RV Parks and campgrounds: hidden Gems of real estate investing

As an aspiring commercial real estate investor, you're likely familiar with traditional asset classes like multifamily apartments, office buildings, and retail spaces. But there's a hidden gem in the world of commercial real estate that's been gaining traction among savvy investors: RV parks and campgrounds.

In this post, we'll explore why these unique properties might be the perfect addition to your investment portfolio, exploring actionable steps and insights shared by industry expert Dylan Marma in a session with Tyler and his CRE Accelerator coaching group.

The appeal of rV parks and Campgrounds

RV parks and campgrounds offer a unique blend of hospitality and real estate that can provide attractive returns for investors. Here's why they're worth considering:

Growing Demand: With the rise of remote work and an increasing desire for outdoor experiences, RV parks and campgrounds have seen a surge in popularity. This trend has been further accelerated by recent global events, making these properties more attractive than ever.
Stable Cash Flow: Many of these properties offer a mix of short-term and long-term stays, providing a more stable income stream compared to purely transient accommodations. As Dylan points out, "We'd say the portfolio right now, it's probably like a 70/30 - 70% annual site agreements, 30% transient."
Lower Operating Costs: Compared to hotels or resorts, RV parks and campgrounds typically have lower operating costs, which can lead to higher profit margins. The absence of extensive building maintenance and housekeeping needs contributes to this cost advantage.
Potential for Value-Add: Many existing properties are owned by mom-and-pop operators, presenting opportunities for investors to improve operations and increase profitability through professional management and strategic upgrades.
Recession Resistance: As Dylan mentions, these properties have shown resilience during economic downturns, making them an attractive option for investors seeking stability.

2. Key Metrics and Considerations

When evaluating RV parks and campgrounds, keep these factors in mind:

Location: Look for properties in desirable vacation areas or near popular attractions. Dylan's company focuses on waterfront locations, which have shown strong demand.
Occupancy Rates: Understand the seasonal fluctuations and average occupancy rates. This is crucial for accurate financial projections.
Revenue Per Available Site (“RevPAS”): This metric helps you compare the performance of different properties. Dylan mentions targeting markets where they can bring in at least $6,000 per year per site.
Amenities: Properties with attractive amenities like pools, recreational areas, and modern facilities can command higher rates and attract more guests. Dylan's company even includes annual events in their campground operations to enhance the guest experience.
Expansion Potential: Consider properties with room for additional sites or amenities to increase future value.
Mix of Long-term and Short-term Stays: Dylan’s sites are a mix of about 70% annual site agreements and 30% transient - a good balance of stable income and upside potential.

3. Financing and Returns

Financing

Financing for RV parks and campgrounds can be obtained through traditional bank loans, SBA loans, or even seller financing. Cap rates for these properties typically range from 7% to 10%, often higher than other commercial real estate asset classes. Dylan provides more specific targets:

For campgrounds with a partial long-term component, they aim for a 7-8% cap rate going in, with clear upside to an 11% yield on cost.
For more tertiary markets, they might target 9-10% going in with upside past 12%.

Investor Returns

In terms of investor returns, Dylan's company targets:

19-20% IRR net to investor
9-11% cash-on-cash return

These targets can vary based on location and property specifics, but they provide a good benchmark for aspiring investors.

4. Management Considerations

While RV parks and campgrounds can offer attractive returns, they require more hands-on management compared to other commercial real estate investments. Dylan emphasizes that running a campground is more like operating a true business. You'll need to consider:

Staffing: On-site management is typically required for check-ins, maintenance, and guest services. Dylan recommends having at least two full-time staff members for effective campground operation.
Seasonal Fluctuations: Many properties experience peak seasons, requiring careful planning for staffing and cash flow management.
Marketing: Effective marketing strategies are crucial for attracting guests and maintaining high occupancy rates. Dylan mentions the need for paid ads on Google and Facebook, as well as creating branded merchandise for campground stores.
Regulatory Compliance: Familiarize yourself with local zoning laws, health regulations, and other pertinent legislation.
Event Planning: Dylan's company organizes annual events at their campgrounds, adding value to the guest experience and potentially increasing revenue.
Ancillary Income Opportunities: Consider additional revenue streams like on-site stores, food service, or rental equipment.

5. Getting Started

If you're interested in investing in RV parks and campgrounds, consider these steps:

Education: Learn more about the industry through books, online courses, and networking with experienced operators. Dylan emphasizes the importance of understanding the nuances of campground operations.
Market Research: Identify target markets and study local tourism trends and competing properties. Dylan's company focuses on waterfront locations and areas with strong demand for second homes.
Property Search: Use online platforms, broker networks, and direct outreach to find potential investment opportunities. Dylan mentions that many deals come from long-time family owners looking to sell.
Due Diligence: Thoroughly analyze financials, occupancy trends, and property condition before making an offer. Dylan stresses the importance of understanding the effective gross income per site per year as a key metric.
Financing: Explore various financing options and prepare a solid business plan to present to lenders. Be prepared for the possibility of seller financing, which Dylan notes is more common in this asset class.

6. Unique Aspects of RV parks and Campgrounds

Unique aspects of investing in RV parks and campgrounds highlighted mentioned in the coaching call include:

Lower Capex Risk: Unlike apartments, where you're responsible for maintaining individual units, in campgrounds, guests often bring their own accommodations (RVs or tents), reducing your capital expenditure risk.
Longer Average Stay: While apartment tenants might stay for an average of two years, campground guests in long-term arrangements often stay longer than five years. Some even stay for 20 plus years.
Depreciation Benefits: Dylan mentions significant depreciation benefits, with recent deals resulting in 80% of invested capital as a loss in the first year, even with 60% bonus depreciation in place.
Diversification Opportunities: Within the campground business model, there are opportunities to diversify income streams through short-term rentals (like cabins) and retail operations.

7. Challenges

While the opportunities are significant, there are challenges to be aware of:

Management Intensity: Campgrounds are more management-intensive than traditional real estate investments. They require active involvement, especially during peak seasons and holidays.
Seasonality: Many campgrounds have peak seasons, which can create cash flow challenges during off-peak times.
Weather Dependency: Campground business can be affected by weather conditions, which is an uncontrollable factor.
Regulatory Environment: Zoning laws and regulations for campgrounds can be complex and vary significantly by location.
Competition from Hotels and Vacation Rentals: You'll need to stay competitive with other accommodation options in your area.

8. investment strategy

Dylan's company employs a strategy that focuses on long-term hold periods and value-add opportunities. They offer investors an 8% preferred return, with every dollar above 8% going towards returning all capital before the general partners receive any promote. This aligns the interests of the investors and the operators, ensuring that the management team is incentivized to perform well over the long term.

They also focus on properties with a mix of long-term and short-term stays, aiming for about 70% annual site agreements. This provides a stable base of income while still allowing for upside from short-term, higher-rate stays.

conclusion

RV parks and campgrounds represent an exciting opportunity for commercial real estate investors looking to diversify their portfolios. With the right property and management strategy, these investments can provide stable cash flow and attractive returns. The combination of longer average stays and significant tax benefits make this asset class particularly appealing.

However, success in this niche requires a willingness to be more hands-on than with traditional real estate investments. You'll need to understand the operational aspects of running a campground, from marketing to event planning to customer service. As Dylan's insights show, there's significant potential in this market, especially for investors willing to improve operations and add value to existing properties. The key is to approach these investments with a clear strategy, thorough due diligence, and a long-term perspective.

As with any investment, thorough research and due diligence are key to success in this unique and growing sector of commercial real estate. The RV park and campground market may not be as well-known as other commercial real estate sectors, but for the savvy investor, it could be the hidden gem that takes your portfolio to the next level.

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