The stock market has had a great ride since it’s Covid-inspired bottom. But how much of that was reality and how much was fantasy? The current decline in the Dow Jones and the Nasdaq are sobering reflections on the fact that the market is mover overvalued than at any other moment in American history – even worse than 1929 based on analytics. Charlie Munger – Warren Buffett’s business partner – has been warning about an apocalyptic market correction for months. And now it appears to be finally here. So in light of the fact that stock market “gambling” is no longer paying off, have you considered investing in an arena that is built on the fundamentals of income and cash flow and not PR and logo design? And a great investment niche that meets all these criteria is the simple RV park.
Why an RV park?
An RV park is a very simple business that anyone can understand quickly. You rent spots to park RVs. It’s simply renting land. Because of this simplicity it has very high margins and very little management intensity, as well as very predictable cash flows. The demand for RV park lots has never been greater – there are more RVs on the road today than at any time in American history –and this translates into solid occupancy. Best of all, RV parks are bought and sold based on only one attribute: income. Unlike the stock market where companies trade shares based on intangible future potential (think Tesla), RV parks are only valued based on current cash flow. That’s as solid an investment foundation as exists in America today.
What are the types of financial returns that are possible?
The majority of RV parks sell at a cap rate of around 8% to 12%. Compare that to stocks, which average only around a 3% dividend. In addition, RV park purchases are typically leveraged with debt at a rate of around 80% LTV, meaning you can buy an RV park five times bigger than your capital, while stocks are typically on a 1-to-1 scale. That means you can easily hit 20% cash-on-cash returns, which is astounding. And then, on top of that, you have the simple fact that the value of the property rises as you increase the net income, so when you sell the property you get paid a second time with those profits.
How can an RV park weather a national recession?
If the market is collapsing why will that fact not take down the RV park model, as well? Let’s explore that premise. RV parks have two basic customer bases: 1) retired seniors and 2) non-retired individuals. Obviously, those who are retired will not be impacted by a Wall Street decline as they are no longer employed and live on pensions and Social Security. Of the non-retired individuals, their RV is their vacation home, with a typical U.S. usage of two weeks per year. Based on that role, as the economy falters, Americans are even more wanting to take a needed vacation and forget their problems. Based on past recessions, the impact on RV parks is contrarian – often the usage actually increases.
What are the next steps?
If you are interested in learning more about RV park investing, then we would suggest that you do the following:
- 1) Sign up for our RV Park Investing Home Study Course , which has been the bible of the industry for around a decade. It was written and recorded by Frank Rolfe and Dave Reynolds who are among the top ten largest owners of RV parks and mobile home parks in the U.S. with over 200 properties.
- 2) Select your “territory” that you want to focus on and invest in.
- 3) Start looking at deals via online listings (RVparkstore.com and Loopnet), brokers (there’s about a hundred in the U.S. that deal in this asset type), and even reaching out to owners with direct mail or calling.
- 4) Sort these deals based on what best meets your goals and start making offers.
It’s a simple attack plan, but highly effective.