1. Welcome to MHP Owner’s Call with Joanne Stevens
January 4th, 2018
Back to Basic Series
Please questions, topics and personal stories to
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2. What is a CAP Rate? And why is it important?
Legal Disclaimer: Joanne is a Real Estate Broker with NAI Iowa Commercial, a Berkshire Hathaway Company.  This recording and its content are not meant as a solicitation of any property or properties that may be listed. This is a creation of Joanne M. Stevens with NAI Iowa Realty Commercial, as a resource for mobile home park / manufactured home community owners

3. What is a CAP Rate? A fiscal snapshot
is the ratio of Net Operating Income (NOI) to property asset value.  or
the rate of return on a real estate investment property based on the income that the property is expected to generate.

4. What to include; What to exclude…
CAP Rate is based on Real Estate Income only (Land, permanent buildings)
Not rental income
Not home sale contracts
Operating Expenses do NOT include:
Debt Service/Mortgage Payment & Interest
Depreciation Schedules

5. CAP Rate Range Currently CAP Rates range from 4%-12%
Lower CAP Rate = higher Sale Price; Good for Seller/Owner
Higher CAP Rate = Lower Sale Price; Good for Buyer/Newly Invested

6. The Formula
Net Operating Income = Revenue from Investment minus Operational Expenses
Or (𝑁𝑂𝐼=𝑅𝑒𝑣.−𝐸𝑥𝑝𝑒𝑛𝑠𝑒)
𝐶𝐴𝑃 𝑅𝑎𝑡𝑒= 𝑁𝑂𝐼 𝑆𝑎𝑙𝑒 𝑃𝑟𝑖𝑐𝑒
𝑆𝑎𝑙𝑒 𝑃𝑟𝑖𝑐𝑒 = 𝑁𝑂𝐼 𝐶𝐴𝑃 𝑅𝑎𝑡𝑒

7. 𝑆𝑎𝑙𝑒 𝑃𝑟𝑖𝑐𝑒 = 𝑁𝑂𝐼 𝐶𝐴𝑃 𝑅𝑎𝑡𝑒
Example
Valuation A
Valuation B
CAP Rate 8% 7%
Sale Price
$1,500,000
$1,714,286
MHP with a NOI of $120,000
𝑆𝑎𝑙𝑒 𝑃𝑟𝑖𝑐𝑒 = 𝑁𝑂𝐼 𝐶𝐴𝑃 𝑅𝑎𝑡𝑒
$120,000/ 8% = $1,500, $120,000/ 7% = $1,500,000

8. Why Should I Care? Always think like an Investor
Operate it like you are going to sell it (cause you might…)
But all so because it Maximizes Profits
Avoid the Routine Expenses Trap
Becoming casual about expenses;
not bidding out vendors;
not matching market rent levels

9. CAP Rate as a Tool
CAP Rate is a ROI (return on investment) tool used by
Bankers
Investors
Appraisers
Too Low = Danger

10. CAP Rate as a Tool CAP Rate can help you choose investments
You have options for your investment dollars
Compare the CAP Rate to other investments (Stocks, Land, CDs, Etc.)
A 4% CAP on a MHP that needs extensive TLC might be more work then a CD with a 2% CAP.
Pick the best use of your money, time and Energy
Always WWWBD: What Would Warren Buffett Do?

11. CAP Rate: Risks & Opportunities
Tale of Two Parks
Park A (Resort-Area)- Low CAP (5-6%), High Price, Lower Risk, Better Opportunities
Park B (Small in Smallville)- High CAP (10-12%), Low Price, Private Utilities-Higher Risk, Fewer Opportunities
CAP Rates (and Prices) are influenced by Risk and Opportunity

12. Risks
Population drives housing demand; small population/decreasing population can negatively affects value and can increase the CAP Rate
Jobs drive Population; No jobs = No $ = No desire/ability to own a home
Look for areas with stable/growing population and stable job growth
Look for areas with a diverse (mix of Manufacturing, Retail/Tourism, Health & Social Services, etc.) job market
Beware the single ‘main’ employer. When they die, they take the town with them…

13. Opportunities Low Interest Rates
Availability of capital for investment
Low Competition (Supply & Demand)
Individual: only park in town/ few competition apartment buildings/high price homes
In general: each year there are fewer MHPs in the US, closed due to Higher/better Use, Utility Issues/ Major Capital Expenses, etc.
High demand for affordable housing

14. EASY WAY Easy Way to raise NOI: Raise Your Rent!
But leave some meat on the bone (don’t be the highest in the area)

15. Less Easy Way Buy Homes- Fill Vacancies
100 site park A) 75 $200 Lot Rent = $180,000
100 site park B) 100 $200 Lot Rent = $240,000
Extra Ground- Storage Units, Billboards
Pass-through or sub-meter ALL Utilities
Control Expenses