RV Parks, RV Resorts, and Campgrounds are a fantastic asset class in Commercial real estate, showing more and more demand each year. Whether you are new to investing or a seasoned vet, it is essential to understand how to invest in this asset class, as it comes with a few caveats that you will want to pay attention to.
Before we start, a few items are crucial to cover before we analyze an RV investment.
What is Commercial Real Estate?
Commercial real estate refers to properties used explicitly for business purposes, ranging from office buildings and retail stores to warehouses and hotels. This diverse category of real estate offers endless potential, whether you’re looking at a small storefront or a sprawling shopping center.
Why Invest in Commercial Real Estate?
There are many reasons why many choose to invest in commercial real estate. Some key reasons some invest in this asset class are:
- Potential for high returns
- Tax benefits
- Diversification
- Appreciation
- A hedge against inflation
Why Invest in RV Parks and Campgrounds?
At Dacia Capital and USA Camping Company, we see many upsides to RV parks and campgrounds. Here are a few:
- Low operational costs
- High barriers to entry
- Fast growing market
- Passive cash flow
- Recession resistance
The Challenges
While we see many more advantages than disadvantages in the RV market, you can never invest without some risks. It is vital to review the downsides of a commercial property, including but not limited to the following:
- Limited liquidity
- Market fluctuations
- Regulatory risks
- Natural disasters
How to Analyze an RV Property
Making sure you’ve done your due diligence when assessing commercial real estate property is a must. Not only will it provide the peace of mind before purchase, but it’s also vital to understand the intricacies behind analyzing property. Here’s what to consider:
Consider the Location
The location of an RV park and campground is one of the most important factors to consider when investing. There are many varieties of RV parks and campgrounds, so it is crucial to pick one style that suits your needs and focus on it.
At USA Camping Company, we focus on RV & Campground Resorts in the most desirable outdoor locations. We look for resorts on lakes, in the mountains, by rivers, and near the beach; all within two hours of large metropolitan areas with easy access via roads. Other park types include RV parks near a highway or rest stop for daily travelers, in or near large urban areas, or RV parks close to large workforce areas like hospitals, colleges, factories, and more.
Analyze the Market
Once you’ve found a desired market, it’s time to understand the properties for sale and what you can expect to pay. One of the quickest ways to get a snapshot of your desired market is to look at the average Capitalization Rate for the area. In basic terms, a Cap Rate will show you the expected rate of return for your investment. – Remember that not all markets are the same and thus will have different ranges of Cap Rates. A “Good Deal” can be found at all levels of cap rates based on your market, location, and level of risk.
Here are some potential resources to find and analyze markets and properties:
Remember to contact local real estate brokers, as they can give you a ton of information about the market and potential properties.
Analyze the Property
1.) Calculate the property’s net operating income (NOI).
NOI is a measure of a property’s profitability. It is calculated by subtracting the property’s operating expenses (excluding debt) from its operating income. NOI is a key factor in determining commercial property’s value and one of the first steps an investor takes.
2.) Assess the property’s condition.
The condition of a property can also have a significant impact on its value.Because of the additional investment required, a property that requires repairs or renovations will be worth less than a property in good condition. A rundown property will need continual investments to keep it running. Make sure to assess the buildings on the property, the rv pads, pedestals, sewer lines, and all other critical infrastructure.
3.) Estimate the property’s market value.
The market value of a property is the price that a willing buyer would pay for the property in a potential transaction. Several factors can affect the market value of a property, including the location, the condition, the zoning, and the NOI. Make sure to use comparable sales from your market research which can help determine the market value.
4.) Determine the property’s investment potential.
The investment potential of a commercial property depends on many factors, including the condition of the property, how it has been operated historically, the market demand for the property type in that area, and ultimately the expected rate of return. Take a close look at all the numbers, and you can learn to understand the potential a property may have as an investment.
5.) Do your due diligence.
Finding an RV park for purchase comes with big decisions. Before investing in any commercial property, you must do your due diligence. This process includes but is not limited to getting a professional property appraisal, reviewing the zoning, and checking the title. It is always wise to consult an attorney in the are who can point you towards the best vendors for all due diligence items, which can make or break a potential deal.
Final Thoughts
Overall, an RV park for purchase can be an excellent investment for investors willing to research, analyze, and manage risks. However, it is essential to remember that no investment is without risk. At USA Camping Company, we look at hundreds of RV parks and campgrounds yearly and have an expert staff always looking for the best deals.
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