RV Park Investing Newsletter

The 4th of July is a time to celebrate freedom. And on that topic, what better to additionally celebrate than the freedom provided by owning an RV park. It’s a freedom from financial concerns that comes with a significant additional income stream. It’s a sense of freedom from being your own boss and setting your own schedule and priorities. And it’s a freedom that comes of being completely in charge of your destiny and reliant on no one. America is built upon the premise of freedom and hard work, and the ability to shape your future in whatever way you deem correct. RV parks are a part of this heritage and are a uniquely American institution. And don’t forget the freedom that RV park owners give their customers – freedom to enjoy the great outdoors and the companionship of friends and family.

Have a happy and safe 4th of July celebration!

For decades, real estate investing was all about five main categories of property: 1) housing 2) retail 3) office 4) industrial and 5) hotel. In recent times, these categories of real estate stopped delivering on their promises of stable and attractive returns. And new, alternative sectors came into play, with RV parks among the top choices. How did this occur?

Why mainstream real estate no longer works

America has changed considerably over the years, and so has the demand for different sectors of real estate. We remember when every office had to have a receptionist to answer the phone – today that’s done with voicemail and even virtual assistants. With each change in technology and consumer behavior, the traditional real estate sectors were damaged. In addition, competition changed over the years and cap rates declined as more capital started chasing fewer deals. The addition of large private equity groups into the mix exacerbated these issues and made many of the blue-chip real estate sectors suddenly unable to pay out their dividend and reflecting lower values upon sale.

Higher returns are possible in alternative models: RV is at the top of the list

As American grew and changed, new real estate sectors popped up to address new demand by the public. In the 1950s, nobody had ever heard of “self-storage”, and even today “Air BNB” has dramatically altered the hotel industry. RV parks have risen to prominence because they offer extremely high rates of return, thanks to lower pricing by moms and pops as well as the fact that it’s a sector that not that many people are focused on. Cash-on-cash returns of 20%+ are not uncommon.

Shifts in technology: RV parks are low-tech yet tech-savvy

The internet has literally destroyed many real estate niches. Amazon and its peers, for example, have decimated the retail industry. Nearly 20% of shopping malls are estimated to close over the next decade, since people are just as happy shopping from home on their laptop. But RV parks are extremely low tech – there’s nothing much you can do at an RV park that you can also do from your computer. In this way it’s a sector that is somewhat insulated from technology. At the same time, however, the RV park industry has benefitted enormously from the internet. When an RV owner wants to find an RV park to stay at, they find it effortlessly from Google and look at the website – not scouring through flyers at the travel center or thumbing through some RV park directory. This allows RV park owners to move much quicker in ramping up their marketing and revenues.

RV parks are in-line with all U.S. megatrends

Real estate is all about location, location, location – but there’s also now an element of trend, trend, trend. And the current U.S. “megatrends” are all positive for the RV park industry while disastrous for some other traditional real estate sectors. First of all, there are 10,000 Baby Boomers retiring in the U.S. each day, with a huge number of these downsizing as part of their retirement and deciding to live in and travel the U.S. in an RV. Another trend is the new consumer preference for simple outdoor pleasures, with RVs travel allowing for quality time with friends and family, and the ability to enjoy nature. Still another trend is the massive sales of RVs in the U.S. – the highest level ever measured – and the simple fact that these units all need to find a limited place to park.

Additional attractive attributes

RV parks have some additional characteristics that make them superior to many other traditional sectors of real estate.

• Low prices. This is simply a function of the fact that most RV parks are still owned by the original mom & pop owner, who is not very sophisticated on maximizing income or selecting the right sales price.
• Seller financing. Many RV park sellers are willing to carry the paper. The reason is simple – they want to get 5% from the buyer rather than 2% from A.G. Edwards. This allows many investors to avoid the cost and stress of traditional bank financing and to get lower than normal down payments.
• Attractive settings for those who want to self-manage. Many RV park owners elect to self-manage and live on-site. In this regard, this is a superior investment option as it offers a spectacular setting to live.

Conclusion

RV parks are among the best forms of alternative real estate investing – an asset class that has come to the forefront as the traditional forms of real estate fall apart. Many investors would be far better off with an RV park than the worn-out domain of apartments, office, retail, industrial, and hotel.

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“Stress” is defined by Webster’s Dictionary as “a state of mental or emotional strain or tension resulting from adverse or very demanding circumstances”. Then how can you buy an RV park in a manner that is absent from these conditions? The answer is to know exactly what you’re doing so you don’t have to worry about the results of your investment. These are some of the ways that we mitigate stress in buying RV parks.

Never sign a contract that does not have a due diligence provision and financing contingency

The actual signing of the contract to purchase an RV park should never be stressful. That’s because most RV park contracts contain two cancellation provisions (also called “outs”) – one for due diligence and the other for financing. So the very act of signing the contract does not necessarily mean that you’re buying the property, and therefore should not bother you at all. It simply represents your commitment to do analysis of the property to see if it meets your investment profile.

Understand how to do proper due diligence

What causes stress in due diligence is simply the issue of not knowing what you’re supposed to be doing plus the nagging concern that you’re missing something. We recommend you use our “30 Days of Diligence” guide to ensure that you’re doing the right steps in the right order. We wrote this for our own use and still use it to this day.

Always run the numbers at least three times

One issue that would cause stress for any buyer is being uncertain of what the actual financial performance of the property is. All the stories of RV parks not working out for the buyer begin with “I don’t think I really had a good handle on the numbers …” which equates to the fact that this person did not put enough effort into the granular detail but just used broad-brushed assumptions. We recommend that any buyer run the numbers on an RV park a minimum of three times. You simply cannot do it enough. If you are getting a bank loan, then you get two more examinations of your numbers: 1) the appraisal and 2) the bank’s final calculations – and that’s great because you can never get enough fact checking.

Never become emotionally involved

One killer of making good decisions on RV parks is the inability to remain emotionally distant from any deal. The way things go bad is when you tell everyone “hey, I’m buying this RV park” and then you can’t put on the brakes when the numbers start to look bad in due diligence because you don’t want to embarrass yourself in front of others by backing out. The better plan is to never publicly discuss anything about the RV park until after closing, and to refrain from making emotional commitments that are not based on fact and that are premature. You need to always keep on your white lab jacket of scientific objectivity.

Get the opinion of a number of individuals on your completed diligence book

We suggest you build a due diligence “book” for handy reference (a three-ring binder filled with plastic inserts that you place each item of diligence inside of). Once you’ve completed your due diligence “book” – and prior to the expiration of the examination period – you read it and also enlist the help of any other intelligent source to review it, as well. You can never get enough feedback as long as the source is qualified on the subject. The opinion of a real estate person or business person is legitimate while the opinion of a pizza delivery guy is worthless.

Understand your worst-case scenario and the impact

One great way to reduce stress with an RV park deal is to scientifically build a model of “best case, worst case and realistic case” and see how each of those scenarios impacts your performance. The most important of these – to remove stress – is to focus on the worst-case scenario. You never want to enter into any deal that has the potential impact of destroying your life. And you must have a healthy balance of risk and reward such that taking a gamble pays off big. When we say “worst-case” we’re talking about a reasonable scenario, not the possibility that a meteor crashes into the RV park on day one. But you need to have the risk truly understood, mitigated, and a Plan B in the event that the worst occurs.

The additional plus of the appraiser and banker

Although most everyone hates lenders, it’s true that they can give you a greater peace of mind thanks to their negative nature. That’s why – even on seller carry deals – some buyers go ahead and dual track a potential bank loan just to see what the bank says. There’s nothing wrong with this concept as you will probably have to refinance the RV park in the future, or if you sell it the next buyer will have to get a bank loan. You can never get too much factual information.

Conclusion

It is possible to buy an RV park without stress. You can never completely remove worry from any real estate purchase – it’s a life-altering event – but you can build a solid foundation based on facts that will give you peace of mind.

M.J. Vukovich is one of the top capital consultants in the industry. His specialty is to help you obtain bank or CMBS debt for your RV park. He charges roughly 1% of the loan for this service, and frequently pays for himself with lower interest rates and better deal terms than you can obtain. He’s paid only on successful completion of the loan.

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].

Many people go into medicine because they enjoy the personal satisfaction of making a difference and helping people in their quality of life. The same is true, to a lesser degree, with RV park investors. They also share in this sense of personal satisfaction. So what are the special rewards from owning an RV park?

Financial

RV parks often have cash-on-cash return of 20%+ -- which is about double that of most other real estate sectors and ten times that of a CD at your local bank. Once you pay off the debt, you can live on

just this income stream, or use it as a tool to boost your quality of life to a high level. Financial rewards are the #1 goal of most RV park owners.

Sense of pride

RV park owners also get the priceless sense of accomplishment from providing a great product and building a great business. There’s something magical to being able to say “I own this”, and this is a key driver to the ownership of real estate – and that’s no different with RV parks.

Being a part of history

The RV industry is an American invention and you, as part of that tradition, make your contribution to its endless narrative. In many cases you will be the second owner of the property, put your own stamp on it, and then pass it on to the next generation. There is a real feeling of contributing to this living history.

Fun

Owning an RV park is a source of fun for many owners. It gives you a chance to wear many hats and the time passes quickly. You get to be a mayor of the town, the activities director, the maintenance supervisor, and the chief problem solver. In addition, if you self-manage, you’ll get to be outdoors in great scenery and clean air.

Conclusion

Owning a RV park is more than just a financial benefit (although that’s a big part of it) it’s a chance at many priceless perks.

Frank & Mike of American Pickers occasionally come across classic RVs tucked away in the back of old warehouses. Typically they are Airstreams. But in a recent episode they uncovered a Corvair Ultra Van – an early motor home that has an extremely interesting history.

Originally called the “Go Home” and released in 1960, it had a 80 hp engine and sold for $7,000. Roughly 15 units were produced before it went out of production. The rights to the model were then bought out by Prescolite and they brought it back to life again under the name “Travalon”. This time only 8 were built before production ceased. In 1964, the rights were purchased again by John Tillotson, who moved the manufacturing to an old Navy base in Hutchinson, Kansas and the name was changed to the “Ultra”. At a price of $9,000, it had finally found a winning combination.

Unlike other motorhomes, the Ultra was built like an aircraft, with unique monocoque construction. It had fiberglass at the front and rear, and the center section was all aluminum. The new model had 110 hp and an automatic transmission. It was very advanced for its time, running on regular car tires and offering all the comforts of home with plentiful cabinets, toilet, shower, bed and seating in a 8’ x 22’ bundle. There were 305 produced before production ended in 1968. Of these, there are estimated only to be 40 still in existence.

Sadly, the American Pickers were unable to strike a deal on this Ultra, as the seller wanted too high a price given its poor condition. But the audience got a good lesson in RV history.

Most Americans believe that an income of $100,000 makes you rich. In fact, that amount would place you in the top 10% of all U.S. households statistically. Many people only dream about this earnings level, and others work 24/7 at professions they hate to ultimately hit that target before they retire. Yet this amount is possible on a single RV park. How is this possible?

Find an RV park that can cover its debt

Step one is to find a solid RV park deal that can simply cover its debt payment each month with a little room to spare. This should not be hard as most RV parks are priced at cap rates that allow for principal and interest payments and a cushion on top.

Find an RV park that has mismanagement issues on marketing and pricing

The next step is to find an RV park that meets the above criteria but has the additional component of poor marketing and/or pricing. Often the problem is that mom & pop do not understand or value the concept of internet marketing. This one factor has become the norm of RV advertising today, and failing to harness its power is a catastrophe that you can rapidly solve.

Find an RV park that has expenses that are too high

Some RV parks also have spending issues – typically too many people coupled with too high a pay scale. If you self-manage, you can hire yourself to solve the highest payroll item, and then make other cuts accordingly. Remember that every dollar you save is no different than a dollar of revenue you increase.

Sell, sell, sell and cut, cut, cut

Once you find an RV park that can cover its mortgage based on current operations but has multiple problems in management, the key is to take over and follow the mantra of “chainsaw” Al Dunlap (the famous company turn-around investor from the 1960s) which was “sell, sell, sell and cut, cut, cut”. In so doing, you unlock the potential of the asset that has been hidden from view (and the seller’s financial statement). In many RV parks, there’s $100,000 per year to be harvested in such an effort.

And that does not even count what happens when the note is paid off

In our example of unlocking $100,000 per year in cash flow, we left out the ultimate ending when the mortgage is paid off. That alone will unlock a huge cash flow to the owner even if they never put in any effort to improve the property.

Conclusion

There are many RV parks out there that have $100,000+ per year in potential net income to the buyer who is willing to unlock it. The key is looking for RV parks that are stable but poorly managed, and then bringing them back to life.