Mobile Home Park Terminology

Proforma Income is income projected looking forward over a specific period of time or if certain things happen in the future (such as rent increases, filling vacancies, adding more sites, etc.).

Any expense it takes to operate the park. These typically include property taxes, sewer & water expenses, insurance, hydro, garbage collection, snow removal, professional fees, office expenses, management (caretaker) wages, repairs & maintenance. Capital improvements are not included in the park’s operating expenses.

Expenses that appear in a pro forma (projected) statement may include an estimate for expenses that have not yet occurred or been billed (such as property taxes, insurance costs, possibly sewer and water charges, certain anticipated maintenance, etc.) at the time the projection was developed. Projected expenses in our marketing presentations may also include an adjustment for inflation.

Are one-time expenses for upgrades or major repairs that have been made to the property or any park owned homes. Examples include upgrades or replacement of electrical services, sewer and water systems, road repaving, park owned building renovations.

Income remaining after all operating expenses have been deducted from gross income. In the same way Pro forma (Projected) Net Income is determined after pro forma (projected) expenses have been deducted from pro forma (projected) income. Major capital improvements are not usually included in the Net Income calculation.

This is the return on investment that a park offers. A Cap Rate, depending on the circumstances, is arrived at by dividing the net income into the asking or sale price of the park. A cap rate can be useful for comparing the return on investment offered by parks in different geographic areas or for comparing returns offered by different parks in the same geographic area. Cap rates can be affected by a variety of factors including supply and demand, some of the items identified in the “Things to Consider” section and by interest rates. Low supply, such as we have experienced over recent years, with strong demand results in higher prices and lower cap rates. Over time cap rates also tend to follow interest rates – as interest rates fall, investors are willing to accept lower cap rates due to lower borrowing costs, as rates rise and borrowing becomes more expensive investors eventually expect to see higher returns (cap rates) to help offset their increased ownership costs. Seller’s prefer lower cap rates as it increases the value of their park while buyer’s want the opposite, higher cap rates to bring down the value of the park they are wanting to buy. Cap rates are one of the tools used by appraisers in establishing market value for financing and other purposes.