Mobile Home Park valuation is a multi-layered process and usually begins with a simple tool called Cap Rate that can communicate a lot about a park very quickly.
The capitalization rate is a fundamental concept in the commercial real estate industry. Yet, it is often misunderstood and sometimes incorrectly used. At the next Lunch n’ Learn we will take a deep look into the concept of the cap rate and also some common misconceptions.
We will start out with the basics of what makes a good cap rate for selling a property and what makes a good cap rate for buying a property. Along with initial investment options and utilizing the benefits of seller financing.
In our discussions we will give examples of various methods to calculate cap rate, such as the Gordon Model. If you expect NOI to grow each year at some constant rate, then the Gordon Model can turn this growing stream of cash flow into a simple cap rate approximation. The Gordon Model is a concept traditionally used in finance to value a stock with growing dividends.
Another popular alternative to calculating the cap rate is the Band of Investment method. This approach takes into account the return to both the lender and the equity investors in a deal. The Band of Investment formula is simply a weighted average of the return on debt and the required return on equity.