RV Park Investing Newsletter

One of the highlights of the Holiday Season are the lights. They’re everywhere, and they transform even a mundane tree or storefront into a pretty amazing object. So why are they only used for about a month a year? In Tony Hsieh’s Airstream Village in Las Vegas – an RV park built and lived in by the $700 million net worth founder of Zappos.com – one feature of the common areas is that they are wrapped in twinkling white Christmas lights year-round. It gives a feel of “magic” to the property in both winter and summer – and the cost to do so is almost nothing. Have you considered keeping those Christmas lights on at your RV park after the Holiday Season ends?

And speaking of this time of year, we would like to take this opportunity to say “Happy Holidays” to everyone who reads this newsletter, as well as our articles and podcasts. We really appreciate you being part of our extended RV park family, and look forward to further discussions in the New Year!

Have you ever found money just laying on the ground? It seems crazy that other people walking by would not take the effort to bend over and pick it up. You see this same phenomenon all the time with RV parks and mom & pop owners. So how do these folks leave money on the table?

Bad financial records

One common fault of many mom & pop RV park owners is to not maintain accurate financial records (or even records at all, in some cases). When you don’t have professional-grade financial reporting, two damaging effects occur 1) you aren’t sure how much your property makes and 2) neither does the buyer and 3) the bank won’t make a loan. With the advent of the computer, buyers and banks are no longer accepting hand-written profit & loss statements. So even if the RV park was generating $100,000 in net income, the lack of good financial reporting would make the average buyer drop that down to maybe $80,000 to give a degree of buffer, and then the bank and appraiser would knock it down even more (or refuse to finance the property altogether). If only the mom & pop had kept good records they might receive 20% or more in the sale.

Lack of basic marketing (particularly internet)

Back in the old days, all RV parks used the same forms of marketing and advertising 1) Woodall’s or similar RV park guides 2) sign on the road 3) yellow pages and 4) flyers at the travel information stops. Then came in the internet in the 1990s, and the way that customers find RV parks changed forever. While the old ways still work in some cases (except for yellow pages which is basically dead) there’s no question that the internet is now #1 when it comes to RV park selection. The bad news is that’s exactly the one form of marketing that many mom & pop owners skip. As a result, most RV parks could have significantly higher revenue if the new owner simply gets the RV park proper internet visibility on searches such as Google, as well as a decent website. Since, at a 10% cap rate the multiplier of value is 10 times the net income, every dollar missed through lack of internet advertising costs the seller ten times that amount. Ouch.

Not controlling labor costs

In reviewing hundreds of RV park financials over the years, it’s clear that the #1 miss that most mom & pop owners make on the expense side is in over-compensating employees, particularly the manager. We have purchased parks in which the manager makes over $100,000 per year – which is about three times the normal compensation in many cases. How did they get so screwed up? Typically the problem revolves around them giving annual raises and then, at some point, some huge increase to cover healthcare. If you give somebody a 10% raise each year, their salary doubles every seven years. If they’ve been there for 20 years, you can see the dilemma. The healthcare increase was just a bad idea to begin with, and is based on the manager pushing the owners to make a bad decision while pretending that it’s what all the big companies do. The fact is that even the big companies make you pay some portion of your health insurance (if not all) and they don’t do 10% annual raises but more like 3% or less. Once again, every dollar they overspend on their RV park costs then ten times that amount when they sell.

Behind the times in cap rates

Many RV park owners fail to do the proper research before putting their property on the market. They just think, “well, I guess a 10% cap rate sounds about right” even when their particular property might warrant an 8% cap rate – that’s a 20% miss on their property value. Since most people only sell one RV park in their lifetime, it would make better sense for them to put as much effort into deriving the correct valuation as they do in planning a trip. And the brokers are often not of much help because they simply want the property to sell quickly and a low price guarantees fast success.

Lower passion about money

Here’s the overriding issue about all of this money left on the table: many moms & pops could care less. They own the property outright and if they sell it for $1 million instead of $1.2 million they’re OK with that. It’s still a ton of money. If they had debt it might be a different story because they’d only net the differentia between the sales price and the outstanding mortgage. The other issue is that many moms & pops have a higher purpose than just money. They also want to help the buyer (we call this “bonding”) and to make sure the property succeeds in the years ahead. They want the property to go to a good home and not see their life’s work go down the drain. And who’s to say this is a wrong sentiment?

Conclusion

Mom & pop sellers often leave huge amounts of money on the table. It’s their right if that’s what they want to do. Now you know why this occurs.

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This is an RV park in Austin that we drive by all the time. Even from the outside, you can tell it’s a great property. But the entry is what really sets it apart. What makes the Royal Palm’s entry so good?

Big sign that can be easily seen from the highway

It all starts off with a giant sign that can be seen clearly from the highway. It’s a bigger investment than many RV park owners would be able to make – about a $40,000 structure. But we have to admire its sheer size. It’s about as big as a billboard.

A happy “Welcome Home Y’all!”

We like the fact that the sign sets the tone that this is a friendly place that really wants your business. Since the entry sign is so gigantic, it can attach a panel on like this on to the sign and it’s still clearly legible. For more RV parks, the alternative would be to put a smaller sign at the entrance that offers the same sentiments.

A giant “Propane Sold Here”

Propane is a huge issue for most RVs – they need it for heat, hot water and cooking. And the sign reinforces that this important ingredient is for sale at the RV park, as well as sending a message to customers that this is a one-stop shop for everything they need.

Immaculate grounds and paving

Even from the highway you can see that the property is immaculate. Of course, you can see that this is partly an optical illusion. By paving over all of the grass at the entry, there’s nothing to mow or weed-eat. This is a common trick that we see in many RV parks in California – and a clever one. The park then takes full advantage of all this paving by keeping it free of potholes and all one color via seal-coating. Fresh striping finishes the look.

Great landscaping and masonry walls

We like the selection of palm trees at the entrance, which supports the name. But you can see, even from the highway, that the landscaping continues even past the entry. And it appears that almost all of it is hearty native choices that do require irrigation. We also like the masonry walls, as opposed to the typical wooden fencing or railroad ties. Masonry just looks expensive and gives the proper vibe that it’s a classy park.

Wide road to turn into

Big RVs need plenty of room to turn, and this park provides it. Since the most affluent customers are those with giant motorhomes – costing $100,000+ -- it certainly is not a bad thing to cater to them, and since the average RV is only on the road for 14 days per year the more room for error the better.

A giant U.S. flag

An obvious feature of this property is a giant U.S. flag set near the office. It serves multiple purposes: 1) it makes the park even more attention-getting from the highway 2) it lends an atmosphere of patriotism and 3) it helps the customers find the office. Although this flag is extremely large and expensive, even a smaller model would do the trick nearly as well.

How many of these ideas can you incorporate into your RV park?

The whole point of this article is to suggest changes you can make to your RV park entrance to make it even better. While some things are hard to create (like a large turning radius) others are simple and relatively inexpensive (like a large U.S. flag). Surely, there are some ideas here you can utilize.

Conclusion

A great RV park entry sets an important first impression. But the best not only accomplish this, but also attract customers off the road. Every dollar you invest in your entry will yield a multiple of that when you go to sell or refinance.

If you’re looking at buying an RV park – or refinancing one – at a cost of over $1 million, then you should definitely contact MJ Vukovich at (612) 335-7740. He’s one of the leading capital consultants in the U.S., and can create your loan package, create a list of potential banks, contact these lenders and meet with them, negotiate the loan, and push it to completion – all for around a 1% fee. He can also help you tap into the CMBS debt as well as new Agency (Fannie Mae and Freddie Mac) products.

MJ is who we use on our loans, and his track record is impeccable. He only charges a fee upon the successful completion of your loan and closing of the deal, and all initial consultations are complete free.

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].

The #1 owner of RV parks in the U.S. is Sam Zell. He’s an iconic figure in American real estate. Yet most people could not pick him out of a crowd. Yet his opinions on real estate investing are profound and grounded on decades of experience. So who is he and what can we learn from him?

The LeBron James of real estate – only three times bigger

LeBron James is a big name in basketball. But he only is a superstar in one sport. Sam Zell, on the other hand, is the #1 owner of three different real estate sectors: 1) RV parks 2) office buildings and 3) apartments. Nobody in U.S. history has ever been #1 in more than one sector. He has grown his RV park portfolio from zero to 160,000 lots in the past 25 years. That’s an incredible track record.

A master at analyzing risk and reward

Zell is huge on the subject of risk and reward. Here’s how his strategy works. If a deal has low risk and huge upside, he always buys it. If it has high risk and low upside, he never buys it. And he spends all his time trying to analyze deals to see which stack they fall into. His entire life has been spent analyzing risk and reward and this has allowed him to avoid bad deals and harness the power of ones with high return levels. Of course, he’s not perfect, and has made some buys over the years. But his number of hits is many times large than his number of losers.

An advocate of being contrarian

Zell is a firm believer in the concept of being a “contrarian” which is defined as someone who “invests contrary to the general sentiment of the time”. His quote is “when everyone is looking left, go right”. Zell began buying RV parks when few people did, and has never cared about what’s hot in other investors’ minds. This has allowed him to buy assets at reasonable prices, and to sell them when others are in a buying frenzy. It’s worth noting that he has sold off about half of his apartments and office buildings, but has never sold a single RV park to date.

A master at fundraising

The way that Zell rose to #1 status in three different real estate sectors is that he is also a master at fundraising. Because of his track record, it is not hard for him to attract others to invest with him. His RV park portfolio is held in a real estate investment trust (REIT) that is publicly traded under the symbol ELS. This has given a great deal of visibility and stability to the RV park industry, which is a great thing.

Conclusion

If anyone ever asks you “who’s the biggest RV park owner in the U.S.” the answer is simple: Sam Zell. His leadership of the industry gives the sector a huge advantage when it comes to lending and other important attributes. And his thoughts on the industry – and real estate investing as a whole – are epic.

How the RV park industry has changed over the years! This is a photo from a 1963 magazine regarding the latest in RV offerings. Remember that Winnebago did not bring out their popular motorhomes until 1967. One of the reasons that RV sales are the highest in American history right now is that the manufacturers have made such huge improvements in design that they can attract a much wider range of customers. Back in 1963, it might be kind of hard for many Americans to prefer this type of travel, but today’s offerings attract both the budget shopper and the wealthy – and demanding – consumer. But every product has to evolve, and from this type of RV came the industry we know today.

Although our customers prefer RV travel to air travel, there are still some important lessons to be learned from our blue-sky competitor. Here are some observations on things that the airline industry does better than some RV park owners, and which we can all do a better job of.

The Southwest Way

There’s a great book on Southwest Airlines called “The Southwest Way”. The book talks about how Southwest tries to get everyone focused on the goal and work as a team (pilots have been known to help baggage handlers) while maintaining a sense of humor. Southwest is the most profitable airline in U.S. history and their unique business management concepts have been working for decades not. Although the book would be better if it chronicled an RV park operator, it’s still not a bad read and has some interesting ideas in it.

On-line reservations

Americans are getting more used to placing reservations directly on-line. While that’s not to say that most consumers don’t prefer a happy operator on the other end of the line, many RV park operators need to at least look into adopting software that allows for on-line reservations. Some providers of this service include [BRANDON TO FILL OUT].

Customer service

The airline industry has huge phone banks of customer service operators who handle millions of calls per year and still have high ratings on satisfaction. There’s nothing magical about the way the airlines do it, except that they try hard to make sure that customers are happy. Some RV park owners, on the other hand, don’t give it as good an effort. Remember that the best type of marketing is word-of-mouth and you should never let a customer leave unhappy.

Add-on revenue streams

Airlines have become masters of adding on revenue streams with such issues as luggage and seating upgrade charges. So how can this apply to RV parks? Any activity that customers desire could be a source of money. From snacks to vending machines and from propane to laundry facilities, there are many options to consider. Just use your imagination but put a price on it.

Aggressive marketing

The airline industry is much more competitive than the RV park industry (thank heavens). But much of the marketing tactics of airlines are pretty professional. For example, how is your on-line presence? Do you show up on a simple Google search? How is your website? Have you looked into group sales such as Good Sam? Are you aggressively pushing the envelope?

Conclusion

While RVs never leave the ground, airlines still have a pretty good handle on some aspects of our industry. We are currently searching for that idea or two that can make our business better, and there are things we can all copy from the airline sector.