The Biden administration is proposing new changes to all forms of government, including tax codes, immigration, energy and other platforms. Assuming that all investors want to be on the correct side of megatrends – which is true – it then begs the question: “how will these proposals effect RV parks in the years ahead?”
Capital gains tax and repeal of the 1031 exchange
These changes to the tax advantages of real estate investing are going to result in fewer transactions and more refinancing of existing holdings. However, on the front end, it’s going to result in much more RV parks going on the market in 2020 as most older RV park owners race to sell before their gains become ordinary income. If you’re trying to buy an RV park, then this is a positive development. If you already own an RV park, then you will more than likely not sell it down the road, but instead just refinance it periodically and hold on to the asset until you die and your heirs have a stepped-up basis.
This issue is of little importance to the RV park industry. While it can have a huge impact on employment and related topics, there really is no correlation between a rise in border crossings and the average RV park’s value or operations. We own RV parks on the Texas/Mexico border and have seen zero impact from greater immigration to date.
Green new deal and energy initiatives
This issue is going to heavily weigh on RV parks that cater to oil and gas workers in such states as Texas, Oklahoma and North Dakota – but that’s an incredibly small slice of the RV park industry. Any RV park that has revenue performance tied to housing such workers should be avoided (we’ve been writing about that issue for years now). The greater impact will come from higher gas prices, which will make filling up an RV at the gas pump less attractive. That being said, the RV industry has already adjusted to higher gas prices and the net result was the rise of the “destination” RV park – known for extended stays – and the decline of the roadside “overnighter” RV park. This was set in motion years ago, when gasoline prices first started to rise.
This would be a huge gain for the RV park industry as improvements to America’s highway system means driving an RV is safer, easier and with less congestion. However, much of the proposed amendments have nothing to do with transportation (such as social programs) and a huge amount of spending is focused on such non-RV related travel topics as trains.
Initiatives to defund the police
This political movement is only going to increase the demand for RVs and RV park occupancy, as people flee urban centers and seek out safer places to vacation and live. This is already transparent in greater RV occupancy during the pandemic and the riots of last summer. As America’s cities become less attractive to spend time, it only makes the tourism centers that RV parks focus on more in demand.
An increase in personal income tax rates is going to make it more attractive to buy an RV park as a hedge to the American tax system. One of the hallmarks of the RV park tax incentive is depreciation, which can often shelter the tax on the principal portion of your mortgage payment. Additionally, RV parks appreciate in value without any tax penalty – the gain only being realized upon the final sale. Finally, many Americans are going to self-manage and live in the RV parks they own, giving them the ability to escape high city tax, leave high-taxation states, and enjoy more non-taxed benefits such as being their own boss and having a higher quality of life.
With as much money as the U.S. has been adding to the national debt – on track for $6 trillion – the potential of inflation increases daily. The good news is that RV parks are a perfect hedge to inflation as they are a hard asset that also has the ability to increase rent levels in-line with the consumer price index (CPI). In fact, most economists list real estate as the ultimate protection from the impact of inflation.
America is in the middle of a massive upheaval in government policy. The impact to all forms of living in the U.S. may be huge. The good news is that the RV park industry is properly positioned for virtually all of these initiatives, and the others can be easily hedged with proper RV park selection.