Why Buying An RV Park Is Superior To Buying A Business
So you're looking at investing capital to create a new stream of cash flow or maybe replace your day job. You've probably thought about buying commercial real estate or buying a business. They both have their own places, but there are many reasons that buying an RV Park is superior to buying a business from a franchise or a business broker. Why is that?
RV Parks are backed by real estate and businesses are backed by … nothing
From America's first millionaire John Jacob Astor, it's a proven fact that few things are safer than real estate ownership. Real estate has been the ultimate hedge against inflation and the gold-standard of maintaining wealth. RV Parks are all about real estate. But when you buy a regular business all you get is leased space, some used equipment and a bunch of employees – which has a collective value of nearly nothing. That's a scary way to invest your capital in which you have nothing to show for it.
RV Parks do well in good and bad times while most businesses fail in recessions
RV Parks have an advantage in that they have a recession-resistant demand based on two main sectors: 1) retired Americans who could care less what the economy does and 2) younger RV owners who cherish their average of 14 days per year of vacation time and will hit the road regardless of recessions. However, most businesses you might buy are entirely based on good economic times to survive. Change it over to a recession and that business you might buy will face plunging revenues and possible insolvency.
Lending is much easier on RV Parks
Because RV Parks are all about real estate, banks love them. They like the security that land offers. But banks hate businesses. They have few assets to offer as security and this means that many businesses have to be purchased either with all cash or seller financing (which typically has very unattractive terms). In fact, even the U.S. Government offers lending on RV Parks through both the SBA and the Department of Agriculture.
Rates of return are higher in RV Parks due to the use of strategic leverage
To get a cash-on-cash return of 20% all you need is a three-point spread between the interest rate on your RV Park loan and the cap rate. A one-point spread yields 10% and a two-point spread equates to around 15%. That's because financing acts as a lever to boost your returns. When you buy a business, on the other hand, you have no such leverage and your investment returns, as a result, are much lower.
Conclusion
RV Parks offer a great way to combine high returns with the safety of land ownership. They are also positioned well to handle both good economic times and bad. They are a far better option than buying a franchise or business, which have none of these positive attributes.
For more information on RV Park investing – including how to identify, evaluate, negotiate, perform due diligence on, renegotiate, finance, turn-around and operate RV Parks – consider our RV Park Investor's Boot Camp. It's the ultimate educational package on this unique investment alternative.