RV Park - Texas - Permian Basin - Good Long-Term Investment?

19 Replies

Hi BP World,

I came across an interesting deal that I wanted some advice on. Mainly for those involved in RV parks in Texas. The RV park is located in Permian Basin where there is currently a ton of activity. The RV park is listed at a decent price which would come with it a decent sized loan amount. The finances look great with a 100% occupancy since 2017. 

At first I thought this was a slam dunk gem. But, as I do more due diligence I have concerns about how long/sustainable the RV park will be. My questions are the following:

- Do oil worker jobs go through cycles or are they stable for 10+ years once a good site like the Permian Basin is found. 

- Could it be possible that 5 years down the road all jobs could be dried up because the market for oil just isn't doing well.

- Is anyone familiar with the Permian Basin area and has a rough idea of when/if jobs are sustainable for years to come. 

Obviously the main concern here is getting involved into a large loan, jobs drying out, and my park becoming a deserted island.



 

Hi @David Flores - I can't speak to that area in Texas, but I will say that RV parks as investments have always intrigued me, so I'm curious to see what others will have to say.  I did spend five years living in CO, where some of the smaller mountain communities experienced the highs & lows of the oil industry.  For example, entire schools were built to accommodate the booming population, only to have the jobs dry up several years later, leaving them with schools that had entire empty classrooms (anyone in the Dakotas will have good input on this as well).  I would be VERY cautious when purchasing anything where you are heavily relying on the oil worker population. 

@David Flores Yes, oil jobs cycle just like everything else. It’s not only possible for jobs to dry up; it’s a certainty. Nobody can predict that eventuality with cetainty. As an RV park owner living in Texas, I would not buy a park which is wholly dependent upon oil. I would especially avoid parks which are priced based on boom time occupancy and site rent.

@David Flores One more thought: Many RV parks in the Permian are full and they charge site rent close to $1,000/mth. In my opinion, rent like that is unsustainable and expecting it to continue would be a mistake. Most of the state averages under $500/mth for monthly sites.

@David Flores . I'm not an expert on the Permian Basin, but if you'll research the area, you'll find it to be one of the best areas in THE WORLD for Oil & Gas. Does that mean it's a Slam Dunk investment - certainly not. 

The oil & gas industry is prone to highs & lows, Booms & Busts. Long term, as long as our nation needs petroleum products, the Permian Basin will be one of the areas to deliver crude oil and natural gas. So from that aspect, the RV park is probably a good bet. Will there be times when you have lots of vacancies - YES! Like any other investment - it all depends on the numbers. If the numbers work with say a 60% Occupancy Rate - might be a fabulous investment. If the number is built on continuing a 100% Occupancy or even 90% Occupancy, then it's less attractive. 

Hope this helps.  

@David Flores the key to success on this type of investment is going to be the rig count. As drilling rigs are stacked (taken out of service) the number of oil field workers will decline. The industry is beginning to figure out that there is a limit to the number of horizontal wells that can be drilled on a lease without communication (interference) between the wells. It turns out that the optimum number of wells is lower then initially thought. I work in the industry and I am beginning to hear stories of people leaving the Permian due to work slowdown.

Hi there, 

I have lived in the Midland area for the past 5 years. When I first moved here in 2014, the oil boom was pretty much ending and the local recession put a LOT of people out of work in the oilfield. When this happens, workers head up north where there's more work.  The last downturn lasted about 2 yrs and came back strong. We have been going strong since about 2017, but oil production is slowing lately. The layoffs haven't begun in force yet, but the oil does cycle. I have several friends who own RV parks here and they do well overall. 

Originally posted by @David Flores :

Hi BP World,

I came across an interesting deal that I wanted some advice on. Mainly for those involved in RV parks in Texas. The RV park is located in Permian Basin where there is currently a ton of activity. The RV park is listed at a decent price which would come with it a decent sized loan amount. The finances look great with a 100% occupancy since 2017. 

At first I thought this was a slam dunk gem. But, as I do more due diligence I have concerns about how long/sustainable the RV park will be. My questions are the following:

- Do oil worker jobs go through cycles or are they stable for 10+ years once a good site like the Permian Basin is found. 

- Could it be possible that 5 years down the road all jobs could be dried up because the market for oil just isn't doing well.

- Is anyone familiar with the Permian Basin area and has a rough idea of when/if jobs are sustainable for years to come. 

Obviously the main concern here is getting involved into a large loan, jobs drying out, and my park becoming a deserted island.



 Hi David,  

I play in the Permian basin so I will try to give you some good advice.  

Last few significant events to hit the Permian basin. 

2008 - This was a bust that resulted in the Permian basin becoming a ghost town.  

2010 - recovery moving a a turtle's pace 

2012 - The second bust in 4 years all oil and  gas  production that had recovered got spanked again... ghost towns became vacant 

2016 - recovery in full swing 

2019 - oil and gas production is in full swing.  Stupid money is everywhere! Ghost towns are now  thriving cities without enough housing.  There's over 100 thousand workers living in travel trailers. 

Rooms not houses are renting for $2500 a room in nice houses.  Car dealers can't keep $110k trucks in inventory.  It's steak and baked potatoes every night.  There's excessive alcohol,  drugs and prostitutes everywhere.  It's a boom,  there's gold in them hills.  

Now this is just my opinion but I would never sugar coat anything to do with losing money... mine or yours. 

1. You are about 4 years late to the party! 

2. The party might last another month or 20 years... nobody knows!

3. I personally would not finance anything in the Permian basin.  If you don't have a truck load of cash and it's f**k you money I wouldn't invest out here. 

4. When the next bust comes and it will, there will be zero workers living in travel trailers. These parks or patches of dirt will be worthless. 

5. Investors who bought rental property before 2016 and  haven't sold out will just dump the houses and walk with all that cash they made. 

6. I lived through these cycles my entire life.  The steak and potatoes every night to rice and beans for years. I posted this in another thread but I've seen investors,  grown men cry, go crazy after becoming homeless and even kill themselves.  It's not a joke out here.. this place will make you a rock star overnight and a homeless person the next day. 

It's not a place for rookie investors or for investors not swimming in cash already.  

Now does that mean a newbie can't do it or investors getting financing can't play out here in the wild west.  Sure they can but my word of warning is... it's gambling not investing and you set the limit you are willing to lose before you roll the dice.  Because when it bust... most of the investors out here just walk with what they made. 

Foreclosure of rental properties and owner occupied homes and even dirt patch RV parks go through the roof. It's all good though because cash heavy guys that ride the oil rollercoaster will start buying for the next boom.

Good luck with your investing!

Clifford 

 

@Austin Neal @Jim Cummings @Glen Mauldin @Joseph Gonzales

Awesome insight, thanks so much. So it seems like all of you know the area and business very well. I don't like saying "okay forget about it". That being said, how would you guys valuate an RV park based off of oil jobs in the Permian Basin? It sounds like maybe valuating it at a 50% occupancy would be a safe bet? Let me know what you think. Right now the listing price is valuating at near 100%. 

Another quick question, would there ever be a scenario where ALL jobs could wash up? Or would that be pretty impossible given the amount of oil in the Permian Basin. I mean just thinking about with common sense, oil is a resource we heavily rely on, so I would think no, but let me know your thoughts. 

Al your opinions would be very useful.

@Clifford Paul , if I could like your comment 10 times I would. Extremely helpful. I think I will probably stay clear of it and focus on my niche (rental properties). 

Was just really surprised by the cap rates and occupancy rates. Seemed extremely interesting but if its too good to be true, it probably is!

With your advice I will keep my eye out on when these things go bust, could probably scoop a park like this for pennies on the dollar and walk away a couple years later. 

Btw, sounds like a god damn movie out there lol. Crazy how different parts of the country work economically. 

Originally posted by @David Flores :

@Austin Neal @Jim Cummings @Glen Mauldin @Joseph Gonzales

Awesome insight, thanks so much. So it seems like all of you know the area and business very well. I don't like saying "okay forget about it". That being said, how would you guys valuate an RV park based off of oil jobs in the Permian Basin? It sounds like maybe valuating it at a 50% occupancy would be a safe bet? Let me know what you think. Right now the listing price is valuating at near 100%. 

Another quick question, would there ever be a scenario where ALL jobs could wash up? Or would that be pretty impossible given the amount of oil in the Permian Basin. I mean just thinking about with common sense, oil is a resource we heavily rely on, so I would think no, but let me know your thoughts. 

Al your opinions would be very useful.

 

Not all the jobs dry up but these are typically not employees that live in travel trailers.  

Then there's the local economy that can't sustain the lack of cash flowing. Nothing sadder then seeing a working girl pack up her 100k Mercedes she paid cash for and head back to Vegas.  

I tried for about a year to to start my own RV park but couldn't find a dirt patch cheap enough. What I started doing  instead is buying RV's off of CoParts for a couple  thousand, renting out RV spots and then renting out the trailers. When the next bust happens I will have 30 RV's for sale for a couple hundred bucks.  If I was like a lot of investors I know out here I would just abandon them but I'm not that kind of person.

You might consider doing what I'm doing the worst you make nice cashflow for a few years and have to dump some RV's in the end. 

@David Flores it's very important to keep up with the drilling rig count and or the jobs report for this area . Following the Cap X spending for the big oil corps for future projects gives a good idea of the market as well. I work full time in the oil and gas industry. More and more work housing camps " man camps" are being built in the remote areas that make it very convenient for the workers. It's an election year as well . Some experienced investors I've met recently in the area are selling their SFH properties to lower some risk until the election is completed . This area is tied in Geopolitics big time . If Trump doesn't win the overpriced Permian real estate market will take a big blow , which will the best time to buy in my opinion if interested in this market. For example, Saudi Aramco was recently attacked half of their production was shut down . Worked definitely picked up here in permain. Very volatile market. I'm going to my first REIA meet soon very excited .

@David Flores    I have no direct experience but I know these guys are totally right. You read about it in the news.   It's been literally going on for well over a hundred years. I wonder if you could even look at it with based on 50% occupancy.  Anything permanent there seems an exposure unless the short term returns are massive.
One example: @40 years ago my wife's husband moved down to Houston, from OH, to work for Kroger foods. He got into a house for 30 cents on the dollar because he was coming in there while oil was bust. It was a beautiful brick house.. . previously owned by an oil/gas worker.

Interesting thread.  I think you are making a rather large assumption here that your RV park is going to be occupied by oil patch workers.  Sure there will be some, but what percentage?  Those guys stay in all kinds of places, motels, trailers, etc.  Even local rental houses will get leased and used as short term dorms. 

Midland-Odessa is where most of them are going to be at, and I am guessing your RV park is going to be near there.  In places like this, it is almost impossible to get hotel rooms with booking super far in advance, so many oil people from Houston going there for business have to fly in and fly out the same day.  That is really common.

Reading the description offered by @Clifford Paul it sounds like it is really going nuts this year.  I wasn't even aware it was that crazy.

You just need to have a good handle on what your exposure is going to be here to this boom/bust cycle.  Is it 30% occupied by roughnecks and contactors?, or is it 90%... and who the hell else is living in RVs out in West Texas?  I think that will give you your answer, or get you closer to it.






 

@Mark Sewell , believe it or not all of these workers are from the oil fields. It is 100% occupied, has been that way for 2 years now, and there is a waiting list. But I think I found my answer to all this. 

I think I am going to avoid the situation all together for now as the risk far outweighs the short term benefit I may experience. Sounds like a good time to get involved is when democrat policies take control. Will wait for that bust period. 

Originally posted by @David Flores :

@Mark Sewell, believe it or not all of these workers are from the oil fields. It is 100% occupied, has been that way for 2 years now, and there is a waiting list. But I think I found my answer to all this. 

I think I am going to avoid the situation all together for now as the risk far outweighs the short term benefit I may experience. Sounds like a good time to get involved is when democrat policies take control. Will wait for that bust period. 

 No I actually I kinda suspected that was the case.  I think it might be a rather small contingent, in fact.  It would be interesting to know how many.  But I agree that probably timing isn't optimal right now.

Great thread, I'm working on a deal right now in NM with the same exact situation! Mobile home & RV park. Numbers are ridiculous, CAP rate is high, income is high, and expenses are low. I first looked at this with the "looks to good to be true, probably is". After getting all the data, financials, and doing a lot more deep looking, the numbers are solid, and is an amazing purchase with instant cash flow if there wasn't one HUGE red flag issue...Is this boom going to last a month, or 20 years?
What I have been looking into is what other companies are coming there.  In my research, I'm finding that other companies are building places there that will maintain after the boom.  Will it be as good as now...NO, but can these parks still operate is what my dilemma is now.  I like what Cliff said, it does seem a little like gambling!  I'm projecting that if it stays like this for 5 years, I would be able to pay it off.  These "Man Cams" are definitely designed for the Oil workers, just not sure how sustainable it will be after.  The alternative is the Hotels in this town Run $400 per night if you can even find vacancy.  The RV spots range from $700-$1000 per month, obviously this is the attraction!