RV Park - Buy / Don‘t Buy: I need the $250K down payment

[Dale Snider]

I’m eager to here your recommendation / advise. Thank you.

I have negotiated a deal. Have not presented a contract to seller, but we agree on terms and price and a 60 days to close for me to get financing. Ultimately, I believe this comes down to, I need 250K for the down payment at a 5ish % to make this work, but I‘m so new the unknowns are holding me back. I have flipped one house, 1 LP on an appartment syndication, and have 3 BRRRRs - all have gone very well. I have a W2 for now, almost retired. REI has happily become more than a hobby the past two years.

The deal: 34 lot RV park, 20 are rented. New build. There are 3 older houses that come with the property and one 40x40 metal warehouse. All are rented a little below market. All with new roofs in past 3 yrs.  

The area is growing at a rate of 5-8% depending on class of investment. There are 5 other RV parks in 10 miles and 12 in a 30 mile radius. Most look to be mom and pop when you drive by and call them.

$1,250,000 PP

He will carry 250K at 5% for 10 years on a 30yr amortization. Making the loan a $1M.

Current income is $11,250 with 20 pads rented at $400. The 11K includes the 3 houses and storage metal Bld income. Owner pays utilities. Pads not metered.

Expenses are: $2,550

I can get a manager for 5%

Using 5% for CAPEX and Maintenance

With the above it has a negative cash flow of $540. With 5 more pads rented it cash flows $1460 (74% occupancy). 

Property isn‘t well marketed. 

I will hold reserves, but how much is needed for an RV park. 2% of value?

[Justin Hoggatt]

@Dale Snider - this sounds like a gamble to me.  My first hesitations from what your wrote are that the expenses are $2,550.  That amount alone sounds like utilities expenses at the very least.  Then you're going to have landscaping, taxes, insurance, repairs, etc.  Second is the cash flow.  Buy the property on how it's performing.  If the property is losing money, I wouldn't touch it - unless there is a lot of land that you expect to build on and there would be value there.  With the property losing money at that occupancy - which could be normal for the park, I don't think the benefit outweighs the risk - at best you're only bringing in another $5600/mo but with my estimates on RV parks, your expenses will eat that up pretty quick.  Again, that's a quick analysis on what you're mentioning here, but it sounds more like speculation than evaluation.  

On the bank topic, with the numbers you have now, they may not finance on it and you're going to be stuck with putting a much bigger down payment down.  The bank will tell you what you need as far as reserves but expect probably 12 months of P&I payments in reserves.

Good luck on the decision!