| During the Great Depression in the 1930s, Conrad Hilton | | | | allows you to place a value on it. Once you know this |
| built a hotel empire by buying all of the major American | | | | amount, you can then figure out the price at different |
| hotels - the Plaza, the Drake, the Palmer House, etc. - | | | | capitalization - or "cap" - rates. If a mobile home park |
| at a penny on the dollar. He boldly went against the | | | | has an EBITDA of $100,000 per year, and you value a |
| tide of average investors and built an icon that exists | | | | mobile home park at a 10% cap rate, then its value |
| to this day. | | | | would be $1,000,000. |
| In the mobile home park business, you can be the next | | | | Understand the comps. |
| Conrad Hilton, if you know the tactics necessary to | | | | When an appraiser tries to ascertain a value, one of |
| buy mobile home parks in distress. | | | | the factors they look at is what the other mobile home |
| Understand the actual costs of construction of a | | | | parks are selling for in that area. This is perhaps one of |
| mobile home park. | | | | the best indicators of value - except for the fact that |
| Before you can start buying distressed assets, you | | | | the buyer(s) of the other mobile home park(s) may |
| must first understand their true value. One of the best | | | | have not made intelligent buys. |
| starting places in understanding mobile home parks is | | | | However, this is more true of past comps than recent |
| to understand what it costs to build one. This is called | | | | ones. While buyers made some really stupid buys a |
| "replacement cost". For mobile home parks, it costs | | | | few years ago, and received loans from banks with |
| around $8,000 per lot to build one, plus the cost of the | | | | equal lack of discipline, this is not true of recent sales, |
| land. For a 100 space park, that equates to $800,000 in | | | | which have been built on the new reality. Putting it all |
| infrastructure costs, plus the cost of the land. The | | | | together. |
| average mobile home park is based on a density of 7 | | | | To make good buys during the depression, you must |
| to 10 units per acre. So a 100 space park would be on | | | | be able to define and support the great, distress buy |
| between 10 to 14 acres. You can add in the land cost | | | | from the merely average. If you have a 100 space |
| based on the value of acreage in the immediate | | | | park in distress, and have it under contract for |
| vicinity of the park. | | | | $400,000, with an EBITDA of $60,000, and comps of |
| So if the "replacement cost" of a 100 space park is | | | | $12,000 per space, then here's what we know about it: |
| 100 x $8,000 in infrastructure and 10 x $20,000 in land | | | | * It would cost $1,000,000 to build that park, so it is 40% |
| cost, then it would cost you $1 million to build it from | | | | of construction cost - which is a very attractive |
| scratch. If you can buy that same park for $500,000, | | | | discount. |
| then that's a good deal, right? Not always. There's still | | | | * It is a 15% cap rate - which is extremely attractive. |
| more you have to know. | | | | * It would show comp values of $1,200,000 - which is |
| Know the current EBITDA. | | | | 300% more than your price. |
| EBITDA stands for "earnings before interest, taxes, | | | | That would make a distress buy worthy of Conrad |
| depreciation and amortization" - basically the true cash | | | | Hilton. And that's how to make a fortune in the current |
| flow of the property. This is the measurement that | | | | depression. |