Shenandoah Acres is located in Virginia near the Shenandoah Valley. It’s a location that’s known for a scenic setting with fun activities. But it’s also now known to be a huge money-maker for the recent owners who bought it for reportedly $3 million and then sold it in less than a year for $17 million to SUN, a mobile home park and RV park REIT. It’s discussed in this article . The question is, how did this property go up in value around $14 million in less than a year?
The amazing profit potential in buying from moms and pops
Who really left the $14 million on the table here? The mom and pop that originally sold it for $3 million, of course. Even if the new owner was the greatest salesman in American history, they could not have boosted the net income by 500%, as the new price would imply. Instead, the mom and pop that sold the property simply either did not know the true value at current cap ratesor did not have the financial visibility to see how things could be improved and the effect of those improvements. At a 10% cap rate, every dollar of net income is increased by $10 in value. How often do you see an unsophisticated owner failing to harvest at least $100,000 of annual net income due to inefficiencies? All the time. And that’s $1 million in value lost right there. The best purchases that have ever been made of classic Ferraris have been from cars found in barns. Why? Because the farmer typically has no clue what the cars are worth. So the bulk of this increase in value is probably simply attributable to improper pricing by the seller.
The potential to dramatically increase net income with many properties
At 522 lots, Shenandoah Acres is a large property with many income centers. It has camp sites, RV sites, and cabins for rent. It also has a store and other adds-on revenue drivers. In a property this large, there are always ways to increase the net income through revenue improvements. For example, assuming the mom and pop original owners were not masters of social media and the internet marketing (which they’re normally not) the new owner could have ramped up this modern marketing and increased occupancy substantially. Or they may have also increased the rent levels. The bottom line is that there is always low-hanging fruit to attack on deals that have not been professionally managed. The person who bought it for $3 million probably spotted these opportunities from the onset and simply enacted their plan successfully.
The importance of presenting a strong sales package to the right buyer
Should the mom and pop owners of Shenandoah Acres tried to sell directly to SUN or another large operator in the first place? Probably. But they would not have known about SUN or other institutional players in this space. So part of the profit made in this deal is tied back to the simple fact that the interim owner understood what they had and who would pay the highest price for it. You see that all the time in RV parks: the mom and pop seller misses the ultimate sale because they don’t know the players and, if they did, would probably not build a compelling enough presentation to get a deal done.
The moral is that all RV park buyers are facing a biological clock
If you want to do a deal like this, the key is to buy from a mom and pop seller. And they have a biological clock that is ticking called estimated life expectancy. We all face this limitation. And this creates a sense of urgency for smart buyers who understand that the ability to buy RV parks at low prices is tied directly to the existence of mom and pop sellers. So all of us need to rush to beat this ticking clock. Some day, all RV parks will be owned by corporate owners and the opportunity will be gone forever.
There is much to be said for buying RV parks directly from the original mom and pops. It offers the ability to buy at low prices with substantial net income increases typically available. However, you need to hurry because these opportunities will not last forever.