Americans love hitting the open road. Recreational vehicles (RVs) have made nationwide travel affordable and fun for millions of families over the decades. In the past, RVers were often retirees and summer vacationers. But an increasing number of Americans have embraced RVing as an everyday way of life, often living in RVs for months or years at a time. As RVing becomes more popular, RV park investments are quickly becoming an increasingly lucrative investment – often with returns ranging from 10-20%.
Whether visiting natural wonders like lakes, rivers, and mountains or simply passing through on the way to another destination, vacationers enjoy the convenience of RV parks. In this post, we look at the nuts and bolts of RV park investments; the perks investors enjoy and the pitfalls you might encounter along the way.
If you want more information about the high-return world of RV park investments, CXRE can help you find the perfect property for your portfolio.
- RECORD-BREAKING RV SALES DURING THE PANDEMIC
- RV PARK INVESTMENTS
- RV PARK RETURN ON INVESTMENT (ROI)
- RV PARK CAPITALIZATION RATE (CAP RATE)
- CAP RATE CALCULATOR BASED ON NOI
- RV PARK INVESTMENTS IN TEXAS
- MAKING SMART INVESTMENTS
RECORD-BREAKING RV SALES DURING THE PANDEMIC
Like all travel industries, RV manufacturers and sellers have seen an ebb and flow in their business over the decades. Traditionally, sales drop when the economy suffers. However, 2020 has been anything but traditional.
Even among high unemployment and an economic crisis, RV manufacturers and sellers saw record-shattering sales throughout the year.
RV dealers report selling out of RVs just as fast as they arrive from the manufacturers, all thanks to the global pandemic. With many travelers itching to hit the road – but worried about hotels and other crowded spaces – traveling in an RV became increasingly attractive for many families.
As a result, nationwide RV sales in August alone topped 39,000 units, an increase of 17.3% over last August. Those numbers are expected to increase in 2021, potentially becoming the single best year for RV sales in history.
Of course, RV dealers aren’t the only ones benefiting from the dramatic uptick in sales. RV park owners and investors are seeing a surge of customers as well. Campers are already booking RV parks well into 2021, with reservations up by 500% in some locations. It seems that COVID-19 has reignited the desire to travel, live, and work on four wheels.
RV PARK INVESTMENTS
Even if you don’t own an RV, investing in an RV park can be a lucrative financial decision. As more Americans than ever buy RVs, RV parks will only continue to see increased reservations and profits in the coming years.
Still not convinced? Here are three reasons you should invest in an RV Park:
- RV sales hit a record high in 2020, amid the Coronavirus pandemic. Projections show that number increasing in 2021. Sure, some of these RV owners will return to traditional work environments once a vaccine is widely available. However, most will continue to take family vacations in their RVs. Some even say they’re considering moving into their RV full-time because of a job loss, economic situation, or to experience more of the world. If Coronavirus has taught us anything, it’s that working remotely is possible, and many new RV owners are learning to work on the go. Campground industry giant Kampgrounds of America (KOA) reports that RV parks across the country are seeing record numbers of new campers. Their Fall 2020 report reveals that at least 18% of all first-time RV owners intend to continue camping in 2021 and beyond.
- RV Parks historically have excellent return on investment rates. (More on this topic below).
- RV parks have very little infrastructure and facilities to maintain compared to other investment property types.
RV PARK RETURN ON INVESTMENT (ROI)
Generally, RV parks offer a higher ROI than most other types of commercial properties. According to most sources, you can expect anywhere from a 10% to 20% return on your initial RV park investment. As a result, investors who are hoping to maximize their investment dollars should consider RV park investment a lucrative option.
One way to ensure a high ROI is to look for RV parks that already have existing amenities in place. Modern RVers expect amenities such as swimming pools, sports facilities, wifi, fitness centers, and dog parks. Be certain to look for properties with existing infrastructure in good condition (water, electrical, etc). This way, you won’t need to spend money upfront developing the RV park or improving the infrastructure. Eliminating unnecessary costs will further increase the RV park’s return on investment. Also, as is the case with any investment, be sure to visit the property in person prior to making a commitment.
Additionally, hiring a commercial real estate brokerage team that is experienced in RV park investments will ensure you find the right property for your portfolio. The expert brokers here at CXRE can help you identify RV parks for sale in your target market and will work hard to get you the best deal.
RV PARK CAPITALIZATION RATE (CAP RATE)
One method to discern whether an RV park investment is worth your time and money is to calculate your capitalization rate, or Cap Rate. In general, this simple formula indicates a property’s value. Specifically, it is the percentage of annual return (a.k.a. ROI or return on investment) you might earn from the cash purchase of an RV park.
Below is the Cap Rate formula:
Capitalization Rate = Net Operating Income (NOI) / Current Market Value
However, before you can calculate an RV park capitalization rate, you need to know the RV park’s NOI (Net Operating Income). If you’re not familiar with NOI, this is the amount a commercial property owner has left after paying Operating Expenses from the RV park’s Gross Income. Operating expenses include taxes, insurance, and maintenance costs.
Operating expenses are represented by this formula:
NOI = Gross Income – Operating Expenses
Once you learn the RV park’s NOI, you can then calculate the RV park capitalization rate. And the Cap Rate will give you an idea of the property’s value.
To make this formula more concrete, imagine you buy an RV park for $1 million. When customers stay at your RV park, they pay rent, which is also known as your Gross Income. However, maintaining the property takes money, which is your Operating Expenses. The Operating Expenses are paid with the funds from the Gross Income. Your NOI is the remainder after the expenses.
For the sake of simplicity, let’s say your annual NOI is $100,000. We can then plug this number into the Cap Rate formula:
$100,000 / $1,000,000 = 0.10 (10%)
According to this example, this RV park’s Cap Rate would be 10%. Essentially, your NOI would cover one-tenth of the property value’s total cost.
Undoubtedly, calculating your possible Cap Rate is a simple and helpful way to judge an RV park’s potential ROI on a cash purchase. However, be aware that Cap Rate is only a surface-level calculation. Additional research and due diligence are necessary before buying an RV park.
If you want more information about a property, its Cap Rate, and its overall value, our commercial brokers can help. Contact us today to learn more about RV park investments.
CAP RATE CALCULATOR BASED ON NOI
OTHER CONSIDERATIONS FOR RV PARK INVESTMENTS
In addition to the considerations outlined above, there are several important factors to remember when investing in an RV park.
First, when you purchase an RV park, you must make sure you have competent on-site management. As is the case with any investment property, having less than top-notch management will negatively impact your investment.
What’s more, people need to know about your RV park. Without customers, your RV park investment will suffer. Therefore, you need a solid advertising and marketing strategy to make people aware of the RV park. Even though word of mouth goes a long way, you also need a key marketing strategy in place to ensure the best possible return on your investment.
To have a successful RV park, you’ll need marketing options like a responsive mobile website, targeted ads, social media marketing, and email marketing.
PROS AND CONS OF OWNING AN RV PARK
Owning an RV park has many advantages. More Americans than ever own RVs, so there’s already a built-in base of customers. Purchasing an RV park means you’re getting in on an already growing market (with even more potential for growth in the coming decade). RV parks also tend to offer higher yields to owners than other commercial property investments. As stated above, investors can expect a 10% to 20% return on investment. Lastly, as an RV park owner, you’re providing a great spot for people to relax and enjoy leisure time.
However, owning an RV park does come with some disadvantages. For starters, an RV park is actually part of the hospitality industry. This means you’re not just investing in commercial real estate; you’re investing in an industry that requires special skills. If you do choose to operate the property yourself, doing so profitably requires a significant time investment. If you don’t plan to operate the RV park yourself, then you need a skilled and experienced management team. Without a quality on-site management team, your investment will suffer.
RV PARK INVESTMENTS IN TEXAS
As you know, Texas offers vacationers differing landscapes and a variety of options for adventure. From the Gulf Coast to Hill Country, there’s something for everyone in the Lone Star State.
Texas’s coastal markets are popular destinations for snowbirds looking to travel south during colder months. Areas like Rockport, Port Aransas, Brownsville, and McAllen are popular with winter travelers. However, RV parks in this region are popular year-round, offering investors a steady and reliable income.
There are many RV parks in Southeast Texas, thanks in large part to the booming oil and gas industry. RV parks perform well in this region as employees and temporary workers live in their RVs throughout the year. However, these RV parks also host leisure travelers, making them highly lucrative all year long.
TEXAS HILL COUNTRY:
Hill Country is popular with tourists from all over the country. This area attracts summer travelers, families, and retirees escaping the northern cold. Areas in this market include San Antonio, Austin, Round Rock, and New Braunfels. The many rivers, lakes, state parks, and historic sites make the region attractive to travelers.
RV parks in the West Texas region are strongly driven by oilfield-related work and transient guests. Cities like Midland, Odessa, San Angelo, El Paso, and Abilene generally represent profitable RV park markets. However, most RV parks in this market do not have high-quality amenities found in other Texas regions.
MAKING SMART INVESTMENTS
Undoubtedly, RVing is an excellent way to escape the daily grind and see the country. Amid the COVID-19 pandemic, RVs represent a safe way to travel and spend time with family. With RV travel constantly growing in popularity, RV parks are a very smart commercial real estate investment.
If you want to diversify your commercial real estate portfolio and also get a better return on your investment, consider investing in an RV park. But before you buy, make sure you consider the RV park’s location, amenities, and size.
RV parks need much less attention and overall maintenance than other types of commercial real estate investments, making them an excellent option for today’s real estate investors.
Want to learn more about RV park investments? We can help you identify the best market and ideal property for your portfolio. Contact our RV Park Investment Expert, Cody Pruitt, at (832) 843-1191.