Some people consider the supply of RV parks in the U.S. to be completely fluid – that you can basically build them anywhere. I get at least a call a week from somebody wanting to build an RV park on some raw land somewhere. But the reality is that successful RV parks cannot be built with abandon and that, in many markets, the supply of RV parks is effectively static. So why can’t you just build an RV park anywhere?
It needs to be tied to a destination
There are two types of RV parks in the U.S. today: 1) destination and 2) overnighter. As times have changed, destination RV parks are the clear winner. While “overnighter” parks stand as simply rest stops on the way across America but without being a real final stop, “destination” parks are those that the customer is actually seeking out and will stay, on average, 14 days per year. That’s where the money is. But to have a “destination” RV park you need one big thing: a destination. One that attracts customers to drive sometimes long distances. Not all vacant land in the U.S. has this trait – effectively only a few spots do.
RVs arrive by road, whether it’s an Interstate highway, a rural highway, or a busy secondary street. But they don’t drive in across a cornfield. You need to have good, solid road access to have a successful RV park. And being at a major exit helps a whole lot, as does good visibility from the frontage. So even when you have a destination, you also need a way to get there, and a tract of land that offers those in big vehicles the ability to gain access in a safe manner.
RV parks must have sufficient zoning to be built. In most American markets, you cannot just build anything you want without going before the zoning department and even the city council. Even counties often have limitations of what can be built and where. So you have to get governmental approval to build an RV park on a piece of land.
Availability of utilities
At a bare minimum, all RV parks must have electricity and water. Sewer is a definite plus (but this may be minimized with the addition of a dump station). In many areas of the U.S., you can only get access to municipal water and electricity in select locations – there have to typically already be working lines in the immediate neighborhood. The cost to bring in utilities from miles away is beyond the financial scope of most RV park projects.
Unlike the movie “Field of Dreams” if you build it they don’t always come. You have to make sure your RV project has sufficient demand in the area. This is often determined with a marketing study that looks at the occupancy at other RV parks in the area, as well as similar statistics. Many an RV park dream has been crushed when the reality of demand enters the picture. It’s one thing to have a nice view and a fishing lake, but another to see if that’s really compelling enough to attract a crowd.
Then there’s the issue of obtaining bank financing to fund the construction of your RV park. This is much more difficult than it might sound and made even more so by the advent of the Covid-19 pandemic. While many banks are delighted to make loans on existing RV parks with stable revenues and net incomes, building a new property is very scary to many lenders.
The good news on all this
The good news on all these hurdles is that it creates much greater value in the permit for existing RV parks. Warren Buffett always says that great business models must have a “moat”, which means barrier to competition. And RV parks, contrary to what some may think, do have this barrier in the form of the difficulty and limitations in building new competition.
Successful RV parks cannot just be built on any corner or vacant tract of land. There are key factors required, and the lack of most of these traits is what protects existing RV parks from new competition. This is what keeps RV park values high and steady, and gives confidence to owners and lenders.