Buying an rv park and rv park investing

[Katie Morneau]

I want to buy an rv park. I want to find investors. I want to know how to assess it, fund it, recruit investors and how to split proceeds etc. Please share your knowledge! I want to learn!

[Jack Martin]

The intrinsics, behavior, and performance of RV parks can vary across a wide spectrum. On one end of the spectrum, a 100% transient park with daily/weekly rental traffic, will operate and perform more like a hotel. On the other end of the spectrum, a park with 100% park models can look, operate and perform similar to a mobile home park. Those are widely different investments requiring a different set of management skills, operational philosophy, and risk assessment. To take that a degree further, a 100% transient RV park in the middle of nowhere alongside a major freeway will likely always be a 100% transient RV park, where that same park in a good location in a strong MSA could be transitioned over time to a permanent living solution where tenants call that a home. So location will be a major factor in determining the potential strategy for the park.

A traditional RV park has transient traffic that moves in an out of the park and these kind of RV parks are often referred to as "transient RV parks". The traffic is made up of motorhomes, 5th wheels, and travel trailers, that are often referred to as “rolling stock” or "transient" residents, since they can come and go quite easily and tend to do so. The advantages of this kind of RV park are that the ability fill the park way faster than a permanent park or a mobile home park, and if the economy is booming, you can create a much higher degree of cash flow. The downside and risk with these kind of RV parks are that they are inherently more volatile and behave more like a motel, so when the economy is shrinking they tend to have high vacancy. Also, they will require a lot higher degree of management than a park with permanent residents or mobile home parks, especially if the park has daily traffic and a lot of amenities.

RV parks that are designed as a permanent living solution and behave more like a mobile home park are much more stable assets.  They have long-term tenants that pay the monthly lot rent whether they are there or not, simply because they have their unit parked on the lot and it never leaves.  The advantages of this kind of RV parks is the stability of cash flow and the intrinsic recession resistant behavior, along with less intensive management and monthly leases.  The downsides with a long-term RV park are they take more time to fill up and involve sales and the related marketing and licensing requirements.  

Let's touch briefly on the term "long-term tenants". If you are not experienced in RV parks, you may have an owner or broker tell you all the tenants are long-term.  The way to assess a long term RV tenant is really about two things. First, do they own their unit? A tenant that is simply renting the unit can gather their things and leave whenever they want just like an apartment, so the way to determine if they really have a vested interest in staying long term or not starts with them owning the unit. Second, is the unit permanent? Park model units are considered permanent and rarely move, but RVs that can be driven away at the drop of a hat are not considered permanent, even if the tenant says they plan to stay. With that said, you can quite easily see if a tenant plans to stay long term by the work they have done around their RV.  Most long term parks require tenants to fully skirt their RV and most tenants who really are staying long term will build an addition, deck or patio, install a storage shed, create a garden, and show other evidence that they have made this their permanent home. If the park does not have long term tenants, then you have more of a transient park.

IMPORTANT: location will be the most significant factor in the potential for long term tenants for RV parks. As mentioned earlier, if the park is on the side of a freeway out in the middle of nowhere, you simply cannot count on demand from long term tenants. Conversely, it is possible for a well located park in a major MSA to have all rolling stock RVs with no skirting or evidence of intent to make it a permanent home, yet the tenants have been there long term. Location, location, location.

All the best!

Jack