FINDING A SOLID INVESTMENT IN 2023

Dwight’s journey from single family to RV parks.

Dwight knew real estate was a great investment. 

SINGLE-FAMILY HOUSES.  Like many investors, he started with single-family homes.  And he did quite well.  Over the last decade, Dwight bought and held several houses.  He has been able to rent each one, with positive cash flow.  He built a small portfolio and was glad he did. 

In addition to the positive cash flow, his equity in this portfolio has grown steadily with the rise in home prices.  He has also benefited from tax benefits, paid down his mortgages, and had the pleasure of providing good, safe, affordable housing for other people.

Dwight even converted some of his rentals into AirBNBs, which have done quite well.

But, over the past couple of years, Dwight has found it harder and harder to purchase properties at a price that made sense. He simply couldn’t get the amount of rent needed to get a good return on his investment.  The rent increases have not kept pace with the price increases.

MULTIFAMILY.  So, he looked into apartment complexes and small multi-family investments.  And, with some partners, he was able to become an owner of a complex.  It has been a good investment, in spite of the challenges of Covid and inflation and now a recession. 

Multifamily has proven to be relatively stable through the years, fortunately, even with the larger economic ups and downs.

As he looked for ways of putting his capital to work, he has sought additional apartment complexes.  But, recently, the “math” made it very difficult.  With cap rates around 6% and the interest rates for loans to purchase the properties also around 6%, he couldn’t find properties that cash flowed. 

SELF STORAGE.  He has begun exploring other real estate asset classes, such as self-storage.  But they were selling at even lower cap rates, around 4%.  These just didn’t compute.

CHASING SHINY OBJECTS.  Dwight wondered if he was simply “chasing shiny objects”, bouncing from one thing to another.  But, he realized he wasn’t.  When the numbers worked, Dwight had acted effectively.  He did his homework.  He found properties and made wise investments.

After a brief self-reflection, he thought he wasn’t chasing, he was adjusting to changing markets.

RV PARKS.  He looked at other real estate asset classes and noticed RV Parks. 

He learned in his initial research that Recreational Vehicle Parks are a small niche within the larger multifamily asset class.  They also overlap with the Hospitality asset class, as they typically provide short-term rentals and have a continual need for managing reservations and arrivals and departures of guests.

The average park, he learned, provided a space or a site that had electric/water/sewer hookups for people who wanted to spend a night or perhaps a week or longer.  They would arrive in a motor home or in a truck or car pulling a trailer or with a tent.

He looked at this RV Park niche and learned how to look at the numbers and soon bought his first RV Park. 

Here is what he found…

1.       STRONG, CONSISTENT GROWTH

The Outdoor Hospitality Industry (aka RV Parks and Campgrounds) has been growing steadily over the past 20 years, with a surge connected to the recent Covid challenge in this country.  Four out of ten park owners recently reported experiencing their best year ever in terms of high occupancy and net income.  Two in three current park owners reported they will make major improvements to their parks in the coming year.

RV Parks in Florida, where Dwight prefers to invest, operate year round. Some of the prime months are during the winter, when “snowbirds” come south to get away from the freezing temperatures up north. 

Dwight studied the demographics of RVers and found the typical household income for RV-owning households to be about $62,000.  He also learned that 56% of American Households intend to camp more often than they did previously. 

More and more households can work remotely, which means they can work from anywhere they can connect to the internet.  They can get out of the big cities, live more economically than in a house, see the country, and gain flexibility and freedom.  This allows them more time to create experiences with their families wherever they want.

RV sales have set records in recent years, with half of the new sales going to people under age 45.

Dwight liked the opportunity of investing in an asset class that had shown steady growth and was projected to continue growing for years and years.

2.       OWNED PRIMARILY BY SMALL, INDEPENDENT OWNERS

He also learned that nearly three out of four RV Parks are currently owned by individuals or independent small businesses as compared with corporate or franchised parks.  To Dwight, this meant there was plenty of room for a relatively small investor like him.

He also learned that 77% have been owned by the current owner for more than 20 years.  This meant the owner likely has a considerable amount of equity in the park and might be able to provide some form of owner financing.  Dwight liked this possibility very much.

3.       PRICE PER UNIT IS LOW

Single-family homes were costing $150,000 and higher.  Even the cost per apartment in a multi-family property could be $100,000 per unit.

And, with his experience in a large apartment complex, Dwight knew that the cost to “turn” a vacant apartment and get it rented again could cost hundreds, even thousands of dollars.

The cost per site in an RV Park could be $15,000 to $50,000, depending on the land values and the number of amenities at the park.  And the “turn” cost when someone moved out of a site was almost nothing. 

This caught Dwight’s attention.

The average daily rate in Florida for an RV site with full hookups is around $52, and monthly rates are around $600. Again, this depends on the amenities and location of the park.  A quick analysis, even with average occupancies year-round being around 69%, produced numbers that worked for Dwight.

Do the math and see if they work for you, too.

4.       DEMAND IS HIGH

He identified around 50 RV Parks in a part of Florida that looked like a strong market for RVing and began to make phone calls to each.  He confirmed that the demand was high for each of the parks.  In the winter months, they were 90% occupied.  Some were even completely full from December through March. 

Park managers told Dwight that the occupancy over the course of the year has been rising steadily for years.

They also told Dwight that many people were living in their RVs year-round.  This included construction workers, nurses and remote workers.  It wasn’t just retirees, although many of their residents were Boomers.

Managers revealed that there were more and more young families and younger couples who were staying at their parks.  They were enjoying swimming and hiking and canoeing and simply being outdoors in Florida.

Supply and demand were working in favor of good returns on RV Park investments.

5.       EXCELLENT RETURN ON INVESTMENT

As Dwight did his research, talking with park owners and others with extensive knowledge of the RV Park investment class, he found that this niche had some of the largest returns on investments in commercial properties.

He found a number of excellent lenders who understood this asset class and were eager to lend if the business plan made sense. 

Dwight senses the average cash-on-cash returns were 10% and above, not taking into consideration future appreciation and paydown of the principal owed.

CONCLUSION

When Dwight learned more about the RV asset class and saw the numbers, he was convinced this was not just some shiny object, but was indeed a valid opportunity for his investments.  So, he began contacting owners and making offers to purchase.  He put in offers and negotiated to a good outcome for both the owner and himself. 

And recently, he purchased his first RV Park.  He is enjoying learning more and more about park operations and ways to increase revenue and reduce expenses. 

We have been researching RV Park investments for the past six months and will soon be joining Dwight and others like him who have discovered the many benefits of owning an RV Park. 

(Note:  Dwight is a composite of several individuals we met at the National Association of RV Parks convention in Orlando, a gathering of several hundred park owners and vendors.)

If you would like to learn more about what we have discovered, get in touch.  We hope to have an opportunity for investment partners to join us soon.

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Through the power of a syndication partnership with other investors like you, working with managing partners who are experienced in managing apartment complexes, you can own multifamily assets.  

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