subject: How To Take Advantage Of The Recession By Buying An Rv Park [print this page] For those investors who believe in the adage "buy low and sell high", there is no better time to buy something than during a recession. And of all the forms of commercial real estate, few drop as far in value during a recession as RV parks. If you are a contrarian and believe that the U.S. will eventually pull out of the current recession (which is a good bet since it has for over 200 years), then you should consider the ultimate in low pricing in the world of RV parks.
What is an "RV park"?
An RV park is a piece of commercial real estate that is used for the overnight lodging of recreational vehicles, although they often include cabins and camp sites these days. Your typical RV park has solid infrastructure of roads, pads, water, sewer and electricity, plus amenities such as an office/store, club house, pool and often miniature golf course, fishing lake or other draws.
They range in size from about 20 pads to as many as several hundred or more.
Why are they so cheap right now?
RV parks get extra punishment during recessions, as the RV market itself is battered during all downtowns - compounding the negative perception of the industry. When the economy falters, the first casualty are the RV manufacturers themselves, such as Fleetwood, which recently filed bankruptcy. RVs are clearly a luxury and not a necessity, and their sales plummet during recessions.
The price of gasoline has also hurt the image of the RV industry. With a standard 5 mile-per-gallon fuel efficiency, RVs are clearly gas-guzzlers. However, most RV owners are actually more affluent than the typical U.S. citizen, so they can handle the higher gas prices more effectively. Nonetheless, the general press reports scare most investors.
Finally, RV parks are a very funky business, and the market of buyers is always fairly small, so an event like a recession, even if it effects a smaller group of buyers, can cause dramatic declines in values. Cap rates in the RV business can often exceed 20% or more based on reasonable pro-forma of prior years' revenue.
Nearly complete lack of financing
Bank lending on RV parks, particularly at this point in the cycle, is almost nonexistent. As a result, the prices that RV park deals can actually be completed at are based on a creative mixture of seller carry and cash - a combination that does not fuel very lofty numbers. When you throw the absence of financing on all the other recessionary forces, it yields some of the lowest real estate values in RV park history.
O.K., I'll admit its incredibly cheap. But will it ever turn around?
That's a good question. But let's look at the probabilities. You have the worst gas prices, lowest RV sales, lowest RV values and worst financing crisis in U.S. history. Do you think any of these categories will improve? If you think that we are stuck in this environment forever, then you need to start looking at getting your citizenship in another country, because we're all doomed. If you instead think that this is a normal business cycle, then what do you think the net effect would be on values if all of these RV problems became fixed? Even just two or three?
Conclusion
RV parks are a great contrarian play - if you know what you're doing. If you have ever considered buying an RV park, the time to do it is now while values are at an all-time historical low.
by: Frank Rolfe
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