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.


Steve Murden
14 East Campbell Avenue, Suite 240
Roanoke, VA 24011
Phone: 877-297-2230
Fax: 703-991-0072