MHP #855: How To Identify Unstable Income Sources on a Profit & Loss Statement, Avoid Overpaying for a Mobile Home Park

Today's episode is from Mobile Home Park #67.

When you start looking at parks, you will begin to notice revenue items such as Late Fees, Application Fees, and Other Income. Brokers and sellers alike will try to tell you that it is appropriate to capitalize these income sources. I’m here to tell you that that is not necessarily the case!

 One of the great things about owning mobile home parks is that your average lot renter is an extraordinarily stable tenant. So, how much money do you really think you’ll be getting from application fees year in and year out?

 The same goes for late fees. It is true that you will receive late fee income through the year. However, this should not be a significant source of income for any park. If it is, you may need to ask yourself if this is truly a stable and reliable tenant base.

 The “Other Income.” We’ve seen “other income” run as high as half the park’s revenue. Brokers and sellers will put whatever they can think of in this category. Single family homes, small apartments, self-storage, vending machines, laundry income, etc. For these items, we prefer to break out the separate income streams and evaluate the reliability of each separately. We also want to see the expenses broken out for each to determine if they are truly worth having. This gives us a complete picture of what we are buying rather than lumping it together in vagueness.

 When looking at your next deal, add together these revenue items and multiply them by 10. The number you come up with is the amount you could potentially be overpaying if you don’t have a handle on these items.

 

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