Found a clean manufactured home for $95K but it sits on land with a $640 a month lease. That seems like a lot for just a lot.
Does anyone know the odds that the seller might agree to sell the land AND
Is there a rule of thumb on how to calculate the value of the land given the lease amount?
TIA

You miss 100% of the shots you don't take.

And the calculation you're searching for is called a "capitalization rate" or a "cap rate" for short. Take the NOI and divide by the purchase price and you've got a cap rate.

In your example, $640 x 12 months is $7,680. Divide that by $95,000 and you've got a cap rate of 8.08%. You might compare that to other investment options like the 10 year treasury yield that current sits at roughly 4.30% (and is supposed to be risk free). So you're being paid about 3.8% for your risk and labor.

BUT, the problem with that calculation is that it doesn't consider taxes, maintenance, expenses, etc. In real life you might have property taxes of something like $2,680 per year, and then you have to pay for leasing and property management fees, which is another $1,000 per year, and then you have general maintenance of another $1,000 per year, so your net income is only $3,000 per year, which puts your cap rate at just 3.16%! Meaning you'd be better off just buying a 10 year treasury! (Before considering appreciation, tax benefits, and possibly mortgage paydown [and do you really want to bank on those as part of your investment thesis?]).

NOI is net income not gross income
Please don't let realtors do an income approach
for you

Reading is hard, huh? Half of my post was walking him through gross to net.

Also, wanna compare resumes?

Land leases are low risk so typically they are in the 5-7% range for commercial buildings.

Annual rent at 6% implies approximately $130k value to the land. You'll just need to comp out if it is worth that much.

Also consider the lease term and if there is a purchase option.

Typical realtor. Can't take a joke

Typical northsider. Can dish it out but can't take it.

You're just jealous cause it was easier to get to the chicken.

But for the benefit of the op: The income approach using the purchase price and NOI to get a cap rate is just one way of getting a value. You need to find comparable sales of similar but vacant land. Compare that to the subject property. Get an idea of what you think its worth and make an offer.

At no time in this discussion am I acting as an appraiser or offering an opinion of value.

Red Pear Realty said:

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Reading is hard, huh? Half of my post was walking him through gross to net.

Also, wanna compare resumes?

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Gross income less expenses yields NOI, and when divided by Sales Price answers the fundamental question: "for every dollar I spend to acquire a revenue stream, how much will I earn". - this is the easiest way to explain it to the general public.......you don't need 3 to four paragraphs to explain direct capitalization

I ballpark Cap Rates with band of investment though, because you can't trust a salesman (realtor) to post reliable data on costar.

In the modern era of information we know what returns are expected, what down payments are typical, and what loan terms will most likely be. So band of investment is always my giggle test, to see if someone is FOS - and most realtors are.

I'm continually amazed at the number of people who can't read. At least you don't have an Ag tag so that's comforting. OP asked for valuation methodology in the context of income. That's the income approach. And his example wasn't a good deal as an investment based on income alone.

"Band of investment" is a phrase I haven't heard for about 20 years back when I was an intern at an appraisal shop. Haven't heard it used since or by actual investors, ever.

Pizza said:

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Red Pear Realty said:

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Reading is hard, huh? Half of my post was walking him through gross to net.

Also, wanna compare resumes?

---

Gross income less expenses yields NOI, and when divided by Sales Price answers the fundamental question: "for every dollar I spend to acquire a revenue stream, how much will I earn". - this is the easiest way to explain it to the general public.......you don't need 3 to four paragraphs to explain direct capitalization

I ballpark Cap Rates with band of investment though, because you can't trust a salesman (realtor) to post reliable data on costar.

In the modern era of information we know what returns are expected, what down payments are typical, and what loan terms will most likely be. So band of investment is always my giggle test, to see if someone is FOS - and most realtors are.

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Except that all of the parts of the band of investment are assumptions, and you can tweak them five ways to Sunday to get whatever cap rate you want. It's why even when a bank requests it (some of my clients do), it's never the primary reliance.
You can find the actual financials in CoStar if they are part of public filings. Plus any buyer that isn't a moron is going to require audited financials for a deal of any size.