RV Park Investing Newsletter

Thanksgiving is a time of “thanks” for all our blessings. And the RV park industry has a lot to be thankful for this year. 2019 has been marked by extremely high occupancy, thanks to the highest sales in U.S. history of RVs, in addition to great weather, low gasoline prices, and continued industry support by both Baby Boomers and Millennials. Additionally, RV parks have benefitted from extremely beneficial lending terms and widespread interest by banks and CMBS conduit lenders. Finally, the RV park industry has been the beneficiary of simply being in the right place at the right time for most buyers, who are able to get good pricing and terms from mom and pop owners who are wanting to pass the baton to the next generation.

We would also like to take this opportunity to thank our many supporters, peers and friends in the RV park sector. We hope you have enjoyed this newsletter each month at least as much as we have in producing it.

Have a Happy Thanksgiving!

Some things in an RV park can be taken for granted. These include items that are simply there to serve a particular purpose, and are rarely thought of from a design standpoint. But it doesn’t have to be that way! There are stylish ways to approach even mundane items in an RV park, and the impact with the overall experience of your customers can be huge.

Signage

Sure, signs are designed to display information, but there are definitely tangible differences between the way you build these signs. One of the best products ever invented for nice signage at a low price is the white vinyl post with decorative cap. Other owners prefer the more rustic look of a good 4” x 4” post either stained for painted. But old rusted metal is out, and so is the concept of nailing signs to trees or fences.

Trash cans

Galvanized trash cans are great – if they’re hidden in an alley. But they’re not going to cut it in today’s world. You can buy a large number of decorative trash receptacles on line that offer beauty and function at affordable prices. A good trash can is weighted so it does not fall over, and has a top that allows for ease in throwing items in. It should also be earth-tones (brown or green) so as to not draw attention to itself.

Fencing

For fencing designating different areas of the property, split-rail fences are superior (either real wood or white vinyl). For privacy fencing, the options are wooden stockade with appropriate staining or white vinyl. Chain link is no longer in vogue, nor is anything that is less than solid and one color.

How each lot is marked

The best properties have a consistent numbering system – often a post with a nice number screwed to it. But we’ve seen owners do things as crude as spray-paint numbers on the ground or even on trees. Remember that your numbering sequence is something that customers see constantly and can be a big part of their first impression.

Picnic tables

Studies have shown that picnic tables are one of the most-used items in any RV park – but they are not all created equal. And this is not an item you want to scrimp on. There are several varieties of picnic tables: 1) wood 2) metal 3) plastic. Many RV park owners opt for the least expensive, which is wood. But this is not always the best option. Metal and plastic last much longer and – perhaps even more importantly – cannot create splinters and always look great despite zero maintenance.

Firepits

A recent survey showed that outdoor cooking is the #1 most favorite activity of RV park customers. As a result, your firepits are an important place to reinforce the quality of your operation. While most RV park customers are not too concerned at whatever your set-up is (as long as you can build a fire in it) they are wanting it to be clean and ready for use. You should immediately paint over any rust and remove cobwebs and other unsightly issues on a regular basis.

Roads

The roads in most RV parks are typically either gravel or asphalt. The most important factor for most of your customer is simply that they be free of potholes. Customers are very forgiving of the actual condition and appearance of roads, all they ask is that they not jar them when they drive down.

Amenities

A pool is a pool and a lake is a lake. With most amenities, where RV park owners miss it is the simple presentation of these features. A pool with everything around it painted freshly and signage that is professionally made and color coordinated, and surrounded by a fence that is rust-free and straight – that’s a pool that seems professional and well-managed. So, once again, appearance is everything.

Conclusion

Bill Marriott (of Marriott hotel chain fame) once said that “it’s the little things that make the big things possible”. This is 100% true. Making things look good is a huge part of getting good customer word-of-mouth, as well as higher valuations with buyers and appraisers. Never underestimate the power of appearance.

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U.S. bridges and overpasses are estimated to need nearly $200 billion of repairs. And there may also be some big ticket items in your RV park to take notice of. Every time you buy an RV park, you need to pay careful attention to necessary reserves for the replacement of infrastructure. So how does that work?

What are reserves?

Webster’s Dictionary defines “reserves” as a “supply of a commodity not needed for immediate use but available if required”. In this case, that “commodity” is cold, hard cash. So basically a “reserve” is nothing more than a sinking fund for preparing for the ultimate replacement or repair of necessary infrastructure.

Acknowledge that everything has a shelf life

So the first step in coming up with the reserve inventory is simply acknowledging that everything has a shelf life and will ultimately fail (even those who read this newsletter). This may be hard for some buyers and owners to accept, as it’s not the news that they want to hear. But it’s simply a fact that everything inside an RV park ultimately will have to be replaced.

What are the infrastructure components of your RV park?

Step #1 is to make a complete list of every component in your property other than the land itself. This list will include the roads, electrical system, water system, swimming pool, and office. You should include very item in complete detail, and not just make rough groupings like “amenities” or “utilities”.

What is their remaining life?

The next item can be fairly difficult, and that’s to determine the remaining useful life of that particular improvement. This will require some degree of internet research and/or paying a professional to render their best opinion. In some cases you may just have to make your best educated guess.

How much will it cost to replace each one?

Once again, you will have to consult the internet or get actual bids to replace each one. And be realistic and try not to soften the blow of what the actual item will be, in an attempt to feel better about the park’s numbers. For example, if replacing the old, galvanized water lines is $120,000, then you should use that price or higher with a 20% buffer on top.

How much would you have to save per year?

Now that you know the cost of replacement – and the estimated remaining life – you can calculate the amount you need to save each year to pay for the replacement. For example, if your pool has an estimated remaining life of 30 years and a replacement cost of $60,000, then you need to save $2,000 per year to be able to pay for that work. The aggregate amount you need to save represents your infrastructure reserve fund.

Conclusion

Infrastructure wears out. All civilization reverts to nature without perpetual repair and replacement (just look at the Aztec ruins). But keeping up your infrastructure requires money and your reserve budget allows you to always be prepared for these contingencies.

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].

Most Americans love cars. And it’s well known that there are cars selected for dependability and those chosen for performance – but that the two rarely go together. The same can be true with RV parks. So how can you choose whether or not you want to invest in power or handling with your RV park investment?

Properties with high horsepower can be hard to handle

What makes an RV park have the ability to create massive net income? Often it’s because you bought it on the cheap because it needed a massive turn-around (essentially bringing it back to life through sweat equity and sheer willpower). Or maybe it’s because you have found a secret weapon to stoke your occupancy that is very complicated to perform (such as the RV park owner that tracks and convinces traveling country western bands to stay in his property overnight and perform for free housing and food). Or perhaps your RV park is located in a risky floodplain and you are banking on the fact it will not flood out during your ownership (and you stay up all night when there’s a storm hoping your stay lucky). What all these have in common is a great deal of work or risk. And if you slack off or have a run of bad luck, your investment can go from great to terrible at the drop of a hat.

Properties with lower horsepower are much more dependable

What are the traits of a “dependable” investment? They typically are 1) constant unabated cash flow of a predictable amount monthly 2) free from risk related to weather events or permit problems and 3) a solid group of loyal customers who return year after year and give the property suitable revenue to meet its budgets. And what makes a property display these traits? Typically a property that meets these guidelines is 1) older with a more-seasoned customer base 2) has a better location that has been well appreciated for years and sold at a lower cap rate 3) is near a world-class destination which is perpetually a huge draw and keeps occupancy high. These type of properties typically cost more to buy as they are well-established producers of predictable cash flows.

There is an inverse proportion between the two

Sam Zell – America’s largest RV park owner – is a firm believer in the relationship between risk and reward. And his theory is that deals with high risk require high reward, and lower risk equates to lower reward. Based on this theory (advanced in his recent book “Am I Being Too Subtle”) properties that are dependable and lower in risk will not have as high a return as those that are saddled with inherent risk. This inverse relationship makes complete sense.

You have to choose which works with your personal goals

So if high financial horsepower in RV parks is coupled with higher risk – and lower risk with lower horsepower – then what works for you is going to be based on your personal investment needs and appetite for risk. And only you can make that decision.

The best of all worlds

Of course, there is one alternative, which is our favorite option. And that’s buying a deal with high horsepower and then eliminating the risk. For example, fix that floodplain exposure by building a berm and adding electric pumps. Or create a new customer base with steady, successful internet marketing. When you can buy a park cheap due to risk that scares off other buyers and then eliminate that risk you have really created huge upside and turned a high horsepower property into a dependable, safe vehicle.

Conclusion

Performance and dependability are intertwined and it’s important to understand this relationship and to decide what path works best for you. The best deals are ones in which you can harness the power of both.

Night time is falling on your RV park. As the sun goes down, so does the available light – yet your customers still need to see to carry out their functions, as well as to feel secure in their environment. How do you create sufficient ambient lighting in your RV park?

Why it’s important

All humans like some degree of light – even cavemen used fires at night to end the darkness. Lighting has multiple benefits including 1) safety and security 2) the ability to see where you’re going 3) the ability to see your surroundings when setting up your RV or preparing to leave and 4) an attractive accent to Mother Nature.

What creates it

In nature, the only lighting at night comes from the moon and stars. But today, those natural sources are augmented with electric lighting in the form of streetlights, coach lights and any other form or feature that creates illumination inside the RV park. These can be crude in form or expensive architectural accents.

How to increase it

You can increase the lighting in your RV park by simply adding more fixtures. These can either be electric or solar powered (these are coming more and more affordable, brighter and long lasting). We buy our solar units from Gamma Sonic because they are commercial-grade and bright. But the problem with solar lights is that they typically cannot last all night and that can be a problem in some circumstances.

How to decrease it

Some RV parks have a different problem: they have too much light. You can fix this issue by putting shield on the light restricting how far it projects out, or by putting in lower wattage bulbs. While customer like a little ambient lighting at night, they don’t want to replicate daytime.

How to test it

It’s not rocket science. Go to your RV park at night and see what you would think if you were a customer, slowly walking the entire property from lot to lot. Mark down which areas you feel to be too dark and which are too bright. Visit some of our competitors at night and see who has the ideal lighting and then simply copy that look.

But there are some important considerations

The amount of ambient lighting is significantly different in winter vs. summer, as the leaves on the trees change things considerably. So you need to examine and re-examine the amount of ambient light on a continual basis. In addition, we have found that most RV park owners tend to get carried away and overdo the lighting more than fall short. Remember that your customers are trying to sleep and while bright lighting is good for security, it’s about as pleasant as trying to sleep in your house with the lights blaring away.

Conclusion

Lighting is extremely important in an RV park. You need to understand it and work with it like painting a canvas. The best RV parks have a constant amount of ambient lighting that works for all involved. Fine tune your property to that level and you’ll be reward with even happier customers and on-line reviews.