How a cap rate works
If a mobile home park generates $250,000 of normalized annual NOI and trades at a 7.5% cap rate, the implied value is approximately $3.33 million. At an 8.5% cap rate, the same NOI implies approximately $2.94 million. A one-point change in the cap rate can therefore create a large change in indicated value.
That sensitivity is why the cap rate should come after the NOI is normalized. Applying a market cap rate to overstated income produces a precise-looking answer that is still wrong.
What can push a mobile home park cap rate lower?
- —Strong market depth and population or employment support
- —High occupancy and durable collections
- —Tenant-owned home concentration with lower home-maintenance exposure
- —Municipal utilities or well-documented private systems
- —Good roads, drainage, electrical systems, and deferred-maintenance profile
- —Professional records, leases, titles, permits, and operating controls
- —Meaningful but realistic rent upside with limited execution risk
What can push the required cap rate higher?
- —Small or thinly traded markets
- —Private utility systems with regulatory or capital uncertainty
- —Heavy park-owned home exposure with repair or title problems
- —Low collections, high delinquency, or unstable occupancy
- —Large near-term capital projects
- —Flood, environmental, access, zoning, or permit concerns
- —Revenue assumptions that depend on aggressive future rent growth
Going-in cap rate and stabilized cap rate are not the same thing
A buyer may quote a cap rate on current NOI, a year-one normalized NOI, or a future stabilized NOI after rent increases, infill, collections work, utility bill-back, or expense changes. Those are different measurements. Sellers should ask which NOI is being capitalized before comparing one buyer's cap rate with another.
For owner decisions, it is often more useful to examine a range of cap rates and NOI scenarios than to argue over one magic number. That sensitivity analysis shows what assumptions must be true for a proposed price to make sense.
