Nobody buys an RV park for cash – at least not anyone trying to maximize their yield on the investment. While buying without debt may make you feelsafer since there’s no risk of foreclosure, the truth is that the ability to obtain sensible debt is what makes real estate the #1 source of wealth in the U.S. Debt allows you to buy RV parks that are roughly 5 times bigger than you could with just cash, and then the spread between the interest rate and the cap rate is what allows you to hit 20%+ cash-on-cash returns given the right ingredients. So how do you obtain financing on an RV park?:
Understanding the options based on the projected loan amount
There are basically three types of financing options for an RV park loan:
- Seller Financing. This is one of the best forms of financing and is possible on any deal in which the seller owns the property outright. Typical interest rates are the same as bank loans, but the down-payment can be much lower than anything a bank offers – even as low as 0% in some cases (we’ve done it 12 times). If you want seller financing you will need to understand how to sell it to the owner (much higher interest rate than they can get in a CD) plus with bonding (making friends with the seller). This option is possible on deals of any size. One trick to get seller financing is to make two offers: one for cash and one for terms, with the terms offer much higher.
- Bank Financing. This is the most traditional form of financing and represents a huge percentage of RV park loans. Banks are fans of the right RV park product, and it is not hard to attract a lender if you forge a good loan package. Remember that bankers are not big fans of risk, so a good loan package is based on conservative expectations and well-thought-out Plan B attack plans in case of any problems. Bank lending is possible on deals of all sizes.
- Conduit (CMBS) Financing. Also known as “commercial mortgage backed securities” this is the most sophisticated loan product for RV parks. They feature low interest rates, 10-year terms with fixed rates, and are non-recourse. These type of loans are only available on mortgages that are $1 million or more in size.
When to get a loan on your own
You will be the best person to get a seller financing deal done. Since so much of this type of debt is based on a relationship with the seller, only you can build that relationship. And bank debt is all about talking with a number of lenders who can all be found in a simple Google search of “banks in [name of city]”. On top of that, many bank officers are just as prone to be susceptible to “bonding” as the sellers are. So for both seller financing and bank debt, you are the perfect person to find and negotiate the loan.
When to get a loan with a “loan broker” (also known as “capital consultant”)
On larger bank loans (over $750,000) and on conduit (CMBS) loans, you are much better off to use a “loan broker” (also known as a “capital consultant”). These professionals prepare the loan package for you, contact the potential lenders, get offers, help you to compare them, and shepherd the loan to closing – all for a fee of only 1% of the loan amount (on a $1 million loan the fee is around $10,000). Typically, due to their learning curve of who is making the best loans, they can more than save the cost of their fee in lower rates and better terms.
Conclusion
Getting a loan on an RV park investment is much easier today than ever. You have several lending options and even the ability to obtain a bank of conduit loan through an outside consultant. If you are looking at buying an RV park, lending should not be an obstacle as banks like RV park loans and the options are many.