I’ve recently finished the RV Park University course. It sounds like it was produced about 10 years ago. At the time, the advice was to not look at any RV park under a 10% cap rate, and that a 10-15% cap rate was a reasonable expectation. Another book I read stated an expected 10-20% cap rate.
I’m wondering what has changed in the last 10 years, and if anybody has any information on historic trends. Have RV park rates compressed along with everything else? Do they tend to trend along with other real estate like multifamily and mobile home parks?
If you were looking at buying an RV park today, what initial cap rate would you expect to see?
RV Parks are businesses, not real estate. They require much more daily management, at odd hours. Therefore, the cap rate for an RV Park should be far higher than an MHP.
Remember, you are buying a cash flow stream, not real estate. How much do you value that stream? It depends if it’s a hands-off investment, or one that requires a lot of daily work on your part. A turn-key, smoothly-running business is worth around 3 times net cash flow before amortization, interest and depreciation. One where the owner is directly involved in daily management should be priced around 2 times cash flow. Cap rate wise, when you do the math, the cap rates can be as high as 33%.
Separate it out: Value the business (cash flow stream) at x times cash flow, then add in the value of the land and improvements (depreciated, of course).
For more guidance on valuing businesses, take a look at listings on www.BizBuySell.com and you’ll get a feeling for what a cash flow stream is worth. Good luck.