Are you wondering what type of commercial real estate to invest in during these unprecedented times? While most beginners have at least heard of RV Parks as well as Self Storage, very few realize that when you put the two together, you get an incredible niche property type that is performs beautifully. It's called "RV Storage" and in this video, you'll discover 5 reasons why now is the perfect time to invest in RV Storage as well as get an inside look at a recent RV Storage deal from an investor in Texas.
5 Reasons to Invest in RV Storage
#1: It’s a Niche Market
There's so much competition in apartment investing that it can be difficult to break into the market. However, because RV storage is a niche market there isn’t as much competition. Moreover, RV storage facilities are in high demand. According to a report by the Recreational Vehicle Industry Association, the third month into the coronavirus, RV sales hit an all time high for the third month. All those new owners need a place to store their recreational vehicles.
#2: High Profit Margins
Compared to single family home rentals, RV Storage has higher profit margins. This is true for a couple reasons:
- With residential rentals when someone moves out you must shampoo the carpet, paint walls, clean, maybe change an appliance or two and whatever else is needed. All of that to get ready for the next tenant. With a RV storage facility unit, all you need to do is sweep and spray for bugs.
- When a tenant moves out of a single-family home the occupancy rate is zero until a new tenant moves in. With an RV facility, you have hundreds of units, so you can have 10 of your costumers move out and you're still making money.
#3: They are Coronavirus-Resistant
Due to Coronavirus restrictions, many people are purchasing recreational vehicles to travel safely. This has increased demand for storage because many cities have ordinances that prohibit parking RVs in your yard or on the street.
#4: Stable Income
RV Storage facilities have a more stable income than self storage. You’ve probably seen the self-storage television series called Self-Storage Wars, where they auction off units that have been abandoned. That's not likely to happen in RV storage facilities because people are storing high priced RVs, ATVs, jet skis and boats. They're not going to abandon these expensive toys.
In any commercial real estate investment, you will need to do marketing, maintenance and management. What’s great is you can completely automate all three of those using a software designed for RV Storage facilities.
RV Storage Case Study - Houston, TX
We last featured Chris in our YouTube video How Chris Became a Millionaire in One Year. His first deal was a 90-unit apartment building. Through the Commercial Property Advisors Protege Program, Chris was able to use his first deal to create a “cash treasure chest” which enabled him to invest in a RV Storage facility. He achieved this by:
- Being frugal with his money at his multifamily complex.
- Building up a hefty rainy-day fund for unfortunate events such as hurricanes.
- Creating a healthy operating checking account.
- Doing a cost segregation study, which saved him a lot of money due to the accelerated depreciation expenses he took on his taxes.
- Doing a cash out refinance on the property once he added value.
The cash from the property together with the cash out refinance gave him the ability to start looking for a second investment. For his second deal he wanted to diversify because he saw that COVID demonstrated diversifying can really help you get through a crisis.
Benefits of RV Storage
We talked about RV storage and after studying my videos and looking through my textbook he committed to pursuing an RV Storage property. It produces good revenue and has a strong demand. He also saw that dealing with the tenants was much simpler than dealing with tenants of a multifamily. Because they store valuable items, RV Storage tenants are motivated to take care of the property and they are very motivated to pay a good value for that. He also saw that the cost of making ready an apartment when it goes vacant can be pretty substantial. With RV Storage all that is needed is to blow it out the cobwebs and it's ready to go.
RV Storage Investment Deal
Chris purchased a 185-unit RV Storage facility for $2.345 million. He expanded by creating some outdoor spots and utilizing an empty five stall garage with no renters, increasing to 194 units of rentable space.
The down payment was fifteen percent and came from the cash-out refi of his first property and savings the property had accumulated. He was given an SBA-guaranteed loan with a floating interest rate and certain parameters. When they lowered interest rates due to COVID his P&I went from almost $13,000 a month down to $10,000. He was also given a grant to not pay the mortgage for six months, which saved him $60,000. He then used those savings for rehab, front end costs, a feasibility study and engineering a site plan for expansion.
Expansion: Upside Potential
The property is nine and a half-acres of which five acres are being used, so there is potential for expansion. I recommended that Chris get a good feasibility study done and put in his proforma what it would look like if he expanded. The study showed he could put 105 enclosed pull-through units in right now of various sizes and have them rented before construction was done.
What is a feasibility study?
A feasibility study is done by an expert in the field, often involved in commercial property of their own. They study the market in your area within a specific timeframe, for example 15 months. Then they take all of the knowledge they already have about the habit patterns of owners of RVs, boats and trailers and see what they're willing to pay for spaces that are currently in the market or need to be.
So, the first part of the feasibility study looked at Chris’ facility and his portion of that market. The second part examined how much is needed right now, even with COVID. It then combined his percentage of the market with the demand for spaces giving the number of units for his expansion. So, a feasibility study is what's out there now, what's needed and what your proportional take on it is, should you decide to expand.
Cost of Additional Spaces
Working with an engineer, Chris plans to add 105 spaces spread out in eight buildings which will cost him $1.7 million. That includes all the upfront costs, studies, and the engineering. The bank that financed the RV Storage facility originally with an SBA-guaranteed loan granted him another SBA-guaranteed loan that was 100% financed. So, after producing a feasibility study that showed that the expansion can fit the market, the bank agreed to pay for the entire expansion project.
Additional cashflow and Increased Value with Expansion
Additional cashflow: $283,000 a year.
NOI: $184,000 divide by an 8.5 cap rate
Increased Value: $2.1 million
The bank is giving 100% financing to manufacture these additional spaces which increases his mortgage payment; however he’s netting $183,000 and the property value has increased by $2.1 million.
One thing Chris learned while negotiating with the bank is that since COVID, the SBA sometime instructs them to not have six months of cash to pay for mortgages for all commercial properties, but 12 months. So, Chris did his calculations and he’s fine. Both properties have sufficient cash for that harder figure because of the sound investment techniques he’s using.
Chris is self-managing the property. One of the great things he did was to automate his RV and boat storage using advanced software called Easy Storage. It provides everything he needs to know daily. Completing the Easy Storage translation of raw data was a huge challenge as a new manager, but it was worth it. His tenants love it because now they can get on their own account, pay automatically and even buy insurance.
Another challenge for Chris as new management was raising the rents. The previous owner hadn’t raised the rent for almost six years and the rents were very low. They raised the rents across the board 10%, and only lost 2 tenants because of the great demand for RV and boat storage. In fact, they are turning away two to five people a day, have an extensive waiting list and are creating open air spots all the time. He is also implementing a 5% increase in rent when there is a turnover in a unit to get the rents where they need to be.
Chris discovered that 30 or 40 of the big steel and wood doors needed refurbishing and rehabbing, which was quite expensive. As a result, his net cash went down to zero for a few months. Another maintenance issue was to replace 26 mercury vapor lamps with LED Barn Lamps. This reduced the utility bill from almost a thousand a month to about $500. That’s an increased cashflow of $6,000 a year.
After several months of ownership, completing necessary maintenance and raising the rents, the cashflow increased from $2,300 net to almost $5,000 a month.
Chris has hired his daughter as the manager, renting out the units. She is paid what the previous manager was paid and when they expand her salary will double because they will increase to over 300 units. Also, he has a small maintenance team that work for a very reasonable charge.
Chris says that managing the RV storage boils down to the issue of simplicity. He says, “The tenant challenges aren't there. Out of all my tenants I’ve had only one incident and that was resolved. They have their toys in there, their RVs, boats, trailers, ATVs and antique cars. Some tenants treat it as their man cave and come in on weekends and fix stuff. So, they care about their stuff and keep those units in great condition and they’re willing to pay the increasing prices because they know they're in demand. Everybody wins. So that's a wonderful, simple change. All you think about is occasionally making ready one of the units at zero cost, unless there's damage and that's very rare.”
Words of Encouragement from Chris
“Definitely put your money in commercial property. I had a bunch of money in my 401k from my company and I started looking at Peter's stuff and thinking, " I could make more money and have a better retirement," which has all blossomed. What Peter says about the advantage of commercial property over and above every other type of investment in our country is true. And it's the most protected tax entity by the federal government. You have the most favorable tax laws for investments.
I am looking for another RV storage in Florida because this one has been such a wonderful experience and so much simpler. Get a great mentor, like Peter, he's the best…do what Peter says and you will be successful. You're going to have lots of fun and increase your wealth in a great way. And you will be employing a ton of people who work at your facilities…the tentacles go out in great ways all over the community because of the business interchange and the business connections.”
Watch the complete video interview with Chris on our YouTube channel.
Summary of Chris’s RV Storage Deal
Growing a Family Business: Increasing in Wealth and Cashflow
- Chris purchased a 185 unit RV stores facility for $2.34 million. The down payment came from his first deal that he purchased with us. He did a cashout refi, pulled the money out and bought this property. It's important that you do well on your first deal so that you can pull money out and grow your portfolio.
- When he purchased the property, the cashflow was $2,300 a month. Today, it is $5,000 a month. With his daughter employed as a manager it is now a family run business, fulfilling one of Chris's dreams.
- Financing: In the middle of coronavirus, he was able to get 85% financing, meaning he only put down 15%. It was an SBA loan and it was a non-recourse. Get used to that word in commercial, non-recourse means that there's no personal guarantee. So, if everything were to go wrong for Chris and he'd have to foreclose, they couldn't come after him personally.
- Chris took advantage of Coronavirus benefits. He was granted a six-month grant from paying the mortgage and he doesn't have to pay it back ever.
- With that money he ordered a feasibility report to see if the park could be expanded and that report came back positive that he can in fact, add 105 units to the park. Because the SBA wanted to create more jobs and were confident in Chris and the report, they decided to do 100% financing. That meant no money out of Chris's pocket for that 105 unit expansion. That expansion will add a property value of $2.1 million of forced equity to Chris's deal once this is all done in about a year.