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Mobile Home Income in Park
Valuation
Many mobile home park investors often
ask why lenders typically do not use the total cash-flow
from a property with park-owned homes. The answer is
that the majority of these mobile homes are considered
personal property. As lenders are collateralizing their
loans with real estate only, any personal property or
chattel property is not considered in the value. The
lender does not take title to these homes and is not
interested in doing so.
Local banks are
typically the only option if a park investor would like
to apply a value to the chattel park-owned homes and be
able to borrow against them. These banks will take into
account the income generated from these homes along with
pad rents and make a lending decision based on the
cash-flow, strength of the investor, and any banking
relationship they may have in place.
We have seen a
number of deals lately where the park-owned mobile homes
are taxed as real estate and permanently affixed to the
site(no wheels, axels, hitches removed, and are tied
down). In this scenario, we are able to use both the
pad rents and the rents on the park-owned homes in the
appraisal. We will instruct the appraiser to apply the
total rents in the income approach to value and make any
adjustments to the sales comparison value as well. As
most mobile home park appraisals are driven by the
income approach, this can make a significant difference
in value.
We recently
funded a small mobile home park in Tennessee where the
initial value came in at $190,000 based on pad rent
only. As these homes were taxed as real estate, the
owner removed any existing hitches and we had the
appraiser re-value the property. His updated value came
back at $340,000 on a $299,000 purchase price. We
funded 90% of the purchase price and amortized the loan
over 30 years. The CAP rate the appraiser used was
12.50% and the actual CAP rate the investor will be able
to achieve was closer to 16%.
One of the first
questions I ask of an investor when presented with a
property with park-owned homes is whether they are taxed
as real estate. (They are almost always permanently
affixed and any hitches can be easily removed to meet
our requirements.) The investor does not always know
the answer to this question and it can sometimes be
confusing. With the abundance of information now on the
internet, we can usually look up the property on the
county’s GIS information in the assessor’s office and
see if the tax records are including the mobile homes.
If it is not easily understood by the record card, a
quick phone call to the assessor’s office will let us
know right away. Some states may show the mobile homes
broken down with values, but they may be personal
property as well. This has been the case in Texas.
CAP rates on
parks with a high density of mobile homes tend to run
higher than pad-only parks. The investor must deal with
the maintenance of these homes and a higher tenant
turn-over rate. When we finance at 90% LTV, it is
almost always on a property with park-owned homes. The
additional cash-flow from these homes off-sets the
higher leverage and interest rate. These can be great
opportunities for the investor willing to deal with the
additional demands of this type of park.
When the
park-owned homes are considered personal property and
the appraisal is lower than the total purchase price,
the seller will typically hold financing on these
without affecting our combined loan-to-value. We have
closed a great deal of parks with this situation. The
investors plan to satisfy the note on the homes from
cash-flow or refinancing the park based on an increased
value over a five to seven year period.
Gathering as
much information up-front on a park will solve a lot of
problems down the road. We want to structure financing
to meet the needs of our clients and try to be as
creative as possible. Parks are a great investment and
the demand for low-income housing continues to increase.
STAR CAPITAL CORP.
Steve Murden
14 East Campbell Avenue, Suite
240
Roanoke, VA 24011
Phone: 877-297-2230
Fax: 703-991-0072
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