The U.S. is clearly heading into an era of “stagflation” which is defined as high levels of inflation coupled with a sluggish economy. The last time America saw this phenomenon was in the 1970s – nearly a half-century ago. But history repeats itself and thanks to some poor decision-making in Washington and the impact of Covid-19 on inventory, that appears to be the main economic news for the near term. If you are looking at buying an RV park, you should be concerned about how these properties will perform during periods of stagflation. Here are some observations.
Historical perspective from the 1970s
RV sales were not tracked until 1980, but here’s a chart of RV sales from 1980 to current times. As you can see, the industry still had positive sales in 1980 at around 100,000 units and it climbed from there, despite the incredibly high-interest rates under Reagan that occurred during those years. RV park occupancy has never been tracked, so there is no scientific evidence of how things fared during the past experience with stagflation.
The impact of high inflation
In the absence of historical performance, all we can do is consider the effect of stagflation on the RV park industry and to aid in that mission, let’s break that down into two components, the first one being how high rates of inflation will impact RV parks. Here are some observations:
- • High levels of inflation benefit real estate in general, and income properties in particular. If you look at any economic textbooks, you’ll find that only two asset classes perform well in inflation: 1) real estate and 2) precious metals like gold and silver. That’s because the dollar erodes in buying power and these hard assets get revalued in current dollar terms.
- • Inflation will boost cap rates, which means that you will have to continually boost rents and occupancy in line with inflation or your property will decline in value as cap rates increase. So you must only buy properties that have the potential to boost net income.
- • Higher fuel prices will favor RV parks that are “destinations” and “extended stay” and take away business from “overnighter” properties that rely on a traveling public. We have already seen this shift from lots of driving to less driving over the past decade, so that trend was already in progress before the new inflation rates and gas prices.
The bottom line is that RV parks should hold their value well during stagflation, but you need to focus on only buying properties that have plenty of room to boost revenue and cut costs, as well as those that are “destination” or “extended stay” properties.
The impact of a sluggish economy
This is one arena in which RV parks will definitely excel. The reason is simple: RV park customers are not much concerned with the national economy for many reasons:
- • The majority of RV park customers are retired, and they do not need to obtain or retain jobs to pay their bills, but instead are reliant on social security and other pensions. The economy could collapse yet the usage of their RV would be unchanged.
- • The other significant group of RV users see this as their recreation and relaxation, and in bad times they will probably use their RVs more rather than less.
- • RV travel is considered less expensive than other forms (airfare, hotel, etc.) so in tough economic times, RV parks should benefit, especially in such forms as park models, etc.
- • Many employers are now allowing for remote work from any location, and a large number of Americans are now utilizing RVs as their command center, and this trend will continue regardless of the economic status.
The bottom line is that RV parks are not that reliant on the national economy, but represent the other side of life: retirement, relaxation, and a safe haven from a plunging economy.
RV parks are well positioned as an industry going into the “stagflation” period and the resulting economic recession. That being said, it’s important to buy RV parks that have good potential to improve net income and focus on destination and extended stay customers. If there is a safe harbor for investing in America today, RV parks are among those rare assets.