RV Park Investing Newsletter

Someone called us to evaluate an RV park deal a few days ago. The price was based on a proforma of current occupancy. The problem is that the occupancy in an RV park fluctuates wildly based on the time of the year, and right now is peak season with school ending and people hitting the road. The only way to fairly look at an RV park’s financials is to take the last several years of numbers and averaging them together. Using just the summer occupancy as a starting spot would be like using just a football team’s gate receipts in October and multiplying by 12. Summer is a great time to look at parks to buy as you can see them at full potential. But don’t forget that there’s also a winter ahead.

Movies some time have happy endings that only Hollywood can produce. But you can often have these happy endings in RV park purchases, if you select the right one.

Strong cash flow

A good RV park should exhibit extremely strong financial returns. This leads to happy endings because you can pay the bills and beat your budgets. It’s hard to have a happy ending when you are awash in bills to pay and nothing to pay them with. A good RV park purchase should have a solid spread of profits even after every bill is current. That’s why you should shoot for 10% cap rates or better, so that financial performance is never a concern.

Beautiful scenery

One plus of owning an RV park – for the owner that wants to take an active part in managing the business – is the aesthetics of where they work. Scenic beauty is a powerful aphrodisiac that makes time move quickly and every day a happy day. But there are parks out there that offer no such scenery, and these tend to be “overnighter” parks along the freeway in the middle of nowhere. The best parks to own are “destination” properties that are right in the heart of the best of the great outdoors. These have also proven to be the most profitable and most occupied. So when you’re looking at an RV park to buy, go after the ones that are in the most beautiful locales.

Be your own boss and control your destiny

Many RV park owners are thrilled with the concept of being totally in control of their business career and making their own destiny. But that thrill can become worry if there’s no clear path to success. Look for RV park opportunities where you have the skillset to succeed. If a park is lacking professional marketing – and marketing is something you’re good at – then that’s going to be a winning job description. If an RV park has a ton of amenities and needs an owner that knows how to maintain them, then that’s perfect for the individual that fits that role. Choose a park that needs what you bring to the table, and you’ll never fail to give yourself a 5-star performance review.

Strong support from lenders and long loan terms

All RV parks are lifted by the fact that they have one of the lowest loan default rates in commercial real estate, at around 10%. Other sectors do not fare so well, with apartment default rates standing at 16% and hotels at 28%. Because of this strong performance, RV parks typically always have happy endings on the ability to obtain and retain a loan. But again, destination parks have proven to be much more stable and easier to finance.

Locations that remain strong and never become obsolete

If you want to have a happy ending, one key feature is to only choose an RV park location that will be forever in demand. Many destination RV parks harness the power of landmarks that every American wants to see over and over, coupled with scarcity of number of properties catering to RV travelers. We know someone who has an RV park next to Disneyland in Los Angeles. The demand for Disney will never decline, and there’s no room for a new RV park to be built, so they are guaranteed to flourish. Look for these type of park opportunities.

The favorable trends in Baby Boomer statistics

There are 10,000 Baby Boomers retiring in the U.S. per day. This one statistic pretty much assures a happy ending for most owners, as a huge percentage of these Baby Boomers are buying RVs and travelling the U.S. in their retirement years. That’s why RV sales right now are extremely strong and expected to stay that way for a long time. Remember that the Baby Boomers are defined as those born between 1946 and 1964, and the latter group will not reach retirement age until the year 2029, so there’s about 13 years left on this phenomenon.

New growth in younger customers

Another source of a happy ending for all RV park owners is the fact that, while Baby Boomer stats are impressive, there is a growing strength in RV advocates who are younger. Nobody is sure why this is occurring, but it appears that young people are valuing the family bonding time and reasonable cost, coupled with the great value and new models that RV manufacturers are producing. The more RVs on the road, the greater the occupancy at all RV properties.

Conclusion

Owning an RV park can give you the Hollywood-style happy ending you are seeking, if you buy the right property. The MGM opportunity is there for the taking, if you put in the effort to find the right setting for your movie.

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Charles Lindburgh took a huge risk when he flew The Spirit of St. Louis across the Atlantic in 1928. But it had a huge payoff and made him one of the biggest celebrities of the century. Risk is a topic we all face in life. Some people hold back on buying an RV park because they are concerned with the risk. We would ask “isn’t the risk worth taking?” That being said, there are ways to come to grips with risk and to decide if the risk is appropriate to take or should be avoided.

Identifying risks

The first way to assess risk is to make a list of all the risks inherent in the project. Take a sheet of paper and literally write them all down, both large and small. They might include financial risk, worry about retaining a loan, worry that you don’t know how to do everything that an RV park entails, etc. If your list is 100 items long, that’s fine. Just be honest and thorough in your assessment.

Define the risk

Next, draw a line down the paper and write the worst downside to each risk. Be brutal. If the risk is financial, then write down the worst case scenario, which might be losing your down payment. Do this for every single risk you identified. You’ll quickly see that some risks have negligible actual downside, and are really just a worry more than a risk.

How to mitigate risks

Now draw a line and make a third column. This column allows you to identify how to mitigate the risk. For example, on the financial risk that has as its worst ending losing your down payment, you can mitigate that by possibly re-selling the RV park if you don’t like it. This will help you get a handle on what the real downside is, once you’ve done your best to reduce the damage.

How to decide if the risk is worth the gamble

Now you have to weigh the downside vs. the upside. Sam Zell, the largest owner of RV parks in the U.S. once said that deciding on buying a property was easy. If the upside is huge and the downside small, then you buy it. If the downside is huge and the upside is small then you don’t. You need to do this calculation on any deal, and the answer will quickly become apparent.

Conclusion

Nobody likes risk. But you face it each time you pull out of your driveway. Learn to quantify the risk and you’ll be better able to make good decisions.

We saw this in a magazine recently. It’s funny how much positive press the industry gets these days in the media. RV parks spark a nostalgia feel in all Americans. Is this the smallest RV park in the world? We’re not sure. But it’s a fair bet that it’s in the top three.

Getting a great deal is a terrific feeling. When you watch the show American Pickers, you can feel their excitement at finding a terrific product at a low price, and one that they can make a huge profit on. But a big part of that is knowing how to negotiate an average deal into a great deal. So how do you do it?

Know what a great price would be

You can’t know what a great deal would be unless you know what the correct price would be for that asset. So you have to learn values. Once you can look at an RV park and know what the price should be, then you are ready for master negotiating.

Try at least three times

Try to get your price three times. Don’t give up. Be persistent. If they say they want $500,000 and you now that a great price is $400,000, then don’t just try to get the price lowered one time – do it at least three times. If the seller does not give in all the way, at least they will reduce it more each time, and you are that much closer to a great deal.

Trading terms for cash

Sometimes you can have success by offering a cash price and a terms price (in which the seller carries the paper). That allows you to “dual track” the deal and see if you can get a great deal in one of the two arrangements.

Have a walk-a-way price

You will succeed more if you have a price in which you will not buy the park. If you set this bar, and stick with it, you will send subtle signals to the seller that you have reached your limit, and they will naturally come off this price if they really want to sell. You can see that happening in American Pickers all the time.

Other negotiation tips

Always make the seller name the price first. Always be easy to sell to. Bond with the seller for the best price. Think in terms of win/win deal making. Google up the topic and you’ll find hundreds of articles with good content on this subject matter.

Conclusion

Anyone can negotiate a great deal if they know the process. You can learn to be a great negotiator if you simply put in the time to study the facts and strategies.

This is an etching of Cleveland, Ohio from the 1800s. Doesn’t look like much of a town then, but today it’s got a metro population of over 2 million people, and is one of the largest cities in the state. Real estate has always been about location, location, location, and RV parks are no different. So how can you spot a great RV park location, that will serve you well in the decades ahead?

Overnighter vs. Destination

History has proven that the best RV park locations are “destination” as opposed to “overnighter”. An “overnighter” park is simply a spot on the highway to sleep on the way to the real target. The “destination” is that real target. People stop at the “overnighter” for one night and the “destination” for a week at a time. Clearly, there’s no way you can even compare the two as far as location value goes. The right “destination” location is golden forever.

Supply vs. Demand

Choose an area that has little supply of land for additional RV parks. Find niches where the market is effectively closed to new construction. Having the supply of RV spaces limited makes values grow when demand escalates. You will find this in many mountainous areas, where there is simply no flat, buildable land to be found, and in many lake areas where there is no land not in the floodplain that is left for development. Out in the desert, however, you can build a park virtually anywhere as long as you have access to potable water.

Regional issues

Certain parts of America have higher RV occupancy stats than others, simply based on the number of people and the availability of roads to get there. An RV park in Texas will do better in revenue than one in Maine. Also look at issues such as weather – northern RV parks virtually shut down in winter while southern RV parks can operate year round.

Conclusion

Location, location, location is key in the RV park business, just as it is in all forms of real estate. Choose wisely and your RV park purchase will be an asset to your family forever.