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Welcome to Requity Insights, a channel dedicated to documenting our journey to a hundred world-class communities.
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Welcome back to Requity Insights. This is your host, Dylan Marma, and today we are going to be talking about the three biggest risks that go into RV campgrounds. I know we often on the show have shared our passion for RV campgrounds and why we think it's one of the greatest investments available for us at this point in time, this point in the market cycle. But at the same time, it does not come without risk. And we want to make it very clear to you that this can be a dangerous business. It can, this can be a business that you can get hurt in. And if you don't know what you're looking out for, then you can make some really big mistakes, which can be hard to recover from. So we really want to emphasize that on today's show. And we want to be able to talk to you about the three biggest risks that are hard to come back from and how you can mitigate against those risks to be able to ensure a successful investment.
So starting off with risk number one, buying in an undesirable location. What do they say in real estate? Location, location, location, right? It's been drilled into us. We probably heard it for the first time when we're in the fifth grade. And that said, it's still a huge mistake that people make all the time, especially in the world of RV campgrounds. It's an interesting industry because there are some really successful campgrounds that are located in pretty tertiary markets. And that makes you ask yourself the question of, well, why can't I just build one of these things anywhere? Right? Why don't I just look at anywhere within a two-hour drive of a major city and just set up shop and build a successful campground? Right? I'm sure that there's enough campers as long as I'm within two hours of a major city. But the reason for that is because if you are two hours away from a major city and you're just hitting some random field that you know, you don't have anything to look at, and it's just not, there's no natural sort of amenity driving you out there, then at that point, I don't think anyone's going to want to stay there for long at all. And I don't think they're going to keep on coming coming back because there's no draw. There's no reason to to go out there. Even if you have the nice biggest sites in the world, they're all concrete. If you don't have something really drawing people out there, then, you know, you're going to be in a tough position, right? Unless you build a massive lagoon that people can go and swim in, and you build, you know, every amenity known to man, and you build all these on-site restaurants and stores to where you have this, this almost like a Disney World self-sustained ecosystem, then it could be really challenging. And I think a lot of people are not building or buying locations like that within a two-hour drive from major city. So our advice at this point in time is to stay closer to within an hour of a major city because we think that as new supply comes online, two hours is going to become a harder drive for people to make. And staying within one hour is is definitely going to be able to hedge your downside when it comes to buying buying right in a major city or, you know, major being within an actual major MS. Say, the other piece of advice here is buy on water. I've heard the quote that there are there's waterfront and then there's everything else when it comes to campgrounds. And for us, as a company that has a lot of seasonal guests that pay for a year at a time, they're the stickiest guests that we have are there because of the water. They're there because they want to go to the beach, they want to go to the ocean or go to the lake, and they want to bring their boat. And this is where they get their toys, right? They get their RV, they get their boat, and they're just in their happy place there. And that's something that never gets old to them. And they'll sell their house before they sell their seasonal site at our campgrounds because they love coming here. This is just their place to get away and come out on the weekends. And it's without waterfront, it would be hard to be able to have that same sort of natural draw for people. Now, if you don't have waterfront, there's definitely still plenty of reasons that you're going to be successful. But I would have some kind of an amenity, be it natural or man-made. Say you're next to a, we have one that's next to a major zoo. We have some that are in the Smoky Mountains, which have millions and millions of visitors every single year. We have one that is next to, you know, a major city and also major attraction right outside of that city that draws people in like crazy. So I think having some kind of an attraction or a draw or a reason to be there is is crucial for any of these RV campgrounds that are not located within the actual city themselves. I think one of the most secure places that you could have an RV campground is actually within a city, right? Actually there within a 30-minute drive into into the middle of the city or the middle of town, depending on your location. And that having that sort of demand is almost like a workforce housing campground or having it there for a recreational stay, depending on the guests that you're marketing towards. But just like anything else, and if you're buying an apartment building, you're not going to want to own an hour outside of the city in a tertiary market. And similarly here, if you can buy within actual city limits or within a reasonable drive to all the major attractions within a city, I think that's your safest bet when it comes to being able to buy desirable locations for your RV campground. So in summary, buy waterfront, buy in natural amenities, buy man-made amenities, buy within city limits or, you know, within densely populated areas if possible. But, you know, stay away from low amenity places that are far in the distance without something that's really drawing people to come out to the campground.
Biggest mistake, biggest risk number two, is purchasing a campground with really poor infrastructure. Now, infrastructure, we're going to define it for this sake of this as both your your zoning as well as your physical infrastructure. So early on in due diligence, we always stress getting third-party reports, getting your survey to make sure you know where the property boundaries are and you know what rights to land that you have. And getting your phase one to be able to make sure that it checks out and passes all of the, you know, initial environmental tests to make sure that there's no environmental issues they're going to hold the property back from being able to operate long-term as a campground. And in addition to that, you should be calling planning and zoning and making sure that you are clear that this piece of land that you're purchasing is zoned as a campground or is zoned in a way where it is grandfathered in for the long run as a campground. If you deal with zoning issues and you don't do your due diligence upfront, that can really come back to bite you. And we can't stress it enough, just make sure you're really comfortable with, you know, the planning and zoning and, you know, what the local regulations are for campgrounds. You want to know what it takes for you to get special use permits. Can you actually add sites? Or are you going to get in after you purchase and find out that the county is going to shut that down? Right? Can you build a bath house? If you're going to upgrade the bath house, do you need to get that permitted? What are the, what's the likelihood of that getting improved? Right? Understanding the ins and outs of all of, you know, the campground ordinances in that area and what it takes to be able to facilitate expansion is really, really important when it comes to the infrastructure. The other piece to that is outside of, you know, playing zoning, is the actual physical infrastructure. And it's understanding the utility systems, probably first and foremost, understanding the water, sewer, and electric. And understanding if they're private or public, and what sort of improvements are needing to be able to get them up to working condition, and what kind of ongoing work will be needed over the long run. I'll do just a brief summary, but as far as private utilities go, typically most common types of private utilities on the sewer side of things are either septic tanks or they are treatment plants. And both of them can be daunting if you're not familiar with them. So you really want to make sure you're getting expert advice and getting full opinions before you purchase anything that has private utilities to make sure you're really comfortable with what's going to be needed ongoing to maintain this infrastructure. And also understanding if you needed to switch over to public, is that even an option for you? And if so, how much is that going to cost? So knowing all of your ins and outs on your, you know, suicide of things, as well as in the water side, it's either going to be public water, usually, or well water. And understand what the condition of the well is, and if you have access to public water, and if not, is it something that you could see in the foreseeable future? And if not, you know, what's going to be the process to replacing the well or to fixing the well if there are any major issues that do arise. Similarly, on the inside of electric, you want to really dig in to figure out, do you have the bandwidth to be able to support electric on all sites? We've seen campgrounds where, you know, that just doesn't check out during an inspection where, you know, if someone plugs into one of the breakers on one side of the park, it's just not getting the amount of electricity needed to be able to fuel a camper to be able to allow them to run their AC and their TV and do all the things that they want to do day to day. In addition to that, you have to think about on the electric side, what, what kind of setup and infrastructure is currently in place? Do they have just 30 amp pedestals? Because generally, in today's world, most people want to see 30 and 50 amp pedestals. And in some places, they're even starting to do 100 amp pedestals. So typically, we want to make sure that we're budgeting ahead of time to be able to upgrade all the electric infrastructure. Now, the good thing is, usually we were able to upgrade the electric infrastructure and and be able to improve the facilities enough to where this is not something that is, knock on wood, come back to be a major long-term issue. But it is something that you need to be able to do your diligence on ahead of time to be able to budget up front accordingly to be able to upgrade the electric infrastructure. And the last piece on the infrastructure side is the size and the layout of the sites. If you have small sites, then you may not be able to fit a lot of the modern day campers into those sites, which could be challenging and be detrimental to your long-term business plan.
Number three mistake and number three biggest risk when buying an RV campground is going to be buying in an area that is oversupplied. So supply and demand is probably the first thing they teach you in any kind of business class as you go into college. And it is such a simple concept, yet something that maybe just doesn't get the attention that it should when purchasing real estate all the time. So when buying RV campgrounds, it is critical that you understand the market that you're buying in. Because you might be buying in the most desirable location that is out there, right? So you're not, you're not hitting mistake or, you know, risk number one. And you might be buying a place that has amazing infrastructure. And you say, this is a great area, great demand, great infrastructure, what could go wrong? But you didn't realize that there is just simply an oversupply in that area. There are maybe just too much development going on. There are certain parts of the country, I know Texas is sort of the most famous for areas getting overbuilt where it's so easy to build, you hardly need to get any kind of approval from planning and zoning. And everyone is saying, well, this is a great lake, this is a great location, let's just start building a campground around it. And you get 100 people that have the same idea. And next thing you know, you have 100 different RV campgrounds around the same lake and all just competing with each rigorously. And now none of them are even worth the replacement cost or the cost that it would take to be able to build it again today. So this is a challenge. And this is one of the harder pieces of RV campgrounds that I think as investors, we have to really, really be thoughtful about. And we have to understand, are we buying in a location that has some sort of barrier to it? It could be, for instance, you could be on the waterfront. It could be minimal land on the waterfront for sale or that is already an existing RV campground. It could be planning and zoning as a barrier to entry. They could have really heavy rigorous restrictions against new development and making it a real burden to be able to actually get approval on a new campground. It could be some sort of a unique location that you feel like is going to be hard to replicate at any of the other campgrounds. Or it could be just that your amenity set, right? If all the other campgrounds were built 40 years ago, and you really upgrade yours and give it the amenity set that that makes it sort of stand out in a way that you think a lot of these other campgrounds are not going to be able to do over time. Maybe that's what gives you your sort of competitive edge. But in general, really understand the supply and demand by going online and looking at how many other campgrounds are in the area, looking at the historical occupancy levels, looking at the rates that everyone else is charging the market, and trying to get yourself really familiarized and comfortable with what the factors working against you are when it comes to the supply and demand and the economics of that specific market. We've walked from deals that we like everything else about the deal, but we just can't get comfortable with the market because we just think it's, it's too low barrier to entry, there's just too much supply. And, you know, we've also looked at other deals where we really love the deal because it's in a part of the country where maybe it's financially constrained for competition to get built. Maybe we're buying it out of below replacement cost value, so it wouldn't really make sense financially for developers to come and build around it because it just doesn't make sense, the numbers don't work for new builds in that area, right? Or we've bought in some areas where they make it extremely difficult to be able to get approval and and you have to really build up to certain specifications that make it really, really costly for new supply. I mean, they have to charge so much higher rates than our current supply to be able to compete and to operate within that market. So understanding the supply and demand is the last, I would argue the most, the trickiest of the bunch to be able to really do your due diligence and to avoid as a critical a mistake when buying an RV campground. So in summary, the three biggest mistakes or the three biggest risks when it comes to RV campgrounds are buying in undesirable locations, buying with poor infrastructure that is not salvageable, and buying where the supply and demand is not working in your favor. So we really hope that this is insightful and hopefully helps someone out there avoid some critical mistakes and helps you get more and more comfortable with buying the right deals. Is that such a crucial part of the equation? So thanks again for joining us on Requity Insights. If you like the show, we'd love for you to like, share, subscribe, and let us know what other mistakes or what other risks you see within buying the RV campground so maybe we can touch on that on future episodes. And we look forward to seeing you again next week.
Thanks for tuning in to another episode of Requity Insights, hosted by our team at The Requity Group. You can find recordings of all shows along with our opt-in form to set up a call and view future investment offerings on our company website, therequitygroup.com. Also listed in the show notes.
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