Today we have John McGaugh on the show! Are you looking for an exciting way to invest in real estate? If you want to learn about RV Park investing and the potential for exciting growth that it brings, then John McGaugh is your man! With over 20 years of experience in real estate investment and a passion for RV Park investing specifically, he has the knowledge you need to make an informed decision.
In this episode you will learn:
- the story behind his venture into the RV Park asset class
- the advantages and return profile RV parks provide compared to other asset classes such as multifamily
- the type of financing you can obtain on an RV park
- and understand the main amenities that RV owners are looking for when selecting RV parks to stay at
Table of Contents:
- Where To Listen To The Podcast
- Journey Towards RV Park Investing
- Why RV Park Investing Is a Good Investment
- The Property Management in RV Park Investing
- RV Park Investing Brings Good Money
- A Lost Opportunity
- The RV Park Investing Process
- There Are Less Competition in RV Park Investing
- John McGaugh’s Prediction on RV Park Investment
- How To Reach John McGaugh
Journey Towards RV Park Investing
Darin: John McGaugh lives in the DFW area. He's been investing in real estate for over 20 years, and he sees a huge growth opportunity with RV park investing. He shares that 70% of RV parks are owned by mom-and-pop owners. That sounds like a massive opportunity.
So just a little bit on how we know each other and then we'll kind of get into it. So John and I are both part of the Sumrok Group. He's a member in a number of different groups that are focused on both commercial, multifamily, and RV park investing. I'm very interested to have John on today because he's the first person I've had on the show that's going to be talking about RV parks. I purchased an RV back in April of last year. So I'm interested to learn more about it. So with that, before we get into the Q&A, can you share with the listeners your background and what you've gotten into in terms of both multifamily and RV parks?
John: Sure. Well, I've done a little more than just multifamily and RV parks. So I started with Lifestyles Unlimited. Well, I started before that by myself. I was working an IT job and get off work and I would go remodel homes and then put them up for rent. And that was really tiring me out.
Darin: When was that?
John: That was, well, 2001.
Darin: 2001. So you've been doing the real estate thing for over 20 years?
Learning From Experienced People
John: Yes. My first wife was a real estate agent and she had a full-time job. And my brother-in-law, Gavin was a broker in Arlington. He would take me around in 1995 and he'd show me bricks. He'd say, "Okay, look at the line here. This will show you how to do foundation if it has foundation problems." We got a divorce. Well, we started building houses in Euless and Grapevine and from scratch, we buy the land and built the house. And then we got a divorce and I decided I would do rentals. So I'd buy homes and do rentals.
Like I said, I get off work and I would go rehab it and do all the work myself, just small stuff. And then I'd hire some if I need electrician or whatever. But it was so tiring. And then I heard Del Wamsley on the radio talking about, "Come in here and learn how to do this." And of course, I went into Del Wamsley's Lifestyles Unlimited and Brad Sumrok was my first mentor.
So I went to the class a few times and thought, "Oh my gosh, I can't believe I'm doing this wrong." So anyway, I started investing again. Actually, I sold all my properties and then I went and started doing it again with them. Oh my gosh, it was so easy. When I started doing it again was 2009 around there, 2008. It seemed like every house I bought started making money when I rented it. So I did that up until 17. But I liked the commercial, had a lot of people doing commercial and multifamily.
From RV Park Adventure to RV Park Investing
John: So I taught real good friends with CPA and she had a few syndications and I was learning how to do that. So I did some syndications with senior living and then did some with multifamily and left Lifestyles and joined Brad's group and learned how to do it there. Brad is a great speaker and a great teacher. So I did that for a while. Here's a good story. So my mom calls all our siblings up to Oklahoma. She says, "I got to talk to you kids." And so we're like, "Okay, what's going on?"
So we go up there and she hands me this box. I looked in the box, I go, "Mom, these are my baby pictures, my growing up pictures." She goes, "Yes, they're yours. You see that big fifth wheel out there? We're selling everything and hitting the road." That was 13-something years ago.
Me and my son on a long weekend, would catch a plane and fly to wherever she was in the nation. We went to the Smithsonian, we went to Oregon, Washington State, and Florida. We flew all over when we had time and met her while she was traveling. I got to see how exciting it can be and how relaxing. It's not the world, but you get to see the US.
Darin: Yes, I mean that's fantastic because before you shared that story, I didn't know that you had a history of actually doing it. I thought that you made the transition from multifamily over into RV park investing, and I was interested in that. But I think it brings a different dynamic if you've actually done it.
How John McGaugh Got Into RV Park Investing
Darin: And so your mom sold everything and started traveling the country, and then you and your son started to visit her and you saw some of the lifestyle changes. Look, there's pros and cons to everything, right? But you get to see the country instead of living in one place.
John: Yes. And of course, she did this so long ago. They also did work camping. So they would be a host at parks. So they could go anywhere and it wouldn't cost them to stay a month, or they actually got a little bit of pay, and then they got the stay for free all across the country. They just did Yellowstone. When did that flood happen? Last year?
Darin: It was, I think during the summer of 2022.
John: Yes. So they were camp posts out there in Yellowstone. It was pretty awesome. And then I partnered with another partner. He calls me up one day and says, "Hey John, I'm building this park. I'm thinking about doing this. What do you think about it? What do you think about RV parks?" I said, "Well, I like them." And I told him the story and that's how I got started.
Darin: So you had the experience on the residential side, you had rental homes, you had multifamily, you had assisted living. Then you get a call from a guy, a buddy that says, "Hey, what do you think about RV parks?" And you decide to partner with him on your first park. Is that the park that was being built in Euless?
John: In Ennis, Texas.
Why RV Park Investing Is a Good Investment
Darin: Yes. So share a little bit about that project. It's one thing to travel in an RV. It's another thing to actually invest in an RV park.
John: Well, it was partly because of the enjoyment I see with the kids and the families doing this and the freedom of it. It's just a great lifestyle. Some of them do it full-time and then there are people that just do it for vacation. It just struck me as something that I wanted to be a part of.
Darin: Sure. So the development in Ennis, so that's, what, an hour south of Dallas?
John: Yes. It's an hour south of Dallas on I-45 between the two largest cities, Houston and Dallas. We're divulging a little bit more information. So we expected around $26 million value. Well, that values jumped up because of our dynamic pricing for these parts. And that's sort of why we are looking at mom-and-pop parks that just take phone calls and credit cards over the phone.
Nowadays, software is so advanced that you can book online. You can deliver wood, you can pay for everything right there with your credit card. You can just click and say, "I want this. I want a golf cart. I want whatever." And you can just pay for it with your site number and your credit card.
Darin: Yes. I mean, there's a lot of things about the RV park that I like compared to multifamily, you said dynamic pricing. This year, I think interest rates is the big discussion. But last year was really inflation, and inflation is causing the Fed to raise interest rates.
RV Park Investing Is a Flexible Investment
Darin: But when I think of multifamily, I think of, first of all, you build an apartment complex in it, or you buy an existing one. The mix is already there. It's one bedroom, two bedroom, three bedroom, and you have a certain percentage of each. Sometimes the flow changes and the demand changes, and you might be full on your one bedrooms, but that's where the demand is. And three bedrooms, nobody wants one right now. Well, with RV parks, it really is daily, weekly, and monthly.
John: That's right.
Darin: So you can change that mix on the fly. So is that what you meant by dynamic pricing?
John: Well, no.
Darin: Okay. So explain.
John: And to your point about that mix, you're absolutely right. If there's a recession or people slow down on RV park transient people, you can change that mix to monthly or weekly, which is great. You can just change it however you want. And then let's say you have a big event coming, you can change that to daily. You have to schedule it, of course. And you can also put in time limits that people can be there. I'll give you a good example of dynamic pricing.
Ennis is finishing up, and we've started one in Lake Fork. There are 30 events in Ennis a year. There's the Blue Bonnet festivals. There's the AAA drag racing. And with those events, it goes like this. So your first 10% rented, it goes up $2 per site, and then another 10% rented, it goes up another $2. You can do it linearly, or you can do it kind of like a bell curve or just a set dollar amount.
RV Park Investing Can Implement Dynamic Pricing
John: And through our research, we did a couple of companies that come out there, example for the races, the drag races. We did NAPA Auto Parts. They're a $19 billion company a year and just the shell of the race car is $500,000. And then it's a million dollars for the team. You get the picture.
Darin: Sure. It's expensive to have a race car team.
John: Somebody told me you want to make a million dollars in racing? Start with two. Anyway, so we look at it and we say, "Okay, if they were going to rent from us and our average rate is $80 a night or $87, and they come in and our dynamic pricing has already gone up to under $200. They're going to say, "Well, how much is it?" It's $200 or $150? That's crazy for us. That's a lot of money for one spot. They're going to go, "Oh, get it. Right? Get it. We're spending millions of dollars for this one race. What's $200?"
So that's how dynamic pricing works. When you fly on the airlines during Christmas or Thanksgiving, you're not going to pay the same prices when you fly in January or February. You're going to pay a premium to get to your family. So that's dynamic pricing.
Darin: Right. I love that you tie it to events in the area because it mimics. Well, it's not the same, but it has a lot of the characteristics of a hotel because you have hospitality.
RV Park Investing Is Low Maintenance
Darin: And you have online booking. You can book it right online. With RV parks, you typically pay before you go. So you don't have the delinquency that you have in the late pays that you have in multifamily. And then you have the ability to change the price. One of the things that's attractive for multifamily versus say industrial, for industrial you lock in prices for five years, maybe two or 3% rent bumps. For multifamily, you can change the pricing annually. But with RV parks, you can change the pricing today.
John: Yes. By the minute. There was something else about that pricing. Oh, yield management. On the other side of that too is yield management. Let's say it's a down month or a down season, maybe it's wintertime. Now Texas is a little different from other RV parks because in Texas we have a very mild winter, right? But let's say we have in January. I think that's the lowest month for travel, but the software can automatically lower that to get people in.
Darin: That's great. When I think of comparing multifamily to RV parks, there's very little maintenance on the turn. When somebody leaves an RV space, you don't have to go in and repaint it and put in new flooring and resurface the countertops like you do in multifamily. So talk about that a little bit.
John: So the only problem that we have is if somebody runs over some of the electrical, and that can be fixed in a few hours a day at minimum. Stand it back up, and have the electrician reconnect they got to run over it pretty badly to damage it. Right?
RV Park Investing Is Investor-Friendly
Darin: Is that running over the actual pedestal?
John: Yes. People back into them. But not often. Not very often. And, Darin, I've had apartments. Well, I've had two, let's see, two apartments that caught fire, that I was passively involved in, and that affected the returns for a while. It's a little bit hard to burn a pad. So that's a nice thing. Also, I've had an apartment that had some problems with evictions.
We couldn't get the people out because the judge was favorable to people not paying rent because of the pandemic and everything. Of course, now it's starting to change and starting to get them out. But when it comes to RV places, they don't live there. There's no mailboxes. This is not an eviction, this is trespassing.
Darin: Yes, that's a big distinction between multifamily and RV parks. Now, I did see out West, there's some proposed law. I don't know if you saw it. It just came out in the last couple of weeks, I think Oregon. If you stay over a month, there's talking about changing it to be more tenant laws. But that's got to be something to watch. Across the country, I don't think that that is out there yet.
John: No. And I did see something about that. We invest in the states that are more landlord-friendly, sort of some of the people in multifamily. I know they do that too.
Darin: So what states do you like?
The Property Management in RV Park Investing
John: I like Texas, Florida, Louisiana, and Arkansas is great. And it depends, of course, on the amenities and the draw. You can have something in one state that has a huge draw like West Virginia. We're looking at a deal right now in West Virginia. We're going up there to meet the governor and the mayor of Charleston for a project up there. They just came out with the brand new national park, the newest national park.
Darin: So your park is going to be near that national park?
Darin: So what kind of software do use and how is property management different in RV parks versus multifamily? Because my understanding, you don't have the choices on the property management side that you have on multifamily where you can have third-party property management. So one, what type of software do you use for all this online billing? And then two, do you self-manage or do you have a third-party property manager?
John: We have BuzzWorthy Property Management. I mean it's really come a long way from the old days from managing. There's Campspot, NewBook, RMS, and our software or our property management people run NewBook. I mean, RMS. And there's plenty of RV park management companies now.
Darin: There are?
Darin: I wasn't aware of that. So who is the target? One of the things I heard about RV parks is that from an investment standpoint, one of the attractive parts is that, multifamily, there's some deals that I've seen that have traded three and four times. Different buying groups and they bring new capital and they improve the property that much more and they're able to raise the rents.
Darin: But one of the things that I've heard about in the RV park world is that there's a lot of mom-and-pops that have purchased one RV park or two RV parks. And they're self-managing and they want to retire and get out and they're not as sophisticated and don't have all the software applications and the know-how to take it to the next level. Do you see that?
John: Oh yes. It's 70%. 70% are mom-and-pop. The other 30% are like KOAs, Jellystone, Margaritaville, now. Jimmy Buffett's company is getting big into it. So those are the parks we like. There's the very low end of RV parks like trailer parks. And then there's the mom-and-pops that we like to buy and bring in the software.
And the software now in the management companies, they do a great job of managing these and we can continue to buy parks. It's like when I was at Lifestyles Unlimited and they told me how to do it right. Now, we just hire the people who already do it right and we can continue to go buy. I could continue to go buy single family homes and go, "Oh wow, that works."
And with these management companies that know how to do it and raise the rents or do that dynamic pricing, it's great. Actually, we're about to buy in Louisiana, and it's a mom-and-pop. It's a guy who had a bunch of land out there and he built an RV park because he wanted to.
The Three Types of Parks in RV park Investing
John: And the same thing, he's about 70-something years old and he is just tired of running it. Here's how he did it. He had the people that lived there, the full-timers, cut the grass, check the mail, take the payments. It's full. They have a little bit for transient and weekly and nightly, but they could do better and we'll do better on it.
Darin: Yes. That's huge. Some people I've heard have kind of compared it to self-storage maybe 10, 20 years ago when nobody was really in self-storage in a big way. It was a lot of mom-and-pop self-storage facilities. And then people have gone in there. And now there's a lot of supply. There's a lot of self-storage facilities around. So what I've learned in my travels is that, and correct me if I'm wrong, I break it down into three different types of parks.
A destination park. You're going someplace because either the park is fantastic. It has a ton of amenities or it's close by to something that you want to go to. A transient park, like, "Hey, I'm going to Colorado and I can't get all the way there in one drive, so I'm going to stop in Amarillo and stop over overnight. And so I'm just going to be there for a night."
Then you've got more monthly. And the monthly, when I first got involved. I'm looking at that, I'm like, "Who are the people that are in those parks?" And there's people that don't want to sign an annual lease. People that are say traveling nurses. People that are on construction jobs that might be there for six months or nine months.
Not Your Typical Investors
Darin: Out west in West Texas, there's a ton of them because they don't know how long they're going to be on those projects. So do you find the same thing that there's these three different types of parks and which ones do you like to focus on?
John: Well, I've got a funny story. So we're starting Ennis and we had an investor meet-up onsite at the property. So me and my partner are standing there and this Dodge dually, four-door pulls up, brand new. I mean it's expensive, 90,000 maybe. What do you think? Something like that. So we're waiting on, it's getting to the end of the day and we've had our investors come and go and had a lunch, barbecue lunch and we're wrapping it up. I look and I ask my partner, I said, "Are these your investors?" He goes, "I don't think so."
It was a husband and wife in sweats, in Crocs, and some flannel shirts. And I go, "Well, I don't think they're mine. They just don't kind of fit our typical investor." So they walk up and said, "Hey, do you know when your park is going to be open?" We told them and I said, "What are you looking for?" He goes, well, we got 20 workers for BP that are putting in solar farms around our oil leases. So we had 97 spots. We said, "You want 20 spots?" "Yes, we only need it for about six months. We need 20 spots."
Darin: That's 20% right there. Boom, leased up.
RV Park Investing Brings Good Money
John: Yes. We were floored. We see that those are the monthly, right? They're like, we're coming in. We were looking at a deal in Pecos, Texas like you just mentioned, and the same thing. Those guys go out there and how long are we going to work? We're going to get all the money. He used to have a friend that even worked out in Pecos, and I tell this story. One year he worked for a little bit and he still had his old car. And then he went out for six months. He came back in a brand new four-door, F-250 Ford. And I'm like, "What happened?" He said, "Oh yes, we're making good money."
These transient people and the hospital nurses, they can make real good money. And they don't have to stay in one spot. If you do a transient, the nurses get paid more and these guys doing remote work are far from home, get paid more.
Darin: And the RV parks on a monthly basis are pretty darn affordable from what I've seen. So can you share what's the typical monthly rate for an RV park? And we'll compare that to say multifamily.
John: Well, we see like 550 up to 1,500 depending on the location and the need.
Darin: I mean 550, you can't get a two-bedroom place for 550 in multifamily. You're talking thousand, $1,200, $1,500 depending on where you're at. And this is just my thought is with housing prices going crazy, with multifamily per unit prices going up dramatically.
The Future of RV Park Investing
Darin: Where do people live? Yes, you have to purchase an RV, so you have to make the investment. But people that are choosing to have that travel lifestyle can really pick an affordable place to live and get full utilities and then not be tied down to a long-term lease.
John: Sure. We see some of that happening to houses, especially in the DFW area. I don't know if you can find one under 200 that's livable. And that's why I got out of it because the prices were so high it was hard to rent. Buy it, and rehab it, and rent it. We see a lot of people in articles about people just selling. Like my mom, selling their house or not buying and getting an RV and then living anywhere there's internet. And working from their RV. The biggest growing group of RV'ers are millennials and Gen Z's making over a hundred thousand dollars.
Darin: I didn't realize that. So talk about some of the stats. I mean, I know that you've got a lot of stats. Talk about some of the stats with RVs. I mean, obviously with the pandemic everybody wanted to get out of their house and go do stuff. So that was a big run-up in RVs. And some people are saying that there's going to be a glut in RVs that are going to come back on in the market. Just talk about some of the stats and where you think things are going.
The Importance of Technology in RV Park Investing
John: So another article from Campspot. Now Campspot is one of the softwares that does the management for RVs. Of course, the reason dynamic pricing works is because it projects. It projects out to see what's happening and who's starting to book. And now some of the people that are with it and know that campgrounds and camp spots are busy and they were really booked last year and it was hard for some people to find it. So they're starting to book early.
Well, Campspot sees that 2023 is going to be another record year. I was out in ARVC which is the outdoor industry conference in Orlando. They said in the next five years that there's going to be 9 million more RV'ers in the next five years. So there's just not enough competition out there for people building parks. The ones that are already built. Also, the problem with the mom-and-pops, they're not too good at technology. Some of the older people, they just don't know Google Analytics are or how to market. So their parks just aren't run very well. They don't know what SEO is and how to get it out there.
Darin: Yes, it's different than if you look at multifamily, I think about, it doesn't always happen this way, but people, they have a job and they drive around 10, 15 minutes in their area. Where do I want to live? They do drive-by's or they look on apartments.com and look for apartments in their area. But with RV'ing you really have to have an online presence in order to be found.
A Lost Opportunity
Darin: Or there's a bunch of RV apps that you can look up based on location or wherever. And if you're not on those apps and you're not getting the visibility that you really should be. So if somebody comes in and buys that park and then increases that visibility, increases that marketing brand presence, that is a value add.
John: Facebook is easy, It's easy to use. And so sometimes I'll just put it on Facebook and put a number on it, a phone number, and hope somebody sees that Facebook page and then calls them. Actually, we saw 118 unit park with a man camp in Pecos, Texas.
They had six pictures and a Facebook page, no website, nothing else. I'll tell you another story. So we went out there to stay and we're looking at buying it. So I call and say, "Hey, I'd like to book a place." And she goes, "Oh, okay." I knew this at the beginning that they were only 40% full and were planning on coming in and doing some advertising.
John: So we call and say, "I want to book a place." I go, "I want two nights." And she says, "Well, I don't have anything."
Darin: I don't have anything. You're 40% occupied.
John: Yes, 40. And she goes, "I don't have any nightlies. I have monthly and weekly."
Darin: Just change the freaking mix.
Not So Accommodating Accommodation
John: Exactly. Just change it. So anyway, I said, "I'll take a weekly. How much is that?" She says, "$200." I said, "Fine, I'll take that." So we come, we look at the place. We meet with the agent and the next morning I go try to pay. Nobody's in the office. So the next day I try to pay. Nobody's in the office. I said, "No wonder you want to sell. You're not taking money."
Darin: That's a good person to buy. Did you buy that deal?
John: Well, we're still trying.
Darin: Yes. Oh, well that sounds like the type of person you want to buy from. So I've had the same experience where I'm driving and I'm like to my wife, "Hey, we probably have another hour or two driving. Here's the next major city we're going to run into. Take a look for some RV parks in that area." We had this situation maybe two, or three weeks ago. And so she calls and it's quarter to five and it just goes to voicemail. We know we're like, if you get them after five, then you may not get in. I was really surprised because it was a big national chain of RV parks.
And so I'm like, "Call the one in Arizona. They're still open. So call there." She got somebody, but they were like, "I can't do anything for you. All I can do is see my system and we're like, "Look, so you're telling us." Well, my wife is more polite than I am, I guess.
Darin: So I'm saying to myself, they're basically saying, we don't want your business for the next couple 0f nights. And so we went and stayed at a different park because you could not do an online booking for the same night. And that to me is a lost opportunity.
Maybe I'm only staying there for one or two nights, but I will never tell anybody about going to that park where had I stayed there for one or two nights, I may have told other RVers like, "Hey, if you're traveling through here, you should check this park out." And they lost that opportunity completely.
John: Right. And what we see too is with all the social media and Facebook, and Instagram, and TikTok, one video at that park or a check in means maybe 10 or 15, who knows if this is an influencer or not. Says, "Oh yes," or somebody who just connects with other RVs. They go, "Oh, okay. Well, there's a park." You're right. I mean all that is organic advertising.
Darin: Now you do have, in the multifamily world, you have people that like where they live and so then they tell friends and family and then they build a community. And those people will stay year after year which is fantastic.
I think of the RV space more like, I don't know, if it's a good analogy, but restaurants. You're looking for reviews from other people. You're looking to try to get as much information as you can about that location before you're going to invest. It's not just the money that you're spending, but it's also your time that you have a choice on where you're going to stay.
Buying Versus Developing in RV Park Investing
Darin: So you want to hear from other people that it was a good quality place and that can go a long way. People talk, man. I take my dog to the dog park and my wife will call me 20 minutes later like, "Where are you?" I'm like, "I just met this couple, they've got a nice dog and we're talking and we're swapping stories about where to go." Hey, talk about buying existing parks versus developing.
John: Developing, it depends on where it is. I've had a few like Ennis. The city was with us and they liked it. We had to convince them of course at the beginning because they're looking at it like a trailer park and they do have another park that's 20 units out there and it's grass and gravel. It's full-time people and they don't like some of the residents there. So we had to convince them. Like I told you before this started, there's a new RV out there that's $7.7 million with an optional Bugatti in it.
Darin: 7.7 million? That's crazy.
John: Right? And it's optional Bugatti.
Darin: But what are the low ends? So there's a huge range in RVs because you can get in with just getting a trailer too or pulling a fifth wheel or getting into the A-class. So what's kind of the entry-level?
John: Well, I think maybe a 23-foot or even the vans. Well, the entry-level vans, are small.
Darin: Those can be expensive when you make them custom.
John: Oh, yes. They're 120,000, I think.
Darin: But the trailers, you can get in for what, 20, 30, 40 grand?
John: Oh yes, 30 grand. Sure.
The RV Park Investing Process
Darin: So you've got a huge variation to fit any budget from 30,000 all the way to 7.7 million. And those people are probably staying in a little bit different place than what we're talking about.
John: The difference between existing and construction, right?
Darin: Yes, right.
John: So it depends on where it is, and if you can convince the city, "Hey, this is not a trailer park." And with Ennis, we've said, "90-day stay, that's it." Because they don't want pink flamingos and decks built in the front yard or beside their trailer. They want to pick up and move on, so you don't have those people that are just staying. Right?
Darin: So is that part of the 90-day max, is that just your policy or is that something that was part of the approval for getting the park approved with the city?
John: Yes, that was with the city. Because they didn't want another trailer park. I know a lot of cities aren't fond of trailer.
Darin: Yes, I mean the RV park, I understand having to educate the city on that. Where my mind is wondering is like I've had other people talk about, they would use the term winter Texans. People that were up in the Midwest and they want to get out of the winter and maybe they're in Minnesota or Wisconsin, wherever, and they're looking to come. They don't want to go all the way to Florida and Texas is a shorter drive and they like the community. It's a milder winter, but they want to come from maybe October to April. So that's over that 90-day limit. So you kind of miss those people.
Financing for RV Park Investment
John: We'll have to have them leave for a day and then come back just so we meet those criteria is 90 days in this spot and they can boondock or go. Walmart used to let you sit in the parking lot or stay in the parking lot overnight. So something like that. The city really doesn't want them staying.
Darin: Camping out, right. Making it their permanent residence. Hey, talk about financing for RV parks because a couple of interesting things there. One is on the multifamily side, it's kind of upside down. Cap rates are lower than the interest rates that you're getting on the loan. So you actually have to implement some of the value add just to break even. Where on the RV park side, there's still a positive spread. I believe, correct me if I'm wrong, between the cap rate and the financing you can get on it.
John: Yes. We're seeing a lot of the mom-and-pops around the 10 cap and they still have a value add. So if you're buying a park that doesn't advertise much, doesn't have a website, doesn't have professional management, you can buy it at a 10 cap and come in and implement the dynamic pricing. It does very well.
Darin: What kind of financing are you getting on something like that, both LTV and rate-wise?
John: Well, we just got a term letter two weeks ago from a bank with 75% LTV. We talked about this a little bit before and we thought we were going to have to bring in half equity and half debt.
The Investor Forecasts of Returns on RV Park Investing
John: And of course the bank president was an RV'er and he says, "Listen, I get it. You guys can stop raising money if you want because we'll bring in 75%." We'll do a 75% LTV loan."
Darin: That's huge.
John: It was pretty good interest rate too.
Darin: Well, what was the interest rate?
John: It was one over prime.
Darin: One over prime. What's prime now?
John: Well, it changes, but 7.75
Darin: Is it 7.5? So 8.50% rate?
Darin: You've got 150 basis points positive spread on 75% of the purchase price.
John: And we already did our underwriting at 8%.
Darin: At 8%. That's fantastic. Now, what's the remainder of the terms on that? Is it 30-year amortization? 25-year amortization, 20 year? Is there any interest only?
John: It's an interest only.
Darin: For how many years?
John: Two years and then a 20-year am.
Darin: 20-year am. Okay. So that's a little bit of the difference. And that's bank financing versus agency financing on the multifamily. Bank financing typically wants either a 20 or 25-year am versus a 30-year. And so they're getting paid back principal at a quicker clip than the agencies. So what are the investor forecasts of returns on these RV deals? Is it comparable, is it better? Then multifamily?
John: For one of them, we're doing is a three-year guarantee during construction. 8% pref, but we are pretty sure we're going to beat that. We're looking at with 100,000 down return of 370,000. Wait 307,000 on your hundred. So you get your hundred back plus 207,000.
The Five-Year Exit Strategy
Darin: So it's more than 8% pref. So you've got 8% pref, but then you're also having your proforma that you're going to sell it. Do you sell these or do you keep them or what's the exit strategy?
John: Well, we like the five-year exit strategy unless we refinance and then we make the decision to keep it. If we get enough of the financing back, we raise the value enough to refinance and get a lot of the investor money back. Then we just keep it. What we like to do is toss it out there and say, "If there's an offer for it before we refinance, say, 'Okay, here's what we're going to make. Do you guys want to sell?'"
Now, our project at Lake Fork. We know that these guys make offers out there quite often to the owners because we've talked to them and they won't sell. Because they're making money and they don't want to sell. One guy said, "What else am I going to do if I sell? I may have money, but I like it here, so why sell?"
Darin: Yes, it's not his time yet. It's not his time. It's similar to multifamily where you have two exit strategies, either a cash-out refinance, or a sale, and it's a five-year business plan as well.
Darin: But that's a pretty amazing proforma return. I mean, typical multifamily proforma return I see is double your money in five years. So you put in 100K. You get your 100K plus another a hundred. And this deal that you're talking about was 100K projected to turn into 307K over five years.
John: That's right.
There Are Less Competition in RV Park Investing
Darin: So that's the power of getting into a market that is less efficient. There's less competition. People don't understand it as much, but I think people are going to start to open their eyes. Because you have more and more people that have bought RV's that are traveling.
I did not grow up in a family of RV'ers, but I wanted to see the country. I wanted to get access to different areas. I'm one person and then I tell other people. I can't tell you how many people ask me questions about it and are curious, and they want to try it. Now there's platforms where you can rent. Is it RV Share?
John: RV Share and RV Easy.
Darin: So I rented three or four times before I purchased.
John: So did I.
Darin: And so that's a great way to see if you're going to actually enjoy it.
John: What did you rent?
Darin: I rented an Airstream three times. And then the third time I parked right next to a guy in A big class bus and he was helping me set it up and stuff. He could tell I was a novice and he's like, "Hey, if you want a tour of mine, I'd be happy to show it to you." I'm like, "Great. Once my wife goes in there, I'm done." And that's exactly what happened. We went into a big old Entegra.
John: Oh, nice.
The Opportunity Zone
Darin: We walked through that and my wife was like, "Dishwasher, washer, dryer." So I did not have a truck. So when I started looking at the cost of buying a truck and the trailer, it started to make sense to look at getting an A class. Look, it's like anything, you always spend more money than you think you're going to and so I did. But we enjoy it. We enjoy the lifestyle and I think there's a lot of opportunity on the RV park investing side as well. Do you guys do storage too, storage?
John: We do storage. So Ennis, we were going to do storage with Ennis, and we started looking at the numbers. We started doing the dynamic pricing of course. And we said, "Okay, we can get this many more spots out there. Let's look at the numbers if this pricing works, then it's going to beat storage by miles." So we looked at it and said, "Oh man, Ennis, the location is right on the service road near the Buc-ee's there."
Darin: There's a massive Buc-ee's and you're, what, right behind it or right to next to it?
John: Yes, it's 1,250 feet up the road from us.
Darin: Yes. I mean, that Buc-ee's every time I drive by it is just packed.
John: Crazy. Man, they know the market. I mean, they know locations. That's an opportunity zone that they put that in.
Darin: Oh, is it really? So is your park in an opportunity zone?
John: No. There's a cutout that big. Just a little bit. And our park is right in the middle.
Darin: That would've been nice.
The RV Park Utilities
John: It would've been nice. So Buc-ee's has 55 to 60,000 vehicles a week. That one in Ennis. And so we’ve watched it. 1% are RVs. We estimate. Let's say the minimum or 1% are RVs. So we have 97 spots. And what's 1% of 55,000? That's a lot.
Darin: Right. That's a lot. I love that you did that comparison of okay, storage versus adding more spots. You said it wasn't even close. What was it? Two times, five times, 10 times? What was the differential in terms of opportunity?
John: Well, we don't know exactly yet, but at least five times more.
Darin: Oh, and I got to imagine that the construction cost per unit is less than building the storage as well. So it's less CapEx and you're getting a better return. You were already building whatever you have for amenities, the office. Do you have a pool or anything like that?
John: Office, pool, clubhouse.
Darin: Travelers, all that. Also, all of that was already being distributed. You're already building that and so you're just adding new spaces. That's huge. Another thing I learned by looking at RV parks is city sewer and water. Does your parks have that? And do you see that as an advantage?
John: Absolutely. That's a huge advantage. Of course, that's where you get into talking to the city more cost. Ennis has city water and city sewer. The West Virginia one will have city sewer, city water, electric, gas on site. The one at Lake Fork, that's going to be septic. We may have city water. Right now it's on well and then septic. And so you missed one other utility.
Reliable Internet Just Like at Home
Darin: Oh, internet. Internet is huge. That's the biggest complaint on different RV parks is internet. So what do you guys do for internet?
John: So we'll do Starlink, Elon Musk Starlink for remote locations like that. But we got fiber in Ennis. I did some research. I paid for a survey, sent it out to thousands of RV'ers and said, "What's your number one ask? What's the number one thing that you want in an RV park?" So one and two were shade and internet. It was so close that I think internet actually beat it. And that goes hand in hand with the people working remotely.
Darin: That's huge. I mean, that's one of the biggest complaints I see on RV park apps is nice park, but the internet was terrible. And so how do you work the Starlink for an entire park?
John: Remember, I'm a network guy. My old job is a network guy. So Starlink can do it, we've seen it do 70 down. We'll bundle too into what they call a router that aggregates these together. So you'll have that much bandwidth going over two or three Starlinks if you're in remote. And then for things that are in the city, also, you can bring in multiple pipes. You can order three different services or you can order the same service, but three different connections and also bundle. So our point is we want the fastest internet of any park around us or wherever we're at.
John McGaugh’s Prediction on RV Park Investment
Darin: Which is definitely huge for anybody that has been traveling in an RV. It's very frustrating being someplace. And for me, I had pretty good internet in most of the locations I went to, but I was in Florida just in January and it was extremely frustrating. I was in a high-end RV park and the internet was terrible. I was on Zoom calls and I was getting bumped off. So I had to go out and buy Starlink.
John: Oh, did you?
John: How is it?
Darin: Oh, it was great. Once I got Starlink, it was fantastic. But that's why I was wondering how you leveraged that across multiple spaces because I had Starlink for my RV. It's located outside and you run a wire into the RV.
John: Well, and here's another thing. We use Triple Three Solutions and they bring in Ubiquiti Wireless, and then we take those three Starlinks or whatever. Put it in that router and that router goes out to this Ubiquiti Wireless and that covers the whole park. That's how we do it.
Darin: So you hook the Starlink. And you have multiple Starlinks?
Darin: Multiple Starlink into a router. And then the router goes out to where all of the spaces can access it?
John: It goes out to wireless devices throughout the park. And those RVs can connect to any one of those. The one they're closest to have the best signal.
Darin: Right. That's awesome. What's your view on RV parks for, say, the next five to 10 years from an investment perspective?
A Bright Future Up Ahead
John: Well, they're very good investment because there's just not enough parks out there. Like the ARVC, the outdoor industry group that we talked to in Orlando predicts 9 million more in the next five years. And you can't provide enough spots for everybody. So we've got to buy some spots and upgrade them, expand them. So we've got a couple of those we're going to do and then develop more spots like we were approached by West Virginia to come out there and say, "We need it. We got to have some spots." They got the new national park. And so that's what we're seeing.
We've got people that just request us to do it and it's going to continue to grow. And the thing is, you know this, that the pandemic during 2021, it estimated 2.7 million new RV'ers and what we got was 10.4 million in one year.
Darin: 10.4 in one year of new RV'ers.
John: That was reported by KOA. So you have a lot of people that started doing it. And some said, "This isn't for me. I was afraid that I was going to get sick. Now, I've already got COVID, I'm not going to be sick." But you still have people like me, I'm an RV'er now, you're an RV'er. And then I have friends that go, "Oh my gosh, I love what you're doing. I love where you're going. I want to do it." And then now they started renting just like I did, just like you did and go, "Oh my gosh, this is cool." So it's going to continue to grow.
A Place to Meet New Friends
Darin: So the other thing that I find this is not investment-wise, but just lifestyle-wise, that's very different and cool, I think about the RV space is that when you pull into an RV park, you get out and you actually meet your neighbors.
And it's very social where in your house like so many people pull in their neighborhood, they pull in their driveway and close the garage door behind them. They don't even know a lot of their neighbors. And then if you go to an Airbnb or whatever, do you knock on the door next door to introduce yourself? Probably not. But that's the part that I love. I love meeting people at the dog park or we're sitting by and we're at the campfire and we're just talking and just getting to know other people, which is fantastic. Hey, how do people reach you if they want to get involved in this space?
John: Just go to my website, which is thervinvestor.com, and you'd like to fill out or find more information there. You can always send me email.
Darin: Okay, fantastic. Well, I really appreciated you coming on. I think it's a space. Were you nervous getting into the space? Because you got in. A lot of people are talking multifamily, you get in, now you're like the RV guy. And it's more people are going to be starting to go to you to get that information on, "Hey, how did you get involved?" And I want to do that too. Both doing it and also investing in it.
Adventure in Investment
John: Yes, it was an easy transition. I guess I just loved the space and I love real estate. I always have. But then you got to love this together. My mom was doing it and I fell in love with it. So it just mixed the two together. Right?
Darin: That's fantastic.
John: RV travel.
Darin: So this guy has been doing it for over 20 years, different types of real estate investing. Now, he's in the RV park world. If you have interest in investing in RV parks or want to just pick his brain and get to know more about the industry, reach out to him, thervinvestor.com. And I really appreciate you coming on, John. Until next week, signing off.