TIPS FOR CAMPGROUND BUYERS
On Visiting, Buying, & Running a park
TABLE OF CONTENTS
Do campgrounds offer a good return on investment?
The profit margins for focusing on transient rentals may be higher, but requires more time checking guests in and out. Typically RV parks and campgrounds do offer a good return on investment, especially when compared to commercial properties in general. A consideration in determining campground profitability is the reduced cost of living. Park owner/operators who live on the property can expense quite a bit of their cost of living. For instance, personal expenses such as home, car, and health insurance can be run through the business and deducted as business expenses. Vehicles, phone, internet, business travel, etc. can also be deductible business expenses for campground owners. Thus calculating a profit margin for a campground is a process of looking at the big picture and analyzing all expenses related to the lifestyle of running a park.
6 steps to get ready to buy a campground
1 It is important for you to get as liquid, “cash ready,” as possible.
If you have a house or business to sell, get it on the market and sold. Your goal should be to get as much money as possible together. Lenders and most sellers will require 30% down payment. Get a personal financial statement prepared and copy of your credit report.
2 Determine what the “perfect” park is to you.
Water feature, home, store, and other amenities. What does a park need to have or what can be added later as a part of your business plan? If you could order your park out of a catalog, what would you want?
3 What type of a park do you want?
Family friendly, more mature campers, destination, overnight, extended stay? Do you want a large park, small park, one that supports a family or supplements existing income?
4 Where does this “perfect” park need to be located.
Near family, good schools, large town, small town, near lake or river? Ask yourself this: If the “perfect” park were one state over, would you consider it? For some it’s the park that is the priority. For others, the park’s location means the most.
5 Get to know the campground industry.
Go to campground trade shows, read the many books about the rv industry and park ownership. Become a scholar. The most profitable parks are those that are treated like a business. Be a “volunteer” at a park for a week or two. See first hand how they work.
6 You need to be emotionally ready to move and leave the life as you know it behind.
If you find that “perfect” park, are you ready financially AND emotionally to make a purchase? If you have a time frame to be in a park an offer should be made on that park at least 3-4 months in advance of the date you plan to occupy.
Types of parks to consider
DESTINATION RV PARKS
There is the destination park where campers plan to go and stay for a longer period of time either because of its proximity to tourist attractions, national parks, lakes, rivers, the coast, Disney World, etc.
The park itself may be the attraction because of what there is to offer such as water features, mini-golf, and planned events. Destination parks are located near a tourist attraction a tourist area or even a city that has many activities that draw visitors to events. Guests usually stay a couple of days or more.
This type of park may offer passive activities like ice cream socials, jumping pillows, bicycle rentals, and a swimming pool or lake. There is usually a well-stocked general store with groceries, ice, and souvenirs.
SEASONAL RV PARKS
This type of park typically has guests who stay in the same space for the entire operating season of the park. If the park is closed in the winter many of the guests winterize their camper and leave it on the space while the park is closed. Snowbird parks cater to guests who stay for a month or longer during the winter to escape the cold up north.
Snowbirds tend to be retirees and this type of park generally offers adult activities like exercise classes, crafts, and games that encourage social interaction. Many of the guests come back year after year to spend the winter.
Some of these parks allow guests to build on their site with decks, storage etc. As an owner you will see fewer guests however you can build relationships with those guests that go far beyond the typical overnight guest relationship.
Seasonal campgrounds offer predictable income. Campers typically pay a seasonal fee for the year in this type of park. Rates are typically increased annually, to reflect seasonal fees of competitors in the area.
Seasonal parks will often have social events in the park such as group games and arts and crafts. Guests may organize these in concert with the park owners.
FRANCHISE RV PARKS
There are currently two major franchises of campgrounds: KOA Kampgrounds of America and Yogi Jellystone. These parks can fit into any of the previously mentioned categories. The main difference is that they are owned by franchisees and those franchises have specific standards that must be adhered to.
Both franchises offer abundant room for owners to personalize their park. The Jellystone franchise model caters to families and children with lots of park activities being offered each day. Jellystone also requires that the camp store self specific branded items.
KOA has a variety of park types across the country. The standards addressed by KOA generally include restrooms, store, sites, as well as activities as appropriate.
KOA parks are designated in 3 groups. KOA Journey campgrounds are located near highways and cater to overnight guests. KOA Holiday parks offer more amenities and are a great base camp to explore the area. KOA Resort properties are a vacation in and of themselves, with food service and many activities in the park. Most KOA and Jellystone parks have cabins as part of their offering.
OVERNIGHT RV PARKS
The camper does not expect extra amenities; they just want a safe, comfortable clean place to stay for the night. Overnight parks usually require less help to operate than a destination park where the campers expect more amenities and recreational facilities.
These parks may offer off the road services like breakfast and dinner and generally sell propane and other supplies that traveling guests may need.
So which type of park is more profitable?
All of these parks can be equally profitable. As a potential buyer, you must decide which type of park you would like to operate. In addition, buyers must decide if they want to own a park that is open year-round or a park that is only open for a few months or more. Many owners of year-round parks will hire a manager so that they can take time off from the day to day operations of the park.
Build or buy an RV park?
Building an RV park from scratch
Many buyers struggle with the thought of buying a park that is established. Do we buy the land in a location we like and build one ourselves? Building a campground is a risky venture. It usually takes several months for a new park to greet it’s first camper, let alone become profitable. There are quite a few hoops to jump through with regards to permitting, local ordinances, engineering, etc. This can be daunting and expensive. Unless you have a great deal of cash, these projects are tough to obtain financing for as well.
Buying an established RV park business
An established park is recognizable and usually has an established customer base and is most likely already profitable. Zoning and permits are not question marks, but are part of the business. There are records and tax returns available when an offer is made so that lenders have something tangible to review. Parks that are up and running may have issues such as deferred maintenance but these problems can be corrected by a new owner with much less expense than building a new park.
RV park and campground valuation
The best valuation is through a third party appraisal
Banks order appraisals when they have to loan the funds. These appraisals often cost several thousand dollars, but can be very important to the transaction. Sellers are reluctant to order the appraisal themselves because of the cost and the fact the appraisal might not show the value they expect.
Other factors can play a role in valuing a business. If the park is located in a popular destination area, or has lake, river or ocean frontage, these features usually increase the value of the land. If you want a park on a lake, expect to pay extra for that feature. The condition of the buildings, curb appeal, etc. will also affect the price.
Ultimately you are the one determining the market value of the business. Once the seller has accepted your offer and it closes, that price becomes the market value for that particular piece of property/business. Until that time, the formulas and appraisals are used as guides to establish value.
Ways to increase campground profits
ONLINE CAMPGROUND REVIEWS: LOVE OR HATE
Campground reviews are here to stay whether we like it or not. Most will be great, some will be not-so-great, and a few will be downright mean. As an owner, you will need to take each one and evaluate how to address it.
If it is a lovely compliment, thank the reviewer.
If it is a complaint/observation about an issue that can be addressed and fixed, fix it and let the reviewer know that you appreciate the feedback and have addressed the issue (maybe also mention that you would have loved it if they had let you know while they were there and you could have fixed it right then.)
If it is something that is mean and unreasonable or something you cannot do anything about, take a deep breath and just move on. If this is really hard for you as an owner, have a staff member (or utilize a professional firm that will do this for you) take on the task.
Bottom line, have a mindset that you will use reviews to get better and fix issues that may arise. Don’t let the concept bully you. Deal with it and move forward to reviewing the MIB (money in the bank)!
CONSIDER PUTTING ACCOMMODATIONS ON 3RD PARTY BOOKING SITES
With the huge growth of Air BNB, Vrbo, Booking.com and other 3rd party booking sites, you can use these platforms to expose your cabins, glamping tents, wagons or any unique lodging on your property including RV sites. The target audience on these sites are not the typical potential guests looking at campgrounds. This is a new guest that may have never considered staying at a campground and when searching for their unique experience, can find your park and your awesome ways to stay! You generally only pay when you book from the site and you definitely do not have to discount the rate.
Remember, these are new guests and after the awesome time they have at your park, they will become repeat guests! Some of the available campground booking software companies even have a seamless way to import these bookings into your system. It can be a WIN WIN! Give it a try.
Keep up appearances
Plant flowers! You will be surprised what a difference this makes. Maintain the campground’s electrical pedestals. Update the park benches and fire rings. Mow the lawn regularly. Fill in potholes, fix the roads. No one wants a muddy mess when it rains. All buildings should have fresh paint every year or two. These add to the feeling that your guests are in a well-cared for park. They will respect you and your property because of its appearance.
Stock up the store
Stock your store well so that weekenders won’t have to go to another store to buy the basics. They will be more likely to spend money in your store if it is neat and has current merchandise. No food items past the “sell by” date! Many campgrounds maintain basic camping and RV supplies as well as food and convenience items. Branded campground apparel and local gift items are popular with guests.
Add cabins or park models
You might want to consider adding cabins or park models. Cabins have become more popular over the years for guests wanting more convenience. There are a variety of manufactured cabins on the market. These can pay for themselves in a short period of time.
Have a good snack bar
You might want to consider a snack bar if the park does not already have one. Many parks have seen success in campground store pizza sales or quick meal delivery to campsites at a given time on Friday nights. Guests make arrangements prior to arrival to have their dinner delivered. The family sets up their site and does not have to worry about fixing dinner.
Cater to the kids
Kid’s activities are popular and give the parents a break during their stay. If the park does not have a swimming pool, consider adding one. One very experienced park owner always said, “If Mom is happy, the whole family is happy.” This advice can go a long way to keeping your campers happy!
Set the tone
Be firm with your rules, but fair. Everyone will respect you more and be more willing to help you by being a good guest. Most importantly: smile, smile some more and laugh! If you are having fun, your guests will, too.
RV park visit etiquette
When you visit an RV park for sale you will most likely be visiting a business in operation. Be aware of what you say and to whom you say it. Please don’t pull up to the front gate and announce that you are looking to buy the property.
ON THE DAY OF VISIT
When visiting RV parks, certain etiquette applies. You will most likely be visiting a business in operation. Be aware of what you say and to whom you say it. Please don’t enter the building or pull up to the premises and announce that you are looking to buy the property. No matter who or what, it is nobody’s business except yours and the sellers.
Upon entering the establishment, please ask for the owner (or contact name given) and give your name. The owner will have been given your name and will be expecting you. From then on take your lead from the seller. They may take you to an office or outside so you can chat a bit. Most likely they will give you a quick tour. After that you can walk or drive around as you please, get back together with the seller, asking some of your questions. This visit is not the time to discuss the asking price or terms of the sale. We are hired to take care of that part of the transaction. You want to use this time to see the park, see how it operates and see if it is a “fit” for you.
AFTER VISIT FOLLOW UP
Your consultant at Parks and Places will call you (or feel free to call them) after your visit to get your reaction. Be honest. It helps them to know what you liked and didn’t like about the park so a better fit can be found. Perhaps it was perfect and you want to make an offer. We will prepare that document and present it to the seller.
If you do not want to make an official visit initially, we can arrange a less formal visit for you.
Maybe you will be in the area and just want to drive through the park. Since you will be entering private property and many sellers know just about everyone who is at their campground at any given time, it is a courtesy to give your name to the seller and give them a heads up you may drive through. Your consultant will have already told the seller about you, preparing them for your visit or drive through.
When you visit the park you will have to see how it is run and what you could do differently. It may be run so smoothly that you won’t want to change a thing. Additional events, raising the rates or advertising is where you may focus your attention to increase revenues in the short term.
Advantages of owning a campground
Your customers are people who, for the most part, are on vacation. They walk in the door in a great mood. Campers are happy people!
Most owners would agree that about 95% of the people they meet are in a great state of mind when they arrive at their park. They most likely would agree that 3% of their customers become friends for life. The remaining 2%? …well, we won’t talk about them. So where can you find a business like that?
It’s a family business
A campground is a business your entire family can be involved in. It teaches your children business skills and people skills as well.
Keep control of your investment
Unlike a mobile home park, if you have a problem with a camper and you ask them to leave (which rarely happens, by the way) they have to leave that day, not next month.
Save money on a variety of taxes
There are many tax saving advantages to owning a campground. Everything, including your mortgage, utilities, cost of goods for just about everything, maintenance, travel, etc. are legitimate expenses and deductions.
Campground financing : Your finances
DOWN PAYMENT
You should be prepared to have a down payment of 30% to 35% of the purchase price. This means that a park selling for $800,000 should have a buyer with a down payment of $240,000. This is a 70% loan-to-value ratio. Yes, you can find lenders who will loan 80% or more on a park, but please use caution. You want to look carefully at the financial statements to determine if you will be able to make the loan payments throughout the year. In these higher loan-to-value situations budgeting becomes very important. Remember, also, that you want enough equity in the business to go to your lender in a year or two to make those improvements that will increase your revenue. Therefore, a 30% down payment will give you a solid footing to begin your venture.
GETTING LIQUID
If you have to sell a piece of property, or a house, or that vacation home you never use, get it on the market right now. The campground you see and fall in love with today may not be available at the time you sell your home to raise the down payment! This coordination of timing is beautiful when it works well! So what if you have to live out of your RV for a month or two and your belongings are in storage? You will appreciate the space you have and the freedom when you are in your own park.
In today’s market sellers are not waiting for buyers to sell their homes or properties to get the down payment. Be ready to purchase your dream when your dream is available! You never know when it will appear and you want to be liquid.
Being prepared to act quickly on park visits and purchase agreements is a necessity in today’s market.
Campground financing : The park's finances
CONFIDENTIALITY
When you get serious about a particular park or two or ten, you will want to see the profit and loss statements and perhaps the balance sheets. These documents must remain confidential while in your possession. They contain information about a park that could be damaging to the park if they get into the wrong hands. We have an obligation to the seller that this crucial and confidential information is going into the hands of a trustworthy, serious potential buyer.
PROFIT AND LOSS
The Profit and Loss report shows the income and expenses for a period of time, usually monthly. An annual report is often prepared, from which the tax return is prepared. You will likely not see the latest annual report until you have submitted an offer and are going for financing. We will get you the year to date profit and loss report and three years of tax returns to take to your lender. You will see on these reports the categories of income and expenses. We try to adjust these, with the seller’s help, to show a typical year of operation. Advertising, maintenance and repairs, taxes, utilities, and salaries make up the highest expenses.
Park financials and tax records are available to qualified buyers.
The profitability of campgrounds and RV parks depends on many different factors. Location and available amenities can make a big difference. How an owner manages the park can make an enormous difference. For example, some owners focus on renting sites by the month or season. This requires less of an owner’s time on guest check-ins than renting sites for just a night or weekend, but charging per night can be more profitable.
SELLER FINANCING
Depending on your financial situation and the park’s income there are a few routes to take in financing the purchase. The conventional loan with 30% down is, well… conventional. Because it has been difficult to get bank financing, many of our sellers will participate in funding the purchase. Called seller financing, this can be as varied as the number of parks for sale. Each is unique. You will have to talk to your Consultant to help determine the best scenario for you and the seller.
UNDERSTANDING FINANCIAL STATEMENTS
Financial statements will be different based on how the park is organized. Here are a few ways businesses are organized:
Sole Proprietorship
Individual or husband and wife ownership. Statements will include personal income and expenses. There is no distinction between the business and personal lives.
Partnership
Many different kinds of partnerships exist. Typically there is a partnership statement separate from the individual’s income and expenses.
Corporations
The business is completely separate from the individuals owning the business. No personal income or expenses shown on the statements. IRS subchapter C corp and subchapter S corp are the most common. Both of these minimize income and maximize expenses.
LLC’s and other companies
These are not often seen in this industry, but they do exist.