Am I crazy?

I wish I could attach my spreadsheets, but here it goes (all actual validated by bank statements, no proforma):- 83 unit RV park in the Bakken oil basin- $418,979 Trailing 12 month (TTM) NOI- $2,250,000 sale price (20% seller carryback)- 19% cap rate- $670,941 TTM Park revenue- $569,069 TTM lot rent only revenue- $13,706 TTM 10 unit laundry revenue- $82,579 TTM propane revenue- New build (Sept 2013) and fully enginerred to accomodate modern RVs and North Dakota winters (heated water risers, deep trench utility lines, schedule 40PVC and PEX water pipe)- 39% since inception expense ratio- 100% occupied currently (wont be in the winter)- $800 lot rent- Spring, summer, fall occupancy ranges 85-100% full- Last winter (December - February 2014) ranged 45-52% fullExpenses are in line with my expectations, exception is they let the oil field workers pay rent and everything with a credit card, which of course they do cause of the points or miles or whatever, and are spending 2.5% of gross revenue on merchant fees - they haven’t even negotiated. I’d cut that and make everyone pay direct deposit (typical for oil field workers). Management isn’t cheap, but the owners have never visited the park since it was built (developers, not operators) and the manager has owned 3 RV parks in the past and knows what he is doing, all the performance is because of him. I don’t care at all about the laundry or propane profit (they make up about 7% of total profit), I only care about lot rent. Propane and laundry are really there just to keep people at the park and give them the amenities they need. Most parks in the area have 70-80% occupancy through the winter, but it was a new and relatively unknown park last year and was only about 1/2 full. None of my figures depend on improvement of occupancy, it would just be a bonus if they can be improved (September 2014 is trending 23% better than September 2013, but again I cant use it as a given in my estimates).Based on the financial performance, is it worth the risks involved with workforce housing in the Bakken oil fields? Not only do you have the risks of a normal RV park (though it operates differently than a recreational park) but you also have risks of the volatile oil and gas business. There are about 4,000 people living in temporary housing in about a 15 mile radius because of the serious housing shortage. Nothing is park owned, people bring their own RVs. Most are on month-to-month leases. The current owners have no negotiations with companies operating in the area which is typical in the area and could improve winter occupancy. I think there needs to be some serious compensation for such risks, and I think a 19% cap rate would do the job, but I would like feedback (especially from anyone with oilfield housing experience). P.S. I am already acutely aware of the financing nightmare this will be (I have 4 financing institutions that are working on putting together a loan for me, 3 are private mortgage and 1 traditional out of about 40 institutions I have contacted) so I don’t particularly need feedback on that area of difficulty. Mostly I need to know if the risks are worth the reward in the humble opinions of the HMU discussion members.Regards,hfairbanks, CFA

So in seven years when maybe the oil rush is over what will be the occupancy???     A buyer MUST not think  just about today but in the case of RV’s be VERY skeptical about the value of a near empty park.    RV parks are very questionable to start with–owned some in the pass but had a niche market like you see in Tampa-Bay area over to Disney World in Florida–warm climate!!!

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industry experts are saying with current tech 32 bil barrels will be xtracted. 1 bil is already out. some are saying with tech advances it could go to 150B.

the extraction rate has hit 1 mil per day and the chart is rising since 07.

one more important. bakken breakeven point is $61 a barrel. we are at $80. some are forecasting $75 q12015.

But that’s the thing here… this play is probably more about extraction rates, breakeven points, and forecasts than it is about current deal analysis so my guess is the questions are better left to experts in those fields. I mean, a 19% cap rate is a 19% cap rate but this deal is long term make or break based on an energy play. I’m guessing the vast majority of the people here are looking for steady stable returns, not speculation. I know I am.  And close to the Bakken are we here? My understanding is that there is a massive housing shortage still so those vacancy rates seem high.

RISK…Life is full of Risks.Mobile Home Parks are full of Risks.  Some MHPs are in Hurricane Areas, some are in Tornado Areas & some are in Flood Areas. The above are Risks that some of us take with our MHPs and some of us take with our personal residences.However, buying an 83 Unit RV Park in the Bakken oil basin would be a Risk that I would personally avoid.As per your figures the:-  Sales Price = $2,250,000-  NOI = $418,979$2,250,000 / $418,979 = 5.4 Years To Pay Off RV Park With Strictly All Of The Net Operating Income (Not Including Interest)Will there still be the Demand for RV Parks in this area in 5.4 Years?Why are the current owners selling?Yes, the amount of oil overall has increased from this region.However, this is due in large part to more and more wells being drilled.  As per the article ‘The Coming Bust of the Great Bakken Oil Field’:frowning:’…the best and most productive wells are exploited first leaving the dead-beats for last.  This will make things even more fun as the peak and subsequent bust finally arrives.'In 2008 there were only 479 producing wells in the Bakken in North Dakota.  However, in September 2013 there were 6,447 wells.  As per the article ‘The Coming Bust of the Great Bakken Oil Field’:"Those who moved to the frigid state of North Dakota with Dollar signs in their eyes and images of sugar-plums dancing in their heads will realize firsthand the negative ramifications of all BOOM & BUST cycles.  At this time, the word ‘Cold’ will have more than one meaning."Every Boom has a Bust.  Will you be able to cash out before the Bust or will you be left holding the bag?We wish you the very best!

yes, there will be a bust but best guess is 15-25 years. its normal for older wells to produce less and newer ones produce more. this makes sense if you could get the 2 mil back plus 10% per year in under 15 years and expect 0 at the end. also you would have to accept the risk that the breakeven point of $61 is not breached because then most of your tenants would be out of a job.

As per the Bloomberg Article (listed below) it states that shale gas growth would last only another four years or so.What happens to the RV Park in 4 Years if indeed production greatly decreases or stops?'Is The US Shale Industry Going Bust?‘’…Hughes estimates that shale gas growth would last only another four years or so, at which point even-higher prices would be needed to maintain production, let alone keep it growing.'It also states how quickly production dries up from these new, unconventional wells.‘…the average decline of the world’s conventional oil fields is about 5 percent per year. By comparison, the average decline of oil wells in North Dakota’s booming Bakken shale oil field is 44 percent per year. Individual wells can see production declines of 70 percent or more in the first year.’We wish you the very best!

hi kristen, i was only refering to oil, didnt consider gas. as long as the breakeven cost is less than the sale price per barrel, they will extract 35B barrels maybe more. the only question is how long will it take.

are you near anderson SC? i may have a lot for sale there.

It is a strange thing to listen to the experts that have never owned a RV park or oil and gas wells.       I am into both and the RV park business is one day your are full and the next your could be empty with NO money to pay for a loan.     As per oil and gas the technology is changing so fast that for instance with one drill site they are now recovering what took ten sites and the cost is much lower thus per barrel.    The federal government is looking at the Dakota’s for blatant air pollution since over 35% of the gas is burnt off and Buffet with all the oil trains has messed-up the farmers trying to move grain.    In the case of the RV park their is a much bigger world swirling around that a buyer cannot control or predict with certainty and really WHY would a person sell a money maker built in 2013???