Is ten spaces enough? What about 100? What size is essential in buying an RV park? That’s the topic of this RV Park Mastery podcast – an examination of size vs. success in RV park buying. As you’ll see, there are many permutations in the algorithm of correct RV park size and only you can decide the correct answer on many of these. While bigger is sometimes better, that’s not always the case here.
Episode 8: How Big Is Big Enough? Transcript
How big a house should I buy? How big a dog should I buy? How big an RV park should I buy? How big is big enough? This is Frank Rolfe, for the RV Park Mastery podcast. We're going to be going over how to decide how big an RV park you should buy. And just like a house or a dog, is something that only you know the answer to. So I'm only going to be helping you to take the steps necessary to derive how big it should be, but you have to apply your own budgets and goals to figure this all out.
Step number one, what's your budget. Now in real estate, we always use leverage. That's just pretty common. And most banks are going to want to see 20 to 30% down. Now, sometimes with your RV park, you'll luck out, and you'll get a Mom-and-Pop who's willing to carry the paper. Now, they can carry the paper with as little as 0% down. My partner, Dave, and I have done that 12 times. But more than likely, they want a little skin in the game from you. So they may want 10% down or so.
So I'm going to say that the size, from a financial perspective, that would tell you how big is big enough would be the amount of capital you have for a down payment times five, if it was 20% down, or times 10, if it was 10% down. So that would be, to me, step one in deriving how big is big enough?
Step number two, how are you going to manage the RV park? Now, some people buy RV parks to self-manage them. This means that they step into the role of the manager. They often live in the town or in the RV park, or maybe the house next door to the RV park. Every day they go to the RV park, and they manage it. There are others, however, that don't want to self manage their RV park. They'll buy the RV park, but they're going to have somebody else act as manager.
Clearly, if you're going to self-manage the RV park, you probably need to buy a bigger RV park than if you are going to have a manager manage it. Because you've got to have enough critical scale, enough critical mass, to pay you for your time and effort. Enough to cover whatever you need to live on by giving up your day job, effectively, and becoming a self-managed RV park.
So on how big is big enough? The second thing I would ask myself is, am I going to self-manage it or not? And if I'm not going to self manage it, then assuming that I've accounted correctly for the cost of the manager, I'm a little more flexible in size. Because I may end up owning three or four RV parks that all cume to the size of that big one I would need if I was going to self-manage.
Number three, how much money do you need to make income from the RV park? It goes right back to question two. So if you're going to give up your day job, if you're going to relocate, as many people do, and live in or next door to, or in the same town as, the RV park, how much money do you need to make all this happen? How much cashflow after paying the mortgage do you need to make this happen? And if you're going to be buying and not self-managing that RV park, how much money are you trying to make off of the deal? What is your goal? What is your investment goal? What, to you, would make you feel like it was successful to invest your time and money into buying that RV park?
Next up to bat, how are you going to finance it? You will find there's a sweet spot for RV park lending. That sweet spot kicks in at about $750,000 of debt. Anything below $750,000, you're going to have to do it on your own. You're going to have to find a local bank. You're going to have to convince Mom-and-Pop to self-finance it themselves. But when you get to $750,000 and up, now there are groups that can get you alone on that. One well-known one is Security Mortgage Group. They can go out into the marketplace and get you an RV park loan, assuming the loan is at least $750,000 or bigger.
So if you're trying to use a loan broker to get you that loan, you'll have to be big enough for the loan broker to take on the task of doing that. And that's about 750 grand. Now, you might find someone who will do it a little less, but that's kind of the break point. So on how big is big enough, if you're trying to get a loan broker to find you a loan, if you're trying to have the largest number of lender possibilities, then how big is big enough? About $750,000.
Now, if you want to try and get into conduit debt, this is non-recourse bank debt through a group also known as CMBS, Commercial Mortgage-Backed Securities. That's going to have to be even bigger still. They're not going to kick in until you get a loan amount that is up well over a million dollars. And remember, that's net. That's typically 70% loan-to-value. So that means a deal size of about 1,500,000. So you're going to have to buy a park that's about 1,500,000 in size with about a million in debt if you're going want to get non-recourse CMBS financing on it. What about efficiency considerations? Are there any efficiency considerations in an RV park? Well, sure there are.
Number one, staffing. You have to have somebody to staff the RV park. If you have an amenity at a 20-space RV park of a big old pool, it will cost you the same to run that pool as it would if you had 200 lots in that RV park. So you have to look very carefully at the staff in your break points in staffing. Same on marketing. Same cost to market a 500-space RV park as it is a five-space RV park. So marketing is another issue where it's more efficient based on the size of the RV park.
But there's some other disadvantages to it as well. Number one, if you have just that one RV park of a larger size, and you could have instead two smaller RV parks that sum up to that size, you would have a lot more portfolio balance if you had those two. So sometimes a big RV park could be a hindrance because it doesn't give you a lot of diversity. Just like how needs stocks and the stock exchange. You typically would not want to own just everything in one stock. You'd want to spread your risk out a little bit.
Also, those giant RV parks can sometimes put you in a financial bind if something big happens with them. If there has to be some kind of upgrade, infrastructure repair, it can mount up quickly. So a really big RV park might frighten you when you look at the potential of a repair maintenance issue, or an emergency. So again, you've got to put that in your consideration as well.
Also, don't forget that a lot of this also goes with how much percent of occupancy the RV park has. If you have a 50-lot RV park that runs 100% occupied, that's the same as having a 100-spacer that is 50% occupied. So you'll also want to think about the occupancy. What's the occupancy been running on this RV park? It's not all about size. People want to convince you that, but I don't think that's true. I know someone who has a very, very small RV park. It's only about 15 lots, but it's right near a very major amusement park. And they could get $75 per night because of their unique location. I would much rather have that 15-space RV park that maybe a comparable 50-space. Because at 15-space RV park stays 100% occupied every day at more than two times normal rents.
So let's put it all together then. How big is big enough for an RV park? Well, here's some basic thoughts based on experience. Number one, if you are buying, or looking at buying, an RV park that's got about 25 lots to it, you're probably looking, and assuming that it's a good location, will manage it about $50,000 a year of net income. Now, that may not be big enough for you to work, based on everything we just went over.
You may say, "No, that doesn't meet my goals. I don't want to get involved for only $50,000 of net income. It's a good number, but just not good enough for me to do, want to do it." Okay, fine. Then you might look at a 50-space RV park. A 50-space RV park in most parts of America, given all the normal stats, would produce about $100,000 a year of net income. Okay. I think we all have to admit that's a pretty goodly sum.
If you just bought the RV park, and did nothing more than pay off your mortgage with it, within 25 years you'd have $100,000 a year for life. And if you were able to better manage it, perhaps introduce it to this new marketing item called the internet, do this a lot of the things Mom-and-Pops didn't do, maybe raise the rents, improve its general outlook among everyone who visits, who tell all of their friends, then maybe you could even move the net NOI from there.
So 50-space, that might well work for most people. What about 100-space? Well, 100-space, based on those same economics, would get you about $200,000 of net income. I think we'd all have to admit, "Well, gee. Okay. That's plenty." But again, I can't determine this for you. Only you can determine what you're trying to achieve. We all have our own personal goals in life. And they're just that, personal. We all know deep down what we want at a life. How much money it takes. How we want to spend our time. What we want to do, and only you know that for you. I don't.
But hopefully, these steps will help you come to grips with and think about and consider the single act of size. So how big is big enough with an RV park? The question is how big is big enough for you? What works for you? This is Frank Rolfe of the RV Park Mastery podcast. Hope you enjoy this, and talk to you again soon.