When buying an RV Park, you often have to take a leap of faith in the seller’s claims of past occupancy, but it doesn’t have to be a blind jump. In this RV Park Mastery podcast we’re going to review some practical tips to apply some science to past occupancy to affirm your estimates are accurate.
Episode 160: A Simple Way To Confirm Past Occupancy Transcript
When you buy an RV park, you typically have to take a leap of faith because you can see how many RVs are parked in there right now, but you have no idea how many were parked in there yesterday, or a week ago, or a month ago, or three years ago. So how can you be comfortable with taking that leap of faith when you're putting your hard-earned money behind that deal as the down payment? This is Frank Rolfe of the "RV Park Mastery Podcast." We're going to explore some concepts to allow you to take that leap of faith and feel a lot better about it.
Now, let's all first admit there's no certainty to life, and there's definitely no certainty in us guessing how many RVs were parked in the typical RV park over the last three years. Yet, that's what the lender's going to want you to give them is the last three years' financial statements, which are comprised of revenue and expenses that were based on things that we can't go out and touch and see and feel.
And for many people, that really is a concern. And definitely, even if you've used the method I'm going to describe, it is still cause for concern. And as a result, you definitely, when you do your budgeting, want to put a little extra fudgy numbers in there, a little extra fluff, because none of us can truly say 100% safely, "Yes, that occupancy was correct."
That's impossible. But how can you even come up with a ballpark idea of what the occupancy was in the past? Well, here's what you got to think about. In a lot of sophisticated alarm systems that secure some of our government's greatest treasures, they're not triggered by seeing a person. They're triggered by detecting the byproducts of a person, typically carbon dioxide or the heat given off by the body. And these things then throw the alarm in such installations as Fort Knox and such.
And in an RV park, though, what are the byproducts? Well, there's one big byproduct in every RV park that many buyers don't think about, and that's electricity. Because every RV in America that's parked in every RV park throughout our nation uses power. They don't all use water, or sewer, or propane, but they all use electricity. They use it for everything from their lights to the air conditioning, in some cases heating, all their appliances. Everything uses power.
So what does that do for you? Well, you got to remember that in virtually all RV parks, they have what's called a master metered power system, and that means the power for all of the RVs collectively in the whole property goes through one master meter. So the typical RV park doesn't get a number of different electrical bills. It gets just one bill for the entire property.
And then we also know that if we go to AI or call the power company, we're able to find out what an RV typically uses a month in power. This is all part of the national program where they try to give people estimates for budgetary purposes, and you can go to any power company and say, "What's it cost a month for me to run a refrigerator or a dryer?"
They even have numbers for RVs, and you can definitely find one in milliseconds off of AI. Now, the only difference in how much power an RV uses, besides its size and configuration, whether it's a travel trailer or a fifth wheel or a motor home, also ties to basically what the power rate is. But you can also do it just based on the amount of power it uses, not even reflective of what that rate may be.
But once you're able to nail that down, once you're able to say, "Okay, an RV in this property is going to run X amount of dollars or X amount of power per day," here's what I can do. I can take that power bill, and I can then divide it through by whatever that constant is, and I then know how many days of RV were in that property.
And from that, I can extrapolate, based on rent, how much I would estimate the revenue to be for that month, because we know what the rate is per day, and we now know how many RV days there were occupied during that period. And now suddenly, I have the ability to go backwards in time and kind of guess what the occupancy would be, simply based on the amount of power.
Now, it's worthy of note this is not a perfect system, because RVs pull a lot more power during the extremes of summer heat And based on the way they're heated sometimes during the extremes of cold. So it's going to be a number with a lot of fudging in it, but I will, for the first time, be able to detect if things look logical based on good old common sense.
Now, I could get the power bills for most RV parks to go back three years. Power company records are amazingly open on the commercial side, and they will be able to give me, on a master-metered system, what every month's bill was for really as long back as you want. They could probably give you five years or more.
Now, taking that, I can now start to match month-by-month revenue. But here's what we found over the years. Normally, if you have an honest seller with real honest books, the numbers will look roughly correct. You'll say, "In this month, when I divide through, I would have 120 nights of RV." Then you see how much that cost would be, and then you multiply it, and you say, "Well, that kind of matches."
But where it gets a little scary is when you have the seller who's not honest, and it doesn't match at all. You look at this power concept I'm telling you, and you say, "Wait a minute. This property only had, in this month, 20 nights of RV, and each night of RV was $30. And that would only be about $600 of revenue for the month. But my seller is saying he had $4,000 in revenue for that month."
Now you know you have a real problem. So despite all the fudging, we can quickly ascertain who is a liar from who appears to be roughly correct. And that is a powerful force when you're trying to make that educated guess, because for the first time now, you really do have visibility into the past of what the occupancy might have been.
This is Frank Rolfe with the "RV Park Mastery Podcast." Hope you enjoyed this. Talk to you again soon.