RV Park Investing Newsletter

The Holiday Season is a great time for reflection – both in the year past as well as the year ahead. There is something very reassuring about the time off for the Holidays, coupled with being surrounded with friends and family, and assessing where you stand before the advent of the new year. While materialism has become a huge part of the Christmas season, the best gift you can give yourself is a few moments of silent reflection on where you currently stand and where you want to go. If you are wanting more out of life – financial freedom, having no boss, being completely in control of your time and future – then you should consider buying an RV park. For those who already own RV parks, it’s a good time to think about what went right in the past year, as well as what you want to improve on in the future.

And we’d like to take this opportunity of reflection to wish you a Happy Holiday Season and a Happy New Year! The RV park industry has been very blessed this past year, and has equally good potential in 2018. We are glad you have shared some time with us in 2017, and we look forward to being together in 2018, as well.

What would be the ultimate product? Great looks? Low cost? Durability? Well, what about a product that offers all of these and more: white vinyl fencing. This easy-to-install product has become a fixture at RV parks throughout America, and for good reason.

Looks great

There’s something about the white vinyl fence that just fits in perfectly with the country “feel” of most RV parks. It’s part country and part classy – it looks like an expensive horse farm. And it comes in a variety of options, from two-rail, three-rail and four-rail to picket and even the “X” shape that looks so good going down the highway.

Low-maintenance

The beauty of white-vinyl – as opposed to traditional wood – is that it never needs painting, nor does it fade, rot or break. All you have to do is power-wash it occasionally, or simply rub it down with a combination of water and bleach. We have white vinyl fences that have been up for over 20 years and look like they’re brand new.

Inexpensive

In most markets, it costs about 10’ per foot to build white-vinyl fence. A 400’ wide expanse of fencing would cost around $4,000, which is a real bargain compared to real wooden fencing. And because this type of fencing is so light-weight, it can be installed by people who typically would have no clue on how to build a real fence – including yourself or the RV park maintenance man.

Fits in perfect with the product – almost a sign unto itself

What we really love about white vinyl fencing is that it acts almost like a billboard. It has great contrast with its environment – bright white against dark green – and its basic shape and design can be seen from miles away. It also sends a positive message to the consumer, who equates white-vinyl fencing with properties that are upscale and well-maintained.

Conclusion

We have been huge users of white-vinyl fencing for over two decades. It’s one of the best products for RV parks that we’ve ever seen, and is the appropriate choice for entry fencing as well as other fencing needs at virtually every RV park property.

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The oldest RV park in our portfolio dates from the 1930s. That’s near the start of the industry, and we have been interested in the history of this business for years, and have read virtually every publication ever written about it. And the truth is that the history of RV parks explains many of the features you will find when you are looking at buying various RV park properties. So what are these features?

Gas stations (and tanks)

In the early days, RV parks had a direct tie to the petroleum industry, as cars towing RVs would stop for the night and get gas at the same time. If you look closely in front of many urban RV parks, you’ll see oval areas of concrete that used to serve as gas pump islands. The good news is that gas stations have always been placed – even in the 1920s – on major roads with good traffic. The bad news is that they also come with an environmental liability, namely underground storage tanks. These were made of metal, and typically leaked. As a result, they can cause you to fail a Phase I Environmental inspection (which is a mandatory test for pollution that you should get for every RV park you buy during due diligence) and that can be a deal killer. The good news is that many of these tanks were flagged during the early days of environmental awareness in the U.S. during the 1970s, and have already been remediated (traditionally removal of the tanks and elimination of contaminated soil).

Motor courts

In the early days, RVs were often parked behind motel units. Not the Holiday Inn style of lodging, but the motor court – little bungalows with attached car ports where the traveler would pull into the carport and walk in the door of their “room”. Since these type of motels have not been popular in a half century, most of these little buildings have been made into efficiency apartments. That’s not an attractive business model in many markets as it attracts undesirable residents, but it can work satisfactorily in some markets where the locations are spectacular and there is demand for charming little buildings with nostalgia. We saw such an RV park recently in Colorado Springs, and these units were being rented by the night as cute returns to yesteryear and very satisfactorily. In this fashion, the motel units of the past can sometimes be brought back to life.

Founder’s homes

Many early RV park owners would live in a house at the property – either at the entrance, or sometimes in the middle of the property. Some of these homes can be quite spectacular, based on the success of the owner and their tastes in housing. I am yet to see one of these structures that cannot be made into something of value – either the RV park office, a home for the current owner, or a home for the RV park manager or staff. But make sure to budget appropriately for the required modernization, as many of these lack central heat and air and, being a half-century old, the may have roof and foundation problems. What’s the nicest one we’ve ever seen? It’s not a property we own, but there’s a Tudor mansion in a property in Ft. Worth, Texas that used to serve as the home of a well-known gangster.

Restaurants and bars

Since early RV parks were all about travel, they have a long-association with restaurants and bars. Just as modern RV parks typically include some element of food sales (normally snacks), earlier RV parks featured full-service restaurants for both RV park guests as well as the outside public going down the highway. While most of these structures would not longer meet modern requirements for food preparation under current codes, they do offer the ability to be converted into common area amenities, such as clubhouses and game-rooms.

Conclusion

RV parks have a long and interesting history. Along the way, certain structures and business models intermingled with the RV park, and those are a good glimmer of the history and development of every property.

The popular History Channel show “American Pickers” seems to always have a historic Airstream or two every season. A recent show featured yet another of these historical attractions. Of all the RVs ever manufactured, no model has held its value like the Airstream. The values of these trailers continue to escalate. Here’s a 1966 model we found on Etsy recently which needs total renovation for nearly $19,000 “as is”. Why are these so sought after? Just like the Ford Mustang or the Ferrari Dino, certain products are considered classics, and their timeless appearance draws a large following. The older the model, the more rare it is, and the value just seems to go up.

Sam Zell is the top investor in the history of real estate, as well as the largest owner of RV and mobile home parks in the U.S., with over 160,000 lots. While he rarely gives interviews or speeches, he does occasionally write his theories on investing and put them on items for his employees. One of his best is the thought that “if a deal has low risk and high reward, then you should always do it, and if it has high risk and low reward, you should never do it”. How does that relate to RV park investing.

Risk vs. reward is a very powerful force in RV park investing

Zell’s theory is that risk must be accompanied with reward, and when that relationship is not proportional, then your interest in the deal should be ended. For example, let’s assume that an RV park does not have accurate financial records – or any records. That presents a huge amount of risk. So to make you want to take that risk, you have to get that RV park at an incredibly low price in order to justify taking that risk. It would be insane to pay a high price for a property that might have a financial performance that is a fraction of your expectations, right?

How can you increase the reward?

WThe “reward” in real estate is strictly financial, so basically the only way to make a property more compelling is the price. However, the price itself can be adjusted using the loan interest rate, which means that seller financing can often be a trigger to making a deal more attractive as a lower interest rate equals effectively a lower price. When we say that a RV park does not have enough “reward” we are saying that it does not make enough money – both near term and long term.

How can you reduce the risk?

If the seller is firm on the price, then the only other way to move the needle on making a property compelling is by reducing the risk – which could then bring the risk/reward ratio back into a healthy balance. So how can you reduce risk when buying an RV park. The first step is to identify what the risks are, and then how to mitigate it. For example, maybe you are concerned about the location being too far off the highway. Maybe the solution is additional signage to direct customers there. Or maybe you are concerned about some lots being in the floodplain, so your plan is to exclude those lots from the inventory and instead place more amenities there and reduce the potential revenue slightly. Having a worry is not an effective tool: you have to quantify those concerns and think through methods to mitigate them. Of course, once again the best way to reduce risk is to reduce the price of the deal.

Other thoughts

Another way to reduce risk is to employ the tool known as “non-recourse” debt. “Non-recourse” debt means that, in the event that you cannot make your note payments, the lender is only able to take the property back and cannot come after you for any deficiency if the note is sold at a loss by the bank. The converse is “recourse” debt, which is pretty standard on bank debt. To obtain “non-recourse” debt, you have to get seller financing or CMBS “conduit” debt. However, its presence in a deal greatly reduces the risk.

In this same vein, a low down-payment – including zero down deals – coupled with non-recourse debt can overcome virtually any risk. It does this by eliminating the buyer’s risk – if the deal fails, the buyer simply walks away without the loss of anything except for their time.

Conclusion

Every RV park deal that you evaluate should always have, as part of your consideration, the ratio of risk and reward. And further thought should be given to increasing the reward and reducing the debt. This is the foundation of good deal making.