The most fundamental rule of economics is “supply and demand”. Yet too many RV Park buyers fail to grasp how the single most important factors in your success is simply how easy it is to build another RV Park down the street. In this RV Park Mastery podcast we’re going to review how to determine future supply and why it’s so vital to your long-term profitability.
Episode 129: Understanding The Supply Side Transcript
If you had a dollar bill back in 1925, today, 100 years later, it's worth a dollar. And if you bought a gallon of milk in 1925, it would cost you 35 cents. And today, if you'd found a way to magically keep that milk fresh for 100 years, that gallon of milk would be $4.01. Or if you bought an ounce of gold in 1925, you would have paid $20.67. But today, that gold is worth $3,356. This is Frank Rolfe with the RV Park Mastery Podcast. We're gonna talk about the importance of supply. Because on the three commodities we just discussed, it was supply that made one more valuable than the other. The dollar hasn't paced inflation at all because our country is able to literally print trillions of them at will. So, the supply of dollars is basically infinite. So $1 in 1925, $1 today, they just make so many they have really no value other than just the numerical face value of the piece of currency. And then on milk, we don't have an infinite number of cows, so the milk is more valuable than the dollar bill. But the problem is, that we do have the ability to expand the herd of cows to make the milk.
And then additionally, there's all kinds of new milk that hit the market. There's almond milk and soy milk and different things. So, although the milk fared better than the dollar bill did, it went up 10 times, nothing even compared to gold. Because gold went up 170 times during that 10-year run, 17 times more than milk did. And that's because gold has a very, very limited supply. So, what does this have to do with RV parks? Well, RV parks also have a lot of their value based simply upon scarcity. No different than the dollar bill or the jug of milk or the ounce of gold. They're all reliant and the value is created through that old adage of supply and demand. And demand for many products remains pretty, pretty continual. But the supply at the end of the movie typically represents how that asset will fare, whether it will be a big hit or a sad loser. So what makes RV park supply go up and down, and where does that really stand at the moment? Well, the first thing you have to know about RV park supply is, when it gets down to supply, there's a big difference between you're looking at a destination RV park and an overnighter.
Because if we're talking a destination RV park, there's a finite number of destinations in America that would attract someone to haul their RV there and stay for an average of two weeks. Overnighter RV parks, on the other hand, are just there for people to stop in on their way to the destination. So an overnighter location is literally almost limitless. It would be the combined of all road frontage in America as opposed to the destination, which is extremely finite. So when it comes to value of RV parks that were destination, those will always do better than those which are simply overnighter as far as location would go. But then you also have the problem of scarcity of buildable land for the RV park. RV parks traditionally go on flat parcels. It's very, very hard to build an RV park on the side of a mountain, too much topography. So sometimes the geography also has something to do with the amount of supply.
Then you have access to utilities. You don't have utilities everywhere. We always think that we have them. We think that, "Oh yeah, down any highway, down any major road, there's power lines, right?" No, there's not. There is in the city, but sometimes when you get out of the city boundaries, you'll see, "Whoa, I haven't seen some power poles in a while." That's because utilities don't stretch out everywhere. And beyond electricity, you also want to have access to water, for example. And that's also not infinite. Might have to build a well. But one big issue with supply comes down to permitting. Because many cities and counties don't allow much new RV park permitting. So as a result, the supply is somewhat limited because you can't build any anywhere.
So for those very reasons, when you look at any RV park, you can kind of build a template. You can say, "Okay, well, can I build another RV park here or not?" And what you hope the answer is, no, you can't, because that gives you much greater value in supply. But if the city/town/county says, "Oh yeah, you can build them anywhere. You can build one right across the street if you like. You could build one right next door," that's obviously gonna impair your value because you don't want a lot of supply. But then also like milk, what about bringing in more supply technologically? How would that work? Well, in the case of RV park, we're pretty safe from that. I never dreamed they would make milk out of almonds. I don't even know what soy is exactly, although it's taken up a pretty good percentage of the milk-tasting American public's demand.
But I don't really see how you're gonna change RV parks using technology. Now, how we operate RV parks has changed over time with the Internet and HD videos and software and all those many things, but it doesn't change the basic product. The basic product is pretty safe from competition 'cause there doesn't really seem to be anything that can change it. The idea of being outdoors in a vehicle that you pull behind a car or a pickup truck or a motorhome with an engine inside, I don't know how you can do that differently. I don't believe people would be happy going to a virtual RV park where the whole thing is a projection on a screen and you're actually inside of a commercial building, kind of like those driving ranges that people can go to to learn golf, where they hit the golf ball into a screen and it has the appearance of going down the road, but it really does not exist. So I don't think we're gonna see much change there.
And then what about the investment options that create the demand part of supply and demand as well? Because if there was no demand for RV parks and no demand for RV spaces, then it wouldn't matter what the supply was. That's remained relatively steady. We've seen nothing but ever-growing demand by the American public to buy RVs, thanks in part to the fact that it transferred over generationally. People were very concerned a couple of decades ago the RV industry would be very limited, that boomers, which at that time were almost the entire industry, that when they died off, then young people wouldn't want the product. But instead, the opposite has occurred. The largest component of RV ownership today are millennials and not baby boomers. So it was able to make that transference very successfully, and that keeps the demand always at a good pace.
And when it comes to buying RV parks, people are still very interested in RV parks as investments. And why not? They have great historical roadmap of success. It's a product you can't really mess with technologically. It's got very high profit margins. It's very easy to manage and it's very understandable. It's a basic need. Humans like to go travel. Humans like to be outdoors. I don't really see that ever ending. But when it comes to the valuation of your RV park over the long-term horizon, the key thing to focus on always is supply, because scarcity equals value. Rarity is what creates a lot of the money in the business. And if possible, try and stick with RV parks that have some level of scarcity. This is Frank Rolfe with the RV Park Mastery Podcast. Hope you enjoyed this. Talk to you again soon.