How to value a RV Park

Question

I’m looking for feedback on an off market RV Park deal. My primary investment strategy is long term buy and hold for cash flow.  I’m semi retired and the property is close by so self management is an option.

Asking price $275,000

Gross annual income $70,000

Annual Expenses $32,000

Adding in closing costs all in $280,000

Cash on cash 13%

Cap rate 25%

Property owns nine units. Average rent $500; lot rent is $300. Eyeballing it looks about 50% occupied.

Can you get commercial financing on an RV Park.?

Is this a good deal?

Pete Harper · Answer

I decided to pass. If anyone is looking for a small RV Park shoot me a PM. Talking to agent the seller is motivated. He is willing to carry seller financing for a short term. This will give you time to fix the place up and qualify for bank financing.

Pete Harper · Answer

@Steve Morris $70k was back of the envelope estimate. Current owner is in his 70’s, definitely old school. His map of the park is hand drawn as well.

Pete Harper · Answer

@Steve Morris Thanks

The property is off I-45 between Dallas and Houston. The park caters to oil and gas workers. A lot of these guys are very transient following the work. An RV works out well for them. They pick up and move to the next job. I looked the park again today. The majority of units are park owned.

I’m cooling off on the deal after speaking to the current owner. The property is on a septic system that he said he installed himself. He admitted it was undersized for the total size of the park. If I fill the park the system will need to be upgraded.

Steve Morris · Answer

Is the $70K real from the audited I&E (ie does it reflect the actual vacancies)?

If true, that's pretty good deal I'd think.

Remember (and ask a CPA), you can only depreciate improvements, so you'd have less tax-shelter than with an apartment.

In any case, get an ACTUAL (not pro forma) operating history for as far back (past 2 full years and YTD) as you can to verify and check for seasonality.

OOC - I have no clue where Streetman, TX is, is the park close to a major freeway and is there activity outside the summer?

Nora Santana · Answer

hi Pete, park value is calculated by taking NOI/cap rate, just from your numbers above it looks like the cap rate is about 14% ($38k NOI/$275k asking price).  The reason for the higher cap rate is due to the nature of RV Park, more transient tenants, if you want more permanent tenants-consider bringing in RV park model that you can convert to tenant-owned model similar to MHP.   if you could bring down cap rate and increase NOI by infilling empty lot etc, you'd force appreciation to the park.

hope that helps, that's just my 2c.

Pete Harper · Answer

@Jesse Daconta

I’m familiar with apartment cap rates. In our market 3-4% is typical. 25% is very attractive by comparison. Cash on cash is not great with all cash. I’m typically getting 15%.

Pete Harper · Answer

@Frank Hinck

Thanks for the suggestions on pod casts. I’ll check them out. I’ve listened to all BP podcasts with Brandon talking up mobile home parks. I probably would not have considered this deal without listening to Brandon.

Frank Hinck · Answer

@Pete Harper

They’re valued on Cap Rate.   Really you don’t want to own the units, ends up being much higher turnover with bad damage & tenants ghosting you.   When they own the unit you still collect a decent Lot Rent and folks stay forever.    There are some BP Podcast MHP shows but if you want to get deep into it Listen to Ryan Narus or Kevin Bupp podcast

Jesse Daconta · Answer

I'm not an expert at RV parks but I have a company that buys apartment buildings. I believe they're valued the same way. Cap rate and net operating income. You can obtain a cap rate from brokers in the area. You buy RV parks with commercial financing.

Good luck!