There are different types of RV parks, but one of the most unusual is the “overnighter” which is basically just a parking lot for RVs stopping for the night on the way from Point A to Point B. In this RV Park Mastery podcast we’re going to discuss the unique attributes of this type of property and what you need to watch out for.
Episode 34: The Problem With Overnighter Properties Transcript
There are basically two types of RV parks: overnighter parks and destination. There's a huge difference between the two, and most people don't fully realize the good and the bad aspects. And we want to focus on overnighter, what makes it work, what the restrictions are, what makes it have sometimes problems, what the opportunities are. Because if you're going to invest in RV parks, you have to have a good grasp on the different types and styles, and what those will do as far as your financial return. This is Frank Rolfe, the RV Park Mastery Podcast, we're going to be talking about overnighter RV parks.
Now what is an overnighter RV park? Well, it's kind of like a parking lot because that really is what it effectively is. So when someone has an RV out on the road, and they're going from point A to point B, and they can't get there in one day's drive, they have to stop because it's becoming nighttime, they're getting tired of driving, and they want to pull off the road. And that's what the overnighter park is for, it's the parking lot for RVs, on their way to the ultimate destination. Now the problem, as you can well imagine with the overnighter RV park, is that people don't really want to be there, they really want to be at their destination. So when they pull into that overnighter property, they're not really going to stay long. In fact, typically just a day, maybe two days, so they can regain their composure before they hit the road again. So if you look at the occupancy, you'll see a large number of very short stays, virtually a revolving door.
Now, there's nothing wrong with that, theoretically. But of course, I think we can all then contrast that with the destination RV park, and see that it's different. It's revenue is basically customers who stay for much longer periods of time, maybe a week, maybe two weeks, maybe even longer. So it's a much steadier flow of revenue. So what are the observations between the two that you need to know? Well, number one, on an overnighter property, you have to have much more aggressive marketing, because you have got to bring in a whole lot more customers because each one stays for a much shorter period of time as compared to the destination RV park.
Another issue is the demand just isn't there for the overnighter like it is for the destination. Since each customer is really gunning to get to that destination and spending a long period of time there, if there's anyone who will have vacancy, it's going to be the overnighter property. Because basically people don't really want to be there. They want to get down to their destination. That can create a problem for you when you're calculating your revenue. We have your monthly bills to pay, your mortgage, and it's a little scarier when customers are just passing through, there for a night or two and then off they go again. Will you have, by the end of the month, revenue you hope to have to hit all of your budgets?
Now the long term potential is clearly better for the destination. Because as we all know, destination RV parks are filling up to nearly full capacity. Ever since the pandemic people are just more excited about going out and being outside. And as a result they want to go and be in one spot. And enjoy nature and enjoy being away from civilization at this point and all the issues with COVID, and urban rioting, and you name it. So in many areas of America right now getting a spot in a destination RV park is extremely difficult. Meanwhile, the overnighter may have lots of vacancy. So clearly, from a strictly revenue ability, the ability to generate the largest amount of rent is definitely in the favor of the destination RV park. So can you even buy an overnighter? How would that even work?
Well, let's examine that for a moment. You'll always have a need for the overnighter RV park because many destinations require those who own RV use to go long distances to get there. So as a result, there should always be a demand. Now studies are showing that people are now training to go on shorter destinations or liking to drive to areas that are closer. We've seen that trend for a while. One thing that fueled that is in fact fuel prices. As gasoline goes up the desire to drive long distances declines. People say, "Well you know what I really wanted to go out to Yosemite. But now that I think about it, I'd be just as happy at this state campground." As those people have tried not to drive as far, that could cause problems with overnighter revenue. However, at the same time, you've got more people buying RVs than ever before. The number of Americans who have RVs has never been this high. So you've got more people on the road who will need to stop over at those overnighter properties.
Clearly, COVID has also changed things significantly. Many people used to travel by plane, are now opting to go by car. Many of your overnighter properties are trying to supplement the revenue by having such items as park models where they can rent by the night to customers going down the road. The bottom line is there's no reason why you can't buy an overnighter RV park. But you have to be very careful in doing so. I would definitely want to see the last three years financial performance. And I would want to average those to see where you truly come out. Because this is very much of a daily business with overnighter. Now in a destination you can go out and you can see that everything is basically full. And you can say well, my occupancy here would be very, very high. But an overnighter is kind of like owning a restaurant. You never really know how many people came in each day. And you certainly can't even guesstimate what that was over the last several years.
Now, because of that, there's also you can be prone when looking at overnighter RV parks to being cheated, because the owner of the overnight RV park and say, "Well, you see I had this much rent." But did they really have it? It's very important for the overnigher RV park to come up with a byproduct of human existence. Typically, that's electricity, you can extrapolate how much electricity an RV uses daily. You can look at the electrical bill for the entire RV park for any given month, divide by the amount that they use daily and you can see how many nights of use roughly the RV Park had. Now it's not an exact science, you're never going to nail it to the penny. But if someone said to you, "Well, we run about 50% occupancy through the winter," and you look at the electrical bill, they had almost no usage at all, it's a pretty good bet that they didn't actually achieve that. So scientifically, you shouldn't be able to see a tie in between how many nights of occupancy they truly had, and how much the electrical bill was. You can also talk to other RV parks in the area. RV park owners are typically a friendly sort. Ask them about how their performance has been historically, because you will get a good idea and they normally will tell you if they were doing well or doing poorly. And they can even tell you seasonally what to expect.
Now overnighter RV parks can be changed enormously on performance if you're a better operator. Because like anyone going down the road people are more prone to stay at one property or another. I know I'm more prone to stay at a nice newer Marriott Courtyard that I am some old rundown Tiki Motor Lodge. So it's very possible redoing the view from the street, the entry, the entire social media, getting positive social media reviews, getting a much better presence on the internet, could do wonders for you. If you could buy an overnighter park that's been very, very poorly managed and turn it around, you probably would have even a greater chance of raising revenue than you would with a destination RV park which is already basically full.
So there's still opportunities in the overnighter section, but you just have to be careful on what you're doing. It's much riskier. I think we would all agree with that. And also don't forget that when you have risk you must have better reward. The cap rate of an overnighter RV park as a result must be higher based on price than that of the destination simply because it is a much riskier investment. The bottom line is that an overnighter RV park can very well meet your objectives as an investment. They can have a good rate of return. You just have to be careful in what you're doing. It's a very, very different animal than the destination. But that's not to say it's a bad animal. People have made lots of money with overnighter properties historically, there's no reason why that trend cannot continue. But once again, in today's economy in today's world, you just have to be a very, very careful shopper. Make sure you understand exactly what you are buying. Make sure you vet everything. Don't forget Ronald Reagan's famous trust but verify. Be sure you verify all the operating results. And if you do so, and the numbers work and you buy it at a good price, there's no reason that you can't do well with an overnighter RV park. This is Frank Rolfe for the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.