RV Park Investing Newsletter

We pulled in a completely full RV park the other day. Every single space was occupied. The property had the perfect location near a popular tourist area and with terrific visibility and direct frontage on a major highway. The signage was excellent, the roads free of potholes, and the amenities flawless. This is exactly the type of property that any investor would like to own. But how did that owner buy it at a good price with superior yields? Probably not in the condition that it is currently in. The most profitable way to buy any RV park is when it’s a great location but poorly managed. Then you can step in, clean it up, ramp up the marketing, and take the revenue through the roof, while at the same time eliminating needless cost. So when you’re out looking at properties, don’t be looking for the perfect RV parks, be looking for the ones that you can make perfect. That’s where the big money is.

There are 10,000 Baby Boomers retiring each day in the U.S. And this statistic will continue for over a decade. Many of these folks are, immediately following getting their gold watch, going to downsize and sell their brick home. Many take this money and put part of it in the bank and the other part into buying an RV and travelling America. And that’s a win/win for both RV parks and these customers. This is a photo of the entrance into one of our properties.

RVs are built perfectly for older Americans

Recreational vehicles share many attributes that work well with older folks. The living space is all on one level, and the space is contained and easy to get around in. There are plenty of things to grab on to while moving through the unit. It’s just a couple stairs to get inside, and then no more. That’s why many older Americans are enjoying this lifestyle.

Low purchase price

While RVs can run as high as $500,000, you can buy used trailers, fifth-wheels and motorhomes for under $10,000 that are in good condition. There is a huge range of options both new and used to meet every price point. You can literally walk into any RV sales lot and find at least one offering that meets your budget. Low cost is another reason that RVs have a huge following with those trying to keep the bulk of their assets income producing.

Low operating costs

And let’s not forget the low cost of operating an RV. While many people complain about gas prices, that really not the case since most seniors keep their RV in one spot. With that out of the way, the only other cost is the space rent, as it includes all water, sewer, trash and electricity. In RV parks that have the long-term customer pay their own utilities direct, you can still live well for less than $600 per month, which is impossible in any other desirable form of housing.

A built-in community and chance for socialization

Here’s one of the biggest strengths in RV parks: the built-in activities for fun and human interaction. RV parks are well known to have as elaborate activities as a cruise ship, and an eternal sense of fun and camaraderie. Most RV parks have a pool, shuffleboard, fishing lake, trails to walk, areas to sit, and pavilions and buildings to socialize in. On top of that, there is almost a fraternal bond between those who stay there that is nurturing and encouraging of participation.

Tied to nature

A survey of RV residents found that one of their top things to do is to cook outside. Who doesn’t enjoy a meal cooked over an outdoor fire. Indeed, there is much to be said about living in the great outdoors. It’s healthy and fun. It’s great to see the stars at night and bright sunlight in the morning. While many dream about such a lifestyle, RV owners live it.

The ability to live outside of employment areas

Another key attraction is the ability to get completely out of the rat race and live free from the hustle and bustle (and traffic and noise) of congested areas. When you don’t have to go to the office, you don’t have to live near the office. That’s one of the great things about RV parks: the separation from those who have to work. And only seniors can make that choice.

Conclusion

RVs and RV parks offer a perfect lifestyle for seniors. That’s a huge attraction to the industry and will remain that way for decades to come.

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Benjamin Franklin once said that “diligence is the mother of good luck”. While Franklin never owned an RV park, he hit the nail on the head. You can remove the “bad luck” out of any RV park investment by proactively following a path of superior due diligence before buying that deal. So how do you do that?

Verifying the projected revenue

When you buy an RV park, you do so based on past revenue performance. But how do you ensure those numbers are accurate? One good way is to overlay the byproduct of residency. RV parks do utilize utilities – both water and electricity. So if you can figure out how much monthly cost you would have in water and electricity by one occupied lot, you should be able to make a good educated guess as to the cost associated with the seller’s numbers. For example, if it costs $8 dollars per day in electricity for an RV in the park on average, and the seller says they have revenue from 300 nights of occupancy in a certain month, there should be a corresponding $2,400 of electricity cost for that period. This will give you peace of mind that the revenue is accurate. You should then also see broad correlations of monthly revenue and related costs.

Ascertaining the actual costs of each line item

Don’t take the seller’s numbers at face value. Verify each line item. If they say the actual water cost was $32,500 for the year, then go to the water department and get the last three year’s of billing and see for yourself. Insurance is $5,600 per year? Call an insurance agent – such as Mobile Insurance – and see if that’s correct. There’s no reason you can’t verify every line item with 100% accuracy. And the net result is that you will never get burned.

Normalizing historical numbers

When you look at past operating numbers, keep an eye out for one-time charges that are unusually low or high and may cast an unfair picture of what’s really going on. If the seller just paved the roads – and you won’t do it again for 10 years – then it’s not fair to expense that in one year (and it’s also not fair to capitalize that and hide that from you so you don’t budget accordingly). Just built a dock on the fishing lake at a cost of $10,000? Again, that’s not a cost you’ll see again for a long time. We call this “normalizing the numbers” and it’s an important step in getting an accurate portrayal of financial performance.

Using reasonable projections of increases

Don’t go too far out on a limb when projecting your increase in revenues and parring of costs. Don’t go for the perfect scenario – give yourself the chance to be a little wrong. If you think you can increase revenue by 10% in year one, let’s be a little more conservative and budget 5%. Always better safe than sorry.

Not listening to anyone but yourself and the numbers you have compiled

There are many people who are not really on your team. The seller and the broker are two of them. You cannot trust them as impartial sources. So don’t listen to anyone but yourself. And don’t get too emotionally involved in any one deal. Keep your white lab coat on so you don’t let yourself be lulled into overlooking the harsh reality of the numbers that you project. There are lots of RV parks out there – don’t force a deal that really does not work. You’ll regret it.

Running the numbers at least three times

Some buyers run their numbers just one time and then buy the RV park. That’s a terrible way to proceed. You should run the numbers at least three times to make sure you did not make a math or estimating error. And if you get a bank loan, then the numbers will get examined two more times: once by the appraiser and once by the banker. In our opinion, you can’t have too many eyes on your numbers.

Run a worst case, best case and realistic case scenario and see what happens

Sam Zell, who is the largest owner of RV parks in the U.S., has a very smart strategy: if the deal has low risk and high reward do it, and if it has high risk and low reward never do it. To determine this metric, you need to see what the risk and reward really is. And that’s presented in the worst case and best case scenarios. The realistic case is what you built your budget on. This exercise can point out many failings that are better left avoided, as well as RV parks that should definitely be purchased.

Conclusion

There are many ways to take the risk out of buying an RV park. It never needs to be a game of chance. Benjamin Franklin was 100% correct.