TIPS FOR SELLING A CAMPGROUND
Selling a campground requires careful planning, preparation, and attention to detail. It's important to work with qualified professionals to ensure a smooth and successful sale.
TABLE OF CONTENTS
3 steps to get ready to sell a campground
1 Prepare your campground for sale:
Selling a campground can be a complex process, but here are some general steps you can follow. Ensure that your campground is well-maintained and appealing to potential buyers. Make necessary repairs and improvements, update facilities, and clean up the property to make it presentable.
2 Determine the valuation of your campground:
Assess the value of your campground by considering factors such as location, amenities, financial performance, and comparable sales of other campgrounds in the area. You may want to hire a professional appraiser to get an accurate valuation.
3 Gather Relevant Documentation:
Compile all the necessary documents related to your campground, including financial records, permits, licenses, property deeds, and any other relevant paperwork. Having organized and complete documentation can streamline the selling process.
What happens when a park is overpriced?
The sale of a campground/RV Park business is based on the revenue in one way or another. Unlike a home purchase where the Buyer is qualified by their personal ability to pay the loan with their personal income, a business is evaluated by the lender with expectation that the revenue of the business will pay the loan as well as the static expenses of the business. The credit of the borrower is considered more as a way to assure the lender further that the group or person managing the park is a reasonably good risk.
Parks and Places puts together multiples on where parks have sold throughout each year. That number does move with different factors. Interest rates are a big factor in determining the amount that a lender can loan on a particular property. Remember, the lender’s main concern is that the loan can be serviced by the revenue of the business. So if the interest rate rises, the payment will increase and the loan amount will be adjusted by the lender. So see below for the scenario of a park that has a $1,000,000 sale price.
$1,000,000 SALE PRICE
Down payment 25%, loan amount $750,000
6% interest amortized over 20 years
MONTHLY PAYMENT: $5,373 ($64,476 annually)
6% interest amortized over 30 years
MONTHLY PAYMENT: $4,497 ($53,964 annually)
5% over 20 – $4950 per month ($59,400 annually)
5% over 30 – $4026 per month ($48,312 annually)
5.5% over 20 – $5159 per month ($61,908 annually)
5.5% over 30 – $4258 per month ($51,096 annually)
$1,000,000 SALE PRICE
Down payment 30%, loan amount $700,000
6% interest amortized over 20 years
MONTHLY PAYMENT: $5015 ($60,180 annually)
6% interest amortized over 30 years
MONTHLY PAYMENT: $4197 ($50,364 annually)
5% over 20 – $4620 ($55,440 annually)
5% over 30 – $3758 ($45,096 annually)
5.5% over 20 – $4815 ($57,780 annually)
5.5% over 30 – $3975 ($47,700 annually)
Each lender has different requirements for % of revenue that can be used to pay the loan, but they all have a threshold of how much of the net income can be used to pay the loan – and the expectation is that the loan will be paid with the business revenue. So NET INCOME is the key number. If a park is priced where this calculation makes sense, it is sure to sell. When the park can be reasonably financed and the Buyer has the required down payment, the sale can proceed. There are many things that can get in the way as the sales process moves forward, but a park that will not cash flow is a sure stumbling block to a successful closing.
Finally, when pricing your park, look at the historic multiples of gross and net income and also be sure and look at the potential likelihood that the business can be financed. Well-priced parks will sell in any market.
Types of parks for sale
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.
Buying an existing campground vs building one
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.
Getting a campground ready for a sale
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.
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.
Park financing : Seller finances
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.
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:
Individual or husband and wife ownership. Statements will include personal income and expenses. There is no distinction between the business and personal lives.
Many different kinds of partnerships exist. Typically there is a partnership statement separate from the individual’s income and expenses.
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.
Closing steps for selling a campground
1 Negotiate and accept an offer on your park:
Once you receive offers from potential buyers, review and negotiate the terms and conditions. Be prepared to provide additional information and answer questions from potential buyers. Once you agree on a price and other terms, you can accept the offer.
2 Prepare a campground sales agreement:
Work with a qualified attorney or a real estate professional to draft a sales agreement that outlines the terms and conditions of the campground sale, including purchase price, financing terms, and other relevant details. Review the sales agreement thoroughly with all parties involved and make any necessary revisions.
3 Complete due diligence and closing process:
Once the sales agreement is signed, the buyer will typically conduct due diligence of the park, which may include reviewing financial records, obtaining inspections, and investigating the campground permits and licenses. As a transaction coordinator Parks and Places works with park buyers and sellers to provide the necessary information and facilitate the closing process.