How Big Is Big Enough?

Step number one, what's your budget? Now in real estate, we always use leverage. That's just pretty common. And most banks are going to want to see twenty to thirty percent down. Now sometimes with your RV park you'll luck out and you'll get a mom and pop who's willing to carry the paper. Now they can carry the paper with as little as zero percent down. My partner Dave and I have done that twelve times.

But more than likely they want a little skin in the game from you. So they may want 10% down or so. So I'm going to say that the size from a financial perspective that would tell you how big is big enough would be the amount of capital you have for a down payment. times five if it was twenty percent down or times ten if it was ten percent down. So that would be to me step one in deriving how big is big enough. Step number two, how are you going to manage the RV part?

Now some people buy RV parks to self manage them. This means that they step into the role of the manager. They often live in the town or in the RV park, or maybe in a house next door to the RV park. Every day they go to the RV park and they manage it. There are others, however, that don't want to self-manage their RV park. They'll buy the RV park, but they're going to have somebody else act as manager.

Clearly, if you're going to self-manage the RV park, you probably need to buy a bigger RV park than if you're going to have a manager manage it. Because you've got to have enough critical scale, enough critical mass to pay you for your time and effort, enough to cover whatever you need to live on by giving up your day job effectively and becoming a self-managed.

So if you're gonna give up your day job, if you're gonna relocate, as many people do and live in or next door to or in the same town as at RV Park, How much money do you need to make all this happen? How much cash flow after paying the mortgage do you need to make this happen? And if you're going to be buying and not self managing the D R V park, how much money are you trying to make off of the deal?

What is your goal? What is your investment goal? What to you would make you feel like it was successful to invest your time and money into buying that RV part?

Next up to bat, how are you going to finance it? You will find there is a sweet spot for RV Park lending. That sweet spot kicks in at about seven hundred fifty thousand dollars of debt. Anything below seven hundred and fifty thousand dollars, you're gonna have to do it on your own. You're gonna have to find a local bank. You're gonna have to convince mom and pop to self finance it themselves. But when you get to$750,000 and up, now there are groups that can get you a loan on that.

One well known one is Security Mortgage Group. They can go out into the marketplace and get you an RV park loan, assuming the loan is at least seven hundred fifty thousand dollars or bigger. So if you're trying to use a loan broker to get you that loan, you'll have to be big enough for the loan broker to take on the task of doing that. And that's about 750 grand. Now you might find someone who will do it a little less.

But that's kind of the break point. So On how big is big enough if you're trying to get a loan broker to find you a loan, if you're trying to have the largest number of lender possibilities then how big is big enough? About$750,000. Now if you want to try and get into conduit debt, this is non-recourse bank debt through a group also known as CMBS, Commercial Mortgage Back Securities.

That's going to have to be even bigger still. They're not going to kick in until you get a loan amount that is up well over a million dollars. And remember, that's net. That's typically 70% loan to value. So that means a deal size of about a million five. So you're gonna have to buy a park that's about a million five in size with about a million in debt if you're gonna want to get non recourse CMBS financing on it.

What about efficiency considerations? Are there any efficiency considerations in an RV park? Well sure there are. Number one staffing. You have to have somebody to staff the RV park. If you have an amenity in a twenty space RV park of a big old pool, it will cost you the same to run that pool as it would if you had two hundred lots in that RV park. So you have to look very carefully at the staffing, your breakpoints and staffing.

Same on marketing. Same cost to market a 500-space RV park as it is a five-space RV park. So marketing is another issue where it's more efficient based on the size of the RV park, but there are some other disadvantages to it as well. Number one, if you have just that one RV park of a larger size, And you could have instead two smaller R V parks that sum up to that size. You would have a lot more portfolio balance if you had those two.

So sometimes a big RV part can be a hindrance because it doesn't give you a lot of diversity. Just like owning stocks in the stock exchange. You typically would not want to own just everything in one stock. You'd want to spread your risk out a little bit. Also, those giant RV parts can sometimes put you in a financial bind if something big happens with them. There has to be some kind of upgrade, infrastructure repair, it can matter quickly.

So a really big RV park might frighten you when you look at the potential of a repair maintenance issue or an emergency. So again, you've got to put that into consideration as well. Also, don't forget that a lot of this also goes with how much percent of occupancy the RV park has. If you have a fifty lot RV park that runs one hundred percent occupied, that's the same as having a one hundred spacer that is fifty percent occupied.

So you'll also want to think about the occupancy. What's the occupancy been running on this Harvey Park? It's not all about size. People want to convince you that, but I don't think that's true. I know someone has a very, very small RV part. It's only about fifteen lots, but it's right near a very major amusement park. And they get seventy five dollars per night because of their unique location. I would much rather have that fifteen space R V park

Maybe a comparable fifty space, because that fifteen space RV park stays one hundred percent occupied every day at more than two times normal rent. So let's put it all together then.

How big is big enough for an RV park? Well, here are some basic thoughts based on experience. Number one. If you are buying or looking at buying an RV park that's got about twenty-five lots to it, you're probably looking, assuming that it's in a good location and well managed at about fifty thousand dollars a year of net income.

Now that may not be big enough for you to work based on everything we just went over. You may say, No, that doesn't meet my goals. I don't want to get involved for only fifty thousand dollars of net income. Uh it's a good number, but just not good enough for me to want to do it. Okay, fine.

Then you might look at a 50 space RV park. 50 space RV park of most parts of America, giving all the normal stats, would produce about$100,000 a year of net income. Okay, I think we all have to admit that's a pretty goodly sum. If you just bought the RV park and did nothing more than pay off your mortgage with it, within twenty five years you'd have one hundred thousand dollars a year for life. And if you were able to better manage it.

Perhaps introduce it to this new marketing item called the internet. Do this a lot of the things mom and pop's didn't do. Maybe raise the rents, improve its general outlook among everyone who visits who tell all of their friends, then maybe you could even move the n NOI from there.

So fifty space, that that might well work for most people. What about a hundred space? Well a hundred space based on those same economics would get you about two hundred thousand dollars of net income. I think we'd all have to admit, well gee, okay, that's plenty. But again, I can't determine this for you. Only you can determine what you're trying to achieve. You know, we all have our own personal goals in life.

And they're just that personal. We all know deep down what we want out of life, how much money it takes, how we want to spend our time, what we want to do. And only you know that for you. I don't. But hopefully these steps will help you come to grips with and think about and consider the single act of size.

So how big is big enough with an RV park? The question is, how big is big enough for you? What works for you? This is Frank Roth of the R V Park Mastery Podcast. Hope you enjoy this and talk to you again soon.