Understand why mobile home parks are valued based on income, not comparable sales — and how that shapes your park's market value.
Real estate valuers use different approaches depending on the property type. For houses, they use comparable sales. For industrial buildings, they might use cost approach. But for mobile home parks, one method stands above all others: the income approach.
If you understand why the income approach is used for MHPs, you'll understand how to position your park for the highest possible valuation.
The income approach values property based on the income it generates, not based on what similar properties sold for or what it cost to build.
The logic is simple: A property is worth the money it makes for you.
If you own a mobile home park that generates $150,000 per year in net operating income, and investors expect a 6% return, then your park is worth $2.5 million ($150,000 ÷ 0.06). That income is what drives the value.
Mobile home parks don't trade frequently. In a typical year, maybe 5-10 parks sell in an entire state. And they're not standardized like houses—a 40-lot park in rural Mississippi is completely different from a 100-lot park in suburban Colorado. Finding true "comparable" parks is nearly impossible.
Two parks can have the same number of lots but vastly different values based on:
Because of these variables, two parks can be "similar" on the surface but worth $1M and $3M respectively. This is why appraisers need the income approach—it captures the reality of each park.
Unlike a homeowner buying a place to live, mobile home park investors buy for cash flow. They don't care how nice your office building looks. They care about one thing: How much does this park earn every year?
The income approach directly answers that question. It's the most relevant approach for a business asset.
Each month, residents pay lot rent. Add up all lot rents plus any additional income (laundry, storage, fees) over a 12-month period to get gross income.
Operating expenses include property taxes, insurance, utilities (if park-paid), maintenance, payroll, management fees, landscaping, and all costs to run the business. Subtract these from gross income to get NOI (Net Operating Income).
Gross income minus operating expenses equals NOI. This is the actual profit the park generates each year.
The market determines a cap rate based on the park's quality, location, and risk. Divide NOI by the cap rate to get the park's value. For example: $150,000 NOI ÷ 0.06 cap rate = $2.5M value.
Here's where the income approach gets sophisticated. Professional valuators don't just use your actual financial statements. They adjust for non-market conditions so the valuation reflects what a professional operator would earn.
If your park charges $300/month but similar parks in the market charge $375/month, a professional valuation will adjust your income upward to the market rate. This is fair—a new owner would raise rents, and buyers know that.
If you don't pay yourself a salary but manage the park yourself, a professional valuation will add a "management fee" (typically 5-7% of gross income). This reflects the cost a new owner would pay for professional management. It's not penalizing you; it's being realistic about costs.
Conversely, if you pay yourself an inflated salary, buyers will adjust that downward to market rate.
Did you replace the entire water system last year? A $50,000 capital expense? That shouldn't be included in normalized annual operating expenses. Valuators adjust for recurring expenses, not one-time projects.
If the appraiser identifies deferred maintenance (roads that need resurfacing, aging utility infrastructure), they might adjust NOI downward to account for future capital expenditures. Or they might reduce the cap rate to compensate for the risk.
The income approach formula (NOI ÷ Cap Rate) is the backbone, but a comprehensive professional valuation includes much more:
What are other parks in the region selling for? What cap rates are being paid? What's the job growth, population trend, and economic outlook for the market?
While MHPs don't have as many comps as houses, appraisers still research recent sales of similar parks to sense-check the cap rate they're using.
What's the trajectory of lot rents in the market? Are they rising or falling? A park in a market with strong rent growth is worth more than one in a declining market.
An appraiser will evaluate the condition and type of water, sewer, electrical, and natural gas infrastructure. Are they well-maintained? Are they an asset or a liability? How old are they?
Are residents on long-term leases (low turnover) or month-to-month (high risk)? Appraiser will factor this into stability assumptions.
While the income approach dominates, it's worth understanding why it's preferred:
Let's calculate what your park is worth using the income approach.
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