How to value an RV Park

Question

Hello ladies and gents!

My first post!

I've tried to do some searching here but I haven't found much on RV parks. I currently do not own any real estate aside from my home, but I want to get into multifamily investing. An RV parked popped up for sale recently and I'm looking into it now. This wasn't my original multifamily plan but it seems like a cash cow compared to other investment options.

My question is, how do you place a value on a park? Generally speaking. I know improvements etc will play a role.

I've read that you can multiply the current gross monthly rent by 50-70 to come up with a decent estimate.

Anybody have experience in this area that could share some general principles?

Thanks!

Jack Martin · Answer

@Clint G. septic becomes a red flag for those who are not familiar with them.  I happen to be one of those who grew up working in the septic business, so that is not a red flag for me.  A new septic system can provide 50 years of use if properly managed.

With respect to the RV park itself, there are a lot of variables so it's not appropriate to use a blanket formula to establish value. The nature of RV parks can vary across a wide spectrum. On one end of that spectrum, a park with 100% PMs (park models) can look, operate and perform similar to a mobile home park. On the other end of the spectrum, a 100% transient park with daily/weekly rental traffic, will operate and perform more like a hotel. Those are widely different investments requiring a different set of management skills, operational philosophy, and risk assessment. To take that a degree further, a 100h% 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 PM park where tenants call that a home. So location will be a major factor in determining the potential strategy for the park.

Let's touch briefly on the term "long term tenants". The way I would assess a long term tenant is really about two things. First, do they own their unit? In our eyes, a tenant that is simply renting the unit can gather their things and leave whenever they want, 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? 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. PMs are considered permanent and rarely move. With RV's you can quite easily see if a tenant plans to stay long term by the work they have done around their RV, so it doesn't really matter what the previous owner tells you about their intention to stay. Most long term parks require tenants to fully skirt their RV (so look for skirted units) 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.

With that established, you can underwrite an RV park similar to a mobile home park if the above description of long term tenants is present at the park. Your expense ratio will likely be higher than a mobile home park depending on how many transient spaces you still have, the hours of operation you keep for your onsite staff to accommodate new arrivals, and the amenities at the park that create additional expense. Also, most RV parks are master metered for electric, so that will be different than a typical mobile home park. And, don't forget that some parks will have a "peak" season, "shoulder" season, and an "off" season, all with different rental rates and historic occupancy, particularly if the park is in a location that caters to snow birds.

If the park does not have long term tenants like described above, then you have more of a "rolling stock" park and it will behave much differently. Keep in mind location will be the most significant factor in the potential for long term tenants on this kind of park. As mentioned earlier, if it is on the side of a freeway out in the middle of nowhere, you simply cannot count on there being long term tenants, even if the current owner is telling you that. 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

JJ GONZALEZ II · Answer

Clint,  go to sites like mobile home park store they have about 100 parks for sale.  There are brokers that work only in that space.  You dont want to buy a park from a residential realtor, it’s far too different an animal.  I have underwritten about 50 parks so far and if you can find one on

City water

City sewer

City owned streets

Buy it, you will find most are on well water (testing is the problem on a daily basis) septic or lagoon or leaching fields (doesn’t that sound pleasant) most parks don’t have separate meters for the lots so you have no way of knowing who is using most of the water, and even if its city water normally it is billed to the park and then you have to figure out a way to bill the tenants in accordance with that city or states laws.  Also you will have the value add homes are normally POH (park owned homes, you as the landlord own the park) and that is normally trouble because when you tenant leaves in the middle of the night with your appliances and they have trashed the unit, you get to spend another 2 or 3 thousand dollars to fix it up.

Expenses should be beteeen 30 and 40%.

Having said that I agree they can be cash cows

John Woodrich · Answer

Cap rate but you have to make value differences between the Real Estate and the Wheel Estate.

When I started getting interested in this I was most interested in the cheap rentals (park owned homes) but have changed my opinion to believe that I don't want to own any of the homes.  Only want to own the lots.

Todd Dexheimer · Answer

Find out what other parks are selling for, look at that and your ROI vs the risk. Value is based on the market. Look at the income and expenses to come up with the NOI, then determine what cap rate RV parks in your area sells for.

Clint G. · Answer

@Jack Martin

Thank for for the detailed reply!

Coltin Steele · Answer

Just because it has a septic does not mean it is a red flag. As a park owner it is typically cheaper if the city is responsible for the sewer. The parks on septic might sell for less money. Every persons situation is different. I am sure there are plenty of people who have a MHP on septic and POH and do just fine.

Clint G. · Answer

@JJ GONZALEZ II

The particular park I'm looking at has a septic but it's only about 1.5 years old. Still a red flag?

Clint G. · Answer

@JJ GONZALEZ II

All great info..thank you! This particular park I was looking at had a septic and that was a red flag for me as well.

I appreciate your first hand knowledge you shared!

Clint G. · Answer

@John Woodrich I agree. I wouldn't want to own any of the RVs for this same reason. Thanks for the insight.

How to value an RV Park

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