RV Park Investing Newsletter

Memorial Day is a time in which we honor those who have served in the U.S. military. While some choose to celebrate the holiday with friends and family, another option is to give back to those veterans in need. That’s exactly what we did this year. In one of our properties was a veteran who had suffered a stroke. He was living in his RV full time, but now could not longer negotiate the tiny stairs to the door, so we built him a giant deck and new, sturdy stairs that made independent living possible.

We did this at no charge. We were, in fact, honored to do so. It was a small favor to ask for his enormous service to the country. And we have found that giving back to the RV community is always the right thing to do. Is there something you can do to help a veteran in need?

Please have a happy and safe Memorial Day!

Most people buy RV parks because they have superior returns on investment. But why is that? What is it about RV parks that allows them to make more money than traditional investments like stocks and bonds, or even other sectors of real estate like apartments? The answer – in one word – is “spread”.

What is “spread”

“Spread” is simply the numerical difference between the cap rate and the interest rate on your loan. It’s nothing fancy and it doesn’t take a bunch of math mastery to figure it out. Anyone can calculate it in one second.

How to calculate it

The cap rate on an RV park purchase is derived by dividing the net income of the deal by it’s total cost. For example, if you are buying an RV park with $100,000 per year of net income for $1,000,000 then the cap rate is 100,000 divided by 1,000,000 = 10%. The interest rate on your loan is 7% in this example. So the “spread” is 10 – 7 = 3.

The importance of leverage

Obviously, if interest rate is one of the two key numbers in this calculation, it’s got to be an important part of total picture. And that’s true. To have high yields in real estate, you have to use leverage. The typical leverage on an RV park is about 70% to 80% of the total cost of the property. If you buy an RV park with all cash, the cash-on-cash return is very low. You have to use bank or seller debt to hit high levels of return.

What to watch out for in your calculation

One common mistake RV park buyers make is to not be realistic on the total amount they are spending on the property. Any improvements you plan on making (adding a pool, putting a new roof on the clubhouse, etc.) must be added to the estimated cost on the front end. Otherwise you are artificially boosting the cap rate – and reducing your yield.

What “spread” results in a 20%+ cash-on-cash return level

In general, a 3-point spread results in a 20% cash-on-cash return. Let’s model this out based on the example above. If you buy an RV park making $100,000 for $1,000,000 and finance 80% at 7% interest, here’s how the numbers work:

• Total price: $1,000,000
• Down payment: $200,000
• Net income: $100,000
• nterest on $800,000 at 7% = $56,000
• Net income $100,000 – interest expense $56,000 = $44,000
• A return of $44,000 per year on a $200,000 down payment = a 22% cash-on-cash return

In other words, your RV park investment is making ten times more per year than a CD.

Thoughts on maintaining a healthy “spread”

It’s not enough just to have a 3-point spread when you buy the RV park. You have to maintain at least that spread going forward. Since we’re in an environment where there is some uncertainty regarding the future trends in interest rates, it’s important that you also strive to boost the cap rate and the spread ever higher. You can accomplish this through increasing occupancy, raising nightly rents, and cutting costs.

Conclusion

99% of investors dream of hitting a 20%+ cash-on-cash return. But RV park owners hit that all the time. The key is “spread” and it’s a simple formula to understand and master.

Our Home Study Course is not like anything you have ever listened to or read before. We do not fill it with a bunch of fluff on how your are going to make a million bucks with no money down. We tell you the whole story... the good, the bad, and the sometimes ugly.

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In a recent magazine article from The Pioneer Woman there was a four-page report on great AirBNB destinations inside RV parks, under the title “So Campy”. It’s an intriguing concept for many RV park owners, as these travel trailers are relatively inexpensive to buy and renovate – a fraction of the cost of a park model. Will it actually work in your RV park?

Low risk to try it

Many RV park owners already have park models in their inventory, but these often cost $40,000+ to buy. Travel trailers are very inexpensive to buy and renovate. You can probably create a reasonably luxurious travel trailer experience for $5,000 to $10,000 or so. So why not give it a try? At around $75 per night, you’d get your money back in six months.

Understanding the marketing issues

Renting a travel trailer is a little different than renting a park model. It’s much smaller and more specialized and may not be what the average customer is looking for. That being said, there is a huge “nostalgia” push going on in America today. And this type of offering is called “glamor camping” which is also known as “glamping”.

It’s all about the presentation

They say that “imitation is the sincerest form of flattery” and it’s definitely easier to copy successful marketing than to invent it. So look up the offerings of RV park owners who are experimenting with “glamping” and copy exactly what they do to the letter. And that includes the design of the travel trailers themselves.

Conclusion

Many RV park owners are beginning to experiment with nightly rentals of renovated travel trailers. It’s an interesting idea and one that has a very low up-front cost and risk. “Glamping” may be just what your RV park needs.

M.J. Vukovich is one of the top capital consultants in the industry. His specialty is to help you obtain bank or CMBS debt for your RV park. He charges roughly 1% of the loan for this service, and frequently pays for himself with lower interest rates and better deal terms than you can obtain. He’s paid only on successful completion of the loan.

For a free consultation, contact MJ at (612) 335-7740 and let him tell you what he can do for your property, or email him at [email protected].

This is a board game from the 1940s that’s based on players advancing across America by staying at RV parks. The game extolls the virtues of RV parks circa 1940. Are these the same today?

Healthier Living

RV parks are described as places for healthy living. The great outdoors, fresh air, exercise, home-cooked food. One of the great attractions to RV parks has always been how good you feel when you return to your roots as part of Mother Nature. In a study a couple years ago, outdoor cooking was ranked as the #1 attraction to staying at an RV park. The pursuit of healthy living is as important today as it was in 1940.

Enjoyable Relaxation

RV parks have a strong base in recreational activity. Whether it’s hiking, fishing, volleyball, swimming, miniature golf, or sitting around the fire, the options are always present and always fun. In addition, RV parks are conducive to spending quality time and bonding with friends and family. In a national study conducted recently, relaxing and spending quality time with others was ranked near the top of the list of the reasons people buy RVs – so that hasn’t changed since 1940 either.

Greater Freedom

The third reason the board game gives for wanting to stay in RV parks is “greater freedom”. This is a universal trait of the entire RV industry – the sheer freedom to simply get in, drive off and let the adventure begin. And even then, once you arrive at the RV park you have a thousand options of how to spend your time and nobody telling your what to do. There’s no schedule and no closing time. Consumer research by the RV industry has found that “freedom” ranks among the top reasons that Americans buy RVs, just the same as it was in 1940.

Conclusion

The attractions to RV parks in 1940 remain the same today. There are few industries that have remained so true to their roots for over a half-century.

Gasoline prices have begun to rise again in the U.S., as they always do in summer. The cycle of high and low costs per gallon of fuel leads some to question what the impact of higher gas prices means for the RV park industry. Here are our observations:

Not as big an issue as it used to be based on staying habits

Years ago, many RV owners drove long distances when they went out on the road. It was a time in which “overnighter” RV parks prospered and gas prices were a big deal. However, following the spike in gasoline prices in 2008, consumer habits changed and RV owners chose to drive less and stay longer periods in one location. This even changed the investment outlook for RV parks, and “overnighter” locations became less valuable than “destination” properties.

A clientele that is not that focused on costs

RV owners share one common trait: affluence. With the average RV costing around $50,000, RV owners are not incredibly budget conscious. As a result, a 50 cent increase in cost per gallon is not going to stop an RV owner from hitting the road. In addition, there are 10,000 Baby Boomers retiring per day in the U.S. and many are buying RVs and downsizing their overhead to make way for more RV travel, and they are not going to stop those plans due to higher prices at the pump.

Have to make sense of the investment and that means using it

It’s also worth mentioning that owning an RV is a large investment, and those that have done so are not going to let it sit idle in a storage area or garage as a result of higher gas prices. The show must go on, and the cost of gas is only a small part of the overall expense of RV ownership. If you can’t afford to fill it up, then you can’t afford any of the other line items such as insurance, storage, etc.

Conclusion

Gasoline prices have a habit of rising and falling, based on both the time of year and the international trade situation. However, these cycles have little impact on the modern RV park.

While many RV parks are good investments, some are legendary. These demonstrate the perfect mix of incredible location, high rents, lack of competition, and picturesque setting. We all know their value, but how can you realistically ever actually own one of these epic RV parks?

Buy it before it’s “epic”

Epic RV parks did not happen over time. They matured over the years. So the first key to owning an epic park is to understand that you need to spot the characteristics that will make it fantastic but buy it before anyone else figures that out. So how can you predict the future? One way is to vet the opportunity using known data, such as local zoning laws and buildable terrain to know if any more RV parks can pop up nearby. Another is to map out all future highway developments to see what the future of the access and traffic count will be. But the bigger driver is your “gut instinct”. This is the amazing ability for your computer-type “brain” to take all the bits of data and derive opinions. An example are the RV parks near Disneyland in California, which only achieved legendary status once there was huge land development and the competition was demolished to make way for other uses, and rents doubled as a result.

Make it “epic” under your ownership

Some epic parks only achieve that status under the management of the owner. These opportunities you buy as raw material and then form them into something amazing. While a good owner can make any RV park a great property, it takes that extra something to make these epic – the right location and setting. An example is the Yogi Bear RV park near Six Flags in St. Louis. While the amusement park is the big driver to the opportunity, the owners have made it epic through their own efforts from the Yogi Bear statue at the entrance to the immaculate and well-designed amenities.

Don’t sell out at the first offer

This is true for all epic RV parks – somebody sold them too early on in the process. It’s kind of like those who bought Apple stock in the early days. Apple stock sold for 50 cents a share in 1981. Many investors sold that same stock at $5 per share in 2005, never imagining it would break the $200 per share barrier today. So to own an epic park you have to also have the fortitude to hold on to it.

Focus on the customer and not on the money

If you talk to the owners of epic RV parks, you’ll find that they’re not that interested in the economic value that they’ve created, but more fascinated with delivering a superior customer experience. So the final trick to owning an epic RV park is simply to care greatly about your customers and focus on creating a lasting legacy of a place that people clamor to come back to.

Conclusion

Can you own an epic RV park? Yes. Will you have to be creative to pull it off? Yes. Is today the day to start looking for that opportunity? Yes.