Many people have been looking for ways to break out of the COVID-19 pandemic funk. As a result, some decided to hit the open road in a Recreation Vehicle (RV). This caused sales to hit a record high in 2020 — with 2021 sale projections suspected to surpass 2020’s record.
With more travelers on the road, RV parks and campgrounds have been seeing an increase in business. As a result, travelers have reserved spots in these places, causing most parks to be fully booked for months. This means investing in RV parks is a lucrative financial decision, especially since some travelers have decided to live in their rigs full-time.
According to campground industry giant Kampgrounds of America (KOA), Recreation Vehicle parks — all around the United States — are seeing a record of new campers. The KOA’s 2020 fall report shows that at least 18 percent of all first-time rig owners intend to stay in the RVs in 2021.
Compared to other investment property types, Recreation Vehicle parks have minimal infrastructure and facilities to maintain. Historically speaking, RV parks have had an excellent return on investment rates (ROI). Generally, these parks offer a higher ROI than most types of commercial properties.
According to CXRE, most sources say Recreation Vehicle parks should be considered a lucrative investment because a person can expect anywhere from 10 to 20 percent return on their initial investment. One way to ensure a high ROI is to invest in parks with existing amenities in place.
For example, modern RVers prefer wifi, fitness centers, dog parks, sports facilities, and swimming pools. On the other hand, some campers are only looking for electricity, water, and a place for sewage to be drained. Some parks even have laundry facilities and convenience stores located in their parks.
Investing in RV parks that already have these amenities eliminates additional upfront costs for developing and improving the parks and their infrastructures. Eliminating unnecessary costs increases the park’s ROI.
Some investors calculate the capitalization rate (Cap Rate) on the RV park they are contemplating investing in. This is a simple formula that indicates a property’s value. Or, more specifically, the Cap Rate is the annual ROI an investor might earn from the RV park. This is the formula to calculate the Cap Rate:
Capitalization Rate = Net Operating Income (NOI) / Current Market Value
The NOI is the amount of money a commercial property owner has after paying Operating Expenses — insurance, taxes, and maintenance costs — from the RV park’s Gross Income. After a potential investor has learned the park’s NOI, they can calculate the Cap Rate. This will give them a basic idea of the RV park’s property value.
It is also a great idea to ensure the park wants to invest in has competent on-site management. A place with poor management will negatively impact a person’s investment.
Another way to ensure great ROI is to invest in places with a solid advertising and marketing strategy. This helps make campers and travelers know about the RV park and what they have to offer. In addition, a key marketing strategy helps ensure the best possible return on investment.
Written by Sheena Robertson
Edited by Cathy Milne-Ware
CXRE: RV PARK INVESTMENTS: WHAT INVESTORS SHOULD KNOW
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