RV Park Mastery: Episode 1

Why Invest In An RV Park?



While millions of Americans own an RV, very few people own the RV parks. And this scarcity has created a profitable opportunity for those who understand the business model and have the desire to make high levels of return. There’s also a component of enjoyment, as many RV parks owners choose to live on-site and leave their less happy work life in the past. If you’ve ever wondered about RV park investing, then here’s your chance to learn how it works.

Episode 1: Why Invest In An RV Park? Transcript

Is there any other industry that's been around for over a century and yet so few Americans know anything about it? This is Frank Rolfe episode of the RV Park Mastery Podcast Series. We're going to start off with, why invest in an RV Park? What are some of the reasons why anyone would think, "I want to go out and buy an RV Park to create an additional income stream or create financial security for myself?" So let's go with the first reason. The first reason is a very, very high rate of return. Now, what do I mean by that? What I mean by that is, for every dollar that you put into an RV Park, you'll be getting more money out of that dollar than in most other sectors of real estate. Now, why is that possible? Well, RV Parks are traditionally sold at high CAP rates.

What's the CAP rate. The CAP rate is a metric that shows you the amount of return on the amount of capital invested. RV Parks traditionally have CAP rates that will run anywhere from probably about 8% to 12% or greater. And when you take and look at the actual return, the cash on cash return of your down payment, based on that CAP rate, assuming current interest rate levels in the U.S., they'll give you an amazingly high cash on cash return of typically 20% or greater. That means for each year that you own the RV Park, you would be earning roughly 10 times that of what you would get at a more conservative investment, such as a CD or a treasury. And obviously, a high rate of return is something all investors seek and is probably the number one reason why anyone would invest in any kind of asset, whether it's a RV Park or anything, a duplex, apartment complex, whatever the case may be there.

Everyone's chasing after return and the first reason RV Parks are something people like is because they excel at that. They offer high rates of return. Another reason is you have the ability to massively boost your net income under certain circumstances more than probably any other sector of real estate. Here's why. A lot of RV Parks have massive untapped potential. They have lots of vacant lots, and they have all these vacant lots because mom and pop, who own and probably built the RV Park, have no mastery of that new marketing tool called the internet. So, as a result, while everyone else is now on the internet with websites and search engine optimization, they're sitting there languishing, trying to attract customers out of yellow page ads and billboards and little coupon flyers at the rest stop. And that's not the way Americans travel any longer.

So, as a result, you can buy these RV Parks that are so massively under utilized, and simply by getting them into the new century of putting in a website and get it on Google and doing all these other items that the internet allows you to do, you can really, really boost occupancy dramatically. And you have no cost in the [docupancy 00:03:10], because once you already have the RV Park and all the lots there, adding customers coming in, that doesn't cost you anything. So it's not uncommon if you find just the right opportunity to be able to buy an RV Park, and let's say boost the net income based on occupancy by 30% in one year. There have probably been cases out there of people who have boosted it by 100% in one year. I don't know any other form of real estate that you can do that. Typically, anything else you buy is already going to have near stabilized occupancy and will already be in the modern century and it won't be that easy to ramp things up.

But often, if you find the right RV Park, you can do some amazing things with it and then your return on investment is just staggeringly high. Next reason is that seller financing exists in the RV Park industry. Seller financing is an amazing tool. What happens is you buy the RV Park and mom and pop that owned it, well, they'll go ahead and carry the debt for you and that saves you from the embarrassment and the shock and the horror of going and try to get bank loans and perhaps being rejected. You don't have to have a credit score. You don't have to have any of those items that banks require when mom and pop seller finance you. And that's a very, very safe and happy feeling to know that your banking has already effectively been approved by mom and pop. Also, when mom and pop carry paper, you get two other factors you don't with banks. Number one, you can get a lower amount of down payment.

My partner, David, I have done 12 zero down seller carry deals over time. But even if you can't get zero down, you can often get 5% down, 10% down, 15% down, things that are lower than the traditional optics of banks. And bear in mind, the reason that mom and pops will do this is twofold. Number one, they like you. That's the thing about moms and pops, they bond with the buyer. But also, on top of that, they like getting that extra interest rate on every dollar that they keep is in the note. So they don't mind going with smaller amounts down. Also, you can get more attractive interest rate in terms with moms and pops. So, if all the banks out there are charging 5% and mom and pop like you and want to charge 4%, there's no law against that. They can totally do that. If you say, "Wow, I'm uncomfortable with a loan term less than 15 years, well, they can do that if they like. So there's no rules. There's no banking rules and regulations when you have mom and pop seller financing.

Another reason that RV Parks make for a great investment is the security of the land. Let's go over that for a moment. When you buy most traditional investments, what do you get? Well, you get a sheet of paper. You now have a share of stock in some massive corporation that you know on the front end you're overpaying for, and it doesn't tie back to anything. It ties back to some building that if the business shut wouldn't be worth a penny on the dollar, bunch of maybe some inventory that isn't worth anything to anybody. So you don't really have any collateral whatsoever. When you buy an RV Park, what you're getting is basically a piece of land with some improvements that serves as a parking lot. And land, as we all know in America is valuable stuff. So at least you have something solid as a fallback on your investment, some tangible form of security.

That's always been true in real estate, all the way back to the beginnings, back when John Jacob Astor bought up what is now all of Manhattan virtually back in the 1700 and 1800s. What an attraction he had was he was in the fur business and he wanted to find something he could invest in that he felt like he has some security in. And of course, land offers security so RV Parks by the nature of the business itself give that one extra happy feeling that allows you to sleep at night knowing that your RV Park has that ever growing value just from the land that it sits on. In fact, there have been cases, many cases, of RV Parks that have been redeveloped into other forms of real estate, because at one point, the land caught up to and exceeded the value of the RV Park itself.

Next, the silver tsunami. So what is the silver tsunami? Brandon, we got to cut there at seven minutes and 14. The iPad, I don't know what happened, stopped. It was very odd. So we'll start up again. I don't know where it cut off. So we'll start up from the land. I think I got all of land to security in. So here we go. Next you have the silver tsunami and its impact on RV Park investing. So what is the silver tsunami? What does that mean? Well, silver tsunami is basically the slang term for the aging of the baby boomers, of which I am one. Anyone who was born between 1946 and 1964 is a baby boomer. And the baby boomers are all getting old and there's 10,000 per day retiring, many of which are buying RVs to travel America. That's a common thing that seniors like to do. So you have that one big mega trend of the silver tsunami, which really pushes RV Park occupancies and demand to the highest levels of all time.

But then you also have this unusual secondary thing that no one ever anticipated, and that's the millennials. Now, the millennials, which is the most youthful and now largest demographic group in the United States, they love RVs. No one knew this would ever occur. It was always assumed that RV Parks and RV travel was really kind of an old person thing and then the millennials, and they changed that. Because the millennials, you see, they like the outdoors. They like simple things. They like living small. They like bonding with their friends. So, as a result, what you have is you have all these people that were never counted as being potential RV Park customers who love the thing. So the power of those two trends, silver tsunami and the millennials, is powering RV sales each year to the highest in American history. And it's also powering the demand for RV Park lots to the highest levels in American history, and those aren't going to end anytime soon.

Silver tsunami has roughly about 15 years left to go of 10,000 a day retiring. And the millennials, they're just getting older. It's only getting better every day with them as they get their jobs and money to buy RVs. So it's really kind of odd that you would have an industry that has two distinct American mega trends at the same time fueling it, and particularly mega trends that have such long legs on them. Because, again, this is not an overnight sensation. This is not just some temporary fad that will extend on for 12 months. These are very, very long term shifts in American demand that are really fueling RV Parks to a lot greater success than they ever had before. Finally, you had the potential for a complete lifestyle upgrade. This is another unique feature of RV Parks. You don't find it really in any other form of real estate that I'm aware of.

And that is, RV Parks by definition are typically in areas that people like to be, scenic areas, areas near attractions, quaint areas, charming areas, places that people want to go and stay and visit. And a lot of RV Park owners elect to live adjacent to or even in their RV Park. Now, there's two reasons they do this. Number one, they do it because clearly the best RV Parks are those that are self-managed. No one will manage and operate your business better than you would. So that makes complete sense. But the other reason is that a lot of RV Park owners, as part of the RV Park purchase, were looking for just a new quality of life, a lifestyle upgrade. They didn't like the way their life was going. Didn't like where they lived, hated their job, hated the commute, and this gives them the ability to have a whole new adventure, an adventure in someplace that's fun and attractive and exciting.

So many RV Park owners are happier than most any other item on the simple fact that their investment comes with a complete lifestyle improvement. And running an RV Park is fun. It's a lot of people interaction. It's a lot of being in the outdoors. You wear a lot of hats. A lot of people really, really enjoy it. As a result, they feel that, that RV Park investment has changed their life for the better, because it's not only a source of financial security, but spiritual and lifestyle security and happiness as well. This is Frank Rolfe with the RV Park Mastery Podcast Series. Hope you enjoyed this, our first segment, and we'll be back again soon.