Value of MH Park based upon income

[Just Information]

Dealing with MH parks can be a daunting process

You need to take the number of sites x the per month rent less the vacancy rate

(Number of rented sites) x space rent per month x 12 = income
Less operating expenses = your NOI now divided by your cap rate will give you the value of the subject park.

[investinAK]

Thanks for the great info!
:praise:

[LeadingEdge]

Please elaborate......

I was thinking you take your income from property minus the expenses gives you the NOI.

Now take the purchase price divided by the NOI thus giving you the CAP rate.

Now you say take the Cap rate to divide into the NOI and this gives the value????

[Just Information]

The market approach is the method where sales of similar properties are reviewed and compared to the subject. The sales used are "arms length transactions", where the buyer and seller both acted without undue pressure

Another method is to calculate what it would cost, using today’s labor and material prices, to replace the structure with a similar one. If the structure is not new, the appraiser determines how much it has depreciated since it was built. The resulting value is then added to the estimated market value of the land. This method is the cost approach.

The third method is the income approach. This method uses analysis of the income stream, operating expenses, and vacancy rates of the market and the subject property to estimate a net operating income. The net income is capitalized with a market rate to estimate value.

All 3 should be used to value income/commercial properties.

Determine the current market value, or the amount the property would bring on the open market. The current market value may be based on an estimate by a knowledgeable source such as a realtor or bank official.

Determine the total amount owed on the property (encumbrances) by viewing a copy of the loan agreement, purchase contract, or contract with the creditor.

Calculate the equity value by subtracting the encumbrances from the current market value.

Multiply the equity value by 6% to determine the required gross yearly revenue that must be produced to exempt the property.

Calculate the net yearly income the property produces from rents, leases, etc. by subtracting from the gross yearly income any expenses such as taxes, insurance, costs of repairs and maintenance, and interest on the property's mortgage. (Expenses for capital improvement and depreciation are not deductible.)

Compare the required gross yearly revenue calculated in step 4 (yearly income that must be produced) with the net yearly income from step 5 (actual yearly income produced) to determine whether the net income equals or exceeds 6% of the equity value. If the property is not producing income equal to or greater than 6% of the equity value, consider the equity value of the property a resource.


See some links that may of help:

http://mfdhousing.com/edhicks/price.php (http://mfdhousing.com/edhicks/price.php)

http://www.invest-2win.com/caprate.html (http://www.invest-2win.com/caprate.html)

[Dan Auito]

Mucho Garcia Sir John. Using your formulas I seem to be getting richer by the minute! LOL

[Debbie]

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