RV Park Investing Newsletter

April 15th is the deadline to file your Federal income taxes with the IRS. And in many ways, the more you owe in taxes, the better. That’s running under the assumption that the more you pay in tax, the more you had in income. Only about 50% of American households even pay tax today, since a huge number are on entitlement programs ranging from social security to welfare. So you should be proud to pay taxes and even more excited as your tax bill goes up as a function of higher income. That’s not to say that you should not make it a #1 priority to minimize your taxes as best as possible. But earning more income is a part of why people buy RV parks. Financial independence comes with a cost, and that cost is almost always more taxes due on April 15th.

It’s also important to note the many tax benefits that RV parks have to offer, from depreciation to capital gains. Real estate has always had a special place in the tax system, and RV parks also share those benefits, as well giving intangible positives of peace of mind and a change of scene (if you self-manage the RV park). And those are priceless things yet simply can’t be taxed!

Bad RV park owners believe that they can solve any issue with lowering the rent. Pool doesn’t work? Lower the rent. Roads filled with potholes? Lower the rent. But they’re wrong. Customer don’t want just the lowest pricing – they want more. They want a concept called “value”, which means a good product for their dollar. So what’s a real life example of how this works?

The parable of hotel choice

Imagine that you are driving down the highway and it’s getting dark. You need to pick a hotel. You notice that there are three hotels at the next exit. One is the Tiki Motor Court and the rate is $39 per night. The next one is a Holiday Inn Express at a rate of $119 per night. Finally, there’s a Four Seasons hotel at $395 per night. Which one do you choose? We’re pretty sure it’s not the Tiki Motor Court. But why not? It’s the cheapest. The reason is that customers don’t go simply with what’s “cheapest”. They want safety and cleanliness and a host of other things. The relationship between these things and the price is what’s called “value”.

How this relates to your RV park

Pricing is only one part of the customer’s estimation of value. If you want to charge more for your RV park, the key is to focus on making the customer experience even better. It’s completely possible to have the most expensive RV park and still have happy customers if they feel that they have received value for their money.

How to do a better job of offering “value”

So how can you create better value for your customers? There are five key areas:

• First impression. Make your entry attractive and professional so that the customer is impressed.
• Mowing and landscaping. A well-maintained green space is inviting and a bunch of weeds is depressing. Seasonal color adds punch.
• Great common areas. There is never an excuse for the clubhouse, pool, pavilion, volleyball court, etc. being any less than perfect.
• Plenty to do. You need to give the customer a huge list of options so that they always leave with things still to do on their list.
• Great attitude. You entire staff should exude a desire to please the customer and to help make the stay truly enjoyable.

Conclusion

If you want to make more money with your RV park, put more effort into creating that sense of superior value with the customer. Higher rents are no problem if the value correlation is appropriate. To get higher money out, you have to put higher effort in.

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When you buy an RV park you are frequently dealing with moms & pops that own the properties free and clear. And these type of sellers frequently offer carrying the paper as part of the process. But if you’re going to embark on seller financing – our personal favorite type of lending – there are three important items that you must address in any seller note, yet many buyers miss.

Assumable

If you want to give yourself the ultimate peace of mind and liquidity potential, then include assumability into your seller note. This means that you can sell the property at any time and the new buyer steps into your shoes and does not require a bank loan, either. Let’s model out how important that is. Let’s assume that you want to sell your RV park just a year after your bought it due to a medical emergency, then all you have to do is to find someone who has the down payment and you can close immediately without the need for them to find a bank, do an appraisal, go to loan committee – a process that can take months. This give you terrific peace of mind.

Notice to cure

A ”notice to cure” simply means that, if the seller does not get their note payment on time, they have to notify you and give you time to make the payment before the note goes into default. While this makes complete sense, in many states the seller can call the note due in full if you simply miss the payment date, and they have no requirement to notify you first. This is a terrible risk and one that can be easily corrected with the inclusion of “notice to cure” language.

Releases

If you are buying an RV park that comes with additional land or other assets, you might want to sell those off in the years ahead – but you can’t unless the seller gives you a “release” on that part of the collateral pool for their loan. For example, let’s assume that the RV park comes with 50 extra acres of land. Years later, you get an offer from a realtor that represents the town doctor who wants to build their dream home there. Can you sell it? No, not without the note holder’s consent. And if you wait until later, the cost of that release may be higher than the offer on the land. A better idea is to work out any possible “release” scenarios when you first construct the note. You would include in the note that you have the right to sell that 50 acres for a one-time release price of $50,000, for example. Then you have the situation covered if it ever arises.

Conclusion

Seller financing is one of the best attributes of many RV park deals. But a normal seller note can be made much better with the inclusion of the three points shown above.

When you are looking to buy a larger RV park ($2 million + in price), then there’s a better alternative than going to your local bank. M.J. Vukovich is one of the nation’s top capital consultants (also known as a loan broker) and he can build your loan package, present it to banks, get your selection, negotiate the final terms, manage the process to closing – and all at a small fee that is only paid upon performance. We’ve been using him for years and he saves more time and money than he costs, plus gets us access to the best loan products such as CMBS conduit debt.

For a free consultation, contact MJ at (612) 335-7740 and let him tell you what he can do for your property, or email him at [email protected].

It makes complete sense, yet some RV park owners do not have a very professional system of marking the lots in their property. When you tell the customer to pull into lot #14, it’s important that they understand clearly where #14 is. The numbering system should be sequential and clearly marked. There’s nothing worse than having a #13A and #13B for example – we’re not sure how mom & pop ever even came up with that structure – or skipping #13 altogether because it “brings bad luck”. Additionally, all numbers should be prominent and at the front of the lot, not hidden at the rear on a power pedestal. With your annual Spring clean up starting now, look at your numbering system and see how it stacks up.

A recent study of RV park customer preferences have shown that there are six big attributes that all RV owners seek out when making their decision on where to stop and stay. Here’s the official list, along with our discussion of how to achieve it.

1. Character -- more than just a parking lot. All good RV parks have a unique sense of community – a special “air” of fun and camaraderie. This is reflected in everything from their entry sign to landscaping and minor touches. Nobody likes a “sterile” environment. Trees are a huge plus, as they cast shade and create that communing with nature effect that most customers like. But we’ve also seen RV parks that are total successes based on humor (like some Yogi Bear locations) or other themes. Individuality is key.
2. Free Wifi. We live in a wired society today – but nobody wants to have to deal with “wires”. Wifi allows your customers to use their personal computers and tablets anywhere they want, whether inside or out. And it’s not that expensive to rig up free wifi throughout your property. Here’s a great report on wifi in RV parks. Since roughly 40% of RV customers won’t stay in a park that does not have wifi, this is something you should focus on immediately.
3. Clean bathrooms with unlimited hot water. This should go without saying, but clean bathrooms are an essential part of any successful RV park. If your bathrooms are not excellent, the only question is “what are you thinking?”. Clean bathrooms are not rocket science. And if you can’t provide unlimited hot water, that’s something you need to address, and fast.
4. Pull-thru or easy access. If your RV park does not have pull-thru lots (which many of the older ones do not) that does not mean that you can’t make access to the lots easier. In many cases, you simply need to clear areas for a less terrifying turn-radius, which includes cutting down some obstructions and paving larger areas on the lot. Remember that many RV owners only take them on the road a few weeks per year, and they do not have the skills needed to feel comfortable with tight access.
5. Disclosed rates with no surprises. Your rate structure should be publicly advertised and there should never be any add-ons. $40 per night should not be $53 when you go to pay. Nothing makes customers less happy than when you have a bunch of small add-on charges. Southwest Airlines has built a business around not having additional baggage fees, etc. Smart model.
6. A nice staff. There’s no excuse for having a bad attitude. Yet many RV park staff members exhibit this from time-to-time. Being “nice” means smiling and having a positive nature. Even on a bad day, there’s no reason that your team can’t “fake” that they’re having the best day ever. You know how you go to a fancy Italian restaurant and the owner walks from table to table to make sure that you are 100% satisfied? It’s not hard to do, but those restaurants that take that extra little effort stand out. Try to see if you can make your staff experience a huge positive for customers, and they will thank you with word-of-mouth advertising and repeat stays.

Conclusion

The RV park business is very unusual, because what it takes to be top-tier is not capital intensive. Of the above list, all six items are either free or low cost. That means there’s no excuse for every RV park owner to score high in these areas.

Money magazine recently featured an article titled "We Traded Our Home for a $50,000 RV in Retirement — and We've Never Been Happier". This is a theme that you see in publications constantly. And it’s an important part of why the RV park business has been so strong for so many years now. In the article, the couple is essentially booking 365 RV park nights per year. And they are not alone. There are many other American retirees that are following this same housing plan. When you assume that the average RV owner in the U.S. is on the road only about 14 days per year, each of these full-time customers is worth 26 times that of the average consumer. And there are 10,000 Baby Boomers (those born between 1946 and 1964) retiring in the U.S. per day. This phenomenon does not get much attention, but RV park owners know that this megatrend and shift in retirement housing has been a huge force behind greater occupancy. And it’s here to stay, as these customers will continue in this housing choice for decades to come.

So you’re putting an RV park under contract and you are about to write that earnest money check. You have no concerns because you’ve always heard that earnest money is always safe, right? Wrong. Not always. And there are some things you need to know before you write that check.

How it’s supposed to work

In a perfect world, your earnest money is safe from harm, only acting as a liquidated damages if you walk away from the contract without cancelling during your due diligence or financing contingencies. It’s a very straightforward system, and is completely written out in your contract. As long as you meet the action dates spelled out in the contract, your earnest money is always returned to you.

But there’s still risk

The danger comes when the seller claims that you have violated the terms of the contract and threatens litigation. In that case, the title company will say “you guys work it out and let us know when it’s resolved and, until then, we’ll keep your earnest money safe in our vault”. That could mean that your money is frozen at the title company for potentially years.

How to protect yourself

So acknowledging this risk, how can you best protect your money and your sanity from danger? There are several key strategies.

• Keep the amount low – roughly 1% of deal size. On a $1 million RV park deal, that’s an earnest money of $10,000. If the seller wants $100,000 in earnest money, ask them why they want so much. Often you’ll find that they are simply trying to make sure you have the capital for the down payment. An easier choice is to simply show them your bank statement.
• Use only a large title company for your deal. Not all title companies are created equally. There’s no reason that you should ever consider using a small title company. When you use a firm such as American Title or Chicago Title, your deal is backstopped by a huge organization that has on-staff lawyers and protects your title after purchase with deep pockets and insurance. When you use “Tom’s Title” in the strip shopping center, the odds of disaster are vast.
• Watch you dates closely. There are many stories out there about buyers who lost their earnest money simply because they never paid attention to the expiration dates of the examination or financing periods. Even worse are when the buyer doesn’t even remember what those dates are. These dates should be prominently displayed in your calendar, and the title company should also send a confirming letter to both buyer and seller denoting what they are so there is no confusion.

Conclusion

Your hard-earned money is sacred. It should never be put an unnecessary risk. These tips will help to make sure that it remains safe at all times.

We recently saw on television a show that featured a $2 million RV. Indeed, high-end RV options have multiplied enormously in recent times. What’s fueling this trend? One reason is sheer volume: RV sales are at their highest point in American history and that means there are more affluent customers in the overall base of consumers and the top 1% have higher budgets that can afford these price points. You can see the same phenomenon in sports cars, where there are now various models that start at $1 million. People always talk about the “1%” which represents the top 1% of those in America financially. Based on a U.S. population of around 300 million, that means this group numbers around 3 million individuals, with an average income of $421,926 per year or a net worth of $8.4 million. So the expansion of RV pricing in the top-end is really just a function of the evolution of the base of wealthy customers and those that choose to buy an RV. And it’s a great thing for the industry.