RV Park Analysis: Good or bad deal?

Question

I'm a relatively new investor and want to run a deal by some more experienced investors to get some insight. I would really love to talk to somebody with experience in the RV Park/Mobile home park space because I have none! We are set to close in May, so I'm trying to learn all I can between now and then. Here are the details:

- 36 RV pads with 30/50 AMP Electric Hookups; water/sewer (there are 42 hookups total, but the other 6 aren't being used as of now)

- the park is averaging 80-85% occupancy with very little marketing; rates are $40/night, $150/week, $400/month

- 16 Acres total

- main office (approximately 1800 sqft building that could be set up as a convenient store; also has wifi and public bathrooms for campers)

- Here's the fun part... a skeet shooting range

Price: $425,000

Gross Income: $138,240

NOI: $78,110 (this is without a manager)

So anyway, here are my concerns! First, the gun range is producing virtually none of the profit (<5%) as of now and seems like a major liability. Between the increased insurance premiums and the cost of hiring a manager for the range, I can't seem to justify keeping it. Am I missing something here? Maybe the range could be made profitable through gun rentals, ammunition sales, etc.

As far as the RV park goes, my only concern is management. I really don't want another full time job with the park, so I'm looking into hiring a property manager. Most of the campers now are temporary workers from out of state. At least half of the them have been there over 3 months.

I have a local bank willing to finance the deal on a 10 year note with 15% down (rate is going to be somewhere close to 5%). I was really hoping for a 20 year amortization, but it looks like it will still work with 10.

With all that said, what recommendations do you have? What things should I consider before moving forward? Any ideas to increase revenue? Since there is plenty of land left to work with, I've thought about self storage, more RV hookups, or even some small rental cabins. Any advice is greatly appreciated!

Thanks,

Brady Pratt

Henry Clark · Answer

Couple of angles:

1.  Check out SBA loan.  20 year amort.  2.66% interest.  10% down.  Go with local bank as the SBA partner bank.  Do a construction loan at interest only with them, and make any capex improvements.  Then roll into the SBA loan.

1a.  If you go with SBA, and this land is collateralized with their loan, then you have to go back to them on any future loans on this property.  Also hard to pull money out of their loan in the future.  Basically, you won't be able to use this location as collateral for any future deals, unless done with the SBA.

2.  Tried to look at the location for this and you.  If Oxford, MS; looks like land is pretty expensive.  Is just the land worth that much?  If so, subdivide and sell off part.

3.  Skeet range- pick a "Lane".  Get rid of it unless you want to deal with.  Either subdivide and sell off, or discontinue.  Make sure no EPA issues (lead).  If so scrape off and dispose.

4.  No manager-  offer free rental space to manage the location, or get local Real estate office to manage.  Develop a self service system.  They will want to come and go at their convenience.

5.  Convert part to trailer park.  Don't own any trailers for now.  The money is in the spot.  Segregate away from the RV Park.

6.  Make your offer for the Assets and not the business.  Try for 1st year write-offs.  Segregate between roads, electrical, site pads, Skeet range (if you bulldoze then write it all off), Non-compete agreement,

7.  Can you put a road sign up, for revenue?

8.  Self storage- check your zoning.  Start with Cargo containers if allowed.  You can write them off in year one.  Add as needed.  Sell as needed.  Paint them and make them one color.  Will look nicer.

9.  Add more RV spots.

10.  Rent the 1800 SQft building out.  Part of the rent is they manage the spot rentals and buy them a big lawnmower to mow grass.

Great Project.

Brady Pratt · Answer

@Eric Thompson Thanks for the input! Definitely a concern. I'm going to have everything inspected to mitigate the risk, but I guess anything can happen...

@Henry Clark Love the ideas!! I will definitely check out SBA. As far as the location, it is closer to Corinth, MS, so land values don't even come close to the numbers you were seeing for Oxford. However, I imagine subdividing the range and selling just that portion would cover the down payment plus some. I'm considering the trailer park idea, and that would be my backup plan if the RV park underperforms.

As for the operating expenses, the largest and really only significant expense is electric. From what I've seen, it's close to $100/hookup that is occupied for the entire month. So this could be as high as $3000 on good months. The next major expense was insurance, which I imagine is mostly due to the liability from the gun range.

@Adam Lendi As of right now, there is no online reservation system (not even a website for the park). This is honestly one of my favorite things about the deal, as I tend to believe it could perform better with a little marketing and automation. The park is open year round, but I don't see it requiring a full time manager year round. Most of the tenants are long term for RV... one couple has been there 7 years!

Adam Lendi · Answer

@Brady Pratt

Hi Brady! First off, congratulations on getting your park under contract. Definitely take your time on this due diligence, as you have a lot of moving parts here. It sounds like you know the right thing to do on the gun range.

The cap rate looks a little high, even though RV parks perform really well. I would really scrutinize the expenses to make sure they are all inclusive. There are a ton of expenses involved in running an RV park and you don't want to find out the hard way that their P&L is missing some. I've seen plenty of P&Ls missing critical expense items. Especially with Mom and pops, they will only put parts down for repairs and maintenance and none of their labor will appear.

My partner and I, also RV park investors, have a similar model to yours. Parks must be self-sustainable and be able to pay for their own manager, so they can be remote managed. What we have found typically is that it requires parks of at least 50 spaces. It is possible to make it work below that threshold, however, it will really depend on how much manpower you require. Is your park seasonal? Or open year round? If you have to pay a manager for 12 months out of the year on these numbers, it could be very difficult.

Although the occupancy is pretty darn high, there may be some opportunities in that area. The monthly and weekly rates seem to be extremely low. Are you buying from mom and pop sellers? we've seen this often where they are tired of the frequent turnovers and lower their monthly or seasonal rates to incentivize people to stay longer. The trouble is, they end up leaving money on the table. Is there an online reservation system now? With dynamic pricing, this could be a great way to keep that occupancy number high (or even raise it) and maximize your income.

Finally, on the mortgage front, here are my thoughts. Definitely reach out to local banks. Oftentimes, they have a lot of flexibility and if they know the park, they can give you some pretty enticing terms. Dad said, keep the SBA options in mind as well. most recently, I had an SBA 7A loan beat out a local bank loan, which was in itself a fantastic offering.

I'm happy to share some of our knowledge, wisdom, and strategies if you'd like to chat outside of this thread.

Eric Thompson · Answer

@Brady Pratt I have been reading a bit on MPH investing. Biggest thing I think you didn't mention is understanding the utilities and any upcoming major work that needs to be done. The park basically owns most of the utility infrastructure and thus its your job to maintain. Some of these infrastructures can be massively expensive to fix.

Henry Clark · Answer

Also there is a big gap between the rental income and the NOI.  Audit the Rental income hard.  Look at what the operating costs are, should not be $60,000.  If this includes Depreciation, back it out of your cash flow calculations.  Something is off.  Just audit the numbers.

Biggest numbers should be.  Management- you said zero.  Property Tax should be little ???,  Mowing, Electric, Water, Insurance, etc.

RV Park Analysis: Good or bad deal?

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