Income – Valuation – Cash Flow

The income of a park is a very simple 3rd grade math problem. First we take the total gross income from all park spaces (excludes homes) and extras such as a soda machine or laundry room. Second we subtract out all the expenses such as vacancy, insurance, property taxes, grounds upkeep and any community utilities. The result gives us what is called the “net income.”

$10,000 gross monthly income
$3,000 expenses
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$7,000 net income monthly
$84,000 net income annually

NOTE: On park owned homes, here’s the math. Split up the monthly total – space rent and the home itself. For example, if $450 total, then $200 space rent and $250 for home. Add the space rent ONLY to your income calculations.

Mobile homes themselves wear out and depreciate. Dirt lasts forever which has the highest and most durable value. 

To calculate the value of the park we now take the annual “net income” and divide by an interest rate, rate of return, or “cap” rate. This is 4th grade math, division. This rate varies and depends upon the opinion of the investor, the seller, the lender, the buyer, or the local market. Remember, value is subjective.

$84,000 annual net income

10% rate = $840,000 value
9% rate = $933,333 value
11% rate = $763,636 value


NOTE:  the “capitalization” rate is generally in line with many loan rates. For any type of financing, the often recognized authority for this number is an independent appraiser for income property in a given locale. Rates vary with location and type of property. Current rates run about 7- 8 yet we’re looking for a 10 cap when buying.

If the park is owned free & clear (zero debt), cash flow to the owner is the full $84,000 per year.

However, if there are any loans on the property, they are deducted from the annual (monthly) net income to determine owners cash flow.

$84,000 net income
$60,000 loan payments
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$24,000 cash flow to owner (pre-tax)

These cash flow numbers are independent of how we calculate the total value of a park as shown above. Does this all make sense now? If not, send us an email with your questions.

Income – Valuation

We can also calculate the net income of an individual rental space.

$300 space rent monthly
$90 expenses
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$210 net income monthly
$2,520 net income annual

Just like we calculate the value of a park, it’s the same for a space - take the annual “net income” and divide by an interest rate, rate of return, or cap (-italization) rate. Again, value is subjective and dependent upon the persons involvement.

$2,520 annual net income

10% rate = $25,200 value
9% rate = $28,000 value
11% rate = $22,900 value


NOTE: These values are for a space that is rented for a consecutive 12 month period. Vacant spaces do have potential value, yet are difficult to estimate when unoccupied.

Some park owners use the same space calculation for “park owned homes” which might rent for $500 per month (you must now proceed with caution). Does anybody think that the value of space rent is the same as space w/home rent? If so, keep reading…

That would indicate that an extra $200 monthly income ($500 = $300 + $200) minus $60 expense is a net income of $140 monthly or $1,680 annually.

10% = $16,800 value of home – forever and ever, just like land rent? Nope, never...

Have you ever looked for a used mobile home to buy? Look at Craigs List, the newspaper, online, or the Pennysaver. You will find plenty of homes to buy for less than $16,800.

If the park owner rents the home and land package… guess who pays for maintenance, guess who pays for insurance, guess who manages, and guess who can move out at midnight? What is the cost of - an air conditioner, hot water heater, refrigerator, bathroom sink/toilet/shower, carpet, windows – parts and installation? Aside from the misguided home valuation, can you see where any one of these expenses would reduce or eliminate that extra $140 monthly income?

The above calculation is just parts & material – completely leaves out the value of the managers and/or the owners time.

From a lender’s perspective, homes have nominal value. What lenders DO value is the space income. This is a very important point.

We prefer that residents OWN their homes, no matter how modest. If one of our target parks does have park owned homes, we adjust values in the overall picture. However, once we own that park, those homes are immediately sold to the occupants. Sometimes they will resist and move, yet there are plenty of prospective homeowners.

The psychological profile of a “homeowner” is far better than a pure “renter.”