How to Analyze a Mobile Home Park Deal

You've found a mobile home park for sale. The listing looks promising. Now what?

This guide walks through a complete deal analysis—from calculating Net Operating Income to deciding whether to proceed. By the end, you'll know how to evaluate any MHP opportunity.

Key Metrics to Know

Cap Rate

Cap rate measures your return as if you paid all cash. It's the primary valuation metric for commercial real estate.

Individual investors typically target 8%+ cap rates to ensure adequate cash flow after debt service. Cap rates fluctuate with interest rates and market conditions—these ranges reflect 2024-2025 market conditions.

Cash-on-Cash Return

Unlike cap rate (which assumes all-cash purchase), cash-on-cash reflects your actual return on the money you put in. This accounts for leverage.

Example:

• Purchase price: $1,000,000
• Down payment: $250,000 (25%)
• Annual NOI: $90,000
• Annual debt service: $55,000
• Annual cash flow: $35,000
• Cash-on-cash return: $35,000 ÷ $250,000 = 14%

Most investors target 10%+ cash-on-cash returns.

Debt Service Coverage Ratio (DSCR)

DSCR measures whether the property generates enough income to cover loan payments. Lenders require minimum DSCRs (typically 1.20-1.25).

Price Per Pad

Quick sanity check for valuation. Varies widely by market:

Use price per pad to compare deals in similar markets.

Step 1: Calculate Gross Income

Start with what the property earns.

Lot Rent Income

Example: 60 occupied lots × $450/month × 12 = $324,000/year

Verify this against the rent roll. The rent roll should show:

• Each lot number
• Tenant name
• Monthly rent
• Move-in date
• Payment status

Red flags on rent roll:

• Recent move-ins at different rent than existing tenants (manipulation)
• Many tenants behind on payments
• Suspiciously round numbers

Park-Owned Home Income

If the park owns homes and rents them:

Vacancy and Collection Loss

No park runs at 100% occupancy with 100% collection. Budget for reality:

Example: $324,000 gross - 7% vacancy/collection loss = $300,000 effective gross income

Other Income

Common additional revenue streams:

• Utility reimbursements (if you submeter and bill back)
• Laundry facilities ($50-$150/lot/year)
• Storage fees
• Application and late fees
• RV storage on unused land

Add to effective gross income to get total income.

Step 2: Calculate Operating Expenses

Now subtract what it costs to run the property.

Typical Expense Categories

Note: Parks with significant park-owned home (POH) inventory typically see expense ratios of 50-60% due to home maintenance, vacancy, and turnover costs. The 30-40% benchmark applies to predominantly tenant-owned-home (TOH) parks.

What to Verify

Don't trust seller-provided numbers blindly:

Calculating NOI

Example:

• Effective gross income: $315,000
• Operating expenses: $110,000 (35%)
• NOI: $205,000

Step 3: Value the Property

With NOI calculated, you can determine what the property is worth.

Cap Rate Valuation

Using our example ($205,000 NOI):

• At 8% cap rate: $205,000 ÷ 0.08 = $2,562,500
• At 9% cap rate: $205,000 ÷ 0.09 = $2,277,778
• At 10% cap rate: $205,000 ÷ 0.10 = $2,050,000

What cap rate should you use? Depends on:

• Market (primary markets have lower cap rates)
• Property quality and condition
• Occupancy level
• Utility infrastructure (city vs. private)
• Your required return

Comparing to Asking Price

If the seller is asking $2,400,000 for our example property:

Is 8.5% enough for you? If you target 9%+, you'd need to negotiate down or find value-add opportunities to justify the price.

Valuing Park-Owned Homes Separately

If the park has 10 POHs generating $800/month each:

• POH income: $96,000/year
• Value of homes (not capped): 10 × $10,000 average = $100,000

Add the home value to your lot-rent-based valuation. Do NOT cap the POH income stream—this is the #1 valuation mistake beginners make.

Step 4: Model the Financing

Now see what happens when you add debt.

Loan Assumptions

For a $2,400,000 purchase:

• Down payment: 25% = $600,000
• Loan amount: $1,800,000
• Interest rate: 7.5%
• Amortization: 25 years
• Annual debt service: ~$160,000

Cash Flow Calculation

$205,000 - $160,000 = $45,000 cash flow

Cash-on-Cash Return

Is this good enough? Depends on your alternatives. Many investors target 10%+ cash-on-cash.

DSCR Check

This meets most lender requirements (1.20-1.25 minimum). You're likely financeable.

Step 5: Identify Value-Add Opportunities

Can you improve the returns?

Below-Market Lot Rents

First, verify what "market rent" actually is: call competing parks in the area, check MHVillage listings, or ask local brokers. Don't trust seller claims.

If market lot rent is $500 but the park charges $400:

• 60 lots × $100/month increase × 12 = $72,000 additional income
• At 9% cap rate, that's $800,000 in value creation

Rent increases must be gradual (see our ethics discussion), but this is the primary value-add lever.

Vacant Lots

Filling vacant lots adds income:

• 10 vacant lots × $450/month × 12 = $54,000 potential income
• Cost to fill: $5,000-$15,000 per lot (advertising, home incentives, move-in costs)

Filling lots takes time—often 6-18 months per lot depending on market strength. Don't assume instant occupancy.

Utility Billback

If you're paying utilities and can submeter:

• Reduced utility expense = higher NOI
• Tenant pays fair share = sustainable long-term

Submetering has upfront costs ($500-$2,000 per lot) and requires time to implement.

Expense Reduction

• Renegotiate insurance
• Appeal property tax assessment
• Improve collections
• Reduce unnecessary services

These typically offer smaller gains than income increases.

Step 6: Stress Test Your Assumptions

What if things don't go as planned?

Vacancy Increase

What if occupancy drops from 85% to 75%?

• Lost income: 6 lots × $450 × 12 = $32,400
• New NOI: $172,600
• New cash flow: $12,600
• New cash-on-cash: 2.1%

Can you survive this scenario?

Interest Rate Change

If you have a variable rate or need to refinance:

• Rate increases from 7.5% to 9%
• New debt service: ~$180,000
• New cash flow: $25,000
• New cash-on-cash: 4.2%

Capital Expenditure Shock

If the septic system fails:

• Repair cost: $50,000
• Paid from reserves or additional capital
• Adds to your cash invested, reducing returns

Build a capital reserve budget based on infrastructure age.

Sample Deal Walkthrough

Let's analyze a real-looking opportunity:

• 75-lot park in mid-sized Midwest market
• 62 lots occupied, 13 vacant
• Lot rent: $375/month (market is $425)
• 8 park-owned homes (rent: $700/month)
• City water, shared septic (5 systems)
• Asking price: $1,800,000

• Lot rent: 62 × $375 × 12 = $279,000
• POH rent: 8 × $700 × 12 = $67,200
• Less vacancy/collection (5%): -$17,310
• Effective gross income: $328,890

• Property taxes: $28,000
• Insurance: $15,000
• Utilities (shared septic costs): $8,000
• Management (10%): $32,889
• Repairs: $25,000
• Admin: $8,000
• Total expenses: $116,889 (36%)

For valuation purposes, we cap lot rent income only (POH income valued separately):

• Lot rent effective income: $279,000 × 0.95 (5% vacancy) = $265,050
• Allocate expenses proportionally: lot rent is 81% of gross, so ~$94,680 in expenses
• Lot rent NOI: $265,050 - $94,680 = $170,370

• At 9% cap: $170,370 ÷ 0.09 = $1,893,000 (lot value)
• POH value: 8 × $10,000 = $80,000 (valued as assets, not capped)
• Total estimated value: $1,973,000
• Asking price: $1,800,000 — roughly fair, slight discount

• Down payment (25%): $450,000
• Loan: $1,350,000 at 7.5%, 25-year amortization
• Annual debt service: ~$120,000
• Total NOI (including POH): $328,890 - $116,889 = $212,001
• Annual cash flow: $212,001 - $120,000 = $92,001
• Cash-on-cash: $92,001 ÷ $450,000 = 20.4%
• DSCR: $212,001 ÷ $120,000 = 1.77 (strong)

Note: This example represents a favorable deal with below-market rents and good terms. Typical stabilized MHP deals generate 10-15% cash-on-cash returns. Value-add opportunities like this one are competitive and require thorough verification.

• Raise lot rent $50/month: adds $37,200/year income
• Fill 5 vacant lots over 18-24 months: adds $22,500/year income
• Potential NOI increase: $59,700 over 2-3 years

• Cap rate at asking price: 9.5% (based on lot rent NOI)
• Cash-on-cash return: 20%+ (excellent)
• DSCR: 1.77 (easily financeable)
• Risk factors: shared septic (5 systems = key inspection item—each failure could cost $50,000-$100,000)

Try this analysis with your own deal: MHP Calculator →

Common Analysis Mistakes

Capping Park-Owned Home Income

Never apply a cap rate to POH rent income. Homes depreciate. Cap lot rent only, value homes separately.

Trusting Seller Expenses

Sellers often understate expenses to inflate NOI. Verify everything independently.

Ignoring Tax Reassessment

Property taxes may increase dramatically after sale. Build this into your model.

Assuming Immediate Rent Increases

Even if rent is below market, increases take time to implement. Model gradual increases.

Underestimating Fill Time

Vacant lots don't fill overnight. Budget 6-12 months per lot, plus costs.

Skipping the Stress Test

Your base case is a fantasy. Model what happens when things go wrong.

When to Walk Away

Some deals aren't worth pursuing:

• Cap rate below your minimum (accounting for value-add)
• DSCR below 1.2 with realistic expenses
• Infrastructure risk exceeds your risk tolerance
• Value-add thesis requires assumptions you can't verify
• Seller won't provide financials for verification

There are always other deals. Don't force a bad one.

Next Steps

Found a deal that pencils out? Time for due diligence:

• Mobile Home Park Due Diligence — What to inspect
• Mobile Home Park Financing — How to fund it