If the pandemic has been bad news for many businesses, just the reverse has been true for RV campground valuations, with prices ratcheting steadily upward. But as is becoming increasingly clear, the buying frenzy is creating a real estate bubble of asking prices that aren’t supported by economic fundamentals.
Take, for example, the Tennessee RV and motorhome campground that just got listed for sale, scarcely more than two years after the current owners acquired it. The 8.1-acre Tiny Town RV and Motorhome Park has 54 RV sites, plus sites for 10 single-wides and one double-wide, and accepts only monthly rentals. That means it also has minimal amenities, but the park does include a 3,600-square-foot house, a laundry facility with bathroom and connected maintenance area, and a zero-turn mower and diesel tractor.
Asking price? $3.4 million.
Sound pricey? Indeed it does, and a quick back-of-the-envelope calculation demonstrates how much so. The campground’s current rates include $550 a month for 26 RV sites at the front of the park (where there’s more road noise) and $575 a month for 28 sites in the rear. The single-wides, whose occupants pay their own utilities, are charged $250 a month; the solitary double-wide pays $320 a month. Assuming 100% occupancy year-round–which isn’t really a thing–that works out to a maximum of $398,640 a year in revenue. In other words, the aspiring sellers want someone to pay them 8.5 times their maximum annual cash flow.
How crazy is that? Let’s assume a buyer comes in with a typical 30% down-payment, or a smidge over a million dollars. Further assuming that the balance of $2.38 million is financed over 25 years at 6%, that means a monthly mortgage payment of $13,913, or $184,008 a year, leaving $214,632 a year to cover utilities, insurance, taxes, payroll (assuming the new owner can’t do all the needed work), maintenance and upkeep. If operating expenses can be kept to 40% of annual revenues, or $159,456–a highly optimistic assumption–the buyer will be left with annual income of $55,176 plus a home. At a more realistic 50% of revenues, or $199,320 in operating expenses, that drops to just $15,312 a year for the owner to live on.
Is it possible? Yes–if everything meets best-scenario expectations, nothing goes awry and there’s no expectation that the park will ever need capital improvements . Keep in mind, though, that buying an annual income of no more than $55,000 will cost the new owners a million bucks that they could have invested a lot more profitably elsewhere, and without years of hard work ahead of them. The more likely outcome is that if this property sells at anywhere near its asking price, it’ll be because the buyer is planning a sharp increase in site rates.
It might be time, in other words, for the park’s residents to start thinking about their next home.
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