What you need to know to finance the purchase of an RV park.
How can I finance the purchase of an RV park?
You can finance the purchase of an RV park with a commercial loan that’s secured by the property. However, as these properties are generally seen as specialized security, some lenders may classify them as high-risk investments. That means higher down payments of 25% to 30% of the property’s value.
If you’re buying a lower cost RV park and want to pay for it completely upfront, you may be able to use an unsecured, fixed-term business loan. Lenders require that you provide evidence of your financial situation, details of your relevant management experience and a business plan that shows revenue and cash flow forecasts.
If you have existing RV parks in your business portfolio, your chances of approval may be higher. Your accountant can help you draw up comprehensive business statements that could help improve your chance of approval and get you a decent rate.
Business loans to consider when buying an RV park
How much does it cost to buy an RV park?
What you’ll pay for an RV park or campground varies and can depend on if buy both the land and the business, buy the business and lease the land or buy the land and start the business from the ground up. Generally speaking, small RV parks in less popular areas could cost as little as $300,000 while the most successful RV parks can cost over $1 million to purchase.
Other considerations may include:
- The size of your down payment.
- The location and size of the property.
- Annual business earnings.
- Accommodation options, including cabins and areas for tents.
- Guest facilities, including tennis courts, swimming pools, playgrounds and club houses.
- Occupancy rate and frequency of return customers.
- Number of staff, their experience and qualifications.
- Market conditions, including competition from other local accommodation providers.
This is far from an exhaustive list, and accurately valuing a business is complicated. Beyond the purchase price of the property and business, determine if you need money for immediate improvements and repairs. With this in mind, consult with your accountant or business advisor to determine a fair price for your RV park.
What business factors should I consider when buying an RV park?
Do you love people and the outdoors? That alone may not be enough to purchase and manage your RV park. It’s a big investment that takes time, so consider these factors before making your purchase.
- Your experience. Previous experience managing a camp ground, hotel or other vacation spots similar in size to what you’re looking to purchase will impact the success of your loan application. Experience can also have an impact on the profitability of your business.
- Your qualifications. A degree in hotel or hospitality management, business education and years of experience all add up. These qualifications will set you on the right path to owning and managing a campground or RV park, and it may strengthen your loan application.
- Licenses and permits. Depending on what kind of park you’re purchasing, you’ll need licenses and permits like from Department of Environmental Protection or the Department of Revenue. Requirements vary by state, county and city, so consider contacting a commercial property lawyer to hammer out the details.
- Occupancy levels. If you’re buying an operating park, consider how full or empty it is during the busy season. Benchmark occupancy levels change frequently and vary by location and season, but as a general rule, an occupancy rate of less than 50% represents an underperforming business.
- The amount of annual stays. Return customers are key to almost any business. People who want to become annual site holders can make a difference in the financial stability of an RV park or campground. Look for a park with a decent amount of annual site holders.
How can I make sure the business is worth buying?
If you’re buying an RV park that’s up and running, it could make it that much easier when transitioning owners. But before you decide if it’s a worthwhile purchase, dig into its finances. Consider these points when evaluating a business’s worth:
- Business financials. What is the park’s recurring net operating revenue and how has it performed over the past five years? Are there opportunities for growth or improvement? If buying as an investment, you’ll also need to consider the financial stability of its tenants.
- Reason for sale. Are they looking to make a profit or is there a more serious underlying reason why they want to offload the park?
- Occupancy levels. Lenders will generally want to see a campground or RV park with high occupancy levels before approving a business loan application. Checking year-round occupancy levels, including the ratio of annual site holders, gives you an idea of where the strengths of the business lie and where there is room for improvement.
- Location. Look at both the park’s proximity to local attractions and the competition from other accommodation providers. Does your park stand out from the competition? If not, how expensive would it be to improve it so that it does?
- Facilities. Does the park have the necessary facilities for the type of guests you’re trying to attract? For example, if young families are your primary market, does your park have a playground, swimming pool or club house? Are you located near other recreational options in the surrounding area?
- Building and pest report. No one wants to stay in a park where there are problems with ants or mice, and being in nature can make it difficult to control. The price for pest control can be high, so make sure you ask about issues or if renovations are needed. You may be able to negotiate a lower price or avoid making a bad investment.
- Lease terms. If buying the business but not the property, look for a long lease term that allows you enough time to grow the business and pay off your loan. Have your lawyer take you through the lease agreement to make sure you’re fully aware of your rights and responsibilities in terms of maintenance and upkeep.
- Council restrictions. If you’re planning on renovating or upgrading the park, check with the local council to find out whether there are any restrictions on what you can or can’t do. Some states may also have additional rules and regulations outside your local district.
Buying a campground or RV park can be a solid way to earn a steady income and own a business, but because of the different regulations across states and within counties, you may have a hard time pinning down the right property for you. Once you’ve built up your savings for a down payment and found the right property, you can find a business loan to finance your purchase.
Interested in purchasing a different type of business? Check our guide on business loans to buy existing businesses.