. You own the home, so you own that clogged toilet, the sagging roof, and the leaking kitchen sink.
If you’re trying to sell a park as well as the homes in it, you’re going to have a harder time finding a buyer. Smart investors don’t want to deal with the expense of mobile home upkeep—or the liability. Unload your homes and stick to land ownership if you’re considering selling your mobile home park. Investors want turnkey operations, not maintenance requests.
Now, just because you don’t own the homes on your lots doesn’t mean they won’t play a factor in your park’s value. In fact, those homes are going to be either the biggest draw, or the biggest deterrent, for someone buying your park.
Even if you don’t own the homes on your lot, you’re still going to see the value of your park impacted by them. Mobile homes are surprisingly immobile. In fact, about 95% of mobile homes purchased are never moved from their original space. That means when I go into a park to check it out, I’m assuming it’s going to look the same years down the road as it does today.
In the mobile home parks business, first impressions really are lasting ones. That’s why I want to see diversity. By that, I mean I want to see a good mix of sizes, ages, and models of homes. Sometimes, that surprises people. They assume that the ideal mobile home park is one filled with expensive, brand new housing. Really, that’s the last thing I want to see when I’m considering buying into a park. Generally, people get into mobile homes because they need low-cost housing. Those luxury homes aren’t designed to target the right demographic.
On the flip side, you don’t want a park filled with aging single wides either. You want diversity so that you can cater to a range of individuals, rather than just focusing on one type of home. Different types of homes draw in different types of tenants. Families tend to go for doublewides, while seniors may be happier in a smaller single wide unit. A wide range of homes means a wide range of tenants interested in your park in the event of a vacancy.
But keep in mind that, regardless of their age or size, you’re going to want those homes to be well maintained. A prospective buyer is going to look at how well the park was managed before them, so they can see any issues they’ll be dealing with in the long run.
Poor management leads to bad tenants. The problem with a poorly maintained park doesn’t just come from its lack of curb appeal. When a park has been poorly maintained, it also impacts the tenant’s attitudes towards the park. This is when you see problem parks start to crop up. If I see these warning signs when I do a walkthrough of a park, I walk right back out:
The manager, who should be your eyes and ears, knew or should have known about all these problems. When a park is poorly managed, I have to take into account how much it’s going to cost me to fix it, meaning that the park owner gets a lower offer.
And that leads me to the last thing you need to know before listing your park for sale in Washington or Oregon. Before a park investor makes an offer, they’re going to calculate their likely profits based on your asking price. By calculating your own cap rate, you can see if your listing is going to be appealing, or if it’s going to make potential buyers walk away laughing. The cap rate is the thing that keeps a buyer’s and a seller’s expectations realistic.
There’s nothing I respect more than an “I just can’t do it” from a broker or agent. That tells me they know their limitations and aren’t going to waste my time. It’s a lot more straightforward than the excuses that come in later when they’re not getting you any offers. Selling a mobile home park in Portland is hard; the commercial real estate market is competitive and most commercial buyers are looking for office buildings or apartment complexes.
Agents need to specifically understand the mobile home park business. That’s a rare ability. Mobile home park sales are different from other property investments, like apartments and condo complexes, because the value is all in the operation. You don’t have property to maintain, sure, but you also don’t have structures that add to your portfolio’s value. That’s why it attracts a different group of investors. An agent who is working with park investors is going to find they are a knowledgeable bunch. The buyers are going to have an advantage and if the agent isn’t confident, you could wind up accepting a low-ball offer. But there’s another reason you might get a bad offer: a lack of the basics.
You can do all the math you want to make your park look valuable but, in the end, it’s only worth what someone else is willing to pay for it. If you’re dealing with a situation where your mobile home park is up for sale but you’re not getting any calls, it might be time to talk to a direct buyer.
Direct buyers are investors who only deal in mobile home parks. They’re able to give rapid offers on parks and close those sales quickly because they frequently deal in cash rather than financing. Financing complicates the entire cap rate because that figure doesn’t account for interest on loans. The 8% cap rate the buyer is getting on your property isn’t going to be very appealing if they have a loan with an 8% interest rate. A person buying with bank financing is going to want to account for that in their offer, which means less money in your pocket.
On the other hand, a direct buyer isn’t going to worry about interest—they pay cash. For the most part, a direct buyer is going to offer you what your park is worth on a ‘take it or leave it’ basis. They have a bit more freedom in what they offer since they don’t have to pay interest on a loan.
As a direct buyer, I can offer free, no obligation quotes on your park that you can use to verify your numbers, or even sell your park quickly. I’m straightforward in my mobile home park valuations, as well as how I calculate them. I’ll offer you what your park is worth, and if I can’t buy your park, I’ll explain why so you can correct the problem. For more information on my price quote process, give me a call or shoot me an email.