The U.S. Presidential Election will be over in about a week. And the media will return to the regular business of the Kardashians and NFL scores. But the effects of the election will continue on for four years. That’s why it’s important to take stock of what the net impact will be of either candidate. It was once said “cover your downside and your upside will take care of itself”. In that vein, we are going to discuss in this issue the key impact a Clinton or Trump presidency will have on the RV park industry. As long as you know that might be in store, you can better maneuver to adjust your business model accordingly. Personally, we will be glad when this election is over, as it has been one of the strangest and most negative in U.S. history.
Memo From Frank & Dave
Who Will Win The Presidential Election? What Will Be The Effect On The RV Park Business?
The U.S. Presidential Election will soon be over, but the ramifications will be around for half a decade. So what would be the likely effect on RV parks based on the key party platforms going into the election?
Capital gains tax
This is probably one of the biggest items. Trump is against higher taxes, while Clinton is wanting to aggressively raise taxes on the wealthy (it does not take much to be defined as “wealthy” in the U.S. any more, as over 50% of the American population is one some form of social subsidy). The net effect of just the “concept” of higher taxes will lead many moms and pops to sell their RV parks immediately while taxes are low. So if Clinton wins, we expect to see many RV parks go on the market all at once (and at some pretty good prices).
Clinton would also like to raise regular income tax on the wealthy. This could have a negative effect on RV sales, but little else. Retirees pay no income tax except in limited form, and if you already have an RV, it’s unlikely that higher income tax will translate to less use of the vehicle (since the RV was often purchased as a lower cost mode of vacation). Trump would, again, have no impact as he is against higher taxes.
This issue is immaterial to the RV park business regardless of who wins the election. RV parks have extremely limited customers who would therefore be in the jeopardy, so this point is mute.
Clinton is for it and Trump is against it. If Clinton wins, the impact here would be on the RV park payroll. In some cases, RV park owners may want to reduce their staff. The good news is that many RV parks are actually overstaffed and could use a little consolidation of duties. Many moms and pops are too kind hearted to let people go even when they are of little economic value. Looks for reductions in staff in proportion to the total amount of higher wages.
The ramifications of Obamacare have already been felt by RV park owners who have to pay substantial amounts for their employees. Clinton will retain the status quo, while Trump vows to eliminate the concept. If Trump wins, it would be huge boost to park owners on the healthcare cost item.
Trump is for greater energy production, while Clinton is against it. Since Obama was also against it, current fuel prices imply a Democratic President. However, if Trump wins, it might reduce gas prices, which would be great for the RV industry and lead to greater units on the road and more miles logged.
No impact on the RV park industry from this item. Whether we increase troops in Afghanistan or reduce aid to Libya, it has no impact on RV parks, except from any potential impact to oil exports.
RV owners are wealthy, and are rarely on subsidies, except for social security. Neither candidate has shown any desire to curtail social security payments, so this item is of no importance.
Virtually all RV production is within the U.S. However, there may be components built overseas. Higher trade tariffs (as proposed by Trump) could potentially increase the cost of some RV models. But we think it would be slight and not enough to really impact sales. It also might keep some RV producer from contemplating a move to Mexico, so that would be a positive contribution.
The last round of base closures was in 2005 – over a decade ago. It is very likely that Trump or Clinton may alter the military in a manner that leads to more base closures. This could be a very important item to RV parks that are located near bases. Make sure that you have a good handle on this in due diligence, as the last thing you would want to do is buy a park in a market that is going to lose its largest employer. Remember that, with base closures, some bases grow and others disappear. Fort Hood and Fort Bragg, for example, actually grew during the last round of closures, as the troops are consolidated at the larger bases.
While there are many important issues facing the U.S. right now, the impact of the U.S. Presidential Election on the RV park industry is slight. Both candidates could create positives and negatives concerning RV park ownership. So hang in there, it’ll be O.K. regardless of who wins.
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Creating Spectacular Settings
This is a view from an art museum in Quebec, Canada. Many RV parks have world-class views and settings, but take little advantage of them. So how can you create one in your park?
Look for opportunities
First you have to find them. Does your RV park have topography? Is there one spot that stands out from the rest? Is there a particularly attractive tree or lake view? If you look around your property, you can probably find at least once such spot.
Think of this view as a picture. What needs to be included or excluded to make the view outstanding? Do you need to clear out brush? Trim the tree? A great view should look like a picture window – like a painting in an art gallery of nature.
Offer seating to enjoy them
Find the optimal spot to enjoy the view and put seating there. At a minimum a bench or two. Or possibly you can add additional seating for a larger group. People are only going to stand and look for two minutes, but they might sit for hours.
Adding a little natural color can help any scenic overlook. Flowers or flowering hedges or vines are inexpensive to buy and maintain. Try to focus on perennials and hardy, native plants that don’t require a lot of watering or fuss. It also helps to add a variety that bloom at different times of the year, so there is always something colorful to look at.
Give it an identity
Give this focal spot a name. Put a plaque up that shows it to be “Marian’s Outlook” or “Silver Oak Landing”. You can then add this information to a map of the RV park as an additional amenity to view.
If you have a scenic overlook of some type then it’s foolish not to make an amenity out of it. With careful planning, attractive seating, and a clever name, it can make a memorable addition to your RV park.
The Basic Steps To Evaluating An RV Park
One of the hardest parts of buying an RV park is making sure that you have calculated the correct price. This should be your biggest focus in due diligence. So what are the basic steps to properly evaluating an RV park?
Determine the actual net income for the past three years
An RV park is a business, and the income varies daily. You cannot buy an RV park based on extrapolating just one month or six months – or even one year. You need the actual income and expense report for the past three years, so you can get a more educated guess on what the future net income should be.
Take these three years of performance history and average them together. This will give you the most accurate picture – by averaging the good and bad years. Of course, if you can get even more years of performance history and include those, too, then you’ll have an even better handle on it.
Look at comparable sales
A good idea of value can be derived in looking at the prices used on other RV park sales in the area. If you are looking in a non-disclosure state (a state where the seller is no required to reveal the price to the tax assessor) don’t be afraid to call the new owner and see if they would give you a basic range of what they paid.
Determine the extent of any capital needs
Remember that the cap rate of any property is a fraction of the net income over the price you are paying. If there are sizable additional capital investments needed, then you must include these in the total price calculation and, as a result, the lower part of that fraction. This will, in turn, greatly reduce your cap rate. If you buy a $4 hammer that needs a new handle for $2, you are actually paying $6 for that hammer.
Impact of new management
Sometimes the whole turn-around plan for the RV park is to push revenue and cut cost. That may mean that you can pay a little more and still have a good return. However, don’t pay for income that’s not there currently. That’s your reward for accomplishing the turn-around and proper operations. If mom performance warrants it, but a huge stretch is a bad idea and unfairly compensates the seller for work they did not do.
Strength of the market
Sometimes an RV park may be worth a little more because of a phenomenal location that is gaining momentum over time. The RV parks next to Disneyland were definitely worth a little more while construction of the theme park got underway. But again, don’t stretch too much, as for every planned improvement there are ten that never got built or came into play. How many times have we heard “they’re going to build a new exit right by the park soon”? The seller has been saying that since 1963.
The best way to succeed at buying an RV park is to pay the right amount for it. Focus on becoming a master at determining value – it’s one of the best skills you can develop.
For Really Small Residents: The Legoland RV Park In Carlsbad, California
For RV owners who do not exceed 4” in height, check out this RV park we saw recently in Legoland in Carlsbad, California. The utility needs are light and you can seal the roads with a can of spray paint.