October 1st marks the start of the 4th and final quarter of the year. And, to us, that’s like the final stretch in hitting our budgets and goals. If your goal was to buy an RV park in 2018, then now is the time to really hustle. If you already own an RV park, then it’s the final chance to hit or beat your financial performance goals. In the final quarter, it’s easier to try new things and do some experimentation, because you’r3e either ahead of budget and have the luxury or because you’re behind budget and need to take a different direction. Remember that Sam Walton was huge on taking risks and trying new things. He believed that as long as you used scientific testing, all experiments were worthwhile. A salesman once ask Sam Walton why Walmart stores have grey interiors. Walton asked him what he suggested as an alternative. The salesman said “I’d paint the walls bright yellow to make the store seem happier and more exciting”. So Walton said “OK, then paint the store yellow, measure the sales of that month against the same month last year, and if yellow had more sales then we’ll leave them yellow. If the sales were bigger with grey walls then paint them back to grey.” That common sense approach to testing is what made Walmart the biggest retailer in world history. But the same can be true of an RV park. It’s the final quarter of 2018 – let’s make it a great one!
Memo From Frank & Dave
A Primer On Permanent RV Residents
While the RV park industry has traditionally focused on customers who come in for a shorter period, there is a growing trend for customers to stay for years or a lifetime. Is it OK to have full-time residents in an RV park? What do you have to watch out for?
A definite niche in the market
Let’s first examine why some people would want to live in an RV park full time. There are roughly 10,000 Baby Boomers retiring in the U.S. each day, and many of these are buying RVs and hitting the open road in their golden years. And a portion of these are going so far as selling their home to increase their savings, and electing to make their RV their full-time residence.
Demand is based on location
When someone is going to live in one spot in an RV, their decision is based on a number of criteria. Clearly, there have to be some unusual features to your RV park location to make this feasible. While most customers are at your park to enjoy a scenic, historic or amusement venue, those that are going to live their full time typically need access to shopping, healthcare, and other basic services. We have found that the majority of full-time RV occupants are to be found in parks that are in or near major metro areas where there is an ample assortment of everything from doctors to restaurants.
Full-time RV park customer offer certain advantages over typical short-term ones. One, of course, is the stability of revenue, as they are filling that lot 365 days a year guaranteed. Another is that many of these customers have high levels of pride-of-ownership and will actually improve the property with upscale outdoor furniture and landscaping. A further benefit is that they often become “ambassadors” to help other visitors and engage them in local activities and are extremely knowledgeable of every place to go and everything to do.
The biggest downside to this concept is based on the customer themselves. If they have zero pride-of-ownership, it will pull down the appearance of the property for other customers. And, worst of all, they don’t leave after a week, but stay for a lifetime. In addition, instead of being goodwill ambassadors they can become total turn-offs with a sour attitude and bad people skills.
Tips on making this successful
If you have a customer who wants to stay full-time, here are some tips to make this successful for both parties:
- Anyone who stays year-round deserves a more attractive rent. Give them a price that is attractive and fair.
- Set basic guidelines on their yard. Don’t allow them to make the property unattractive by storing items that only a full-time resident would use.
- Encourage them to tell their friends. Word-of-mouth is very important in the RV industry, and being proactive in making sure they are enjoying their stay can pay huge dividends.
Permanent RV customers can be a terrific addition to any property. They can not only offer income stability, but actually become goodwill ambassadors. But make sure not to let the relationship go sour.
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Jay Leno’s Garage Features A Vintage RV
Jay Leno’s Garage is a show devoted to automobiles. It frequently features cars from both Jay Leno’s collection as well as celebrity friends and major car collectors. But a recent episode featured something that was not a car, which is very unusual for the show. Instead, it was a cameo feature on a classic, restored Airstream travel trailer. Of course, although there’s no engine in an Airstream, there’s no debate that RVs share a long heritage with the automobile industry and are a cultural icon that is as uniquely American as a muscle car. These type of show appearances are great for the RV industry, and keep the desirability of RV travel in constant display.
How To Obtain RV Park Financing For $1 Million Or More
If you are looking at buying an RV park that costs over $1,000,000, there are some loan products that are extremely attractive. Among them is the CMBS “conduit” loan, which offers a fixed interest rate for ten years, non-recourse, and 25-year amortization. It’s extremely attractive and there’s no loan product like it in the U.S. But how do you obtain such a loan? You’ll need to use a capital consultant, also known as a “loan broker”. These are people that build your loan package, make your list of potential lenders, presents the loan, negotiates the terms, and then presents the best offers to you for consideration and selection. The best in the business is M.J. Vukovich at Bellwether Enterprises. If you are wanting to learn about your lending options on larger loans – both for new purchase and refinancing – then you owe it to yourself to give MJ a call at (612) 335-7740 and let him tell you what he can do for your property, or email him at [email protected]. We’ve been using him for years, and his expertise is unparalleled.
How We Create Huge Wins By Awkwardly Dropping By Owner’s Homes
Are you passionate enough about finding the right RV park to buy that you’d knock on a stranger’s door to see if there’s an opportunity? That’s what we’ve done many times. Here’s how it works. You identify an RV park that looks like a good opportunity: a great location but with poor management. You get the address and consult the tax assessor to get the owner’s name and address. So you send them a letter or give them a call and they never talk to you or return your effort. You could give up, or you could take it one step farther. We call the concept “drive and talk” and it means that you pull up to the owner’s home and ring the doorbell and hope for the best. Is it our favorite way of pursuing deals? No. But you’d be surprised how effective it can be with the right seller. So the next time you can’t reach the seller, don’t give up. Ring that doorbell. That way you’ll never wonder “what if”.
Why An RV Park Is A Much Better Investment Than Stocks
When most Americans think about investing, what comes to mind are stocks and bonds. These are what investing is all about, right? Well not anymore. “Alternative investments” are gaining popularity because they bring attributes to the table that stocks and bonds fail to deliver on. So why would an investor prefer an RV park to shares of stock in a company?
American stocks pay very low dividends – or no dividends at all. The average stock pays a 2.2% dividend – which is about equivalent to a CD yield. Compare that to the average RV park dividends (known as the cash-on-cash return) which are roughly 10% to 20%. It would take you five to ten years of owning a stock to equal one year of dividends yield with an RV park. That alone should rank RV parks as superior to stocks.
Ability to grow these distributions
But there’s more. While stock dividends rarely go up, most RV parks have continually escalating rates of return, thanks to growing occupancy and higher rents. When you buy a stock with a 2% dividend, there’s no way it’s going to double a few years later. Since 1871, it’s basically been a tight range of 2% to 3%. So there’s very little potential upside. However, RV park revenues and yields have typically grown at fast rates, with cash-on-cash returns sometimes doubling over a short period of time.
And there’s more to the overall financial results than simply the dividends. There’s the gain on sale between what you bought the RV park for and what you sold it for. This gain has to be distributed over the life of the investment to derive the actual total return, which is a very significant addition. And this capital gain is also taxed at a far lower rate by the IRS, so you get to keep more of it in your pocket.
One huge attraction of owning an RV park over owning shares of stock is the security of your investment. An RV park represents a hard asset, while stock is nothing but paper – it has no intrinsic value. In the event of high rates of inflation (which has happened many times in American history) the RV park will go up in value as the rents will inflate in-line with inflation, while stocks go do not fare as well. And in a Great Recession where stock prices plummet, real estate remains stable. If you look up types of investment and their impact by various outside forces, you will see that real estate fares better in all economic calamities than virtually any other option.
Control over your future
When you own a stock, you are basically a passive investor who is just riding in the car hoping that things go well. But when you own an RV park, you are in complete control of your destiny. If you find the right property, buy it well, and run it efficiently, you will succeed. But you can take the same steps with a stock and the management team can make a bad decision and your investment is wiped out. This lack of control is very disturbing.
Ability for sensible leverage
RV parks are very popular with banks. But there is no potential debt product you can use to buy stocks. So, assuming 80% Loan-to-Value, you can basically buy five times more RV park than you can buy in stock. $100,000 cash buys $500,000 of RV park or $100,000 of stocks. This ability to borrow gives you the chance to multiply your capital many times over compared to stocks. It also is what give you the chance to hit 10% to 20%+ in cash-on-cash yields, which are spiked as a result of leverage.
There’s no question that an RV park is superior to traditional stocks as an investment tool. From yields to control to security, RV parks are the better choice for your investment dollars.
Other Than Fashion, Not Much Has Changed
RV parks are a simple business model, based on the concept of enjoying nature and quality time with others. They’ve been in continual operation since the 1920s. The above photo is from the 1930s and, as you can see, besides the differences in fashion the basic product has changed very little. If you go to the RV Museum in Elkhart, Indiana, you will note how much the RVs from a century ago resemble much of the current offerings – remember that the Airstream trailer began in the 1930s. In a world of constant flux in the tastes of consumers and advent of technology, there’s something reassuring in business models that are steady and safe. Until they invent floating RVs or time machines, there’s little risk of disturbance in the RV park sector.
Why Higher Gas Prices Have Lost Their Impact On The RV Park Business
All RVs require gasoline (or diesel) to move from one location to another. At the same time, fuel costs in the U.S. are highly variable. At one time, higher fuel prices would result in lower RV park occupancy (as people would not spend as much to put their RV on the road). However, in recent years the correlation of fuel prices and RV park occupancy has faded dramatically. Why have fuel prices lost their impact on RV park revenues?
Greater fuel efficiency
Modern RVs have improved their fuel efficiency tremendously. Average fuel economy has improved 30% to 50% based on the size of the platform. The largest RVs have increased from 8 mpg to 13 mpg over the past two decades, which is an improvement of more than 50%. And this search for more efficiency is still very much in the engineering department at all RV manufacturers.
Less movement between locations
Just because gas prices are high does not mean that RVs have to be in RV parks less. It simply means that users spend more time in one location and don’t turn on that engine as much. There is an impact of gas prices on “overnighter” parks that cater to RVs that have to stop for the day but then leave when the sun rises. However, this has been true for years, and most of these have already adjusted their revenues based on the reality of higher fuel prices. “Destination” RV parks, however, have seen actually higher occupancy due to this new lack of movement by guests.
The power of the retirement pocketbook
The average RV in the U.S. travels 5,000 miles per year. Assuming an average of 15 mph, that equates to 333 gallons of fuel per year. So if fuel prices increase a dollar, that only impacts the user’s budget by $333 per year. This is hardly a huge impact on the budget of those 10,000 Baby Boomers that retire each day. And it also is not a big hit on the financial capabilities of younger Millennials who have good-paying jobs.
This is probably one of the key reasons that fuel prices have lost the ability to influence RV use: the simple fact that Americans really value their quality time. Studies have shown that most RV owners value highly the concept of sharing experiences and nature with friends and family, and they are not willing to drop these activities over a small increase in gas prices.
Gas prices in America are in a constant state of flux, going all the way back to the energy crisis of the 1970s. Still, the impact of these price variations has had a lessening impact on RV park occupancy and revenues for many diverse reasons.
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