So here are the details. Park is in a tiny town, and has no MSA to speak of. Population of ~1100. ~8% vacancy for homes in the town, and a median home price of $141,000. City utilities, which are master metered. All the sewer infrastructure has been redone within the last two years to PVC. Upgraded all electric meters as well. The park is a mix of 25 RV spaces, and 20 mobile home sites. Apparently, the majority of the income comes from the RV sites in the months of May-October, and a large percentage are hunters. 90% occupancy throughout those seasonal months, but otherwise the RV income is shut down the rest of the year. The mobile home side has 12 long term tenants who pay $225.00/month. I haven’t run a test ad, but I think it’s safe to say that the demand for the mobile home lots will not be outstanding in the area. The interesting caveat though is based on the most recent tax returns, the NOI puts the park at a 15% cap rate. There is also plenty of acreage to expand and add rv/tent sites if the demand during those summer/autumn months warrants it.
My questions are as follows:
Aside from verifying through bank statements and tax returns, what steps would you all take to identify the true income from the RV side? Secondly, would a 15% cap rate compel you to invest in a market that is extremely small, and relies on an industry that may or may not be sustainable?
There is a long time resident manager who does that for the current out of state owner. That being said, I am looking into finding a cloud based reservation software that will allow me to remotely see who is checking in and out of the park. Another Idea is installing cameras that allow me to remotely see what spaces are rented. To my knowledge during these months the typical space is not a nightly/weekly space, but a longer term monthly resident. Any thoughts on this are helpful!
I’m not that familiar with RV parks. I was just thinking there has to be cash going in an out and keeping track of RV’s has to be a bit tricky. Then you have the person collecting the cash and what not. Do you really want to sit watching the security camera making sure you’re revenue is coming in correctly.
I guess it;s the monitoring issue that I completely don’t understand.
I like the idea of the cloud based software to track everything. You could certainly set it up through AirBnb or a similar platform. The downside with AirBNB is the feeback plays a huge role in where your listings sit in a search field. That might be advantageous in a small rural location because you’d likely be the only AirBNB option but as I’ve not used the service I certainly don’t know the ins and outs.
Financing is an issue with RV’s is my experience especially when they make up 50% of income for just a few months. In addition, I think the area is way to small which will also financing issues. The other concern is exit strategy. When you want to get out very few people are looking for a park where only 1100 people live with no MSA. That’s why the current price puts it at a 15% cap rate and I’m willing to bet the out of state owner is willing to get out of it if you offered them a 20% cap.
@WhiteTrashGator, thank you for the response! According to the seller, there is a small bank in the town that as long as the buyer provides solid financials will provide financing with 25% down, a 5 year call on the note, and a 20 year amortization schedule. I do agree though that the exit strategy definitely presents a problem. Would you consider investing in a property that allows for a 35% CoC return and 44% ROI if debt paydown is included even without solid exit potential? I can see several potential issues but am curious as to your thoughts.
Those numbers are very good. How are you verifying the revenues and the expenses that you ar being given? What documents do you have to confirm such high returns?
3 years of tax returns. They have 2 years with some CapX numbers in there for the infrastructure improvements (200 amp electric pedestals for the mobile homes, PVC for the plumbing eg) but I backed those out because they are not yearly expenses. Until I see actual bank statements that reflect the gross income and expenses that are listed in their taxes I am still skeptical.
The area of is way too small. I personally wouldn’t even look at it twice even with those numbers. All you have to do sometimes is look at the businesses in town. Those numbers can’t hardly sustain any business and that why you’ll notice there is no growth in the area and the larger businesses aren’t moving in.
I’d be very cautious with that 5 yr balloon payment. You’ll have to find that lending source again in a very small market. Now take into consideration if the economy, either world economy or even just the local economy goes south. I’d be concerned about what banks would want to touch such a rural community with such a unique asset class whose business is half reliant on recreational activities. Just my $.02