RV Park Strategy (Hybrid or Standard)

[Kyle Stueve]

Hey all!

I am contingent on a great mixed use RV park with a duplex, two cottages and 18 RV spaces. Everything is currently vacant for rehab. Seller financed deal with a 5 year term with balloon at the end.

Here is my big picture question for the strategy of the park. The exit strategy is to stabilize the park and ultimately refinance after 5 years and increase value as much as possible.

Here are two strategies I am thinking:

Hybrid: Rent out all structures to long term tenants, rent 7 RV spaces to long term tenants. The 10 other spaces I would like to rent out to 'transient' RV'ers. This model has the most income producing potential. Equaling higher NOI which would mean a higher overall property value. Property is located in an area where short term Rv'ers want to be.

Standard: Rent out all structures and RV spaces to long term tenants. Less total possible income but more consistent.

Plan is to have one space dedicated to a park manager to manage the property and potentially RV'ers in the short term spaces. I know the Hybrid model will be a little more work, which is fine. I just want to know if anyone has done this or seen success with this hybrid model before or if I should just go all long term?

Again, I want to have the highest NOI possible for value add and to increase the value of the property for the refinance.

Thanks!

[Frank Rolfe]

The way you need to approach this deal is "what do I have to do to have the best chance at getting a bank loan in 5 years?" Because if you don't get that bank loan in 5 years than you will lose the property when the seller takes it back for term default, and all you down payment and work will be lost.

Lender's like long-term tenants. But most importantly, lenders will demand a certain level of rent and net income, with a track record typically of three years at that amount. That means you have to get enough revenue going on this property within two years so you can stabilize that for another two years and then have one year to find a new loan.

Before you go forward with this deal, you need to model how much money it will have to make to get a loan to replace the seller note. Make sure you truly believe you can hit that level within two years or so. If the answer is any less than "I'm 100% sure I can hit that amount" then don't do the deal. 

More than likely, you need to get the seller to carry for 7 years and not 5 so you have an extra 2 years to hit your goal.

I would not worry about whether the tenants will be long-term or short-term as the market will decide that for you. I'm more concerned about you hitting the raw revenue number fast enough to not hit the rocks when the note comes due.