RV Park Investing Newsletter

July is dedicated to Independence. And that should include your personal financial independence. While the 4th of July is all about our nation’s freedom from British Rule, for most people a more important issue is their own freedom from financial bondage (including their day job). While the American Revolution revolved around fighting, you still have to fight to put yourself in the best possible position. So while others are firing off fireworks, you might want to explore the options in RV park ownership. It’s been a tool used by many Americans to create their financial independence, and it might work for you.

And from all of us who produce this newsletter, we wish you a Happy 4th of July!

There’s an old adage that says “focus on the worst-case scenario, because the best-case can take care of itself”. We agree with that statement 100%. When looking at buying an RV park, any smart investor will put much greater attention on potential problems than potential opportunities. So how do you do that effectively?

Occupancy and Revenue

The best way to approach the proposed revenue of an RV park is to take the last three year’s actuals and average them. If an RV park had revenue of $220,000 in year 1, $280,000 in year 2, and $300,000 in year 3, then the number you would use is $267,000. A bad buyer would simply use last year’s number of $300,000 going forward – and that would be wrong. You don’t really know if last year’s $300,000 number was the result of a growing demand from marketing, or simply blind luck, and will decrease back the next year. Averaging numbers is a much safer approach. On top of that, a smart buyer will add an additional buffer of 10% to 20% in potential revenue reduction in case of bad luck or bad weather, and see how the park performs under that potential scenario.

Debt

Interest rates are the lowest they’ve ever been in U.S. history right now. That’s great, but it can’t last forever. Smart buyers will model their purchase using higher interest rates, just in case that happens going forward. How high? Interest rates have traditionally been around 6% to 7% on commercial loans, so that’s about what you’d want to understand the impact of. However, even the worst pessimist can’t assume the Ronald Reagan rates of 10%+. The reason? When Reagan was President, the U.S. deficit was around $1 trillion. Today it’s around $20 trillion. When you’re the largest borrower in the world, you really can’t afford for interest rates to go up that much. Quantitative Easing is their weapon, and they will continue to manipulate markets with it so as not to have the U.S. go into insolvency.

Utilities and Expenses

Just as revenues are not fixed, neither are costs. Smart buyers will examine each line item to see what the possibility is of increase, as well as verify and average past costs to make sure they are accurate. And you could even put a degree of buffer on top of that.

Your health

Now let’s progress on to some worst case modelling on yourself. What would you do if you were suddenly killed, injured, or had a medical condition that would preclude you from working on the property? One solution could be “key man” insurance that would pay off your mortgage in the event of death. On the injury and health side, you need to model a succession plan, as well as a worst-case liquidation scenario.

Building the Matrix

Once you’ve thought through the worst-case scenarios, it’s important to build a matrix of the following possibilities and performance:

• Best-Case Scenario
• Realistic-Case Scenario
• Worst-Case Scenario

You want to model for the realistic-case scenario, be able to survive the worst-case scenario, and look at the best-case just for amusement. That’s what smart buyers do, and that’s why they’re smart.

Conclusion

It’s always a good idea to confront your worst-case scenarios and make sure that you can survive them. Although it’s a very low percentage shot that you’ll never need, the knowledge that you can handle the worst-case is extremely comforting.

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Kampgrounds of America (KOA) is America’s largest portfolio of privately held RV parks and campgrounds with almost 500 locations across the U.S. and Canada. It is based out of Billings, Montana.

KOA was founded in 1962 by businessmen Dave Drum, John Wallace and two other partners. Drum got the idea to start KOA while noticing thousands of travelers passing by his property along the Yellowstone River while they were heading to the Seattle World's Fair. The first campsite park on Drum’s property was named “Billings Campground”. For $1.75 per night, campers could pitch their tent on a defined lot that included a picnic table and fire ring. Additionally, that first campground also provided hot showers, restrooms, and a small store. The campground business model was rapidly successful and by the summer of 1963, Drum, Wallace and their partners decided to create a system of campgrounds throughout North America. They decided to name the company Kampgrounds of America and began selling franchises.

By 1969, KOA had 262 campgrounds in operation across the U.S. By 1972, a decade after KOA's first property was opened, KOA had ballooned to 600 franchise campgrounds. And the growth continued at a rapid pace, with 900 KOA campgrounds in operation in 1982. Growth continued for another two decades, and quality control finally became an issue. Starting in 2002, KOA enacted tighter guidelines on the franchisees, which included a 600-point inspection process. In raising the bar, many franchisees were removed from the KOA portfolio, and the current count is now around 500 with the majority being in the U.S. KOA is perhaps the best-known RV park operator, and have done consistent and thoughtful marketing that supports not only their brand, but the industry in general.

America is a beautiful country. Yet most people never get to appreciate it. They work in a sterile office and live in a bland subdivision where the only attraction is the shopping center. For many Americans, this is not really what they want out of life. So how can owning an RV park give you a different quality of life?

Living in scenic beauty

One of the first, most noticeable differences in owning and running an RV park is the scenery upgrade. You trade in all the ugly city vistas for raw beauty. Studies have shown that attitudes are often based on what we see around us, and that’s why RV park owners are so happy all the time. Some of the basic views that RV park owners see each and every day are astounding. And it’s great 24/7.

Working a part of each day outdoors

Most Americans spend their entire working life indoors. That’s not only unpleasant, but not even healthy. One of the most enjoyable parts of owning an RV park is the mixture of inside and outside activities during the day – jumping into a golf cart and trading your desk for a spin around the property to check on the amenities or to check on customers’ satisfaction. Getting a little sun and fresh air throughout the day.

Being your own boss

Stress is a big problem for most Americans, and a big source of that is having to please a higher authority that may not be that easy to work with. When you own an RV park, you are the ultimate authority and that stress goes away. You plan out your day, and you define your own destiny. If things go well, you receive 100% of the rewards. If you have a bad day, you don’t have to explain it to anyone but yourself.

Building an asset to pass down to your heirs

Here’s a big item for many people, and that’s the ability to create a substantial asset for future generations. A well-run RV park is a very valuable asset, and one that you create from your hard work. Unlike a typical job where you get a paycheck but no equity in the business, with an RV park you create value every day, and have something to show for your efforts.

Conclusion

Owning an RV park can massively increase your quality of life. And that’s something that can’t even be valued in dollars and cents. What can be better than building an asset, and having fun while you do it?

Many buyers are extremely nervous when it comes to negotiating for the purchase of an RV park. And why shouldn’t they be? There are no classes on it in high school and college. And besides that, you only negotiate big-ticket items a few times in your lifetime. So what are some key tips to negotiating to buy an RV park?

Be honest

Have you ever heard the old adage “honesty is the best policy”? It’s true here, as well. Sellers respond positively to buyers who tell it like it is. When you are honest, you encourage others to be honest, too. We have found that complete clarity is essential with most older mom & pop sellers, as they can tell if you are being less than sincere, and that signals to them that they should not proceed. Even if you are looking at your first RV park, tell them that, and also tell them what you like about theirs, as well as what you don’t like. You will find that they will get on your side quickly if you will only tell them the truth.

Be enthusiastic

Sellers respond well to buyers who are truly excited to be buying their property. Nothing is more depressing than trying to sell an asset to somebody who is only lukewarm about it – it sends the signal that you are very likely of dropping out during due diligence. In some ways it’s even insulting, because it suggests to them that you are not impressed with their life’s work.

The power of bonding

This is such a huge issue that it’s unfortunate that not enough has been written about it. Essentially, “bonding” is all about people doing attractive deals with people they like. That’s where all those zero-down and ridiculously low cost deals come from – simply sellers liking buyers and willing to give them extra special deals to help them out. It may be shocking to some Americans, but there is more to life than just money, and many older sellers are excited to help younger buyers out if they like them. How do you “bond” with a seller? By spending time with them, either by phone or in person. Let them talk to they are tired of talking. Start off with questions like “so how did you come to own this RV park?”.

Have a walk-away price set

When you are negotiating to buy an RV park, it’s important to have a pre-set “walk-away price” that will keep you in-line and able to communicate your position to the seller. Before you begin negotiating, you have to know yourself what a winning price is vs. a losing price. You can never make money if you pay too much, and you need to know what too much is. Once your top price is set in stone, you will send out that vibe with body language and a difference in tone that the seller will pick up on and know that they have reached the limit.

Be easy to sell to

Once you begin interacting with a seller, they are very attune to even the smallest things. If you set up an appointment to meet them on Tuesday at 3 PM, you need to get there at 2 PM and sit in your car, because if you arrive later than 3 PM – even if you have a great excuse like a giant traffic jam – the seller will immediately label you as being untrustworthy and that’s going to ruin your “bonding” possibilities. We call the concept of bending over backwards to please the seller being “easy to sell to”. It’s a business model that upscale retailers like Neiman Marcus perfected decades ago – literally making the seller your VIP and treating them accordingly.

Persistence

So many great deals are lost because the buyer does not continue to follow through with the seller and that next phone call they missed was the one in which the seller agreed to their price and to carry the financing on top of that. One characteristic that all successful buyers share is persistence – the ability to keep forging ahead no matter what the setback. In the case of buying RV parks, the key driver is never giving up on discussions with the seller, who may require significant time to adjust to the concept of selling something that they have owned and operated for decades, or even built from scratch.

Conclusion

Negotiating to purchase an RV park is not something to be uncomfortable with. You will grow more comfortable with it over time, and as long as you follow these tips, you should do fine.

In the world of RV parks, there are two types of property: 1) destination and 2) overnighter. In overnighter parks, the focus is simply for travelers to stop in for one night on their way to their destination. Destination RV parks, on the other hand, get users who stay for weeks at a time. Clearly, the value of destination RV parks is much higher. So what makes for a destination?

An attractive array of activities

What keeps consumers in the destination RV park for a lengthy stay is a wide range of activities. So the first stop on defining a destination is the sheer quantity of things to do. Top destinations, like Yellowstone, have a lengthy list of attractive activities. You could not have a destination if there was only one attraction – even if that attraction was spectacular.

Multi-day commitment

Obviously, the offshoot of a ton of activities is a multi-day commitment on the part of the customer. This is even better served with a mixture of day and night activities. A good example is the Yogi Bear RV park in St. Louis, that features a location immediately next door to Six Flags/Hurricane Harbor. That gives visitors a couple days of Six Flags, and then a couple day of Hurricane Harbor, and then a couple days of night parades and shows – a full week’s worth of items to do. And Six Flags helps by offering multi-day passes.

Years of marketing work

You can have the greatest attractions in the world and still have no visitors if nobody knows about it. What all great destinations have in common is an aggressive marketing program to inform and reinforce awareness of what they have to offer. There is a correlation between top destinations and ad spending to keep them at the top.

Appealing to a wide range of people

There’s an old adage that “to hit the bullseye, you have to shoot for the middle”. This means that the best destinations are attractive to the average American – not just a tiny fringe. For example, Six Flags is appealing to almost all ages, while some historical venues are a turn-off to younger audiences.

History of success

Great destinations have a time-proven presence. Most of these have been household names for a half-century or longer. You can probably name them all yourself, from Yellowstone National Park to Disneyland. To be a great destination you had to earn that right from year-after-year success.

Conclusion

Destination RV parks are the most desirable type in the U.S. Whenever you see an RV park that might be purchased near one of these destinations, you need to ramp up your efforts.