HAVE YOU THOUGHT ABOUT INVESTING IN RV PARKS?
Pros and Cons of RV Park Investing.
The RV Park business grew from $5.48 billion to $6.32 billion in sales from 2020 to 2021. This is a 15% year-over-year increase.
Perhaps you know people of all ages who enjoy RVing. Some are young families who find this a less expensive way of vacationing. Some are retirees, especially here in Florida, who live in their RVs almost year-round. There is also a big surge of “snowbirds” in the winter months in our area.
You might think of RV Parks as similar to multifamily or you might see them as similar to running a motel. You might wonder how investing in an RV Park compares to investing in a Mobile Home Park. There are similarities and differences.
What are the Pros and Cons of investing in RV Parks
What is an RV Park?
For our purposes, we will look at an RV Park as a business that rents spaces for Recreational Vehicles on a daily, weekly, or monthly basis. Some parks are more like campgrounds with a lot of nature. Some parks are more like parking lots with small spaces for recreational vehicles and a bit of private area for each space.
The RV Park will have amenities such as a self-serve laundry room, public restrooms, and showers at a minimum. It may also have a small store (think ice, propane, snacks, etc), a pool, playgrounds, a covered recreation or meeting area, and more.
THE RV PARK BUSINESS (THE NUMBERS)
The RV Park business generates income from lot rentals and other sources such as the laundry and the store.
The expenses for operating an RV park include taxes, insurance, staffing for operations and maintenance, legal and professional, maintenance, security, utilities, and marketing. The typical expenses average around 50% of income.
The typical RV Park will average 10 sites per acre, allowing for roads, buildings, and common areas as well as the actual sites. RV Parks can cost as little as $15,000 per site to purchase or to build from the ground up They can also cost up to $50,000 per site, depending on the location of the park and the amenities offered.
Sites rent for $25 to $80 per night, with an average of around $45. Monthly rentals range from $400 to $1,200. This rental fee usually includes utilities (electric, water, wastewater, and trash pickup.
Let’s assume a 100-space RV Park that costs $25,000 per space to purchase or build. Therefore the total capital invested equals $2.5 million.
Let’s assume the spaces rent for $45 per night or $700 per month. The nightly gross potential income would be $4,500 per night or $1,642,500 per year. The monthly gross potential income would be $70,000 per month or $840,000 per year.
Since it is unlikely the assumed park would be fully occupied 365 days a year, let’s assume a 50% occupancy average per night/month. This would create a more realistic annual income of between $210,000 and $410,625 per year.
At a 50% Expense ratio and 50% occupancy, the Park could have a CAP Rate of 8 to 16. Of course, the above NOI excludes the cost of capital.
The Return on Investment for owning an RV Park could be pretty good, perhaps low teens, perhaps even higher.
Let’s look at some of the Pros and Cons of investing in this niche.
STABLE GROWTH. RV Parks as an asset class have demonstrated stable growth for decades. This asset class has had positive cash flow and values in both up and down economic cycles. The number of RVs sold continues to increase year over year. Some would even say the growth is explosive, hitting record highs in RV sales.
The market is strong because this is a very attractive alternative for traditional vacations. In the Sunbelt there is a large market for longer-term RV Park residents, particularly in the winter months.
HIGH CAP RATES. RV Parks tend to trade for higher CAP Rates and therefore have the potential for higher returns for the capital invested. Higher returns usually mean higher risks and there are risks in owning an RV Park, which we will cover below in the CONS section.
LOW TURN COSTS. With more traditional multifamily investments, the owners have the expenses of new paint, new carpet, roof replacement, AC replacement, and other ongoing capital expenses. RV Parks are basically land with underground utilities (electric, water, waste). The “turn cost” is minimal and the ongoing capital investment is quite limited.
LIMITED COMPETITION. Depending on the location of the particular RV Park there is still limited competition in this niche. The demand is high and growing. The number of parks is growing also, but is still limited. With good access to the location and appropriate marketing, the vacancy rate for parks is relatively low, particularly in the Sunbelt.
DON’T HAVE TO EVICT. With traditional multi-family, non-paying or difficult tenants need to be evicted, which can be costly and take time. In an RV Park, the ability to remove a non-paying or difficult park guest is much simpler. Think of the comparison with the motel business.
FINANCING IS AVAILABLE. There are multiple sources of funding for RV Park purchases. These include private money in a partnership or syndication, traditional lenders such as banks, and Small Business Agency Loans such as the SBA 504 loan at a fixed rate for up to 20 years for the purchase of land, facility building, utility installation, landscaping, etc. An additional option for financing is seller financing.
LONG-TERM SITE RENTALS IN FLORIDA. Some RV Parks in the Sunbelt, Florida in particular, attract long-term site rentals. Some of these are up to 6-month rentals. Some RV Parks cater to the 55-plus demographic, to the increasing number of retirees. Did you know that 10,000 “baby boomers” are retiring every day in the United States? Parks that focus on these more stable residents can create a more stable business model.
HIGHER OPERATION EXPENSES. Because an RV Park has higher daily staff requirements for operations and maintenance, an RV Park will have a higher expense ratio compared with a Mobile Home Park. A typical expense ratio will be around 50%.
NOT WELL UNDERSTOOD. RV Parks are a small niche in the larger Commercial Real Estate Space. Fewer lenders understand this space. Fewer brokers are covering this niche. Parks sell for a couple of million rather than tens of millions as with other commercial properties.
OPERATIONAL STRESS. For both day-to-day management and asset management, an RV Park can be quite stressful. Weather events can cause operational problems. Adequate operating cash reserves will be needed. Personnel issues can create problems. It takes hard work, determination, and a tough skin to operate an RV Park well.
BUSINESS CAN VARY THROUGH THE YEAR. RV Park residents come and go, can stay or leave, whenever they want. Weather and the price of gasoline and the larger economy can affect the cash flow of RV Parks. There will be ebbs and flows in this business making it more difficult to project a steady revenue model.
ZONING AND REGULATION RESTRICTIONS. Cities, counties, and states have a number of restrictive regulations. Some of these relate to health and safety, such as with the provision of water and waste removal. Some might limit the number of spaces per acre or the maximum length of long-term stays on the sites.
Thank you for taking the time to dive into this rather unique asset class, RV Park Investments.
We have explored this very niched asset class, attempting to get a clear definition of terms and looked at some possible numbers for an investment, noting what could be a potentially good return on investment.
We then addressed some of the more obvious pros and cons of investing in RV Parks.
This may or may not have piqued your interest.
Perhaps you understand this asset class better than we do. We’d love to talk.
Perhaps you would be interested in partnering with us, should an appropriate opportunity present itself.
Either way, please get in touch.
RV Parks can be a fine investment that not only would provide a very appropriate return on investment, but also serve a need that is much in demand in our world.
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Harland leads our Investor Relations. He is a “repurposed” Pastor and Army Chaplain. He is an author, speaker, mastermind facilitator, and coach. Harland lives with his wife, Barbara, in DeLand, Florida.