Buying an RV Park
(An excerpt from 69
Ways To Make Money In Real Estate)
By Steve Gillman - 2005
Why RV parks? Because they can have good cash flow, without
most of the traditional headaches of being a landlord. The downside?
(Every investment has one.) The income can be variable and unpredictable.
My wife and I used to travel in a conversion van that we sometimes
camped in. When staying at RV parks, I noticed that the managers
always seemed relatively relaxed and cheerful. I think this may
be because the job is not that stressful. It certainly isn't
like being a landlord.
As an owner/operator of an RV park, you don't own any housing
or vehicles that need to be repaired. Every tenant is responsible
for their own Recreational Vehicle. You need only maintain the
common areas, and can do that how you want.
Even if visitors stay for months, you can collect in advance
and ask them to leave on a day's notice if they cause trouble
or don't pay. Regular tenant/landlord law does not apply. These
are very mobile residences, unlike regular "mobile homes."
Finally, these are visitors, not tenants. They are vacationing
or escaping winter, and are generally in a good mood more often
than apartment or house renters would be.
On the other hand, these visitors have no lease. They can
leave at any time. In other words, your income can be very unpredictable
from month to month. It also can vary a lot seasonally, so you
have to budget well. Some RV parks are just closed for half of
each year - and this may be the time when taxes and insurance
need to be paid.
When buying an RV park, look at the actual income from the
previous several years. One year isn't enough. You want to see
that the income has been steady or is growing. You don't want
to buy a dying business.
Ask for tax returns to get the truest - or at least the safest
- record of income and expenses. Determine the net income before
debt service. Decide what you can invest, and what kind of return
you want for your trouble. Subtract that "profit" from
the net before debt service. What remains is how much you can
pay on whatever loans you need to buy the property.
The amount you can borrow - with payments that fit into that
net income - plus the amount you have for a down payment, determines
the most you can pay for the property. Don't forget to account
for any additional costs you will have that the current owners
don't have, such as higher insurance rates or property taxes.
Also, base your calculations on existing income, even if you
have a plan to increase it - that is the safest way.
How much do most RV parks sell for? I've seen them as low
$85,000 for a really small one, while others are priced in the
millions. As you look in a given area, you will notice that they
are often selling for a similar amount per space. In some parts
of Arizona, for example, parks sell for as cheap as $8,000 per
space, because of a limited season. In other parts of the country,
they sell for as much as $30,000 per space.
Use this as a rough guide to see if a park is priced in line
with others in the area, but in the end it can be very misleading.
Good management can make a nice park worth $20,000 per space,
while one a mile away may be in a bad location and worth only
$14,000 per space. You need to see the actual income and expenses
before investing in RV parks.