I have a seller financed RV Park under contract in Port Arthur, TX, a city that’s part of the Golden Triangle, far southeast of Houston. I believe it’s a good deal numbers wise based on the terms and price we were able to negotiate with the seller. That said, I’m hesitant to own a park in a location that’s fully dependent on the oil & gas industry, and I’m looking for additional insight as to whether I should proceed with the deal from a location perspective.
A little bit of a background on the park: Established medium size RV Park with room to conservatively increase rates by $25 + and add another ~12 sites. Our financial projections are not based on adding more sites.
Seller financing terms: $20% down, 5% P&I, 25 year amort., 10 year term w/ a balloon at the end. Non-recourse debt. No prepayment penalties, no broker fees. Based on 2023 revenue numbers with a 47% expense ratio, we would be buying it at 10.3% cap rate. Based on the average of the 2022 and 2023 revenue - 9.08% cap rate. In the last 3 years, the park’s revenue has increased substantially YoY, in part due to the owner adding more sites and increasing rental rates. But, we presume also due to market changes as well.
We don’t want to miss out on a good deal due to a lack of familiarity with this location and its customer base. That said there is nothing more important to us than to buy a park in the right location. I do not want to gamble on fluctuations in a market, and subsequently own a park where revenue rises and falls accordingly.
Investors, who are familiar with/own parks in the Golden Triangle (Beaumont/Port Arthur/Orange) or other established oil & gas markets, what has your experience been like with owning an RV Park in these areas?
Thank you.