Interested in buying an RV park

You will be paying income taxes on that 401K withdrawal, so that $400,000 will net somewhere around $300,000. RV park loans will require between 25% to 40% down payment, so you will be looking at parks selling for between $800,000 and $1,200,000. Funny thing about RV park pricing is there is no premium attached to the price of either a seasonal or year round park. Because of that, I would gravitate to a seasonal park, why work year round when you can make the same income working only 7 or 8 months. For me, there are four things to consider when evaluating a park for purchase.
1. Net income, not gross revenues or any other metric. A park usually sells for between 7 to 11 times net.
2. Deferred maintenance how much more money do you have to put into it to make it as it should be. I subtract this amount from the value I get from item one.
3. Potential for improvement on the net income. This is what determines the multiple in item one. The more potential, the higher multiple I am willing to pay.
4. Do I want to be in that area. Personal preference, but relates to item one.

 

Western, you still in the group? Out of all the post I have read, you seem to have the most knowledge. Could we chat more?
Thanks Chris

 

I'm going to look at a park tomorrow for the third time which has 46 FHU sites. The owners are asking $400,000. The Excel sheet I received as their P&l statement for 2019 shows a gross of $91,000 and a NOI of $30,000. Based on this information alone, what would be a reasonable price?

 

Do you really want to pay $400,000 for a job that pays you $30,000 a year? I mean, if you have $400,000 in investment funds, you can pretty much expect to make $30,000 by investing that money in mutual funds and not have to clean restrooms, fix the sewage system, deal with the public and be tied down to the park 24/7.
If you plan on financing your actual income will be much, much less. If you put $100,000 down (25%), your payment will be somewhere around $1850.00 a month. You won't get home mortgage rates and terms on a commercial loan. Figure on a rate of around 5.5% and a amortization no longer than 25 years. After making the payment, your $30,000 net operating income is down to $7500 take home for the year. And you are putting a great deal of faith in the numbers the sellers are providing.
The next thing to consider is if the purchase price is all you have to invest. Are there repairs, updates, upgrades or any other costs you are going to incur when you buy? If so, your income numbers go down. Are you prepared to dip into your pocket for any of those expenses, because I doubt you are going to be able to borrow operating capital with no financial record of you running the operation.
It could be a decent buy if there is real potential for increasing the income. Can you raise rates substantially? Can you increase occupancy substantially? Can you expand, and would expanding actually get you more camper nights? Building sites when there are no customers for those sites is wasting money.
Finally, is there more to the story than buying a park as a business? If it is located somewhere where you really want to be, has a home you really want to live in it could be a great way to offset the cost of home ownership. That might be all you are looking for. Is there some additional value besides the RV park, like an extra 100 acres that could be a good long term investment? Is the park in an area where the property value exceeds the business value and makes just holding the ground a great Idea? Lots of things to consider besides the basic financial performance of the park. But in answer to your original question, I don't see it as a good investment based solely on the numbers.

 

Hi Newkcmoedoe,

Sorry for the late reply. You hit the nail right on the head. There is something more to the story than buying a park. It has a genuinely nice three-bedroom 2 bath home. The homes in our neighborhood cost as much as the asking price on this RV park. This RV park is 2 hours north from our current home. My wife and I are looking for a new home for our growing family. We have a 1-year old son and a daughter on the way due in December and this RV park seems to fit. It has plenty of acreage so my mother can plant all the fruits and vegetables she wants, it has a nice camp store, Propane sales, a nice in-ground heated pool and best of all after all expenses leaves a small profit to re-invest back into the property.


I want to make an offer soon. What little I know on CAP RATE is if their NOI is $30,000.00 and I use a 10% CAP RATE I should be looking at $300,00.00 selling price. Is this correct? I want this to be a win win for both parties and wish to make a fair offer that they accept.

 

That would be for the commercial side of the property. Take out the house and any acreage for personal use out of the equation and figure out if that works for you.

 

You can't use the price of homes in your neighborhood to justify a price in another neighborhood. You have to use comparisons derived from similar properties in the same area. An extreme example would be a 1200 Sq Foot apartment in Manhattan NYC can easily run $1,000,000 to over $2,000,000. A 1200 Sq Foot home in Manhattan Kansas can be bought for 10% of that.
Another poster suggested you pull the value of the home and any acreage you will be using from the purchase price to determine the commercial value of the park. That is a good start, but you still have to answer the question of whether or not it is worth it to put in all the work the park will require to gross $30,000 before paying for that portion of the entire purchase. Once again the math would be 25% down ($75,000) leaving a financed balance of $225,000. That payment will be around $1350 a month, or $16,200 a year. That leaves you $13,800. Only you can decide if it is worth it to go an additional $225,000 in debt, put down an additional $75,000 and do all the work required to run an RV park for that amount of net cash return.
A big mistake people make when evaluating the value of an RV park combined with homes and such is they make the RV park an entirely separate entity, and it is not. Unlike many businesses, an RV park cannot be relocated. It is permanently attached to the property. In many instances it may not even be possible to separate the two due to zoning and subdivision laws. Unless you could truly parcel off the RV park completely and can honestly say the having RV park next door wouldn't impact the value of the remaining property can the two values be viewed independently. In most cases the RV park has impacts on the home and property. Often you have to drive past one to get to the other. The utilities might be co-mingled. And if it appears the home is part of the RV park, the home gets unwanted visitors at all hours looking for help. A home adjacent to an RV Park will likely have a value less than similar homes.
Many people will tell you there are all sorts of tax benefits you could take advantage of, which is only partially true. You can depreciate many of the assets, you can write off the interest on the loan, you can gain some personal use from the park assets, but you need to have income to write off against. If you aren't making much money, you don't pay much in taxes to begin with, so those tax write offs have a very limited actually effect on the cash in your pocket at the end of the year.

 

Purchasing an RV park means you're getting in on an already growing market (with even more potential for growth in the coming decade). RV parks also tend to offer higher yields to owners than other commercial property investments. As stated above, investors can expect a 10% to 20% return on investment.

 

I have never, in many years of owning, buying, selling and operating parks seen a park have a 20% cap rate. Plus you have to consider that most commercial property investments do not require the ownership to operate the business. You can own a strip center rented to hair dressers, restaurants and an insurance agency and continue doing what you always have done. You don't have to physically get involved beyond bookkeeping, scheduling repairs and occasionally re-renting space. Add in the opportunity costs of running the park (it becomes your job) and the profits sink drastically. Park ownership is a lifestyle choice and a long term investment. Expecting to buy a park for $1,000,000 and net a $200,000 yearly profit is pure fantasy in the current market environment.