Mobile Home Park Valuation

How the math works

Take gross scheduled lot rent, subtract vacancy and collection loss at the actual rate rather than a hopeful one, add other genuine income — utility reimbursements, late fees, storage, laundry — and subtract real operating expenses. What remains is NOI. Divide by the cap rate a buyer in that market requires and you have the value. A park producing $180,000 of NOI at an 8% cap is worth about $2.25 million; at 6.5% it is $2.77 million. That half-million-dollar swing is why the cap rate argument is where most of the negotiation happens.

The expense side is where seller numbers most often fail. Owners who manage their own park frequently show no management expense at all; a market rate is roughly 4–8% of collections and belongs in NOI whether or not you intend to hire someone, because you are pricing an asset, not a job. The same applies to repairs and maintenance, to a genuine capital reserve for roads, water lines, and septic, and to property tax reassessment — in many jurisdictions your purchase price resets the assessed value, so the seller’s tax line is not your tax line. Run the reassessment before you sign anything. The general mechanics of normalizing earnings are covered in how to value a business; what follows is specific to parks.

What moves the cap rate

• Utility configuration — The dominant driver. Public water and sewer, direct-billed to each resident, is the premium configuration: a rate increase never touches your NOI. Master-metered parks push every increase, leak, and heavy user onto the owner. Private wells and septic or lagoon systems add regulatory exposure, testing obligations, and replacement cost that can exceed six figures. Ask for the last three years of utility bills and every state or county inspection report.
• Road ownership and surface — Paved private roads in good condition are a large, invisible asset. Repaving a park is a six-figure capital event, and deferred road work is one of the most reliable ways to discover you overpaid. Confirm whether the roads are private (yours to maintain) or dedicated public.
• Tenant-owned versus park-owned homes — A park where residents own their homes is the cleaner, higher-value asset: the tenants are effectively immobile, turnover is low, and you are a landlord of dirt rather than of depreciating structures. Heavy park-owned inventory widens the cap rate.
• Occupancy and infill potential — Actual occupancy drives NOI. Empty lots are optionality, not income, and they are expensive optionality.
• Lot rent relative to market — Below-market lot rents are the most legitimate upside in the category, since raising them requires no capital, only notice periods and tolerance for turnover. Verify against comparable parks nearby, and check your state and municipality for rent-increase restrictions, which have expanded in several jurisdictions.
• Zoning and non-conforming use — Many parks are legal non-conforming uses that could not be rebuilt if destroyed. Confirm zoning status in writing and confirm your lender will finance it, because some will not.
• Size and buyer pool — Parks above roughly 80–100 lots attract institutional and agency-financed buyers, which compresses the cap rate. Small parks are financed and bought locally, which widens it.

What pulls the price down

These are the findings that most often reprice a park between the letter of intent and closing. Each is a reason to bid below the range, or to move part of the price into a seller note.

• A pro-forma NOI built on filling vacant lots, raising rents, or both — none of which the seller has done.
• Park-owned homes capitalized at the park cap rate rather than valued separately at wholesale.
• Master-metered water with no submeters and a utility cost line that has climbed every year.
• A private well or septic/lagoon system with no recent inspection, no testing records, or an outstanding notice of violation.
• Deferred road, drainage, or water-line work — visible on a walk-through and rarely disclosed.
• No management expense, no maintenance expense, and no capital reserve in the seller’s numbers.
• Non-conforming zoning that a lender will not finance, or that a municipality has signalled it wants to phase out.
• Collections tracked on paper or in a spreadsheet, with no rent roll that reconciles to bank deposits.

Worked example: a 62-lot park

A 62-lot park lists at $2.4 million on a stated $192,000 NOI — an advertised 8% cap. Of the 62 lots, 48 are occupied by tenant-owned homes at $385 a month, 6 hold park-owned rentals at $825 all-in, and 8 sit vacant. The seller’s NOI capitalizes all of it and includes the vacant lots at $385 pro forma.

Rebuild it. Real lot rent is 48 × $385 × 12 = $221,760, less 5% vacancy and collection loss, or about $210,700. The 8 empty lots contribute nothing — bringing a home onto each realistically runs $30,000–$70,000 with transport, setup, skirting, steps, and utility connection, so they are a capital project, not income. The 6 park-owned homes generate about $59,400, of which roughly $27,700 is the lot rent component; only that portion is capitalized, and the homes themselves get a separate wholesale value, say $12,000 each, or $72,000. Utility reimbursements and fees add $9,400. Capitalizable income is therefore about $247,800. Against that: property tax reassessed at the purchase price rather than the seller’s basis, insurance, water and sewer, repairs, and grounds run $84,000; management at 6% is $14,900 the seller never booked; a road and water-line reserve is $12,000; park-owned home repairs and turnover another $9,000. NOI lands near $127,900 — not $192,000.

The park sits on a private well with septic, on gravel roads, in a tertiary market. A 9.5% cap is defensible, which values the income at roughly $1.35 million; add the $72,000 of home value and a supportable bid is near $1.42 million, against a $2.4 million ask. The 8 vacant lots are real upside — roughly $37,000 a year of lot rent if filled — but they cost perhaps $320,000 to fill, so they are a project you underwrite separately, not a number you pay for today.

Before you rely on any of this

Cap rate ranges orient a first conversation; they do not price a property. Once past the screen, get the certified rent roll, three years of tax returns and utility bills, the bank deposit history to reconcile collections against, every state and county inspection record for water and wastewater, a zoning verification letter, and a survey. Walk the park — roads, drainage, exposed water lines, and the condition of tenant-owned homes tell you more about the next five years than any spreadsheet. Order a Phase I environmental site assessment, particularly on any park with historic fuel tanks or a lagoon system. Confirm your lender will finance the utility and zoning configuration before you spend money on diligence, because private-utility and non-conforming parks are where financing quietly dies. Our due diligence checklist covers the document requests, and how to verify business financials covers the reconciliation.

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