Category: Finance

Today's RV Park Investment Market

8/25/2021

Do's and Don'ts When Selling

By John Grant, President of Park Brokerage Inc.

It is by far the best time to be a RV park owner during my career. Record high recreational vehicle sales, flight to the outdoors during the pandemic, and overall increased interest in outdoor hospitality are causing record occupancy and rates for almost all RV parks throughout the country. Most California RV parks have doubled their gross incomes during the last 5-7 years.

Just like what happened in mobile home parks twenty years ago, RV parks have been discovered by institutional investors and large private capital groups causing tremendous investment demand with much lower capitalization rates and surging prices. The days of individual Mom and Pop owners are rapidly ending for 100+ sites RV parks as new Mom and Pop owners are priced out and cannot compete with the institutional and large private capital RV park buyers.

Lenders have finally discovered the strength of the RV park market. They no longer call RV parks “special use”, and financing is now readily available for most RV parks. Just five years ago, the only real RV park lender was the Small Business Administration.; now, there are numerous RV park lenders to choose from and excellent interest rates in the 4% range with 25-30 years amortization periods and 5-10 year terms.

Too many Mom and Pop owners feel debt is a negative while the institutional buyers and large private capital groups use debt to tremendously increase their investment returns. They know that debt is 4% tax deductible and RV parks and improvements return 10%+, so debt is “positive leverage” increasing their investment return. Use debt to upgrade and make your RV park more valuable by adding sites, WiFi, solar, asphalt streets, concrete pads, landscaping, clubhouse and store remodels, and other improvements. Quick example: your improvements allow you to raise your rates $20, you have 50 sites, and enjoy 50% annual occupancy. Your income increases $182,500 per year, and at an 8% capitalization rate, produces an increase in value of $2,281,250. Borrowing money to make improvements just makes sense!

My recommendations on what to do and not to do when getting ready to sell your RV park:

The easiest improvements to your property go a long way in obtaining higher pricing. Paint your buildings, repair and slurry seal your asphalt streets, upgrade your landscaping, renovate your store, and tackle other cosmetic improvements you can do at moderate expense.
Raise your rates and use dynamic pricing! Most RV park owners have not kept up with market and are afraid to raise their rates; don’t compare your rates to your neighboring RV parks that probably also have low rates. If you are full during your prime season, weekends, or at other times, your rates are probably low. Use dynamic pricing and have higher rates for weekends, holidays, peak season, etc. Always keep testing the market.
Use a professional accounting program like Quickbooks so you can produce quality financials and general ledgers. If its difficult for a buyer and their lender to understand your accounting, you will get a lower price.
Get a loan to put in the best possible WiFi system you can afford. It is by far the biggest amenity in an RV park, and if you have deficient WiFi, you are losing business.
Put in solar. It’s the biggest improvement you can make to your RV park to increase park value. Typically the value of your RV park will go up at least twice as high as the initial cost, plus you get an investment tax credit for a portion of the cost and can depreciate the balance over five years. Get a loan to put solar in.
Lastly, but very importantly, any owners that don’t report income are shooting themselves in the foot. For every dollar not reported, owners lose approximately $13 off of the sales price. Buyers and their lenders can reduce or eliminate your health and auto insurance, auto payments, officer salaries, and more that an RV park operator can deduct when they run the business, but that would not be applicable to most buyers. However, no buyers and their lenders can underwrite income not in your financial statements and property tax returns.

Contact John Grant

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Today's RV Park Investment Market

Do's and Don'ts When Selling

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